<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
FORM S-1: REGISTRATION NO. 333-
FORM S-3: REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1/S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
BJ'S WHOLESALE CLUB, INC.
(EXACT NAME OF REGISTRANT ON FORM S-1 AS SPECIFIED IN ITS CHARTER)
DELAWARE 5399 04-3360747
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION) ---------------
WABAN INC.
(EXACT NAME OF REGISTRANT ON FORM S-3 AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0109661
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
---------------
ONE MERCER ROAD, NATICK, MASSACHUSETTS 01760
(508) 651-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
HERBERT J. ZARKIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WABAN INC.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760 (508) 651-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK G. BORDEN, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000
TELECOPY: (617) 526-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
---------------
As to Form S-1
If any of the securities being registered on this Form S-1 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form S-1 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-1 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-1 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
As to Form S-3
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form S-3 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form S-3 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-3 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-3 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
---------------
<PAGE>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share, of
BJ's Wholesale Club,
Inc.................. 38,601,761 shares(1) $8.42(2) $325,026,827.62(2) $50,482.58(3)
- -----------------------------------------------------------------------------------------------
Rights to Purchase
Series A Junior
Participating
Preferred Stock, $.01
par value per share,
of BJ's Wholesale
Club, Inc. .......... 38,601,761 rights(1) N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Common Stock, $.01 par
value per share, of
Waban Inc. .......... 4,321,171 shares(4) N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Rights to Purchase
Series A Junior
Participating
Preferred Stock, $.01
par value per share,
of Waban Inc. ....... 4,321,171 rights(4) N/A N/A N/A
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based on an estimate of the maximum number of shares of common stock of
BJ's Wholesale Club, Inc. issuable in connection with the spin-off
described herein of BJ's Wholesale Club, Inc. by Waban Inc., based on the
number of shares of Waban Inc. common stock outstanding as of March 31,
1997 plus the maximum number of shares of Waban Inc. common stock issuable
upon the conversion of Waban Inc.'s 6.5% Convertible Subordinated
Debentures plus the maximum number of shares of Waban Inc. common stock
estimated to be issuable prior to the spin-off pursuant to outstanding
options.
(2) Calculated for the purpose of calculating the amount of the registration
fee pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on
the book value of the shares of BJ's Wholesale Club, Inc. as of January
25, 1997, the most recent practicable date.
(3) The filing fee payable herewith ($98,492.98) has been calculated pursuant
to Rule 457(f)(2) under the Securities Act of 1933 and is partially offset
by aggregate filing fees of $48,010.40 paid in connection with the filing
on November 5, 1996 of the Preliminary Proxy Statement pursuant to Rule 0-
11 under the Securities Exchange Act of 1934.
(4) Based on the maximum number of shares of Waban Inc. common stock issuable
upon conversion of Waban Inc.'s 6.5% Convertible Subordinated Debentures.
Such shares were registered on June 5, 1992 in connection with the
registration of Waban Inc.'s 6.5% Convertible Subordinated Debentures on
Waban Inc.'s Form S-3 (No. 33-48423), pursuant to Rule 457(i) under the
Securities Act of 1933.
EACH OF THE REGISTRANTS HEREBY AMENDS ITS RESPECTIVE REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
SUCH REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
ITS RESPECTIVE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
RESPECTIVE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
These Registration Statements relate to the proposed tax-free distribution
(the "Distribution") by Waban Inc. ("Waban"), in the form of a special
dividend to its stockholders, of all of the outstanding shares of Common Stock
held by Waban, and the associated stockholders' rights, of BJ's Wholesale
Club, Inc. ("BJI"), a newly formed, wholly-owned subsidiary of Waban.
These Registration Statements contain two forms of prospectus, as described
below:
. Proxy Statement/Prospectus of Waban and BJI. The Proxy
Statement/Prospectus constitutes:
(i) the proxy statement of Waban relating to its 1997 Annual Meeting
of Stockholders, at which meeting stockholders will be asked, among
other things, to approve the Distribution;
(ii) the prospectus of BJI with respect to the shares of BJI Common
Stock to be distributed to the Waban stockholders in connection with
the Distribution; and
(iii) the prospectus of Waban Inc. with respect to the shares of
Waban Common Stock which are issuable from time to time prior to the
completion of the Distribution upon conversion of Waban's outstanding
6.5% Convertible Subordinated Debentures Due 2002 ("Convertible
Debentures").
Following the effectiveness of these Registration Statements, Waban
intends to send the Proxy Statement/Prospectus to its stockholders of
record in connection with soliciting proxies for the Annual Meeting on
behalf of Waban's Board of Directors. Following the effectiveness of
these Registration Statements, Waban intends to send to the holders of
record of the Convertible Debentures, the Notice of Redemption and
Expiration of Conversion Rights filed as part of these Registration
Statements, together with the Proxy Statement/Prospectus of Waban and
BJI.
. Resale Prospectus of Waban. The Waban Resale Prospectus relates to the
issuance and sale of the shares of Common Stock of Waban issuable to one
or more underwriters under standby underwriting arrangements that Waban
may enter into in connection with a call for redemption of the
Convertible Debentures and the resale to the public by such underwriters
of such shares of Common Stock. Following the effectiveness of these
Registration Statements, or if necessary, the filing and effectiveness of
a Post-Effective Amendment to these Registration Statements, Waban
intends to provide the Waban Resale Prospectus to such underwriters for
delivery in connection with any such public resales.
<PAGE>
[TO WABAN STOCKHOLDERS ONLY]
PRELIMINARY COPY
Waban Inc.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760
(508) 651-6500
, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of the
stockholders of Waban Inc. ("Waban" or the "Company") which will be held on
, 1997 at a.m. at , Boston, Massachusetts
(the "Meeting"). All stockholders of record as of , 1997 are entitled to
vote at the Meeting. We urge you to be present in person or represented by
proxy at this important Meeting at which stockholders will be asked to elect
three directors and to approve a major transaction that will separate Waban
into two publicly owned companies.
At the Meeting, you will be asked to consider and vote upon a group of
related proposals which provide for the tax-free distribution (the
"Distribution") in the form of a special dividend to stockholders, on a one-
for-one basis, of all outstanding shares of the common stock held by Waban of
BJ's Wholesale Club, Inc., a newly formed, wholly-owned subsidiary of Waban
("BJI"). The Distribution will separate BJ's Wholesale Club, the Company's
food and general merchandise warehouse club business (the "Warehouse Club
Business"), from HomeBase, the Company's home improvement warehouse business
(the "Home Improvement Business"). After the Distribution, the Company will
change its name to HomeBase, Inc. and will continue to operate and develop the
Home Improvement Business. BJI will operate and develop the Warehouse Club
Business after the Distribution.
The Company's Board of Directors believes that the Distribution will
accomplish a number of important business goals. Separation of the Home
Improvement Business and the Warehouse Club Business into independent publicly
owned companies will allow each company to concentrate exclusively on its own
business objectives without concern for the business objectives of the other
company, and will allow the financial markets to better recognize and evaluate
the merits of the Warehouse Club Business and the Home Improvement Business,
thereby enhancing the likelihood that each will achieve appropriate market
recognition for its own performance.
The Waban Board also believes the improved recognition by the financial
markets resulting from the anticipated separation of the Home Improvement
Business and the Warehouse Club Business into independent publicly owned
companies will facilitate the conversion of the Company's 6.5% Convertible
Subordinated Debentures due 2002 (the "Convertible Debentures") into Common
Stock. The Convertible Debentures are convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable during the period ending July
14, 1997 at a price of 103.611% of par, plus accrued interest. The Company
expects to call the Convertible Debentures for redemption prior to the
Distribution. If the Convertible Debentures are redeemed for cash in response
to such call, the Company expects that BJI will undertake an equity offering
to reduce the indebtedness that Waban would incur to finance the redemption.
The Distribution and the related transactions described in this Proxy
Statement/Prospectus are expected to reduce the aggregate level of
indebtedness and interest cost borne by the two companies, and to improve the
debt-to-total capital ratio of each company, as compared to Waban.
<PAGE>
We at Waban are excited about the future prospects for both HomeBase and BJI
as separate publicly owned companies. The Board of Directors believes that the
Distribution is in the best interests of stockholders and recommends that
stockholders vote "FOR" all of the distribution proposals.
Details of the distribution proposals are set forth in the accompanying
Proxy Statement/Prospectus and should be considered carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON
EVEN IF YOU HAVE SENT IN YOUR PROXY CARD.
Sincerely,
Herbert J. Zarkin Lorne R. Waxlax
President and Chief Executive Officer Chairman of the Board
<PAGE>
PRELIMINARY COPY
Waban Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
----------------
The 1997 Annual Meeting of Stockholders of Waban Inc. ("Waban" or the
"Company") will be held at , Boston, Massachusetts on
, 1997, at a.m. (the "Meeting"). The Meeting will be
conducted:
1. To consider and vote upon seven related proposals (the "Distribution
Proposals") described in the accompanying Proxy Statement/Prospectus, as
follows:
(i) Proposal One: Approval of a distribution (the "Distribution") in
the form of a tax-free special dividend to all holders of Waban's
outstanding shares of common stock, on a one-for-one basis, of all
outstanding shares of common stock held by Waban, and the associated
stockholders' rights, of a newly formed, wholly-owned subsidiary of the
Company, to be known as "BJ's Wholesale Club, Inc." ("BJI"), which will
own and operate the "BJ's Wholesale Club" business presently conducted
as a division of Waban;
(ii) Proposal Two: Approval of an amendment of the Certificate of
Incorporation of Waban, which will change the name of Waban to
"HomeBase, Inc." after the Distribution;
(iii) Proposal Three: Approval of (x) an amendment to the Waban 1989
Stock Incentive Plan to increase by 2,500,000 shares the number of
shares available for issuance thereunder; and (y) the continuance of
the Waban 1989 Stock Incentive Plan, as amended;
(iv) Proposal Four: Approval of the BJI 1997 Stock Incentive Plan;
(v) Proposal Five: Approval of the BJI Management Incentive Plan;
(vi) Proposal Six: Approval of the BJI Growth Incentive Plan; and
(vii) Proposal Seven: Approval of the BJI 1997 Director Stock Option
Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described in the accompanying Proxy Statement/Prospectus,
from and after the Distribution, the Board of Directors of HomeBase will
differ from the Waban Board of Directors (the "Waban Board").
3. To consider such other business as may properly come before the
Meeting.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
The record date for stockholders entitled to notice of, and to vote at, the
Meeting is the close of business on , 1997. This Notice, the Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders of the Company on or about , 1997. The list of
stockholders will be available for examination by stockholders at the offices
of Hale and Dorr LLP, 60 State Street, Boston, MA 02109-1803 for the ten days
prior to the Meeting.
<PAGE>
The Waban Board has retained discretion, even if stockholder approval of the
Distribution Proposals is obtained and the other conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution or
any other element contained in the Distribution Proposals. If the Waban Board
takes any such action, it will be on the basis that the Waban Board believes
it will be in the best interests of the Company and its stockholders.
By Order of the Board of Directors
SARAH M. GALLIVAN
Secretary
Natick, Massachusetts
, 1997
IT IS EXTREMELY IMPORTANT THAT AS MANY SHARES OF STOCK AS POSSIBLE BE
REPRESENTED AT THE MEETING. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT
AT THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND
PROMPTLY RETURN IT IN THE ENCLOSED ADDRESSED ENVELOPE. NO POSTAGE IS NECESSARY
IF THE PROXY IS MAILED IN THE UNITED STATES. IF YOU ARE PRESENT AT THE
MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
[FOR HOLDERS OF CONVERTIBLE DEBENTURES ONLY]
WABAN INC.
NOTICE OF REDEMPTION
AND
EXPIRATION OF CONVERSION RIGHT
TO THE HOLDERS OF 6.5% CONVERTIBLE SUBORDINATED DEBENTURES
DUE JULY 1, 2002
REDEMPTION DATE: JUNE , 1997
CONVERSION RIGHT EXPIRATION DATE: 6:00 P.M., BOSTON, MASSACHUSETTS TIME,
JUNE , 1997
(CUSIP NO. 929394 AA 2)*
NOTICE IS HEREBY GIVEN that, in accordance with Article Three of the
Indenture, dated as of July 1, 1992 (the "Indenture"), between Waban Inc.
("Waban" or the "Company") and Continental Bank, National Association, as
Trustee (including its successor, First Trust Illinois, the "Trustee"), the
Company has elected to call for redemption on June , 1997 (the "Redemption
Date") all of its outstanding 6.5% Convertible Subordinated Debentures due
2002 (the "Convertible Debentures"). Capitalized terms used herein and not
defined are used as defined in the Indenture.
The Convertible Debentures will be redeemed at a redemption price of
$1,036.11 per $1,000 principal amount of Convertible Debentures, plus accrued
interest of $ per $1,000 principal amount of Convertible Debentures from
January 1, 1997 to the Redemption Date, making a total of $ payable per
$1,000 principal amount of Convertible Debentures (the "Redemption Price").
The Redemption Price will become due and payable on the Redemption Date upon
surrender of the Convertible Debentures to the Trustee, who is also acting as
conversion agent and paying agent with respect to the Convertible Debentures
(in such capacities, the "Agent"), at any of its addresses set forth in this
Notice. Interest on the Convertible Debentures will cease to accrue from and
after the Redemption Date (unless the Company shall default in the payment of
the Redemption Price). All Convertible Debentures outstanding on the
Redemption Date will be deemed to be redeemed by the Company, whether or not
they have been surrendered for redemption.
The Convertible Debentures (or any principal portion thereof which is $1,000
or an integral multiple thereof) may be converted into Common Stock of the
Company ("Waban Common Stock") at a conversion price of $24.75 of principal
amount of Convertible Debentures per share of Waban Common Stock (equivalent
to 40.40 shares of Waban Common Stock for each $1,000 principal amount of
Convertible Debentures) at any time prior to 6:00 p.m., Boston, Massachusetts
time, on June , 1997 (the "Expiration Date"). Cash will be paid in lieu of
any fractional shares of Waban Common Stock otherwise issuable upon conversion
of the Convertible Debentures. No payment or adjustment to the conversion
price will be made on account of interest on the Convertible Debentures
accruing after January 1, 1997. THE COMPANY WILL DELIVER CASH IN LIEU OF ANY
FRACTIONAL SHARE OF WABAN COMMON STOCK. THE CONVERTIBLE DEBENTURES WILL NOT BE
CONVERTIBLE AFTER 6:00 P.M., BOSTON, MASSACHUSETTS TIME, ON JUNE , 1997.
If you convert your Convertible Debentures into Waban Common Stock, you will
be mailed, as promptly as practicable, a stock certificate(s) for the number
of shares issuable as a result of your conversion.
On May , 1997, the closing price of the Waban Common Stock as reported on
the New York Stock Exchange Composite Tape was $ per share. Based on this
closing price, if a holder of $1,000 principal amount of Convertible
Debentures on that date had converted such principal amount, such holder would
have received Waban Common Stock (and cash in lieu of a fractional share)
having a market value equal to $ .
- --------
* The CUSIP number referenced above has been assigned by Standard & Poor's
Corporation and is included solely for the convenience of holders of the
Convertible Debentures. Neither the Company nor the Trustee shall be
responsible for the selection or use of this CUSIP number, nor is any
representation made as to its correctness on the Convertible Debentures or
as indicated in any redemption notice.
<PAGE>
The Redemption Price for each $1,000 principal amount of Convertible
Debentures is $ . SO LONG AS THE MARKET PRICE OF THE WABAN COMMON STOCK IS
$ PER SHARE OR GREATER, IF YOU CONVERT YOUR CONVERTIBLE DEBENTURES YOU WILL
RECEIVE WABAN COMMON STOCK (AND CASH IN LIEU OF A FRACTIONAL SHARE) WITH A
MARKET VALUE AT SUCH TIME GREATER THAN THE REDEMPTION PRICE. You are urged to
obtain current market quotations for the Waban Common Stock.
In summary, you have the following three alternatives with respect to your
Convertible Debentures:
1. Conversion into Waban Common Stock. Prior to 6:00 p.m., Boston,
Massachusetts time, on June , 1997, when the conversion right expires, you
may convert your Convertible Debentures into Waban Common Stock. This
alternative is available only if the Agent receives your Convertible
Debentures and your properly completed and executed Letter of Transmittal
or other appropriate notification in compliance with the Indenture prior to
6:00 p.m., Boston, Massachusetts time on June , 1997.
2. Sale in Open Market. Prior to the Redemption Date, you may sell your
Convertible Debentures in the open market through customary brokerage
facilities or otherwise. If you wish to sell your Convertible Debentures,
you should consult with your own financial advisor regarding the
opportunities for and consequences of such a sale.
3. Redemption for Cash. You may surrender your Convertible Debentures for
redemption at the Redemption Price of $ for each $1,000 principal amount
of Convertible Debentures. All Convertible Debentures outstanding on the
Redemption Date will be deemed to be redeemed by the Company, whether or
not they have been surrendered for redemption. However, you must surrender
your Convertible Debentures to the Agent on or after the Redemption Date to
collect the Redemption Price.
You are urged to consult with your own tax advisor concerning the tax
consequences of a conversion, redemption or sale of your Convertible
Debentures.
Convertible Debentures must be surrendered to the Agent in order for you to
collect the Redemption Price or to convert the Convertible Debentures. A
Letter of Transmittal, a copy of which is enclosed herewith, must be used in
connection with the surrender of Convertible Debentures for conversion.
Convertible Debentures are to be surrendered for conversion or redemption at
the office of the Agent shown below:
The method of delivery of the Convertible Debentures is at your option and
risk. If mail is used, certified or registered mail, properly insured, is
recommended.
Enclosed herewith is a copy of the Company's Proxy Statement/Prospectus
relating to the issuance of Waban Common Stock upon conversion of the
Convertible Debentures. The Proxy Statement/Prospectus also describes the
proposed spin-off of the Company's BJ's Wholesale Club division. You are
encouraged to review such Proxy Statement/Prospectus prior to making any
decision with respect to the conversion, redemption or sale of your
Convertible Debentures. Additional copies of this Notice, the Letter of
Transmittal and the Proxy Statement/Prospectus may be obtained from the Agent
at its address and telephone number above.
WABAN INC.
Dated: May , 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
WABAN INC.
PROXY STATEMENT/PROSPECTUS
4,321,171 SHARES, PAR VALUE $.01 PER SHARE, OF COMMON STOCK OF WABAN INC.
-----------
BJ'S WHOLESALE CLUB, INC.
PROSPECTUS
38,601,761 SHARES, PAR VALUE $.01 PER SHARE, OF COMMON STOCK OF BJ'S WHOLESALE
CLUB, INC.
-----------
This Proxy Statement/Prospectus is being furnished to the stockholders of
Waban Inc., a Delaware corporation ("Waban" or the "Company"), in connection
with the solicitation of proxies by Waban's Board of Directors (the "Waban
Board") from holders of shares of Waban common stock, $.01 par value per share
("Waban Common Stock"), for use at the annual meeting of stockholders of Waban
to be held on , 1997 at a.m. at Boston, Massachusetts (the
"Meeting").
This Proxy Statement/Prospectus is also being furnished to the holders of
Waban's 6.5% Convertible Subordinated Debentures (the "Convertible Debentures")
in connection with the Notice of Redemption and Expiration of Conversion Right.
At the Meeting, the stockholders of the Company will be asked to consider and
vote upon a group of related proposals which provide for the tax-free
distribution (the "Distribution") in the form of a special dividend to
stockholders, on a one-for-one basis, of all outstanding shares of the common
stock held by Waban, and the associated stockholders' rights, of BJ's Wholesale
Club, Inc. ("BJI"), a newly formed, wholly-owned subsidiary of Waban. The
Distribution will separate BJ's Wholesale Club, the Company's food and general
merchandise warehouse club business (the "Warehouse Club Business"), from
HomeBase, the Company's home improvement business (the "Home Improvement
Business"). After the Distribution, the Company will change its name to
HomeBase, Inc., and will continue to operate and develop the Home Improvement
Business. BJI will operate and develop the Warehouse Club Business after the
Distribution.
The aggregate number of shares of BJI common stock, $.01 par value per share
("BJI Common Stock") covered by this Proxy Statement/Prospectus is based upon
the number of shares of Waban Common Stock outstanding as of the date of this
Proxy Statement/Prospectus plus the sum of (a) the maximum number of shares of
Waban Common Stock issuable upon the conversion of the Convertible Debentures,
and (b) the maximum number of shares of Waban Common Stock estimated to be
issuable prior to the Distribution pursuant to outstanding options. The
aggregate number of shares of Waban Common Stock covered by this Proxy
Statement/Prospectus is based upon the maximum number of shares of Waban Common
Stock issuable upon the conversion of the Convertible Debentures. It is a
condition of the Distribution that the Convertible Debentures be converted into
Waban Common Stock or redeemed for cash and, if the Convertible Debentures are
redeemed for cash, that BJI successfully completes an equity offering to reduce
the indebtedness that Waban would incur to finance the redemption. There can be
no assurance that such conversion or such redemption and equity offering will
take place.
The Distribution may not occur unless all of the Distribution Proposals are
approved. In addition, the Waban Board has reserved discretion to abandon,
defer or modify the Distribution at any time prior to the date of the
Distribution. See "The Distribution--Conditions; Termination." There is
presently no public market for BJI Common Stock. BJI intends to list the BJI
Common Stock on the New York Stock Exchange.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 20.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Forward-Looking Information............................................... 4
Incorporation of Certain Documents by Reference........................... 4
Proxy Statement/Prospectus Summary........................................ 5
Risk Factors.............................................................. 20
Introduction.............................................................. 24
Matters for Consideration at the Meeting................................ 24
Voting Rights and Proxy Information..................................... 25
No Appraisal Rights..................................................... 26
Recent Developments....................................................... 27
The Distribution.......................................................... 28
Background and Reasons for the Distribution............................. 28
Manner of Effecting the Distribution.................................... 28
Federal Income Tax Aspects of the Distribution.......................... 29
Accounting Treatment.................................................... 30
Listing and Trading of BJI Common Stock................................. 30
Listing and Trading of HomeBase Common Stock............................ 30
Conditions; Termination................................................. 30
Relationship Between BJI and HomeBase after the Distribution; Conflicts of
Interest................................................................. 32
Distribution Agreement.................................................. 32
Leases.................................................................. 32
Services Agreement...................................................... 32
Employee Benefits Agreement............................................. 33
Tax Sharing Agreement................................................... 33
Policies and Procedures for Addressing Conflicts........................ 34
Financing; Treatment of Outstanding Long-Term Debt........................ 35
Consents; Regulatory Approvals............................................ 35
Waban Capitalization...................................................... 36
Selected Historical Financial Data of Waban............................... 37
Pro Forma Financial Data of Waban......................................... 38
Management's Discussion and Analysis of Unaudited Pro Forma Financial Data
of Waban................................................................. 47
BJI Capitalization........................................................ 48
Selected Historical Financial Data of BJI................................. 49
Pro Forma Financial Data of BJI........................................... 50
Management's Discussion and Analysis of Financial Condition and Results of
Operations of BJI........................................................ 57
BJI Business and Properties............................................... 59
HomeBase Business and Properties.......................................... 64
Management of BJI......................................................... 69
Management of HomeBase.................................................... 79
Price Range of Waban Common Stock......................................... 88
Ownership of Waban Common Stock........................................... 89
Description of BJI Capital Stock.......................................... 91
Certain Provisions of the BJI Certificate and the BJI By-laws............. 91
Approval of Amendment to the Waban Certificate of Incorporation........... 97
Approval of Amendments to the Waban 1989 Stock Incentive Plan and
Continuance of the Plan.................................................. 97
Approval of the BJI 1997 Stock Incentive Plan............................. 103
Approval of the BJI Management Incentive Plan............................. 103
Approval of the BJI Growth Incentive Plan................................. 105
Approval of the BJI 1997 Director Stock Option Plan....................... 106
Election of Directors..................................................... 107
Information for Holders of Convertible Debentures......................... 112
Experts................................................................... 113
Other Matters............................................................. 114
Index to Financial Statements............................................. F-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
Waban is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Waban with the Commission can be
inspected and copied at the Commission's public reference room located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the public
reference facilities in the Commission's Regional Offices located at: 7 World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, Waban is required to file electronic
versions of such material with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. In addition,
reports, proxy statements, and other information concerning Waban may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-1 (together with all amendments and exhibits, referred to
as the "BJI Registration Statement") filed by BJI with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of BJI Common Stock offered hereby. This Proxy Statement/Prospectus
does not contain all of the information included in the BJI Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of any document do not purport to be complete, and, in each
instance, are qualified in all respects by reference to the copy of such
document filed as an exhibit to the BJI Registration Statement or otherwise
filed with the Commission. Each such statement is subject to and qualified in
its entirety by such reference. Reference is made to the BJI Registration
Statement and to the exhibits relating thereto for further information with
respect to BJI and the shares of BJI Common Stock offered hereby. The BJI
Registration Statement may be inspected and copied at the public reference
facilities of the Commission listed above.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits, referred to
as the "Waban Registration Statement") filed by Waban with the Commission
under the Securities Act, with respect to the shares of Waban Common Stock
offered hereby. This Proxy Statement/Prospectus does not contain all of the
information included in the Waban Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
document do not purport to be complete, and, in each instance, are qualified
in all respects by reference to the copy of such document filed as an exhibit
to the Waban Registration Statement or otherwise filed with the Commission.
Each such statement is subject to and qualified in its entirety by such
reference. Reference is made to the Waban Registration Statement and to the
exhibits relating thereto for further information with respect to Waban and
the shares of Waban Common Stock offered hereby. The Waban Registration
Statement may be inspected and copied at the public reference facilities of
the Commission listed above.
Following the completion of the Distribution, Waban will continue to be
subject to the informational requirements of the Exchange Act, and, in
accordance therewith, will continue to file reports, proxy statements and
other information with the Commission and the New York Stock Exchange. In
addition, following the completion of the Distribution, BJI also will be
required to comply with the reporting requirements of the Exchange Act and, in
accordance therewith, to file reports, proxy statements and other information
with the Commission and the New York Stock Exchange. After the Distribution,
such reports, proxy statements and other information may be inspected and
copied at the public reference facilities of the Commission listed above and
obtained by mail from the Commission as described above. Additionally,
following the completion of the Distribution, BJI intends to provide annual
reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
3
<PAGE>
FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus contains "forward-looking statements,"
including certain information with respect to the plans and strategies of
Waban and BJI. For this purpose, any statements contained herein or
incorporated herein by reference that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause actual events or actual results
of Waban or BJI to differ materially from those indicated by such forward-
looking statements. These factors include, without limitation, those set forth
in the section of this Proxy Statement/Prospectus entitled "Risk Factors," as
well as other factors noted elsewhere in this Proxy Statement/Prospectus or
incorporated in this Proxy Statement/Prospectus by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Waban with the Commission are hereby
incorporated by reference in this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended January 25, 1997.
2. The description of Waban's Common Stock in the "Description of Capital
Stock" filed as Exhibit 28.1 to the Waban Registration Statement on Form
10 dated May 12, 1989, as amended to date.
All documents filed by Waban with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the termination of the offering of the
shares of Waban Common Stock hereby shall be deemed to be incorporated herein
by reference and to be a part hereof from the respective dates of filing of
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus and the Registration Statement
of which it is a part to the extent that a statement contained herein or in
any other subsequently filed document which is also incorporated or deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus or such
Registration Statement.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Waban will provide without
charge to each person to whom a copy of this Proxy Statement/Prospectus is
delivered, on the written or oral request of any such person, by first class
mail or other equally prompt means within one business day of receipt of such
request, a copy of any or all of the foregoing documents incorporated herein
by reference (other than any exhibits to such documents which are not
specifically incorporated herein by reference). Requests should be directed
to:
Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: Investor Relations Department
Telephone No. (508) 651-6133
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF WABAN OR BJI CONCERNING THE SECURITIES OFFERED
HEREBY, OR ANY OF THE MATTERS BEING CONSIDERED AT THE MEETING IF NOT CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER, OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION.
4
<PAGE>
PROXY STATEMENT/PROSPECTUS SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Proxy Statement/Prospectus, all of which should be
reviewed carefully. Fiscal year references refer to Waban's fiscal year which
ends on the last Saturday of January of the following calendar year. For
example, Waban's 1996 fiscal year ended on January 25, 1997.
THE ANNUAL MEETING
DATE, TIME AND PLACE OF ANNUAL The Annual Meeting (the "Meeting") of the
MEETING........................ stockholders of the Company will be held on
, 1997 at a.m. at
Boston, Massachusetts.
PURPOSE OF THE MEETING.......... At the Meeting, the stockholders of the
Company will be asked to consider and vote
upon the following matters:
1. To consider and vote upon the following
seven proposals relating to the Distribution
(the "Distribution Proposals"):
(i) Approval of a distribution (the
"Distribution") in the form of a tax-free
special dividend to all holders of Waban's
outstanding shares of common stock, on a one-
for-one basis, of all outstanding shares of
common stock held by Waban, and the
associated stockholders' rights, of a newly
formed, wholly-owned subsidiary of the
Company, BJ's Wholesale Club, Inc., which
will own and operate the "BJ's Wholesale
Club" business presently conducted as a
division of Waban;
(ii) Approval of an amendment of the
Certificate of Incorporation of Waban, which
will change the name of Waban to "HomeBase,
Inc." after the Distribution;
(iii) Approval of (x) an amendment to the
Waban 1989 Stock Incentive Plan to increase
by 2,500,000 shares the number of shares
available for issuance thereunder, and (y)
the continuance of the Waban 1989 Stock
Incentive Plan, as amended;
(iv) Approval of the BJI 1997 Stock Incentive
Plan;
(v) Approval of the BJI Management Incentive
Plan;
(vi) Approval of the BJI Growth Incentive
Plan; and
(vii) Approval of the BJI 1997 Director Stock
Option Plan.
2. To elect three directors to serve until
the 2000 Annual Meeting of Stockholders. As
described herein, from and after the
Distribution, the board of directors of
HomeBase will differ from the Waban Board.
The Waban Board believes that the passage of
each of the Distribution Proposals is
critical to the Distribution. Accordingly,
the Waban Board reserves the right not to
declare the Distribution if any of the
Distribution Proposals is not approved.
5
<PAGE>
VOTING.......................... Each stockholder of record at the close of
business on , 1997 (the "Meeting Record
Date") is entitled to notice of, and to vote
at, the Meeting. Each share of Common Stock
of Waban ("Waban Common Stock") is entitled
to one vote on each matter presented at the
Meeting. All such shares entitled to notice
of and to vote at the Meeting are referred to
herein as "Record Shares". The presence in
person or by proxy of stockholders holding
Record Shares which are entitled to a
majority of the votes of all holders of
Record Shares will constitute a quorum for
the transaction of business at the Meeting.
VOTES REQUIRED.................. The Company believes that, under Delaware
law, which governs the Distribution, a vote
of stockholders is not required in connection
with the transfer of the Warehouse Club
Business to BJI or the Distribution
(Distribution Proposal One). However, the
Company is seeking stockholder approval of
Distribution Proposal One because of the
importance of the Distribution. Approval of
Distribution Proposals One and Two will
require the affirmative vote of the holders
of a majority of the outstanding Record
Shares. Approval of Distribution Proposals
Three, Four, Five, Six and Seven will require
the affirmative vote of the holders of a
majority of the votes cast at the Meeting.
Under the Company's by-laws, so long as a
quorum is present at the Meeting, the
election of directors will require the
affirmative vote of the holders of shares
representing a plurality of the votes cast at
the Meeting.
In the event that stockholders fail to
approve all of the Distribution Proposals,
the Waban Board may decide not to proceed
with the Distribution, in which case Waban
intends to continue to operate the Warehouse
Club Business and the Home Improvement
Business and may consider alternative
restructuring options.
RISK FACTORS.................... Stockholders should carefully consider the
factors discussed under "Risk Factors" as
well as the other information set forth
herein before voting on the Distribution
Proposals or making an investment decision.
BOARD RECOMMENDATION............ THE BOARD OF DIRECTORS OF THE COMPANY
BELIEVES THAT THE DISTRIBUTION IS IN THE BEST
INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" ALL OF THE
DISTRIBUTION PROPOSALS.
6
<PAGE>
THE DISTRIBUTION
EFFECT.......................... The Distribution will separate Waban's food
and general merchandise warehouse club
business (the "Warehouse Club Business"),
which is operated as Waban's "BJ's Wholesale
Club" division (the "BJ's Division"), from
Waban's home improvement warehouse business
(the "Home Improvement Business"), which is
operated as Waban's "HomeBase" division (the
"HomeBase Division"). After the Distribution,
BJI (as used herein, to include BJI's
consolidated subsidiaries unless the context
requires otherwise) will be an independent,
publicly owned company that will operate and
develop the Warehouse Club Business. After
the Distribution, Waban will change its name
to HomeBase, Inc. ("HomeBase"), and HomeBase
(as used herein, to include HomeBase's
consolidated subsidiaries unless the context
requires otherwise) will continue to operate
and develop the Home Improvement Business.
SHARES TO BE DISTRIBUTED........ It is expected that the Waban Board will
declare the Distribution after the Meeting.
On the date of the Distribution (the
"Distribution Date"), Waban will make the
Distribution to stockholders of record of
Waban as of the Distribution Record Date (as
defined below). Each such stockholder will
receive one share of BJI Common Stock for
every share of Waban Common Stock held by
such stockholder. See "The Distribution--
Manner of Effecting the Distribution."
DISTRIBUTION RECORD DATE........ The record date for the Distribution (the
"Distribution Record Date") will be
established by the Waban Board of
Directors (the "Waban Board") following the
Meeting. The Distribution Record Date will be
a date that is as soon as practicable
following the declaration of the
Distribution. See "The Distribution--Manner
of Effecting the Distribution."
DISTRIBUTION DATE............... The Distribution Date will be established by
the Waban Board following the Meeting. On the
Distribution Date, Waban will deliver shares
of BJI Common Stock to the Distribution
Agent. The Distribution Agent will mail stock
certificates as soon as practicable
thereafter. See "The Distribution--Manner of
Effecting the Distribution."
CONDITIONS TO THE DISTRIBUTION.. The Distribution may not occur unless all of
the Distribution Proposals are approved. In
addition, the Distribution is conditioned
upon a number of other things, including: (i)
the declaration by the Waban Board of the
Distribution; (ii) the conversion into Common
Stock or the redemption for cash of the
Convertible Debentures and, if the
Convertible Debentures are redeemed for cash,
the closing of an equity offering by BJI to
reduce the indebtedness that Waban would
incur to finance
7
<PAGE>
the redemption; and (iii) BJI and HomeBase
having obtained bank credit facilities in
amounts deemed necessary by Waban management.
Even if all conditions are satisfied, the
Waban Board has reserved discretion to
abandon, defer or modify the Distribution at
any time prior to the Distribution Date. See
"The Distribution--Conditions; Termination."
BACKGROUND AND REASONS FOR THE
DISTRIBUTION...................
The Waban Board believes that the
Distribution will accomplish a number of
important business goals. Separation of the
Home Improvement Business and the Warehouse
Club Business into independent publicly owned
companies will allow each company to
concentrate exclusively on its own business
objectives without concern for the business
objectives of the other company, and will
allow the financial markets to better
recognize and evaluate the merits of the
Warehouse Club Business and the Home
Improvement Business, thereby enhancing the
likelihood that each will achieve appropriate
market recognition for its own performance.
The Waban Board also believes the improved
recognition by the financial markets
resulting from the anticipated separation of
the Home Improvement Business and the
Warehouse Club Business into independent
publicly owned companies will facilitate the
conversion of the Convertible Debentures into
Common Stock. The Convertible Debentures are
convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable
during the period ending July 14, 1997 at a
price of 103.611% of par, plus accrued
interest. The Company expects to call the
Convertible Debentures for redemption prior
to the Distribution. If the Convertible
Debentures are redeemed for cash in response
to such call, Waban expects that BJI will
undertake an equity offering to reduce the
indebtedness that Waban would incur to
finance the redemption. The Distribution and
the related transactions described in this
Proxy Statement/Prospectus are expected to
reduce the aggregate level of indebtedness
and interest costs borne by the two
companies, and to improve the debt-to-total
capital ratio of each company, as compared to
Waban.
In addition, the Distribution is expected to
enhance the ability of the separate
corporations to attract, motivate and retain
key personnel through the provision of more
effective stock-based incentive compensation
programs that are based on the performance of
the respective business in which such
individuals are employed without being
influenced by the results of the business in
which they have no involvement.
There can be no assurance that any of the
anticipated benefits of the Distribution
described above will be realized.
8
<PAGE>
ASSET TRANSFERS................. Prior to the Distribution Date, Waban intends
to transfer to BJI all of the assets of the
BJ's Division and other related assets,
subject to the assumption by BJI of the
liabilities related thereto (such transfers
being referred to collectively as the "Asset
Transfers"). The approval of the Distribution
(Distribution Proposal One) will also
constitute approval of the Asset Transfers.
RELATIONSHIP BETWEEN HOMEBASE
AND BJI AFTER THE
DISTRIBUTION...................
For purposes of governing certain ongoing
relationships between HomeBase and BJI after
the Distribution and to provide an orderly
transition, Waban and BJI will enter into
certain agreements. Such agreements will
include a Separation and Distribution
Agreement, a Services Agreement, an Employee
Benefits Agreement, and a Tax Sharing
Agreement. Following the Distribution,
certain persons will be directors of both
HomeBase and BJI, and Herbert J. Zarkin, who
is currently President and Chief Executive
Officer of Waban, will be Chairman of the
Board of Directors of both HomeBase and BJI.
HomeBase and BJI will adopt policies and
procedures to be followed by the board of
directors of each company to limit the
involvement of such persons in conflict
situations, including requiring them to
abstain from voting as directors of either
company on certain matters that present a
conflict of interest between the two
companies. See "Relationship Between HomeBase
and BJI after the Distribution; Conflicts of
Interest--Policies and Procedures for
Addressing Conflicts" and "Risk Factors--
Potential Conflicts."
FINANCING; TREATMENT OF
OUTSTANDING LONG-TERM DEBT.....
Waban's outstanding indebtedness currently
includes its (i) $24,000,000 9.58% unsecured
senior notes due May 31, 1998 (the "Senior
Notes"); (ii) $100,000,000 11% senior subor-
dinated notes due May 15, 2004 ("Senior Sub-
ordinated Notes"); (iii) Convertible Deben-
tures (of which, $106,949,000 were outstand-
ing as of April 9, 1997); and (iv)
$150,000,000 line of credit with a group of
banks, under which no borrowings were out-
standing as of April 9, 1997.
Prior to the Distribution, Waban will repay
the Senior Notes, and will retire (via open
market or privately negotiated purchases or a
tender offer) or defease the Senior
Subordinated Notes, with proceeds from bank
borrowings. Waban will be required to pay
certain premiums and prepayment penalties in
connection with the foregoing transactions.
See "Risk Factors--Repayment of Long-Term
Debt."
In addition, Waban expects to call the
Convertible Debentures for redemption prior
to the Distribution. The Convertible
Debentures are convertible by the holders
into Waban
9
<PAGE>
Common Stock at a conversion price of $24.75
per share, and are redeemable during the
period ending July 14, 1997 at a price of
103.611% of par, plus accrued interest. If
the Convertible Debentures are redeemed for
cash in response to such call, Waban expects
that BJI will undertake an equity offering to
reduce the indebtedness that Waban would
incur to finance the redemption. In such
event it is likely that the Distribution Date
would be delayed. It is a condition to the
Distribution that the Convertible Debentures
be converted into Common Stock or redeemed
for cash and, if the Convertible Debentures
are redeemed for cash, that BJI successfully
completes such equity offering. There can be
no assurance that such conversion or such
redemption and equity offering will take
place.
Waban is currently in discussions with
financial institutions to obtain bank credit
facilities for each of BJI and HomeBase
following the Distribution. It is a condition
of the Distribution that such credit
facilities be obtained in amounts and on
terms considered appropriate by the Waban
Board. Although Waban expects to obtain such
credit facilities, there is no assurance that
such credit facilities can be obtained on
terms similar to those currently available to
Waban or on other terms considered
appropriate by the Waban Board, if at all.
TAX CONSEQUENCES................ Waban has received a ruling from the IRS to
the effect that the Distribution will
constitute a "spin-off" under Section 355 of
the Internal Revenue Code (the "Code") which
is tax-free to Waban and its stockholders.
Accordingly, the receipt of BJI Common Stock
should be tax-free for Federal income tax
purposes to Waban stockholders, and Waban
will not recognize income, gain or loss
solely as a result of the Asset Transfers or
the Distribution. Waban stockholders will be
required to apportion their tax basis in
Waban Common Stock between the BJI Common
Stock received in the Distribution and the
HomeBase Common Stock based on the relative
fair market values of such stocks on the
Distribution Date. See "Risk Factors--Certain
Tax Considerations" and "The Distribution--
Federal Income Tax Aspects of the
Distribution."
ACCOUNTING TREATMENT............ Upon approval of the Distribution Proposals
at the Meeting, Waban will present the
Warehouse Club Business as discontinued
operations to the extent financial
information for periods prior to the
Distribution is required to be included in
Waban's historical financial statements.
After the Distribution, the business of BJI
will be reflected in separate consolidated
financial statements. See "Selected
Historical Financial Data of Waban," "Pro
Forma Financial Data of Waban," "Selected
Historical Financial Data of BJI," and "Pro
Forma Financial Data of BJI."
10
<PAGE>
BJ'S WHOLESALE CLUB, INC.
BUSINESS AFTER THE The Warehouse Club Business is presently
DISTRIBUTION................... conducted by the BJ's Division. Following the
Distribution, BJI will conduct the Warehouse
Club Business. The BJ's Division introduced
the warehouse club concept to New England in
1984 and has since expanded in the
northeastern and Mid-Atlantic states, as well
as in southern Florida. BJ's sells a narrow
assortment of brand name food and general
merchandise within a wide range of product
categories. As of January 25, 1997, the BJ's
Division was operating 81 warehouse clubs in
12 states and had over four million members.
Waban expects that approximately ten
additional warehouse clubs will be opened in
fiscal 1997. One warehouse club was closed in
April 1997. See "BJI Business and
Properties."
PRINCIPAL OFFICE................ The principal office of the BJ's Division is,
and after the Distribution Date the principal
office of BJI will be, One Mercer Road,
Natick, Massachusetts 01760. Its telephone
number is (508) 651-6500.
BOARD OF DIRECTORS.............. Prior to the Distribution Date, Waban, as the
sole stockholder of BJI, plans to elect the
following eight persons to the Board of
Directors of BJI (the "BJI Board"), effective
as of the Distribution Date: S. James
Coppersmith, Kerry L. Hamilton, Allyn L.
Levy, John J. Nugent, Thomas J. Shields,
Lorne R. Waxlax, Edward J. Weisberger and
Herbert J. Zarkin. All of such persons, other
than Mr. Nugent and Mr. Weisberger (who is a
nominee for election to the Waban Board at
the Meeting), are currently members of the
Waban Board. Members of the BJI Board will be
elected for staggered three-year terms.
Messrs. Zarkin, Waxlax and Weisberger will
serve as directors of both HomeBase and BJI
after the Distribution. Mr. Zarkin will also
serve as Chairman of the Board of Directors
of both HomeBase and BJI after the
Distribution. See "Management of BJI--BJI
Board."
POST-DISTRIBUTION DIVIDEND The declaration and payment of dividends by
POLICY......................... BJI will be at the discretion of the BJI
Board. It is expected that certain debt
agreements of BJI will substantially limit
its ability to pay cash dividends. Waban has
never paid a cash dividend and does not
expect that the BJI Board will declare any
cash dividends on the BJI Common Stock after
the Distribution. However, the BJI Board will
reevaluate its dividend policy from time to
time in the future in light of its results of
operations, financial conditions, cash
requirements, future prospects and other
factors it deems relevant. There can be no
assurance that any dividends will be paid in
the future. See "Risk Factors--Dividend
Policies."
11
<PAGE>
TRADING MARKET.................. There is presently no public market for BJI
Common Stock. BJI intends to list the BJI
Common Stock on the New York Stock Exchange.
See "Risk Factors--No Current Public Market
for BJI Common Stock" and "The Distribution--
Listing and Trading of BJI Common Stock."
CERTAIN PROVISIONS OF THE BJI
CERTIFICATE OF INCORPORATION
AND BY-LAWS....................
BJI's Certificate of Incorporation (the "BJI
Certificate") and By-laws (the "BJI By-
laws"), as they will be in effect following
the Distribution, are substantially similar
to the Certificate of Incorporation and By-
laws of Waban on the date hereof. Certain of
the provisions of the BJI Certificate and the
BJI By-laws may have the effect of making
difficult or expensive an acquisition of
control of BJI in a transaction not approved
by the BJI Board. In addition, prior to the
Distribution, the BJI Board will adopt a
Preferred Share Purchase Rights Plan, which
may have a similar effect. See "Certain
Provisions of the BJI Certificate and the BJI
By-laws--Preferred Share Purchase Rights."
The BJI Certificate eliminates certain
liabilities of BJI directors in connection
with the performance of their duties. See
"Certain Provisions of the BJI Certificate
and the BJI By-laws--Elimination of Liability
in Certain Circumstances."
12
<PAGE>
HOMEBASE, INC.
BUSINESS AFTER THE Following the Distribution, Waban will retain
DISTRIBUTION................... the Home Improvement Business, which is
presently conducted as Waban's HomeBase
Division. The HomeBase Division is the second
largest operator of home improvement
warehouse stores in the western United States
and is the nation's seventh largest home
improvement merchandisers using a warehouse
format. The HomeBase Division offers a very
broad assortment of home improvement and
building supply products. The HomeBase
Division was operating 84 warehouse stores as
of January 25, 1997. Waban expects to open
two new HomeBase stores and to close one
existing store in fiscal 1997. See "HomeBase
Business and Properties."
PRINCIPAL OFFICE................ After the Distribution Date, the principal
office of HomeBase will be at 3345 Michelson
Drive, Irvine, CA, 92715. Its telephone
number is (714) 442-5000.
BOARD OF DIRECTORS.............. Effective as of the Distribution Date, the
Board of Directors of HomeBase (the "HomeBase
Board") is expected to consist of the
following persons: Arthur F. Loewy, Allan P.
Sherman, Lorne R. Waxlax, Edward J.
Weisberger and Herbert J. Zarkin. Messrs.
Loewy, Waxlax and Zarkin are currently
members of the Waban Board. The Waban Board
expects to appoint additional independent
directors prior to the Distribution. Members
of the HomeBase Board will continue to be
elected for staggered three-year terms.
Messrs. Waxlax, Weisberger and Zarkin will
serve as directors of both BJI and HomeBase
after the Distribution. Mr. Zarkin will also
serve as Chairman of the Board of Directors
of both BJI and HomeBase after the
Distribution. See "Management of HomeBase--
HomeBase Board."
POST-DISTRIBUTION DIVIDEND The declaration and payment of dividends by
POLICY......................... HomeBase will be at the discretion of the
HomeBase Board. It is expected that certain
debt agreements of HomeBase will
substantially limit its ability to pay cash
dividends. Waban has never paid a cash
dividend and the Waban Board does not expect
that it will declare any cash dividends on
the HomeBase Common Stock after the
Distribution. However, the HomeBase Board
will reevaluate its dividend policy from time
to time in the future in light of its results
of operations, financial conditions, cash
requirements, future prospects and other
factors it deems relevant. There can be no
assurance that any dividends will be paid in
the future. See "Risk Factors--Dividend
Policies."
TRADING MARKET.................. After the Distribution, it is expected that
HomeBase's Common Stock (formerly the Waban
Common Stock) will continue to be listed on
the New York Stock Exchange. As a result of
the Distribution, the trading price range of
the HomeBase Common Stock is expected to be
significantly
13
<PAGE>
lower than the trading price range of the
Waban Common Stock prior to the Distribution.
See "Risk Factors--Change in Trading Prices
of HomeBase Common Stock."
NAME CHANGE..................... Stockholders are being asked to authorize the
Waban Board to change the name of the Company
to "HomeBase, Inc." after the Distribution.
AMENDMENT AND CONTINUANCE OF
WABAN'S 1989 STOCK INCENTIVE
PLAN...........................
Stockholders are being asked to authorize (i)
an increase in the number of shares
authorized for issuance under Waban's 1989
Stock Incentive Plan by 2,500,000 shares, and
(ii) the continuance of the Waban 1989 Stock
Incentive Plan. These additional shares will
be available for grant by the HomeBase Board
following the Distribution. The Waban Board
expects that options to purchase certain of
these shares will be granted to HomeBase
employees who currently hold Waban options,
so that such persons' options would represent
the same value immediately following the
Distribution as they did immediately before
the Distribution. See "Management of
HomeBase--Incentive and Other Plans--1989
Stock Incentive Plan."
APPROVAL OF THE BJI 1997 STOCK
INCENTIVE PLAN.................
Stockholders are being asked to authorize BJI
to adopt the BJI 1997 Stock Incentive Plan.
This plan would enable BJI to grant options
and other stock incentive awards to employees
of BJI following the Distribution. Up to an
aggregate of 3,000,000 shares of BJI Common
Stock would be authorized for issuance under
the plan. The Waban Board expects that
options to purchase certain of the shares
issuable under this plan will be granted to
BJI employees who currently hold Waban
options so that such persons' options would
represent the same value immediately
following the Distribution as they did
immediately before the Distribution. See
"Management of BJI--Incentive and Other
Plans--1997 Stock Incentive Plan."
APPROVAL OF THE BJI MANAGEMENT
INCENTIVE PLAN.................
Stockholders are being asked to authorize BJI
to adopt the BJI Management Incentive Plan
(the "BJI MIP"). The BJI MIP is intended to
provide executive officers and other key
employees of BJI with cash incentive awards,
based upon the attainment of annual
performance goals. The BJI MIP is similar to
the Waban Management Incentive Plan and will
cover BJI's employees currently covered by
the Waban Management Incentive Plan.
APPROVAL OF THE BJI GROWTH
INCENTIVE PLAN.................
Stockholders are being asked to authorize BJI
to adopt the BJI Growth Incentive Plan (the
"BJI GIP"). The BJI GIP is
14
<PAGE>
intended to provide certain high-level
management employees with cash awards based
on BJI's financial performance over an award
period that typically consists of two or more
fiscal years. The BJI GIP is similar to the
Waban Growth Incentive Plan and will cover
BJI's employees currently covered by the
Waban Growth Incentive Plan.
APPROVAL OF THE BJI 1997
DIRECTOR STOCK OPTION PLAN.....
Stockholders are being asked to authorize BJI
to adopt the BJI 1997 Director Stock Option
Plan. Pursuant to this plan, on the date of
each annual meeting of the stockholders of
BJI, (i) each non-employee director of BJI
elected as a director for the first time at
such meeting (other than persons who were
directors of Waban immediately prior to the
Distribution) will be granted an option for
3,000 shares of BJI Common Stock and (ii)
each other non-employee director of BJI will
be granted an option for 1,500 shares of BJI
Common Stock.
ELECTION OF DIRECTORS........... At the Meeting, stockholders will also be
asked to consider and vote upon a proposal to
elect three directors to serve until the 2000
Annual Meeting of Stockholders. As described
in this Proxy Statement/Prospectus, from and
after the Distribution, the board of
directors of HomeBase will differ from the
Waban Board.
INFORMATION FOR HOLDERS OF
DEBENTURES.....................
The Company expects to call all of the
Convertible Debentures for redemption prior
to the Distribution. Upon such a call, the
following alternatives would be available to
holders of Convertible Debentures: (1)
holders may convert the Convertible
Debentures into Waban Common Stock at a
conversion price of $24.75 of principal
amount per share of Waban Common Stock; (2)
holders may sell the Convertible Debentures
in the open market prior to the redemption
date; or (3) holders may allow the
Convertible Debentures to be redeemed for an
amount equal to 103.611% of the principal
amount of Convertible Debentures, plus
accrued interest from January 1, 1997 to the
redemption date.
15
<PAGE>
WABAN INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in Waban's Annual
Report on Form 10-K for the fiscal year ended January 25, 1997 which is
incorporated by reference herein, and the unaudited Pro Forma Financial Data of
Waban included elsewhere in this Proxy Statement/Prospectus. For a discussion
of the basis of presentation of the Waban Consolidated Financial Statements,
see Summary of Accounting Policies in Notes to the Waban Consolidated Financial
Statements contained in its Form 10-K for the fiscal year ended January 25,
1997.
The summary unaudited pro forma financial data set forth below illustrates
the estimated effects on Waban of the proposed Distribution and (i) the
repayment by BJI to Waban of intercompany indebtedness and current taxes
payable, (ii) the prepayment of the Senior Notes and Senior Subordinated Notes,
(iii) new borrowings under Waban's proposed credit agreement, and (iv) the
conversion or redemption of the Convertible Debentures (the "Related Waban
Transactions"). The Company expects to call the Convertible Debentures for
redemption prior to the Distribution. The pro forma financial data has been
prepared to present two alternative scenarios. Scenario A gives pro forma
effect to the conversion of the Convertible Debentures into Waban Common Stock.
Scenario B gives pro forma effect to the redemption of the Convertible
Debentures for cash. It is a condition to the Distribution that such conversion
or redemption take place and, if the Convertible Debentures are redeemed for
cash, that BJI complete an equity offering to reduce the indebtedness that
Waban would incur to finance the redemption. However, there can be no assurance
that holders of the Convertible Debentures will convert their Convertible
Debentures into Common Stock or that, if all Convertible Debentures are not
converted, BJI will complete such an equity offering. The pro forma balance
sheet data is based on the January 25, 1997 balance sheet of Waban and assumes
the Distribution and Related Waban Transactions were consummated on that date.
The pro forma income statement data gives effect to the Distribution and
Related Waban Transactions as if they occurred at the beginning of fiscal 1996.
The pro forma financial data of Waban does not purport to represent what the
financial position or results of operations of Waban would have been if the
Distribution and Related Waban Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based upon
available information and upon certain assumptions that Waban's management
believes are reasonable in the circumstances.
16
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ---------------------------
SCENARIO A: SCENARIO B:
ASSUMING ASSUMING
CONVERSION OF REDEMPTION OF
CONVERTIBLE CONVERTIBLE
DEBENTURES DEBENTURES
------------- -------------
FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR
-------------------------------------- ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........... $3,650,281 $3,978,384 $4,375,528 $1,452,696 $1,452,696
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs................... 3,110,787 3,387,992 3,742,599 1,136,997 1,136,997
Selling, general and
administrative expenses. 418,404 455,523 486,868 277,841 277,841
Interest on debt and
capital leases (net).... 14,898 15,431 19,735 2,727 2,727
---------- ---------- ---------- ---------- ----------
Income before income
taxes................... $ 106,192 $ 119,438 $ 126,326 $ 35,131 $ 35,131
========== ========== ========== ========== ==========
Pro forma income from
continuing operations... $ 21,305 $ 21,305
========== ==========
Net income............... $ 64,990 $ 72,977 $ 76,660
========== ========== ==========
Pro forma income per
share from continuing $ 0.57 $ 0.64
operations.............. ========== ==========
Income per common share:
Primary................. $1.95 $2.20 $2.31
===== ===== =====
Fully diluted........... $1.83 $2.05 $2.15
===== ===== =====
Number of common shares
for earnings per share
computations:
Primary................. 33,405 33,220 33,205
Fully diluted........... 37,793 37,784 37,713
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $ 308,749 $ 265,450 $ 275,842 $ 210,698 $ 210,309
Total assets............. 1,237,521 1,332,451 1,375,966 629,217 627,241
Long-term debt and
obligations under
capital leases.......... 258,763 245,313 232,486 39,326 39,326
Stockholders' equity..... 488,089 555,120 631,925 393,020 392,631
WAREHOUSES OPEN AT END OF
PERIOD:
BJ's Wholesale Club...... 62 71 81
HomeBase................. 77 79 84
</TABLE>
17
<PAGE>
BJ'S WHOLESALE CLUB, INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table summarizes selected historical financial data of BJI for
the three fiscal years in the period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of the
BJ's Division. The BJI financial statements include certain allocations of the
overhead expenses incurred by Waban that support the BJ's Division. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI. The historical financial data is not necessarily
indicative of BJI's future results of operations or financial condition. The
data set forth below should be read in conjunction with the unaudited Pro Forma
Financial Data of BJI and the Notes thereto, the audited Financial Statements
of BJI and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of BJI included elsewhere in this
Proxy Statement/Prospectus. For a discussion of the basis of presentation of
the BJI Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Financial Statements.
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of the balance of its intercompany indebtedness and current taxes
payable, (ii) new borrowings under BJI's proposed credit agreement, and (iii)
the impact of the conversion or redemption of the Convertible Debentures and
the related equity contribution by Waban or dividend paid to Waban (the
"Related BJI Transactions"). The Company expects to call the Convertible
Debentures for redemption prior to the Distribution. The pro forma financial
data has been prepared to present two alternative scenarios. Scenario A gives
pro forma effect to the conversion of the Convertible Debentures into Waban
Common Stock. Scenario B gives pro forma effect to the redemption of the
Convertible Debentures for cash and the completion of an equity offering by BJI
with net proceeds of $110 million at an assumed offering price of $22.00 per
share (net of offering fees and expenses). It is a condition to the
Distribution that such conversion or redemption take place and, if the
Convertible Debentures are redeemed, that BJI complete an equity offering to
reduce the indebtedness that Waban would incur to finance the redemption.
However, there can be no assurance that holders of the Convertible Debentures
will convert their Convertible Debentures into Common Stock or that, if all
Convertible Debentures are not converted, BJI will complete such an equity
offering. The pro forma balance sheet data is based on the January 25, 1997
balance sheet of BJI and assumes the Distribution and Related BJI Transactions
were consummated on that date. The pro forma income statement data gives effect
to the Distribution and Related BJI Transactions as if they occurred at the
beginning of fiscal 1996. The Pro Forma Financial Data of BJI does not purport
to represent what the financial position or results of operations of BJI would
have been if the Distribution and Related BJI Transactions had in fact been
consummated on the dates indicated or at any future date. The pro forma
adjustments are based upon available information and upon certain assumptions
that BJI's management believes are reasonable in the circumstances.
18
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ------------------------------
SCENARIO B:
SCENARIO A: ASSUMING
ASSUMING REDEMPTION OF
CONVERSION OF CONVERTIBLE
CONVERTIBLE DEBENTURES AND
FISCAL YEAR ENDED DEBENTURES EQUITY FINANCING
-------------------------------------- ------------- ----------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $2,293,091 $2,529,608 $2,922,832 $2,922,832 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,054,167 2,263,532 2,605,602 2,605,602 2,605,602
Selling, general and
administrative
expenses............... 174,416 183,419 212,660 212,660 212,660
Interest on debt and
capital leases (net)... 13,665 14,757 16,838 5,781 5,814
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... $ 50,843 $ 67,900 $ 87,732 $ 98,789 $ 98,756
========== ========== ========== ========== ==========
Net income.............. $ 30,902 $ 41,550 $ 53,624 $ 60,203 $ 60,183
========== ========== ========== ========== ==========
Pro forma earnings per
share.................. $ 1.60 $ 1.58
========== ==========
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 58,252 $ 77,207 $ 62,942 $ 75,373 $ 75,373
Total assets............ 563,931 676,675 737,211 737,211 737,211
Long-term debt and
obligations under
capital leases......... 2,960 2,731 2,592 102,592 103,104
Loans and advances from
Waban Inc. ............ 142,512 181,730 148,081 -- --
Stockholder's equity.... 180,433 221,983 275,607 336,119 335,607
CLUBS OPEN AT END OF
PERIOD................. 62 71 81
</TABLE>
19
<PAGE>
RISK FACTORS
Stockholders should carefully consider the following factors, as well as
other information set forth herein, before acting on the Distribution
Proposals or making an investment decision in Waban Common Stock.
CERTAIN FINANCIAL CONSIDERATIONS. BJI has been incorporated for the purpose
of effecting the Distribution. While the BJ's Division and the HomeBase
Division have substantial operating histories, BJI and HomeBase do not have
operating histories as separate stand-alone companies. Prior to the
Distribution, each of the two businesses had access to the cash flow generated
by the other and to Waban's credit, which was based on the combined assets of
the BJ's Division and the HomeBase Division. Since April 1996, monthly
comparable store sales of the HomeBase Division have increased only once.
Accordingly, lenders and other capital providers making credit decisions with
respect to HomeBase and BJI may analyze the credit risk, and associated
pricing, of any offered credit facility or capital differently than was the
case with credit facilities made available to Waban. There can be no assurance
that the access of HomeBase and BJI to credit facilities and to the capital
markets will not differ from that currently available to Waban, and the
ability of each of HomeBase and BJI to access such credit facilities and
capital markets in the future will depend on the financial performance of each
such company.
CERTAIN OPERATING CONSIDERATIONS. Immediately following the Distribution,
each of BJI and HomeBase will be a smaller and less diversified company than
was the case with respect to Waban prior to the Distribution. The Distribution
is expected to result in some additional general and administrative costs
related to the personnel and other resources needed to support BJI and
HomeBase as separate publicly owned companies. Nevertheless, the Waban Board
believes that separation of the two companies will result in certain long-term
operating efficiencies by allowing the companies to focus on their respective
businesses.
BJI's warehouse clubs are located in the eastern United States, primarily in
the northeast, and HomeBase's home improvement warehouse stores are located in
the western United States, more than half of them in California. Both the BJ's
Division and the HomeBase Division have been adversely affected from time to
time by economic downturns experienced in their respective geographic markets,
and future economic downturns in such regions could adversely affect BJI and
HomeBase, as the case may be. As a result of the separation of the Home
Improvement Business and the Warehouse Club Business into independent
companies, neither company will have the benefit of the broader geographic and
product line diversification that is currently the case with Waban.
The BJ's Division's sales and operating income have been strongest in the
Christmas holiday season and lowest in the first quarter of each fiscal year.
The HomeBase Division's sales and earnings are typically lower in the first
and fourth quarters than they are in the second and third quarters, which
correspond to the most active season for home construction. As a result of the
Distribution, the financial results of each company will reflect these
seasonal patterns, without the offsetting effect of the operating results of
the other company.
Each of the BJ's Division and the Home Base Division competes with a large
number and variety of retailers and wholesalers, including several large
national chains in the warehouse merchandising business, some of which have
significantly greater financial and marketing resources than either BJI or
HomeBase. Competition for each of the companies will exist primarily in the
areas of price, product selection and service. Competitive factors could
require price reductions or increased operational costs, including increased
expenditures for marketing and customer service, that could adversely affect
each company's operating results. Both BJI and HomeBase also expect to
continue to experience competition for qualified personnel and suitable new
warehouse locations. See "BJI Business and Properties--Competition" and
"HomeBase Business and Properties--Competition."
CERTAIN TAX CONSIDERATIONS. Waban has received a letter ruling from the
Internal Revenue Service (the "IRS") to the effect that, for Federal income
tax purposes, the Asset Transfers and the Distribution will be tax free to
Waban and the Distribution will qualify as a spin-off under Section 355 of the
Internal Revenue Code
20
<PAGE>
(the "Code") that will be tax free to the holders of Waban Common Stock. The
letter ruling by the IRS is based on and subject to certain assumptions,
facts, representations and advice provided by Waban, BJI, certain of the
holders of Waban Common Stock and Waban's financial advisors. Although Waban
is not aware of any present facts or circumstances which should make such
assumptions, facts, representations and advice unobtainable or untrue, certain
future events not within the control of Waban and BJI, including, for example,
certain dispositions of HomeBase Common Stock or BJI Common Stock after the
Distribution, could cause the Distribution not to qualify for tax-free
treatment. In addition, Waban would be required to obtain a supplemental
ruling from the IRS in the event that the Convertible Debentures are redeemed
for cash rather than converted into equity in response to Waban's call for
redemption, and there can be no assurance that any such supplemental ruling
would be obtained.
If the Distribution were not to qualify under Section 355 of the Code, then,
in general, Waban would recognize gain equal to the excess of the fair market
value of the BJI Common Stock over Waban's tax basis in the BJI Common Stock
immediately prior to the Distribution. This tax would be payable by HomeBase,
although under certain circumstances, BJI has agreed to indemnify HomeBase for
all or a portion of such tax liability. See "Relationship Between BJI and
HomeBase after the Distribution; Conflicts of Interest--Tax Sharing
Agreement." Each member of the Waban Consolidated Group (including BJI and its
subsidiaries) would remain jointly and severally liable for such tax
liability.
In addition, if the transaction were taxable, each Waban stockholder would
be treated as having received a taxable dividend equal to the fair market
value of the BJI Common Stock received, if, and to the extent that, Waban has
(as expected) sufficient current and accumulated earnings and profits. If, and
to the extent that, Waban did not have sufficient earnings and profits, each
Waban stockholder would (a) first reduce its tax basis in Waban Common Stock
(but not below zero) to the extent that the value of the Waban Common Stock
received exceeds its pro rata share of such earnings and profits and (b) then
recognize gain from the exchange of its Waban Common Stock to the extent the
value of the BJI Common Stock received exceeds both its pro rata share of
earnings and profits and its tax basis in its Waban Common Stock. If the
transaction were taxable, each stockholder's tax basis in its BJI Common Stock
after the Distribution would be equal to its fair market value at the time of
the Distribution.
NO CURRENT PUBLIC MARKET FOR BJI COMMON STOCK. There is not currently a
public market for BJI Common Stock and there can be no assurance as to the
prices at which trading in BJI Common Stock will occur after the Distribution.
Until BJI Common Stock is fully distributed and an orderly market develops,
the prices at which trading in such stock occurs may fluctuate significantly.
BJI intends to list the BJI Common Stock on the New York Stock Exchange. See
"The Distribution--Listing and Trading of BJI Common Stock."
CHANGE IN TRADING PRICES OF HOMEBASE COMMON STOCK. After the Distribution,
it is expected that HomeBase Common Stock (formerly Waban Common Stock) will
continue to be listed and traded on the New York Stock Exchange. As a result
of the Distribution, the trading price range of HomeBase Common Stock is
expected to be significantly lower than the trading price range of Waban
Common Stock prior to the Distribution. The combined trading prices of BJI
Common Stock and Waban Common Stock held by stockholders after the
Distribution may be less than, equal to or greater than the trading prices of
Waban Common Stock prior to the Distribution. See "The Distribution--Listing
and Trading of HomeBase Common Stock."
REPAYMENT OF DEBT. Prior to the Distribution, Waban intends to repay its
$24,000,000 9.58% unsecured senior notes due May 31, 1998 (the "Senior
Notes"), and to retire (via open market or privately negotiated purchases or
tender offer) or defease its $100,000,000 11% senior subordinated notes due
May 15, 2004 (the "Senior Subordinated Notes"). In addition, Waban will
terminate its $150,000,000 line of credit (under which no borrowings were
outstanding as of April 9, 1997) with a group of banks. Waban currently
intends to seek bank financing to repay the Senior Notes and the Senior
Subordinated Notes, and intends to obtain bank credit facilities for both BJI
and HomeBase effective as of the Distribution. The Senior Notes may be prepaid
by Waban
at any time on 30 days' prior notice. Upon prepayment of the Senior Notes,
Waban is obligated to pay a "make whole" amount in addition to the principal
amount to be prepaid and interest accrued through the date of
21
<PAGE>
prepayment. The make whole amount is an amount equal to the difference the
holders of the Senior Notes will earn on the prepayment, assuming reinvestment
of the prepayment at an interest rate 50 basis points higher than the rate of
U.S. Government securities with comparable maturities, and 9.58%. Based on
interest rates at April 9, 1997, Waban believes that the make whole amount on
the Senior Notes will total approximately $0.4 million. The Senior
Subordinated Notes may not be prepaid prior to May 15, 1999. At that time they
may be prepaid at a redemption price equal to 105 1/2% of the principal amount
to be redeemed. To satisfy Waban's obligations with respect to the Senior
Subordinated Notes in connection with the Distribution, Waban may retire the
Senior Subordinated Notes via open market or privately negotiated purchases or
a tender offer. Alternatively, Waban is entitled to defease the Senior
Subordinated Notes by depositing with the indenture trustee U.S. Government
securities maturing as to principal and interest in such amounts and at such
times as are sufficient, without consideration of any reinvestment of such
interest, to pay the amounts due with respect to the Senior Subordinated Notes
to the first permitted call date. Waban believes that the cost to Waban to
defease all of the outstanding Senior Subordinated Notes would total
approximately $13.8 million in excess of principal and accrued interest based
on interest rates at April 9, 1997. However, this amount could vary depending
upon market interest rates. In addition, prior to the Distribution, Waban
expects to call the Convertible Debentures for redemption. See "--Conversion
or Redemption of the Convertible Debentures."
CONVERSION OR REDEMPTION OF THE CONVERTIBLE DEBENTURES. Waban expects to
call the Convertible Debentures for redemption prior to the Distribution. The
Convertible Debentures are convertible by the holders into Waban Common Stock
at a conversion price of $24.75 per share, and are redeemable during the
period ending July 14, 1997 at a price of 103.611% of par, plus accrued
interest. If the Convertible Debentures are redeemed for cash in response to
such call, Waban expects that BJI will undertake an equity offering to reduce
the indebtedness that Waban would incur to finance the redemption. In such
event, it is likely that the Distribution Date would be delayed. It is a
condition to the Distribution that the Convertible Debentures be converted or
redeemed and, if the Convertible Debentures are redeemed, that BJI
successfully completes such equity offering. There can be no assurance that
such conversion or such redemption and equity offering will take place.
LEASE LIABILITIES. After the Distribution, BJI will assume all liabilities
to third-party lessors with respect to leases entered into by Waban with
respect to the Warehouse Club Business. While HomeBase will continue to be
liable, by law, with respect to such lease liabilities, BJI will indemnify
HomeBase for such liabilities.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement (the "1989 Agreement")
pursuant to which Waban agreed to indemnify TJX against any liabilities that
TJX might incur with respect to 45 current HomeBase leases as to which TJX is
either a lessee or guarantor. In settlement of legal proceedings filed by TJX
claiming, among other things, that BJI is required after the Distribution to
assume Waban's indemnification obligations under the 1989 Agreement, BJI has
agreed that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities (as defined in the 1989
Agreement) that TJX may incur with respect to HomeBase leases and thereafter
it will indemnify TJX for 50% of such liabilities. In addition, Waban has
agreed that after the Distribution, HomeBase will not renew any lease that
existed at the time of the 1989 Agreement as to which TJX is a lessee or
guarantor unless the applicable lessor agrees to remove TJX as a lessee or
guarantor. Other than as provided in such agreement with TJX, BJI will not
assume any liability with respect to leases entered into by Waban with respect
to the Home Improvement Business. There can be no assurance that the terms of
such agreement with TJX will not in the future have a material adverse effect
upon BJI or HomeBase.
POTENTIAL CONFLICTS. Subsequent to the Distribution, the interests of BJI
and HomeBase may potentially conflict due to the ongoing relationships between
the companies. Such sources of conflict include the fact that after the
Distribution, HomeBase will remain liable for certain contractual obligations
of BJI, including BJI leases. See "Relationship Between BJI and HomeBase after
the Distribution; Conflicts of Interest." In addition, following the
Distribution, Herbert J. Zarkin will serve as Chairman of the HomeBase Board
and as Chairman of the BJI Board, and Lorne R. Waxlax and Edward J. Weisberger
will serve as members of the Board of Directors of both HomeBase and BJI.
Messrs. Zarkin, Weisberger and Waxlax, as well as certain other officers and
directors of BJI and HomeBase, will also own shares (and/or options or other
rights to acquire shares) in both companies following the Distribution. See
"Relationship Between BJI and HomeBase after the Distribution;
22
<PAGE>
Conflicts of Interest," "Management of BJI" and "Management of HomeBase." Such
relationships may present conflicts of interest under certain circumstances.
Appropriate policies and procedures will be followed by the Board of Directors
of each company to limit the involvement of Messrs. Zarkin, Weisberger and
Waxlax (and, if appropriate, other officers and directors of such companies)
in conflict situations, including requiring them to abstain from voting as
directors of either BJI or HomeBase on certain matters which present a
conflict between the two companies. See "Relationship Between BJI and HomeBase
after the Distribution; Conflicts of Interest--Policies and Procedures for
Addressing Conflicts."
DIVIDEND POLICIES. Waban has never paid a cash dividend and the Waban Board
does not believe that either HomeBase or BJI intends to declare any cash
dividends on the HomeBase Common Stock or the BJI Common Stock after the
Distribution. It is expected that certain debt agreements of BJI and HomeBase
or their subsidiaries will substantially limit these companies' respective
abilities to pay dividends. The declaration and payment of dividends by BJI
will be at the discretion of the BJI Board. The declaration and payment of
dividends by HomeBase will be at the discretion of the HomeBase Board. There
can be no assurance that any dividends will be paid in the future.
CERTAIN ANTITAKEOVER FEATURES. If the Distribution Proposals are approved
and the Distribution is consummated, the BJI Certificate and the BJI By-laws
will contain several provisions, all of which are in effect with respect to
Waban and will continue to be in effect with respect to HomeBase, that may
have the effect of making the acquisition of control of BJI difficult or
expensive without the approval of the BJI Board. In addition, BJI is expected
to implement a Preferred Share Purchase Rights Plan, which may have a similar
effect. See "Certain Provisions of the BJI Certificate and the BJI By-laws."
FRAUDULENT TRANSFER CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS. The Waban
Board does not intend to consummate the Distribution unless it is satisfied
regarding the solvency of Waban, BJI and HomeBase and the permissibility of
the Distribution under Section 170 of the Delaware General Corporation Law
("DGCL"). There is no certainty, however, that a court would find the evidence
relied on by the Waban Board to be binding on creditors of Waban, BJI or
HomeBase, or that a court would reach the same conclusions as the Waban Board
as to whether Waban, BJI or HomeBase was solvent or insolvent at the time of,
or after giving effect to, the Distribution.
If a court in a lawsuit filed by an unpaid creditor or representative of
unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time either the Asset Transfers or the Distribution was consummated, Waban (i)
was insolvent, (ii) was rendered insolvent by reason of the Asset Transfers or
the Distribution, (iii) was engaged in a business or transaction for which the
remaining assets of Waban constituted unreasonably small capital, (iv)
intended to incur, or believed it would incur, debts beyond its ability to pay
as such debts matured, or (v) had actual intent to hinder, delay or defraud
any creditor of Waban, such court may be asked to void the Asset Transfers or
the Distribution (in whole or in part) as a fraudulent conveyance and require
that the stockholders return the special dividend (in whole or in part) to
Waban, or require BJI to fund certain liabilities of HomeBase for the benefit
of HomeBase's creditors. The measure of insolvency for purposes of the
foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, Waban would be considered insolvent if either
prior to the Asset Transfers and the Distribution or after giving effect
thereto the fair value of its assets were less than the amount of its probable
liabilities or if it incurred debt beyond its ability to repay such debt as it
matures. In addition, under Section 170 of the DGCL (which is applicable to
Waban in the Distribution), a corporation generally may make distributions to
its stockholders only out of its surplus (net assets minus capital) and not
out of capital.
The Waban Board and management believe that, in accordance with the evidence
examined in connection with the Asset Transfers and the Distribution, (a)
Waban will be solvent prior to and after giving effect to the Asset Transfers
and the Distribution (in accordance with the foregoing definitions), will be
able to repay its debts as they mature following the Distribution, and will
have sufficient capital to carry on its business, and (b) the Distribution
will be made entirely out of surplus, as provided under Section 170 of the
DGCL.
RISK OF NON-OCCURRENCE OF DISTRIBUTION. No assurance can be given that the
conditions to the consummation of the Distribution will be satisfied or
waived, or that, even if all such conditions are satisfied, the Distribution
will occur.
23
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of Waban
in connection with the solicitation of proxies by the Waban Board of Directors
from holders of record of Waban Common Stock as of the close of business on
the Meeting Record Date for use at the Meeting to be held on , 1997 at
a.m. at , Boston, Massachusetts, and at any adjournment or
postponement thereof. This Proxy Statement/Prospectus is also being furnished
to the holders of the Convertible Debentures in connection with the Notice of
Redemption and Expiration of Conversion Right. This Proxy Statement/Prospectus
is first being mailed on or about , 1997. References in this Proxy
Statement/Prospectus to "HomeBase" and "HomeBase Common Stock" mean Waban and
Waban Common Stock following the Distribution. The principal executive offices
of Waban are located at One Mercer Road, Natick, Massachusetts 01760.
Following the Distribution, the principal executive offices of BJI will be
located at One Mercer Road, Natick, Massachusetts 01760, and the principal
executive offices of HomeBase will be located at 3345 Michelson Drive, Irvine,
CA 92715.
MATTERS FOR CONSIDERATION AT THE MEETING
At the Meeting, holders of shares of Waban Common Stock will be asked:
1. To consider and vote upon the following Distribution Proposals:
(i) Proposal One: Approval of a distribution (the "Distribution") in the
form of a tax-free special dividend to all holders of Waban's outstanding
shares of common stock, on a one-for-one basis, of all outstanding shares
of common stock held by Waban, and the associated stockholders' rights, of
a newly formed, wholly-owned subsidiary of the Company, to be known as
"BJ's Wholesale Club, Inc.", which will own and operate the "BJ's Wholesale
Club" business presently conducted as a division of Waban;
(ii) Proposal Two: Approval of an amendment of the Certificate of
Incorporation of Waban, which will change the name of Waban to "HomeBase,
Inc." after the Distribution;
(iii) Proposal Three: Approval of (x) an amendment to the Waban 1989
Stock Incentive Plan to increase by 2,500,000 shares the number of shares
available for issuance thereunder, and (y) the continuance of the Waban
1989 Stock Incentive Plan, as amended;
(iv) Proposal Four: Approval of the BJI 1997 Stock Incentive Plan;
(v) Proposal Five: Approval of the BJI Management Incentive Plan;
(vi) Proposal Six: Approval of the BJI Growth Incentive Plan; and
(vii) Proposal Seven: Approval of the BJI 1997 Director Stock Option
Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described herein, from and after the Distribution, the board
of directors of HomeBase will differ from the Waban Board.
3. To consider such other business as may properly come before the Meeting.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
THE WABAN BOARD BELIEVES THAT THE DISTRIBUTION IS IN THE BEST INTERESTS OF
STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE
DISTRIBUTION PROPOSALS.
24
<PAGE>
Stockholder approval of the Distribution Proposals may not prevent a
stockholder from subsequently seeking to challenge the Distribution Proposals
or the actions of the Waban Board in approving the Distribution Proposals.
However, although Waban cannot determine in advance its position with respect
to any such challenge, it is possible that Waban could assert a stockholder's
approval of the Distribution Proposals as a defense, in which case if such
defense were held meritorious, such stockholder could effectively be estopped
from asserting such claims.
The Waban Board has retained discretion, even if stockholder approval of the
Distribution Proposals is obtained, to abandon, defer or modify the
Distribution or any other element contained in the Distribution Proposals.
Waban expects to call the Convertible Debentures for redemption prior to the
Distribution. The Convertible Debentures are convertible by the holders into
Waban Common Stock at a conversion price of $24.75 per share, and are
redeemable during the period ending July 14, 1997 at a price of 103.611% of
par, plus accrued interest. If the Convertible Debentures are redeemed for
cash in response to such call, Waban expects that BJI will undertake an equity
offering to reduce the indebtedness that Waban would incur to finance the
redemption. In such event, it is likely that the Distribution Date would be
delayed. It is a condition to the Distribution that the Convertible Debentures
be converted into Common Stock or redeemed for cash, and, if the Convertible
Debentures are redeemed, that BJI successfully completes such equity offering.
There can be no assurance that such conversion or such redemption and equity
offering will take place.
For a description of the reasons for the Distribution, see "The
Distribution--Background and Reasons for the Distribution."
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of Waban Common Stock as of the close of
business on the Meeting Record Date will be entitled to notice of and to vote
at the Meeting or any adjournment or postponement thereof. Such holders of
shares of Waban Common Stock are entitled to one vote per share on any matter
which may properly come before the Meeting. The presence, either in person or
by properly executed proxy, of a majority of the shares of Waban Common Stock
outstanding on the Meeting Record Date will constitute a quorum and such
quorum is necessary to permit action to be taken by the stockholders at such
meeting. The affirmative vote of the holders of a majority of the shares of
Waban Common Stock outstanding on the Meeting Record Date, regardless of
whether such shares are present in person or represented by proxy at the
Meeting, is required to approve Distribution Proposals One and Two. Under
Waban's By-laws, so long as a quorum is present at the Meeting, adoption of
Distribution Proposals Three, Four, Five, Six and Seven will require the
affirmative vote of the holders of a majority of the votes cast at the
Meeting. In addition, the New York Stock Exchange requires that the total
votes cast (for or against) on Distribution Proposals Three and Four represent
at least a majority of the Record Shares. You have three choices in deciding
how to vote on each of the Distribution Proposals. By checking the appropriate
box you may: (a) vote "For" the Proposal; (b) vote "Against" the Proposal; or
(c) "Abstain" from voting on the Proposal. Under the Company's by-laws, so
long as a quorum is present at the Meeting, the election of directors will
require the affirmative vote of the holders of shares representing a plurality
of the votes cast at the Meeting.
As of the Meeting Record Date, there were shares of Waban Common
Stock outstanding and entitled to vote at the Meeting and record holders
of Waban Common Stock. Although shares which abstain from voting as to a
particular matter or which withhold authority for any director nominee and
broker non-votes (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners and (ii) the
broker or nominee does not have the discretionary authority to vote on a
particular matter) will be counted as present at the meeting for quorum
purposes, such shares will not be considered to be votes cast with respect to
Distribution Proposals Three, Four, Five, Six or Seven or with respect to the
election of directors. Accordingly, abstentions and broker non-votes will have
no effect on such Distribution Proposals or
25
<PAGE>
the election of directors. However, abstentions and broker non-votes will have
the effect of a vote "against" Distribution Proposals One and Two.
All shares of Waban Common Stock that are represented at the Meeting by
properly executed proxies received prior to or at the Meeting and not revoked
will be voted at the Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated for any Proposal, such proxies
will be voted FOR such Proposal.
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason Waban believes that additional time
should be allowed for the solicitation of proxies, Waban may adjourn the
Meeting with or without a vote of the stockholders, and the persons named in
the enclosed proxy will vote all shares of Waban Common Stock for which they
have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Waban, at or before the Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of Waban Common Stock and
delivering it to the Secretary of Waban at or before the Meeting, or (iii)
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice revoking a proxy should be sent to the Secretary of Waban at One Mercer
Road, Natick, Massachusetts 01760.
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid
by Waban. In addition to the use of mails, certain directors, officers or
employees of Waban and its subsidiaries, who receive no compensation for their
services other than their regular salaries, may solicit and tabulate proxies.
Waban has retained Shareholder Communications Corporation to assist in the
solicitation of proxies with respect to shares of Waban Common Stock held of
record by brokers, nominees and institutions. The estimated cost of the
services of Shareholder Communications Corporation is $ plus expenses.
Waban's transfer agent, The First Chicago Trust Company of New York, will
tabulate the votes. Representatives of the transfer agent will be appointed as
inspectors of election at the Meeting to count all votes and ballots and
perform the other duties required of inspectors of election.
NO APPRAISAL RIGHTS
Stockholders of Waban will not be entitled to appraisal rights under
Delaware law in connection with any of the proposals to be voted on at the
Meeting.
26
<PAGE>
RECENT DEVELOPMENTS
Waban has publicly reported its sales results for the four-week and five-
week periods ended March 1, 1997 and April 5, 1997, respectively. Such
information, together with sales results for the comparable periods of the
prior year, is unaudited, but reflects all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of such information. These results are not necessarily indicative
of the results to be expected for the entire quarter or year.
<TABLE>
<CAPTION>
%
FOUR WEEKS ENDED CHANGE COMPARABLE
--------------------------- TOTAL STORE %
MARCH 2, 1996 MARCH 1, 1997 REVENUES CHANGE
------------- ------------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BJ's Division................... $183,476 $203,939 11.2% 4.2%
HomeBase Division............... 95,630 101,844 6.5% 1.7%
-------- --------
Total Waban..................... $279,106 $305,783 9.6% 3.3%
======== ========
<CAPTION>
%
FIVE WEEKS ENDED CHANGE COMPARABLE
--------------------------- TOTAL STORE %
APRIL 6, 1996 APRIL 5, 1997 REVENUES CHANGE
------------- ------------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BJ's Division................... $251,054 $260,404 3.7% (2.4)%
HomeBase Division............... 142,323 143,923 1.1% (1.5)%
-------- --------
Total Waban..................... $393,377 $404,327 2.8% (2.1)%
======== ========
</TABLE>
NOTE: The five-week period ended April 5, 1997 included 34 selling days,
whereas the five-week period ended April 6, 1996 included 35 selling
days.
27
<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The Waban Board believes that the Distribution will accomplish a number of
important business goals. Separation of the Home Improvement Business and the
Warehouse Club Business into independent companies will allow each company to
concentrate exclusively on its own business objectives without concern for the
business objectives of the other company, and will allow the financial markets
to better recognize and evaluate the merits of the Warehouse Club Business and
the Home Improvement Business, thereby enhancing the likelihood that each will
achieve appropriate market recognition for its own performance. The Waban
Board also believes the improved recognition by the financial markets
resulting from the anticipated separation of the Home Improvement Business and
the Warehouse Club Business into independent publicly owned companies will
facilitate the conversion of the Convertible Debentures into Common Stock. The
Convertible Debentures are convertible into Waban Common Stock at a price of
$24.75 per share, and are redeemable during the period ending July 14, 1997 at
a price of 103.611% of par, plus accrued interest. The Company expects to call
the Convertible Debentures for redemption prior to the Distribution. If the
Convertible Debentures are redeemed for cash in response to such call, Waban
expects that BJI will undertake an equity offering to reduce the indebtedness
that Waban would incur to finance the redemption. The Distribution and the
related transactions described in this Proxy Statement/Prospectus are expected
to reduce the aggregate level of indebtedness and interest costs borne by the
two companies, and to improve the debt-to-total capital ratio of each company,
as compared to Waban.
In addition, the Distribution is expected to enhance the ability of the
separate corporations to attract, motivate and retain key personnel through
the provision of more effective stock-based incentive compensation programs
that are based on the performance of the respective business in which such
individuals are employed without being influenced by the results of the
business in which they have no involvement.
The proposal to submit the Distribution Proposals to stockholders, as
ultimately developed by management of Waban with advice from its advisors, was
presented to and approved by the Waban Board on October 22, 1996. On February
3, 1997, Waban announced that it was postponing the Distribution in order to
consider a proposed transaction pursuant to which Leonard Green & Partners,
L.P. would acquire HomeBase from Waban and Builders Square from Kmart
Corporation. On April 2, 1997, Waban announced its intention to proceed with
the Distribution and the parties discontinued negotiations.
In the event that stockholders fail to approve all of the Distribution
Proposals, the Board may elect not to proceed with the Distribution, in which
case Waban intends to continue to operate the Warehouse Club Business and the
Home Improvement Business and may consider alternative restructuring options.
MANNER OF EFFECTING THE DISTRIBUTION
If all conditions to the Distribution are satisfied (or waived by the Waban
Board), and if the Waban Board declares the Distribution, the Distribution
will occur on the Distribution Date. The Distribution Record Date will be a
date that is as soon as practicable following the declaration of the
Distribution. On the Distribution Date, Waban will deliver all outstanding
shares of BJI Common Stock held by Waban to the Distribution Agent. As soon as
practicable thereafter, certificates therefor will be mailed by the
Distribution Agent to holders of record of Waban Common Stock as of the
Distribution Record Date on the basis of one share of BJI Common Stock for
every share of Waban Common Stock held on that date. All such shares will be
fully paid and nonassessable.
No holder of Waban Common Stock will be required to pay any cash or other
consideration for the shares of BJI Common Stock received in the Distribution
or to surrender or exchange shares of Waban Common Stock in order to receive
BJI Common Stock.
28
<PAGE>
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company has received a letter ruling from the IRS to the effect that,
for Federal income tax purposes, the Distribution will qualify as a spin-off
under Section 355 of the Code that will be tax free to the holders of Waban
Common Stock and to Waban. Accordingly, the principal Federal income tax
consequences of the Distribution should be as follows:
1. No income, gain or loss will be recognized by a stockholder of Waban
Common Stock as a result of the receipt of BJI Common Stock in the
Distribution.
2. The basis of a holder of Waban Common Stock in the HomeBase Common
Stock and the BJI Common Stock received on the Distribution Date in
respect of Waban Common Stock will be determined by allocating such
holder's basis in the Waban Common Stock immediately before the
Distribution between the HomeBase Common Stock and the BJI Common
Stock received with respect to such Waban Common Stock in proportion
to their relative fair market values on the Distribution Date.
3. The holding period of the BJI Common Stock received in the
Distribution will include the holding period of the Waban Common Stock
with respect to which the BJI Common Stock will be distributed,
provided the Waban Common Stock is held as a capital asset on the
Distribution Date.
4. No income, gain or loss will be recognized by Waban solely on account
of the Asset Transfers or the Distribution.
The letter ruling by the IRS is based on and subject to certain assumptions,
facts, representations and advice provided by Waban, BJI, certain of the
holders of Waban Common Stock and Waban's financial advisors. Waban is not
aware of any present facts or circumstances which should make such
assumptions, facts, representations and advice unobtainable or untrue.
However, certain future events not within the control of Waban and BJI,
including, for example, certain dispositions of HomeBase Common Stock or BJI
Common Stock after the Distribution, could cause the Distribution not to
qualify for tax-free treatment. In addition, Waban would be required to obtain
a supplemental ruling from the IRS in the event that the Convertible
Debentures are redeemed for cash rather than converted into equity in response
to Waban's call for redemption, and there can be no assurance that any such
supplemental ruling would be obtained.
If the Distribution were not to qualify for tax-free treatment under Section
355 of the Code, each holder of Waban Common Stock who receives BJI Common
Stock would be treated as receiving a distribution, generally taxable as a
dividend, in an amount equal to the fair market value of such BJI Common Stock
on the Distribution Date. Furthermore, the tax basis of BJI Common Stock
received in the Distribution would equal its fair market value on the
Distribution Date, the holding period of such stock would begin with and
include the day after the Distribution Date and Waban would recognize taxable
gain on the Distribution. See "Risk Factors--Certain Tax Considerations."
It is expected that, pursuant to the Preferred Share Purchase Rights Plan to
be adopted by BJI, one preferred share purchase right (a "BJI Right") will
attach to each share of BJI Common Stock distributed in the Distribution.
While the distribution of the BJI Rights should not be taxable to stockholders
or to BJI, stockholders may, depending upon the circumstances, recognize
taxable income in the event that the BJI Rights become exercisable for BJI
Preferred Stock (or other consideration) or for common stock of an acquiring
company. See "Description of BJI Capital Stock" and "Certain Provisions of the
BJI Certificate and the BJI By-laws--Preferred Share Purchase Rights."
For a description of the Tax Sharing Agreement pursuant to which BJI and
Waban have provided for various tax matters, see "Relationship Between BJI and
HomeBase After the Distribution; Conflicts of Interest--Tax Sharing
Agreement."
THE FOREGOING SUMMARY OF THE ANTICIPATED PRINCIPAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW IS FOR GENERAL INFORMATION
ONLY AND DOES NOT PURPORT TO COVER ALL FEDERAL INCOME TAX CONSEQUENCES
(INCLUDING THOSE THAT MAY APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS) OR
ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS.
WABAN HAS NOT REQUESTED ANY RULINGS OR OPINIONS WITH RESPECT TO THE TAX
29
<PAGE>
CONSEQUENCES OF THE DISTRIBUTION UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
GOVERNMENT. EACH HOLDER (INCLUDING ANY CORPORATE HOLDER) OF WABAN COMMON STOCK
SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
OF THE DISTRIBUTION, INCLUDING APPLICATION OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY
AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
ACCOUNTING TREATMENT
Following approval of the Distribution Proposals at the Meeting, Waban will
present the Warehouse Club Business as discontinued operations to the extent
financial information for periods prior to the Distribution is required to be
included in Waban's historical financial statements. Included separately
herein are the financial statements of BJI as if it were a separate entity for
all periods presented. Waban's historical basis in the assets and liabilities
of BJI has been carried over. See "Pro Forma Financial Data of Waban,"
"Selected Historical Financial Data of BJI" and "Pro Forma Financial Data of
BJI."
LISTING AND TRADING OF BJI COMMON STOCK
There is not currently a public market for the BJI Common Stock. BJI intends
to list the BJI Common Stock on the New York Stock Exchange. Prior to the
Distribution, BJI Common Stock may trade on a "when-issued" basis. Prices at
which BJI Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. Until the BJI Common Stock is fully
distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly. The prices at which BJI Common
Stock trades will be determined by the marketplace and may be influenced by
many factors, including, among others, the depth and liquidity of the market
for BJI Common Stock, investor perception of BJI and the industry in which BJI
participates, dividend policy and general economic and market conditions. Such
prices may also be affected by certain provisions of the BJI Certificate and
the BJI By-laws, as each will be in effect following the Distribution, and by
the BJI Preferred Share Purchase Rights Plan. See "Risk Factors--Dividend
Policies" and "Certain Provisions of the BJI Certificate and the BJI By-laws."
BJI initially will have approximately stockholders of record based on
the number of stockholders of record of Waban as of , 1997.
LISTING AND TRADING OF HOMEBASE COMMON STOCK
After the Distribution, it is expected that HomeBase Common Stock (formerly
Waban Common Stock) will continue to be listed and traded on the New York
Stock Exchange. Following the Distribution, HomeBase's financial results will
no longer be consolidated with those of BJI, and as a result, HomeBase's
revenues, income and other results of operations will be substantially below
those of Waban prior to the Distribution. Accordingly, as a result of the
Distribution, the trading price range of HomeBase's Common Stock immediately
after the Distribution is expected to be significantly lower than the trading
price range of the Waban Common Stock prior to the Distribution. The combined
trading prices of the HomeBase Common Stock and the BJI Common Stock held by
stockholders after the Distribution may be less than, equal to or greater than
the trading price of Waban Common Stock prior to the Distribution. The prices
at which HomeBase Common Stock trades after the Distribution will be
determined by the marketplace and may be influenced by many factors,
including, among others, the continuing depth and liquidity of the market for
HomeBase's Common Stock, investor perception of HomeBase's Home Improvement
Business and general economic and market conditions.
CONDITIONS; TERMINATION
The Waban Board has conditioned the Distribution upon, among other things,
(i) the declaration by the Waban Board of the Distribution; (ii) approval of
the Distribution Proposals by Waban's stockholders; (iii) the conversion into
Common Stock or redemption for cash of the Convertible Debentures and, if the
Convertible
30
<PAGE>
Debentures are redeemed for cash, the closing of an equity offering by BJI to
reduce the indebtedness that Waban would incur to finance the redemption; (iv)
the transfers of assets and liabilities contemplated by the Distribution
Agreement to be entered into between BJI and Waban prior to the Distribution
having been consummated in all material respects; (v) the BJI Common Stock and
associated BJI Rights having been approved for listing on the New York Stock
Exchange subject to official notice of issuance; (vi) the BJI Board having
been elected by Waban, as the sole stockholder of BJI, and the BJI Certificate
and the BJI By-laws, as each will be in effect after the Distribution, having
been adopted and being in effect; (vii) BJI and HomeBase having entered into
agreements with lenders to provide sufficient financing upon consummation of
the Distribution; (viii) the Registration Statement on Form 8-A with respect
to the BJI Common Stock (the "Form 8-A Registration Statement") having become
effective under the Exchange Act; and (ix) third-party consents, if any, to
the transactions contemplated by the Distribution Proposals having been
obtained, except for those the failure of which to obtain would not have a
material adverse effect on BJI or on HomeBase. Any of these conditions, except
for approval of the Distribution Proposals by Waban's stockholders, may be
waived in the discretion of the Waban Board. Even if all of the above
conditions are satisfied, the Waban Board has reserved the right to abandon,
defer or modify the Distribution or the other elements of the Distribution
Proposals at any time prior to the Distribution Date. See "Relationship
Between HomeBase and BJI after the Distribution; Conflicts of Interest--
Distribution Agreement."
31
<PAGE>
RELATIONSHIP BETWEEN BJI AND HOMEBASE AFTER THE DISTRIBUTION; CONFLICTS OF
INTEREST
DISTRIBUTION AGREEMENT
BJI and Waban will enter into a Separation and Distribution Agreement (the
"Distribution Agreement"), which will provide for, among other things, (i) the
principal corporate transactions required to effect the Distribution, (ii) the
division between BJI and Waban of certain assets and liabilities and (iii)
certain other agreements governing the relationship between BJI and HomeBase
following the Distribution.
The Distribution Agreement will provide that on or prior to the Distribution
Date (i) Waban will transfer to BJI all of the assets of the BJ's Division,
including the stock of certain subsidiaries which hold assets of the BJ's
Division, and the assets associated with the Company's corporate headquarters
in Massachusetts; (ii) BJI will assume the liabilities related to such assets;
and (iii) BJI will issue to Waban the BJI Common Stock and the Preferred Share
Purchase Rights to be distributed in the Distribution. See "The Distribution--
Manner of Effecting the Distribution."
The Distribution Agreement will provide that, except as provided in the
Employee Benefits Agreement or the Tax Sharing Agreement (see"--Employee
Benefits Agreement" and "--Tax Sharing Agreement" below), HomeBase will
indemnify BJI for liabilities relating to the business retained by HomeBase
following the Distribution. Similarly, subject to the same exceptions, BJI
will agree to indemnify HomeBase for liabilities pertaining to BJI's business.
The Distribution Agreement will also provide that BJI and HomeBase will each
indemnify the other in the event of certain liabilities arising under the
Exchange Act.
The Distribution Agreement will provide that the Distribution will be
conditioned upon a number of things, including (i) the declaration by the
Waban Board of the Distribution; (ii) approval of the Distribution Proposals
by Waban's stockholders; (iii) the conversion into Common Stock or redemption
for cash of the Convertible Debentures and, if the Convertible Debentures are
redeemed, the closing of an equity offering by BJI to reduce the indebtedness
that Waban would incur to finance the redemption; (iv) the transfers of assets
and liabilities contemplated by the Distribution Agreement having been
consummated in all material respects; (v) the BJI Common Stock and associated
BJI Rights having been approved for listing on the New York Stock Exchange
subject to official notice of issuance; (vi) the BJI Board having been elected
by Waban, as the sole stockholder of BJI, and the BJI Certificate and the BJI
By-laws, as each will be in effect after the Distribution, having been adopted
and being in effect; (vii) BJI and HomeBase having entered into agreements
with lenders to provide sufficient financing upon consummation of the
Distribution; (viii) the Form 8-A Registration Statement having become
effective under the Exchange Act; and (ix) third-party consents, if any, to
the transactions contemplated by the Distribution Proposals having been
obtained, except for those the failure of which to obtain would not have a
material adverse effect on BJI or on HomeBase. Any of these conditions, except
for approval of the Distribution Proposals by Waban's stockholders, may be
waived in the discretion of the Waban Board. Even if all of the above
conditions are satisfied, the Waban Board has reserved the right to abandon,
defer or modify the Distribution or the other elements of the Distribution
Proposals at any time prior to the Distribution Date.
LEASES
After the Distribution, BJI will assume all liabilities to third-party
lessors with respect to leases entered into by Waban with respect to the
Warehouse Club Business. While HomeBase will continue to be liable, by law,
with respect to such lease liabilities, BJI will indemnify HomeBase for such
liabilities. In connection with the spin-off of Waban by TJX in 1989, Waban
and TJX entered into an agreement (the "1989 Agreement") pursuant to which
Waban agreed to indemnify TJX against any liabilities that TJX might incur
with respect to 45 current HomeBase leases as to which TJX is either a lessee
or guarantor. In settlement of legal proceedings filed by TJX claiming, among
other things, that BJI is required after the Distribution to assume Waban's
indemnification obligations under the 1989 Agreement, BJI has agreed that for
approximately five years after the Distribution it will indemnify TJX with
respect to any liabilities (as defined in this 1989 Agreement) that TJX may
incur with
32
<PAGE>
respect to HomeBase leases and thereafter it will indemnify TJX for 50% of
such liabilities. In addition, Waban has agreed that after the Distribution,
HomeBase will not renew any lease that existed at the time of the 1989
Agreement as to which TJX is a lessee or guarantor unless the applicable
lessor agrees to remove TJX as a lessee or guarantor. Other than as provided
in such agreement with TJX, BJI will not assume any liability with respect to
leases entered into by Waban with respect to the Home Improvement Business.
There can be no assurance that the terms of such agreement with TJX will not
in the future have a material adverse effect upon BJI or HomeBase.
SERVICES AGREEMENT
BJI and Waban will enter into a Services Agreement (the "Services
Agreement") pursuant to which BJI will provide tax and certain other services
to HomeBase following the Distribution. Such services shall be provided at
rates equal to those which would have been established on an arm's-length
basis. The initial term for most of these services will expire at or before
the end of fiscal 1997. Certain services may be extended beyond their initial
term for a specified limited renewal term by notice from HomeBase. All other
extensions may only be made upon the subsequent mutual agreement of BJI and
HomeBase as to the renewal term and the fees to be charged in such renewal
term. BJI will be required to use all reasonable efforts to perform the
services on a timely basis and HomeBase will be required to use all reasonable
efforts to cooperate with BJI in connection with the provision of services. If
a dispute arises between the parties under the Services Agreement which cannot
be resolved, it will be submitted to arbitration.
EMPLOYEE BENEFITS AGREEMENT
Waban and BJI will enter into an Employee Benefits Agreement which will
contain a number of provisions pertaining to employee benefit plan matters.
BJI will generally agree to establish employee benefit plans substantially
similar to the employee benefit plans currently maintained by Waban.
The Employee Benefits Agreement will provide for appropriate asset transfers
(and corresponding credit for service with Waban prior to the Distribution)
from Waban's 401(k) Savings Plans and Executive Retirement Plan in respect of
persons who will become BJI employees. In addition, the Employee Benefits
Agreement will contain provisions for the issuance of replacement stock
options by BJI to persons who will become BJI employees on the Distribution
Date, subject to such persons' surrender of their corresponding Waban awards.
See "Management of BJI--Incentive and Other Plans."
TAX SHARING AGREEMENT
Waban and BJI will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") to provide for the allocation between the parties of federal,
state, local and foreign tax liabilities, and the entitlement to tax refunds,
for periods ending on or prior to the Distribution Date, and various related
matters, as described in more detail below.
Note: As used in the following summary of the Tax Sharing Agreement,
references to the "HomeBase Group" include HomeBase and those corporations
that will be members of its consolidated tax group after giving effect to the
Distribution. Similarly, references to the "BJI Group" include BJI and those
corporations that will be members of its consolidated tax group after giving
effect to the Distribution.
HomeBase will retain responsibility pursuant to the Tax Sharing Agreement
for filing all consolidated federal income tax returns (and all similar state
and local tax returns) for periods beginning before the Distribution Date. In
this regard the BJI Group will agree to enter into any election or consent
reasonably requested by HomeBase with respect to such returns.
In general, the Tax Sharing Agreement will provide that the BJI Group will,
to the extent not previously paid to HomeBase, be liable to HomeBase for
federal, state, local and foreign tax liabilities for all periods ending
33
<PAGE>
(or deemed to end) on the Distribution Date, including any such liabilities
resulting from the audit of, or adjustment to, previously filed tax returns,
which are clearly attributable to the operations and assets of the BJI Group.
HomeBase will be responsible for all such tax liabilities which are clearly
attributable to the operations and assets of the HomeBase Group. The BJI Group
and the HomeBase Group will equally share liability for any such tax
liabilities not clearly attributable either to the BJI Group or the HomeBase
Group.
BJI will agree in the Tax Sharing Agreement not to carry back any net
operating loss or other similar carryback items which could be used to create
or carry forward a tax benefit. In the event that such an item is nevertheless
carried back, then HomeBase shall pay BJI an amount equal to the tax benefit
obtained by the HomeBase Group as a result thereof, but only after there has
been taken into account all tax items and carrybacks generated by the HomeBase
Group and the present value of any tax benefits of the HomeBase Group that may
be deferred (and any future tax detriment that may be suffered) by any member
of the HomeBase Group as a consequence of its use of such BJI carryback item.
In the event that any post-Distribution transaction involving the stock or
assets of the BJI Group, or certain actions taken by members of the BJI Group
after the Distribution, result in the Distribution failing to qualify as a
tax-free spin-off under the provisions of Section 355 of the Code, BJI will be
responsible and indemnify HomeBase for all taxes, including penalties and
interest ("Restructuring Taxes"), incurred by HomeBase by reason of the
Distribution being a taxable event. In the event that any post-Distribution
transaction involving the stock or assets of the HomeBase Group, or certain
actions taken by members of the HomeBase Group after the Distribution, result
in the Distribution failing to qualify as a tax-free spin-off, HomeBase will
be responsible and indemnify BJI for all of such Restructuring Taxes. In the
event that the Distribution fails to qualify as a tax-free spin-off by reason
of transactions or actions involving both the BJI and HomeBase Groups, or
otherwise fails to qualify as a tax-free spin-off, BJI and HomeBase will share
liability equally for the Restructuring Taxes and each of BJI and HomeBase
will indemnify the other party for its share of such Restructuring Taxes.
In the event of an audit contest relating to Restructuring Taxes, HomeBase
will be prohibited from settling such audit in a manner that would give rise
to an indemnity payment from BJI without the prior written consent of BJI;
however, HomeBase will be entitled to receive a written indemnity from BJI
covering the expense of such contest and an opinion of independent tax counsel
to the effect that a sound basis exists for contesting the proposed audit
claim. Moreover, if the contest is to be conducted in a manner requiring
payment of the proposed tax deficiency, BJI must advance the appropriate
amount of funds to HomeBase on an interest-free basis.
The Tax Sharing Agreement will contain procedural provisions requiring
notice of potential claims for reimbursement, participation in all conferences
with taxing authorities and, more generally, mutual consultation and
cooperation with respect to the tax matters which are the subject of the
agreement. Decisions with respect to negotiations, settlements and litigation
with taxing authorities will be made jointly by HomeBase and BJI. Disputes
under the agreement will be submitted to arbitration.
One consequence of BJI's potential obligations in respect of indemnity
payments for Restructuring Taxes could be to deter a transaction which could
result in a change of control of BJI.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
After the Distribution, BJI and HomeBase will have significant contractual
and other ongoing relationships, as described herein. Such ongoing
relationships may present certain conflict situations for Mr. Zarkin, who will
serve as Chairman of the Board of Directors of both companies, and for Messrs.
Waxlax and Weisberger, who will serve as directors of both companies. Each of
these persons, and other persons, will also own (or have options or other
rights to acquire) a significant number of shares of common stock in both
companies. See "Risk Factors--Potential Conflicts," "Management of BJI," and
"Management of HomeBase." BJI and HomeBase will adopt appropriate policies and
procedures to be followed by the board of directors of each company to limit
the involvement of such persons in conflict situations, including matters
relating to contractual relationships or litigation between the companies.
Whether or not a significant conflict of interest situation exists will be
34
<PAGE>
determined on a case-by-case basis depending on such factors as the dollar
value of the matter, the degree of personal interest in the matter, the
respective interests of the stockholders of BJI or HomeBase and the likelihood
that resolution of the matter will have significant strategic, operational or
financial implications for the business of the respective companies.
FINANCING; TREATMENT OF OUTSTANDING LONG-TERM DEBT
Waban's outstanding indebtedness currently includes its (i) $24,000,000
Senior Notes; (ii) $100,000,000 Senior Subordinated Notes; (iii) Convertible
Debentures (of which, $106,949,000 were outstanding as of April 9, 1997); and
(iv) $150,000,000 line of credit with a group of banks, under which no
borrowings were outstanding at April 9, 1997. Prior to the Distribution, Waban
will repay the Senior Notes, and will retire (via open market or privately
negotiated purchases or a tender offer) or defease the Senior Subordinated
Notes, with proceeds from bank borrowings. Waban will be required to pay
certain premiums and prepayment penalties in connection with the foregoing
transactions. See "Certain Special Considerations--Repayment of Long-Term
Debt."
Waban expects to call the Convertible Debentures for redemption prior to the
Distribution. The Convertible Debentures are convertible by the holders into
Waban Common Stock at a conversion price of $24.75 per share, and are
redeemable during the period ending July 14, 1997 at a price of 103.611% of
par, plus accrued interest. If the Convertible Debentures are redeemed for
cash in response to such call, Waban expects that BJI will undertake an equity
offering to reduce the indebtedness that Waban would incur to finance the
redemption. In such event it is likely that the Distribution Date would be
delayed. It is a condition to the Distribution that the Convertible Debentures
be converted into Common Stock or redeemed for cash and, if the Convertible
Debentures are redeemed for cash, that BJI successfully completes such equity
offering. There can be no assurance that such conversion or such redemption
and equity offering will take place.
Waban is in discussions with financial institutions to obtain bank credit
facilities for each of BJI and HomeBase. It is a condition of the Distribution
that such credit facilities be obtained in amounts and on terms considered
appropriate by the management and boards of directors of the respective
companies. Although Waban expects to obtain such credit facilities, there is
no assurance that such credit facilities can be obtained on terms similar to
those currently available to Waban or on other terms considered appropriate by
the Waban Board, if at all. See "Risk Factors--Certain Financial
Considerations."
CONSENTS; REGULATORY APPROVALS
Other than the filing of a Form 8-A with the Securities and Exchange
Commission (which must be filed and declared effective prior to the
Distribution), Waban does not believe that any material consents from third
parties or federal or state regulatory approvals will be necessary in
connection with the Distribution.
35
<PAGE>
WABAN CAPITALIZATION
The following table sets forth the pro forma capitalization of Waban at
January 25, 1997 after giving effect to the conversion of the Convertible
Debentures into 4,386,585 shares of Waban Common Stock, or alternatively, the
redemption for cash of the Convertible Debentures by Waban. It is a condition
to the Distribution that such conversion or redemption take place and, if the
Convertible Debentures are redeemed for cash, that BJI complete an equity
offering to reduce the indebtedness that Waban would incur to finance the
redemption. However, there can be no assurance that holders of the Convertible
Debentures will convert their Convertible Debentures into Common Stock or
that, if all Convertible Debentures are not converted, BJI will complete such
an equity offering. Both pro forma presentations give effect to (i) borrowings
of long-term debt under Waban's proposed credit agreement, (ii) retirement of
Waban's Senior Notes and Senior Subordinated Notes and related prepayment
penalties, (iii) payment from BJI of its current taxes payable and
intercompany borrowings, and (iv) the Distribution. This data should be read
in conjunction with the historical financial statements and the unaudited pro
forma financial data of Waban incorporated by reference in or included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
-----------------------------------------------
PRO FORMA FOR
CONVERSION OF PRO FORMA FOR
CONVERTIBLE REDEMPTION
DEBENTURES OF CONVERTIBLE
INTO COMMON DEBENTURES
ACTUAL STOCK FOR CASH
-------- ---------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current
maturities of long-term debt.. $ 12,817 $ 654 $ 654
Long-term debt, less current
maturities.................... 232,486 39,326 39,326
Stockholders' equity:
Common stock.................. 333 377 333
Additional paid-in capital.... 329,719 392,643 329,719
Treasury stock................ (10,000) -- (10,000)
Retained earnings............. 311,873 -- 72,579
-------- -------- --------
Total stockholders' equity... 631,925 393,020 392,631
-------- -------- --------
Total capitalization....... $877,228 $433,000 $432,611
======== ======== ========
</TABLE>
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WABAN
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in Waban's Annual
Report on Form 10-K for the fiscal year ended January 25, 1997, which is
incorporated by reference herein. For a discussion of the basis of
presentation of the Waban Consolidated Financial Statements, see Summary of
Accounting Policies in Notes to the Waban Consolidated Financial Statements
contained in Form 10-K for the fiscal year ended January 25, 1997. For a
discussion of certain sales information for the four-week and five-week
periods ended March 1, 1997 and April 5, 1997, respectively, see "Recent
Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(53 WEEKS)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ 3,357,794 $ 3,589,341 $ 3,650,281 $ 3,978,384 $4,375,528
----------- ----------- ----------- ----------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,881,334 3,086,670 3,110,787 3,387,992 3,742,599
Selling, general and
administrative
expenses............... 401,905 423,026 418,404 455,523 486,868
Restructuring charge.... -- 101,133 -- -- --
Interest on debt and
capital leases (net)... 6,280 12,489 14,898 15,431 19,735
----------- ----------- ----------- ----------- ----------
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes................ 68,275 (33,977) 106,192 119,438 126,326
Provision (benefit) for
income taxes........... 24,033 (15,290) 41,202 46,461 49,666
----------- ----------- ----------- ----------- ----------
Income (loss) before
cumulative effect of
accounting principle
changes................ 44,242 (18,687) 64,990 72,977 76,660
Cumulative effect of
accounting principle
changes................ -- 905 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)....... $ 44,242 $ (17,782) $ 64,990 $ 72,977 $ 76,660
=========== =========== =========== =========== ==========
Income (loss) per common
share:
Primary earnings per
share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.33 $ (0.56) $ 1.95 $ 2.20 $ 2.31
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.33 $ (0.54) $ 1.95 $ 2.20 $ 2.31
=========== =========== =========== =========== ==========
Fully diluted earnings
per share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.31 $ (0.56) $ 1.83 $ 2.05 $ 2.15
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.31 $ (0.54) $ 1.83 $ 2.05 $ 2.15
=========== =========== =========== =========== ==========
Number of common shares
for earnings per share
computations:
Primary................ 33,191 33,082 33,405 33,220 33,205
Fully diluted.......... 35,707 33,082 37,793 37,784 37,713
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 286,313 $ 213,315 $ 308,749 $ 265,450 $ 275,842
Total assets............ 1,006,663 1,072,994 1,237,521 1,332,451 1,375,966
Long-term debt and
obligations under
capital leases......... 192,630 174,054 258,763 245,313 232,486
Stockholders' equity.... 436,610 420,492 488,089 555,120 631,925
WAREHOUSES OPEN AT END
OF PERIOD:
BJ's Wholesale Club..... 39 52 62 71 81
HomeBase................ 86 82 77 79 84
</TABLE>
37
<PAGE>
PRO FORMA FINANCIAL DATA OF WABAN
The following unaudited pro forma financial data for the period ended
January 25, 1997 and as of January 25, 1997 illustrate the estimated effects
on Waban of the proposed Distribution and (i) the repayment by BJI to Waban of
intercompany indebtedness and current taxes payable, (ii) the prepayment of
the Senior Notes and Senior Subordinated Notes, (iii) new borrowings under
Waban's proposed credit agreement and (iv) the conversion or redemption of the
Convertible Debentures (the "Related Waban Transactions"). The Company expects
to call the Convertible Debentures for redemption prior to the Distribution.
Such pro forma financial data has been prepared to present two alternative
scenarios. Scenario A gives pro forma effect to the conversion of the
Convertible Debentures into Waban Common Stock. Scenario B gives pro forma
effect to the redemption of the Convertible Debentures for cash. It is a
condition to the Distribution that such conversion or redemption take place
and, if the Convertible Debentures are redeemed for cash, that BJI complete an
equity offering to reduce the indebtedness that Waban would incur to finance
the redemption. However, there can be no assurance that holders of the
Convertible Debentures will convert their Convertible Debentures into Waban
Common Stock or that, if all Convertible Debentures are not converted, BJI
will complete such an equity offering.
The following unaudited pro forma financial data for the periods ended
January 28, 1995 and January 27, 1996 illustrate the effect on Waban of the
Distribution.
The unaudited pro forma financial data of Waban does not purport to
represent what the financial position or results of operations of Waban would
have been if the Distribution and Related Waban Transactions had in fact been
consummated on the dates indicated or at any future date. The pro forma
adjustments are based upon available information and upon certain assumptions
that Waban's management believes are reasonable in the circumstances.
38
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................ $ 14,593 $ 30,000 (2) $ 5,093
(139,500)(3)
100,000 (4)
Accounts receivable...................... 59,267 (34,006)(4) 25,261
Merchandise inventories.................. 611,754 (295,216)(4) 316,538
Current deferred income taxes............ 16,425 (6,549)(4) 9,876
Prepaid expenses......................... 11,066 (6,091)(4) 4,975
---------- --------
Total current assets................... 713,105 361,743
Property, net of depreciation.............. 629,645 (380,610)(4) 249,035
Other assets............................... 33,216 (11,194)(4) 18,439
(1,391)(1)
(2,192)(3)
---------- --------
Total assets........................... $1,375,966 $629,217
========== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Current liabilities:
Current installments of long-term debt... $ 12,817 (12,000)(3) $ 654
(163)(4)
Accounts payable......................... 284,927 (200,024)(4) 84,903
Accrued expenses and other current
liabilities............................. 135,856 (66,302)(4) 69,554
Accrued federal and state income taxes... 3,663 (12,431)(4) (4,066)
12,431 (4)
(563)(1)
(6,278)(3)
(888)(3)
---------- --------
Total current liabilities.............. 437,263 151,045
Noncurrent liabilities..................... 74,292 (28,466)(4) 45,826
Long-term debt............................. 232,486 (108,568)(1) 39,326
30,000 (2)
(112,000)(3)
(2,592)(4)
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C>
Common stock............................... 333 44 (1) 377
Additional paid-in capital................. 329,719 97,696 (1) 392,643
(34,772)(4)
Treasury stock............................. (10,000) 10,000 (1) --
Retained earnings.......................... 311,873 (9,222)(3) --
(1,304)(3)
(301,347)(4)
---------- --------
Total stockholders' equity............. 631,925 393,020
---------- --------
Total liabilities and stockholders'
equity................................ $1,375,966 $629,217
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
39
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (17,008)(2) 2,727
---------- ----------
Total expenses........................... 4,249,202 1,417,565
---------- ----------
Income from continuing operations before
taxes................................... 126,326 35,131
Provision for income taxes............... 49,666 (35,840)(3) 13,826
---------- ----------
Income from continuing operations........ $ 76,660 $ 21,305
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.57
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
40
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of the Convertible Debentures (net of
$1,391,000 unamortized debt expense and related tax benefit) into 4,386,585
shares of common stock.
(2) Adjustment to record borrowings under Waban's proposed credit
agreement to repay the Senior Notes and Senior Subordinated Notes.
(3) Adjustment to record repayment of the Senior Notes and Senior
Subordinated Notes and related prepayment penalties of approximately
$15,500,000, the write-off of unamortized debt expense of $2,192,000, and
related tax benefits. Based on interest rates as of April 9, 1997, the
prepayment penalties would be approximately $14,200,000.
(4) Adjustment to record transfer of BJ's Wholesale Club, Inc.'s current
taxes payable to Waban through the intercompany balance (after forgiveness
of $60,512,000 of intercompany indebtedness), to record cash received from
BJ's Wholesale Club, Inc. for repayment of its remaining intercompany debt
and to reflect the distribution of BJ's Wholesale Club, Inc.'s net assets.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJ's
Wholesale Club, Inc.'s discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
37,127,526 shares of common stock outstanding (including 4,386,585 shares of
common stock issued upon conversion of the Convertible Debentures) plus
575,483 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
41
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 14,593 $ 210,512 (1) $ 3,117
30,000 (2)
(251,988)(3)
Accounts receivable..................... 59,267 (34,006)(1) 25,261
Merchandise inventories................. 611,754 (295,216)(1) 316,538
Current deferred income taxes........... 16,425 (6,549)(1) 9,876
Prepaid expenses........................ 11,066 (6,091)(1) 4,975
---------- --------
Total current assets.................. 713,105 359,767
Property, net of depreciation............. 629,645 (380,610)(1) 249,035
Other assets.............................. 33,216 (11,194)(1) 18,439
(3,583)(3)
---------- --------
Total assets.......................... $1,375,966 $627,241
========== ========
LIABILITIES
Current liabilities:
Current installments of long-term debt.. $ 12,817 (163)(1) $ 654
(12,000)(3)
Accounts payable........................ 284,927 (200,024)(1) 84,903
Accrued expenses and other current
liabilities............................ 135,856 (66,302)(1) 69,554
Accrued federal and state income taxes.. 3,663 (12,431)(1) (5,653)
12,431 (1)
(7,865)(3)
(1,451)(3)
---------- --------
Total current liabilities............. 437,263 149,458
Noncurrent liabilities.................... 74,292 (28,466)(1) 45,826
Long-term debt............................ 232,486 (220,568)(3) 39,326
30,000 (2)
(2,592)(1)
STOCKHOLDERS' EQUITY
Common stock.............................. 333 333
Additional paid-in capital................ 329,719 329,719
Treasury stock............................ (10,000) (10,000)
Retained earnings......................... 311,873 (225,607)(1) 72,579
(11,555)(3)
(2,132)(3)
---------- --------
Total stockholders' equity............ 631,925 392,631
---------- --------
Total liabilities and stockholders'
equity............................... $1,375,966 $627,241
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
42
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (17,008)(2) 2,727
---------- ----------
Total expenses........................... 4,249,202 1,417,565
---------- ----------
Income from continuing operations before
taxes................................... 126,326 35,131
Provision for income taxes............... 49,666 (35,840)(3) 13,826
---------- ----------
Income from continuing operations........ $ 76,660 $ 21,305
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.64
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
43
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer of BJ's Wholesale Club, Inc.'s current
taxes payable to Waban through the intercompany balance, to record cash
received from BJ's Wholesale Club, Inc. for repayment of its remaining
intercompany debt and a $50,000,000 dividend and to reflect the
distribution of BJ's Wholesale Club, Inc.'s net assets.
(2) Adjustment to record borrowings under Waban's proposed credit
agreement to repay the Senior Notes, Senior Subordinated Notes and
Convertible Debentures.
(3) Adjustment to record repayment of the Senior Notes, Senior
Subordinated Notes and Convertible Debentures and related prepayment
penalties of approximately $19,420,000, and the write-off of unamortized
debt expense of $3,583,000 and related tax benefits.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJ's
Wholesale Club, Inc.'s discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%.
(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
32,740,941 shares of common stock outstanding plus 575,483 common equivalent
shares, using the treasury stock method of accounting for outstanding stock
options.
44
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,978,384 (2,529,608)(1) $1,448,776
---------- ----------
Cost of sales, including buying and
occupancy costs........................ 3,387,992 (2,263,532)(1) 1,124,460
Selling, general and administrative
expenses............................... 455,523 (179,868)(1) 275,655
Interest on debt and capital leases,
net.................................... 15,431 (7,654)(2) 7,777
---------- ----------
Total expenses........................ 3,858,946 1,407,892
---------- ----------
Income from continuing operations before
income taxes........................... 119,438 40,884
Provision for income taxes.............. 46,461 (30,558)(3) 15,903
---------- ----------
Income from continuing operations....... $ 72,977 $ 24,981
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $0.75
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,220,445 common and common equivalent shares outstanding.
45
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 28, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,650,281 $(2,293,091)(1) $1,357,190
---------- ----------
Cost of sales, including buying and oc-
cupancy costs.......................... 3,110,787 (2,054,167)(1) 1,056,620
Selling, general and administrative ex-
penses................................. 418,404 (170,292)(1) 248,112
Interest on debt and capital leases,
net.................................... 14,898 (6,332)(2) 8,566
---------- ----------
Total expenses.......................... 3,544,089 1,313,298
---------- ----------
Income from continuing operations before
income taxes........................... 106,192 43,892
Provision for income taxes.............. 41,202 (24,173)(3) 17,029
---------- ----------
Income from continuing operations....... $ 64,990 $ 26,863
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $ 0.80
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,405,014 common and common equivalent shares outstanding.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF UNAUDITED PRO FORMA FINANCIAL DATA OF WABAN
Waban's Pro Forma Condensed Balance Sheet as of January 25, 1997 and Waban's
Pro Forma Condensed Statements of Income for the fiscal year ended January 25,
1997 summarize the estimated effects on Waban of the proposed Distribution and
related transactions. These transactions (the "related transactions") include
the repayment by BJI of its intercompany debt and current taxes payable to
Waban, the retirement of the Senior Notes and Senior Subordinated Notes, new
borrowings under Waban's proposed credit agreement and the conversion or
redemption of the Convertible Debentures. The Pro Forma Condensed Balance
Sheet assumes that the Distribution and the related transactions occurred on
January 25, 1997. The Pro Forma Condensed Statement of Income for the period
ended January 25, 1997 assumes that the Distribution and related transactions
occurred at the beginning of fiscal 1996 and summarizes the results of
continuing operations. Each of these statements is presented under two
scenarios. One scenario assumes the conversion of the Convertible Debentures
into common stock; the other scenario assumes the redemption of the
Convertible Debentures for cash.
Under either scenario, pro forma long-term debt would be approximately $39
million as of January 25, 1997, including approximately $30 million of new
borrowings under the proposed credit agreement. (Other long-term debt consists
principally of capital lease obligations.) Stockholders' equity would be
approximately $393 million under either scenario.
In the Pro Forma Condensed Statements of Income, pro forma total revenues,
cost of sales (including buying and occupancy costs) and selling, general and
administrative (SG&A) expenses exclude the results of BJ's operations. Pro
forma sales and cost of sales represent HomeBase's results. Pro forma SG&A
expenses represent HomeBase's expenses and all of Waban's corporate overhead,
which corporate overhead totaled $7.3 million for the fiscal year ended
January 25, 1997. As a public entity, HomeBase will incur SG&A costs in
addition to the costs it incurred as a separate division, but the incremental
amount is expected to be less than that of Waban, which operated two
divisions. Waban's pro forma interest expense is based on the pro forma debt
presented in the Pro Forma Condensed Balance Sheet as of January 25, 1997.
Waban's Pro Forma Condensed Statements of Income for the fiscal years ended
January 27, 1996 and January 28, 1995 represent Waban's historical
consolidated results of operations adjusted to exclude BJ's historical results
of operations only. Pro forma sales and cost of sales represent HomeBase's
results. Pro forma SG&A expenses represent HomeBase's expenses and all of
Waban's corporate overhead, which corporate overhead totaled $7.1 million in
the fiscal year ended January 27, 1996 and $8.2 million in the fiscal year
ended January 28, 1995. Pro forma interest expense represents Waban's
consolidated interest less an allocation of interest expense to BJ's, which
was based on BJ's ratio of net assets to Waban's consolidated net assets plus
debt.
The pro forma financial data of Waban should be read in conjunction with the
audited Consolidated Financial Statements of Waban and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Waban included in Waban's Annual Report on Form 10-K for the
fiscal year ended January 25, 1997, which is incorporated by reference herein.
47
<PAGE>
BJI CAPITALIZATION
The following table sets forth the pro forma capitalization of BJI at
January 25, 1997 after giving effect to the conversion of the Convertible
Debentures into 4,386,585 shares of Waban Common Stock, or alternatively, the
redemption for cash of the Convertible Debentures by Waban and the completion
of an equity offering by BJI with net proceeds of $110 million, at an assumed
offering price of $22.00 per share (net of offering fees and expenses). Both
pro forma presentations give effect to (i) the transfer of BJI's current taxes
payable to Waban through its intercompany account, and (ii) borrowings of
long-term debt under BJI's proposed credit agreement and repayment of the
remaining intercompany debt to Waban. The pro forma capitalization which gives
effect to the conversion of the Convertible Debentures also gives effect to
Waban's contribution to BJI's equity through the forgiveness of a portion of
intercompany debt. The pro forma capitalization which gives effect to the
redemption for cash of the Convertible Debentures also gives effect to the
payment of a $50,000,000 dividend to Waban. This data should be read in
conjunction with the historical financial statements and the unaudited pro
forma financial data of BJI included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA FOR
PRO FORMA FOR REDEMPTION OF
CONVERSION OF CONVERTIBLE
CONVERTIBLE DEBENTURES
DEBENTURES FOR CASH AND
INTO COMMON BJI EQUITY
ACTUAL STOCK FINANCING
-------- ------------- -------------
<S> <C> <C> <C>
Short-term debt and current maturities of
long-term debt........................... $ 163 $ 163 $ 163
Loans and advances from Waban Inc......... 148,081 -- --
Long-term debt, less current maturities... 2,592 102,592 103,104
Stockholder's equity:
Common stock............................ 327 371 377
Additional paid-in capital.............. -- 60,512 109,950
Retained earnings....................... 275,280 275,236 225,280
-------- -------- --------
Total stockholder's equity.............. 275,607 336,119 335,607
-------- -------- --------
Total capitalization.................. $426,443 $438,874 $438,874
======== ======== ========
</TABLE>
48
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BJI
The following table summarizes selected historical financial data of BJI for
each fiscal year in the five-year period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of
the BJ's Division. The BJI financial statements include certain allocations of
the overhead expenses incurred by Waban that support BJI's business. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI.
The historical financial data is not necessarily indicative of BJI's future
results of operations or financial condition. The data set forth below should
be read in conjunction with the unaudited pro forma financial data and the
notes thereto of BJI, the audited Combined Financial Statements of BJI and the
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations of BJI included elsewhere in this Proxy
Statement/Prospectus. The historical financial data is audited except for the
1992 fiscal year. For a discussion of the basis of presentation of the BJI
Combined Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Combined Financial Statements. For a discussion of certain sales
information for the four-week and five-week periods ended March 1, 1997 and
April 5, 1997, respectively, see "Recent Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(53 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $1,786,916 $2,003,385 $2,293,091 $2,529,608 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 1,618,004 1,807,586 2,054,167 2,263,532 2,605,602
Selling, general and
administrative
expenses............... 137,596 155,425 174,416 183,419 212,660
Interest on debt and
capital leases (net)... 446 7,807 13,665 14,757 16,838
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 30,870 32,567 50,843 67,900 87,732
Provision for income
taxes.................. 9,733 12,351 19,941 26,350 34,108
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
principle changes...... 21,137 20,216 30,902 41,550 53,624
Cumulative effect of
accounting principle
changes................ -- 2,107 -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 21,137 $ 22,323 $ 30,902 $ 41,550 $ 53,624
========== ========== ========== ========== ==========
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 43,907 $ 71,248 $ 58,252 $ 77,207 $ 62,942
Total assets............ 369,533 506,034 563,931 676,675 737,211
Long-term debt and
obligations under
capital leases......... 3,502 3,262 2,960 2,731 2,592
Loans and advances from
Waban Inc.............. 73,984 152,427 142,512 181,730 148,081
Stockholder's equity.... 127,208 149,531 180,433 221,983 275,607
CLUBS OPEN AT END OF
PERIOD................. 39 52 62 71 81
</TABLE>
49
<PAGE>
PRO FORMA FINANCIAL DATA OF BJI
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of intercompany indebtedness and current taxes payable, (ii) new
borrowings under BJI's proposed credit agreement, and (iii) the impact of the
conversion or redemption of the Convertible Debentures for cash and the
related equity contribution by Waban or dividend paid to Waban (the "Related
BJI Transactions"). The Company intends to call the Convertible Debentures for
redemption prior to the Distribution. The pro forma financial data has been
prepared to present two alternative scenarios. Scenario A gives pro forma
effect to the conversion of the Convertible Debentures into Waban Common
Stock. Scenario B gives pro forma effect to the redemption of the Convertible
Debentures for cash and the completion of an equity offering by BJI with net
proceeds of $110 million, at an assumed offering price of $22.00 per share
(net of offering fees and expenses). The pro forma balance sheet data is based
on the January 25, 1997 balance sheet of BJI and assumes the Distribution and
Related BJI Transactions were consummated on that date. The pro forma income
statement data gives effect to the Distribution and Related BJI Transactions
as if they occurred at the beginning of fiscal 1996. The unaudited pro forma
financial data should be read in conjunction with the historical financial
statements of BJI included elsewhere in this Proxy Statement/Prospectus.
The pro forma financial data of BJI does not purport to represent what the
financial position or results of operations of BJI would have been if the
Distribution and Related BJI Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based
upon available information and upon certain assumptions that BJI's management
believes are reasonable in these circumstances.
50
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ -- $ --
Accounts receivable....................... 34,006 34,006
Merchandise inventories................... 295,216 295,216
Current deferred income taxes............. 6,549 6,549
Prepaid expenses.......................... 6,091 6,091
-------- --------
Total current assets.................... 341,862 341,862
Property, net of depreciation............... 380,610 380,610
Other assets................................ 14,739 14,739
-------- --------
Total assets............................ $737,211 $737,211
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...... $ 163 $ 163
Accounts payable.......................... 200,024 200,024
Accrued expenses and other current
liabilities.............................. 66,302 66,302
Accrued federal and state income taxes.... 12,431 (12,431)(1) --
-------- --------
Total current liabilities............... 278,920 266,489
Noncurrent liabilities...................... 28,466 28,466
Deferred income taxes....................... 3,545 3,545
Loans and advances from Waban Inc........... 148,081 12,431 (1) --
(60,512)(3)
(100,000)(4)
Long-term debt.............................. 2,592 100,000 (4) 102,592
STOCKHOLDER'S EQUITY
Common stock................................ 327 44 (2) 371
Additional paid-in capital.................. -- 60,512 (3) 60,512
Retained earnings........................... 275,280 (44)(2) 275,236
-------- --------
Total stockholder's equity................ 275,607 336,119
-------- --------
Total liabilities and stockholder's
equity................................... $737,211 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
51
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales.................................. $2,868,561 $2,868,561
Membership fee income...................... 54,271 54,271
---------- ----------
Total revenues............................. 2,922,832 2,922,832
---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,605,602 2,605,602
Selling, general and administrative
expenses.................................. 212,660 212,660
Interest on debt and capital leases, net... 16,838 (11,057)(1) 5,781
---------- ----------
Total expenses............................. 2,835,100 2,824,043
---------- ----------
Income before income taxes................. 87,732 98,789
Provision for income taxes................. 34,108 4,478 (2) 38,586
---------- ----------
Net income................................. $ 53,624 $ 60,203
========== ==========
Pro forma earnings per share............... $ 1.60
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
52
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to reflect additional shares outstanding as a result of
conversion of Waban's Convertible Debentures into 4,386,585 shares of
common stock.
(3) Adjustment to record Waban's contribution of $60,512,000 to the
equity of BJ's Wholesale Club, Inc. through the forgiveness of intercompany
indebtedness.
(4) Adjustment to record borrowings under BJ's Wholesale Club, Inc.'s
proposed credit agreement and repayment of outstanding intercompany
indebtedness to Waban.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$100,000,000 borrowing under BJ's Wholesale Club, Inc.'s proposed credit
agreement in lieu of interest expense on intercompany borrowings from
Waban. Interest on credit agreement borrowings is assumed to be 6.50%.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
Pro forma earnings per share is based on 37,127,526 shares of common stock
outstanding (including 4,386,585 shares of common stock issued upon conversion
of Waban's Convertible Debentures) plus common equivalent shares of 427,139,
using the treasury stock method of accounting for outstanding stock options.
Management believes the historical financial statements reflect BJ's
Wholesale Club Inc.'s historical costs of doing business. As a publicly owned
company, BJ's Wholesale Club, Inc. will likely incur additional costs. Such
additional costs, estimated to be approximately $2.0 million on an annual
basis and approximately $500,000 on a quarterly basis, are not reflected in
the Pro Forma Condensed Statements of Income.
53
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION
-------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
FOR FOR EQUITY FOR EQUITY
HISTORICAL REDEMPTION PRO FORMA FINANCING FINANCING
---------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................. $ -- $ -- $ --
Accounts receivable... 34,006 34,006 34,006
Merchandise
inventories.......... 295,216 295,216 295,216
Current deferred
income taxes......... 6,549 6,549 6,549
Prepaid expenses...... 6,091 6,091 6,091
-------- -------- ------------
Total current
assets............. 341,862 341,862 341,862
Property, net of
depreciation........... 380,610 380,610 380,610
Other assets............ 14,739 14,739 14,739
-------- -------- ------------
Total assets........ $737,211 $737,211 $ 737,211
======== ======== ============
LIABILITIES
Current liabilities:
Current maturities of
long-term debt....... $ 163 $ 163 $ 163
Accounts payable...... 200,024 200,024 200,024
Accrued expenses and
other current
liabilities.......... 66,302 66,302 66,302
Accrued federal and
state income taxes... 12,431 (12,431)(1) -- --
-------- -------- ------------
Total current
liabilities........ 278,920 266,489 266,489
Noncurrent liabilities.. 28,466 28,466 28,466
Deferred income taxes... 3,545 3,545 3,545
Loans and advances from
Waban Inc.............. 148,081 12,431 (1) -- --
(160,512)(2)
Long-term debt.......... 2,592 210,512 (2) 213,104 (110,000)(3) 103,104
STOCKHOLDER'S EQUITY
Common stock............ 327 327 50 (3) 377
Additional paid-in
capital................ -- -- 109,950 (3) 109,950
Retained earnings....... 275,280 (50,000)(2) 225,280 225,280
-------- -------- ------------
Total stockholder's
equity............... 275,607 225,607 335,607
-------- -------- ------------
Total liabilities and
stockholder's equity. $737,211 $737,211 $737,211
======== ======== ============
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
54
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION
---------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR AS ADJUSTED FOR
HISTORICAL FOR REDEMPTION PRO FORMA EQUITY FINANCING EQUITY FINANCING
---------- -------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales............... $2,868,561 $2,868,561 $2,868,561
Membership fee income... 54,271 54,271 54,271
---------- ---------- ----------
Total revenues.......... 2,922,832 2,922,832 2,922,832
---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,605,602 2,605,602 2,605,602
Selling, general and
administrative
expenses............... 212,660 212,660 212,660
Interest on debt and
capital leases, net.... 16,838 (3,874)(1) 12,964 (7,150)(3) 5,814
---------- ---------- ----------
Total expenses.......... 2,835,100 2,831,226 2,824,076
---------- ---------- ----------
Income before income
taxes.................. 87,732 91,606 98,756
Provision for income
taxes.................. 34,108 1,569 (2) 35,677 2,896 (4) 38,573
---------- ---------- ----------
Net income.............. $ 53,624 $ 55,929 $ 60,183
========== ========== ==========
Pro forma earnings per
share.................. $ 1.69 $ 1.58
========== ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
55
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--REDEMPTION OF CONVERTIBLE DEBENTURES FOR CASH
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to record borrowings under BJ's Wholesale Club, Inc.'s
proposed credit agreement and repayment of outstanding intercompany
indebtedness to Waban and payment of a $50,000,000 dividend to Waban.
(3) Adjustment to record net proceeds of $110,000,000 from completion of
an equity offering by BJ's Wholesale Club, Inc. to repay borrowings under
its proposed credit agreement. Such equity offering assumes the sale of
5,000,000 shares of common stock at $22.00 per share, net of offering fees
and expenses.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$210,512,000 borrowing under BJ's Wholesale Club, Inc.'s proposed credit
agreement in lieu of interest expense on intercompany borrowings from
Waban. Interest on proposed credit agreement borrowings is assumed to be
6.50%.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
(3) Adjustment to pro forma interest expense resulting from reduction in
borrowings noted in Balance Sheet adjustment (3) above.
(4) Adjustment to income tax provision for the estimated income tax
effect of Statements of Income adjustment (3) above.
Pro forma net income per common share is based on 32,740,941 shares of
common stock outstanding plus 427,139 common equivalent shares, using the
treasury stock method of accounting for outstanding stock options. Adjusted
pro forma net income per common share is based on 37,740,941 shares of common
stock outstanding plus 427,139 common equivalent shares.
Management believes the historical financial statements reflect BJ's
Wholesale Club, Inc.'s historical costs of doing business. As a publicly owned
company, BJ's Wholesale Club, Inc. will likely incur additional costs. Such
additional costs, estimated to be approximately $2.0 million on an annual
basis and approximately $500,000 on a quarterly basis, are not reflected in
the Pro Forma Condensed Statements of Income.
It is a condition to the Distribution that if the Convertible Debentures are
redeemed for cash, BJ's Wholesale Club, Inc. complete an equity offering to
reduce the indebtedness that Waban would incur to finance such redemption.
Accordingly, supplemental information showing the effect of an assumed equity
offering is included.
56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BJI
Fiscal year references apply to BJI's fiscal year which ends on the last
Saturday in January of the following calendar year. For example, the fiscal
year ended January 25, 1997 is referred to as "1996" or "fiscal 1996."
RESULTS OF OPERATIONS
The following table presents selected income statement data for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
----------------- ----------------- -----------------
% OF % OF % OF
$ REVENUES $ REVENUES $ REVENUES
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $2,244.6 97.9% $2,478.3 98.0% $2,868.5 98.1%
Membership fee income.... 48.5 2.1 51.3 2.0 54.3 1.9
-------- ----- -------- ----- -------- -----
Total revenues........... $2,293.1 100.0% $2,529.6 100.0% $2,922.8 100.0%
Cost of sales, including
buying and occupancy
costs................... 2,054.2 89.6 2,263.5 89.5 2,605.6 89.1
Selling, general and
administrative expenses. 174.4 7.6 183.4 7.2 212.7 7.3
Interest on debt and
capital leases (net).... 13.7 .6 14.8 .6 16.8 .6
-------- ----- -------- ----- -------- -----
Income before income
taxes................... 50.8 2.2 67.9 2.7 87.7 3.0
Provision for income
taxes................... 19.9 .9 26.3 1.1 34.1 1.2
-------- ----- -------- ----- -------- -----
Net income............... $ 30.9 1.3% $ 41.6 1.6% $ 53.6 1.8%
======== ===== ======== ===== ======== =====
</TABLE>
1996 COMPARED WITH 1995 AND 1994
Total revenues of BJI increased by 15.5% from 1995 to 1996 and by 10.3% from
1994 to 1995. The increases in both years were due principally to the opening
of new warehouse stores. Comparable store sales increased by 5.5% from 1995 to
1996 and by .4% from 1994 to 1995. The comparable store sales increase in 1996
was attained through marketing and merchandising programs that positively
impacted both food and general merchandise sales. The effect of increased
competition and opening of new BJ's clubs in the same markets as existing BJ's
clubs was less pronounced in 1996 than in the two previous years.
Total revenues included membership fee income of $54.3 million in 1996,
$51.3 million in 1995 and $48.5 million in 1994.
Cost of sales (including buying and occupancy costs) as a percentage of
total revenues was 89.1% in 1996, 89.5% in 1995 and 89.6% in 1994. The
decreases in the cost of sales percentage resulted from BJI's continuing
ability to introduce higher margin products into the merchandise mix and
maintaining tight control over inventory.
Selling, general and administrative ("SG&A") expenses as a percentage of
total revenues were 7.3% in 1996, 7.2% in 1995 and 7.6% in 1994. The decrease
in the SG&A ratio from 1994 to 1995 was due to effective expense control and
leveraging home office expenses on a growing number of warehouse clubs.
57
<PAGE>
The components of net interest expense in the last three years were as
follows (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense on debt............. $14.4 $ 14.6 $16.6
Interest income...................... (1.1) (.1) (.1)
----- ------ -----
Interest on debt (net)............... 13.3 14.5 16.5
Interest on capital leases........... .4 .3 .3
----- ------ -----
Interest on debt and capital leases
(net)............................... $13.7 $ 14.8 $16.8
===== ====== =====
</TABLE>
Interest expense on debt represents interest on intercompany borrowings from
Waban, charged at an annual rate of 10%, less capitalized interest.
Capitalized interest was $1.0 million, $1.5 million and $1.1 million in 1996,
1995 and 1994, respectively.
BJI's income tax provision was 38.9% of pre-tax income in 1996, 38.8% in
1995 and 39.2% in 1994. The decrease in the tax provision rate from 1994 to
1995 was due primarily to a lower effective state income tax rate.
Net income was $53.6 million, or 1.8% of total revenues, in 1996 versus
$41.6 million, or 1.6% of total revenues, in 1995 and $30.9 million, or 1.3%
of total revenues, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $105.2 million in 1996 versus
$50.6 million in 1995. This increase was due mainly to an improved accounts
payable-to-inventory ratio and higher net income before depreciation and
amortization.
Cash expended for property additions was $71.7 million in 1996 versus $90.2
million in 1995. BJI opened ten new BJ's clubs in 1996 and nine new clubs in
1995. Six of the new stores opened in 1996 were owned versus seven in the
previous year. Cash expended for property additions in 1995 included
significant land acquisition and building costs for stores that opened in
1996. Expenditures in 1996 for stores opening in 1997 were immaterial.
Capital expenditures for the full 1997 year are expected to be approximately
$90 million, based on opening ten new BJ's clubs. The timing of actual store
openings and the amount of related expenditures could vary from these
estimates due to the complexity of the real estate development process.
To date, BJI's operations and expansion have been financed through loans
advanced by Waban as needed. BJI expects to establish its own credit agreement
to finance its operations and expansion after the Distribution.
BJI's Pro Forma Condensed Balance Sheet (see "Pro Forma Financial Data of
BJI") summarizes BJI's financial position assuming the Distribution and
related transactions were consummated on January 25, 1997. The Distribution is
conditioned upon, among other things, the conversion into common stock or the
redemption for cash of Waban's Convertible Debentures. If the Convertible
Debentures were converted into common stock on January 25, 1997, BJI would
repay approximately $100 million of its intercompany indebtedness with
borrowings under BJI's proposed credit agreement and Waban would have
contributed approximately $60 million to BJI's equity through forgiveness of
BJI's remaining intercompany indebtedness to Waban. If the Convertible
Debentures were redeemed for cash, BJI would have undertaken an equity
offering (net proceeds estimated at approximately $110 million) and borrowed
$100 million under its proposed credit agreement to repay BJI's remaining
intercompany indebtedness to Waban and pay Waban a $50 million dividend.
58
<PAGE>
BJI BUSINESS AND PROPERTIES
GENERAL
The Company, through the BJ's Division, introduced the warehouse club
concept to New England in 1984 and has since expanded in the northeastern and
Mid-Atlantic states, as well as in southern Florida. As of January 25, 1997,
the Company operated 81 BJ's warehouse clubs in 12 states and had over four
million members. The table below shows BJ's warehouse club locations by state.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
New York....................................... 21
Massachusetts.................................. 12
New Jersey..................................... 10
Pennsylvania................................... 9
Maryland....................................... 6
Virginia....................................... 6
Connecticut.................................... 5
Florida........................................ 4
New Hampshire.................................. 4
Maine.......................................... 2
Delaware....................................... 1
Rhode Island................................... 1
---
Total........................................ 81
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse clubs typically sell a narrow assortment of brand name food and
general merchandise items within a wide range of product categories. In order
to achieve high sales volumes and rapid inventory turnover, merchandise
selections are generally limited to items that are brand name leaders in their
categories. Since warehouse clubs sell a diversified selection of product
categories, they attract customers from a wide range of other traditional
wholesale and retail distribution channels, such as supermarkets, discount
stores, office supply stores, consumer electronics stores, automotive stores
and wholesale distributors. The Company believes that it is difficult for
these higher cost channels of distribution to match the low prices offered by
warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing directly
from manufacturers and by storing merchandise on the sales floor rather than
in central warehouses. By operating no-frills, self-service warehouse
facilities, warehouse clubs have fixturing and operating costs substantially
below those of traditional retailers. Two broad groups of customers,
individual households and small businesses, have been attracted to the savings
on brand name merchandise made possible by the high sales volumes and low
operating costs achieved by warehouse clubs. The customers at warehouse clubs
are generally limited to members who pay an annual fee.
The warehouse club industry in the United States has grown from sales of
approximately $14 billion in 1988 to approximately $39 billion in 1996,
rapidly gaining market share of both food and general merchandise sales. The
Company believes that continued growth in the industry's market share will
come from the addition of new clubs as well as from sales growth of existing
clubs, primarily at the expense of more traditional channels of distribution.
59
<PAGE>
EXPANSION
Since the beginning of fiscal 1992, the BJ's Division has grown from 29
clubs to 81 clubs in operation at January 25, 1997, one of which was closed in
April 1997. Approximately ten additional clubs are expected to open in fiscal
1997 in the Northeast and Florida.
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
CLUBS IN CLUBS CLUBS CLUBS IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD PERIOD PERIOD OF PERIOD
----------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
1992 29 10 -- 39
1993 39 13 -- 52
1994 52 11 1 62
1995 62 9 -- 71
1996 71 10 -- 81
</TABLE>
STORE PROFILE
As of January 25, 1997, the Company operated 72 traditional "big box"
warehouse clubs with an average size of approximately 112,000 square feet and
nine smaller format warehouse clubs that averaged approximately 69,000 square
feet. Three of the ten new BJ's warehouse clubs planned for 1997 are expected
to incorporate the smaller format. The smaller format clubs are designed to
serve markets whose population is not sufficient to support a full-sized
warehouse club and to enhance market penetration where the Company has
established a presence with two or more larger clubs. Including space for
parking, a typical full-sized BJ's warehouse club requires eight to ten acres
of land. The smaller version typically requires approximately eight acres.
BJ's warehouse clubs are located in both free-standing locations and local
shopping centers. In some locations, BJ's warehouse clubs are combined with
other large store retailers in shopping centers known as power centers.
Construction and site development costs for a full-sized BJ's warehouse club
average approximately $5.0 million. Land acquisition costs for a warehouse
club generally range from $2.5 million to $5.5 million, but can be
significantly higher in some locations. Opening a traditional-sized BJ's
warehouse club entails an initial capital investment of approximately $2.4
million for fixtures and equipment, as well as approximately $2.0 million for
inventory (net of accounts payable) and pre-opening expenses.
MERCHANDISING
The Company seeks to service its current members and attract new members by
providing a broad range of high quality, brand name merchandise at everyday
prices that are consistently lower than the prices available through
traditional wholesalers, discount retailers, supermarkets and specialty retail
operators. The Company limits the items offered in each product line to fast
selling styles, sizes and colors and, therefore, carries an average of
approximately 5,000 active stock-keeping units ("SKUs"). By contrast,
supermarkets normally stock approximately 25,000 SKUs, and discount stores
typically stock approximately 60,000 SKUs. The Company works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to members.
A primary component of the Company's merchandising strategy is to provide a
constantly changing mix of food and general merchandise items for the retail
"Inner Circle(R)" member to create an exciting shopping experience. An equally
important merchandising objective is to provide the business member with
consistent low prices for frequently purchased items such as food service
items and cleaning and office supplies. A number of the Company's specialty
product categories such as eye care products and accessories, jewelry,
perfume, cellular phones and pagers and member services such as discount
travel, one-hour photo finishing, discounts for real estate and new car
purchases and an in-store food court featuring well-known fast food brands are
designed for member convenience as well as for their potential to generate
income and increase operating margins. "Members
60
<PAGE>
First" training programs for the Company's employees support the creation and
maintenance of a customer-friendly shopping experience, despite the warehouse
club's no-frills physical environment.
In recent years, food has accounted for an increasing percentage of the BJ's
Division's sales mix and currently represents approximately 62% of annual
sales. The remaining 38% consists of a wide variety of general merchandise
items. Food categories at BJ's warehouse clubs include frozen foods, meat and
dairy products, dry grocery items, fresh produce, canned goods, and household
paper products and cleaning supplies. The Company also offers fresh meat and
bakery departments and imported cheeses in nearly all its clubs, and in some
clubs is testing new specialty food offerings such as fresh deli items and
refrigerated produce. General merchandise includes office supplies, office
equipment, televisions, stereos, small appliances, auto accessories, tires,
jewelry, housewares, health and beauty aids, greeting cards and apparel. Other
products and services offered by BJ's warehouse clubs include cellular phones,
optical centers, lottery tickets, an auto buying service and a travel service.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, the Company employs regional buyers who are responsible for
tailoring the product selection in individual warehouse clubs to the regional
and ethnic tastes of the local market.
MEMBERSHIP
Paid membership is an integral part of the warehouse club concept. In
addition to providing a source of revenue which permits the Company to offer
low prices, membership also reinforces customer loyalty and allows BJI to
concentrate on serving high-volume, repeat customers. The Company has two
primary types of members: business members and Inner Circle members. BJ's
Inner Circle members are likely to be home owners and tend to have incomes
which are above the average for the Company's trading area. The Company
believes that a significant percentage of its business members are also active
BJ's warehouse club shoppers for their personal needs. At January 25, 1997,
the Company had over four million members (including supplemental
cardholders).
The Company charges an annual membership fee for individuals and qualified
businesses of $30 for the primary membership and provides one free
supplemental membership. Additional supplemental memberships for business
members cost $15 each. The Company's membership policy does not restrict
membership, whereas the Company's competitors have typically required
individual members to belong to certain qualifying groups. The Company
believes that its more liberal membership policy has attracted incremental
sales without adversely affecting its costs.
ADVERTISING
The Company increases customer awareness of its BJ's warehouse clubs
primarily through public relations efforts, new store marketing programs,
direct mail solicitations and, at certain times of the year, radio and
television advertising. The Company also employs a team of dedicated marketing
personnel who solicit potential business members and who contact selected
community groups to increase the number of members. From time to time, the
Company runs free trial membership promotions to attract new members with the
objective of converting them to paid membership status and also uses one-day
passes to introduce non-members to its warehouse clubs.
The Company's policy is generally to limit advertising and promotional
expenses to new warehouse club openings and to utilize print and electronic
media advertising sparingly. The Company uses limited vendor-funded television
and radio advertising during the Christmas holiday season. These policies
result in very low marketing expenses as compared to typical discount
retailers and supermarkets.
61
<PAGE>
WAREHOUSE CLUB OPERATIONS
The Company's ability to achieve profitable operations while offering high
quality, brand name merchandise at low prices depends upon the efficient
operation of its warehouse clubs and high sales volumes. The Company buys most
of its merchandise at volume discounts from manufacturers for shipment either
to a Company cross-docking facility or directly to BJ's warehouse clubs. This
eliminates many of the costs associated with traditional multiple-step
distribution channels, including distributors' commissions and the costs of
storing merchandise in central distribution facilities.
The Company routes a significant percentage of its general merchandise as
well as an increasing percentage of food purchases through cross-docking
facilities which break down truckload quantity shipments from manufacturers
and re-allocate these goods for shipment, generally on a same-day basis, to
individual warehouse clubs. This permits the Company to negotiate better
volume discounts and reduces freight expense, the number of trucks received at
each warehouse club and related receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a warehouse club. Most
merchandise is pre-marked by the manufacturer with the universal product code
(UPC) so that it does not require ticketing at the warehouse club. In
addition, the Company minimizes labor costs by designing its warehouse clubs
to be self-service for members. Merchandise for sale is displayed on pallets
containing large quantities of each item, thereby reducing labor required for
handling, stocking and restocking. Back-up merchandise is generally stored in
steel racks above the sales floor. The Company's goal is to keep at least one
day's supply of each item on the selling floor.
The Company has been able to limit inventory losses to levels well below
those typical of discount retailers by strictly controlling the exits of its
warehouse clubs, by generally limiting customers to members and by using
state-of-the-art electronic article surveillance technology. Problems
associated with payments by check have also been insignificant, since members
who issue dishonored checks are restricted to cash-only terms.
In October 1995, the Company became the first warehouse club chain to accept
MasterCard, and at the same time introduced a co-branded BJ's MasterCard.
Purchases made at BJ's warehouse clubs with the co-branded BJ's MasterCard
earn a 2% rebate. All other purchases with the BJ's MasterCard earn a 1%
rebate. Rebates are issued in the form of "BJ's Bucks," which can be redeemed
by members only at BJ's warehouse clubs. In addition to MasterCard, the
Company permits members to pay for their purchases by cash, check, Discover
card, or a BJ's credit card, which is provided by a major financial
institution on a non-recourse basis.
MANAGEMENT INFORMATION SYSTEMS
Over the past several years, the Company has made a significant investment
in enhancing the efficiency with which it handles merchandise and captures
sales information. The Company was the first warehouse club to introduce
scanning devices which work in conjunction with its electronic point of sale
(EPOS) terminals. Sales data from the EPOS terminals is continually
transmitted to a minicomputer in the warehouse club and transmitted daily to a
mainframe computer which provides detailed sales information to the Company's
management and buying staff. The Company utilizes a sophisticated merchandise
replenishment algorithm to suggest quantities to be re-ordered, which are
monitored daily by the Company's buying staff. The Company's fully integrated
information system also maintains detailed purchasing data on individual
members, permitting the buying staff and store managers to track changes in
members' buying behavior.
COMPETITION
The Company competes with a wide range of national, regional and local
retailers and wholesalers selling food or general merchandise in its markets,
including supermarkets, general merchandise chains, specialty chains and other
warehouse clubs, some of which have significantly greater financial and
marketing resources than the Company. Major competitors that operate warehouse
clubs include Costco Companies, Inc. and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).
62
<PAGE>
There is a large number of competitive membership warehouse clubs in the
Company's markets. Seventy of the Company's 72 "big box" BJ's warehouse clubs
have at least one competitive membership warehouse club in their trading areas
at an average distance of approximately seven miles. None of the smaller
format clubs has direct competition from other warehouse clubs.
The Company believes price is the major competitive factor in the markets in
which it competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes its
efficient, low-cost form of distribution gives it a significant competitive
advantage over more traditional channels of wholesale and retail distribution.
As a regional chain, the Company strives to differentiate itself from other
membership warehouse club operators by its attention to local buying
preferences and seasonality.
EMPLOYEES
As of January 25, 1997, the BJ's Division had approximately 11,000
employees, of whom approximately 300 were considered part-time employees
(persons who work less than 20 hours per week). Approximately 600 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse clubs. None of the BJ's Division's employees
is represented by unions. The Company considers its relations with its
employees to be excellent.
PROPERTIES
The Company operated 81 BJ's warehouse clubs as of January 25, 1997, of
which 44 are leased under long-term leases and 27 are owned. The Company owns
the buildings at the remaining ten locations, which are subject to long-term
ground leases.
The unexpired terms of these leases range from approximately three to 44
years, and average approximately 16 years. The Company has options to renew
all but one of its leases for periods that range from approximately five to 50
years and average approximately 20 years. These leases require fixed monthly
rental payments which are subject to various adjustments. In addition, certain
leases require payment of a percentage of the warehouse's gross sales in
excess of certain amounts. All leases require that the Company pay all
property taxes, insurance, utilities and other operating costs.
The BJ's Division's home office in Natick, Massachusetts occupies 142,000
square feet under leases expiring January 31, 1999 with options to extend
these leases through January 31, 2006.
LEGAL PROCEEDINGS
The BJ's Division is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material adverse effect on its financial condition or
results of operations.
63
<PAGE>
HOMEBASE BUSINESS AND PROPERTIES
GENERAL
The Company, through the HomeBase Division, is the second largest operator
of home improvement warehouse stores in the western United States and is the
nation's seventh largest home improvement merchandiser using a warehouse
format. The HomeBase Division offers a very broad assortment of home
improvement and building supply products at attractive prices to a customer
base that includes both serious and casual "Do-It-Yourself" ("DIY") customers,
as well as professional contractors. This merchandising presentation is
supported by a strong commitment to customer service aimed at developing
ongoing relationships with its customers.
The Company opened its first warehouse store in California in October 1983
and, as of January 25, 1997, operated 84 warehouse stores in ten western
states (including one store which the Company plans to close during 1997). The
table below shows HomeBase's locations by state as of January 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
California..................................... 48
Washington..................................... 9
Colorado....................................... 7
Arizona........................................ 5
Oregon......................................... 4
New Mexico..................................... 3
Utah........................................... 3
Nevada......................................... 2
Texas.......................................... 2
Idaho.......................................... 1
---
Total........................................ 84
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse-format home improvement stores typically provide lower prices than
traditional home improvement and building supply stores. The warehouse format
also offers a very broad assortment of home improvement products, combined
with a high level of service from knowledgeable, well-trained warehouse staff.
These factors are communicated to customers through ongoing, aggressive
advertising.
The warehouse format generally serves two broad customer groups within the
home improvement industry. The first group consists of individuals and
families that are making purchases and completing projects for their own homes
on a DIY basis. These DIY customers range from casual to serious, and require
varying levels of support in planning and selecting their purchases. The
second customer group consists of professional contractors and facility
managers who use home improvement and building supply products on a daily
basis in their businesses. This group is primarily interested in product
availability, low prices and fast, efficient service.
The Company believes that demographic and lifestyle factors such as the
aging of baby boomers, the increase in home-centered activities and the aging
housing stock will create growing demand for home improvement products and
services. The Company believes that the overall market for home improvement
products in the United States was approximately $139 billion in 1996.
Over the last ten years, warehouse-format home improvement retailers have
gained significant market share in the United States by offering lower prices,
greater product selection and more in-stock merchandise than traditional home
center, hardware and lumber yard operators. In addition, warehouse stores have
been able to take advantage of economies created by large sales volumes.
64
<PAGE>
EXPANSION
The Company is among the two largest home improvement operators in most of
the metropolitan markets which it serves. The Company's current expansion
strategy is oriented towards reinforcing its position in these existing
markets and expanding selectively to contiguous markets.
The following table shows the number of HomeBase stores opened and closed
during the last five fiscal years:
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
STORES IN STORES STORES STORES IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD THE PERIOD THE PERIOD OF PERIOD
----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
1992 73 13 -- 86
1993 86 5 9 82
1994 82 3 8 77
1995 77 4 2 79
1996 79 5 -- 84
</TABLE>
Since 1993, the Company has completed the remodeling or relocation of 38
older HomeBase stores to reflect its new prototype design. Waban expects to
continue the remodeling program and to open two new HomeBase stores, and close
one existing store, in fiscal 1997.
STRATEGIC INITIATIVES AND RESTRUCTURING
In 1993, the Company introduced a series of strategic initiatives designed
to strengthen its market position in the western United States and improve its
profitability. These initiatives included (i) a significant increase in the
level of customer service offered at HomeBase stores, through an increase in
the number of salespeople, including hiring experienced tradespeople and
others with specialized product knowledge in home improvement fields, and
enhanced sales and service training for both new and existing store employees,
(ii) improvement in gross margin through buying and logistics efficiencies
created by centralization of the merchandise replenishment function, improved
distribution of merchandise to reduce freight costs, and selective price
increases, and (iii) an aggressive marketing program to communicate to
customers the benefits of shopping at HomeBase and its improved levels of
customer service.
CUSTOMER SERVICE
The Company is committed to providing superior service to every customer.
Carefully selected home improvement specialists, many of whom have extensive
experience in their respective fields, are available throughout the store to
assist DIY customers and professional contractors. HomeBase's project design
centers and kitchen design centers feature computer assisted design tools that
allow customers to work with design coordinators to conceptualize and plan
virtually any home improvement project. The majority of HomeBase stores also
offer professional interior decorators who provide free design consultations
in the homes of HomeBase's customers.
The Company believes that it is important to expand the DIY marketplace by
encouraging new DIY customers and upgrading the skills and confidence levels
of existing DIY customers. Accordingly, HomeBase provides assistance and
training to DIY customers, including regularly scheduled customer clinics on a
wide range of home improvement projects. Delivery and installation are also
available as services to DIY customers.
HomeBase stores offer services to specifically address the needs of
contractors. A majority of HomeBase stores have Contractor Desks, with staff
dedicated to handling contractors' special needs, including the ability to
receive faxed orders and pre-assemble them for pick-up, and quickly obtaining
special items and sizes. HomeBase stores will also deliver bulk purchases to
job sites for a nominal fee. HomeBase stores offer extended hours, opening
early in the morning to serve professional contractors.
65
<PAGE>
The Company strives to develop the skills of its HomeBase store personnel to
ensure that customers consistently receive knowledgeable and courteous
assistance. The Company's training programs emphasize the importance of
customer service and improve store employees' selling skills. The Company
provides extensive training for its entry level warehouse store personnel
through a comprehensive in-house training program that combines on-the-job
training with formal seminars and meetings. On an ongoing basis, warehouse
store personnel attend periodic in-house training sessions conducted by the
Company's training staff or by manufacturers' representatives, and they
receive sales, product and other information in frequent meetings with their
managers. The HomeBase Division's satellite television system permits it to
simultaneously broadcast training sessions from its Irvine, California
headquarters to every individual warehouse store location.
Most of the HomeBase Division's merchandise is purchased from manufacturers
for shipment either directly to the selling warehouse store or to cross-
docking facilities where large shipments are broken down and separated for
transfer to individual warehouse stores, generally on a same-day basis. By
operating no-frills warehouse stores, the HomeBase Division's fixturing and
operating costs are kept substantially below those of traditional home
improvement retailers.
The HomeBase Division offers its own private label credit card to customers
under a non-recourse program operated by a major financial institution and
also accepts MasterCard, Visa, Discover and American Express.
MERCHANDISING
HomeBase stores' large product offering (approximately 28,000 SKUs) provides
a broad selection of brand name merchandise to both DIY customers and
professional contractors. The Company believes that the operating efficiencies
of the warehouse format provide substantial savings over other channels of
home improvement and building supply product distribution. In order to achieve
greater operational efficiencies and reduce freight and handling costs, as
well as improve the manner in which it acquires products, the Home Base
Division has centralized its merchandise replenishment operations and improved
its logistics of distribution. This program also permits the Company to
redeploy more store personnel to customer service activities.
Merchandise sold by HomeBase stores includes lumber, building materials,
plumbing supplies and fixtures, electrical materials and fixtures, kitchen
cabinets, hand and power tools, hardware, paint, garden supplies, nursery
items, home decorative items and related seasonal and household merchandise.
HomeBase's brand name orientation allows customers to compare HomeBase's
prices to the same items offered by competitors. In selected categories, the
Company supplements these brand name offerings with high quality private label
products at lower prices.
MARKETING AND ADVERTISING
The HomeBase Division addresses its primary target customers through a mix
of newspaper, direct mail, radio and television advertising. The primary
advertising medium is newspaper advertisements, including both freestanding
inserts and run-of-press ads. Television and radio advertising is used to
reinforce the HomeBase image of providing superior customer service and a
broad assortment of merchandise at everyday low prices. Additionally, the
Company participates in or hosts a variety of home shows, customer hospitality
events and contractor product shows. The HomeBase Division solicits vendor
participation in many of its advertising programs.
STORE PROFILE
The average size of the 84 HomeBase warehouse stores in operation at January
25, 1997 was approximately 102,000 square feet. Most HomeBase warehouse stores
also utilize outside selling space for nursery and garden centers. HomeBase
warehouse stores are located in both free-standing locations and local
shopping centers. In some locations, HomeBase warehouse stores are combined
with membership warehouse clubs or other large store retailers in shopping
centers known as power centers.
66
<PAGE>
Including space for parking, a typical new HomeBase warehouse store requires
eight to ten acres of land. Construction and site development costs for a new
HomeBase warehouse store average approximately $5.0 million. Land acquisition
costs for a new warehouse store generally range from $2.0 million to $6.0
million. A new HomeBase warehouse store entails an initial capital investment
of approximately $1.6 million for fixtures and equipment. In addition to
capital expenditures, each new warehouse store requires an investment of
approximately $2.7 million for inventory (net of accounts payable) and pre-
opening expenses.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on the performance of the
HomeBase business. Each HomeBase warehouse store operates point-of-sale
terminals which capture information on each item sold via UPC scanning.
Minicomputers at each warehouse store process and consolidate this information
during the selling day and transmit it each night to the HomeBase Division's
information center via satellite, where it is processed daily to support
merchandising, inventory replenishment and promotional decisions.
The Company introduced scanning to the home improvement industry and is a
leader in implementing electronic data interchange ("EDI"). EDI permits both
the HomeBase Division and its vendors to save money and reduce errors by
electronically transmitting advance shipment notices and purchase order and
invoicing information. The HomeBase Division now uses EDI with more than 1,200
vendors and continues to expand its use of this technology.
COMPETITION
The Company competes with other home improvement warehouse stores and a wide
range of businesses engaged in the wholesale or retail sale of home
improvement and building supply merchandise, including home centers, hardware
stores, lumber yards and discount stores. The Company believes the major
competitive factors in the markets in which the HomeBase Division competes are
customer service, price, product selection, location and name recognition. The
Company believes that its improved level of customer service, the value
offered by its low prices and the one-stop shopping available through its full
range of home improvement products give it an advantage over many of its
traditional home center competitors. The major competitor in the HomeBase
Division's market areas that also uses the warehouse merchandising format is
The Home Depot, Inc., which has significantly greater financial and marketing
resources than HomeBase. Approximately 85% of the HomeBase warehouse stores
compete with Home Depot units. The HomeBase Division also competes with
Builders Square (a division of Kmart Corp.), and a number of smaller regional
operators such as Eagle Hardware & Garden, Inc., Orchard Supply & Hardware (a
division of Sears) and Contractor's Warehouse (a division of Grossman's Inc.).
Approximately 95% of the HomeBase warehouse stores have at least one home
improvement warehouse retailer in their trading areas at an average distance
of approximately three miles.
EMPLOYEES
As of January 25, 1997, the HomeBase Division had approximately 8,500
employees, of whom approximately 2,600 were considered part-time employees
(persons who work less than 33 hours per week). Approximately 500 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse stores. None of the HomeBase Division's
employees is represented by unions. The Company considers its relations with
its employees to be excellent.
PROPERTIES
The Company operated 84 HomeBase warehouse locations as of January 25, 1997,
of which 65 are leased under long-term leases, 18 are owned and one is
occupied under a tenancy at will. The unexpired terms of the leases range from
approximately four years to 19 years, and average approximately 13 years. The
Company has options to renew all of its HomeBase leases for periods that range
from approximately five to 25 years and
67
<PAGE>
average approximately 18 years. These leases require fixed monthly rental
payments which are subject to various adjustments. In addition, certain leases
require payment of a percentage of the warehouse's gross sales in excess of
certain amounts. The Company also remains obligated under leases for three
additional stores that have been closed. Most HomeBase leases require that the
Company pay all property taxes, insurance, utilities and other operating
costs.
The HomeBase Division's home office in Irvine, California occupies 164,000
square feet under a lease expiring July 24, 2004, with options to extend this
lease through July 24, 2019.
LEGAL PROCEEDINGS
The HomeBase Division is involved in various legal proceedings incident to
the character of its business. Although it is not possible to predict the
outcome of these proceedings, or any claims against the Company related
thereto, the Company believes that such proceedings will not, individually or
in the aggregate, have a material adverse effect on its financial condition or
results of operations.
68
<PAGE>
MANAGEMENT OF BJI
BJI BOARD
Following the Distribution, the business of BJI will be managed under the
direction of the BJI Board. Prior to the Distribution, Waban, as the sole
stockholder of BJI, plans to elect eight persons to the BJI Board, as set
forth below. In accordance with the BJI Certificate and the BJI By-laws, the
BJI Board will be divided into three classes with staggered terms. The initial
terms for Class I Directors, Class II Directors, and Class III Directors will
expire in 1998, 1999 and 2000, respectively. With the exception of the initial
terms, each class of directors will be elected for a term of three years and
until their respective successors are duly elected and qualified. Directors
for each class will be elected at the annual meeting of stockholders held in
the year in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of BJI immediately after the
Distribution.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
S. James Coppersmith, 64 (1998)..... Director of Waban since December 1993. He was
President and General Manager of WCVB-TV, a Boston
television station, from 1990 to 1994. From 1982
to 1990 he was Vice President and General Manager
of WCVB-TV. Mr. Coppersmith is a director of
Kushner-Locke Company, Chyron Corporation, All-
Comm Media Corporation, Sun America Management
Corporation and Uno Restaurant Corporation,
Chairman of the Board of Trustees of Emerson
College and a member of the Board of Governors of
the Boston Stock Exchange.
Thomas J. Shields, 50 (1998)........ Director of Waban since June 1992. He is President
of Shields & Company, Inc., an investment banking
firm. Mr. Shields is also a director of Seaboard
Corporation and Versar, Inc.
Herbert J. Zarkin, 58 (1998)........ Director, President and Chief Executive Officer of
Waban since May 1993. He was President of the BJ's
Division from May 1990 to May 1993. From April
1989 to May 1993 he was Executive Vice President
of Waban. Mr. Zarkin will be Chairman of the BJI
Board and Chairman of the HomeBase Board following
the Distribution.
Allyn L. Levy, 69 (1999)............ Director of Waban since October 1993. He has been a
private investor since 1988. From 1974 until 1986,
he was founder, Chairman of the Board and Chief
Executive Officer of Patriot Bank Corporation, a
commercial bank holding company. He is a director
of CV Reit, Inc.
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
Lorne R. Waxlax, 63 (1999).......... Director of Waban since January 1990, and Chairman
of the Board of Waban since June 1996. He was an
Executive Vice President of The Gillette Company
from 1985 to 1993. Mr. Waxlax is also a director
of Quaker State Corporation, The Iams Company,
Hon Industries, Inc. and Clean Harbors, Inc. Mr.
Waxlax will also be a member of the HomeBase
Board following the Distribution.
Edward J. Weisberger, 55 (1999)..... Senior Vice President and Chief Financial Officer
of Waban since September 1994. From April 1989
until September 1994 he was Vice President-
Finance of Waban. Mr. Weisberger will be an
employee of both BJI and HomeBase after the
Distribution. Mr. Weisberger will also be a
member of the HomeBase Board following the
Distribution.
Kerry L. Hamilton, 46 (2000)........ Director of Waban since September 1994. Ms.
Hamilton is Vice President, Marketing for
Marshalls. Prior to joining Marshalls in April
1996, Ms. Hamilton was Vice Chairman of Pamet
River Partners, a marketing consulting firm, for
two years. Prior to joining Pamet River Partners,
Ms. Hamilton spent 17 years at Ingalls, Quinn &
Johnson in various capacities, during which time
she was a member of the Board of Directors, a
member of the Agency Executive Committee and
Senior Vice President, Director of Media
Services.
John J. Nugent, 50 (2000)........... Executive Vice President of Waban and President of
the BJ's Division since September 1993. From 1991
until 1993 he was Senior Vice President, Sales
Operations of the BJ's Division, and from 1989
until 1993, he was Vice President and Director,
Sales Operations of the BJ's Division.
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of BJI will be paid an annual retainer of
$20,000 and fees of $1,250 for each Board meeting attended, $750 for each
Committee meeting attended and $750 for certain telephone meetings. In
addition, the Chairman of the Audit Committee and the Chairman of the
Executive Compensation Committee will each be paid $2,500 per annum for their
services as such. All directors will be reimbursed for out-of-pocket expenses
incurred in attending such meetings. Directors may participate in BJI's
General Deferred Compensation Plan.
Pursuant to the director stock option plan to be adopted by BJI (the "BJI
Director Plan"), on the date of each annual meeting, each continuing non-
employee director will be granted an option to acquire 1,500 shares of BJI
Common Stock, and each director newly elected or elected subsequent to the
then most recent annual meeting (other than persons who, immediately prior to
the Distribution, were directors of Waban) will receive an option to purchase
3,000 shares of BJI Common Stock. The option exercise price for each of these
options is the fair market value of a share of BJI Common Stock on the date of
grant. Each option is non-transferable except
70
<PAGE>
upon death, will expire ten years after the date of grant and will become
exercisable in three equal annual installments beginning on the first day of
the month which includes the first anniversary of the date of grant. If the
director dies or otherwise ceases to be a director prior to the date the
option becomes exercisable, the option will immediately expire. Any vested
options will remain exercisable for a period of one year following cessation
of service as a director of BJI. All unexercised options will become
exercisable in full beginning 20 days prior to the consummation of a merger or
consolidation (as described in the BJI Director Plan), acquisition,
reorganization or liquidation and, to the extent not exercised, shall
terminate immediately after the consummation of such merger, consolidation,
acquisition, reorganization or liquidation.
Options granted under the Waban 1995 Director Stock Option Plan to persons
who will become directors of BJI following the Distribution (other than Mr.
Waxlax) will be replaced with options granted under the BJI Director Plan on a
basis similar to that applicable to Waban options granted under the Waban 1989
Stock Incentive Plan to persons who will become employees of BJI. Options
granted under the Waban 1995 Director Stock Option Plan to Mr. Waxlax will be
replaced by options to purchase an equal number of shares of both BJI Common
Stock and HomeBase Common Stock. The aggregate exercise price of the BJI and
HomeBase options will equal the exercise price of the replaced options, with
the exercise price of the BJI options being based on the ratio of the Post-
Distribution BJI Share Price to the pre-Distribution price per share of Waban
Common Stock. See "--Incentive and Other Plans."
COMMITTEES OF THE BOARD
The BJI Board will have four committees: (i) Audit; (ii) Executive; (iii)
Executive Compensation; and (iv) Finance. Committee appointments are expected
to be determined prior to the Distribution.
The Audit Committee will review with management, the internal audit group
and the independent public accountants BJI's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
BJI and its accounting controls and procedures, and such other matters as the
Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate.
The Executive Committee will be authorized to act on behalf of the BJI Board
during intervals between meetings of the BJI Board. In addition, the Executive
Committee will have responsibility for consideration of the qualifications of,
and recommendation to the Board of Directors of, nominees to fill Board
vacancies and will consider nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of the
Company.
The Executive Compensation Committee will review salary policies and
compensation of officers and other members of management, including
compensation plans for certain officers and other members of management. In
addition, the Executive Compensation Committee will have responsibility for
matters of corporate governance other than recommendation to the Board of
Directors of nominees to fill Board vacancies.
The Finance Committee will review with management and advise the BJI Board
with respect to BJI's finances, including exploring methods of meeting BJI's
financing requirements and planning BJI's capital structure.
71
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of BJI immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AGE FIVE-YEAR EMPLOYMENT HISTORY
-------------- --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer
Chairman of the Board of Directors and Director of Waban since May 1993;
Executive Vice President of Waban
(1989-1993); President of the BJ's
Division (1990-1993)
John J. Nugent...................... 50 Executive Vice President of Waban and
President and Chief Executive President of the BJ's Division since
Officer September 1993; Senior Vice President
of the BJ's Division (1991-1993);
Director of Sales Operations of the
BJ's Division (1989-1993)
Frank D. Forward.................... 42 Executive Vice President, Finance of
Executive Vice President and Chief the BJ's Division since February
Financial Officer 1997; Senior Vice President, Finance
of the BJ's Division (1994-1997);
Vice President, Finance of the BJ's
Division (1991-1994)
Laura J. Sen........................ 40 Executive Vice President,
Executive Vice President, Merchandising of the BJ's Division
Merchandising since February 1997; Senior Vice
President, General Merchandise of the
BJ's Division (1993-1997); Vice
President, Logistics of the BJ's
Division (1991-1993)
Michael T. Wedge.................... 43 Executive Vice President, Sales
Executive Vice President, Sales Operations of the BJ's Division since
Operations February 1997; Senior Vice President,
Sales Operations of the BJ's Division
(1993-1997); Vice President, Sales
Operations of the BJ's Division
(1989-1993)
Sarah M. Gallivan................... 54 Vice President and General Counsel of
Vice President and General Counsel Waban since December 1989
</TABLE>
72
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth with respect to BJI certain information
concerning the annual and long-term compensation paid for services rendered to
Waban for fiscal 1994, 1995 and 1996 by those persons who are expected to be
the Chief Executive Officer and the four other most highly compensated
executive officers of BJI following the Distribution (collectively, the "Named
BJI Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION YEAR(1) SALARY BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6)
--------- ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $25,633 -- 250,000 $360,640 $34,792
Chairman of the 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Board 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
John J. Nugent.......... 1996 382,693 253,450 16,189 -- 20,000 303,278 23,635
President and Chief 1995 350,000 134,967 14,806 -- 50,000 -- 22,000
Executive Officer 1994 332,692 188,038 14,074 -- 65,000 -- 21,135
Frank D. Forward........ 1996 155,885 64,524 5,723 -- 5,000 101,092 12,225
Executive Vice
President, 1995 144,808 46,534 5,316 -- -- -- 11,740
Finance 1994 129,808 58,314 4,766 -- 12,500 -- 10,990
Laura J. Sen............ 1996 203,500 84,234 8,608 -- 5,000 141,530 14,675
Executive Vice
President, 1995 190,500 61,217 8,059 -- -- -- 14,025
Merchandising 1994 179,577 84,580 6,593 -- 20,000 -- 13,479
Michael T. Wedge........ 1996 193,174 79,959 8,172 -- 5,000 141,530 14,159
Executive Vice
President, 1995 178,769 57,447 7,562 -- -- -- 13,439
Sales Operations 1994 164,577 77,515 6,042 -- 20,000 -- 12,729
</TABLE>
- --------
(1) Refers to fiscal year ended in January of the following year.
(2) Includes for all Named BJI Officers the reimbursement for tax liabilities
related to Waban's contributions under the Waban Inc. Executive Retirement
Plan ("WERP") and excludes perquisites having an aggregate value of the
lesser of $50,000 or 10% of salary plus bonus.
(3) No Restricted Stock Awards were granted to the Named BJI Officers in the
last three fiscal years. The following table presents the aggregate
restricted stock holdings as of January 25, 1997 and the value of such
holdings based on the fair market value of Waban Common Stock on January
25, 1997 ($27.25):
<TABLE>
<CAPTION>
RESTRICTED
STOCK HOLDINGS
AT 1/25/97
--------------
SHARES VALUE
------ -------
<S> <C> <C>
Herbert J. Zarkin......................................... 1,706 $46,489
John J. Nugent............................................ 1,440 39,240
Frank D. Forward.......................................... 720 19,620
Laura J. Sen.............................................. 864 23,544
Michael T. Wedge.......................................... 576 15,696
</TABLE>
Holders of restricted shares are entitled to the same dividends as those
paid to holders of unrestricted shares, including shares of BJI Common Stock
to be issued in the Distribution. Such shares of BJI Common Stock will be
subject to the same restrictions and vesting schedule as the restricted
shares of Waban Common Stock on account of which the special dividend was
made. In the event of a change of control (as defined), each Named BJI
Officer's restricted shares would become unrestricted.
(4) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
73
<PAGE>
(5) Payouts for fiscal 1996 represent 50% of the Waban Growth Incentive Plan
("WGIP") award earned by the Named BJI Officers for the three-year
performance period ended January 25, 1997. The remaining 50% of the award
is payable in April 1998, contingent on employment continuing through
March 31, 1998.
(6) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin....................... $4,494 $30,298
John J. Nugent.......................... 4,500 19,135
Frank D. Forward........................ 4,431 7,794
Laura J. Sen............................ 4,500 9,525
Michael T. Wedge........................ 4,500 8,939
</TABLE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named BJI Officers during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE PER EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR SHARE(2) DATE 0%(3) 5% 10%
---- ---------- --------------- -------------- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
John J. Nugent.......... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Frank D. Forward........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Laura J. Sen............ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Michael T. Wedge........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Securities
and Exchange Commission (the "Commission") and are not intended to
forecast possible future stock price appreciation, if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted to the Named BJI Officers on April 11, 1996
vest in equal annual installments over four years; options granted on
September 19, 1996 vest in equal annual installments over three years. All
options vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
74
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
Waban stock options during fiscal 1996 by each of the Named BJI Officers and
the fiscal year-end value of unexercised options to purchase Waban Common
Stock held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
NUMBER OF AT FISCAL YEAR-END FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
John J. Nugent.......... -- -- 122,250 67,750 1,349,000 544,250
Frank D. Forward........ -- -- 16,000 13,500 141,125 97,625
Laura J. Sen............ 15,000 122,188 10,500 19,500 111,156 161,656
Michael T. Wedge........ -- -- 18,500 18,750 182,000 151,250
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named BJI Officers during fiscal 1996, pursuant to the
WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION --------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ -------------------- -----------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97--1/99 $ 468,000 $ 0 $ 1,710,000
John J. Nugent.......... 15 Units FYE 1/97--1/99 273,000 371,220 1,050,000
Frank D. Forward........ 5 Units FYE 1/97--1/99 91,000 123,740 450,000
Laura J. Sen............ 7 Units FYE 1/97--1/99 127,400 173,236 585,000
Michael T. Wedge........ 7 Units FYE 1/97--1/99 127,400 173,236 555,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for Mr. Zarkin because cumulative net income would be less
than 10% compounded growth over the base period amount. The dollar amounts in
the table are not intended to forecast future payments, if any, under WGIP.
75
<PAGE>
One-half of the cash award earned under WGIP for the three-year award period
ending January 30, 1999 will be paid in April 1999 to participants employed
through January 30, 1999. The remaining one-half of the award will be paid in
April 2000, contingent upon employment continuing through March 31, 2000.
INCENTIVE AND OTHER PLANS
1997 Stock Incentive Plan. BJI has adopted the BJI 1997 Stock Incentive
Plan, pursuant to which BJI will be permitted to grant a variety of stock and
stock-based awards to officers and key employees of BJI and its subsidiaries.
A description of the BJI 1997 Stock Incentive Program is set forth below,
under "Approval of the BJI 1997 Stock Incentive Plan."
Current Waban employees who are expected to become employees of BJI on the
Distribution Date held as of January 25, 1997 options to purchase an aggregate
of 1,905,896 shares of Waban Common Stock under the Waban 1989 Stock Incentive
Plan. Generally, under such plan, outstanding vested options may be exercised
during the 90-day period following termination and unvested options lapse upon
termination. The Distribution will result in termination of employment of such
persons from Waban under the terms of the Waban 1989 Stock Incentive Plan.
BJI is expected to issue, following the Distribution, options to purchase
BJI Common Stock under the BJI 1997 Stock Incentive Plan in replacement of the
outstanding Waban options (covering an aggregate of 1,905,896 shares of Waban
Common Stock as of January 25, 1997) held by persons who become employees of
BJI on the Distribution Date and who surrender their Waban options. The
exercise price and the number of replacement options will be calculated so as
to preserve the Waban options' approximate value as of the date of the
Distribution. To accomplish this, the number of BJI options and their exercise
price will be determined as follows: the number of shares subject to each
outstanding Waban option that is unexercised as of the Distribution Date will
be multiplied by the pre-Distribution price per share of Waban Common Stock
and the resulting number will be divided by the average of the closing prices
of shares of BJI Common Stock on the New York Stock Exchange during the ten
trading days immediately following the date of the Distribution (the "Post-
Distribution BJI Share Price"). The exercise price of the Waban option will be
multiplied by the Post-Distribution BJI Share Price and the resulting number
will be divided by the pre-Distribution price per share of Waban Common Stock.
Fractions will be rounded to the next lowest share and next highest cent,
respectively. The "pre-Distribution price" per share of Waban Common Stock
will be the average of the closing prices of shares of Waban Common Stock on
the New York Stock Exchange during the ten trading days immediately preceding
the date of the Distribution.
Waban options held by Messrs. Weisberger and Zarkin, who will become
employees of both BJI and HomeBase after the Distribution, will be replaced by
options to purchase an equal number of shares of both BJI Common Stock and
HomeBase Common Stock. The aggregate exercise prices of the BJI and HomeBase
options will equal the exercise price of the replaced Waban options, with the
exercise price of the BJI options being based on the ratio of the Post-
Distribution BJI Share Price to the pre-Distribution price per share of Waban
Common Stock.
Replacement options granted under the BJI 1997 Stock Incentive Plan pursuant
to the foregoing adjustments will be subject to the same general terms as the
corresponding replaced Waban options.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named BJI Officers during fiscal 1996 are reflected in the BJI Summary
Compensation Table and the BJI table entitled "Long-Term Incentive Plans--
Awards in Last Fiscal Year." BJI has adopted cash incentive plans similar to
the Waban Management Incentive Plan and Growth Incentive Plan. A description
of each of these plans is set forth below, under the respective discussions of
Distribution Proposal Five ("Approval of the BJI Management Incentive Plan")
and Distribution Proposal Six ("Approval of the BJI Growth Incentive Plan").
76
<PAGE>
Executive Retirement Plan. Effective as of January 30, 1994, the Waban
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy. BJI has adopted an executive
retirement plan similar to the WERP.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named BJI
Officers were credited with at least four years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
all Named BJI Officers participate, was frozen on July 4, 1992 and benefits
under the Retirement Plan ceased to accrue after that date. All Named BJI
Officers are fully vested in their accrued benefits. The estimated annual
benefits payable under the Retirement Plan upon normal retirement (age 65) on
the basis of a single life annuity are as follows: Mr. Zarkin, $65,667; Mr.
Nugent, $5,121, Mr. Forward, $8,077; Ms. Sen, $6,200; and Mr. Wedge, $2,982.
EMPLOYMENT AGREEMENTS
BJI expects to enter into an employment agreement with Mr. Zarkin, pursuant
to which he would receive a minimum annual base salary of $ and would
participate in specified incentive and other benefit plans. BJI will be
entitled to terminate Mr. Zarkin's employment at any time with or without
cause (as defined). If his employment terminates by reason of death,
disability, incapacity or termination by BJI other than for cause, or if Mr.
Zarkin resigns as a result of his being removed from his positions with BJI or
as a result of being relocated more than 40 miles from the current
headquarters of BJI, Mr. Zarkin will be entitled to payment of certain cash
compensation amounts and continuation of base salary and certain benefits for
a period of 12 months after termination (but in no event after July 29, 2000)
at the rate in effect upon termination. In addition, Mr. Zarkin will be
entitled to payments under the BJI Management Incentive Plan (the "BJI MIP")
for the fiscal year ended immediately prior to the date of termination of Mr.
Zarkin's employment, and an amount equal to his MIP target award for the year
of termination. Any stock options or other stock-based awards held by Mr.
Zarkin on the date of termination will become fully vested. The continuing
base salary payments are subject to reduction after three months for
compensation earned by Mr. Zarkin from other employment (other than employment
at HomeBase), and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Zarkin from other employment. Mr.
Zarkin will enter into a substantially similar employment agreement with
HomeBase, providing for salary and other compensation equivalent to that
payable by BJI.
The Company has an employment agreement with Mr. Nugent under which he
receives a minimum annual base salary of $400,000 and participates in
specified incentive and other benefit plans. If his employment terminates by
reason of death, disability, incapacity or termination by the Company other
than for cause, Mr. Nugent is entitled to payment of certain cash compensation
amounts and to certain benefits and continuation of base salary for 12 months
after termination at the rate in effect upon termination. The continuing base
salary payments are subject to reduction after three months for compensation
earned by Mr. Nugent from other employment, and the continuing benefits are
subject to reduction at any time for comparable benefits received by Mr.
Nugent from other employment. BJI expects to enter into an employment
agreement with Mr. Nugent on substantially similar terms as his existing
agreement.
BJI is expected to enter into an employment agreement with each of Messrs.
Forward and Wedge, and Ms. Sen under which each will receive a minimum annual
base salary of $180,000, $230,000 and $230,000,
77
<PAGE>
respectively, and participate in specified incentive and other benefit plans.
If employment terminates by reason of death, disability, incapacity or
termination by BJI other than for cause, each such executive officer will be
entitled to payment of certain cash compensation amounts and to certain
benefits and continuation of base salary for 12 months after termination at
the rate in effect upon termination. The continuing base salary payments will
be subject to reduction after three months for compensation from other
employment, and the continuing benefits will be subject to reduction at any
time for comparable benefits received from other employment.
In the event of a change of control followed by termination of employment as
described below under""--Change of Control Severance Benefits," each of the
Named BJI Officers would be entitled to the termination benefits described
thereunder, to the extent such benefits would exceed the benefits otherwise
described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
BJI is expected to provide change of control severance benefits to each of
the Named BJI Officers under individual agreements. Under the agreements, in
general, upon a change of control (as defined) of BJI, the executive would be
entitled to accelerated lump-sum payments of the BJI MIP target award for the
year in which the change of control occurs. If, during the 24-month period
following a change of control, BJI were to terminate the executive's
employment other than for cause (as defined) or the executive were to
terminate his employment for reasons specified in the agreement, or if
employment were to terminate by reason of death, disability or incapacity, the
executive would be entitled to receive an amount equal to two times the
executive's annual base salary. For up to two years following termination BJI
would also be obligated to provide specified benefits, including continued
health, medical and life insurance benefits. The foregoing benefits would be
payable whether or not they gave rise to a federal excise tax on so-called
"excess parachute payments" or were non-deductible, except to the extent a
reduction in amounts paid would increase the executive's after-tax benefits.
BJI would also be obligated to pay all legal fees and expenses reasonably
incurred by the executive in seeking enforcement of contractual rights
following a change of control. In addition, upon involuntary termination
within 24 months following a change of control, any agreement by the executive
not to compete with BJI following termination of his employment would cease to
be effective.
INDEMNIFICATION AGREEMENTS
BJI will enter into indemnification agreements with each of its directors
and executive officers indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that he or she is or was a director or
officer of BJI or served at BJI's request as a director of another
organization (except that indemnification is not provided against judgments
and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if he or she is found not to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of BJI, except to the extent Delaware law
permits broader contractual indemnification. The indemnification agreements
provide procedures, presumptions and remedies designed to substantially
strengthen the indemnity rights beyond those provided by BJI's Certificate of
Incorporation and by Delaware law.
78
<PAGE>
MANAGEMENT OF HOMEBASE
HOMEBASE BOARD
Following the Distribution, the business of HomeBase will be managed under
the direction of the HomeBase Board. In accordance with the HomeBase
Certificate, the HomeBase Board is divided into three classes with staggered
terms. Each class of directors is elected for a term of three years and until
their respective successors are duly elected and qualified. Directors for each
class will be elected at the annual meeting of stockholders held in the year
in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of HomeBase immediately after the
Distribution. Messrs. Loewy, Waxlax and Zarkin are currently members of the
Waban Board. The Waban Board expects to appoint additional independent
directors prior to the Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR TERM PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT AND
EXPIRES FIVE-YEAR EMPLOYMENT HISTORY
----------------------- -----------------------------------------------
<S> <C>
Allan P. Sherman, 52 (1998)... Executive Vice President of Waban since May 1993
and President of the HomeBase Division since
September 1993. He was President of the BJ's
Division from May 1993 to September 1993 and
Senior Vice President and General Merchandise
Manager--Non-Food of the BJ's Division from 1991
to 1993.
Herbert J. Zarkin, 58 (1998).. Director, President and Chief Executive Officer
of Waban since May 1993. He was President of the
BJ's Division from May 1990 to May 1993. From
April 1989 to May 1993 he was Executive Vice
President of Waban. Mr. Zarkin will be Chairman
of the BJI Board and Chairman of the HomeBase
Board following the Distribution.
Lorne R. Waxlax, 63 (1999).... Director of Waban since January 1990, and
Chairman of the Board of Waban since June 1996.
He was an Executive Vice President of The
Gillette Company from 1985 to 1993. Mr. Waxlax
is also a director of Quaker State Corporation,
The Iams Company, Hon Industries, Inc. and Clean
Harbors, Inc. Mr. Waxlax will also be a member
of the BJI Board following the Distribution.
Arthur F. Loewy, 68 (2000)(1). Director of Waban since February 1989. He is a
director of The TJX Companies, Inc. and was
Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. from 1982 to
1989.
Edward J. Weisberger, 55 Senior Vice President and Chief Financial
(2000)(1).................... Officer of Waban since September 1994. From
April 1989 until September 1994 he was Vice
President-Finance of Waban. Mr. Weisberger will
be an employee of both BJI and the HomeBase
Division after the Distribution. Mr. Weisberger
will also be a member of the BJI Board following
the Distribution.
</TABLE>
- --------
(1) Nominee for election to the Waban Board. See "Election of Directors."
79
<PAGE>
DIRECTOR COMPENSATION
The compensation to be paid to the members of the Board of Directors of
HomeBase after the Distribution will be the same as that currently payable to
the members of the Waban Board. Directors who are not employees of Waban are
paid an annual retainer of $20,000 and fees of $1,250 for each Board meeting
attended, $750 for each Committee meeting attended and $750 for certain
telephone meetings. As a non-employee Chairman of the Waban Board, Mr. Waxlax
is paid an additional retainer of $100,000 per annum. In addition, the
Chairman of the Audit Committee and the Chairman of the Executive Compensation
Committee are each paid $2,500 per annum for their services as such. All
directors are reimbursed for out-of-pocket expenses incurred in attending such
meetings. Directors may participate in HomeBase's General Deferred
Compensation Plan.
The stockholders approved the 1995 Director Stock Option Plan (the "Waban
Director Plan") at Waban's 1995 annual meeting of stockholders and each non-
employee director of Waban was granted on June 13, 1995 an option to purchase
3,000 shares of Waban Common Stock. On the date of each annual meeting
following the Distribution, each continuing non-employee director will be
granted an option to acquire an additional 1,500 shares of HomeBase Common
Stock, and each director newly elected or elected subsequent to the then most
recent annual meeting will receive an option to purchase 3,000 shares of
HomeBase Common Stock. The option exercise price for each of these options is
the fair market value of a share of HomeBase Common Stock on the date of
grant. Each option is nontransferable except upon death, will expire 10 years
after the date of grant and will become exercisable in three equal annual
installments beginning on the first day of the month which includes the first
anniversary of the date of grant. If the director dies or otherwise ceases to
be a director prior to the date the option becomes exercisable, the option
will immediately expire. Any vested options will remain exercisable for a
period of one year following cessation of service as a director of HomeBase.
All unexercised options will become exercisable in full beginning 20 days
prior to the consummation of a merger or consolidation (as described in the
Waban Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
Options granted under the Waban Director Plan to persons who will continue
as directors of HomeBase following the Distribution (other than Mr. Waxlax)
will be adjusted on a basis similar to that applicable to Waban options
granted under the Waban 1989 Stock Incentive Plan to persons who will continue
as employees of HomeBase. Options granted under the Waban 1995 Director Stock
Option Plan to Mr. Waxlax will be replaced by options to purchase an equal
number of shares of both BJI Common Stock and HomeBase Common Stock. The
aggregate exercise price of the BJI and HomeBase options will equal the
exercise price of the replaced options, with the exercise price of the BJI
options being based on the ratio of the Post-Distribution BJI Share Price to
the pre-Distribution price per share of Waban Common Stock. See "--Incentive
and Other Plans."
During fiscal 1996, the Waban Board held twelve meetings and took action by
written consent once. Each director attended at least 75% of all meetings of
the Board and committees of which he or she is a member.
COMMITTEES OF THE BOARD
The HomeBase Board will continue to have four committees: (i) Audit; (ii)
Executive; (iii) Executive Compensation; and (iv) Finance. Committee
appointments are expected to be determined prior to the Distribution.
The Audit Committee reviews with management, the internal audit group and
the independent public accountants HomeBase's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
HomeBase and its accounting controls and procedures, and such other matters as
the Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate. The Audit Committee held three meetings during fiscal 1996.
80
<PAGE>
The Executive Committee is authorized to act on behalf of the HomeBase Board
during intervals between meetings of the HomeBase Board. In addition, the
Executive Committee has responsibility for consideration of the qualifications
of, and recommendation to the Board of Directors of, nominees to fill Board
vacancies and considers nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of
HomeBase. The Executive Committee held one meeting during fiscal 1996.
The Executive Compensation Committee reviews salary policies and
compensation of officers and other members of management, including
compensation plans for certain officers and other members of management. In
addition, the Executive Compensation Committee has responsibility for matters
of corporate governance other than recommendation to the Board of Directors of
nominees to fill Board vacancies. The Executive Compensation Committee held
five meetings during fiscal 1996.
The Finance Committee reviews with management and advises the HomeBase Board
with respect to HomeBase's finances, including exploring methods of meeting
HomeBase's financing requirements and planning HomeBase's capital structure.
The Finance Committee did not meet during fiscal 1996.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of HomeBase immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AFTER THE
DISTRIBUTION AGE FIVE-YEAR EMPLOYMENT HISTORY
------------------------ --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer and Director
Chairman of the Board of Directors of Waban since May 1993; Executive Vice
President of Waban (1989-1993); President of the
BJ's Division (1990-1993)
Allan P. Sherman.................... 52 Executive Vice President of Waban since May
President and Chief Executive 1993; President of the HomeBase Division since
Officer September 1993; President of the BJ's Division
(May 1993-September 1993); Senior Vice President
and General Merchandise Manager-Non-Food of the
BJ's Division (1991-1993)
Thomas F. Gallagher ................ 45 Executive Vice President, Store Operations of
Executive Vice President, the HomeBase Division since May 1996; Vice
Store Operations President, Sales Operations of the BJ's Division
(1993-1996); Assistant Vice President, Regional
Manager of the BJ's Division (1991-1993)
Scott Richards...................... 39 Executive Vice President, Merchandising of the
Executive Vice President, Merchan- HomeBase Division since August 1996; Vice
dising President, Merchandising of the HomeBase
Division (1993-1996); Buyer for the HomeBase
Division (1991-1993)
William B. Langsdorf................ 40 Senior Vice President, Finance of the HomeBase
Senior Vice President and Division since September 1993; Assistant Vice
Chief Financial Officer President, Finance of the HomeBase Division
(1991-1993)
</TABLE>
81
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation paid for services rendered to Waban for fiscal 1994,
1995 and 1996 by (i) those persons who are expected to be the Chief Executive
Officer and the four other most highly compensated executive officers of
HomeBase following the Distribution (the "Named HomeBase Officers") and (ii)
those persons (other than Mr. Nugent, information with respect to whom is
provided under the caption "Management of BJI--Executive Compensation") who
were the Chief Executive Officer and the four most highly compensated
executive officers of Waban during fiscal 1996 who were serving as executive
officers of Waban on January 25, 1997 (the "Named Waban Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------- ------------------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION(1) YEAR(2) SALARY BONUS SATION(3) AWARDS(4) OPTIONS(5) PAYOUTS(6) SATION(7)
------------------ ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $ 25,633 $ -- 250,000 $360,640 $ 34,792
President and Chief 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Executive Officer of 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
Waban; Chairman of the
Board of HomeBase
Allan P. Sherman........ 1996 451,346 -- 238,170 -- 20,000 83,190 27,019
President and Chief 1995 435,000 40,000 241,786 -- 50,000 -- 26,250
Executive Officer of 1994 422,885 189,420 219,829 -- 65,000 -- 101,114
HomeBase
Thomas F. Gallagher..... 1996 176,078 40,484 190,670 155,250 15,000 80,874 13,304
Executive Vice 114,634 29,470 3,895 -- -- -- 10,232
President, 1995
Store Operations of 1994 106,558 40,152 3,621 -- 4,000 -- 9,191
HomeBase
Scott Richards.......... 1996 167,910 2,709 6,610 129,375 13,000 24,957 12,562
Executive Vice
President, 1995 131,538 11,122 5,229 -- -- -- 11,027
Merchandising of 1994 123,943 40,871 4,870 -- 7,000 -- 10,125
HomeBase
William B. Langsdorf.... 1996 155,553 -- 6,218 -- 4,000 27,730 12,076
Senior Vice President, 1995 143,942 7,500 5,766 -- -- -- 11,697
Finance of HomeBase 1994 129,904 38,790 5,204 -- 12,000 -- 10,366
Edward J. Weisberger.... 1996 238,077 46,996 10,071 -- 70,000 180,320 16,404
Senior Vice President
and 1995 225,000 40,567 9,518 -- 40,000 -- 15,750
Chief Financial Officer 1994 197,847 86,777 8,369 -- 40,000 -- 14,392
of Waban
Sarah M. Gallivan....... 1996 154,904 20,385 5,687 -- 6,000 72,128 12,245
Vice President, General 1995 144,808 17,406 5,316 -- -- -- 11,740
Counsel of Waban 1994 131,885 43,074 4,842 -- 10,000 -- 10,849
</TABLE>
- --------
(1) Does not include Mr. Nugent, who also was one of Waban's four most highly
compensated executive officers during fiscal 1996. Information regarding
Mr. Nugent's compensation is described above under "Management of BJI."
During 1996, Mr. Zarkin served as President and Chief Executive Officer of
Waban and Mr. Sherman served as Executive Vice President of Waban and
President of the HomeBase Division of Waban.
(2) Refers to fiscal year ended in January of the following year.
82
<PAGE>
(3) Includes for Mr. Sherman $130,344, $135,204 and $137,240 in fiscal 1996,
fiscal 1995 and fiscal 1994, respectively, for loan forgiveness and the
value of the interest-free component of a housing loan from Waban pursuant
to the terms of his employment contract, and $80,671, $80,797 and $60,374
in fiscal 1996, fiscal 1995 and fiscal 1994, respectively, for
reimbursement of tax liabilities related to that loan and certain items
under "All Other Compensation." Includes for Mr. Gallagher $102,141 in
fiscal 1996 for relocation costs and $74,727 for reimbursement of tax
liabilities related to those costs and certain items under "All Other
Compensation." Includes for Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan in fiscal 1996, fiscal 1995 and fiscal 1994
and for Mr. Gallagher in fiscal 1995 and fiscal 1994 the reimbursement for
tax liabilities related to Waban's contributions under the WERP and
excludes perquisites having an aggregate value of the lesser of $50,000 or
10% of salary plus bonus.
(4) Restricted stock awards were issued at no cost to Mr. Gallagher and Mr.
Richards in 1996. The dollar value of these awards is based on the closing
market price of the Company's Common Stock on the date of grant. Fifty
percent of the shares granted to Mr. Gallagher vest in February 1998 and
25% vest in each of February 1999 and 2000. Forty percent of the shares
granted to Mr. Richards vest in June 1997, with 20% vesting in each of
June 1998, 1999 and 2000. Vesting is contingent upon continued employment
on the vesting dates. The following table presents aggregate restricted
stock holdings as of January 25, 1997 and the value of such holdings based
on the fair market value of Waban Common Stock on January 25, 1997
($27.25):
<TABLE>
<CAPTION>
RESTRICTED
NUMBER OF SHARES STOCK HOLDINGS
OF RESTRICTED STOCK ISSUED AT 1/25/97
----------------------------- ---------------
1996 1995 1994 SHARES VALUE
---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin.............. 0 0 0 1,706 $ 46,489
Allan P. Sherman............... 0 0 0 5,312 144,752
Thomas F. Gallagher............ 6,000 0 0 6,432 175,272
Scott Richards................. 5,000 0 0 5,450 148,513
William B. Langsdorf........... 0 0 0 450 12,263
Edward J. Weisberger........... 0 0 0 847 23,081
Sarah M. Gallivan.............. 0 0 0 484 13,189
</TABLE>
In the event of a change of control (as defined), each person's restricted
shares would become unrestricted. Holders of restricted shares are entitled
to the same dividends as those paid to holders of unrestricted shares.
(5) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
(6) Payouts for fiscal 1996 represent 50% of the WGIP award earned by the
named person for the three-year performance period ended January 25, 1997.
The remaining 50% of the award is payable in April 1998, contingent on
employment continuing through March 31, 1998.
(7) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin............................................ $4,494 $30,298
Allan P. Sherman............................................. 4,500 22,519
Thomas F. Gallagher.......................................... 4,500 8,804
Scott Richards............................................... 4,312 8,250
William B. Langsdorf......................................... 4,314 7,762
Edward J. Weisberger......................................... 4,500 11,904
Sarah M. Gallivan............................................ 4,500 7,745
</TABLE>
83
<PAGE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named HomeBase Officers and the Named Waban Officers during fiscal
1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER PERCENT OF POTENTIAL REALIZABLE
OF TOTAL OPTIONS VALUE AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------------------
NAME GRANTED YEAR PER SHARE(2) DATE 0%(3) 5% 10%
---- ---------- ------------- ------------ ---------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
Allan P. Sherman........ 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Thomas F. Gallagher..... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
12,000 1.5% 25.875 6/11/06 0 195,272 494,857
Scott Richards.......... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
10,000 1.3% 22.875 9/19/06 0 143,860 364,569
William B. Langsdorf.... 4,000 0.5% 24.750 4/11/06 0 62,261 157,781
Edward J. Weisberger.... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
50,000 6.4% 22.875 9/19/06 0 719,298 1,822,843
Sarah M. Gallivan....... 6,000 0.8% 24.750 4/11/06 0 93,391 236,671
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Commission
and are not intended to forecast possible future stock price appreciation,
if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted on April 11, 1996 vest in equal annual
installments over four years; options granted on September 19, 1996 vest
in equal annual installments over three years. All options vest upon a
change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1996 by each of the Named HomeBase Officers and
the Named Waban Officers and the fiscal year-end value of unexercised options
held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR-END (2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
Allan P. Sherman........ 19,000 215,688 108,250 67,750 1,140,844 546,594
Thomas F. Gallagher..... 2,950 33,038 0 18,725 0 65,184
Scott Richards.......... 2,970 31,185 4,800 18,168 49,350 104,581
William B. Langsdorf.... 4,750 56,031 7,550 12,700 84,459 99,447
Edward J. Weisberger.... 500 6,688 72,000 95,500 754,250 508,563
Sarah M. Gallivan....... -- -- 11,750 12,750 107,406 82,406
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
84
<PAGE>
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named HomeBase Officers and the Named Waban Officers
during fiscal 1996, pursuant to the WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION -----------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97 - 1/99 $ 468,000 $ 0 $ 1,710,000
Allan P. Sherman........ 15 Units FYE 1/97 - 1/99 194,400 0 1,305,000
Thomas F. Gallagher..... 8 Units FYE 1/97 - 1/99 103,680 0 351,216
Scott Richards.......... 8 Units FYE 1/97 - 1/99 103,680 0 402,000
William B. Langsdorf.... 5 Units FYE 1/97 - 1/99 64,800 0 450,000
Edward J. Weisberger.... 10 Units FYE 1/97 - 1/99 234,000 0 675,000
Sarah M. Gallivan....... 6 Units FYE 1/97 - 1/99 140,400 0 450,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for each of the Named HomeBase Officers or Named Waban
Officers because cumulative net or pre-tax income would be less than 10%
compounded growth over the base period amount. The dollar amounts in the table
are not intended to forecast future payments, if any, under WGIP.
One-half of the cash award earned under the WGIP for the three-year award
period ending January 30, 1999 will be paid in April 1999 to participants
employed through January 30, 1999. The remaining one-half of the award will be
paid in April 2000, contingent upon employment continuing through March 31,
2000.
INCENTIVE AND OTHER PLANS
1989 Stock Incentive Plan. HomeBase grants stock and stock-based awards to
officers and key employees of HomeBase and its subsidiaries pursuant to the
1989 Stock Incentive Plan. A description of the 1989 Stock Incentive Plan is
set forth below under "Approval of Amendments to the Waban 1989 Stock
Incentive Plan and Continuance of Plan."
Effective upon the Distribution, all unvested options and vested but
unexercised options granted under the 1989 Stock Incentive Plan and held by
persons who remain HomeBase employees (other than persons who will also be
employees of BJI) will be adjusted so that the number of shares subject to
such options and the exercise price of such options will preserve the
approximate value of the Waban options held by such persons immediately prior
to the Distribution. To accomplish this, the number of Waban options held by
each such person immediately prior to the Distribution will be multiplied by
the pre-Distribution price of a share of Waban Common Stock and the resulting
number will be divided by the average of the closing prices of shares of Waban
Common Stock on the New York Stock Exchange during the ten trading days
immediately following the date of the Distribution (the "Post-Distribution
Waban Share Price"). The exercise price of the Waban option will be multiplied
by the Post-Distribution Waban Share Price and the resulting number will be
divided by the
85
<PAGE>
pre-Distribution price of a share of Waban Common Stock. Fractions will be
rounded to the next lower share and the next higher cent, respectively. The
pre-Distribution price per share of Waban Common Stock will be the average of
the closing prices of shares of Waban Common Stock on the New York Stock
Exchange during the ten trading days immediately preceding the date of the
Distribution.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named HomeBase Officers during fiscal 1996 are reflected in the HomeBase
Summary Compensation Table and the HomeBase table entitled "Long-Term
Incentive Plans--Awards in Last Fiscal Year." These plans are similar to the
Management Incentive Plan and the Growth Incentive Plan proposed to be adopted
by BJI and described below under the respective discussions of Distribution
Proposal Five ("Approval of the BJI Management Incentive Plan") and
Distribution Proposal Six ("Approval of the BJI Growth Incentive Plan").
Executive Retirement Plan. Effective as of January 30, 1994, the Waban Inc.
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named
HomeBase Officers and Named Waban Officers were credited with at least four
years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
Messrs. Zarkin, Richards, Langsdorf and Weisberger and Ms. Gallivan
participated, was frozen on July 4, 1992 and benefits under the Retirement
Plan ceased to accrue after that date. Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan are fully vested in their accrued benefits. The
estimated annual benefits payable to such persons under the Retirement Plan
upon normal retirement (age 65) on the basis of a single life annuity are as
follows: Mr. Zarkin, $65,667; Mr. Richards, $7,140; Mr. Langsdorf, $5,209; Mr.
Weisberger, $27,553; and Ms. Gallivan, $2,472.
EMPLOYMENT AGREEMENTS
HomeBase expects to enter into an employment agreement with Mr. Zarkin
substantially similar to the employment agreement he will enter into with BJI.
See "Management of BJI--Employment Agreements." Under the Company's existing
employment agreement with Mr. Zarkin (which will be modified in connection
with the Distribution in accordance with the preceding sentence), Mr. Zarkin
receives a minimum annual base salary of $625,000 and participates in
specified incentive and other benefit plans. The Company is entitled to
terminate Mr. Zarkin's employment at any time with or without cause (as
defined). If his employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, or if a change
of control occurs, Mr. Zarkin is entitled to payment of certain cash
compensation amounts and continuation of base salary and certain benefits for
a period of 24 months after termination at the rate in effect upon
termination. The continuing base salary payments are subject to reduction
after twelve months for compensation earned by Mr. Zarkin from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Zarkin from other employment.
Under the Company's employment agreement with Mr. Sherman, Mr. Sherman
receives a minimum annual base salary of $460,000 and participates in
specified incentive and other benefit plans. In addition, in connection with
his election as President of the HomeBase Division in 1993, the Company agreed
to extend to him an interest-free loan of $700,000 for the purchase of a
residence in California and to forgive the loan over seven
86
<PAGE>
years in equal installments, $100,000 of which was forgiven in each of fiscal
1994, 1995 and 1996. The Company also agreed to make certain tax "gross-up"
payments to Mr. Sherman. The Company is entitled to terminate Mr. Sherman's
employment at any time with or without cause (as defined). If Mr. Sherman's
employment terminates by reason of death, disability or termination by the
Company other than for cause, the Company is required to pay certain cash
compensation amounts, to continue payment of Mr. Sherman's base salary and
certain benefits for 52 weeks after termination at the rate in effect upon
termination, and to extend the term of Mr. Sherman's relocation loan,
including the provisions for debt forgiveness. The continuing base salary
payments are subject to reduction after three months for compensation earned
by Mr. Sherman from other employment, and the continuing benefits are subject
to reduction at any time for comparable benefits received by Mr. Sherman from
other employment.
HomeBase is expected to enter into an employment agreement with each of
Messrs. Gallagher, Richards and Langsdorf under which each will receive a
minimum annual base salary of $220,000, $220,000 and $180,000, respectively,
and participate in specified incentive and other benefit plans. If employment
terminates by reason of death, disability, incapacity or termination by
HomeBase other than for cause, each such executive officer will be entitled to
payment of certain cash compensation amounts and to certain benefits and
continuation of base salary for 12 months after termination at the rate in
effect upon termination. The continuing base salary payments will be subject
to reduction after three months for compensation from other employment, and
the continuing benefits will be subject to reduction at any time for
comparable benefits received from other employment.
The Company has an employment agreement with each of Mr. Weisberger and Ms.
Gallivan under which they receive minimum annual base salaries of $245,000 and
$157,500, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, each such
executive is entitled to payment of certain cash compensation amounts and to
certain benefits and continuation of base salary for 12 months after
termination at the rate in effect upon termination. The continuing base salary
payments are subject to reduction after three months for compensation earned
by the executive from other employment, and the continuing benefits are
subject to reduction at any time for comparable benefits received by the
executive from other employment.
In the event of a change of control followed by termination of employment as
described below under "--Change of Control Severance Benefits," each of the
Named HomeBase Officers and Named Waban Officers would be entitled to the
termination benefits described thereunder, to the extent such benefits would
exceed the benefits otherwise described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
HomeBase is expected to provide change of control severance benefits to each
of the Named HomeBase Officers under individual agreements. Under the
agreements, in general, upon a change of control (as defined) of HomeBase, the
executive would be entitled to accelerated lump-sum payments of the HomeBase
Management Incentive Plan target award for the year in which the change of
control occurs. If, during the 24-month period following a change of control,
HomeBase were to terminate the executive's employment other than for cause (as
defined) or the executive were to terminate his employment for reasons
specified in the agreement, or if employment were to terminate by reason of
death, disability or incapacity, the executive would be entitled to receive an
amount equal to two times the executive's annual base salary. For up to two
years following termination HomeBase would also be obligated to provide
specified benefits, including continued health, medical and life insurance
benefits. The foregoing benefits would be payable whether or not they gave
rise to a federal excise tax on so-called "excess parachute payments" or were
non-deductible, except to the extent a reduction in amounts paid would
increase the executive's after-tax benefits. HomeBase would also be obligated
to pay all legal fees and expenses reasonably incurred by the executive in
seeking enforcement of contractual rights following a change of control. In
addition, upon involuntary termination within 24 months following a change of
control, any agreement by the executive not to compete with HomeBase following
termination of his employment would cease to be effective.
87
<PAGE>
INDEMNIFICATION AGREEMENTS
HomeBase will enter into indemnification agreements with each of its
directors and executive officers indemnifying them against expenses,
settlements, judgments and fines incurred in connection with any threatened,
pending or completed action, suit, arbitration or proceeding, where the
individual's involvement is by reason of the fact that he or she is or was a
director or officer of HomeBase or served at HomeBase's request as a director
of another organization (except that indemnification is not provided against
judgments and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if he or she is found not to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of HomeBase, except to the extent Delaware law
permits broader contractual indemnification. The indemnification agreements
provide procedures, presumptions and remedies designed to substantially
strengthen the indemnity rights beyond those provided by HomeBase's
Certificate of Incorporation and by Delaware law. Each of the Named Waban
Officers has entered into an indemnification agreement as described in this
paragraph.
PRICE RANGE OF WABAN COMMON STOCK
The Waban Common Stock is listed on the New York Stock Exchange and is
traded under the symbol "WBN". The following table sets forth, for the fiscal
periods indicated, the high and low sales prices per share of the Waban Common
Stock as reported on the New York Stock Exchange Composite Tape. On October
22, 1996, the trading date preceding public announcement of the Distribution,
the high, low and closing prices per share of Waban Common Stock on the New
York Stock Exchange were $24 1/4, $23 5/8 and $23 7/8, respectively. On April
17, 1997, the closing price per share of Waban Common Stock on the New York
Stock Exchange was $ /27 3/4.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995
1st Quarter............................................ $20 3/8 $15 7/8
2nd Quarter............................................ $16 3/4 $13 1/2
3rd Quarter............................................ $19 1/4 $15 1/2
4th Quarter............................................ $19 5/8 $15 1/4
FISCAL 1996
1st Quarter............................................ $27 1/8 $18 3/4
2nd Quarter............................................ $28 $17 7/8
3rd Quarter............................................ $27 5/8 $18 3/8
4th Quarter............................................ $28 3/8 $25
FISCAL 1997
1st Quarter (through April 17, 1997)................... $29 3/4 $26 3/8
</TABLE>
88
<PAGE>
OWNERSHIP OF WABAN COMMON STOCK
The table following sets forth information as to the beneficial ownership of
Waban Common Stock as of March 31, 1997 by (i) each person or entity known to
the Company to beneficially own more than 5% of the outstanding shares of
Waban Common Stock, (ii) each director or nominee for director of Waban, BJI
or HomeBase, (iii) each of the Named Waban Officers and all current directors
and executive officers of Waban as a group, (iv) each of the Named BJI
Officers and all persons expected to serve as directors or executive officers
of BJI as a group and (v) each of the Named HomeBase Officers and all persons
expected to serve as directors or executive officers of HomeBase as a group.
The following table also reflects the beneficial ownership of BJI Common Stock
and HomeBase Common Stock as of the Distribution Date as if the Distribution
took place on March 31, 1997 by each such person or group.
<TABLE>
<CAPTION>
SHARES OF WABAN PERCENT OF OUTSTANDING SHARES OF
NAME AND ADDRESS OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- ------------------- --------------------- --------------------------------
<S> <C> <C>
The Prudential
Insurance Company of
America............... 2,983,308(2) 9.09%
751 Broad Street
Newark, New Jersey
01102
Franklin Resources,
Inc. et al............ 2,516,800(3) 7.67%
777 Mariners Island
Blvd.
P.O. Box 7777
San Mateo, CA 94404
David J. Greene and
Company............... 2,428,555(4) 7.40%
599 Lexington Avenue
New York, New York
10022
Morgan Stanley Group
Inc. ................. 1,811,495(5) 5.52%
1585 Broadway
New York, NY 10036
S. James Coppersmith... 3,000 *
Stanley H.
Feldberg(6)........... 16,218 *
Kerry L. Hamilton...... 1,200 *
Allyn L. Levy.......... 6,000 *
Arthur F. Loewy(6)..... 9,632 *
Thomas J. Shields...... 1,500 *
Lorne R. Waxlax........ 8,000 *
Herbert J. Zarkin...... 413,932 1.25%
Sarah M. Gallivan...... 20,896 *
John J. Nugent......... 163,316 *
Allan P. Sherman....... 153,750 *
Edward J. Weisberger... 103,917 *
Frank D. Forward....... 30,922 *
Laura J. Sen........... 23,796 *
Michael T. Wedge....... 26,364 *
Thomas F. Gallagher.... 9,523 *
Scott Richards......... 13,774 *
William B. Langsdorf... 12,425 *
All Directors and
Executive Officers of
Waban as a Group (12
persons).............. 901,361 2.69%
All Directors and
Executive Officers of
BJI as a Group
(12 persons).......... 802,843 2.40%
All Directors and
Executive Officers of
HomeBase as a Group (8
persons).............. 725,953 2.18%
</TABLE>
89
<PAGE>
- --------
* Indicates less than 1%
(1) Includes the following shares of Common Stock that may be acquired upon
exercise of outstanding stock options which were exercisable on March 31,
1997 or within 60 days thereafter: Mr. Coppersmith, 1,000 shares; Mr.
Feldberg, 1,000 shares; Ms. Hamilton, 1,000 shares; Mr. Levy, 1,000
shares; Mr. Loewy, 1,000 shares, Mr. Shields, 1,000 shares; Mr. Waxlax,
1,000 shares; Mr. Zarkin, 301,250 shares; Ms. Gallivan, 16,000 shares; Mr.
Nugent, 142,750 shares; Mr. Sherman, 128,750 shares; Mr. Weisberger,
82,500 shares; Mr. Forward, 20,750 shares; Ms. Sen, 17,000 shares; Mr.
Wedge, 24,250 shares; Mr. Gallagher, 2,875 shares; Mr. Richards, 7,918
shares; Mr. Langsdorf, 11,825 shares; all Directors and Executive Officers
of Waban as a group, 678,250 shares; all Directors and Executive Officers
of BJI as a group, 609,500 shares; all Directors and Executive Officers of
HomeBase as a group, 537,118 shares. Unexercised Waban stock options held
by BJI employees as of the Distribution Date will be replaced by options
that are exercisable for shares of BJI Common Stock based upon a
conversion formula to be calculated after the Distribution Date. See
"Management of BJI--Incentive and Other Plans." See "Management of
HomeBase--Incentive and other Plans" for a discussion of adjustments to
outstanding HomeBase options that will be made after the Distribution
Date.
(2) As of March 31, 1997 based on information provided to the Company by The
Prudential Insurance Company of America ("Prudential"). Prudential
reported that it has sole power to vote 144,200 shares and shared power to
vote 2,783,734 shares and has sole dispositive power with respect to
193,800 and shared dispositive power with respect to 2,783,734 shares.
Includes 5,818 shares issuable upon conversion of the Convertible
Debentures.
(3) As of March 31, 1997 based on information provided to the Company by
Franklin Resources, Inc., et al. Franklin Mutual Advisors, Inc. reported
that (i) it has sole power to vote or to direct the voting of 2,280,800
shares and Templeton Investment Counsel, Inc. has sole power to vote or
direct the voting of 236,000 shares; and (ii) it has sole dispositive
power with respect to 2,280,800 shares and Templeton Investment Counsel,
Inc. has sole dispositive power with respect to 236,000 shares.
(4) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the Commission by David J. Greene and Company, a registered
broker-dealer and investment adviser. David J. Greene and Company reported
that it has sole power to vote 152,400 shares and shared power to vote
1,546,500 shares and has sole dispositive power with respect to 152,400
shares and shared dispositive power with respect to 2,428,555 shares.
(5) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the SEC by Morgan Stanley Group Inc. ("Morgan Stanley"). Morgan
Stanley reported that it has shared voting power with respect to 1,708,895
shares and shared dispositive power with respect to 1,811,495 shares.
(6) Includes the following shares beneficially owned by the following persons
as trustees or custodians of which beneficial interest is disclaimed
unless otherwise indicated: Stanley H. Feldberg (8,366 shares). Excludes
the following shares beneficially owned by or held in trust by or for the
benefit of the respective spouses of the following persons and any shares
held in a trust for which the following persons are income beneficiaries,
as to which the following persons disclaim beneficial ownership: Stanley
H. Feldberg (84 shares); Arthur F. Loewy (413 shares).
90
<PAGE>
DESCRIPTION OF BJI CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As of the Distribution Date, BJI's authorized capital stock will consist of
200 million shares of capital stock, of which 180 million shares will be
designated as BJI Common Stock, $.01 par value per share, and 20 million
shares will be designated as preferred stock, $.01 par value per share (the
"Preferred Stock"). The following summary description of BJI's capital stock
is qualified in its entirety by reference to the BJI Certificate and the BJI
By-laws, as the same will be in effect on the Distribution Date.
COMMON STOCK
BJI will be authorized to issue 180 million shares of BJI Common Stock.
Based on the number of shares of Waban Common Stock outstanding as of March
31, 1997, approximately 32.8 million shares of BJI Common Stock are expected
to be issued and outstanding immediately following the Distribution Date. If
all of the Convertible Debentures are converted prior to the Distribution, an
additional 4,332,080 shares of BJI Common Stock would be outstanding
immediately following the Distribution Date.
Subject to the rights of holders of Preferred Stock and any other senior
class of stock, holders of BJI Common Stock will be entitled to receive such
dividends as may from time to time be declared by the Board of Directors of
BJI. Holders of BJI Common Stock will be entitled to one vote per share on
every question submitted to them at a meeting of stockholders or otherwise. In
the event of a liquidation, dissolution or winding up and distribution of the
assets of BJI, after paying or setting aside for the holders of Preferred
Stock and any other senior class of stock the full preferential amounts to
which they are entitled, and subject to the rights of any series of Preferred
Stock to participate pro rata with the BJI Common Stock with respect to
distributions, the holders of BJI Common Stock will be entitled to receive pro
rata all of the remaining assets of BJI available for distribution to BJI
stockholders. There are no pre-emptive rights with respect to BJI Common
Stock. The shares of BJI Common Stock to be issued in the Distribution will
not be liable to further calls or assessments.
PREFERRED STOCK
BJI will be authorized to issue up to 20 million shares of Preferred Stock
without further stockholder approval (except as may be required by applicable
stock exchange rules). Accordingly, the Board of Directors will be authorized
to determine, without any further action by the holders of the BJI Common
Stock, the dividend rights, dividend rate, conversion or exchange rights,
voting rights, rights and terms of redemption, liquidation preferences and
sinking fund terms of any series of Preferred Stock, the number of shares
constituting any such series, and the designation thereof. No shares of
Preferred Stock are expected to be issued and outstanding immediately
following the Distribution.
Should the BJI Board elect to exercise its authority to issue any additional
series of Preferred Stock, the rights, preferences and privileges of holders
of BJI Common Stock would be made subject to the rights, preferences and
privileges of such additional series. BJI has no present plans to issue any
such additional series of Preferred Stock.
CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
The internal affairs of BJI will be governed by, among other things, the
laws of the State of Delaware, the BJI Certificate and the BJI By-laws. The
BJI Certificate will contain several provisions, certain of which are
substantially similar to provisions in Waban's Certificate of Incorporation,
that may impede the acquisition of control of BJI by means of a tender offer,
proxy fight or other means. The BJI By-laws will also contain provisions,
certain of which are substantially similar to provisions contained in Waban's
By-laws, that could have an anti-takeover effect. Set forth below is a
description of such provisions in the BJI Certificate and the BJI By-laws, and
of certain related provisions of Delaware law.
91
<PAGE>
CLASSIFIED BOARD OF DIRECTORS
The BJI Certificate and BJI By-laws will provide for the BJI Board to be
divided into three classes of directors serving staggered three-year terms. As
a result, beginning in 1998, approximately one-third of the BJI Board will be
elected each year. The classified board is designed to ensure continuity and
stability in the BJI Board's leadership and policies in the event of a hostile
takeover attempt or proxy contest.
The classified board would significantly extend the time required to effect
any change in control of the BJI Board and may tend to discourage any hostile
takeover bid for BJI. Because only a minority of the directors will be elected
at each annual meeting, it would normally take at least two annual meetings
for holders of even a significant majority of BJI's voting stock to effect a
change in the composition of a majority of the BJI Board, absent approval of
the BJI Board. Because of the additional time required to change the
composition of the BJI Board, a classified board may also make the removal of
incumbent management more difficult, even if such removal would be beneficial
to stockholders generally, and may tend to discourage certain tender offers.
The Waban Board believes the classified board provisions will enable the BJI
Board to better protect the interests of BJI stockholders by aiding the BJI
Board in any attempt to negotiate more favorable terms with a potential
acquiror since such acquiror would be faced with a delay in obtaining control
of BJI absent approval of the BJI Board.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The BJI By-laws will provide that the number of directors will be not less
than three, with the exact number of directors to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
BJI Board. The authority of the BJI Board to determine the exact number of
directors could be used to prevent a stockholder from obtaining majority
representation on the BJI Board simply by enlarging the BJI Board and filling
the new directorships with its own nominees. Moreover, the BJI Certificate
will provide that directors may be removed only for cause (as defined therein)
and only by a vote of at least 67% of the outstanding shares of BJI Common
Stock. This removal provision of the BJI Certificate may only be amended by
the supermajority stockholder votes described below under "--Amendment of
Certain Provisions of the BJI Certificate and the BJI By-laws."
The BJI By-laws will provide that vacancies on the BJI Board may only be
filled by the majority vote of the remaining directors and not by the
stockholders, except that in the case of newly created directorships, if the
remaining directors fail to fill any such vacancy, the stockholders may do so
at the next annual meeting or a special meeting called for that purpose. Any
director so elected to fill a vacancy shall hold office until the next
election of the class for which such director shall have been chosen and until
his or her successor shall have been elected and qualified. This provision may
have the effect in practice of limiting the power to fill vacancies only to
the BJI Board because the BJI By-laws will not permit stockholders to call a
special meeting (at which such vacancies could be filled). See "--Stockholder
Action by Written Consent; Special Meetings" below. In addition, this vacancy
provision of the BJI By-laws may not be amended by the stockholders without
the supermajority stockholder votes described below under "--Amendment of
Certain Provisions of the BJI Certificate and the BJI By-laws."
These removal and vacancy provisions of the BJI Certificate and the BJI By-
laws will preclude the holder of a majority of the BJI Common Stock from
removing incumbent directors, or otherwise taking advantage of vacancies on
the BJI Board, and simultaneously gaining control of the BJI Board by filling
such resulting vacancies with its own nominees.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The BJI By-laws will provide that special meetings of stockholders may be
called only by the President or the Chairman of the Board or by vote of a
majority of the entire BJI Board. This provision precludes independent
stockholder action to call a special meeting of stockholders for consideration
of any proposals, including
92
<PAGE>
proposals for certain takeovers or proposals to remove directors from office
prior to the annual meeting of stockholders, unless such officers or the BJI
Board believe consideration of such proposals to be appropriate.
The BJI Certificate will provide that all stockholder action must be
effected at a duly called meeting (and not by a consent in writing). This
provision will give all of the stockholders of BJI an opportunity to
participate in determining the appropriateness of any proposed action and
prevents the holders of a majority of the voting stock from using the written
consent procedure permitted by Delaware law to take action, including any
attempt to gain control of BJI.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER NOMINATIONS OF DIRECTORS AND OTHER
STOCKHOLDER PROPOSALS
The BJI By-laws will establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the
Board of Directors, or by a stockholder of BJI who is entitled to vote at the
meeting who has given to the Secretary of BJI timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely notice, in proper form, to the Secretary prior to a meeting
at which directors are to be elected will be eligible for election as
directors of BJI.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of BJI at the principal
executive offices of BJI not less than 70 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the ninetieth day prior to such annual meeting and not later than the
close of business on the later of the seventieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at a special meeting of stockholders if
the stockholder's notice shall be delivered to the Secretary of BJI at the
principal executive offices of BJI not earlier than the ninetieth day prior to
such special meeting and not later than the close of business on the later of
the seventieth day prior to such special meeting or the tenth day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of BJI held by, the
stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of BJI entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information
regarding each nominee proposed by such stockholder as would have been
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission had each nominee been nominated, or intended to be
nominated, by the Board of Directors; and the consent of each nominee to serve
as a director if so elected.
CONSIDERATION OF NON-STOCKHOLDER CONSTITUENCIES
The BJI Certificate will provide that in determining whether to take or
refrain from taking corporate action on any matter, the BJI Board may take
into account the interests of creditors, customers, employees and other
93
<PAGE>
constituencies of BJI and its subsidiaries, and the effect upon communities in
which BJI and its subsidiaries do business in addition to any other
considerations which the BJI Board may lawfully take into account. The purpose
of these provisions is to specifically authorize the BJI Board to consider the
interests of various constituencies of BJI and its subsidiaries, in addition
to the interests of stockholders. Waban believes that these provisions are
desirable to emphasize the BJI Board's authority to act to maintain and
protect BJI as an enterprise.
AMENDMENT OF CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
Under Delaware law, the stockholders may adopt, amend or repeal the by-laws,
and with the approval of the board of directors, the certificate of
incorporation. If the certificate so provides, the by-laws may be adopted,
amended or repealed by the board of directors. The BJI Certificate will
provide for such actions to be taken by the BJI Board, except as provided
below. The BJI Certificate will contain provisions requiring the affirmative
vote of the holders of at least 80% of all outstanding shares of BJI Common
Stock, (i) to alter, amend, repeal or adopt certain provisions of the BJI
Certificate (including the provisions of the BJI Certificate discussed above
in this Section and including the amendment provisions described in this
sentence) or (ii) to amend, alter or repeal certain provisions of the BJI By-
laws (including the provisions of the BJI By-laws described above in this
Section). These supermajority voting requirements will make it more difficult
for stockholders to make changes in the above-described provisions of the BJI
Certificate or the BJI By-laws, including changes designed to facilitate the
exercise of control over BJI. In addition, these supermajority voting
requirements will enable the holders of a minority of the outstanding shares
of BJI Common Stock to prevent the holders of a majority or more from amending
the above-described provisions of the BJI Certificate or the BJI By-laws. The
supermajority vote requirements may be difficult to obtain, since the holders
of at least 80% of all outstanding shares of BJI Common Stock must be present
or represented by proxy at any meeting at which any such amendment is proposed
and must vote in favor of such amendment.
PREFERRED STOCK
The BJI Certificate will authorize the BJI Board to determine (without any
further vote of the stockholders, except as may be required by applicable
stock exchange rules), with respect to any series of Preferred Stock, the
terms and rights of such series. See "Description of BJI Capital Stock--
Preferred Stock."
In connection with the planned adoption of its Preferred Share Purchase
Rights, BJI will designate and reserve for issuance upon exercise of such
Rights shares of Series A Preferred Stock. See "--Preferred Share Purchase
Rights" below. Although BJI has no intention at the present time of doing so,
it could issue another series of Preferred Stock that could, depending on the
terms of such series, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. The BJI Board is not expected to seek
stockholder approval prior to any issuance of authorized capital stock,
including Preferred Stock, unless otherwise required by law or stock exchange
rules. Frequently, opportunities arise that require prompt action, and the
Waban Board believes that the delay occasioned by seeking stockholder approval
of a specific issuance could be detrimental to BJI and its stockholders.
The provisions of the BJI Certificate and the BJI By-laws described above
pertaining to the classification of the BJI Board, the number, removal and
nomination of directors, the filling of vacancies on the BJI Board,
stockholder action by written consent, special meetings of stockholders and
the related amendment provisions will be made subject to the provisions of any
series of Preferred Stock or any other securities of BJI with respect to the
election of directors upon specified circumstances or the voting of such
securities, as the case may be.
CERTAIN RELATED PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law, a corporation is
prohibited from engaging in a business combination (as defined in said Section
203) with any Interested Stockholder (defined to include any person or group
owning more than 15% of the corporation's outstanding voting stock) for a
period of three years
94
<PAGE>
following the time such person or group became an Interested Stockholder. This
prohibition does not apply if (i) prior to such time, the corporation's Board
of Directors approved either the pertinent business combination or the
transaction in which the Interested Stockholder became such, (ii) upon
consummation of the transaction which resulted in such person or group first
becoming an Interested Stockholder, such Interested Stockholder owned at least
85% of the corporation's voting stock outstanding at the time the transaction
commenced (excluding, in the calculation of such 85% ownership level, shares
owned by persons who are both officers and directors and shares owned by
employee benefit plans under which participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) subsequent to such time, the
pertinent business combination is approved by the corporation's Board of
Directors and holders of at least two-thirds of the corporation's voting stock
not owned by the Interested Stockholder voting at an annual or special
stockholders' meeting. Any such special stockholders' meeting could only be
called in the manner described above under "--Stockholder Action by Written
Consents; Special Meetings." In addition, subject to certain notice and
related timing requirements, business combinations consisting of (x) mergers
or consolidations requiring stockholder approval, (y) certain asset sales or
related transactions and (z) tender or exchange offers for more than 50% of
the corporation's voting stock are permitted where such business combination
(i) is with a person or group which either was not an Interested Stockholder
during the preceding three years or which became such with the approval of the
corporation's Board of Directors and (ii) is approved (or not opposed) by a
majority of the disinterested directors (as defined in said Section 203).
Delaware law provides certain procedures for a corporation to elect not to
be covered by Section 203. BJI will not seek to adopt any procedure opting out
of Section 203 prior to the Distribution, and, consequently, absent such an
election in the future, any business combination involving an Interested
Stockholder must comply with these provisions of Delaware law. Following the
Distribution Date, any future election to opt out of Section 203 can be
effected only by an amendment to the BJI Certificate or the BJI By-laws. Any
such election would not be effective for a period of 12 months following the
date of adoption of such amendment and would not apply to a business
combination with any Interested Stockholder who became such prior to such date
of adoption.
INDEMNIFICATION AND INSURANCE
Under Delaware law, directors and officers of BJI, as well as other
employees and individuals, may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation (a "derivative action")) if they acted in good faith
in a manner they reasonably believed to be in or not opposed to the best
interests of BJI, and, with respect to any criminal action or proceeding had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with defense or settlement of such actions and Delaware law
requires court approval before there can be any indemnification where the
person seeking indemnification has been found liable to BJI.
The BJI Certificate will provide that each person who was or is made a party
to, or is involved in, any threatened, pending or completed action, suit,
proceeding or claim by reason of the fact that he or she is or was a director
or officer of BJI (or if such person is or was serving at the request of BJI
as a director, officer, employee or agent for any other entity) shall be
indemnified and held harmless by BJI, to the full extent authorized by
Delaware law, as in effect from time to time, against all expenses (including
attorneys' fees), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses to be provided by
the BJI Certificate do not apply to any action, suit, proceeding or claim
initiated by or on behalf of a person otherwise entitled to the benefit of
such provisions. Any person seeking indemnification under the BJI Certificate
shall be deemed to have met the standard of conduct required for such
indemnification unless the contrary shall be established. The BJI Certificate
will provide that the rights to indemnification and the payment of expenses
provided thereby shall not be
95
<PAGE>
exclusive of any other right which any person may have or acquire under any
statute, provision of the BJI Certificate or BJI By-laws, or otherwise. Any
repeal or modification of such indemnification provisions shall not adversely
affect any right or protection of a director or officer with respect to any
acts or omissions of such director or officer occurring prior to such repeal
or modification.
BJI will also enter into indemnification agreements with each of its
directors and officers. See "Management of BJI--Indemnification Agreements."
BJI is expected to maintain insurance, at its expense, to protect itself and
any of its directors, officers, employees or agents covered thereby against
any expense, liability or loss, whether or not BJI would have the power to
indemnify such person against such expense, liability or loss under the
Delaware law, so long as such insurance is available at reasonable rates.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Consistent with applicable provisions of Delaware law, the BJI Certificate
will limit a director's monetary liability to BJI or its stockholders for
breach of fiduciary duty, except for situations entailing bad faith,
intentional misconduct, a knowing violation of law, unlawful dividend payments
or stock purchases or redemptions, acquisition of improper personal benefit or
breach of duty of loyalty. Future amendments to such provisions of Delaware
law will automatically be applied to BJI without any requirement of
stockholder approval. Consequently, such amendments could result in the
expansion of directors' protections under such exculpation provisions without
additional consideration by stockholders. As a result of inclusion of this
provision, stockholders may be unable to recover monetary damages against
directors for actions which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders for any
particular case, stockholders may not have any effective remedy against the
challenged conduct. Thus, directors will have a personal stake, at the
potential expense of stockholders, in such exculpation provisions of the BJI
Certificate. Such exculpation provisions would not limit directors' liability
for violation of the federal securities laws. Such provisions will not apply
to officers who are not directors of BJI.
PREFERRED SHARE PURCHASE RIGHTS
The BJI Board is expected to authorize a Rights Plan, pursuant to which one
preferred share purchase right (a "Right") will be distributed together with
and will attach to each share of BJI Common Stock to be distributed in the
Distribution. The Rights will expire on , unless earlier redeemed or
exchanged. Each Right entitles the holder to purchase one one-thousandth of a
share of Series A Preferred Stock of BJI at an exercise price of $ per
Right (subject to adjustment). The Rights will be exercisable only if a person
or group has acquired beneficial ownership of 20% or more of the outstanding
BJI Common Stock or announces a tender or exchange offer that would result in
such person or group owning 30% or more of the BJI Common Stock. Such
percentages may, in the Board's discretion, be lowered, although in no event
below 10%. If any person becomes the beneficial owner of 20% or more of the
shares of BJI Common Stock (an "Acquiring Person"), except pursuant to a
tender or exchange offer for all shares at a fair price as determined by the
outside members of the BJI Board, each Right not owned by such Acquiring
Person will enable its holder to purchase that number of shares of the BJI
Common Stock which equals the exercise price of the right divided by one-half
of the current market price of the BJI Common Stock at the date of the
occurrence of the event. In addition, if, after a person or group has become
an Acquiring Person, BJI is involved in a merger or other business combination
transaction with another person or group in which it is not the surviving
corporation or in connection with which the BJI Common Stock is changed or
converted, or it sells or transfers 50% or more of its assets or earning power
to another person, each Right that has not previously been exercised will
entitle its holder to purchase that number of shares of common stock of such
other person which equals the exercise price of the Right divided by one-half
of the current market price of such common stock at the date of the occurrence
of the event. BJI will generally be entitled to redeem the Rights at $.01 per
Right at any time until the 10th day following public announcement that a
person or group has become an Acquiring Person.
96
<PAGE>
The Series A Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Subject to the rights of holders of any shares of any
Preferred Stock ranking prior and superior to the Series A Preferred Stock,
each share of Series A Preferred Stock will be entitled to a preferential
quarterly dividend payment of the greater of (a) $1.00 per share or (b) an
aggregate dividend of 1,000 times the dividend declared per share of BJI
Common Stock. In the event of liquidation, the holders of the Series A
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $1,000 per share and will be entitled to an aggregate payment of 1,000
times the payment made per share of BJI Common Stock. Each share of Series A
Preferred Stock will have 1,000 votes, voting together with the BJI Common
Stock. Finally, in the event of any merger, consolidation or other transaction
in which BJI Common Stock is exchanged, each share of Series A Preferred Stock
will be entitled to receive 1,000 times the amount received per share of BJI
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of one one-thousandth of a share of
Series A Preferred Stock purchasable upon exercise of the Right associated
with each share of BJI Common Stock should approximate the value of one share
of BJI Common Stock.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of BJI, including without limitation the right to vote or
receive dividends.
The Rights are designed to protect stockholders of BJI in the event of
unsolicited offers to acquire BJI and other coercive takeover tactics. The
Rights may cause substantial dilution to a person or group that attempts to
acquire BJI on terms not approved by the BJI Board, and therefore may render
an unsolicited takeover of BJI more difficult or less likely to occur.
However, the Rights should not interfere with any merger or other business
combination approved by the BJI Board since the Rights may be redeemed by BJI
at $.01 per Right prior to the tenth day after the public announcement that a
person or group has become an Acquiring Person.
APPROVAL OF AMENDMENT TO THE WABAN CERTIFICATE OF INCORPORATION
Approval of the Distribution Proposals will also constitute approval of an
amendment to the Certificate of Incorporation of Waban which would change the
name of Waban Inc. to "HomeBase, Inc.", effective only if the Distribution
occurs (the "Name Change"). Even if the Distribution Proposal is approved by
stockholders, the Waban Board may determine not to file the amendment to the
Waban Certificate reflecting the Name Change. In such case, Waban intends to
propose an alternative name change for a vote by the stockholders of Waban at
the next annual meeting of stockholders.
APPROVAL OF AMENDMENTS TO THE WABAN 1989 STOCK INCENTIVE PLAN AND CONTINUANCE
OF PLAN
Stockholders are being asked to approve (i) an amendment to Waban's 1989
Stock Incentive Plan (the "Waban Stock Incentive Plan") increasing the maximum
number of shares of Common Stock issuable under the Waban Stock Incentive Plan
from 5,750,000 to 8,250,000, and (ii) the continuance of the Waban Stock
Incentive Plan. Stockholder approval of the additional 2,500,000 shares is
being sought in part to provide the increased number of shares required in
connection with the proportionate adjustment to be made to currently
outstanding options under the Waban Stock Incentive Plan as a result of the
Distribution. See "Management of HomeBase--Incentive and Other Plans."
As of March 31, 1997, options and stock-based awards had been granted under
the Waban Stock Incentive Plan with respect to an aggregate of 4,203,602
shares (net of cancellations and forfeitures) and 1,546,398 shares remained
available for future grants under the Waban Stock Incentive Plan. Waban
believes the 2,500,000
97
<PAGE>
additional shares, together with those which currently remain available for
grant and those which will become available for grant as a result of the
termination of outstanding options currently held by persons who do not
continue as employees of Waban after the Distribution, should provide a
sufficient number of shares to enable option and other awards to be granted
through the life of the Waban Stock Incentive Plan, which currently expires on
June 14, 1999. The following persons are expected to be eligible to
participate in the Waban Stock Incentive Plan immediately following the
Distribution: five executive officers and approximately 200 other key
employees of HomeBase. The approval of the amendment to, and continuance of,
the Waban Stock Incentive Plan is not conditioned upon the approval of any of
the other Distribution Proposals.
DESCRIPTION OF THE WABAN STOCK INCENTIVE PLAN
The following summary of the Waban Stock Incentive Plan is qualified in its
entirety by reference to the plan, a copy of which may be obtained by making a
written request to the Secretary of the Company.
The Waban Stock Incentive Plan permits the granting of a variety of stock
and stock-based awards to officers and key employees of Waban and its
subsidiaries, including: stock options; restricted and unrestricted shares;
rights to receive cash or shares on a deferred basis or based on performance;
rights to receive cash or shares in respect of increases in the value of
Common Stock; cash payments sufficient to offset the federal ordinary income
taxes of participants resulting from transactions under the Waban Stock
Incentive Plan; loans to participants in connection with awards; and other
Common Stock-based awards, including the sale or award of convertible
securities, that meet the requirements of the Waban Stock Incentive Plan. The
Waban Stock Incentive Plan also provides that option holders may, unless
otherwise provided at the time of grant, surrender outstanding options in
exchange for a cash payment during the 60-day period following a Change of
Control of Waban (as defined in the Waban Stock Incentive Plan).
The Waban Stock Incentive Plan is administered by the Executive Compensation
Committee. The Executive Compensation Committee has full power to select, from
among the employees eligible for awards, the individuals to whom awards will
be granted, to make any combination of awards to any participants and to
determine the specific terms of each grant, subject to the provisions of the
Waban Stock Incentive Plan.
Subject to adjustment for stock splits and similar events, currently a total
of 5,750,000 shares of Common Stock may be issued under the Waban Stock
Incentive Plan, and no more than 250,000 shares per calendar year may be made
subject to awards granted to any single participant. The Waban Stock Incentive
Plan also permits the issuance of securities convertible into Common Stock,
including a maximum of 500,000 shares of preferred stock of Waban. Awards and
shares which are forfeited, reacquired by Waban or satisfied by a cash payment
or otherwise without the issuance of Common Stock are not counted toward this
limitation. Shares delivered under awards in substitution for awards held by
employees of companies or businesses acquired by Waban or its subsidiaries are
in addition to the maximum number of shares authorized under the Waban Stock
Incentive Plan, subject to certain limitations.
The Executive Compensation Committee is required to make appropriate
adjustments in connection with outstanding awards to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation or
similar event, the Committee may provide for substitution or adjustments or
may accelerate or, upon payment or other consideration for the vested portion
of any awards as the Executive Compensation Committee deems equitable,
terminate such awards (subject to the provisions described under "Change of
Control" below). The Board of Directors may at any time amend or discontinue
the Waban Stock Incentive Plan and the Executive Compensation Committee may at
any time amend or cancel awards (or provide substitute awards or reduced
exercise or purchase prices, including lower-priced awards upon the
termination of any then outstanding awards) and may accelerate awards and
waive conditions and restrictions on any awards to the extent it may determine
to be appropriate. However, no such action may adversely affect any rights
under outstanding awards without the holder's consent. Moreover, any amendment
that would cause the Waban Stock Incentive Plan to fail to
98
<PAGE>
satisfy any then applicable incentive stock option rules under the Code shall
be ineffective unless approved by the stockholders.
Persons eligible to participate in the Waban Stock Incentive Plan are those
full- or part-time officers and other key employees of Waban or its
subsidiaries who are responsible for or contribute to the management, growth
or profitability of the business of Waban, as selected from time to time by
the Executive Compensation Committee. Persons who are not employees of Waban
or a parent or subsidiary (as those terms are used in Section 422 of the Code)
are not eligible to receive grants of incentive options, as defined below. The
Waban Stock Incentive Plan limits the terms of awards to ten years (ten years
and one day in the case of non-statutory options, as defined below) and
prohibits the granting of awards after June 14, 1999.
The Waban Stock Incentive Plan is also being amended to revise or delete
certain existing provisions which made reference to old Rule 16b-3 under the
Exchange Act.
Stock Options. The Waban Stock Incentive Plan permits the granting of non-
transferable stock options to acquire Common Stock that qualify as incentive
stock options ("incentive options") under Section 422 of the Code and non-
transferable stock options that do not so qualify ("non-statutory options").
The Executive Compensation Committee may provide that, upon exercise of an
option, the participant will receive shares of Restricted Stock or Deferred
Stock awards (see below). The exercise price of each option is determined by
the Executive Compensation Committee, but may not be less than 100% of the
fair market value of the shares on the date of grant.
The Executive Compensation Committee determines the term of each option and
at what time or times each option may be exercised, and the exercisability of
options may be accelerated by the Executive Compensation Committee. In the
event of termination of employment by reason of normal retirement, disability
or death, an option may thereafter be exercised (to the extent it was then
exercisable) for a period of three years, or such shorter period as may be
specified by the Executive Compensation Committee at the time of grant,
subject to the stated term of the option. In the event of termination of
employment for any reason other than normal retirement, disability or death,
an option may thereafter be exercised, to the extent then exercisable, for
three months (or such longer period of up to three years as the Executive
Compensation Committee determines at or after the grant date) following
termination, subject to the stated term of the option. However, options cease
to be exercisable upon termination for Cause (as defined in the Waban Stock
Incentive Plan).
Stock Appreciation Rights. The Executive Compensation Committee may grant
non-transferable stock appreciation rights entitling the holder upon exercise
to receive an amount, in any combination of cash or shares of unrestricted
Common Stock, Restricted Stock or Deferred Stock awards, not greater in value
than the increase since the date of grant in the value of the shares covered
by such right. Stock appreciation rights may be granted separately from or in
tandem with the grant of an option. In addition, the Executive Compensation
Committee may determine, if so requested by an option holder, that Waban will
pay the optionee, in cancellation of an option not accompanied by a related
stock appreciation right, any combination of cash, unrestricted Common Stock,
Restricted Stock or Deferred Stock awards not greater in value than the
increase since the date of grant in the value of the shares covered by the
option. The exercise value of a stock appreciation right is generally
determined by reference to the closing sale price of Common Stock on the date
of exercise.
Restricted Stock and Unrestricted Stock. The Executive Compensation
Committee may award shares of Common Stock subject to such conditions and
restrictions (including vesting) as the Committee may determine ("Restricted
Stock"). The purchase price, if any, of shares of Restricted Stock may not
exceed the par value of those shares.
The Executive Compensation Committee may at any time waive such
restrictions, including through accelerated vesting. Shares of Restricted
Stock are non-transferable and if a participant who holds shares of Restricted
Stock terminates employment for any reason (including death) prior to the
lapse or waiver of the restrictions, Waban may require the forfeiture of or
repurchase the shares. A holder of Restricted Stock has all
99
<PAGE>
rights of a stockholder with respect to such stock, subject only to conditions
and restrictions generally applicable to Restricted Stock or specifically set
forth in the Restricted Stock award agreement.
The Executive Compensation Committee may grant shares (at no cost or for a
purchase price equal to par value or less) which are free from any
restrictions under the Waban Stock Incentive Plan ("Unrestricted Stock").
Deferred Stock. The Executive Compensation Committee may make Deferred Stock
awards under the Waban Stock Incentive Plan. These are non-transferable awards
entitling the recipient to receive shares of Common Stock without any payment
in one or more installments at a future date or dates. Receipt of Deferred
Stock may be conditioned on such matters as the Executive Compensation
Committee shall determine, including continued employment or attainment of
performance goals. Except as otherwise determined by the Executive
Compensation Committee prior thereto, all such rights terminate upon the
participant's termination of employment.
Performance Units. The Executive Compensation Committee may award non-
transferable Performance Units entitling the recipient to receive shares of
Common Stock or cash in such combinations as the Executive Compensation
Committee may determine. Payment of the award may be conditioned on
achievement of specified performance goals over a fixed or determinable period
and such other conditions as the Executive Compensation Committee may
determine. Except as otherwise determined by the Executive Compensation
Committee prior thereto, rights under a Performance Unit award terminate upon
a participant's termination of employment.
Other Stock-Based Awards. The Executive Compensation Committee may grant
other types of awards of, or based on, Common Stock ("Other Stock-Based
Awards"). Such awards may include securities convertible into or exchangeable
for shares of Common Stock upon such conditions, including attainment of
performance goals, as the Executive Compensation Committee may determine.
Convertible securities offered under Other Stock-Based Awards may be
convertible debt or shares, not exceeding in the aggregate 500,000 shares, of
convertible preferred stock.
The Executive Compensation Committee may determine the amount and form of
consideration, if any, payable upon the issuance or exercise of Other Stock-
Based Awards. However, Common Stock must be issued (including upon conversion,
exchange or otherwise) either as bonus stock or for a price equal to at least
50% of its fair market value on the grant or the effective date (or conversion
or exchange date), and securities convertible into Common Stock must be issued
as a bonus or for a price equal to at least 50% of their fair market value on
the grant or issuance date. The Executive Compensation Committee may prescribe
limitations or conditions requiring forfeiture by the participant, or
permitting repurchase by Waban, of Other Stock-Based Awards or related Common
Stock or securities, and may at any time accelerate or waive any such
limitations or conditions. The recipient of an Other Stock-Based Award will
have rights of a stockholder to the extent, if any, specified by the Executive
Compensation Committee in the Other Stock-Based Award agreement.
Supplemental Grants. The Executive Compensation Committee may authorize
loans from Waban in connection with awards granted or exercised under the
Waban Stock Incentive Plan. Loans may be for up to ten years, may be secured
or unsecured and may be with or without recourse against the participant. Each
loan shall be subject to such additional terms and conditions and shall bear
such rate of interest, if any, as the Executive Compensation Committee shall
determine. However, the amount of any loan may not exceed the total exercise
or purchase price plus an amount equal to the cash payment which could have
been paid to the borrower in respect of taxes as described in the next
paragraph.
The Executive Compensation Committee may at any time grant to a participant
the right to receive a cash payment in connection with taxable events
(including the lapse of restrictions) under grants or awards. The amount of
such payment is determined in relation to the taxable amount recognized in
respect of such other grant or award, based on the maximum marginal federal
tax rate (or such lower rate as the Executive Compensation Committee may
determine) in effect at the time such taxable income is recognized. The amount
of any such payment may be up to but may not exceed the amount estimated to be
necessary to cover the federal income tax so calculated as due with respect to
such other grant or award and with respect to the cash payment itself.
100
<PAGE>
Dividends and Deferrals. The Executive Compensation Committee may require or
permit the immediate payment or the waiver, deferral or investment of
dividends paid on awards under the Waban Stock Incentive Plan and amounts
equal to dividends which would have been paid if shares subject to an award
had been outstanding, and may permit participants to make elections to defer
receipt of benefits under the Waban Stock Incentive Plan. The Executive
Compensation Committee may also provide for the accrual of interest or
dividends on amounts deferred under the Waban Stock Incentive Plan on such
terms as the Executive Compensation Committee may determine.
Change of Control. The Waban Stock Incentive Plan provides that, in the
event of a Change of Control of Waban, unless otherwise expressly provided at
the time of grant, all stock options and stock appreciation rights will become
immediately exercisable. Restrictions and conditions on other awards will
automatically be deemed satisfied to the extent that the Executive
Compensation Committee may determine (whether at or after the time of grant).
The definition of Change of Control, however, provides that, unless otherwise
determined by the Executive Compensation Committee, a transaction shall not be
deemed to be a Change of Control with respect to a participant if the
participant takes part in the transaction (within the meaning of the
definition).
Also in the event of a Change of Control, during the 60-day period following
such Change of Control each optionholder (other than the holder of an option
as to whom the Executive Compensation Committee determined at the time of
grant that the rights described below would not apply, and other than any
optionholder who initiates the Change of Control or who participates in the
transaction in the manner specified in the definition of Change of Control)
may, upon notice to Waban, surrender outstanding options to Waban in exchange
for a cash payment equal to the excess of the fair market value (subject to
the special rule for non-statutory options described below) on the date of
surrender of the shares subject to the option over the aggregate exercise
price. Persons subject to Section 16(b) of the Exchange Act must have held
such options for at least six months prior to surrender. In addition, except
as otherwise provided by the Executive Compensation Committee, the
availability to persons subject to Section 16(b) of the Exchange Act of this
right to surrender options for cash upon a Change of Control is conditioned on
the receipt of a favorable interpretive letter of the staff of the Securities
and Exchange Commission with respect to this right. For purposes of the
surrender of non-statutory options, "fair market value" means the highest
reported sales price, regular way, of a share of Common Stock on the New York
Stock Exchange Composite Transactions Index during the 60-day period prior to
the Change of Control or, if higher (in the case of a Change of Control
occurring by reason of certain acquisitions), the highest per share price paid
or reported in connection with such acquisition.
The granting of awards under the Waban Stock Incentive Plan is
discretionary, and except for the additional options to be issued to adjust
for the Distribution (as described under the caption "Management of HomeBase--
Incentive and Other Plans ") Waban cannot now determine the number or type of
awards to be granted in the future to any particular person or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the United States federal income tax
consequences of options is for general information only and does not purport
to be a complete description of federal tax aspects of the Stock Incentive
Plan.
Incentive Options. The grant of an incentive option does not produce taxable
income to the optionee or a deduction to Waban. If an incentive option is
exercised while the optionee is employed or within three months following the
termination of employment (twelve months in the case of termination of
employment because of permanent disability), or after the optionee's death if
death occurs during the foregoing periods, exercise of the option will in
general also not produce taxable ordinary income to the optionee or a
deduction to Waban. For alternative minimum tax purposes, however, such
exercise will increase the optionee's "alternative minimum taxable income" and
may result in a liability to pay the alternative minimum tax.
If an incentive option is exercised other than as described above, the tax
consequences will be the same as those described below for non-statutory
options. Also, to the extent that the aggregate fair market value of the
101
<PAGE>
stock (determined at time of grant) with respect to which incentive options
granted under all option plans of Waban and its subsidiary corporations are
exercisable for the first time by an individual during any calendar year
exceeds $100,000, such options will be treated as non-statutory stock options.
If stock acquired upon the exercise of an incentive option is not disposed
of within two years from the date the option is granted or within one year
after the date the option is exercised, gain or loss recognized upon
disposition of the stock will be capital gain or loss. If these one-year and
two-year holding period requirements are not satisfied, the participant will
realize ordinary income at the time of disposition of the stock. (A
disposition giving rise to such ordinary income is referred to as
"disqualifying disposition".) Upon a disqualifying disposition, a participant
will generally realize ordinary income equal to the difference between fair
market value of the stock on the date of exercise and the exercise price, and
Waban will be entitled to a deduction equal to such amount. Any additional
gain recognized in the disposition will be a capital gain for which no
deduction will be available. If the disqualifying disposition is a sale or
exchange with respect to which loss (if sustained) would be recognized, then
the amount of ordinary income realized upon the disqualifying disposition (and
the amount of Waban's deduction) will not exceed the excess of the amount
realized on such sale or exchange over the adjusted basis of the stock.
If a participant exercises an incentive option in whole or in part by
surrendering previously acquired stock, no gain or loss is recognized on the
exchange of the previously acquired shares unless the exchange results in a
disqualifying disposition of the shares surrendered. Such a disqualifying
disposition may result in the realization of ordinary income.
Non-Statutory Options. The grant of a non-statutory option does not produce
taxable income to the optionee or a deduction to Waban. A participant
exercising a non-statutory option realizes ordinary income in the amount of
the difference between the exercise price and the then market value of the
shares, and Waban is entitled to a corresponding deduction (subject to any
withholding or reporting requirements). If a participant exercises a non-
statutory option by surrendering previously acquired stock, no gain or loss is
recognized on the exchange for an equivalent number of new shares. The
participant will realize ordinary income, and Waban will be entitled to a
corresponding deduction (subject to any withholding or reporting
requirements), in general equal to the fair market value of any new shares
received in excess of the number of previously acquired shares surrendered in
the exchange.
Surrender of Options. If an individual surrenders all or any portion of an
option in exchange for cash or stock, the individual realizes ordinary income
subject to withholding (and Waban is in general entitled to a deduction) equal
to the amount of cash and the fair market value of the stock received.
REASONS FOR STOCKHOLDER APPROVAL
The Waban Stock Incentive Plan, as proposed to be amended, has been designed
so that options granted under the plan will qualify as performance-based
compensation and, accordingly, not be subject to the deduction limit imposed
by Section 162(m) of the Code. However, in order to qualify as performance-
based compensation, and thereby ensure the Federal tax deductibility of
options granted under the Waban Stock Incentive Plan, stockholder approval of
the amendment and continuance of the plan at the Meeting is required.
102
<PAGE>
APPROVAL OF THE BJI 1997 STOCK INCENTIVE PLAN
DESCRIPTION OF THE BJI STOCK INCENTIVE PLAN
The principal provisions of the BJI Stock Incentive Plan are identical to
those of the Waban Stock Incentive Plan. See "Approval of Amendments to the
Waban 1989 Stock Incentive Plan and Continuance of Plan--Description of the
Waban Stock Incentive Plan." The following summary of the BJI Stock Incentive
Plan is qualified in its entirety by reference to the plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. In addition, copies may be obtained by
making a written request to the Secretary of the Company.
Under the terms of the BJI Stock Incentive Plan, a maximum of 3,000,000
shares (subject to adjustment as provided in the plan) of authorized but
unissued BJI Common Stock will be reserved for issuance and no more than
500,000 shares per calendar year may be made subject to awards granted to any
single participant. To date, no awards have been made under the BJI Stock
Incentive Plan and it is not expected that any awards will be made prior to
the Distribution Date. The following persons are expected to be eligible to
participate in the BJI Stock Incentive Plan immediately following the
Distribution: six executive officers and approximately 200 other key employees
of BJI.
The granting of awards under the BJI Stock Incentive Plan will be
discretionary, and other than with respect to the replacement awards to be
made effective as of the Distribution Date, Waban cannot now determine the
number or type of awards to be granted in the future to any particular person
or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, awards under the BJI Stock Incentive Plan
will be treated in the same manner as described above under "Approval of
Amendments to the Waban 1989 Stock Incentive Plan and Continuance of Plan--
Certain Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The BJI Stock Incentive Plan has been designed so that options granted under
the plan will qualify as performance-based compensation and, accordingly, not
be subject to the deduction limit imposed by Section 162(m) of the Code.
However, in order to qualify as performance-based compensation, and thereby
ensure the Federal tax deductibility of options granted under the BJI Stock
Incentive Plan, stockholder approval of the plan at the Meeting is required.
APPROVAL OF THE BJI MANAGEMENT INCENTIVE PLAN
The BJI Management Incentive Plan (the "BJI MIP") is intended to provide
executive officers and other key employees of BJI with cash incentive awards,
based upon the attainment of annual performance goals. The BJI MIP is similar
to the Waban Management Incentive Plan ("WMIP") and will cover BJI's employees
currently covered by the Waban Management Incentive Plan.
DESCRIPTION OF BJI MANAGEMENT INCENTIVE PLAN
The following summary of the BJI MIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Key employees of BJI, as designated by the BJI Executive Compensation
Committee, will be eligible to receive cash awards under the BJI MIP. The
total number of participants in the BJI MIP is expected to be approximately
400. The following persons are expected to participate in the BJI MIP: (i) six
executive officers, including the Named BJI Officers; and (ii) approximately
400 other employees of the Company.
103
<PAGE>
At the commencement of the performance year (i.e., the fiscal year), the BJI
Executive Compensation Committee will establish performance goals and
corresponding target awards, based on one or more objective performance
criteria. Such goals, criteria and target awards may vary among participants.
The performance criteria are expected to be one or more of the following
objective measurements: operating income, pre-tax income, net income, gross
profit dollars, costs, any of the preceding measures as a percent of sales,
earnings per share, sales, return on equity, and return on investment.
Awards will be based upon the level of achievement of the pre-established
performance goals. Awards will be paid in cash as soon as practicable after
the performance year, except to the extent deferred under any deferred
compensation plan which may be adopted by BJI and applicable to the awards.
Under the BJI MIP, the BJI Executive Compensation Committee may not make any
adjustments to the performance criteria to increase the incentive payment to
executive officers subject to Section 162(m) of the Code, except to make
appropriate adjustments in the event of certain specified types of
transactions; provided that in no case shall any such adjustment be made if it
would cause an award to no longer qualify as performance-based compensation
under Section 162(m) of the Code.
Under the BJI MIP, no participant may receive a cash award in excess of
$1,000,000 in any calendar year or, if less, 100% of the participant's
annualized base salary as of the beginning of the performance period.
The granting of awards under the BJI MIP will be discretionary, and except
for awards to be granted in connection with the Distribution in replacement of
existing awards under the WMIP, BJI cannot now determine the nature of the
awards to be granted in the future to any particular person or group. The
replacement awards will be granted on substantially the same basis as existing
awards under the WMIP, with modifications necessary to reflect changes
resulting from the Distribution.
The BJI Executive Compensation Committee shall have full power to administer
and interpret the BJI MIP and to establish rules for its administration.
The BJI Executive Compensation Committee or the BJI Board may amend, suspend
or terminate the BJI MIP at anytime.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI MIP has been designed so that cash awards made under the BJI MIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI MIP, stockholder
approval of the BJI MIP at the Meeting is required.
104
<PAGE>
APPROVAL OF THE BJI GROWTH INCENTIVE PLAN
The BJI Growth Incentive Plan (the "BJI GIP") is intended to provide high-
level executives of BJI with cash awards, based upon the growth and
performance of BJI. The BJI GIP is designed to enhance the ability of BJI to
attract and retain individuals of exceptional managerial talent upon whom the
sustained progress, growth and profitability of BJI will depend. The BJI GIP
is similar to the Waban Growth Incentive Plan ("WGIP") and will cover BJI's
employees currently covered by the Waban Growth Incentive Plan.
DESCRIPTION OF BJI GROWTH INCENTIVE PLAN
The following summary of the BJI GIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Employees in high-level management positions in BJI, as selected by the BJI
Executive Compensation Committee, will be eligible to receive cash awards
under the BJI GIP. The total number of participants in the BJI GIP immediately
following the Distribution is expected to be 23. The following persons are
expected to participate in the BJI GIP: (i) six executive officers, including
the Named BJI Officers, and (ii) approximately 17 non-executive officer
employees of BJI.
It is anticipated that awards granted under the Waban Growth Incentive Plan
prior to the Distribution will be replaced by awards under the BJI GIP for
Waban employees who become employees of BJI.
Each participant in the BJI GIP will be eligible to receive a cash award for
each award period, which is expected to consist of a certain number of fiscal
years. Each participant's cash award will correspond to BJI's level of
performance or growth during such award period. Such growth is determined by
and based upon one or more of the following objective measures of performance
or growth, as selected by the BJI Executive Compensation Committee at the
beginning of the award period: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a percent of
sales, earnings per share, sales, return on equity, and return on investment.
All relevant factors upon which the cash award is expected to be based (e.g.,
performance measurement, length of award period, relation between performance
and cash award) will be determined at the beginning of the award period by the
BJI Executive Compensation Committee.
No participant may receive a cash award in excess of $2,000,000 in any
calendar year or, if less, 300% of the participant's annualized base salary as
of the beginning of the award period.
Cash awards will be paid within three months after the end of the award
period, and, in the BJI Executive Compensation Committee's discretion, payment
of a portion of the cash award may be deferred until one or more years
thereafter. Under the BJI GIP, the BJI Executive Compensation Committee may
not make any adjustments to the performance criteria to increase the incentive
payment to executive officers subject to Section 162(m) of the Code, except to
make appropriate adjustments in the event of certain specified types of
transactions; provided that in no case shall any such adjustment be made if it
would cause an award to no longer qualify as performance-based compensation
under Section 162(m) of the Code.
In the event of a change of control (as defined), the participants are
entitled to a cash award based on BJI's performance for that portion of the
award period immediately preceding the change of control.
The granting of awards under the BJI GIP will be discretionary, and except
for awards to be granted in connection with the Distribution in replacement of
existing awards under the WGIP, BJI cannot now determine the nature of the
awards to be granted in the future to any particular person or group. The
replacement awards will be granted on substantially the same basis as existing
awards under the WGIP, with modifications necessary to reflect changes
resulting from the Distribution.
105
<PAGE>
The BJI Executive Compensation Committee will have full power to administer
and interpret the BJI GIP and to establish rules for its administration.
The BJI Executive Compensation Committee or the BJI Board may amend, suspend
or terminate the BJI GIP at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI GIP has been designed so that cash awards made under the BJI GIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI GIP, stockholder
approval of the BJI GIP at the Meeting is required.
APPROVAL OF THE BJI 1997 DIRECTOR STOCK OPTION PLAN
The BJI 1997 Director Stock Option Plan (the "BJI Director Plan") is
intended to increase the proprietary interest in BJI of non-employee directors
by providing a portion of their compensation in the form of options to acquire
shares of BJI Common Stock and thereby align the interests of those directors
more closely with the interests of the stockholders.
DESCRIPTION OF THE BJI DIRECTOR PLAN
The principal provisions of the BJI Director Plan are summarized under the
caption "Management of BJI-- Director Compensation." Such summary is qualified
in its entirety by reference to the plan, a copy of which has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
forms a part. In addition, copies may be obtained by making a written request
to the Secretary of the Company.
Under the terms of the BJI Director Plan, a maximum of 150,000 shares
(subject to adjustment as provided in the plan) of authorized but unissued BJI
Common Stock will be reserved for issuance.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, options granted under the BJI Director Plan
are treated as non-statutory options in the manner described above under
"Approval of Amendment to the Waban 1989 Stock Incentive Plan--Certain Federal
Income Tax Consequences."
106
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has voted to fix the number of directors of Waban at
eight. The Company's Restated Certificate of Incorporation and by-laws provide
for the classification of the Board of Directors into three classes, as nearly
equal in number as possible, with the term of office of one class expiring
each year. The enclosed proxy will be voted to elect the three nominees named
below, unless otherwise instructed, as directors for a term of three years
expiring at the 2000 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified (provided, however, that upon the
Distribution, the Board of Directors is expected to be reconstituted as
described above in this Proxy Statement/Prospectus). If any nominee should
become unavailable, such proxy will be voted either for a substitute nominee
designated by the Board of Directors or such lesser number of directors as may
be designated by the Board of Directors, unless instructions are given to the
contrary. Management does not anticipate that any of the nominees will become
unavailable. The nominees as directors and incumbent directors are as follows:
NOMINEES AS DIRECTORS--TERMS EXPIRING 2000
Kerry L. Hamilton, 46, has been a director of the Company since September
1994. Ms. Hamilton is Vice President, Marketing for Marshalls. Prior to
joining Marshalls in April 1996, Ms. Hamilton was Vice Chairman of Pamet River
Partners, a marketing consulting firm, for two years. Prior to joining Pamet
River Partners, Ms. Hamilton spent 17 years at Ingalls, Quinn & Johnson in
various capacities, during which time she was a member of the Board of
Directors, a member of the Agency Executive Committee and Senior Vice
President, Director of Media Services. Ms. Hamilton is a member of the Audit
Committee.
Arthur F. Loewy, 68, has been a director of the Company since February 1989.
He is a director of The TJX Companies, Inc. and was Chief Financial Officer
and Executive Vice President--Finance of Zayre Corp. from 1982 to 1989. Mr.
Loewy is Chairman of the Audit Committee and Chairman of the Finance
Committee.
Edward J. Weisberger, 55, has been Senior Vice President and Chief Financial
Officer of Waban since September 1994. From 1989 to 1994 he was Vice
President--Finance of the Company.
INCUMBENT DIRECTORS--TERMS EXPIRING 1999
Allyn L. Levy, 69, has been a director of the Company since October 1993. He
has been a private investor since 1988. From 1974 until 1986, he was founder,
Chairman of the Board and Chief Executive Officer of Patriot Bank Corporation,
a commercial bank holding company. He is a director of CV Reit, Inc. Mr. Levy
is a member of the Audit Committee.
Lorne R. Waxlax, 63, has been a director of the Company since January 1990
and Chairman of the Board of the Company since June 1996. He was an Executive
Vice President of The Gillette Company from 1985 to 1993. Mr. Waxlax is also a
director of Quaker State Corporation, The Iams Company, Hon Industries, Inc.
and Clean Harbors, Inc. Mr. Waxlax is Chairman of the Executive Committee and
a member of the Finance Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1998
S. James Coppersmith, 64, has been a director of the Company since December
1993. He was President and General Manager of WCVB-TV, a Boston television
station, from 1990 to 1994. From 1982 to 1990 he was Vice President and
General Manager of WCVB-TV. Mr. Coppersmith is a director of Kushner-Locke
Company, Chyron Corporation, All-Comm Media Corporation, Sun America Asset
Management Corporation and Uno Restaurant Corporation, Chairman of the Board
of Trustees of Emerson College and a member of the Board of Governors of the
Boston Stock Exchange. Mr. Coppersmith is a member of the Executive
Compensation Committee.
107
<PAGE>
Thomas J. Shields, 50, has been a director of the Company since June 1992.
He is President of Shields & Company, Inc., an investment banking firm. Mr.
Shields is also a director of Seaboard Corporation and Versar, Inc. Mr.
Shields is Chairman of the Executive Compensation Committee and a member of
the Executive Committee.
Herbert J. Zarkin, 58, has been a director, President and Chief Executive
Officer of the Company since May 1993 and was President of the BJ's Division
from May 1990 to May 1993. From April 1989 to May 1993 he was Executive Vice
President of the Company. Mr. Zarkin is a member of the Executive Committee
and the Finance Committee.
BOARD AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, decisions concerning compensation of Waban's executive
officers were made by the Executive Compensation Committee. Until June 11,
1996, the Executive Compensation Committee consisted of Messrs. Waxlax,
Coppersmith and Feldberg. Effective upon his election as Chairman of the Waban
Board on June 11, 1996, Mr. Waxlax ceased to serve on the Executive
Compensation Committee and was replaced by Mr. Shields.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The following report has been submitted to the Board of Directors of Waban
by its Executive Compensation Committee, in compliance with requirements of
the Commission:
As members of the Executive Compensation Committee ("ECC") of Waban, it is
our responsibility to review the Company's compensation policies and programs,
approve or, with respect to the Chief Executive Officer, recommend to the
Board of Directors for approval, incentive plan awards and all elements of
compensation for the Company's executive officers, and administer the
Company's stock incentive plans. All of the members of the ECC are
independent, non-employee directors.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's executive compensation program is designed to provide
competitive levels of compensation that:
--Integrate compensation with the achievement of the Company's annual and
long-term performance goals and business strategies
--Recognize management initiatives and achievements
--Reward outstanding corporate performance
--Attract and retain key executives critical to the long-term success of
the Company
--Link management's long-term interests with stockholders' interests
through stock-based awards
With respect to Section 162(m) of the Code, which limits the ability of
publicly-held corporations to deduct non-performance-based compensation for
certain executive officers, the ECC believes that the Company's compensation
plans should be structured to satisfy the requirements for tax deductibility,
unless doing so is determined by the ECC to be not in the best interests of
the Company.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
The total compensation program for all executive officers consists of both
cash and equity-based compensation and takes into account applicable
provisions of employment agreements of such officers. Through stock options
and stock grants available under the Company's incentive stock plan, the ECC
seeks to align executive officers' long-range interests with those of
stockholders by providing executive officers with the opportunity to
participate in the growth of the Company's stock value. The ECC is advised by
compensation consultants concerning salary competitiveness and the design of
the Company's compensation programs.
108
<PAGE>
Base Salary. Base salaries for the Company's executive officers, including
Mr. Zarkin, are set within ranges that are determined based upon a review of
publicly available information concerning compensation paid to executives with
similar responsibilities at certain peer companies. The ECC utilizes a
compensation consulting firm to assist in the compilation and interpretation
of this data. The companies selected for these purposes are retail companies,
including major competitors of the Company, as to which compensation
information is available. While some of these peer companies are included in
the Dow Jones Industry Group Index OTS--Other Specialty Retailers appearing in
the Performance Graph on page 113, these peer companies are not all the same
as the companies comprising that index. While the ECC's overall objective is
to set base salaries at approximately the midpoint of competitive ranges, an
individual executive's placement within a range and salary adjustments are
based upon the ECC's subjective evaluation of the executive's performance and
value to the Company.
Annual Incentive Program. Under the Company's Management Incentive Plan
("MIP"), executive officers and other members of management are eligible to
receive incentive awards based upon the attainment of annual corporate or
divisional performance goals, primarily specified levels of earnings per
share, net income, or divisional income. The ECC approves the MIP goals and
participation opportunities at the beginning of each fiscal year and reviews
the payout calculations after the year's financial results have been audited.
Target awards for executive officers, other than Mr. Zarkin, range from 20% to
40% of salary, but if targets are not met, there would be either no MIP award
or a reduced award based on a percentage of the target realized. If results
exceed goal(s), an executive officer, other than Mr. Zarkin, could earn an
additional award, depending upon the extent to which goals are exceeded. No
executive officer may receive a MIP award in excess of 100% of the executive's
base salary as of the beginning of the fiscal year. For 1996, MIP awards for
Messrs. Zarkin and Weisberger and Ms. Gallivan were based on three equally
weighted criteria: BJ's Wholesale Club Division's pre-tax income, HomeBase
Division's pre-tax income, and fully diluted earnings per share of the
Company; Mr. Sherman's MIP award was based on HomeBase Division's pre-tax
income; and Mr. Nugent's MIP award was based on BJ's Wholesale Club Division's
pre-tax income. For 1996, pre-tax income of HomeBase was less than the MIP
goal, resulting in no payout to Mr. Sherman. Pre-tax income of BJ's Wholesale
Club exceeded its MIP goal, resulting in a payout to Mr. Nugent equal to
165.6% of targeted bonus. For 1996, fully diluted earnings per share of the
Company were less than the MIP goal and payouts to Messrs. Zarkin and
Weisberger and Ms. Gallivan were equal to 65.8% of targeted bonus.
Long-Term Incentive Program. The Waban Inc. Growth Incentive Plan ("WGIP"),
is intended to provide high-level executives of the Company, as selected by
the ECC, with cash awards, based upon the growth and performance of the
Company. All of the executive officers participate in the WGIP, as well as 35
non-executive officer employees of the Company. Depending on responsibilities
within the Company, awards are earned based on one or more of the following
objective measures of performance or growth, as selected by the ECC at the
beginning of the award period: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a percent of
sales, earnings per share, sales, return on equity, and return on investment.
All relevant factors upon which the cash award is based (e.g., performance
measurement, length of award period, relation between performance and cash
award) are determined at the beginning of the award period by the ECC. Awards
issued to Messrs. Zarkin, Weisberger and Ms. Gallivan in 1994 and 1996 were
based on cumulative net income for the Company for the three-year periods
ending January 25, 1997 and January 30, 1999, respectively. Awards issued to
Mr. Nugent in 1994 and 1996 were based on cumulative pre-tax income for the
BJ's Wholesale Club Division for the three-year periods ending January 25,
1997 and January 30, 1999, respectively. Awards issued to Mr. Sherman in 1994
and 1996 were based on cumulative pre-tax income for HomeBase for the three-
year periods ending January 25, 1997 and January 30, 1999, respectively. Fifty
percent of awards issued under the WGIP in 1994 were paid in April 1997, and
the remaining 50% is payable in cash in April 1998, contingent on employment
continuing through March 31, 1998. All awards issued under the WGIP in 1996
are payable in cash, 50% in April 1999, contingent on employment continuing
through January 30, 1999, and 50% in April 2000, contingent on employment
continuing through March 31, 2000. There is no target amount for each award.
However, there is a threshold amount based on the Company's growth, and the
value of each award increases as achievement of the performance measurement
increases. No award can exceed 300% of the recipient's annual base salary at
the beginning of the performance period.
109
<PAGE>
The Company has made it a practice to provide incentives to its executive
officers and other senior executives to achieve long-range goals that are
typically expressed as either a compounded rate of earnings growth or three-
year cumulative earnings. In determining the level of long-term incentive
awards, the ECC also takes into account a survey of the same peer companies
referred to above, but does not target a specific percentile.
Stock-Based Incentives. Stock options are awarded to the Company's key
employees, including executive officers, by the ECC, based upon such factors
as the compensation level and responsibility of the particular employee, the
employee's contribution towards Company performance, and a review of
competitive compensation data of executives at the same group of peer
companies referred to previously in this report, with the ECC generally
targeting awards to the median of such survey. The options are designed to
reward recipients to the extent the Company's stock value is enhanced. Because
of the vesting provisions of such grants, the options also provide an
incentive for the employee to remain with the Company. Since the ECC does not
grant options on a cumulative basis, the size of previous grants is not a
factor in making current grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to the terms of Mr. Zarkin's employment contract, his salary is
reviewed annually by the ECC. His salary was increased to $625,000 on June 1,
1996, setting his salary to approximately the 50th percentile of the
compensation range of the survey of peer companies referred to previously in
this report. The number of options granted to Mr. Zarkin in 1996 was
subjectively determined based on Mr. Zarkin's success in providing leadership
to the Company and after a review of competitive compensation data of
executives at the same group of peer companies referred to previously in this
report without targeting a specific percentile range. The option grant
encourages long-term performance and promotes management retention while
further aligning shareholders' and management's interests in enhancing the
value of the Company's Common Stock.
Mr. Zarkin's MIP award provides a target opportunity equal to 50% of base
salary earned during the fiscal year if performance goals are met; the actual
payout can vary between 0% and 100% of annualized base salary at the beginning
of the fiscal year. The MIP payout to Mr. Zarkin for 1996 was equal to 32.9%
of his fiscal 1996 salary.
Executive Compensation Committee
Thomas J. Shields, Chairman
S. James Coppersmith
Stanley H. Feldberg
Lorne R. Waxlax*
- --------
* Member of Executive Compensation Committee until June 11, 1996.
110
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies on the Standard and
Poor's 500 Stock Index and the Dow Jones Industry Group Index OTS--Other
Specialty Retailers from January 25, 1992 to January 25, 1997. The Dow Jones
Industry Group Index OTS--Other Specialty Retailers is comprised currently of
208 specialty retail companies, including the Company and all other publicly
traded membership warehouse clubs and home improvement chains (other than
those operated as divisions of other companies). This index does not include
department stores, discount stores, drug stores or supermarkets. The graph
assumes that the value of the investment at January 25, 1992 was $100 and that
all dividends were reinvested.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1/25/92 1/30/93 1/29/94 1/28/95 1/27/96 1/25/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Waban Inc. $100.00 $ 84.38 $ 71.25 $ 85.00 $ 95.63 $135.63
Dow Jones Industry Index $100.00 $125.50 $134.90 $129.96 $124.19 $145.31
Standard & Poor's 500 Index $100.00 $110.60 $124.85 $125.51 $174.04 $219.89
</TABLE>
111
<PAGE>
INFORMATION FOR HOLDERS OF CONVERTIBLE DEBENTURES
REDEMPTION OF CONVERTIBLE DEBENTURES AND ALTERNATIVES TO REDEMPTION
The Company expects to call the Convertible Debentures for redemption prior
to the Distribution. Such call will be made by mailing to all record holders
of Convertible Debentures a Notice of Redemption and Expiration of Conversion
Right in accordance with the terms of the indenture pursuant to which the
Convertible Debentures were issued. Upon such a call, the following
alternatives would be available to holders of Convertible Debentures: (1)
holders may convert the Convertible Debentures into Waban Common Stock at a
conversion price of $24.75 of principal amount per share of Waban Common
Stock; (2) holders may sell the Convertible Debentures in the open market
prior to the redemption date; or (3) holders may allow the Convertible
Debentures to be redeemed for an amount equal to 103.611% of the principal
amount of Convertible Debentures, plus accrued interest from January 1, 1997
to the redemption date.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax considerations relevant to the conversion, redemption or sale of
Convertible Debentures by a beneficial owner of Convertible Debentures. This
summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations (including Proposed Regulations and Temporary
Regulations) promulgated thereunder, Internal Revenue Service
("IRS") rulings, official pronouncements and judicial decisions, all as in
effect on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. This summary is
applicable only to holders who are United States persons for federal income
tax purposes and who hold Convertible Debentures as capital assets and who
will hold any Common Stock received on conversion of Convertible Debentures as
capital assets.
This summary does not discuss all the tax consequences that may be relevant
to a particular holder in light of the holder's particular circumstances and
it is not intended to be applicable in all respects to all categories of
investors, some of whom--such as insurance companies, tax-exempt persons,
financial institutions, regulated investment companies, dealers in securities
or currencies, persons that hold the Convertible Debentures as a position in a
"straddle," as part of a "synthetic security," "hedge," "conversion
transaction" or other integrated investment or persons whose functional
currency is other than United States dollars--may be subject to different
rules not discussed below. In addition, this summary does not address any
state, local or foreign tax considerations that may be relevant to a
particular holder.
Legislative proposals have been under consideration that would reduce the
rate of federal income taxation of certain capital gains. Such legislation, if
enacted, might apply only to gain realized on dispositions occurring after a
date specified in the legislation. It cannot be predicted whether any such
legislation ultimately will be enacted and, if enacted, what its effective
date will be.
HOLDERS OF CONVERTIBLE DEBENTURES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE CONVERSION, SALE OR REDEMPTION OF THE CONVERTIBLE DEBENTURES IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES.
CONVERSION OF CONVERTIBLE DEBENTURES
In general, no gain or loss will be recognized on conversion of Convertible
Debentures solely into Common Stock. The tax basis for the Common Stock
received upon such conversion will be equal to the tax basis of the
Convertible Debentures converted (reduced by the portion of such basis
allocable to any fractional Common Stock interest paid in cash). The holding
period for the Common Stock generally will include the holding period of the
Convertible Debentures converted. However, the holding period for the Common
Stock allocable to original issue discount accrued during the holder's holding
period for the Convertible Debentures converted may be treated as commencing
on the day after the date of the conversion. A holder generally will recognize
gain (or loss) upon a conversion to the extent that any cash paid in lieu of a
fractional share of Common Stock exceeds (or is less than) its tax basis in
such fractional share.
112
<PAGE>
SALE OR REDEMPTION OF CONVERTIBLE DEBENTURES
Generally, the sale or redemption of a Convertible Debenture will result in
taxable gain or loss equal to the difference between the amount realized and
the holder's adjusted tax basis in the Convertible Debentures. Except as
discussed below under "Market Discount," such gain or loss will be capital
gain or loss and will be long term gain or loss if, at the time of such
disposition, the Convertible Debentures had been held for more than one year.
MARKET DISCOUNT
Special rules will apply to Convertible Debentures acquired with market
discount. A market discount note is, generally, a note the stated redemption
price at maturity (or, if the note has original issue discount, the note's
issue price increased by an accrued original issue discount) of which exceeds
the holder's basis in the note immediately after acquisition. Generally, any
gain recognized on the sale or redemption of a market discount note will be
treated as ordinary income to the extent of the accrued market discount on
such note not previously included in income. Market discount accrues either
ratably or at a constant yield to maturity, at the election of the holder. A
holder of a market discount note also may elect to take market discount into
income as it accrues.
Although the matter is not free from doubt, a holder of a Convertible
Debenture with market discount should not have to recognize income on the
conversion of the Convertible Debenture, even with respect to market discount
that has accrued but has not been taken into account. Market discount not
recognized on conversion will carry over to the Common Stock acquired upon
conversion thereof and will be recognized as ordinary income to the extent of
gain recognized upon the disposition of such Common Stock, including any
deemed disposition of fractional shares of Common Stock for cash at the time
of conversion.
SALE OR DISPOSITION OF COMMON STOCK
A holder will recognize gain or loss on the sale or exchange of Common Stock
received upon conversion of a Convertible Debenture equal to the difference
between the amount realized on such sale or exchange and the holder's adjusted
tax basis in the Common Stock sold or exchanged. Except as noted above under
"Market Discount," such gain or loss would be long-term capital gain or loss
if the holder's holding period for the Common Stock were more than one year.
See "--Conversion of Convertible Debentures."
BACKUP WITHHOLDING
A holder of a Convertible Debenture or Common Stock issued upon conversion
of a Convertible Debenture may be subject to backup withholding at a rate of
31% with respect to dividends on, or the proceeds of a sale, exchange, or
redemption of, such Convertible Debenture or Common Stock, as the case may be,
unless (i) such holder is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable backup
withholding rules.
EXPERTS
The consolidated balance sheets of Waban as of January 25, 1997 and January
27, 1996 and the consolidated statements of income, stockholders' equity and
cash flows of Waban for each of the three years in the period ended January
25, 1997, incorporated by reference in this Prospectus, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined balance sheets of BJI as of January 25, 1997 and January 27,
1996 and the combined statements of income, stockholders' equity and cash
flows of BJI for each of the three years in the period ended January 25, 1997,
included in this Prospectus, have been included in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
113
<PAGE>
OTHER MATTERS
INDEPENDENT ACCOUNTANTS
The Waban Board has appointed Coopers & Lybrand L.L.P. as independent
accountants to audit the financial statements of Waban for the fiscal year
ending January 31, 1998. The Company expects that representatives of Coopers &
Lybrand L.L.P. will be present at the Meeting, will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
BJI has appointed Coopers & Lybrand L.L.P. as BJI's independent accountants
to audit BJI's financial statements for each fiscal year in the three-year
period ended January 25, 1997. Coopers & Lybrand L.L.P. has served as Waban's
independent accountants for many years, including the periods covered by the
financial statements included in this Proxy Statement.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based on a review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, during fiscal 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-ten-percent beneficial
owners were complied with, except that Mr. Feldberg filed three months late a
Form 4 relating to the sale of 10,000 shares of Common Stock of the Company by
trusts of which he and his wife are beneficiaries.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders must be received by the Company no later than 5 p.m.
EST on December , 1997 in order to be considered for inclusion in the
Company's proxy materials for that meeting. Proposals must be in writing and
sent via registered or certified mail addressed to Sarah M. Gallivan,
Secretary, Waban Inc., One Mercer Road, Natick, Massachusetts 01760. In
addition, the Company's by-laws specify requirements relating to the timing
and content of the notice which stockholders must provide to the Secretary of
the Company for any matter, including a stockholder nomination for director to
be properly presented at a stockholder meeting.
OTHER MATTERS
The Company has no knowledge of any other matter which may come before the
Meeting and does not intend to present any such other matter. However, if any
such other matters shall properly come before the Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to
vote the shares represented by the accompanying proxy in accordance with their
own judgment.
Neither the Executive Compensation Committee Report appearing above at pages
108 through 110, nor the Performance Graph appearing above on page 111 shall
be deemed incorporated by reference by any general statement incorporating
this proxy statement into any filing under the Securities Act of 1933 or under
the Exchange Act, except to the extent that the Company specifically
incorporates such information by reference, and shall not otherwise be deemed
filed under such Acts.
BY ORDER OF THE BOARD OF DIRECTORS
Sarah M. Gallivan
Secretary
114
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
BJ's Wholesale Club, Inc. Combined Statements of Income for the fiscal
years ended January 28, 1995, January 27, 1996 and January 25, 1997..... F-3
BJ's Wholesale Club, Inc. Combined Balance Sheets as of January 27, 1996
and January 25, 1997.................................................... F-4
BJ's Wholesale Club, Inc. Combined Statements of Cash Flows for the
fiscal years ended January 28, 1995, January 27, 1996 and January 25,
1997.................................................................... F-5
BJ's Wholesale Club, Inc. Combined Statements of Stockholder's Equity for
the fiscal years ended January 28, 1995, January 27, 1996 and January
25, 1997................................................................ F-6
Notes to Combined Financial Statements of BJ's Wholesale Club, Inc. ..... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF BJ'S WHOLESALE CLUB, INC.
We have audited the accompanying combined balance sheets of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997, and
the related combined statements of income, stockholder's equity, and cash
flows for each of the three fiscal years in the period ended January 25, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997 and
the combined results of their operations and their cash flows for each of the
three fiscal years in the period ended January 25, 1997 in conformity with
generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Boston Massachusetts February 25, 1997, except
as to the information
presented in Note B, for which
the date is April 18, 1997
F-2
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................. $2,244,591 $2,478,319 $2,868,561
Membership fee income...................... 48,500 51,289 54,271
---------- ---------- ----------
Total revenues............................. 2,293,091 2,529,608 2,922,832
---------- ---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,054,167 2,263,532 2,605,602
Selling, general and administrative
expenses.................................. 174,416 183,419 212,660
Interest on debt and capital leases (net).. 13,665 14,757 16,838
---------- ---------- ----------
Total expenses............................. 2,242,248 2,461,708 2,835,100
---------- ---------- ----------
Income before income taxes................. 50,843 67,900 87,732
Provision for income taxes................. 19,941 26,350 34,108
---------- ---------- ----------
Net income................................. $ 30,902 $ 41,550 $ 53,624
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................ $ -- $ --
Accounts receivable................................. 30,942 34,006
Merchandise inventories............................. 271,438 295,216
Current deferred income taxes....................... 8,375 6,549
Prepaid expenses.................................... 6,732 6,091
-------- --------
Total current assets.............................. 317,487 341,862
-------- --------
Property at cost:
Land and buildings.................................. 234,972 265,971
Leasehold costs and improvements.................... 33,230 34,764
Furniture, fixtures and equipment................... 163,908 186,696
-------- --------
432,110 487,431
Less accumulated depreciation and amortization...... 83,338 106,821
-------- --------
348,772 380,610
-------- --------
Property under capital leases......................... 4,100 6,219
Less accumulated amortization....................... 2,090 1,618
-------- --------
2,010 4,601
-------- --------
Other assets.......................................... 8,406 10,138
-------- --------
Total assets...................................... $676,675 $737,211
======== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $169,115 $200,024
Accrued expenses and other current liabilities...... 60,808 66,302
Accrued federal and state income taxes.............. 10,102 12,431
Obligations under capital leases due within one
year............................................... 255 163
-------- --------
Total current liabilities......................... 240,280 278,920
-------- --------
Obligations under capital leases, less portion due
within one year...................................... 2,731 2,592
Other noncurrent liabilities.......................... 26,034 28,466
Deferred income taxes................................. 3,917 3,545
Loans and advances from Waban Inc..................... 181,730 148,081
<CAPTION>
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C>
Common stock, par value $.01, authorized 180,000,000
shares, issued and outstanding 32,740,941 shares..... 327 327
Retained earnings..................................... 221,656 275,280
-------- --------
Total stockholder's equity........................ 221,983 275,607
-------- --------
Total liabilities and stockholder's equity........ $676,675 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 30,902 $ 41,550 $ 53,624
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property............................ 21,829 27,185 33,796
Loss on property disposals........... 903 142 256
Deferred income taxes................ (1,161) (1,040) 1,453
Increase (decrease) in cash due to
changes in:
Accounts receivable................ 1,118 (7,740) (3,064)
Merchandise inventories............ (22,462) (37,581) (23,778)
Prepaid expenses................... (944) (1,039) 641
Other assets....................... (1,477) (700) (1,431)
Accounts payable................... 12,280 18,911 30,909
Accrued expenses................... 8,213 9,014 7,995
Accrued income taxes............... 11,612 (3,278) 2,329
Other noncurrent liabilities....... 9,306 5,177 2,432
-------- -------- --------
Net cash provided by operating
activities.......................... 70,119 50,601 105,162
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions................... (74,506) (90,212) (71,722)
Property disposals................... 6,508 98 440
-------- -------- --------
Net cash used in investing
activities.......................... (67,998) (90,114) (71,282)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease
obligations......................... (276) (304) (231)
Increase (decrease) in loans and
advances from Waban Inc............. (9,915) 39,218 (33,649)
-------- -------- --------
Net cash provided by (used in)
financing activities................ (10,191) 38,914 (33,880)
-------- -------- --------
Net increase (decrease) in cash.... (8,070) (599) --
Cash at beginning of period........ 8,669 599 --
-------- -------- --------
Cash at end of period.............. $ 599 $ -- $ --
======== ======== ========
Supplemental cash flow information:
Interest paid...................... $ 14,774 $ 14,811 $ 16,889
Income taxes paid.................. 9,490 30,668 30,325
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDER'S
PAR VALUE $.01 EARNINGS EQUITY
-------------- -------- -------------
<S> <C> <C> <C>
Balance, January 29, 1994................. $ 327 $149,204 $149,531
Net income.............................. -- 30,902 30,902
----- -------- --------
Balance, January 28, 1995................. 327 180,106 180,433
Net income.............................. -- 41,550 41,550
----- -------- --------
Balance, January 27, 1996................. 327 221,656 221,983
Net income.............................. -- 53,624 53,624
----- -------- --------
Balance, January 25, 1997................. $ 327 $275,280 $275,607
===== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
BJ's Wholesale Club, Inc. (the "Company") is a newly formed Delaware
corporation which is a wholly-owned subsidiary of Waban Inc. ("Waban"). Waban
currently operates two divisions; BJ"s Wholesale Club, a food & general
merchandise warehouse club business, and HomeBase, a home improvement
warehouse business. On October 23, 1996, Waban announced a proposal for a tax-
free distribution (the "Distribution") of all of the outstanding shares of
common stock of the Company held by Waban. Prior to the Distribution, Waban
will transfer all of the assets and liabilities of its BJ's Wholesale Club
Division to the Company. The combined financial statements of the Company
present the financial results of the BJ's Wholesale Club Division.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving
or obsolete inventory in cost of sales when such write-downs are probable and
estimable.
Property and Equipment
Buildings, furniture, fixtures and equipment are depreciated by use of the
straight-line method over the estimated useful lives of the assets. Leasehold
costs and improvements are amortized by use of the straight-line method over
the lease term or their estimated useful life, whichever is shorter.
Membership Fees
Membership fees are included in revenue when received, but not before a
warehouse club opens.
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and are charged to operations within the fiscal year that a new warehouse club
opens.
Interest on Debt and Capital Leases (Net)
Interest on debt and capital leases in the Combined Statements of Income is
presented net of interest income and investment income of $51,000 in 1996,
$54,000 in 1995 and $1,109,000 in 1994. Interest on debt represents interest
on intercompany loans and advances.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $966,000, $1,547,000 and $1,061,000 was
capitalized in 1996, 1995 and 1994, respectively.
Stock-Based Compensation
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
stock-based compensation.
F-7
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. RELATED PARTY TRANSACTIONS
Waban loans funds to the Company as needed. The intercompany balance is
considered to be long-term debt. Waban charges interest expense to the Company
at the annual rate of 10% based on the Company's average monthly intercompany
balance (net of cash). The Company's intercompany interest expense was
$17,557,000, $16,032,000 and $15,480,000 in fiscal 1996, 1995 and 1994,
respectively.
Selling, general and administrative expenses include certain allocations of
overhead incurred by Waban that support the Company's business. These
expenses, which totalled $3,891,000, $3,587,000 and $5,639,000 in fiscal 1996,
1995 and 1994, respectively, were generally allocated based on specific
identification and management's estimates of the relative time devoted to
supporting the Company.
B. COMMITMENTS AND CONTINGENCIES
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rentals based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 45 years and have
varying renewal options. The fixture and equipment leases range up to 5 years.
Future minimum lease payments as of January 25, 1997 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING JANUARY LEASES LEASES
--------------------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998........................................... $ 419 $ 44,130
1999........................................... 426 48,122
2000........................................... 427 47,819
2001........................................... 427 46,850
2002........................................... 427 45,332
Later years.................................... 2,387 515,020
---------- ------------
Total minimum lease payments................... 4,513 $ 747,273
============
Less amount representing interest.............. 1,758
----------
Present value of net minimum capital lease
payments...................................... $ 2,755
==========
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $40,185,000, $37,561,000 and $33,282,000 in
1996, 1995 and 1994, respectively.
In connection with the spinoff of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban
agreed to indemnify TJX against any liabilities that TJX might incur with
respect to 45 current HomeBase leases as to which TJX was either a lessee or
guarantor. In settlement of legal proceedings filed by TJX, the Company agreed
in April 1997 that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities that TJX may incur with respect
to HomeBase leases and thereafter it will indemnify TJX for 50% of such
liabilities. The Company believes that since Waban is primarily liable for
these leases, the Company's contingent liability under this agreement will not
have a material effect on the Company's financial condition.
F-8
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material effect on its financial condition or results of
operations.
C. CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS
The historical capitalization of the Company has been retroactively restated
to reflect the anticipated issuance of 32,740,941 shares of common stock for
all periods presented in order to reflect the equity of the Company on an
ongoing basis, as a result of the planned distribution of all of the Company's
common stock to holders of Waban's outstanding shares (the "Distribution").
The Company's authorized capital stock also includes 20,000,000 shares of
Preferred Stock, $.01 par value per share.
The Company intends to adopt a 1997 Stock Incentive Plan (the "1997 Plan").
This plan will permit the granting of stock options, restricted stock and
other stock-based awards. The Company intends to reserve 3,000,000 shares of
common stock for issuance under this plan. The Company also intends to adopt a
1997 Director Stock Option Plan for external directors and intends to reserve
150,000 shares of common stock for issuance under this plan.
Certain key employees participate in the Waban stock incentive plan. As of
January 25, 1997, these individuals held a total of 1,905,896 options to
purchase Waban stock (of which 859,680 were exercisable). Upon completion of
the Distribution, the Company intends to issue options of equal intrinsic
value, with similar vesting provisions, option periods and ratios of exercise
price to market value per share, under the 1997 Plan to replace unexercised
options outstanding under the Waban stock incentive plan held by the Company's
employees.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 and became effective for the Company's fiscal year ending January
25, 1997. SFAS No. 123 provides a choice of adopting its fair value based
method of expense recognition for stock-based awards granted to employees or
applying the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." The pro forma impact on net income related to the Waban options
granted to BJI employees is immaterial. The Company will apply the accounting
provisions of APB No. 25 and adopt the disclosure-only provisions of SFAS No.
123 when it issues stock options.
D. INCOME TAXES
The Company is included in the consolidated federal income tax return of
Waban and, where applicable, is consolidated for state reporting purposes. The
Company believes the income tax provision is representative of the Company's
tax provision as if it were a stand-alone company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current................................ $17,187 $22,710 $27,208
Deferred............................... (903) (814) 1,153
State
Current................................ 3,915 4,680 5,447
Deferred............................... (258) (226) 300
------- ------- -------
Total income tax provision............... $19,941 $26,350 $34,108
======= ======= =======
</TABLE>
F-9
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
and the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate....... 35% 35% 35%
State income taxes, net of federal tax
benefit................................ 5 4 4
Targeted jobs tax credit................ (1) -- --
--- --- ---
Effective income tax rates.............. 39% 39% 39%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 27, 1996 and January 25, 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................ $10,858 $11,516
Rental step liabilities............................ 3,294 3,951
Compensation and benefits.......................... 2,788 3,392
Other.............................................. 2,518 2,071
------- -------
Total deferred tax assets........................ 19,458 20,930
------- -------
Deferred tax liabilities:
Accelerated depreciation-property.................. 14,696 15,375
Real estate taxes.................................. -- 2,390
Other.............................................. 304 161
------- -------
Total deferred tax liabilities................... 15,000 17,926
------- -------
Net deferred tax assets.............................. $ 4,458 $ 3,004
======= =======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
E. PENSIONS
The Company participates in Waban's non-contributory defined benefit
retirement plan covering full-time employees who have attained twenty-one
years of age and have completed one year of service. Benefits are based on
compensation earned in each year of service. No benefits have accrued under
this plan since July 4, 1992, when it was frozen. The Company's share of
Waban's pension expense amounted to $129,000, $124,000 and $144,000 in fiscal
1996, 1995 and 1994, respectively.
F-10
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the following tables present the periodic
pension cost and funded status of the Waban plans in accordance with SFAS No.
87:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $ 209 $ 182 $ 180
Interest cost on projected benefit
obligation............................. 435 429 455
Actual return on assets................. (73) (1,245) (940)
Net amortization and deferrals.......... (264) 892 561
----- ------- -----
Net pension cost........................ $ 307 $ 258 $ 256
===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested benefits................................... $ 5,991 $6,451
======= ======
Projected benefit obligation........................ $ 5,991 $6,451
Plan assets at fair market value.................... 5,997 6,455
------- ------
Projected benefit obligation less than plan assets.. (6) (4)
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions........................................ (1,088) (878)
------- ------
Prepaid pension cost included in balance sheets..... $(1,094) $ (882)
======= ======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% in 1996 and 1995. The
expected long-term rate of return on assets used was 9.0% in 1996 and 1995.
The Company's funding policy is to contribute annually an amount allowable for
federal income tax purposes. Pension plan assets consist primarily of equity
and fixed income securities.
The Company also participates in Waban's 401(k) Savings Plans, under which
participating employees may make pre-tax contributions up to 15% of covered
compensation. Waban matches employee contributions at 100% of the first one
percent of covered compensation and 50% of the next four percent. Beginning in
1996, Waban's matching contribution is payable as of the end of each calendar
quarter. Previously, the matching contribution was payable at the end of the
year. The Company's share of expense under these plans was $2,259,000 in 1996,
$1,867,000 in 1995 and $1,669,000 in 1994.
In 1994, Waban established a non-contributory defined contribution
retirement plan for certain key employees, including certain of the Company's
employees. Under the plan, Waban funds annual retirement contributions for the
designated participants, on an after-tax basis. For 1994 through 1996, Waban's
contribution equaled 5% of the participants' base salary. Participants become
fully vested in their contribution accounts at the end of the fiscal year in
which they complete four years of service. The Company's share of expense
under this plan was $522,000 in 1996, $485,000 in 1995 and $439,000 in 1994.
F. POSTRETIREMENT MEDICAL BENEFITS
The Company participates in Waban's defined benefit postretirement medical
plan that covers employees (and their spouses) who retire after age 55 with at
least 10 years of service, who are not eligible for Medicare,
F-11
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and who participated in a Waban-sponsored medical plan. Amounts contributed by
retired employees under this plan are based on years of service prior to
retirement. The plan is not funded.
In fiscal 1996, 1995 and 1994, the Company's share of Waban's postretirement
medical benefit expense was $87,000, $73,000 and $76,000, respectively. Waban
does not segregate plan liabilities by participating subsidiary company and,
as a result, the following tables present the net periodic postretirement
benefit cost and the funded status of the Waban plan in accordance with SFAS
No. 106:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $128 $120 $140
Interest cost........................... 42 44 42
Net amortization and deferrals.......... -- (10) (10)
---- ---- ----
Net periodic postretirement benefit
cost................................... $170 $154 $172
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants.............................. $ -- $ --
Fully eligible active participants................ 63 67
Other active participants......................... 515 693
---- ----
Unfunded accumulated postretirement benefit
obligation......................................... 578 760
Unrecognized net gain............................... 232 222
---- ----
Accrued postretirement benefit cost included in
balance sheets..................................... $810 $982
==== ====
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost
of medical coverage of 8% in 1996 grading down to 4.5% after 8 years was
assumed as of January 27, 1996. Increasing the assumed health care cost trend
rate one percentage point would increase the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1996
by $35,000 and would increase the accumulated postretirement benefit
obligation as of January 25, 1997 by $129,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation of January 25, 1997 and January 27, 1996 was
7.25%.
G. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Employee compensation............................... $11,208 $14,998
Self-insurance reserves............................. 11,565 13,134
Sales and use taxes, rent, utilities, advertising,
fixed asset additions and other.................... 38,035 38,170
------- -------
$60,808 $66,302
======= =======
</TABLE>
F-12
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. Waban
maintains insurance coverage for the Company for individual occurrences above
$250,000 for worker's compensation and general liability, and above $200,000
for medical claims. In addition to the amounts shown above in current
liabilities, noncurrent self-insurance reserves of $15.3 million and $15.2
million as of January 25, 1997 and January 27, 1996, respectively, are
included in other noncurrent liabilities.
H. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal year ended January 25, 1997
Total revenues....................... $622,388 $733,688 $697,818 $868,938
Gross earnings(a).................... 60,079 76,453 73,906 106,792
Net income........................... 5,385 12,780 9,589 25,870
Fiscal year ended January 27, 1996
Total revenues....................... $531,106 $632,371 $604,426 $761,705
Gross earnings(a).................... 48,959 65,351 61,719 90,047
Net income........................... 3,123 10,151 6,926 21,350
</TABLE>
- --------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
I. SUBSEQUENT EVENT
Subsequent to year-end, the Company transferred certain real estate assets
into a subsidiary, Natick Realty, Inc. Natick Realty, Inc. fully and
unconditionally guarantees Waban's senior notes ($24 million) and senior
subordinated notes ($100 million).
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 TO FORM S-1, ITEM 14 TO FORM S-3. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
The following table sets forth the various expenses in connection with the
distribution of the securities being registered. All amounts shown are
estimates except for the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $98,482.58
NYSE Listing Fee.............................................. *
Blue Sky Fees and Expenses.................................... *
Transfer Agent and Registrar Fees............................. *
Accounting Fees and Expenses.................................. *
Legal Fees and Expenses....................................... *
Printing, Engraving and Mailing Expenses...................... *
Miscellaneous................................................. *
----------
Total....................................................... $ *
==========
</TABLE>
- --------
* To be completed by amendment
ITEM 14 TO FORM S-1, ITEM 15 TO FORM S-3. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 145 further provides that a corporation similarly may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite an adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Waban has entered, and BJI intends to enter, into indemnification agreements
with each of its respective directors and officers indemnifying them against
expenses, settlements, judgments and fines incurred in connection with any
threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that such person
is or was a director or officer of Waban or BJI, as the case may be, or served
at the request of Waban or BJI, as the case may be, as a director of another
organization (except that indemnification is not provided against judgments
and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if such person is found not to have acted in
II-1
<PAGE>
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of Waban or BJI, as the case may be, except to
the extent Delaware law permits broader contractual indemnification. These
indemnification agreements provide procedures, presumptions and remedies which
substantially strengthen the indemnification rights beyond those provided by
Waban's Restated Certificate of Incorporation (the "Waban Certificate") or
BJI's Amended and Restated Certificate of Incorporation (the "BJI
Certificate"), as the case may be, and by Delaware law.
The Waban Certificate and the BJI Certificate each provide that each person
who was or is made a party to, or is involved in, any action, suit, proceeding
or claim by reason of the fact that he or she is or was a director, officer or
employee of Waban or BJI, as the case may be, (or is or was serving at the
request of Waban or BJI, as the case may be, as a director, officer, trustee,
employee or agent of any other enterprise including service with respect to
employee benefit plans) shall be indemnified and held harmless by Waban or
BJI, as the case may be, to the full extent permitted by Delaware law, as in
effect from time to time, against all expenses (including attorneys' fees and
expenses), judgments, fines, penalties and amounts to be paid in settlement
incurred by such person in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Waban Certificate and the BJI Certificate do not apply to any action, suit,
proceeding or claim initiated by or on behalf of a person otherwise entitled
to the benefit of such provisions. Any person seeking indemnification under
the Waban Certificate and BJI Certificate, as the case may be, shall be deemed
to have met the standard of conduct required for such indemnification unless
the contrary shall be established. The Waban Certificate and the BJI
Certificate each provide that the rights to indemnification and the payment of
expenses provided thereby shall not be exclusive of any other right which any
person may have or acquire under any statute, provision of the Waban
Certificate or BJI Certificate, as the case may be, or Waban's By-laws or
BJI's By-laws, as the case may be, or otherwise. Any repeal or modification of
such indemnification provisions shall not adversely affect any right or
protection of a director or officer with respect to any conduct of such
director or officer occurring prior to such repeal or modification.
Section 102(b) of the Delaware General Corporation Law, as amended, permits
a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law
(relating to unlawful payment of dividend and unlawful stock purchase and
redemption) or (iv) for any transaction from which the director derived an
improper personal benefit. The Waban Certificate and the BJI Certificate
provide that directors shall be exculpated from liability as provided under
Delaware Law.
ITEM 15 TO FORM S-1. RECENT SALES OF UNREGISTERED SECURITIES
BJI is a wholly owned subsidiary of Waban. The shares of capital stock of
BJI issued to Waban were offered and sold in reliance upon the exemption from
registration under Section 4(2), relative to transactions not involving any
public offering.
ITEM 16 TO FORM S-1 AND FORM S-3. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
See the Exhibit Indexes included immediately preceding the exhibits to the
Form S-1 and Form S-3, respectively.
(B) FINANCIAL STATEMENT SCHEDULES
Incorporated by reference to Waban's Annual Report on Form 10-K for the
fiscal year ended January 25, 1997.
II-2
<PAGE>
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17 TO FORM S-1 AND FORM S-3. UNDERTAKINGS
A. Waban hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of Waban's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
BJI and Waban pursuant to the provisions described in Item 14 to Form S-1 and
Item 15 to Form S-3, respectively, or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, such Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
C. Waban hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by Waban pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Natick, Commonwealth of
Massachusetts, on this 18th day of April, 1997.
BJ'S WHOLESALE CLUB, INC.
/s/ John J. Nugent
By: _________________________________
John J. Nugent
President
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Herbert J. Zarkin, Edward J. Weisberger, Sarah M.
Gallivan, Esq. and Mark G. Borden, Esq. and each of them, with full power of
substitution, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act)
and to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with exhibits thereto, and other documents in connection therewith.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
/s/ John J. Nugent President April 18, 1997
- ------------------------------------ (Principal
JOHN J. NUGENT Executive Officer)
/s/ Frank D. Forward Treasurer April 18, 1997
- ------------------------------------ (Principal
FRANK D. FORWARD Financial and
Accounting
Officer)
/s/ Herbert J. Zarkin Director April 18, 1997
- ------------------------------------
HERBERT J. ZARKIN
/s/ Edward J. Weisberger Director April 18, 1997
- ------------------------------------
EDWARD J. WEISBERGER
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Natick, Commonwealth of Massachusetts, on the 18th
day of April, 1997.
WABAN INC.
/s/ Herbert J. Zarkin
By: _________________________________
Herbert J. Zarkin
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below constitutes and appoints Herbert
J. Zarkin, Edward J. Weisberger, Sarah M. Gallivan, Esq. and Mark G. Borden,
Esq. and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution in each of them, for him and in
his name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement on Form S-3 of Waban Inc. and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Lorne R. Waxlax Chairman of the April 18, 1997
- ------------------------------------- Board
LORNE R. WAXLAX
/s/ Herbert J. Zarkin President, Chief April 18, 1997
- ------------------------------------- Executive Officer
HERBERT J. ZARKIN and Director
(Principal
Executive Officer)
/s/ Edward J. Weisberger Senior Vice April 18, 1997
- ------------------------------------- President and Chief
EDWARD J. WEISBERGER Financial Officer
(Principal
Financial and
Accounting Officer)
/s/ S. James Coppersmith Director April 18, 1997
- -------------------------------------
S. JAMES COPPERSMITH
/s/ Stanley H. Feldberg Director April 18, 1997
- -------------------------------------
STANLEY H. FELDBERG
/s/ Kerry L. Hamilton Director April 18, 1997
- -------------------------------------
KERRY L. HAMILTON
/s/ Allyn L. Levy Director April 18, 1997
- -------------------------------------
ALLYN L. LEVY
/s/ Arthur F. Loewy Director April 18, 1997
- -------------------------------------
ARTHUR F. LOEWY
/s/ Thomas J. Shields Director April 18, 1997
- -------------------------------------
THOMAS J. SHIELDS
II-7
<PAGE>
BJ'S WHOLESALE CLUB, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
3.1 Certificate of Incorporation of BJI.
3.2* Amended and Restated Certificate of Incorporation of BJI, to
be filed prior to the Distribution.
3.3 By-Laws of BJI.
3.4* Amended and Restated By-Laws of BJI, to be effective prior
to the Distribution.
4.1* Specimen Certificate for Shares of Common Stock, $.01 par
value per share, of BJI.
4.2* Form of Rights Agreement to be entered into between BJI and
the Rights Agent thereunder.
5* Opinion of Hale and Dorr LLP with respect to the validity of
the securities being registered.
10.1* Form of Separation and Distribution Agreement to be entered
into between BJI and Waban.
10.2* Form of Services Agreement to be entered into between BJI
and Waban.
10.3* Form of Tax Sharing Agreement to be entered into between BJI
and Waban.
10.4* 1997 Stock Incentive Plan of BJI.
10.5* Management Incentive Plan of BJI.
10.6* Growth Incentive Plan of BJI.
10.7* 1997 Director Stock Option Plan of BJI.
10.8* Executive Retirement Plan of BJI.
10.9* Form of Employment Agreement to be entered into between BJI
and Herbert J. Zarkin.
10.10* Form of Employment Agreement between BJI and each of John J.
Nugent, Frank D. Forward, Laura J. Sen and Michael T. Wedge.
10.11* Form of Change in Control Agreement between BJI and each of
Herbert J. Zarkin, John J. Nugent, Frank D. Forward, Laura
J. Sen and Michael T. Wedge.
10.12* Form of Indemnification Agreement between BJI and each of
its directors and executive officers.
21* Subsidiaries of BJI.
23.1* Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of S. James Coppersmith.
23.4 Consent of Thomas J. Shields.
23.5 Consent of Herbert J. Zarkin.
23.6 Consent of Allyn L. Levy.
23.7 Consent of Lorne R. Waxlax.
23.8 Consent of Edward J. Weisberger.
23.9 Consent of Kerry L. Hamilton.
23.10 Consent of John J. Nugent.
24 Power of Attorney (included on the signature page of this
Registration Statement).
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
WABAN INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
4A.1 Restated Certificate of Incorporation of Waban(1)
4A.2 By-laws, as amended, of Waban(2)
4A.3 Rights Agreement dated as of May 23, 1989 between Waban and
Morgan Shareholder Services Trust Company, as Rights Agent(1)
4A.4 Indenture dated as of July 1, 1992 between Waban and
Continental Bank, National Association, as Trustee, with
respect to 6 1/2% Convertible Subordinated Debentures due
July 1, 2002(3)
5A* Opinion of Hale and Dorr LLP
23A.1 Consent of Coopers & Lybrand L.L.P.
23A.2* Consent of Hale and Dorr LLP (included in Exhibit 5)
23A.3 Consent of Allan P. Sherman
24A Power of Attorney (included on the signature page of this
Registration Statement)
99A.1* Letter of Transmittal
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated herein by reference to the Registrant's Form 10 (#1-10259)
(2) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 27, 1990 (#1-10259)
(3) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423)
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BJ'S WHOLESALE CLUB, INC.
FIRST. The name of the Corporation is:
BJ's Wholesale Club, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is one hundred (100) shares of Common Stock, $.01 par
value per share.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Sarah M. Gallivan One Mercer Road
Natick, Massachusetts 01760
<PAGE>
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by or on
behalf of an Indemnitee in connection with such action, suit or proceeding and
any appeal therefrom.
As a condition precedent to his right to be indemnified, the Indemnitee
must notify the Corporation in writing as soon as practicable of any action,
suit, proceeding or investigation involving him for which indemnity will or
could be sought. With respect to any action, suit, proceeding or investigation
of which the Corporation is so notified, the Corporation will be entitled to
participate therein at its own expense and/or to assume the defense thereof at
its own expense, with legal counsel reasonably acceptable to the Indemnitee.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation of which the Corporation receives
notice under this Article, the Corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a
-2-
<PAGE>
civil or criminal action, suit, proceeding or investigation or any appeal
therefrom; provided, however, that the payment of such expenses incurred by an
-------- -------
Indemnitee in advance of the final disposition of such matter shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article, which undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment; and further provided
------- --------
that no such advancement of expenses shall be made if it is determined that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
The Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by such Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. In addition, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made in each instance by (a)
a majority vote of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which an Indemnitee may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and (ii) shall inure to the benefit of the heirs, executors and administrators
of the Indemnitees. The Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
-3-
<PAGE>
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Boston, Massachusetts, on November 1, 1996.
/s/Sarah M. Gallivan
------------------------------
Incorporator
-4-
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
BJ'S WHOLESALE CLUB, INC.
<PAGE>
BY-LAWS
-------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Stockholders ............................................ 1
Section 1.1 Place of Meetings ............................. 1
Section 1.2 Annual Meeting ................................ 1
Section 1.3 Special Meetings .............................. 1
Section 1.4 Notice of Meetings ............................ 1
Section 1.5 Voting List ................................... 2
Section 1.6 Quorum ........................................ 2
Section 1.7 Adjournments .................................. 2
Section 1.8 Voting and Proxies ............................ 2
Section 1.9 Action at Meeting ............................. 3
Section 1.10 Action without Meeting ........................ 3
ARTICLE 2 - Directors ............................................... 3
Section 2.1 General Powers ................................ 3
Section 2.2 Number; Election and Qualification ............ 4
Section 2.3 Enlargement of the Board ...................... 4
Section 2.4 Tenure ........................................ 4
Section 2.5 Vacancies ..................................... 4
Section 2.6 Resignation ................................... 4
Section 2.7 Regular Meetings .............................. 4
Section 2.8 Special Meetings .............................. 5
Section 2.9 Notice of Special Meetings .................... 5
Section 2.10 Meetings by Telephone Conference Calls ........ 5
Section 2.11 Quorum ........................................ 5
Section 2.12 Action at Meeting ............................. 5
Section 2.13 Action by Consent ............................. 6
Section 2.14 Removal ....................................... 6
Section 2.15 Committees .................................... 6
Section 2.16 Compensation of Directors ..................... 6
ARTICLE 3 - Officers ................................................ 7
Section 3.1 Enumeration ................................... 7
Section 3.2 Election ...................................... 7
Section 3.3 Qualification ................................. 7
Section 3.4 Tenure ........................................ 7
Section 3.5 Resignation and Removal ....................... 7
Section 3.6 Vacancies ..................................... 8
Section 3.7 Chairman of the Board and Vice Chairman of
the Board ..................................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 3.8 President ..................................... 8
Section 3.9 Vice Presidents ............................... 8
Section 3.10 Secretary and Assistant Secretaries ........... 9
Section 3.11 Treasurer and Assistant Treasurers ............ 9
Section 3.12 Salaries ...................................... 10
ARTICLE 4 - Capital Stock ........................................... 10
Section 4.1 Issuance of Stock ............................. 10
Section 4.2 Certificates of Stock ......................... 10
Section 4.3 Transfers ..................................... 11
Section 4.4 Lost, Stolen or Destroyed Certificates ........ 11
Section 4.5 Record Date ................................... 11
ARTICLE 5 - General Provisions ...................................... 12
Section 5.1 Fiscal Year ................................... 12
Section 5.2 Corporate Seal ................................ 12
Section 5.3 Waiver of Notice .............................. 12
Section 5.4 Voting of Securities .......................... 12
Section 5.5 Evidence of Authority ......................... 13
Section 5.6 Certificate of Incorporation .................. 13
Section 5.7 Transactions with Interested Parties .......... 13
Section 5.8 Severability .................................. 14
Section 5.9 Pronouns ...................................... 14
ARTICLE 6 - Amendments .............................................. 14
Section 6.1 By the Board of Directors ..................... 14
Section 6.2 By the Stockholders ........................... 14
</TABLE>
-ii-
<PAGE>
BY-LAWS
OF
BJ'S WHOLESALE CLUB, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage
<PAGE>
prepaid, directed to the stockholder at his address as it appears on the records
of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
-2-
<PAGE>
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
-3-
<PAGE>
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
------
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without
-4-
<PAGE>
notice immediately after and at the same place as the annual meeting of
stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram, telecopy
or telex, or delivering written notice by hand, to his last known business or
home address at least 48 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
--------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
-5-
<PAGE>
2.13 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation Law
-------
of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving
-6-
<PAGE>
compensation for such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill
---------
-7-
<PAGE>
any vacancy occurring in any office for any reason and may, in its discretion,
leave unfilled for such period as it may determine any offices other than those
of President, Treasurer and Secretary. Each such successor shall hold office for
the unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the corporation.
The President shall perform such other duties and shall have such other powers
as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
-----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties
-8-
<PAGE>
and have such powers as are incident to the office of the secretary, including
without limitation the duty and power to give notices of all meetings of
stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of
-9-
<PAGE>
Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice Chairman, if any, of the Board
of Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of
-10-
<PAGE>
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled
-11-
<PAGE>
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is properly delivered to the corporation. The record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
-12-
<PAGE>
5.6 Certificate of Incorporation. All references in these By-laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
-13-
<PAGE>
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
-14-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-1 of
BJ's Wholesale Club, Inc. of our report dated February 25, 1997, except as to
the information presented in Note B, for which the date is April 18, 1997, on
our audits of the combined financial statements of BJ's Wholesale Club, Inc.
as of January 25, 1997 and January 27, 1996, and for the three years ended
January 25, 1997, January 27, 1996 and January 28, 1995. We also consent to
the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 18, 1997
<PAGE>
EXHIBIT 23.3
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ S. James Coppersmith
---------------------------------
S. James Coppersmith
<PAGE>
EXHIBIT 23.4
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Thomas J. Shields
---------------------------------
Thomas J. Shields
<PAGE>
EXHIBIT 23.5
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Herbert J. Zarkin
---------------------------------
Herbert J. Zarkin
<PAGE>
EXHIBIT 23.6
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Allyn L. Levy
---------------------------------
Allyn L. Levy
<PAGE>
EXHIBIT 23.7
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Lorne R. Waxlax
---------------------------------
Lorne R. Waxlax
<PAGE>
EXHIBIT 23.8
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Edward J. Weisberger
---------------------------------
Edward J. Weisberger
<PAGE>
EXHIBIT 23.9
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ Kerry L. Hamilton
---------------------------------
Kerry L. Hamilton
<PAGE>
EXHIBIT 23.10
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of BJI
immediately after the distribution by Waban, in the form of a special dividend
to its stockholders, of all of the outstanding shares of Common Stock of BJI
held by Waban, and to serve as such if so elected.
/s/ John J. Nugent
---------------------------------
John J. Nugent
<PAGE>
EXHIBIT 23A.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statements on Form S-3 of
Waban Inc., of our report dated February 25, 1997, except as to the
information presented in Note B, for which the date is April 18, 1997, on our
audits of the combined financial statements of BJ's Wholesale Club, Inc. as of
January 25, 1997 and January 27, 1996, and for the three years ended January
25, 1997, January 27, 1996 and January 28, 1995. We also consent to the
incorporation by reference in the Registration Statement on Form S-3 of Waban
Inc. of our report dated February 25, 1997, except as to the information
presented in Note L, for which the date is April 2, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Waban
Inc. as of January 25, 1997 and January 27, 1996, and for the three years
ended January 25, 1997, January 27, 1996 and January 28, 1995. We also consent
to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 18, 1997
<PAGE>
EXHIBIT 23A.3
CONSENT
April 14, 1997
I hereby consent to being named in the Proxy Statement/Prospectus of Waban
Inc. ("Waban") and BJ's Wholesale Club, Inc. ("BJI"), which constitutes a part
of the Registration Statement on Form S-1 of BJI and the Registration Statement
on Form S-3 of Waban, as a person expected to become a director of HomeBase,
Inc. immediately after the distribution by Waban, in the form of a special
dividend to its stockholders, of all of the outstanding shares of Common Stock
of BJI held by Waban, and to serve as such if so elected.
/s/ Allan P. Sherman
--------------------------------
Allan P. Sherman
