<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997
FORM S-1: REGISTRATION NO. 333-25511
FORM S-3: REGISTRATION NO. 333-25511-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORMS S-1 AND S-3
REGISTRATION STATEMENTS UNDER THE SECURITIES ACT OF 1933
---------------
BJ'S WHOLESALE CLUB, INC.
(EXACT NAME OF REGISTRANT ON FORM S-1 AS SPECIFIED IN ITS CHARTER)
DELAWARE 5399 04-3360747
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION) ---------------
WABAN INC.
(EXACT NAME OF REGISTRANT ON FORM S-3 AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0109661
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
---------------
ONE MERCER ROAD, NATICK, MASSACHUSETTS 01760
(508) 651-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
HERBERT J. ZARKIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WABAN INC.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760 (508) 651-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK G. BORDEN, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000
TELECOPY: (617) 526-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
---------------
As to Form S-1
If any of the securities being registered on this Form S-1 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form S-1 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-1 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-1 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
As to Form S-3
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form S-3 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form S-3 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-3 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-3 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
---------------
EACH OF THE REGISTRANTS HEREBY AMENDS ITS RESPECTIVE REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
SUCH REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
ITS RESPECTIVE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
RESPECTIVE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
These Registration Statements relate to the proposed tax-free distribution
(the "Distribution") by Waban Inc. ("Waban"), in the form of a special
dividend to its stockholders, of all of the outstanding shares of Common Stock
held by Waban, and the associated stockholders' rights, of BJ's Wholesale
Club, Inc. ("BJI"), a newly formed, wholly owned subsidiary of Waban. One of
the conditions to the Distribution is that all of Waban's outstanding 6.5%
Convertible Subordinated Debentures Due 2002 (the "Convertible Debentures") be
converted or redeemed and that, if applicable, the transactions contemplated
by the standby underwriting agreement to be entered into in connection with
the call for redemption of the Convertible Debentures be consummated.
The Proxy Statement/Prospectus included herein will be furnished to three
groups of persons: (i) stockholders of Waban, in connection with Waban's 1997
Annual Meeting of Stockholders; (ii) holders of Waban's Convertible
Debentures, in connection with the call for redemption of such Convertible
Debentures; and (iii) purchasers of Waban Common Stock initially issued by
Waban to the Standby Purchaser (as defined in the Registration Statements),
pursuant to the standby underwriting agreement.
The documents to be furnished to the members of each of these three groups
are as follows:
(i) Stockholders of Waban will receive:
. Letter to Stockholders
. Notice of Annual Meeting of Stockholders
. Proxy Statement/Prospectus
. Proxy Card
(ii) Debenture holders of Waban will receive:
. Notice of Redemption and Expiration of Conversion Right
. Proxy Statement/Prospectus
. Letter of Transmittal
(iii) Purchasers of Waban Common Stock issued pursuant to the standby
purchase agreement will receive:
. Alternative Prospectus cover page and inside front cover
. Proxy Statement/Prospectus
. Alternative Prospectus back cover page
<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 May 23, 1997 are entitled to
vote at the Meeting. We urge you to be present in person or represented by
proxy at this important Meeting at which stockholders will be asked to elect
three directors and to approve a major transaction that will separate Waban
into two publicly owned companies.
At the Meeting, you will be asked to consider and vote upon a group of
related proposals which provide for the tax-free distribution (the
"Distribution") in the form of a special dividend to stockholders, on a one-
for-one basis, of all outstanding shares of the common stock held by Waban of
BJ's Wholesale Club, Inc., a newly formed, wholly-owned subsidiary of Waban
("BJI"). The Distribution will separate BJ's Wholesale Club, the Company's
food and general merchandise warehouse club business (the "Warehouse Club
Business"), from HomeBase, the Company's home improvement warehouse business
(the "Home Improvement Business"). After the Distribution, the Company will
change its name to HomeBase, Inc. and will continue to operate and develop the
Home Improvement Business. BJI will operate and develop the Warehouse Club
Business after the Distribution.
The Company's Board of Directors believes that the Distribution will
accomplish a number of important business goals. Separation of the Home
Improvement Business and the Warehouse Club Business into independent publicly
owned companies will allow each company to concentrate exclusively on its own
business objectives without concern for the business objectives of the other
company, and will allow the financial markets to better recognize and evaluate
the merits of the Warehouse Club Business and the Home Improvement Business,
thereby enhancing the likelihood that each will achieve appropriate market
recognition for its own performance.
The Waban Board also believes the improved recognition by the financial
markets resulting from the anticipated separation of the Home Improvement
Business and the Warehouse Club Business into independent publicly owned
companies will facilitate the conversion of the Company's 6.5% Convertible
Subordinated Debentures due 2002 (the "Convertible Debentures") into Common
Stock. The Convertible Debentures are convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable during the period beginning July
1, 1997 at a price of 102.889% of par, plus accrued interest. As described
herein, the Company has called the Convertible Debentures for redemption. The
Distribution and the related transactions described in this Proxy
Statement/Prospectus are expected to reduce the aggregate level of
indebtedness and interest cost borne by the two companies, and to increase the
aggregate amount of stockholders' equity, as compared to Waban.
We at Waban are excited about the future prospects for both HomeBase and BJI
as separate publicly owned companies. The Board of Directors believes that the
Distribution is in the best interests of stockholders and unanimously (with
two directors abstaining) recommends that stockholders vote "FOR" all of the
distribution proposals.
<PAGE>
Details of the distribution proposals are set forth in the accompanying
Proxy Statement/Prospectus and should be considered carefully. Stockholders of
Waban are not entitled to appraisal rights under Delaware law in connection
with any of the proposals to be voted at the Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. UNLESS MARKED OTHERWISE, ALL VALIDLY SIGNED PROXY
CARDS WILL BE VOTED "FOR" EACH OF THE PROPOSALS. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON EVEN IF YOU HAVE SENT IN YOUR PROXY CARD.
Sincerely,
Herbert J. Zarkin Lorne R. Waxlax
President and Chief Executive Officer Chairman of the Board
<PAGE>
PRELIMINARY COPY
Waban Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 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 nine related proposals (the "Distribution
Proposals") described in the accompanying Proxy Statement/Prospectus, as
follows:
(i) Proposal One: Approval of a distribution (the "Distribution") in
the form of a tax-free special dividend to all holders of Waban's
outstanding shares of common stock, on a one-for-one basis, of all
outstanding shares of common stock held by Waban, and the associated
stockholders' rights, of a newly formed, wholly-owned subsidiary of the
Company, to be known as "BJ's Wholesale Club, Inc." ("BJI"), which will
own and operate the "BJ's Wholesale Club" business presently conducted
as a division of Waban;
(ii) Proposal Two: Approval of an amendment of the Certificate of
Incorporation of Waban, which will change the name of Waban to
"HomeBase, Inc." after the Distribution;
(iii) Proposal Three: Approval of (x) an amendment to the Waban 1989
Stock Incentive Plan to increase by 1,500,000 shares the number of
shares available for issuance thereunder; and (y) the continuance of
the Waban 1989 Stock Incentive Plan, as amended;
(iv) Proposal Four: Approval of the Waban 1997 Stock Incentive Plan;
(v) Proposal Five: Approval of the BJI 1997 Replacement Stock
Incentive Plan;
(vi) Proposal Six: Approval of the BJI 1997 Stock Incentive Plan;
(vii) Proposal Seven: Approval of the BJI Management Incentive Plan;
(viii) Proposal Eight: Approval of the BJI Growth Incentive Plan; and
(ix) Proposal Nine: Approval of the BJI 1997 Director Stock Option
Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described in the accompanying Proxy Statement/Prospectus,
from and after the Distribution, the Board of Directors of HomeBase will
differ from the Waban Board of Directors (the "Waban Board").
3. To consider such other business as may properly come before the
Meeting.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
The record date for stockholders entitled to notice of, and to vote at, the
Meeting is the close of business on May 23, 1997. This Notice, the Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders of the Company on or about , 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: JULY , 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 National Association, the
"Trustee"), the Company has elected to call for redemption on July , 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
$1,028.89 per $1,000 principal amount of Convertible Debentures, plus accrued
interest of $ per $1,000 principal amount of Convertible Debentures from
July 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 40.404 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. The Company will pay to the persons in whose
names outstanding Convertible Debentures are registered at the close of
business on June 15, 1997 (i.e., the next scheduled regular record date for
interest payments) the interest payment due on July 1, 1997 (i.e., the next
scheduled regular interest payment date). Holders that convert Convertible
Debentures after June 15, 1997 must submit with the Convertible Debentures
being converted an amount equal to the interest payable on such Convertible
Debentures on July 1, 1997. No other 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.
- --------
* 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>
On June , 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 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. Any holder that
converts Convertible Debentures after June 15, 1997 must submit with the
Convertible Debentures being converted an amount, in New York Clearing
House funds or other funds acceptable to the Company, equal to the interest
payable on such Convertible Debentures on July 1, 1997. Such holder,
therefore, will not receive the economic benefit of such interest payment.
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 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.
<PAGE>
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:
By Registered Mail or Certified By Hand or Overnight Courier:
Mail:
First Trust National Association First Trust National Association
Corporate Trust Depository 180 East 5th Street
P.O. Box 64485 4th Floor Window
St. Paul, MN 55164-9549 St. Paul, MN 55101
Attn: Corporate Trust Attn: Corporate Trust
Facsimile Transmissions:
(612) 244-1537
Confirm by Telephone:
(612) 973-5800
OR
By Hand: By Mail:
First Trust National Association (INSURED OR REGISTERED RECOMMENDED)
100 Wall Street, Suite 2000 First Trust National Association
New York, New York 10005 100 Wall Street, Suite 2000
Attention: Cathy Donohue New York, New York 10005
Attention: Cathy Donohue
By Overnight Express:
First Trust National Association
100 Wall Street, Suite 2000
New York, New York 10005
Attention: Cathy Donohue
By Facsimile:
(212) 514-7431
(For Eligible Institutions Only)
By Telephone:
(212) 361-2546
The method of delivery of the Convertible Debentures is at your option and
risk. If mail is used, certified or registered mail, properly insured, is
recommended.
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.
THE NOTICE OF REDEMPTION AND EXPIRATION OF CONVERSION RIGHT IS NOT
CONDITIONED UPON THE COMPLETION OF THE SPIN-OFF. THERE CAN BE NO ASSURANCE
THAT THE PROPOSED SPIN-OFF WILL TAKE PLACE. SEE "RISK FACTORS--RISK OF NON-
OCCURRENCE OF DISTRIBUTION" IN THE ENCLOSED PROXY STATEMENT/PROSPECTUS.
WABAN INC.
Dated: June , 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+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, MAY 29, 1997
PROSPECTUS
2,160,585 SHARES
WABAN INC.
COMMON STOCK
($.01 PAR VALUE)
This Prospectus relates to the sale from time to time by (the
"Purchaser") of a maximum of 2,160,585 shares of common stock, par value $.01
per share ("Common Stock"), of Waban Inc., a Delaware corporation (the
"Company"), that may be acquired by the Purchaser either (i) upon conversion of
the 6.5% Convertible Subordinated Debentures due 2002 (the "Convertible
Debentures") of the Company or (ii) under the standby arrangements described
herein.
The Company has called all of the outstanding Convertible Debentures for
redemption on July , 1997 (the "Redemption Date") at a redemption price of
$1,028.89, plus accrued interest of $ from July 1, 1997 to the Redemption
Date, for a total redemption price of $ for each $1,000 principal amount of
Convertible Debentures (the "Redemption Price"). No interest will accrue on the
Convertible Debentures from and after the Redemption Date. The Convertible
Debentures are convertible into shares of Common Stock at the conversion price
of $24.75 per share of Common Stock (equivalent to a conversion rate of 40.404
shares of Common Stock for each $1,000 principal amount of Convertible
Debentures), until 6:00 p.m., Boston, Massachusetts time on June , 1997 (the
"Expiration Date"). Cash will be paid in lieu of any fractional shares of
Common Stock that the Company would otherwise be obligated to issue upon
conversion. The Company will pay to the persons in whose names outstanding
Convertible Debentures are registered at the close of business on June 15, 1997
(the next scheduled regular record date for interest payments) the interest
payment due on July 1, 1997 (the next scheduled regular interest payment date).
ANY HOLDER THAT CONVERTS CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997 MUST SUBMIT
WITH THE CONVERTIBLE DEBENTURES BEING CONVERTED AN AMOUNT, IN NEW YORK CLEARING
HOUSE FUNDS OR OTHER FUNDS ACCEPTABLE TO WABAN, EQUAL TO THE INTEREST PAYABLE
ON SUCH CONVERTIBLE DEBENTURES ON JULY 1, 1997. SUCH HOLDER, THEREFORE, WILL
NOT RECEIVE THE ECONOMIC BENEFIT OF SUCH INTEREST PAYMENT. NO OTHER PAYMENT OR
ADJUSTMENT TO THE CONVERSION PRICE WILL BE MADE ON ACCOUNT OF INTEREST ON THE
CONVERTIBLE DEBENTURES ACCRUING AFTER JANUARY 1, 1997. ANY CONVERTIBLE
DEBENTURES NOT SURRENDERED FOR CONVERSION ON OR PRIOR TO 6:00 P.M., BOSTON,
MASSACHUSETTS TIME ON THE EXPIRATION DATE WILL BE REDEEMED.
In the event that less than all of the Convertible Debentures are surrendered
for conversion on or prior to the Expiration Date, the Company has made
arrangements with the Purchaser to purchase from the Company, at the Company's
option, such number of shares of Common Stock as would have been issuable upon
conversion of the Convertible Debentures that have not been surrendered for
conversion on or prior to the Expiration Date; provided, however, that the
Purchaser will only purchase shares of Common Stock from the Company to the
extent that more than $53,474,500 principal amount of Convertible Debentures
are required to be redeemed. The Purchaser may also purchase Convertible
Debentures in the open market or otherwise prior to the expiration of the right
of conversion on the Expiration Date, and any Convertible Debentures so
purchased will be converted into Common Stock. See "Standby Agreement" in the
Proxy Statement/Prospectus included herein for a description of the Purchaser's
compensation and indemnification arrangements with the Company and BJ's
Wholesale Club, Inc.
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol "WBN." On June , 1997, the reported closing price of
the Common Stock on the NYSE was $ per share. See "Price Range of Common
Stock and Dividend Policy" in the Proxy Statement/Prospectus included herein.
THE CONVERTIBILITY OF THE CONVERTIBLE DEBENTURES WILL EXPIRE AT 6:00 P.M.,
BOSTON, MASSACHUSETTS TIME ON THE EXPIRATION DATE.
A HOLDER WHO CONVERTED CONVERTIBLE DEBENTURES ON JUNE , 1997 WOULD HAVE
RECEIVED COMMON STOCK (INCLUDING CASH IN LIEU OF ANY FRACTIONAL SHARE) HAVING A
MARKET VALUE OF $ FOR EACH $1,000 PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES,
BASED ON THE REPORTED CLOSING PRICE OF THE COMMON STOCK ON THE NYSE ON THAT
DATE. IF SUCH PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES WERE SURRENDERED FOR
REDEMPTION ON THE REDEMPTION DATE, SUCH HOLDER WOULD RECEIVE $ IN CASH. WHILE
NO ASSURANCE CAN BE GIVEN AS TO ANY FUTURE PRICE FOR THE COMMON STOCK, AS LONG
AS THE MARKET PRICE OF THE COMMON STOCK (AFTER GIVING EFFECT TO COMMISSIONS AND
OTHER COSTS OF SALE) REMAINS AT OR ABOVE $ PER SHARE, UPON CONVERSION OF
THEIR CONVERTIBLE DEBENTURES, HOLDERS WILL RECEIVE COMMON STOCK AND CASH FOR
FRACTIONAL SHARES HAVING A CURRENT MARKET VALUE EQUAL TO OR GREATER THAN THE
REDEMPTION PRICE. IT SHOULD BE NOTED, HOWEVER, THAT THE PRICE OF THE COMMON
STOCK RECEIVED UPON CONVERSION WILL FLUCTUATE IN THE MARKET, AND THAT HOLDERS
MAY INCUR VARIOUS EXPENSES OF SALE IF SUCH COMMON STOCK IS SOLD.
SEE RISK FACTORS ON PAGES 22 TO 26 OF THE PROXY STATEMENT/ PROSPECTUS
INCLUDED HEREIN FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
, 1997
<PAGE>
The shares of Common Stock offered hereby, including shares acquired through
the purchase and conversion of Convertible Debentures, may be offered by the
Purchaser from time to time, both on or prior to and after the Redemption
Date, in one or more transactions on the NYSE or otherwise, at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices. The Purchaser may thus realize profits or
losses independent of the compensation referred to under "Standby Agreement."
Any Common Stock will be offered by the Purchaser when, as and if accepted by
the Purchaser and subject to withdrawal, cancellation or modification of the
offer without notice.
IN CONNECTION WITH THIS OFFERING, THE PURCHASER MAY PURCHASE CONVERTIBLE
DEBENTURES OR SHARES OF COMMON STOCK, INCLUDING PURCHASES OF COMMON STOCK TO
COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE
PURCHASER, WHICH MAY MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON
STOCK. SEE "STANDBY AGREEMENT".
USE OF PROCEEDS
The net proceeds to be received by the Company from any sale of the Common
Stock to the Purchaser pursuant to the standby agreement described herein will
be used to effect the redemption of Convertible Debentures not tendered for
conversion. The number of shares of Common Stock to be acquired by the
Purchaser from the Company, and therefore the proceeds of this offering, will
not be determinable until the close of business on the Redemption Date. The
Company will not receive any proceeds from the issuance of the Common Stock on
conversion of the Convertible Debentures. See "Standby Agreement" in the Proxy
Statement/Prospectus included herein.
<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 MAY 29, 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
and to purchasers of Waban Common Stock issued pursuant to a standby
underwriting agreement entered into by Waban with (the "Standby
Purchaser"). See "Information for Holders of Convertible Debentures" and
"Standby Agreement".
At the Meeting, the stockholders of the Company will be asked to consider and
vote upon a group of related proposals which provide for the tax-free
distribution (the "Distribution") in the form of a special dividend to
stockholders, on a one-for-one basis, of all outstanding shares of the common
stock held by Waban, and the associated stockholders' rights, of 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.
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 22.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS 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.............................................................. 22
Introduction.............................................................. 27
Matters for Consideration at the Meeting................................ 27
Voting Rights and Proxy Information..................................... 28
No Appraisal Rights..................................................... 29
Recent Developments....................................................... 30
The Distribution.......................................................... 31
Background.............................................................. 31
Reasons for the Distribution............................................ 31
Manner of Effecting the Distribution.................................... 32
Federal Income Tax Aspects of the Distribution.......................... 32
Accounting Treatment.................................................... 34
Listing and Trading of BJI Common Stock................................. 34
Listing and Trading of HomeBase Common Stock............................ 34
Conditions; Termination................................................. 34
Relationship Between BJI and HomeBase after the Distribution; Conflicts of
Interest................................................................. 36
Distribution Agreement.................................................. 36
Leases.................................................................. 37
Services Agreement...................................................... 37
Employee Benefits Agreement............................................. 38
Tax Sharing Agreement................................................... 38
Procedures for Addressing Conflicts..................................... 39
Financing; Treatment of Outstanding Long-Term Debt........................ 39
Consents; Regulatory Approvals............................................ 40
Waban Capitalization...................................................... 41
Selected Historical Financial Data of Waban............................... 42
Pro Forma Financial Data of Waban......................................... 43
Management's Discussion and Analysis of Unaudited Pro Forma Financial Data
of Waban................................................................. 52
BJI Capitalization........................................................ 53
Selected Historical Financial Data of BJI................................. 54
Pro Forma Financial Data of BJI........................................... 55
Management's Discussion and Analysis of Financial Condition and Results of
Operations of BJI........................................................ 62
BJI Business and Properties............................................... 65
HomeBase Business and Properties.......................................... 70
Management of BJI......................................................... 75
Management of HomeBase.................................................... 85
Price Range of Waban Common Stock......................................... 94
Ownership of Waban Common Stock........................................... 95
Description of BJI Capital Stock.......................................... 97
Certain Provisions of the BJI Certificate and the BJI By-laws............. 97
Approval of Amendment to the Waban Certificate of Incorporation........... 103
Approval of Amendments to the Waban 1989 Stock Incentive Plan and
Continuance of the Plan.................................................. 103
Approval of the Waban 1997 Stock Incentive Plan .......................... 108
Approval of the BJI 1997 Replacement Stock Incentive Plan ................ 110
Approval of the BJI 1997 Stock Incentive Plan............................. 111
Approval of the BJI Management Incentive Plan............................. 112
Approval of the BJI Growth Incentive Plan................................. 113
Approval of the BJI 1997 Director Stock Option Plan....................... 115
Election of Directors..................................................... 116
Information for Holders of Convertible Debentures......................... 121
Standby Agreement......................................................... 124
Experts................................................................... 125
Legal Matters............................................................. 125
Other Matters............................................................. 125
Index to Financial Statements............................................. F-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
Waban is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Waban with the Commission can be
inspected and copied at the Commission's public reference room located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the public
reference facilities in the Commission's Regional Offices located at: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, Waban is required to file electronic
versions of such material with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants, such as
the Company, that file electronically with the Commission. In addition,
reports, proxy statements, and other information concerning Waban can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-1 (together with all amendments and exhibits, referred to
as the "BJI Registration Statement") filed by BJI with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of BJI Common Stock offered hereby. This Proxy Statement/Prospectus
does not contain all of the information included in the BJI Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of any document do not purport to be complete, and, in each
instance, are qualified in all respects by reference to the copy of such
document filed as an exhibit to the BJI Registration Statement or otherwise
filed with the Commission. Each such statement is subject to and qualified in
its entirety by such reference. Reference is made to the BJI Registration
Statement and to the exhibits relating thereto for further information with
respect to BJI and the shares of BJI Common Stock offered hereby. The BJI
Registration Statement can be inspected and copied at the public reference
facilities of the Commission listed above.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits, referred to
as the "Waban Registration Statement") filed by Waban with the Commission
under the Securities Act, with respect to the shares of Waban Common Stock
offered hereby. This Proxy Statement/Prospectus does not contain all of the
information included in the Waban Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
document do not purport to be complete, and, in each instance, are qualified
in all respects by reference to the copy of such document filed as an exhibit
to the Waban Registration Statement or otherwise filed with the Commission.
Each such statement is subject to and qualified in its entirety by such
reference. Reference is made to the Waban Registration Statement and to the
exhibits relating thereto for further information with respect to Waban and
the shares of Waban Common Stock offered hereby. The Waban Registration
Statement can be inspected and copied at the public reference facilities of
the Commission listed above.
Following the completion of the Distribution, Waban will continue to be
subject to the informational requirements of the Exchange Act, and, in
accordance therewith, will continue to file reports, proxy statements and
other information with the Commission and the New York Stock Exchange. In
addition, following the completion of the Distribution, BJI also will be
required to comply with the reporting requirements of the Exchange Act and, in
accordance therewith, to file reports, proxy statements and other information
with the Commission and the New York Stock Exchange. After the Distribution,
such reports, proxy statements and other information may be inspected and
copied at the public reference facilities of the Commission listed above and
obtained by mail from the Commission as described above. Additionally,
following the completion of the Distribution, BJI intends to provide annual
reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
3
<PAGE>
FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus contains "forward-looking statements,"
including certain information with respect to the plans and strategies of
Waban and BJI. For this purpose, any statements contained herein or
incorporated herein by reference that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause actual events or actual results
of Waban or BJI to differ materially from those indicated by such forward-
looking statements. These factors include, without limitation, those set forth
in the section of this Proxy Statement/Prospectus entitled "Risk Factors," as
well as other factors noted elsewhere in this Proxy Statement/Prospectus or
incorporated in this Proxy Statement/Prospectus by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Waban with the Commission are hereby
incorporated by reference by Waban in this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended January 25, 1997, as
amended.
2. The description of Waban's Common Stock in the "Description of Capital
Stock" filed as Exhibit 28.1 to the Waban Registration Statement on Form
10 dated May 12, 1989, as amended to date.
All documents filed by Waban with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the termination of the offering of the
shares of Waban Common Stock hereby shall be deemed to be incorporated herein
by reference by Waban and to be a part hereof from the respective dates of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus and the Waban Registration
Statement to the extent that a statement contained herein or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus or the
Waban Registration Statement.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Waban will provide without
charge to each person 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
nine proposals relating to the Distribution
(the "Distribution Proposals"):
(i) Approval of a distribution (the
"Distribution") in the form of a tax-free
special dividend to all holders of Waban's
outstanding shares of common stock, on a one-
for-one basis, of all outstanding shares of
common stock held by Waban, and the
associated stockholders' rights, of a newly
formed, wholly-owned subsidiary of the
Company, BJ's Wholesale Club, Inc., which
will own and operate the "BJ's Wholesale
Club" business presently conducted as a
division of Waban;
(ii) Approval of an amendment of the
Certificate of Incorporation of Waban, which
will change the name of Waban to "HomeBase,
Inc." after the Distribution;
(iii) Approval of (x) an amendment to the
Waban 1989 Stock Incentive Plan to increase
by 1,500,000 shares the number of shares
available for issuance thereunder, and (y)
the continuance of the Waban 1989 Stock
Incentive Plan, as amended;
(iv) Approval of the Waban 1997 Stock
Incentive Plan;
(v) Approval of the BJI 1997 Replacement
Stock Incentive Plan;
(vi) Approval of the BJI 1997 Stock Incentive
Plan;
(vii) Approval of the BJI Management
Incentive Plan;
(viii) Approval of the BJI Growth Incentive
Plan; and
(ix) Approval of the BJI 1997 Director Stock
Option Plan.
2. To elect three directors to serve until
the 2000 Annual Meeting of Stockholders. As
described herein, from and after the
Distribution, the board of directors of
HomeBase will differ from the Waban Board.
5
<PAGE>
The Waban Board believes that the passage of
each of the Distribution Proposals is
critical to the Distribution. Accordingly,
the Waban Board reserves the right not to
declare the Distribution if any of the
Distribution Proposals is not approved.
VOTING..........................
Each stockholder of record at the close of
business on May 23, 1997 (the "Meeting Record
Date") is entitled to notice of, and to vote
at, the Meeting. Each share of Common Stock
of Waban ("Waban Common Stock") is entitled
to one vote on each matter presented at the
Meeting. All such shares entitled to notice
of and to vote at the Meeting are referred to
herein as "Record Shares". The presence in
person or by proxy of stockholders holding
Record Shares which are entitled to a
majority of the votes of all holders of
Record Shares will constitute a quorum for
the transaction of business at the Meeting.
VOTES REQUIRED..................
The Company believes that, under Delaware
law, which governs the Distribution, a vote
of stockholders is not required in connection
with the transfer of the Warehouse Club
Business to BJI or the Distribution
(Distribution Proposal One). However, the
Company is seeking stockholder approval of
Distribution Proposal One because of the
importance of the Distribution, and to the
extent that a stockholder vote is required,
approval of Distribution Proposal One will
constitute such approval. Approval of
Distribution Proposals One and Two will
require the affirmative vote of the holders
of a majority of the outstanding Record
Shares. Approval of Distribution Proposals
Three through Nine will require the
affirmative vote of the holders of a majority
of the votes cast at the Meeting. Under the
Company's by-laws, so long as a quorum is
present at the Meeting, the election of
directors will require the affirmative vote
of the holders of shares representing a
plurality of the votes cast at the Meeting.
In the event that stockholders fail to
approve all of the Distribution Proposals,
the Waban Board may decide not to proceed
with the Distribution, in which case Waban
intends to continue to operate the Warehouse
Club Business and the Home Improvement
Business and may consider alternative
restructuring options.
Stockholder approval of the Distribution
Proposals may not prevent a stockholder from
subsequently seeking to challenge the
Distribution Proposals or the actions of the
Waban Board in approving the Distribution
Proposals. However, although Waban cannot
determine in advance its position with
respect to any such challenge, it is possible
that Waban could assert a stockholder's
approval of the Distribution Proposals as a
defense, in which case if such defense were
held meritorious, such stockholder could
effectively be estopped from asserting such
claims.
6
<PAGE>
RISK FACTORS....................
Stockholders should carefully consider the
factors discussed under "Risk Factors" as
well as the other information set forth
herein before voting on the Distribution
Proposals or making an investment decision.
Risks relating to the Distribution include:
the absence of operating histories for BJI
and HomeBase as separate companies; the fact
that each of BJI and HomeBase will be a less
diversified company following the
Distribution than Waban currently is; the
adverse tax consequences which would be
incurred if the Distribution fails to qualify
as a tax-free spin-off; the risk that the
Distribution does not occur; uncertainty
regarding the trading prices of BJI and
HomeBase common stock after the Distribution;
the potential for future conflicts of
interest between BJI and HomeBase, including
conflicts resulting from continuing lease and
related indemnification obligations; and the
risk of legal challenges to the Distribution
by creditors of Waban.
BOARD RECOMMENDATION............
THE BOARD OF DIRECTORS OF THE COMPANY
BELIEVES THAT THE DISTRIBUTION IS IN THE BEST
INTERESTS OF STOCKHOLDERS AND UNANIMOUSLY
(WITH MR. LOEWY AND MS. HAMILTON ABSTAINING)
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL
OF THE DISTRIBUTION PROPOSALS. Mr. Loewy and
Ms. Hamilton abstained because they are a
director and employee, respectively, of The
TJX Companies, Inc. See "The Distribution--
Background and Reasons for the Distribution."
THE DISTRIBUTION
EFFECT.......................... The Distribution will separate Waban's food
and general merchandise warehouse club
business (the "Warehouse Club Business"),
which is operated as Waban's "BJ's Wholesale
Club" division (the "BJ's Division"), from
Waban's home improvement warehouse business
(the "Home Improvement Business"), which is
operated as Waban's "HomeBase" division (the
"HomeBase Division"). After the Distribution,
BJI (as used herein, to include BJI's
consolidated subsidiaries unless the context
requires otherwise) will be an independent,
publicly owned company that will operate and
develop the Warehouse Club Business. After
the Distribution, Waban will change its name
to HomeBase, Inc. ("HomeBase"), and HomeBase
(as used herein, to include HomeBase's
consolidated subsidiaries unless the context
requires otherwise) will continue to operate
and develop the Home Improvement Business.
SHARES TO BE DISTRIBUTED........ It is expected that the Waban Board will
declare the Distribution after the Meeting.
On the date of the Distribution (the
"Distribution Date"), Waban will make the
Distribution to stockholders of record of
Waban as of the Distribution
7
<PAGE>
Record Date (as defined below). Each such
stockholder will receive one share of BJI
Common Stock (and one associated BJI
Preferred Stock Purchase Right) for every
share of Waban Common Stock held by such
stockholder. See "The Distribution--Manner of
Effecting the Distribution."
DISTRIBUTION RECORD DATE........ The record date for the Distribution (the
"Distribution Record Date") will be
established by the Waban Board of
Directors (the "Waban Board") following the
Meeting. The Distribution Record Date will be
a date that is as soon as practicable
following the declaration of the
Distribution. See "The Distribution--Manner
of Effecting the Distribution."
DISTRIBUTION DATE............... The Distribution Date will be established by
the Waban Board following the Meeting. On the
Distribution Date, Waban will deliver shares
of BJI Common Stock to the Distribution
Agent. The Distribution Agent will mail stock
certificates as soon as practicable
thereafter. See "The Distribution--Manner of
Effecting the Distribution."
CONDITIONS TO THE DISTRIBUTION..
The Distribution may not occur unless all of
the Distribution Proposals are approved. In
addition, the Distribution is conditioned
upon the following, which are the only
material conditions to the Distribution: (i)
the declaration by the Waban Board of the
Distribution; (ii) all of the Convertible
Debentures having been converted or redeemed
and any shares required to be purchased from
the Company pursuant to the standby
underwriting agreement having been issued;
(iii) the transfers of assets and liabilities
contemplated by the Distribution Agreement to
be entered into between BJI and Waban prior
to the Distribution having been consummated
in all material respects; (iv) the BJI Common
Stock and associated BJI Rights having been
approved for listing on the New York Stock
Exchange subject to official notice of
issuance; (v) BJI and HomeBase having entered
into agreements with lenders to provide
sufficient financing upon consummation of the
Distribution; (vi) the Registration Statement
on Form 8-A with respect to the BJI Common
Stock and the BJI Rights (the "Form 8-A
Registration Statement") having become
effective under the Exchange Act; and (vii)
continued applicability of the private letter
ruling received by Waban from the IRS with
respect to the tax-free nature of the
Distribution. 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
8
<PAGE>
of the Home Improvement Business and the
Warehouse Club Business into independent
publicly owned companies will allow each
company to concentrate exclusively on its own
business objectives without concern for the
business objectives of the other company, and
will allow the financial markets to better
recognize and evaluate the merits of the
Warehouse Club Business and the Home
Improvement Business, thereby enhancing the
likelihood that each will achieve appropriate
market recognition for its own performance.
The Waban Board also believes the improved
recognition by the financial markets
resulting from the anticipated separation of
the Home Improvement Business and the
Warehouse Club Business into independent
publicly owned companies will facilitate the
conversion of the Convertible Debentures into
Common Stock. The Convertible Debentures are
convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable
during the period beginning July 1, 1997 at a
price of 102.889% of par, plus accrued
interest. Waban has called the Convertible
Debentures for redemption and, in connection
therewith, has entered into a standby
underwriting agreement providing for the
Standby Purchaser, subject to certain
conditions, to purchase up to 2,160,585
shares of Waban Common Stock. Shares of Waban
Common Stock will be issued under the standby
underwriting agreement only to the extent
that more than 50% of the Convertible
Debentures outstanding on the date of the
call of the Convertible Debentures for
redemption ($53,474,500 as of May 27, 1997)
are required to be redeemed. The Distribution
and the related transactions described in
this Proxy Statement/Prospectus are expected
to reduce the aggregate level of indebtedness
and interest costs borne by the two
companies, and to increase the aggregate
amount of stockholders' equity, as compared
to Waban.
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.
ASSET TRANSFERS.................
Prior to the Distribution Date, Waban intends
to transfer to BJI all of the assets of the
BJ's Division and other related assets,
subject to the assumption by BJI of the
liabilities related thereto and certain other
liabilities (such transfers being referred to
collectively as the "Asset Transfers"). The
9
<PAGE>
approval of the Distribution (Distribution
Proposal One) will also constitute approval
of the Asset Transfers.
RELATIONSHIP BETWEEN HOMEBASE
AND BJI AFTER THE
DISTRIBUTION...................
For purposes of governing certain ongoing
relationships between HomeBase and BJI after
the Distribution and to provide an orderly
transition, Waban and BJI will enter into a
Separation and Distribution Agreement, a
Services Agreement, an Employee Benefits
Agreement, and a Tax Sharing Agreement.
Following the Distribution, certain persons
will be directors of both HomeBase and BJI,
and Herbert J. Zarkin, who is currently
President and Chief Executive Officer of
Waban, will be Chairman of the Board of
Directors of both HomeBase and BJI. BJI and
HomeBase will adopt appropriate procedures to
be followed by the board of directors of each
company to limit the involvement of such
persons in conflict situations, including
matters relating to contractual relationships
or litigation between the companies. See
"Relationship Between HomeBase and BJI after
the Distribution; Conflicts of Interest--
Policies and Procedures for Addressing
Conflicts" and "Risk Factors--Potential
Conflicts."
FINANCING; TREATMENT OF
OUTSTANDING LONG-TERM DEBT.....
Prior to the Distribution, Waban intends to
refinance its outstanding long-term debt.
Waban's outstanding indebtedness as of April
26, 1997 consisted of: (i) $24,000,000 9.58%
unsecured senior notes due May 31, 1998 (the
"Senior Notes"); (ii) $100,000,000 11% senior
subordinated notes due May 15, 2004 ("Senior
Subordinated Notes"); (iii) Convertible De-
bentures (of which, $106,949,000 were out-
standing); (iv) $150,000,000 line of credit
with a group of banks, under which no
borrowings were outstanding; and (v) real es-
tate debt and obligations under capital
leases of $500,000 and $11,725,000, respec-
tively.
Prior to the Distribution, Waban will repay
the Senior Notes, and will retire (via open
market or privately negotiated purchases or a
tender offer) or defease the Senior
Subordinated Notes, with proceeds from bank
borrowings. Waban will be required to pay
certain premiums and prepayment penalties in
connection with the foregoing transactions.
See "Risk Factors--Repayment of Long-Term
Debt."
The Convertible Debentures are convertible by
the holders into Waban Common Stock at a
conversion price of $24.75 per share, and are
redeemable during the period beginning July
1, 1997 at a price of 102.889% of par, plus
accrued interest. Waban has called the
Convertible Debentures for
10
<PAGE>
redemption and, in connection therewith, has
entered into a standby purchase agreement
providing for the Standby Purchaser, subject
to certain conditions, to purchase up to
2,160,585 shares of Waban Common Stock.
Shares of Waban Common Stock will be issued
under the standby underwriting agreement only
to the extent that more than 50% of the
Convertible Debentures outstanding on the
date of the call of the Convertible
Debentures for redemption ($53,474,500 as of
May 27, 1997) are required to be redeemed. It
is a condition to the Distribution that (i)
all of the Convertible Debentures are
converted or redeemed for cash and (ii) any
shares required to be purchased from the
Company pursuant to the standby underwriting
agreement are actually issued. There can be
no assurance that such conditions will be
satisfied. In the event such conditions are
not satisfied, it is likely that the
Distribution would be delayed for a
significant period of time or cancelled.
Waban is currently in discussions with
financial institutions to amend certain terms
of its existing bank credit facility in order
to consummate the transactions described
above involving the Senior Notes, the Senior
Subordinated Notes and the Convertible
Debentures and to obtain separate bank credit
facilities for each of BJI and HomeBase
following the Distribution. It is a condition
of the Distribution that such separate credit
facilities be obtained in amounts and on
terms considered appropriate by the Waban
Board. Although Waban expects to obtain such
separate credit facilities, there is no
assurance that they can be obtained on terms
considered appropriate by the Waban Board, if
at all. See "Financing; Treatment of
Outstanding Long-Term Debt."
TAX CONSEQUENCES................
Waban has received a ruling issued by the IRS
on December 12, 1996 to the effect that the
Distribution will constitute a "spin-off"
under Section 355 of the Internal Revenue
Code (the "Code") which is tax-free to Waban
and its stockholders. Accordingly, the
receipt of BJI Common Stock should be tax-
free for Federal income tax purposes to Waban
stockholders, and Waban will not recognize
income, gain or loss solely as a result of
the Asset Transfers or the Distribution.
Waban stockholders will be required to
apportion their tax basis in 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."
11
<PAGE>
ACCOUNTING TREATMENT............ Upon approval of the Distribution Proposals
at the Meeting, Waban will present the
Warehouse Club Business as discontinued
operations to the extent financial
information for periods prior to the
Distribution is required to be included in
Waban's historical financial statements.
After the Distribution, the business of BJI
will be reflected in separate consolidated
financial statements. See "Selected
Historical Financial Data of Waban," "Pro
Forma Financial Data of Waban," "Selected
Historical Financial Data of BJI," and "Pro
Forma Financial Data of BJI."
BJ'S WHOLESALE CLUB, INC.
BUSINESS AFTER THE The Warehouse Club Business is presently
DISTRIBUTION................... conducted by the BJ's Division. Following the
Distribution, BJI will conduct the Warehouse
Club Business. The BJ's Division introduced
the warehouse club concept to New England in
1984 and has since expanded in the
northeastern and Mid-Atlantic states, as well
as in southern Florida. BJ's sells a narrow
assortment of brand name food and general
merchandise within a wide range of product
categories. As of January 25, 1997, the BJ's
Division was operating 81 warehouse clubs in
12 states and had over four million members.
Waban expects that approximately ten
additional warehouse clubs will be opened in
fiscal 1997. One warehouse club was closed in
April 1997. See "BJI Business and
Properties."
PRINCIPAL OFFICE................ The principal office of the BJ's Division is,
and after the Distribution Date the principal
office of BJI will be, One Mercer Road,
Natick, Massachusetts 01760. Its telephone
number is (508) 651-6500.
BOARD OF DIRECTORS.............. Prior to the Distribution Date, Waban, as the
sole stockholder of BJI, plans to elect the
following eight persons to the Board of
Directors of BJI (the "BJI Board"), effective
as of the Distribution Date: S. James
Coppersmith, Kerry L. Hamilton, Allyn L.
Levy, John J. Nugent, Thomas J. Shields,
Lorne R. Waxlax, Edward J. Weisberger and
Herbert J. Zarkin. All of such persons, other
than Mr. Nugent and Mr. Weisberger (who is a
nominee for election to the Waban Board at
the Meeting), are currently members of the
Waban Board. Members of the BJI Board will be
elected for staggered three-year terms.
Messrs. Zarkin, Waxlax and Weisberger will
serve as directors of both HomeBase and BJI
after the Distribution. Mr. Zarkin will also
serve as Chairman of the Board of Directors
of both HomeBase and BJI after the
Distribution. See "Management of BJI--BJI
Board."
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
12
<PAGE>
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."
TRADING MARKET.................. There is presently no public market for BJI
Common Stock. BJI intends to list the BJI
Common Stock on the New York Stock Exchange.
See "Risk Factors--No Current Public Market
for BJI Common Stock" and "The Distribution--
Listing and Trading of BJI Common Stock."
CERTAIN PROVISIONS OF THE BJI
CERTIFICATE OF INCORPORATION
AND BY-LAWS....................
BJI's Certificate of Incorporation (the "BJI
Certificate") and By-laws (the "BJI By-
laws"), as they will be in effect following
the Distribution, will contain certain
provisions, which are substantially similar
to provisions contained in the Certificate of
Incorporation and By-laws of Waban, that may
have the effect of making difficult or
expensive an acquisition of control of BJI in
a transaction not approved by the BJI Board.
In addition, prior to the Distribution, the
BJI Board will adopt a Preferred Stock
Purchase Rights Plan, which may have a
similar effect. See "Certain Provisions of
the BJI Certificate and the BJI By-laws--
Preferred Stock Purchase Rights."
The BJI Certificate will limit a director's
monetary liability to stockholders for breach
of fiduciary duty to the maximum extent
permitted by Delaware law. See "Certain
Provisions of the BJI Certificate and the BJI
By-laws--Elimination of Liability in Certain
Circumstances."
HOMEBASE, INC.
BUSINESS AFTER THE
DISTRIBUTION................... Following the Distribution, Waban will retain
the Home Improvement Business, which is
presently conducted as Waban's HomeBase
Division. Waban believes that the HomeBase
Division is the second largest operator of
home improvement warehouse stores in the
western United States and is the nation's
eighth largest home improvement merchandiser.
The HomeBase Division offers a very broad
assortment of home improvement and building
supply products. The HomeBase Division was
operating 84 warehouse stores as of January
25, 1997. Waban expects to open two new
HomeBase stores and to close one existing
store in fiscal 1997. See "HomeBase Business
and Properties."
13
<PAGE>
PRINCIPAL OFFICE................ After the Distribution Date, the principal
office of HomeBase will be at 3345 Michelson
Drive, Irvine, CA, 92715. Its telephone
number is (714) 442-5000.
BOARD OF DIRECTORS..............
Effective as of the Distribution Date, the
Board of Directors of HomeBase (the "HomeBase
Board") is expected to consist of the
following persons: Arthur F. Loewy, Allan P.
Sherman, Lorne R. Waxlax, Edward J.
Weisberger and Herbert J. Zarkin. Messrs.
Loewy, Waxlax and Zarkin are currently
members of the Waban Board and Mr. Weisberger
is a nominee for election to the Waban Board
at the Meeting. The Waban Board expects to
appoint additional independent directors
prior to the Distribution. Members of the
HomeBase Board will continue to be elected
for staggered three-year terms. Messrs.
Waxlax, Weisberger and Zarkin will serve as
directors of both BJI and HomeBase after the
Distribution. Mr. Zarkin will also serve as
Chairman of the Board of Directors of both
BJI and HomeBase after the Distribution. See
"Management of HomeBase--HomeBase Board."
POST-DISTRIBUTION DIVIDEND 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 lower than the trading price
range of the Waban Common Stock prior to the
Distribution. See "Risk Factors--Change in
Trading Prices of HomeBase Common Stock."
NAME CHANGE..................... Stockholders are being asked to authorize the
Waban Board to change the name of the Company
to "HomeBase, Inc." after the Distribution.
AMENDMENT AND CONTINUANCE OF
THE WABAN 1989 STOCK INCENTIVE
PLAN......................
Stockholders are being asked to approve (i)
an increase in the number of shares
authorized for issuance under Waban's 1989
Stock Incentive Plan by 1,500,000 shares, and
(ii) the
14
<PAGE>
continuance of the Waban 1989 Stock Incentive
Plan. Stockholder approval of the additional
shares is being sought in part to provide the
increased number of shares estimated to be
required in connection with the proportionate
adjustments to be made to unexercised options
under the plan which are held by persons who
continue to be employed by HomeBase after the
Distribution. If the stockholders do not vote
to approve the continuance of the plan, the
plan will terminate and the Company will not
grant any further options or make any further
stock based awards under the plan.
APPROVAL OF THE WABAN 1997
STOCK INCENTIVE PLAN......
Stockholders are being asked to approve the
Waban 1997 Stock Incentive Plan. Following
the Distribution Date, except for adjustment
awards to be granted under the Waban 1989
Stock Incentive Plan in connection with the
Distribution, Waban generally expects to
grant equity incentive awards under the Waban
1997 Stock Incentive Plan. Subject to
adjustments in the event of stock splits and
other similar events, awards may be made
under the Waban 1997 Stock Incentive Plan for
up to the sum of (i) 1,000,000 shares of
Waban Common Stock, plus (ii) such additional
number of shares of Waban Common Stock (up to
2,500,000 shares) as is equal to the sum of
(x) the number of shares which remain
available for grant under the Waban 1989
Stock Incentive Plan upon its expiration and
(y) the number of shares subject to awards
granted under the Waban 1989 Stock Incentive
Plan which are not actually issued because
such awards expire or otherwise result in
shares not being issued. If the stockholders
do not vote to approve the plan, the plan
will not be effective and the Company will
not grant any awards under the plan.
APPROVAL OF THE BJI 1997
REPLACEMENT STOCK INCENTIVE
PLAN......................
Stockholders are being asked to approve the
BJI 1997 Replacement Stock Incentive Plan
pursuant to which BJI intends to grant
replacement awards to holders of awards under
the Waban 1989 Stock Incentive Plan who
become employees of BJI in connection with
the Distribution. Grants of awards may be
made under the BJI Replacement Plan during
the period beginning on the Distribution Date
and ending on the date which is six months
after the Distribution Date. Under the terms
of the BJI 1997 Replacement Stock Incentive
Plan, a maximum of 2,500,000 shares (subject
to adjustment as provided in the plan) may be
issued. If the stockholders do not vote to
approve the plan, the plan will not be
effective and BJI will not grant any awards
under the plan.
15
<PAGE>
APPROVAL OF THE BJI 1997 STOCK
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI 1997 Stock Incentive Plan. This plan
would enable BJI to grant options and other
stock incentive awards to employees of BJI
following the Distribution. Subject to
adjustment in the event of stock splits and
other similar events, awards may be made
under the BJI 1997 Stock Incentive Plan for
up to the sum of (i) 1,000,000 shares of BJI
Common Stock plus (ii) such additional number
of shares of BJI Common Stock (up to
2,000,000 shares) as is equal to the sum of
(x) the number of shares which remain
available for grant under the BJI 1997
Replacement Incentive Plan upon its
expiration and (y) the number of shares
subject to awards granted under the BJI 1997
Replacement Stock Incentive Plan which are
not actually issued because such awards
expire or otherwise result in shares not
being issued. If the stockholders do not vote
to approve the plan, the plan will not be
effective and BJI will not grant any awards
under the plan.
APPROVAL OF THE BJI MANAGEMENT
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI Management Incentive Plan (the "BJI
MIP"). The BJI MIP is intended to provide
executive officers and other key employees of
BJI with cash incentive awards, based upon
the attainment of annual performance goals.
The BJI MIP is similar to the Waban
Management Incentive Plan and will cover
BJI's employees currently covered by the
Waban Management Incentive Plan. If the
stockholders do not approve the plan, the
plan will not become effective and BJI will
not grant any awards under the plan.
APPROVAL OF THE BJI GROWTH
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI Growth Incentive Plan (the "BJI GIP").
The BJI GIP is intended to provide certain
high-level management employees with cash
awards based on BJI's financial performance
over an award period that typically consists
of two or more fiscal years. The BJI GIP is
similar to the Waban Growth Incentive Plan
and will cover BJI's employees currently
covered by the Waban Growth Incentive Plan.
If the stockholders do not approve the plan,
the plan will not become effective and BJI
will not grant any awards under the plan.
APPROVAL OF THE BJI 1997
DIRECTOR STOCK OPTION PLAN.....
Stockholders are being asked to approve the
BJI 1997 Director Stock Option Plan. Pursuant
to this plan, on the date of each annual
meeting of the stockholders of BJI, (i) each
non-employee director of BJI elected as a
director for the first time at such meeting
(other than persons who were directors of
Waban immediately prior to the Distribution)
will be granted
16
<PAGE>
an option for 3,000 shares of BJI Common
Stock and (ii) each other non-employee
director of BJI will be granted an option for
1,500 shares of BJI Common Stock. In
addition, the plan will provide for the
issuance of options following the
Distribution to persons who become BJI
directors in replacement or adjustment of
options previously granted under the Waban
1995 Director Stock Option Plan which are not
exercised prior to the Distribution Date. A
maximum of 150,000 shares of BJI Common Stock
are reserved for issuance under the plan.
ELECTION OF DIRECTORS........... At the Meeting, stockholders will also be
asked to consider and vote upon a proposal to
elect three directors to serve until the 2000
Annual Meeting of Stockholders. As described
in this Proxy Statement/Prospectus, from and
after the Distribution, the board of
directors of HomeBase will differ from the
Waban Board.
INFORMATION FOR HOLDERS OF
DEBENTURES.....................
The Company has called all of the Convertible
Debentures for redemption. The following
alternatives are available to holders of
Convertible Debentures: (1) holders may
convert the Convertible Debentures into Waban
Common Stock at a conversion price of $24.75
of principal amount per share of Waban Common
Stock; (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 102.889% of the principal
amount of Convertible Debentures, plus
accrued interest from July 1, 1997 to the
redemption date. See "Information for Holders
of Convertible Debentures."
17
<PAGE>
WABAN INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in Waban's Annual
Report on Form 10-K for the fiscal year ended January 25, 1997 which is
incorporated by reference herein, and the unaudited Pro Forma Financial Data of
Waban included elsewhere in this Proxy Statement/Prospectus. For a discussion
of the basis of presentation of the Waban Consolidated Financial Statements,
see Summary of Accounting Policies in Notes to the Waban Consolidated Financial
Statements contained in its Form 10-K for the fiscal year ended January 25,
1997.
The summary unaudited pro forma financial data set forth below illustrates
the estimated effects on Waban of the proposed Distribution and (i) the
repayment by BJI to Waban of intercompany indebtedness and current taxes
payable, (ii) the prepayment of the Senior Notes and Senior Subordinated Notes,
(iii) new borrowings under Waban's proposed credit agreement, and (iv) the
conversion or redemption of the Convertible Debentures (the "Related Waban
Transactions"). The Company has called the Convertible Debentures for
redemption and, in connection therewith, has entered into a standby
underwriting agreement. Shares of Waban Common Stock will be issued under the
standby agreement only to the extent that more than 50% of the Convertible
Debentures outstanding on the date of the call ($53,474,500 as of May 27, 1997)
are required to be redeemed. See "Standby Agreement" and "Risk Factors--
Conversion or Redemption of Convertible Debentures". The pro forma financial
data has been prepared to present two alternative scenarios. Scenario A gives
pro forma effect to the conversion of all of the Convertible Debentures into
Waban Common Stock. Scenario B gives pro forma effect to the redemption of
$53,474,500 of the Convertible Debentures for cash and the conversion of the
remaining Convertible Debentures. The pro forma balance sheet data is based on
the January 25, 1997 balance sheet of Waban and assumes the Distribution and
Related Waban Transactions were consummated on that date. The pro forma income
statement data gives effect to the Distribution and Related Waban Transactions
as if they occurred at the beginning of fiscal 1996. The pro forma financial
data of Waban does not purport to represent what the financial position or
results of operations of Waban would have been if the Distribution and Related
Waban Transactions had in fact been consummated on the dates indicated or at
any future date. The pro forma adjustments are based upon available information
and upon certain assumptions that Waban's management believes are reasonable in
the circumstances.
18
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ---------------------------
SCENARIO B:
SCENARIO A: ASSUMING
ASSUMING FULL PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
DEBENTURES(1) DEBENTURES(1)
------------- -------------
FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR
-------------------------------------- ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........... $3,650,281 $3,978,384 $4,375,528 $1,452,696 $1,452,696
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs................... 3,110,787 3,387,992 3,742,599 1,136,997 1,136,997
Selling, general and
administrative expenses. 418,404 455,523 486,868 277,841 277,841
Interest on debt and
capital leases (net).... 14,898 15,431 19,735 2,915 3,917
---------- ---------- ---------- ---------- ----------
Income before income
taxes................... $ 106,192 $ 119,438 $ 126,326 $ 34,943 $ 33,941
========== ========== ========== ========== ==========
Pro forma income from
continuing operations... $ 21,191 $ 20,582
========== ==========
Net income............... $ 64,990 $ 72,977 $ 76,660
========== ========== ==========
Pro forma income per
share from continuing $ 0.56 $ 0.58
operations.............. ========== ==========
Number of common shares
for pro forma earnings
per share computations.. 37,703 35,542
Income per common share:
Primary................. $1.95 $2.20 $2.31
===== ===== =====
Fully diluted........... $1.83 $2.05 $2.15
===== ===== =====
Number of common shares
for earnings per share
computations:
Primary................. 33,405 33,220 33,205
Fully diluted........... 37,793 37,784 37,713
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $ 308,749 $ 265,450 $ 275,842 $ 209,598 $ 208,449
Total assets............. 1,237,521 1,332,451 1,375,966 628,117 626,186
Long-term debt and
obligations under
capital leases.......... 258,763 245,313 232,486 41,826 55,194
Stockholders' equity..... 488,089 555,120 631,925 389,420 374,903
WAREHOUSES OPEN AT END OF
PERIOD:
BJ's Wholesale Club...... 62 71 81
HomeBase................. 77 79 84
</TABLE>
- --------
Note (1): Scenario A gives pro forma effect to the conversion of all of the
Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible
Debentures for cash and the conversion of the remaining Convertible
Debentures.
19
<PAGE>
BJ'S WHOLESALE CLUB, INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table summarizes selected historical financial data of BJI for
the three fiscal years in the period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of the
BJ's Division. The BJI financial statements include certain allocations of the
overhead expenses incurred by Waban that support the BJ's Division. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI. The historical financial data is not necessarily
indicative of BJI's future results of operations or financial condition. The
data set forth below should be read in conjunction with the unaudited Pro Forma
Financial Data of BJI and the Notes thereto, the audited Financial Statements
of BJI and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of BJI included elsewhere in this
Proxy Statement/Prospectus. For a discussion of the basis of presentation of
the BJI Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Financial Statements.
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of the balance of its intercompany indebtedness and current taxes
payable, (ii) new borrowings under BJI's proposed credit agreement, and (iii)
the impact of the conversion or redemption of the Convertible Debentures and
the related equity contribution by Waban (the "Related BJI Transactions"). The
Company has called the Convertible Debentures for redemption and, in connection
therewith, has entered into a standby underwriting agreement. Shares of Waban
Common Stock will be issued under the standby agreement only to the extent that
more than 50% of the Convertible Debentures outstanding on the date of the call
($53,474,500 as of May 27, 1997) are required to be redeemed. See "Standby
Agreement" and "Risk Factors--Conversion or Redemption of Convertible
Debentures". The pro forma financial data has been prepared to present two
alternative scenarios. Scenario A gives pro forma effect to the conversion of
all of the Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible Debentures for
cash and the conversion of the remaining Convertible Debentures. The pro forma
balance sheet data is based on the January 25, 1997 balance sheet of BJI and
assumes the Distribution and Related BJI Transactions were consummated on that
date. The pro forma income statement data gives effect to the Distribution and
Related BJI Transactions as if they occurred at the beginning of fiscal 1996.
The Pro Forma Financial Data of BJI does not purport to represent what the
financial position or results of operations of BJI would have been if the
Distribution and Related BJI Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based upon
available information and upon certain assumptions that BJI's management
believes are reasonable in the circumstances.
20
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ---------------------------
SCENARIO B:
SCENARIO A: ASSUMING
ASSUMING FULL PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
FISCAL YEAR ENDED DEBENTURES(1) DEBENTURES(1)
-------------------------------------- ------------- -------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $2,293,091 $2,529,608 $2,922,832 $2,922,832 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,054,167 2,263,532 2,605,602 2,605,602 2,605,602
Selling, general and
administrative
expenses............... 174,416 183,419 212,660 212,660 212,660
Interest on debt and
capital leases (net)... 13,665 14,757 16,838 5,619 8,225
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. $ 50,843 $ 67,900 $ 87,732 $ 98,951 $ 96,345
========== ========== ========== ========== ==========
Net income.............. $ 30,902 $ 41,550 $ 53,624 $ 60,299 $ 58,749
========== ========== ========== ========== ==========
Pro forma earnings per
share.................. $ 1.61 $ 1.66
========== ==========
Number of common shares
for pro forma earnings
per share computations. 37,555 35,394
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 58,252 $ 77,207 $ 62,942 $ 75,373 $ 75,373
Total assets............ 563,931 676,675 737,211 737,211 737,211
Long-term debt and
obligations under
capital leases......... 2,960 2,731 2,592 100,092 140,198
Loans and advances from
Waban Inc. ............ 142,512 181,730 148,081 -- --
Stockholder's equity.... 180,433 221,983 275,607 338,619 298,513
CLUBS OPEN AT END OF
PERIOD................. 62 71 81
</TABLE>
- --------
Note (1): Scenario A gives pro forma effect to the conversion of all of the
Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible
Debentures for cash and the conversion of the remaining Convertible
Debentures.
21
<PAGE>
RISK FACTORS
Stockholders should carefully consider the following factors, as well as
other information set forth herein, before acting on the Distribution
Proposals or making an investment decision in Waban Common Stock.
ABSENCE OF OPERATING HISTORIES AS SEPARATE COMPANIES. BJI has been
incorporated for the purpose of effecting the Distribution. While the BJ's
Division and the HomeBase Division have substantial operating histories, BJI
and HomeBase do not have operating histories as separate stand-alone
companies. Prior to the Distribution, each of the two businesses had access to
the cash flow generated by the other and to Waban's credit, which was based on
the combined assets of the BJ's Division and the HomeBase Division. Since
April 1996, monthly comparable store sales of the HomeBase Division have
increased only 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. If either HomeBase or BJI experiences reduced access to
borrowings or higher borrowing costs, the ability of such company to finance
inventory purchases and new store acquisitions could be adversely affected.
REDUCED GEOGRAPHIC AND PRODUCT LINE DIVERSIFICATION. BJI's warehouse clubs
are located in the eastern United States, primarily in the northeast, and
HomeBase's home improvement warehouse stores are located in the western United
States, more than half of them in California. Both the BJ's Division and the
HomeBase Division have been adversely affected from time to time by economic
downturns experienced in their respective geographic markets, and future
economic downturns in such regions could adversely affect BJI and HomeBase, as
the case may be. As a result of the separation of the Home Improvement
Business and the Warehouse Club Business into independent companies, neither
company will have the benefit of the broader geographic and product line
diversification that is currently the case with Waban. Accordingly, in the
event of a downturn in the market for either HomeBase's or BJI's products, or
of a general economic downturn in such company's general geographic area, the
impact on the business, operating results and financial condition of that
company would be more severe than is currently the case with Waban.
INCREASED IMPACT OF SEASONAL SALES CYCLES. The BJ's Division's sales and
operating income have been strongest in the Christmas holiday season and
lowest in the first quarter of each fiscal year. The HomeBase Division's sales
and earnings are typically lower in the first and fourth quarters than they
are in the second and third quarters, which correspond to the most active
season for home construction. As a result of the Distribution, the financial
results of each company will reflect these seasonal patterns without any
offsetting effect of the operating results of the other company, and the
seasonal requirements for short-term borrowings for each company will be
greater than is currently the case with Waban.
CONSEQUENCES OF FAILURE TO QUALIFY AS TAX FREE SPIN-OFF. Waban has received
a letter ruling from the Internal Revenue Service (the "IRS") to the effect
that, for Federal income tax purposes, the Asset Transfers and the
Distribution will be tax free to Waban and the Distribution will qualify as a
spin-off under Section 355 of the Internal Revenue Code (the "Code") that will
be tax free to the holders of Waban Common Stock. The letter ruling by the IRS
is based on and subject to certain assumptions, facts, representations and
advice provided by Waban, BJI, holders of 5% or more of Waban Common Stock,
and Bear, Stearns & Co. Inc., Waban's financial advisor. Although Waban is not
aware of any present facts or circumstances which would make such assumptions,
facts, representations and advice unobtainable or untrue, certain future
events not within the control of Waban and BJI, including, for example,
certain dispositions of HomeBase Common Stock or BJI Common Stock after the
Distribution, could cause the Distribution not to qualify for tax-free
treatment.
If the Distribution were not to qualify under Section 355 of the Code, then,
in general, Waban would recognize gain equal to the excess of the fair market
value of the BJI Common Stock over Waban's tax basis in
22
<PAGE>
the BJI Common Stock immediately prior to the Distribution. This tax would be
payable by HomeBase, although under certain circumstances, BJI has agreed to
indemnify HomeBase for all or a portion of such tax liability. See
"Relationship Between BJI and HomeBase after the Distribution; Conflicts of
Interest--Tax Sharing Agreement." Each member of the Waban Consolidated Group
(including BJI and its subsidiaries) would remain jointly and severally liable
for such tax liability. In the event that HomeBase or BJI were determined to
be liable for all or any portion of such a tax, such company's business,
operating results and financial condition could be materially adversely
affected.
In addition, if the transaction were taxable, each Waban stockholder would
be treated as having received a taxable dividend equal to the fair market
value of the BJI Common Stock received, if, and to the extent that, Waban has
(as expected) sufficient current and accumulated earnings and profits. If, and
to the extent that, Waban did not have sufficient earnings and profits, each
Waban stockholder would (a) first reduce its tax basis in Waban Common Stock
(but not below zero) to the extent that the value of the Waban Common Stock
received exceeds its pro rata share of such earnings and profits and (b) then
recognize gain from the exchange of its Waban Common Stock to the extent the
value of the BJI Common Stock received exceeds both its pro rata share of
earnings and profits and its tax basis in its Waban Common Stock. If the
transaction were taxable, each stockholder's tax basis in its BJI Common Stock
after the Distribution would be equal to its fair market value at the time of
the Distribution.
RISK OF NON-OCCURRENCE OF DISTRIBUTION. The occurrence of the Distribution
is conditioned upon the following: (i) the declaration by the Waban Board of
the Distribution; (ii) all of the Convertible Debentures having been converted
or redeemed and any shares required to be purchased from the Company pursuant
to the standby underwriting agreement having been issued; (iii) the transfers
of assets and liabilities contemplated by the Distribution Agreement having
been consummated in all material respects; (iv) the BJI Common Stock and the
associated BJI Rights having been approved for listing on the New York Stock
Exchange subject to official notice of issuance; (v) BJI and HomeBase having
entered into agreements with lenders to provide sufficient financing upon
consummation of the Distribution; (vi) the Form 8-A Registration Statement
having become effective under the Exchange Act; and (vii) the continued
applicability of the private letter ruling received by Waban from the IRS with
respect to the tax-free nature of the Distribution. Any of these conditions
may be waived in the discretion of the Waban Board. Even if all of such
conditions are satisfied, the Waban Board has reserved the right to abandon,
defer or modify the Distribution or other elements of the Distribution
Proposals at any time prior to the Distribution Date. There can be no
assurance that the conditions to the consummation of the Distribution will be
satisfied or waived, or that, even if all such conditions are satisfied, that
the Distribution will occur. In the event that the Distribution does not
occur, Waban will continue to operate BJ's and HomeBase as divisions of Waban.
Holders of Convertible Debentures will be required to decide whether to
convert their Convertible Debentures prior to the Distribution. In the event
that the Distribution does not occur, there can be no assurance that the price
of the Waban Common Stock would not be materially and adversely affected.
NO CURRENT PUBLIC MARKET FOR BJI COMMON STOCK. There is not currently a
public market for BJI Common Stock and there can be no assurance as to the
prices at which trading in BJI Common Stock will occur after the Distribution.
Until BJI Common Stock is fully distributed and an orderly market develops,
the prices at which trading in such stock occurs may fluctuate significantly.
BJI intends to list the BJI Common Stock on the New York Stock Exchange. See
"The Distribution--Listing and Trading of BJI Common Stock."
CHANGE IN TRADING PRICES OF HOMEBASE COMMON STOCK. After the Distribution,
it is expected that HomeBase Common Stock (formerly Waban Common Stock) will
continue to be listed and traded on the New York Stock Exchange. As a result
of the Distribution, the trading price range of HomeBase Common Stock is
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."
23
<PAGE>
NEED TO OBTAIN NEW BANK FINANCING FOR REPAYMENT OF DEBT. Prior to the
Distribution, Waban intends to repay its $24,000,000 9.58% unsecured senior
notes due May 31, 1998 (the "Senior Notes"), and to retire (via open market or
privately negotiated purchases or tender offer) or defease its $100,000,000
11% senior subordinated notes due May 15, 2004 (the "Senior Subordinated
Notes") utilizing borrowings under its line of credit (under which no
borrowings were outstanding as of April 26, 1997) with a group of banks. Waban
is currently in discussions to amend certain terms of its line of credit in
order to consummate these transactions. Waban currently intends to obtain
separate bank credit facilities for BJI and HomeBase that will replace Waban's
line of credit effective as of the Distribution. It is a condition of the
Distribution that Waban obtain such financing. There can be no assurance that
Waban will be successful in obtaining such bank financing, that such financing
would be on the same terms assumed by Waban for purposes of its pro forma
analysis, or that a delay in any such bank financing would not delay the
timing of the Distribution.
The Senior Notes may be prepaid by Waban at any time on 30 days' prior
notice. Upon prepayment of the Senior Notes, Waban is obligated to pay a "make
whole" amount in addition to the principal amount to be prepaid and interest
accrued through the date of prepayment. The make whole amount is an amount
equal to the difference the holders of the Senior Notes will earn on the
prepayment, assuming reinvestment of the prepayment at an interest rate 50
basis points higher than the rate of U.S. Government securities with
comparable maturities, and 9.58%. Based on interest rates at May 23, 1997,
Waban believes that the make whole amount on the Senior Notes will total
approximately $0.4 million. The Senior Subordinated Notes may not be prepaid
prior to May 15, 1999. At that time they may be prepaid at a redemption price
equal to 105 1/2% of the principal amount to be redeemed. To satisfy Waban's
obligations with respect to the Senior Subordinated Notes in connection with
the Distribution, Waban may retire the Senior Subordinated Notes via open
market or privately negotiated purchases or a tender offer. Alternatively,
Waban is entitled to defease the Senior Subordinated Notes by depositing with
the indenture trustee U.S. Government securities maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the amounts due
with respect to the Senior Subordinated Notes to the first permitted call
date. Waban believes that the cost to Waban to defease all of the outstanding
Senior Subordinated Notes would total approximately $13.8 million in excess of
principal and accrued interest, based on interest rates at May 23, 1997.
However, this amount could vary depending upon market interest rates. In
addition, prior to the Distribution, Waban expects to call the Convertible
Debentures for redemption. See "--Conversion or Redemption of the Convertible
Debentures."
CONVERSION OR REDEMPTION OF THE CONVERTIBLE DEBENTURES. The Convertible
Debentures are convertible by the holders into Waban Common Stock at a
conversion price of $24.75 per share, and are redeemable during the period
beginning July 1, 1997 at a price of 102.889% of par, plus accrued interest.
Waban has called the Convertible Debentures for redemption and, in connection
therewith, has entered into a standby underwriting agreement providing for the
Standby Purchaser, subject to certain conditions, to purchase up to 2,160,585
shares of Waban Common Stock. Shares of Waban Common Stock will be issued
under the standby underwriting agreement only to the extent that more than 50%
of the Convertible Debentures outstanding on the date of the call of the
Convertible Debentures for redemption ($53,474,500 as of May 27, 1997) are
required to be redeemed. It is a condition to the Distribution that (i) all of
the Convertible Debentures are converted or redeemed for cash and (ii) any
shares required to be purchased from the Company pursuant to the standby
underwriting agreement are actually issued. There can be no assurance that
such conditions will be satisfied. In the event such conditions are not
satisfied, it is likely that the Distribution would be delayed for a
significant period of time or cancelled.
CONTINUING OBLIGATIONS OF BJI AND HOMEBASE FOR CERTAIN LEASE LIABILITIES
AFTER THE DISTRIBUTION. Upon the Distribution, BJI will assume all liabilities
to third-party lessors with respect to leases entered into by Waban with
respect to the Warehouse Club Business. While HomeBase will continue to be
liable, by law, with respect to such lease liabilities, BJI will indemnify
HomeBase for such liabilities.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement (as amended, the "1989
Agreement") pursuant to which Waban agreed to indemnify TJX against any
liabilities that TJX might incur with respect to 45 current HomeBase leases as
to which TJX is either a lessee or guarantor. Such leases generally expire
through 2011 (other than four leases which expire
24
<PAGE>
through 2017) and provide for minimum rent payments which, in the aggregate,
total up to approximately $39 million in any one year. In settlement of legal
proceedings filed by TJX claiming, among other things, that BJI is required
after the Distribution to assume Waban's indemnification obligations under the
1989 Agreement, BJI has agreed that for approximately five years after the
Distribution it will indemnify TJX with respect to any liabilities (as defined
in the 1989 Agreement) that TJX may incur with respect to HomeBase leases and
thereafter it will indemnify TJX for 50% of such liabilities. In addition,
Waban has agreed that after the Distribution, HomeBase will not renew any
lease identified in the 1989 Agreement as to which TJX is a lessee or
guarantor unless the applicable lessor agrees to remove TJX as a lessee or
guarantor. BJI may not renew any of its real estate leases (other than ground
leases) for which HomeBase may be liable during any period during which it
does not meet certain standards of creditworthiness. See "Relationship Between
BJI and HomeBase after the Distribution; Conflicts of Interest--Leases." Other
than as provided in such agreement with TJX, BJI will not assume any liability
with respect to leases entered into by Waban with respect to the Home
Improvement Business. In the event that either BJI or HomeBase is required to
pay the lease liabilities of the other company pursuant to the foregoing
provisions, the paying company's business, operating results and financial
condition could be materially adversely affected.
POTENTIAL CONFLICTS OF INTEREST AND MANAGEMENT OVERLAPS FOLLOWING THE
DISTRIBUTION. Subsequent to the Distribution, the interests of BJI and
HomeBase may potentially conflict due to the ongoing relationships between the
companies. Such sources of conflict include the fact that after the
Distribution, HomeBase will remain liable for certain contractual obligations
of BJI, including BJI leases, and the other arrangements between the parties
regarding lease liabilities. See "Relationship Between BJI and HomeBase after
the Distribution; Conflicts of Interest." In addition, following the
Distribution, Herbert J. Zarkin will serve as Chairman of the HomeBase Board
and as Chairman of the BJI Board, and Lorne R. Waxlax and Edward J. Weisberger
will serve as members of the Board of Directors of both HomeBase and BJI.
Messrs. Zarkin, Weisberger and Waxlax will also own shares (and/or options or
other rights to acquire shares) in both companies following the Distribution.
See "Relationship Between BJI and HomeBase after the Distribution; Conflicts
of Interest," "Management of BJI" and "Management of HomeBase." Such
relationships may present conflicts of interest under certain circumstances.
Appropriate procedures will be followed by the Board of Directors of each
company to limit the involvement of Messrs. Zarkin, Weisberger and Waxlax
(and, if appropriate, other officers and directors of such companies) in
conflict situations, including requiring them to abstain from voting as
directors of either BJI or HomeBase on certain matters which present a
conflict between the two companies. See "Relationship Between BJI and HomeBase
after the Distribution; Conflicts of Interest--Policies and Procedures for
Addressing Conflicts."
COMPETITION. Each of the BJ's Division and the HomeBase Division competes
with a large number and variety of retailers and wholesalers, including
several large national chains in the warehouse merchandising business, some of
which have significantly greater financial and marketing resources than either
BJI or HomeBase. Competition for each of the companies will exist primarily in
the areas of price, product selection and service. Both BJI and HomeBase also
expect to continue to experience competition for qualified personnel and
suitable new warehouse locations. Competitive factors could require price
reductions or increased operational costs, including increased expenditures
for marketing and customer service, that could adversely affect each company's
business, operating results and financial condition. See "BJI Business and
Properties--Competition" and "HomeBase Business and Properties--Competition."
DIVIDEND POLICIES. Waban has never paid a cash dividend and the Waban Board
does not believe that either HomeBase or BJI intends to declare any cash
dividends on the HomeBase Common Stock or the BJI Common Stock after the
Distribution. It is expected that certain debt agreements of BJI and HomeBase
or their subsidiaries will substantially limit these companies' respective
abilities to pay dividends. The declaration and payment of dividends by BJI
will be at the discretion of the BJI Board. The declaration and payment of
dividends by HomeBase will be at the discretion of the HomeBase Board. There
can be no assurance that any dividends will be paid in the future.
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
25
<PAGE>
substantially similar to provisions in effect with respect to Waban and will
continue to be in effect with respect to HomeBase, that may have the effect of
making the acquisition of control of BJI difficult or expensive without the
approval of the BJI Board. In addition, BJI is expected to implement a
Preferred Stock Purchase Rights Plan, which may have a similar effect. See
"Certain Provisions of the BJI Certificate and the BJI By-laws."
RISK OF LEGAL CHALLENGES TO THE DISTRIBUTION. The Waban Board does not
intend to consummate the Distribution unless it is satisfied regarding the
solvency of Waban, BJI and HomeBase and the permissibility of the Distribution
under Section 170 of the Delaware General Corporation Law ("DGCL"). There is
no certainty, however, that a court would find the evidence relied on by the
Waban Board to be binding on creditors of Waban, BJI or HomeBase, or that a
court would reach the same conclusions as the Waban Board as to whether Waban,
BJI or HomeBase was solvent or insolvent at the time of, or after giving
effect to, the Distribution.
If a court in a lawsuit filed by an unpaid creditor or representative of
unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time either the Asset Transfers or the Distribution was consummated, Waban (i)
was insolvent, (ii) was rendered insolvent by reason of the Asset Transfers or
the Distribution, (iii) was engaged in a business or transaction for which the
remaining assets of Waban constituted unreasonably small capital, (iv)
intended to incur, or believed it would incur, debts beyond its ability to pay
as such debts matured, or (v) had actual intent to hinder, delay or defraud
any creditor of Waban, such court may be asked to void the Asset Transfers or
the Distribution (in whole or in part) as a fraudulent conveyance and require
that the stockholders return the special dividend (in whole or in part) to
Waban, or require BJI to fund certain liabilities of HomeBase for the benefit
of HomeBase's creditors. The measure of insolvency for purposes of the
foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, Waban would be considered insolvent if either
prior to the Asset Transfers and the Distribution or after giving effect
thereto the fair value of its assets were less than the amount of its probable
liabilities or if it incurred debt beyond its ability to repay such debt as it
matures. In addition, under Section 170 of the DGCL (which is applicable to
Waban in the Distribution), a corporation generally may make distributions to
its stockholders only out of its surplus (net assets minus capital) and not
out of capital. In the event that the Distribution or the Asset Transfers is
determined to be a fraudulent transfer or an impermissible dividend under
Section 170 of the DGCL, and BJI is required to fund certain liabilities of
HomeBase, BJI's business, operating results and financial condition could be
materially adversely affected.
The Waban Board and management believe that, in accordance with the evidence
examined in connection with the Asset Transfers and the Distribution, (a)
Waban will be solvent prior to and after giving effect to the Asset Transfers
and the Distribution (in accordance with the foregoing definitions), will be
able to repay its debts as they mature following the Distribution, and will
have sufficient capital to carry on its business, and (b) the Distribution
will be made entirely out of surplus, as provided under Section 170 of the
DGCL.
26
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of Waban
in connection with the solicitation of proxies by the Waban Board of Directors
from holders of record of Waban Common Stock as of the close of business on
the Meeting Record Date for use at the Meeting to be held on , 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 1,500,000 shares the number of shares
available for issuance thereunder and (y) the continuance of the Waban 1989
Stock Incentive Plan, as amended;
(iv)Proposal Four: Approval of the Waban 1997 Stock Incentive Plan;
(v)Proposal Five: Approval of the BJI 1997 Replacement Stock Incentive
Plan;
(vi)Proposal Six: Approval of the BJI 1997 Stock Incentive Plan;
(vii)Proposal Seven: Approval of the BJI Management Incentive Plan;
(viii)Proposal Eight: Approval of the BJI Growth Incentive Plan; and
(ix)Proposal Nine: Approval of the BJI 1997 Director Stock Option Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described herein, from and after the Distribution, the board
of directors of HomeBase will differ from the Waban Board.
3. To consider such other business as may properly come before the Meeting.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
THE WABAN BOARD BELIEVES THAT THE DISTRIBUTION IS IN THE BEST INTERESTS OF
STOCKHOLDERS AND UNANIMOUSLY (WITH MR. LOEWY AND MS. HAMILTON ABSTAINING)
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE DISTRIBUTION PROPOSALS. Mr.
Loewy and Ms. Hamilton abstained because they are a director and
27
<PAGE>
employee, respectively, of The TJX Companies, Inc. See "The Distribution--
Background and Reasons for the Distribution".
Stockholder approval of the Distribution Proposals may not prevent a
stockholder from subsequently seeking to challenge the Distribution Proposals
or the actions of the Waban Board in approving the Distribution Proposals.
However, although Waban cannot determine in advance its position with respect
to any such challenge, it is possible that Waban could assert a stockholder's
approval of the Distribution Proposals as a defense, in which case if such
defense were held meritorious, such stockholder could effectively be estopped
from asserting such claims.
The Waban Board has retained discretion, even if stockholder approval of the
Distribution Proposals is obtained, to abandon, defer or modify the
Distribution or any other element contained in the Distribution Proposals.
For a description of the reasons for the Distribution, see "The
Distribution--Background and Reasons for the Distribution."
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of Waban Common Stock as of the close of
business on the Meeting Record Date will be entitled to notice of and to vote
at the Meeting or any adjournment or postponement thereof. Such holders of
shares of Waban Common Stock are entitled to one vote per share on any matter
which may properly come before the Meeting. The presence, either in person or
by properly executed proxy, of a majority of the shares of Waban Common Stock
outstanding on the Meeting Record Date will constitute a quorum and such
quorum is necessary to permit action to be taken by the stockholders at such
meeting. The affirmative vote of the holders of a majority of the shares of
Waban Common Stock outstanding on the Meeting Record Date, regardless of
whether such shares are present in person or represented by proxy at the
Meeting, is required to approve Distribution Proposals One and Two. Under
Waban's By-laws, so long as a quorum is present at the Meeting, adoption of
Distribution Proposals Three through Nine will require the affirmative vote of
the holders of a majority of the votes cast at the Meeting. In addition, the
New York Stock Exchange requires that the total votes cast (for or against) on
Distribution Proposals Three through Six represent at least a majority of the
Record Shares. You have three choices in deciding how to vote on each of the
Distribution Proposals. By checking the appropriate box you may: (a) vote
"For" the Proposal; (b) vote "Against" the Proposal; or (c) "Abstain" from
voting on the Proposal. Under the Company's by-laws, so long as a quorum is
present at the Meeting, the election of directors will require the affirmative
vote of the holders of shares representing a plurality of the votes cast at
the Meeting.
As of the Meeting Record Date, there were shares of Waban Common Stock
outstanding and entitled to vote at the Meeting and 3,543 record holders of
Waban Common Stock. Although shares which abstain from voting as to a
particular matter or which withhold authority for any director nominee and
broker non-votes (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners and (ii) the
broker or nominee does not have the discretionary authority to vote on a
particular matter) will be counted as present at the meeting for quorum
purposes, such shares will not be considered to be votes cast with respect to
Distribution Proposals Three through Nine or with respect to the election of
directors. Accordingly, abstentions and broker non-votes will have no effect
on such Distribution Proposals or the election of directors. However,
abstentions and broker non-votes will have the effect of a vote "against"
Distribution Proposals One and Two.
All shares of Waban Common Stock that are represented at the Meeting by
properly executed proxies received prior to or at the Meeting and not revoked
will be voted at the Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated for any Proposal, such proxies
will be voted FOR such Proposal.
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<PAGE>
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason Waban believes that additional time
should be allowed for the solicitation of proxies, Waban may adjourn the
Meeting, and the persons named in the enclosed proxy will vote all shares of
Waban Common Stock for which they have voting authority in favor of such
adjournment, unless such authority is withheld by checking the appropriate box
on the proxy card.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Waban, at or before the Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of Waban Common Stock and
delivering it to the Secretary of Waban at or before the Meeting, or (iii)
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice revoking a proxy should be sent to the Secretary of Waban at One Mercer
Road, Natick, Massachusetts 01760.
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid
by Waban. In addition to the use of mails, certain directors, officers or
employees of Waban and its subsidiaries, who receive no compensation for their
services other than their regular salaries, may solicit and tabulate proxies.
Waban has retained Shareholder Communications Corporation to assist in the
solicitation of proxies with respect to shares of Waban Common Stock held of
record by brokers, nominees and institutions. The estimated cost of the
services of Shareholder Communications Corporation is $7,500 plus expenses.
Waban's transfer agent, The First Chicago Trust Company of New York, will
tabulate the votes. Representatives of the transfer agent will be appointed as
inspectors of election at the Meeting to count all votes and ballots and
perform the other duties required of inspectors of election.
NO APPRAISAL RIGHTS
Stockholders of Waban will not be entitled to appraisal rights under
Delaware law in connection with any of the proposals to be voted on at the
Meeting.
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<PAGE>
RECENT DEVELOPMENTS
Waban has publicly reported its financial results for the 13-week period
ended April 26, 1997. Such information, together with the results for the
comparable period of the prior year, is unaudited, but reflects all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of such information. These results
are not necessarily indicative of the results to be expected for the entire
year.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
(UNAUDITED)
----------------------
APRIL 26, APRIL 27,
1997 1996
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......................................... $1,039,151 $ 974,630
---------- ----------
Cost of sales, including buying and occupancy costs..... 894,458 834,793
Selling, general and administrative expenses............ 121,692 119,423
Interest on debt and capital leases (net)............... 5,291 4,815
---------- ----------
Income before income taxes.............................. 17,710 15,599
Provision for income taxes.............................. 6,907 6,084
---------- ----------
Net income.............................................. $ 10,803 $ 9,515
========== ==========
Primary and fully diluted net income per common share... $ 0.32 $ 0.28
========== ==========
Number of common shares for earnings
per share computations:
Primary............................................... 33,286,087 33,592,307
Fully diluted......................................... 37,642,258 38,065,372
BALANCE SHEET DATA:
Working capital......................................... $ 294,867 $ 275,448
Total assets............................................ 1,421,793 1,378,425
Long-term debt and obligations under capital leases..... 230,765 244,803
Stockholders' equity.................................... 645,721 569,192
SELECTED SEGMENT INFORMATION:
Net sales:
BJ's Wholesale Club................................... $ 678,947 $ 622,388
HomeBase.............................................. 360,204 352,242
---------- ----------
$1,039,151 $ 974,630
========== ==========
Operating income:
BJ's Wholesale Club................................... $ 16,571 $ 14,036
HomeBase.............................................. 8,753 8,255
General corporate expense............................. (2,323) (1,877)
---------- ----------
23,001 20,414
Interest on debt and capital leases (net)............... (5,291) (4,815)
---------- ----------
Income before income taxes.............................. $ 17,710 $ 15,599
========== ==========
WAREHOUSES OPEN AT END OF PERIOD:
BJ's Wholesale Club..................................... 80 72
HomeBase................................................ 84 82
</TABLE>
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<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
BACKGROUND. In late 1995, management of Waban began to explore the possible
separation of the Home Improvement Business and Warehouse Club Business into
independent companies.
In June 1996, at a meeting of the Waban Board at which all directors were
present, the Waban Board considered the possibility of undertaking an initial
public offering of a minority interest in the Warehouse Club Business and then
spinning off the Warehouse Club Business to Waban stockholders. The Waban
Board authorized management to further investigate the feasibility of such a
transaction.
In July 1996, at a meeting of the Waban Board at which all directors were
present, the Waban Board determined not to proceed with the possible spin-off
of the Warehouse Club Business at that time in view of the lower than expected
sales of the Home Improvement Business during the second quarter of fiscal
1996.
In July 1996, Waban received an inquiry from Leonard Green & Partners, L.P.
("Green") as to whether Waban would consider a possible transaction pursuant
to which Green would acquire HomeBase from Waban and Builders Square from
Kmart Corporation ("Kmart"). On July 23, 1996, Waban entered into a
confidentiality agreement with Green. Discussions ensued concerning a possible
transaction but did not proceed beyond a preliminary stage.
On October 22, 1996, at a meeting of the Waban Board at which all directors
were present, the Waban Board unanimously approved (with Mr. Loewy and Ms.
Hamilton abstaining) the filing with the IRS of a revenue ruling request, and
the filing with the SEC of a proxy statement, with respect to a proposed tax-
free spin-off of the Wholesale Club Business to Waban stockholders. Mr. Loewy
and Ms. Hamilton abstained because they are a director and employee,
respectively, of The TJX Companies, Inc. See "Relationship Between BJI and
HomeBase after the Distribution; Conflicts of Interest--Leases." The principal
factors that served as the basis for the Board's decision are described below,
and no relative weights were assigned by the Board to each factor. See
"Reasons for the Distribution."
In late 1996, Kmart revived discussions with Waban and Green concerning a
possible transaction pursuant to which Green would acquire HomeBase from Waban
and Builders Square from Kmart. On February 3, 1997, Waban announced that it
was postponing the Distribution in order to consider the possible transaction
with Green and Kmart. The parties were unable to reach agreement on the terms
of any such transaction, and on April 2, 1997, Waban announced its intention
to proceed with the Distribution.
From time to time in 1996 and 1997, Waban received inquiries from other
prospective purchasers of HomeBase, but no discussions with any such
purchasers proceeded beyond a preliminary stage.
Waban engaged its financial advisor, Bear, Stearns & Co. Inc., to advise and
assist Waban in connection with the Distribution and sale of HomeBase. Bear,
Stearns & Co. Inc. was not engaged to furnish an opinion to the Waban Board as
to the Distribution.
REASONS FOR THE DISTRIBUTION. The Waban Board believes that the Distribution
will accomplish a number of important business goals. Separation of the Home
Improvement Business and the Warehouse Club Business into independent
companies will allow each company to concentrate exclusively on its own
business objectives without concern for the business objectives of the other
company, and will allow the financial markets to better recognize and evaluate
the merits of the Warehouse Club Business and the Home Improvement Business,
thereby enhancing the likelihood that each will achieve appropriate market
recognition for its own performance. The Waban Board also believes the
improved recognition by the financial markets resulting from the anticipated
separation of the Home Improvement Business and the Warehouse Club Business
into independent publicly owned companies will facilitate the conversion of
the Convertible Debentures into Common Stock. The Convertible Debentures are
convertible into Waban Common Stock at a price of $24.75 per share, and are
redeemable during the period beginning July 1, 1997 at a price of 102.889% of
par, plus accrued interest. Waban has called the Convertible Debentures for
redemption and, in connection therewith, has entered into a standby
underwriting agreement providing for the Standby Purchaser, subject to certain
conditions, to purchase up to 2,160,585 shares of Waban Common Stock. Shares
of Waban Common Stock will be issued under the standby
31
<PAGE>
underwriting agreement only to the extent that more than 50% of the
Convertible Debentures outstanding on the date of the call of the Convertible
Debentures for redemption ($53,474,500 as of May 27, 1997) are required to be
redeemed. The Distribution and the related transactions described in this
Proxy Statement/Prospectus are expected to reduce the aggregate level of
indebtedness and interest costs borne by the two companies, and to increase
the aggregate amount of stockholders' equity, as compared to Waban. As shown
on the capitalization tables for Waban and BJI included elsewhere in this
Proxy Statement/Prospectus, as of January 25, 1997, Waban had total debt of
approximately $245 million and stockholders' equity of approximately $632
million. Following the Distribution, on a pro forma basis giving effect to the
adjustments described elsewhere in this Proxy Statement/Prospectus and
assuming conversion of all of the Convertible Debentures, HomeBase will have
total debt of approximately $42 million and stockholders' equity of
approximately $389 million and BJI will have total debt of approximately $100
million and stockholders' equity of approximately $339 million. Assuming
partial conversion of the Convertible Debentures, on a pro forma basis,
HomeBase will have total debt of approximately $56 million and stockholders'
equity of approximately $375 million and BJI will have total debt of
approximately $140 million and stockholders' equity of approximately $299
million. See "Waban Capitalization" and "BJI Capitalization."
In addition, the Distribution is expected to enhance the ability of the
separate corporations to attract, motivate and retain key personnel through
the provision of more effective stock-based incentive compensation programs
that are based on the performance of the respective business in which such
individuals are employed without being influenced by the results of the
business in which they have no involvement.
MANNER OF EFFECTING THE DISTRIBUTION
If the Waban Board declares the Distribution and if all of the other
conditions to the Distribution are satisfied (or waived by the Waban Board),
the Distribution will occur on the Distribution Date. The Distribution Record
Date will be a date that is as soon as practicable following the declaration
of the Distribution. On the Distribution Date, Waban will deliver all
outstanding shares of BJI Common Stock and BJI Rights held by Waban to the
Distribution Agent. As soon as practicable thereafter, certificates therefor
will be mailed by the Distribution Agent to holders of record of Waban Common
Stock as of the Distribution Record Date on the basis of one share of BJI
Common Stock (and one BJI Right) for every share of Waban Common Stock held on
that date. All such shares will be legally issued, fully paid and
nonassessable.
No holder of Waban Common Stock will be required to pay any cash or other
consideration for the shares of BJI Common Stock and BJI Rights received in
the Distribution or to surrender or exchange shares of Waban Common Stock in
order to receive BJI Common Stock and BJI Rights.
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company has received a letter ruling issued by the IRS on December 12,
1996 to the effect that, for Federal income tax purposes, the Distribution
will qualify as a spin-off under Section 355 of the Code that will be tax free
to the holders of Waban Common Stock and to Waban. Accordingly, the material
Federal income tax consequences of the Distribution should be as follows:
1. No income, gain or loss will be recognized by a stockholder of Waban
Common Stock as a result of the receipt of BJI Common Stock in the
Distribution.
2. The basis of a holder of Waban Common Stock in the HomeBase Common
Stock and the BJI Common Stock received on the Distribution Date in
respect of Waban Common Stock will be determined by allocating such
holder's basis in the Waban Common Stock immediately before the
Distribution between the HomeBase Common Stock and the BJI Common
Stock received with respect to such Waban Common Stock in proportion
to their relative fair market values on the Distribution Date.
3. The holding period of the BJI Common Stock received in the
Distribution will include the holding period of the Waban Common Stock
with respect to which the BJI Common Stock will be distributed,
provided the Waban Common Stock is held as a capital asset on the
Distribution Date.
4. No income, gain or loss will be recognized by Waban solely on account
of the Asset Transfers or the Distribution.
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<PAGE>
The letter ruling by the IRS is based on and subject to certain assumptions,
facts, representations and advice provided by Waban, BJI, holders of 5% or
more of Waban Common Stock and Bear, Stearns & Co. Inc., Waban's financial
advisor. Waban is not aware of any present facts or circumstances which would
make such assumptions, facts, representations and advice unobtainable or
untrue. However, certain future events not within the control of Waban and
BJI, including, for example, certain dispositions of HomeBase Common Stock or
BJI Common Stock after the Distribution, could cause the Distribution not to
qualify for tax-free treatment.
The material assumptions, facts and representations given to the IRS by
Waban were as follows: (1) Waban anticipated having to raise additional
capital in order to fund the growth of its two businesses; (2) Waban's
competitors were able to raise capital less expensively, which placed Waban at
a disadvantage; (3) it was desirable to increase the amount of Waban's equity
capital; (4) achieving conversion of the Convertible Debentures into Waban
Common Stock would be an efficient method of raising equity capital; (5) the
purpose of the Distribution was to increase the value of Waban's Common Stock
so that holders of the Convertible Debentures would exercise their option to
convert the Convertible Debentures into Waban Common Stock after Waban called
the Convertible Debentures for redemption; (6) following the Distribution,
HomeBase and BJI will continue the active conduct of their respective
businesses, each independent of the other, and that any payments made by one
company to the other will be based on arm's length bargaining; (7) neither
Waban nor BJI has any plan or intention to repurchase outstanding shares of
its common stock after the Distribution; (8) no plan exists to liquidate,
merge, sell or otherwise dispose of the assets of Waban or BJI; and (9) no
shareholder who owns five percent or more of the outstanding Waban Common
Stock has any intention to sell or otherwise dispose of any stock in Waban or
BJI after the Distribution occurs.
In addition, Bear, Stearns & Co. Inc. provided a letter to the Company, for
submission to the IRS, stating its belief that (i), as a result of the
Company's announcement of its intention to spin-off BJI, Waban's stock price
would appreciate sufficiently to allow Waban to call its Convertible
Debentures for redemption and thereby achieve conversion of the Convertible
Debentures into Waban Common Stock, and (ii) as a result of the conversion of
the Convertible Debentures into Waban Common Stock and the restructuring of
Waban's existing debt in connection with the Distribution, the combined
interest expense of BJI and HomeBase would be significantly lower than Waban's
interest expense.
If the Distribution were not to qualify for tax-free treatment under Section
355 of the Code, each holder of Waban Common Stock who receives BJI Common
Stock would be treated as receiving a distribution, generally taxable as a
dividend, in an amount equal to the fair market value of such BJI Common Stock
on the Distribution Date. Furthermore, the tax basis of BJI Common Stock
received in the Distribution would equal its fair market value on the
Distribution Date, the holding period of such stock would begin with and
include the day after the Distribution Date and Waban would recognize taxable
gain on the Distribution. See "Risk Factors--Certain Tax Considerations."
It is expected that, pursuant to the Preferred Stock Purchase Rights Plan to
be adopted by BJI, one preferred stock purchase right (a "BJI Right") will
attach to each share of BJI Common Stock distributed in the Distribution.
While the distribution of the BJI Rights should not be taxable to stockholders
or to BJI, stockholders may, depending upon the circumstances, recognize
taxable income in the event that the BJI Rights become exercisable for BJI
Preferred Stock (or other consideration) or for common stock of an acquiring
company. See "Description of BJI Capital Stock" and "Certain Provisions of the
BJI Certificate and the BJI By-laws--Preferred Stock Purchase Rights."
For a description of the Tax Sharing Agreement pursuant to which BJI and
Waban have provided for various tax matters, see "Relationship Between BJI and
HomeBase After the Distribution; Conflicts of Interest--Tax Sharing
Agreement."
THE FOREGOING SUMMARY OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW, WHILE ACCURATE, DOES NOT
PURPORT TO COVER ALL FEDERAL INCOME TAX CONSEQUENCES (INCLUDING THOSE THAT MAY
APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS) OR ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS. WABAN HAS NOT
33
<PAGE>
REQUESTED ANY RULINGS OR OPINIONS WITH RESPECT TO THE TAX CONSEQUENCES OF THE
DISTRIBUTION UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN GOVERNMENT. EACH
HOLDER (INCLUDING ANY CORPORATE HOLDER) OF WABAN COMMON STOCK SHOULD CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX
CONSEQUENCES DESCRIBED ABOVE.
ACCOUNTING TREATMENT
Following approval of the Distribution Proposals at the Meeting, Waban will
present the Warehouse Club Business as discontinued operations to the extent
financial information for periods prior to the Distribution is required to be
included in Waban's historical financial statements. Included separately
herein are the financial statements of BJI as if it were a separate entity for
all periods presented. Waban's historical basis in the assets and liabilities
of BJI has been carried over. See "Pro Forma Financial Data of Waban,"
"Selected Historical Financial Data of BJI" and "Pro Forma Financial Data of
BJI."
LISTING AND TRADING OF BJI COMMON STOCK
There is not currently a public market for the BJI Common Stock. BJI intends
to list the BJI Common Stock on the New York Stock Exchange. Prior to the
Distribution, BJI Common Stock may trade on a "when-issued" basis. Prices at
which BJI Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. Until the BJI Common Stock is fully
distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly. The prices at which BJI Common
Stock trades will be determined by the marketplace and may be influenced by
many factors, including, among others, the depth and liquidity of the market
for BJI Common Stock, investor perception of BJI and the industry in which BJI
participates, dividend policy and general economic and market conditions. Such
prices may also be affected by certain provisions of the BJI Certificate and
the BJI By-laws, as each will be in effect following the Distribution, and by
the BJI Preferred Share Purchase Rights Plan. See "Risk Factors--Dividend
Policies" and "Certain Provisions of the BJI Certificate and the BJI By-laws."
BJI initially will have approximately 3,543 stockholders of record based on
the number of stockholders of record of Waban as of May 23, 1997.
LISTING AND TRADING OF HOMEBASE COMMON STOCK
After the Distribution, it is expected that HomeBase Common Stock (formerly
Waban Common Stock) will continue to be listed and traded on the New York
Stock Exchange. Following the Distribution, HomeBase's financial results will
no longer be consolidated with those of BJI, and as a result, HomeBase's
revenues, income and other results of operations will be substantially below
those of Waban prior to the Distribution. Accordingly, as a result of the
Distribution, the trading price range of HomeBase's Common Stock immediately
after the Distribution is expected to be significantly lower than the trading
price range of the Waban Common Stock prior to the Distribution. The combined
trading prices of the HomeBase Common Stock and the BJI Common Stock held by
stockholders after the Distribution may be less than, equal to or greater than
the trading price of Waban Common Stock prior to the Distribution. The prices
at which HomeBase Common Stock trades after the Distribution will be
determined by the marketplace and may be influenced by many factors,
including, among others, the continuing depth and liquidity of the market for
HomeBase's Common Stock, investor perception of HomeBase's Home Improvement
Business and general economic and market conditions.
CONDITIONS; TERMINATION
The Waban Board has conditioned the Distribution upon the following, which
are the only material conditions to the Distribution: (i) the declaration by
the Waban Board of the Distribution; (ii) all of the
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<PAGE>
Convertible Debentures having been converted or redeemed and any shares
required to be purchased from the Company pursuant to the standby underwriting
agreement having been issued; (iii) the transfers of assets and liabilities
contemplated by the Distribution Agreement to be entered into between BJI and
Waban prior to the Distribution having been consummated in all material
respects; (iv) the BJI Common Stock and associated BJI Rights having been
approved for listing on the New York Stock Exchange subject to official notice
of issuance; (v) BJI and HomeBase having entered into agreements with lenders
to provide sufficient financing upon consummation of the Distribution; (vi)
the Form 8-A Registration Statement having become effective under the Exchange
Act; and (vii) continued applicability of the private letter ruling received
by Waban from the IRS with respect to the tax-free nature of the Distribution.
Any of these conditions may be waived in the discretion of the Waban Board.
Even if all of the above conditions are satisfied, the Waban Board has
reserved the right to abandon, defer or modify the Distribution or the other
elements of the Distribution Proposals at any time prior to the Distribution
Date. See "Relationship Between HomeBase and BJI after the Distribution;
Conflicts of Interest--Distribution Agreement."
35
<PAGE>
RELATIONSHIP BETWEEN BJI AND HOMEBASE AFTER THE DISTRIBUTION; CONFLICTS OF
INTEREST
Prior to the Distribution, BJI and Waban will enter into a series of
agreements, as described below. Although the following summaries of these
agreements set forth an accurate description of their material terms and
provisions, such summaries are qualified in their entirety by reference to the
detailed provisions of the agreements, the forms of which have been filed as
exhibits to the BJI Registration Statement of which this Prospectus forms a
part.
DISTRIBUTION AGREEMENT
BJI and Waban will enter into a Separation and Distribution Agreement (the
"Distribution Agreement"), which will provide for, among other things, (i) the
principal corporate transactions required to effect the Distribution, (ii) the
division between BJI and Waban of certain assets and liabilities and (iii) the
execution and delivery prior to the Distribution of the Services Agreement,
the Employee Benefits Agreement and the Tax Sharing Agreement, each of which,
as described below, governs certain aspects of the relationship between BJI
and HomeBase following the Distribution.
The Distribution Agreement will provide that on or prior to the Distribution
Date (i) Waban will transfer to BJI all of the assets of the BJ's Division,
including the stock of subsidiaries which hold assets of the BJ's Division,
and the assets associated with the Company's corporate headquarters in
Massachusetts; (ii) BJI will assume the leases and other liabilities of the
BJ's Division and 75% of the amount of all bank indebtedness of Waban existing
as of the Distribution Date; and (iii) BJI will issue to Waban the BJI Common
Stock and the BJI Rights to be distributed in the Distribution. Such
liabilities are reflected, as of January 25, 1997, in the pro forma financial
data of BJI and financial statements and notes of BJI presented elsewhere in
this Proxy Statement/Prospectus. See "The Distribution--Manner of Effecting
the Distribution."
The Distribution Agreement will provide that, except as provided in the
Employee Benefits Agreement or the Tax Sharing Agreement (see"--Employee
Benefits Agreement" and "--Tax Sharing Agreement" below), HomeBase will
indemnify BJI for liabilities relating to the business retained by HomeBase
following the Distribution. Similarly, BJI will agree to indemnify HomeBase
for liabilities pertaining to BJI's business. The Distribution Agreement will
also provide that BJI and HomeBase will each indemnify the other for losses
incurred due to a failure to perform their respective obligations under the
Distribution Agreement or any other agreement entered into in connection with
the Distribution. In addition, the Distribution Agreement will provide that
HomeBase will provide liability insurance for a period of six years following
the Distribution to each individual who served as a director or officer of
Waban prior to the Distribution. BJI will also indemnify, defend and hold
harmless each such individual from any losses and liabilities incurred by them
in connection with the approval of the Distribution Agreement.
The Distribution Agreement will also contain provisions regarding the
settlement of intercompany accounts, certain matters relating to lease
liabilities (see--Leases below), access, retention and sharing of information
and records, procedures relating to indemnification claims, the transfer of
insurance coverage and confidentiality.
The Distribution Agreement will provide that the Distribution will be
conditioned upon the following, which are the only material conditions to the
Distribution: (i) the declaration by the Waban Board of the Distribution; (ii)
all of the Convertible Debentures having been converted or redeemed and any
shares required to be purchased from the Company pursuant to the standby
underwriting agreement having been issued; (iii) the transfers of assets and
liabilities contemplated by the Distribution Agreement having been consummated
in all material respects; (iv) the BJI Common Stock and associated BJI Rights
having been approved for listing on the New York Stock Exchange subject to
official notice of issuance; (v) BJI and HomeBase having entered into
agreements with lenders to provide sufficient financing upon consummation of
the Distribution; (vi) the Form 8-A Registration Statement having become
effective under the Exchange Act; and (vii) continued applicability of the
private letter ruling received by Waban from the IRS with respect to the tax-
free nature of the Distribution.
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<PAGE>
Any of these conditions may be waived in the discretion of the Waban Board.
Even if all of the above conditions are satisfied, the Waban Board has
reserved the right to abandon, defer or modify the Distribution or the other
elements of the Distribution Proposals at any time prior to the Distribution
Date.
LEASES
Pursuant to the Distribution Agreement, upon the Distribution, BJI will
assume all liabilities to third-party lessors with respect to leases entered
into by Waban with respect to the Warehouse Club Business. While HomeBase will
continue to be liable, by law, with respect to such lease liabilities, BJI
will indemnify HomeBase for such liabilities.
In connection with the spin-off of Waban by TJX in 1989, Waban and TJX
entered into an agreement (the "1989 Agreement") pursuant to which Waban
agreed to indemnify TJX against any liabilities that TJX might incur with
respect to 45 current HomeBase real estate leases as to which TJX is either a
lessee or guarantor. On April 10, 1997, TJX filed a complaint against the
Company in the Superior Court for Middlesex County, Massachusetts, alleging
that BJI is required under the terms of the 1989 Agreement to assume Waban's
indemnification obligations under the 1989 Agreement, that the proposed
Distribution constitutes a fraudulent transfer under Massachusetts law, that
the proposed Distribution constitutes a breach of Waban's implied duty of good
faith and fair dealing inherent in the 1989 Agreement, and that the proposed
Distribution constitutes an unfair or deceptive trade practice. While Waban
believed that it had meritorious defenses to each of such allegations, on
April 18, 1997, in exchange for mutual releases, TJX and Waban settled such
litigation by agreeing that BJI would assume a portion of Waban's obligations
under the 1989 Agreement. Specifically, under the settlement agreements, BJI
has agreed that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities (as defined in the 1989
Agreement) that TJX may incur with respect to HomeBase leases and thereafter
it will indemnify TJX for 50% of such liabilities. In addition, Waban has
agreed that after the Distribution, HomeBase will not renew any lease
identified in the 1989 Agreement as to which TJX is a lessee or guarantor
unless the applicable lessor agrees to remove TJX as a lessee or guarantor.
Upon the execution of the settlement agreements, TJX dismissed its complaint
without prejudice. The settlement agreements provide that the dismissal
without prejudice will automatically be converted into a dismissal with
prejudice upon the effective date of the Distribution.
The Distribution Agreement contains restrictions on the renewal of HomeBase
leases similar to those contained in the agreement between Waban and TJX. BJI
may not renew any of its real estate leases (other than ground leases) for
which HomeBase may be liable during any period during which it does not meet
certain standards of creditworthiness.
There can be no assurance that the terms of such agreements will not in the
future have a material adverse effect upon BJI or HomeBase.
SERVICES AGREEMENT
BJI and Waban will enter into a Services Agreement (the "Services
Agreement") pursuant to which BJI will provide certain tax administration
services with respect to Waban's tax year ending January 31, 1998. In
addition, BJI may provide risk management, legal, investor relations and
treasury services to HomeBase for a period of up to twelve months following
the Distribution. The Services Agreement provides that HomeBase will pay BJI a
fixed fee, the amount of which will be determined prior to the Distribution,
for tax administration services with respect to Waban's tax year ending
January 31, 1998, and that risk management, legal, investor relations and
treasury services requested by Waban to be provided by BJI will be billed on
an hourly basis at 2.5 times the providing employee's hourly rate. BJI and
Waban believe that such rates are or will be as favorable as could have been
obtained from disinterested third parties. If a dispute arises between the
parties under the Services Agreement which cannot be resolved, it will be
submitted to arbitration.
37
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
Waban and BJI will enter into an Employee Benefits Agreement which will
contain a number of provisions pertaining to employee benefit plan matters.
BJI will generally agree to establish employee benefit plans substantially
similar to the employee benefit plans currently maintained by Waban and to
assume or retain under the applicable BJI Plan with respect to each BJI
employee or former employee of the BJ's Division all liabilities under the
corresponding Waban plan accrued for the period ending on the date on which
the employee's employment is transfered to BJI or its affiliates (or the date
of the former employee's termination of employment). In addition, BJI will pay
to Waban 75% of any amount contributed or to be contributed to the Waban
Retirement Plan after the Distribution Date in order for the Waban Retirement
Plan to pay all accrued benefits.
The Employee Benefits Agreement will provide for appropriate asset transfers
(and corresponding credit for service with Waban prior to the Distribution)
from Waban's 401(k) Savings Plans and Executive Retirement Plan in respect of
persons who will become BJI employees. In addition, the Employee Benefits
Agreement will contain provisions for the issuance of replacement stock
options and restricted stock by BJI to persons who will become BJI employees
on the Distribution Date, subject to such persons' surrender of their
corresponding Waban awards. See "Management of BJI--Incentive and Other
Plans."
TAX SHARING AGREEMENT
Waban and BJI will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") to provide for the allocation between the parties of federal,
state, local and foreign tax liabilities, and the entitlement to tax refunds,
for periods ending on or prior to the Distribution Date, and various related
matters, as described in more detail below.
Note: As used in the following summary of the Tax Sharing Agreement,
references to the "HomeBase Group" include HomeBase and those corporations
that will be members of its consolidated tax group after giving effect to the
Distribution. Similarly, references to the "BJI Group" include BJI and those
corporations that will be members of its consolidated tax group after giving
effect to the Distribution.
HomeBase will retain responsibility pursuant to the Tax Sharing Agreement
for filing all consolidated federal income tax returns (and all similar state
and local tax returns) for periods beginning on or before the Distribution
Date.
In general, the Tax Sharing Agreement will provide that the BJI Group will,
to the extent not previously paid to HomeBase, be liable to HomeBase for
federal, state, local and foreign tax liabilities for all periods beginning on
or before the Distribution Date, including any such liabilities resulting from
the audit of, or adjustment to, previously filed tax returns, which are
clearly attributable to the operations and assets of the BJI Group. HomeBase
will be responsible for all such tax liabilities which are clearly
attributable to the operations and assets of the HomeBase Group. Tax items
(constituting items of income, gain, loss, deduction, credit, provisions for
reserves, recapture of credit or any other item which increases or decreases
taxes paid or payable) not clearly attributable either to the BJI Group or the
HomeBase Group will be taken into account for the HomeBase Group with respect
to unfiled tax returns and will be taken into account 25% for the HomeBase
Group and 75% for the BJI Group with respect to any redetermined tax
liabilities.
In the event that any post-Distribution transaction involving the stock or
assets of the BJI Group, or certain actions taken by members of the BJI Group
after the Distribution, result in the Asset Transfers being a taxable event or
in the Distribution failing to qualify as a tax-free spin-off under the
provisions of Section 355 of the Code, BJI will be responsible and indemnify
HomeBase for all taxes, including penalties and interest ("Restructuring
Taxes"), incurred by HomeBase 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
38
<PAGE>
taken by members of the HomeBase Group after the Distribution, result in the
Asset Transfers being a taxable event or in the Distribution failing to
qualify as a tax-free spin-off, HomeBase will be responsible and indemnify BJI
for all of such Restructuring Taxes. In the event that any Restructuring taxes
arise for which neither BJI nor HomeBase is responsible, BJI and HomeBase will
share liability equally for the Restructuring Taxes and each of BJI and
HomeBase will indemnify the other party for its share of such Restructuring
Taxes.
The Tax Sharing Agreement will contain procedural provisions requiring
notice of potential claims for reimbursement, participation in conferences
with taxing authorities and, more generally, mutual consultation and
cooperation with respect to the tax matters which are the subject of the
agreement. Decisions with respect to negotiations, settlements and litigation
with taxing authorities relating to matters that may increase BJI's tax
liability will generally require BJI's consent. Disputes under the agreement
will be resolved by a certified public accounting firm or law firm
satisfactory to both HomeBase and BJI.
One consequence of BJI's potential obligations in respect of indemnity
payments for Restructuring Taxes could be to deter a transaction which could
result in a change of control of BJI.
PROCEDURES FOR ADDRESSING CONFLICTS
After the Distribution, BJI and HomeBase will have significant contractual
and other ongoing relationships, as described herein. Such ongoing
relationships may present certain conflict situations for Mr. Zarkin, who will
serve as Chairman of the Board of Directors of both companies, and for Messrs.
Waxlax and Weisberger, who will serve as directors of both companies. Each of
these persons will also own (or have options or other rights to acquire) a
significant number of shares of common stock in both companies. See "Risk
Factors--Potential Conflicts," "Management of BJI," and "Management of
HomeBase." BJI and HomeBase will adopt appropriate procedures to be followed
by the board of directors of each company to limit the involvement of such
persons in conflict situations, including matters relating to contractual
relationships or litigation between the companies. Such procedures will
require that all transactions being considered by either HomeBase or BJI which
relate to the other company (i) must be approved by a majority of the members
of the board of directors and by a majority of the disinterested members of
the board of directors, and (ii) must be on terms no less favorable to the
company whose board is considering such matter than could be obtained from
unaffiliated third parties. Whether or not a significant conflict of interest
situation exists will be determined on a case-by-case basis depending on such
factors as the dollar value of the matter, the degree of personal interest in
the matter, the respective interests of the stockholders of BJI or HomeBase
and the likelihood that resolution of the matter will have significant
strategic, operational or financial implications for the business of the
respective companies.
FINANCING; TREATMENT OF OUTSTANDING LONG-TERM DEBT
Prior to the Distribution, Waban intends to refinance its outstanding long-
term debt. Waban's outstanding indebtedness as of April 26, 1997 consisted of
(i) $24,000,000 Senior Notes; (ii) $100,000,000 Senior Subordinated Notes;
(iii) Convertible Debentures (of which, $106,949,000 were outstanding as of
April 26, 1997); (iv) $150,000,000 line of credit with a group of banks, under
which no borrowings were outstanding at April 26, 1997; and (v) approximately
$12,225,000 of capital lease and real estate obligations.
Prior to the Distribution, Waban intends to repay the Senior Notes and to
retire (via open market or privately negotiated purchases or a tender offer)
or defease the Senior Subordinated Notes, utilizing borrowings under its line
of credit. Waban is currently in discussions to amend certain terms of its
line of credit in order to consummate these transactions. Waban will be
required to pay certain premiums and prepayment penalties in connection with
the foregoing transactions. See "Risk Factors--Repayment of Long-Term Debt."
The Convertible Debentures are convertible by the holders into Waban Common
Stock at a conversion price of $24.75 per share, and are redeemable during the
period beginning July 1, 1997 at a price of 102.889% of par, plus accrued
interest. Waban has called the Convertible Debentures for redemption and, in
connection therewith, has entered into a standby underwriting agreement
providing for the Standby Purchaser, subject to certain
39
<PAGE>
conditions, to purchase up to 2,160,585 shares of Waban Common Stock. Shares
of Waban Common Stock will be issued under the standby underwriting agreement
only to the extent that more than 50% of the Convertible Debentures
outstanding on the date of the call of the Convertible Debentures for
redemption ($53,474,500 as of May 27, 1997) are required to be redeemed. It is
a condition to the Distribution that (i) all of the Convertible Debentures are
converted or redeemed for cash and (ii) any shares required to be purchased
from the Company pursuant to the standby underwriting agreement are actually
issued. There can be no assurance that such conditions will be satisfied. In
the event such conditions are not satisfied, it is likely that the
Distribution would be delayed for a significant period of time or cancelled.
Waban is in discussions with financial institutions to amend certain terms
of its existing credit facility in order to make the changes necessary to
permit the transactions described above involving the Senior Notes, Senior
Subordinated Notes and Convertible Debentures and to obtain bank credit
facilities for each of BJI and HomeBase. In connection with the Distribution
the outstanding bank indebtedness of Waban will be allocated 75% to BJI and
25% to HomeBase. See "Relationship Between BJI and HomeBase After the
Distribution; Conflicts of Interest--Distribution Agreement." While
discussions to date have been held with financial institutions which are
members of Waban's current credit facility, the new BJI and HomeBase
facilities may include additional participants. It is a condition of the
Distribution that such credit facilities be obtained in amounts and on terms
considered appropriate by the management and boards of directors of the
respective companies. Although Waban expects to obtain such credit facilities,
there is no assurance that such credit facilities can be obtained on terms
considered appropriate by the Waban Board, if at all. See "Risk Factors--
Certain Financial Considerations."
CONSENTS; REGULATORY APPROVALS
Other than the filing of the Form 8-A Registration Statement with the
Securities and Exchange Commission with respect to the BJI Common Stock and
the BJI Rights (which must be filed and declared effective prior to the
Distribution), Waban does not believe that any material consents from third
parties or federal or state regulatory approvals will be necessary in
connection with the Distribution.
40
<PAGE>
WABAN CAPITALIZATION
The following table sets forth the pro forma capitalization of Waban at
January 25, 1997 after giving effect to the conversion of all of the
Convertible Debentures into 4,386,585 shares of Waban Common Stock, or
alternatively, the redemption for cash of $53,474,500 of the Convertible
Debentures and the conversion of the remaining Convertible Debentures into
Waban Common Stock. Both pro forma presentations give effect to (i) borrowings
of long-term debt under Waban's proposed credit agreement, (ii) retirement of
Waban's Senior Notes and Senior Subordinated Notes and related prepayment
penalties, (iii) payment from BJI of its current taxes payable and
intercompany borrowings, and (iv) the Distribution. This data should be read
in conjunction with the historical financial statements and the unaudited pro
forma financial data of Waban incorporated by reference in or included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
-----------------------------------------------
PRO FORMA FOR
FULL CONVERSION OF PRO FORMA FOR
CONVERTIBLE PARTIAL
DEBENTURES CONVERSION
INTO COMMON OF CONVERTIBLE
ACTUAL STOCK DEBENTURES
-------- ---------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current
maturities of long-term debt.. $ 12,817 $ 654 $ 654
Long-term debt, less current
maturities.................... 232,486 41,826 55,194
Stockholders' equity:
Common stock.................. 333 377 355
Additional paid-in capital.... 329,719 389,043 374,371
Treasury stock................ (10,000) -- --
Retained earnings............. 311,873 -- 177
-------- -------- --------
Total stockholders' equity... 631,925 389,420 374,903
-------- -------- --------
Total capitalization....... $877,228 $431,900 $430,751
======== ======== ========
</TABLE>
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WABAN
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in Waban's Annual
Report on Form 10-K for the fiscal year ended January 25, 1997, which is
incorporated by reference herein. For a discussion of the basis of
presentation of the Waban Consolidated Financial Statements, see Summary of
Accounting Policies in Notes to the Waban Consolidated Financial Statements
contained in Form 10-K for the fiscal year ended January 25, 1997. For a
discussion of certain financial information for the 13-week period ended April
26, 1997 see "Recent Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(53 WEEKS)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ 3,357,794 $ 3,589,341 $ 3,650,281 $ 3,978,384 $4,375,528
----------- ----------- ----------- ----------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,881,334 3,086,670 3,110,787 3,387,992 3,742,599
Selling, general and
administrative
expenses............... 401,905 423,026 418,404 455,523 486,868
Restructuring charge.... -- 101,133 -- -- --
Interest on debt and
capital leases (net)... 6,280 12,489 14,898 15,431 19,735
----------- ----------- ----------- ----------- ----------
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes................ 68,275 (33,977) 106,192 119,438 126,326
Provision (benefit) for
income taxes........... 24,033 (15,290) 41,202 46,461 49,666
----------- ----------- ----------- ----------- ----------
Income (loss) before
cumulative effect of
accounting principle
changes................ 44,242 (18,687) 64,990 72,977 76,660
Cumulative effect of
accounting principle
changes................ -- 905 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)....... $ 44,242 $ (17,782) $ 64,990 $ 72,977 $ 76,660
=========== =========== =========== =========== ==========
Income (loss) per common
share:
Primary earnings per
share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.33 $ (0.56) $ 1.95 $ 2.20 $ 2.31
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.33 $ (0.54) $ 1.95 $ 2.20 $ 2.31
=========== =========== =========== =========== ==========
Fully diluted earnings
per share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.31 $ (0.56) $ 1.83 $ 2.05 $ 2.15
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.31 $ (0.54) $ 1.83 $ 2.05 $ 2.15
=========== =========== =========== =========== ==========
Number of common shares
for earnings per share
computations:
Primary................ 33,191 33,082 33,405 33,220 33,205
Fully diluted.......... 35,707 33,082 37,793 37,784 37,713
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 286,313 $ 213,315 $ 308,749 $ 265,450 $ 275,842
Total assets............ 1,006,663 1,072,994 1,237,521 1,332,451 1,375,966
Long-term debt and
obligations under
capital leases......... 192,630 174,054 258,763 245,313 232,486
Stockholders' equity.... 436,610 420,492 488,089 555,120 631,925
WAREHOUSES OPEN AT END
OF PERIOD:
BJ's Wholesale Club..... 39 52 62 71 81
HomeBase................ 86 82 77 79 84
</TABLE>
42
<PAGE>
PRO FORMA FINANCIAL DATA OF WABAN
The following unaudited pro forma financial data for the period ended
January 25, 1997 and as of January 25, 1997 illustrate the estimated effects
on Waban of the proposed Distribution and (i) the repayment by BJI to Waban of
intercompany indebtedness and current taxes payable, (ii) the prepayment of
the Senior Notes and Senior Subordinated Notes, (iii) new borrowings under
Waban's proposed credit agreement and (iv) the full or partial conversion of
the Convertible Debentures (the "Related Waban Transactions"). The Company has
called the Convertible Debentures for redemption and, in connection therewith,
has entered into a standby underwriting agreement. Shares of Waban Common
Stock will be issued under the standby agreement only to the extent that more
than 50% of the Convertible Debentures outstanding on the date of the call
($53,474,500 as of May 27, 1997) are required to be redeemed. See "Standby
Agreement" and "Risk Factors--Conversion or Redemption of Convertible
Debentures". The pro forma financial data has been prepared to present two
alternative scenarios. Scenario A gives pro forma effect to the conversion of
all of the Convertible Debentures into Waban Common Stock. Scenario B gives
pro forma effect to the redemption of $53,474,500 of the Convertible
Debentures for cash and the conversion of the remaining Convertible
Debentures.
The following unaudited pro forma financial data for the periods ended
January 28, 1995 and January 27, 1996 illustrate the effect on Waban of the
Distribution.
The unaudited pro forma financial data of Waban does not purport to
represent what the financial position or results of operations of Waban would
have been if the Distribution and Related Waban Transactions had in fact been
consummated on the dates indicated or at any future date. The pro forma
adjustments are based upon available information and upon certain assumptions
that Waban's management believes are reasonable in the circumstances.
43
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................ $ 14,593 $ (1,100)(1) $ 3,993
32,500 (2)
(139,500)(3)
97,500 (6)
Accounts receivable...................... 59,267 (34,006)(7) 25,261
Merchandise inventories.................. 611,754 (295,216)(7) 316,538
Current deferred income taxes............ 16,425 (6,549)(7) 9,876
Prepaid expenses......................... 11,066 (6,091)(7) 4,975
---------- --------
Total current assets................... 713,105 360,643
Property, net of depreciation.............. 629,645 (380,610)(7) 249,035
Intercompany debt.......................... -- 12,431 (4) --
(63,012)(5)
(97,500)(6)
148,081 (7)
Other assets............................... 33,216 (1,391)(1) 18,439
(2,192)(3)
(11,194)(7)
---------- --------
Total assets........................... $1,375,966 $628,117
========== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Current liabilities:
Current installments of long-term debt... $ 12,817 (12,000)(3) $ 654
(163)(7)
Accounts payable......................... 284,927 (200,024)(7) 84,903
Accrued expenses and other current
liabilities............................. 135,856 (66,302)(7) 69,554
Accrued federal and state income taxes... 3,663 (563)(1) (4,066)
(6,278)(3)
(888)(3)
12,431 (4)
(12,431)(7)
---------- --------
Total current liabilities.............. 437,263 151,045
Noncurrent liabilities..................... 74,292 (28,466)(7) 45,826
Long-term debt............................. 232,486 (108,568)(1) 41,826
32,500 (2)
(112,000)(3)
(2,592)(7)
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C>
Common stock............................... 333 44 (1) 377
Additional paid-in capital................. 329,719 97,696 (1) 389,043
(38,372)(7)
Treasury stock............................. (10,000) 10,000 (1) --
Retained earnings.......................... 311,873 (1,100)(1) --
(9,222)(3)
(1,304)(3)
(63,012)(5)
(237,235)(7)
---------- --------
Total stockholders' equity............. 631,925 389,420
---------- --------
Total liabilities and stockholders'
equity................................ $1,375,966 $628,117
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
44
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (16,820)(2) 2,915
---------- ----------
Total expenses........................... 4,249,202 1,417,753
---------- ----------
Income from continuing operations before
taxes................................... 126,326 34,943
Provision for income taxes............... 49,666 (35,914)(3) 13,752
---------- ----------
Income from continuing operations........ $ 76,660 $ 21,191
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.56
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
45
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of the Convertible Debentures (net of
$1,391,000 unamortized debt expense and related tax benefit) into 4,386,585
shares of common stock and to record payment of $1,100,000 pursuant to a
standby underwriting agreement.
(2) Adjustment to record borrowings under Waban's proposed credit
agreement of $32,500,000. These borrowings, combined with the $97,500,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $9,500,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000) and Senior Subordinated Notes
($100,000,000) plus $15,500,000 of prepayment penalties (see Note (3) which
follows).
(3) Adjustment to record repayment of the Senior Notes and Senior
Subordinated Notes and related prepayment penalties of approximately
$15,500,000, the write-off of unamortized debt expense of $2,192,000, and
related tax benefits as of January 25, 1997, the date of the pro forma
condensed balance sheet. (Based on interest rates as of May 23, 1997, the
prepayment penalties would be reduced from approximately $15,500,000 to
approximately $14,200,000.)
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $63,012,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $97,500,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $275,607,000 excluding Waban's forgiveness of BJI's
intercompany indebtedness (see Note (5) above). $237,235,000 of this amount
is charged to Waban's retained earnings, reducing that balance to zero; the
remaining $38,372,000 is charged to additional paid-in capital.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change interest expense
by $40,625.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
37,127,526 shares of common stock outstanding (including 4,386,585 shares of
common stock issued upon conversion of the Convertible Debentures) plus
575,483 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
46
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 14,593 $ (1,100)(1) $ 2,062
45,868 (2)
(194,905)(3)
137,606 (6)
Accounts receivable..................... 59,267 (34,006)(7) 25,261
Merchandise inventories................. 611,754 (295,216)(7) 316,538
Current deferred income taxes........... 16,425 (6,549)(7) 9,876
Prepaid expenses........................ 11,066 (6,091)(7) 4,975
---------- --------
Total current assets.................. 713,105 358,712
Property, net of depreciation............. 629,645 (380,610)(7) 249,035
Intercompany debt......................... -- 12,431 (4) --
(22,906)(5)
(137,606)(6)
148,081 (7)
Other assets.............................. 33,216 (706)(1) 18,439
(2,877)(3)
(11,194)(7)
---------- --------
Total assets.......................... $1,375,966 $626,186
========== ========
LIABILITIES
Current liabilities:
Current installments of long-term debt.. $ 12,817 (163)(7) $ 654
(12,000)(3)
Accounts payable........................ 284,927 (200,024)(7) 84,903
Accrued expenses and other current
liabilities............................ 135,856 (66,302)(7) 69,554
Accrued federal and state income taxes.. 3,663 (286)(1) (4,848)
(7,060)(3)
(1,165)(3)
12,431 (4)
(12,431)(7)
---------- --------
Total current liabilities............. 437,263 150,263
Noncurrent liabilities.................... 74,292 (28,466)(7) 45,826
Long-term debt............................ 232,486 (55,094)(1) 55,194
45,868 (2)
(165,474)(3)
(2,592)(7)
STOCKHOLDERS' EQUITY
Common stock.............................. 333 22 (1) 355
Additional paid-in capital................ 329,719 44,652 (1) 374,371
Treasury stock............................ (10,000) 10,000 (1) --
Retained earnings......................... 311,873 (1,100)(1) 177
(10,371)(3)
(1,712)(3)
(22,906)(5)
(275,607)(7)
---------- --------
Total stockholders' equity............ 631,925 374,903
---------- --------
Total liabilities and stockholders'
equity............................... $1,375,966 $626,186
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
47
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (15,818)(2) 3,917
---------- ----------
Total expenses........................... 4,249,202 1,418,755
---------- ----------
Income from continuing operations before
taxes................................... 126,326 33,941
Provision for income taxes............... 49,666 (36,307)(3) 13,359
---------- ----------
Income from continuing operations........ $ 76,660 $ 20,582
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.58
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
48
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of $55,094,000 of the Convertible
Debentures (net of the payment of $1,100,000 pursuant to a standby
underwriting agreement and net of $706,000 unamortized debt expense and
related tax benefit) into 2,226,000 shares of common stock.
(2) Adjustment to record borrowings under Waban's proposed credit
agreement of $45,868,000. These borrowings, combined with the $137,606,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $11,431,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000), Senior Subordinated Notes,
($100,000,000) and $53,474,000 of the Convertible Debentures plus
$17,431,000 of prepayment penalties (see Note (3)).
(3) Adjustment to record repayment of the Senior Notes, Senior
Subordinated Notes and $53,474,000 of the Convertible Debentures and
related prepayment penalties of approximately $17,431,000, the write-off of
unamortized debt expense of $2,877,000, and related tax benefits as of
January 25, 1997, the date of the pro forma condensed balance sheet. (Based
on interest rates as of May 23, 1997, the prepayment penalties would be
reduced from approximately $17,431,000 to approximately $16,131,000.)
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $22,906,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $137,606,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $275,607,000, excluding Waban's forgiveness of BJI's
intercompany indebtedness (See Note (5) above).
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change interest expense
by $57,335.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
34,966,941 shares of common stock outstanding (including 2,226,000 shares of
common stock issued upon conversion of the Convertible Debentures) plus
575,483 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
49
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,978,384 (2,529,608)(1) $1,448,776
---------- ----------
Cost of sales, including buying and
occupancy costs........................ 3,387,992 (2,263,532)(1) 1,124,460
Selling, general and administrative
expenses............................... 455,523 (179,868)(1) 275,655
Interest on debt and capital leases,
net.................................... 15,431 (7,654)(2) 7,777
---------- ----------
Total expenses........................ 3,858,946 1,407,892
---------- ----------
Income from continuing operations before
income taxes........................... 119,438 40,884
Provision for income taxes.............. 46,461 (30,558)(3) 15,903
---------- ----------
Income from continuing operations....... $ 72,977 $ 24,981
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $0.75
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,220,445 common and common equivalent shares outstanding.
50
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 28, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,650,281 $(2,293,091)(1) $1,357,190
---------- ----------
Cost of sales, including buying and oc-
cupancy costs.......................... 3,110,787 (2,054,167)(1) 1,056,620
Selling, general and administrative ex-
penses................................. 418,404 (170,292)(1) 248,112
Interest on debt and capital leases,
net.................................... 14,898 (6,332)(2) 8,566
---------- ----------
Total expenses.......................... 3,544,089 1,313,298
---------- ----------
Income from continuing operations before
income taxes........................... 106,192 43,892
Provision for income taxes.............. 41,202 (24,173)(3) 17,029
---------- ----------
Income from continuing operations....... $ 64,990 $ 26,863
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $ 0.80
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,405,014 common and common equivalent shares outstanding.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF UNAUDITED PRO FORMA FINANCIAL DATA OF WABAN
Waban's Pro Forma Condensed Balance Sheet as of January 25, 1997 and Waban's
Pro Forma Condensed Statement of Income for the fiscal year ended January 25,
1997 summarize the estimated effects on Waban of the proposed Distribution and
related transactions. These transactions (the "related transactions") include
the repayment by BJI of its intercompany debt and current taxes payable to
Waban, the retirement of the Senior Notes and Senior Subordinated Notes, new
borrowings under Waban's proposed credit agreement and the conversion or
partial conversion and redemption of the Convertible Debentures. The Pro Forma
Condensed Balance Sheet assumes that the Distribution and the related
transactions occurred on January 25, 1997. The Pro Forma Condensed Statement
of Income for the period ended January 25, 1997 assumes that the Distribution
and related transactions occurred at the beginning of fiscal 1996 and
summarizes the results of continuing operations. Each of these statements is
presented under two scenarios. One scenario assumes the conversion of the
Convertible Debentures into Waban Common Stock; the other scenario assumes the
conversion of $55,094,000 of the Convertible Debentures into Waban Common
Stock and the redemption of the remaining Convertible Debentures for cash.
Under the first scenario, pro forma long-term debt would be approximately
$42 million as of January 25, 1997, including approximately $33 million of new
borrowings under the proposed credit agreement. (Other long-term debt consists
principally of capital lease obligations.) Stockholders' equity would be
approximately $389 million under the first scenario. Under the second
scenario, pro forma long-term debt would be approximately $55 million as of
January 25, 1997, including approximately $46 million of new borrowings under
the proposed credit agreement. Stockholders' equity would be approximately
$375 million. The distribution of BJI's net assets under both scenarios is
charged to Waban's retained earnings to the extent of Waban's retained
earnings balance; the remainder under the first scenario is charged to
additional paid-in capital.
In the Pro Forma Condensed Statements of Income, pro forma total revenues,
cost of sales (including buying and occupancy costs) and selling, general and
administrative (SG&A) expenses exclude the results of BJ's operations. Pro
forma sales and cost of sales represent HomeBase's results. Pro forma SG&A
expenses represent HomeBase's expenses and all of Waban's corporate overhead,
which corporate overhead totaled $7.3 million for the fiscal year ended
January 25, 1997. As a public entity, HomeBase will incur SG&A costs in
addition to the costs it incurred as a separate division, but its pro forma
SG&A expenses are expected to be approximately $1.5 million less than the
total shown in the Condensed Statements of Income, which include all of
Waban's corporate overhead. Waban's pro forma interest expense is based on the
pro forma debt presented in the Pro Forma Condensed Balance Sheet as of
January 25, 1997.
Waban's Pro Forma Condensed Statements of Income for the fiscal years ended
January 27, 1996 and January 28, 1995 represent Waban's historical
consolidated results of operations adjusted to exclude BJ's historical results
of operations only. Pro forma sales and cost of sales represent HomeBase's
results. Pro forma SG&A expenses represent HomeBase's expenses and all of
Waban's corporate overhead, which corporate overhead totaled $7.1 million in
the fiscal year ended January 27, 1996 and $8.2 million in the fiscal year
ended January 28, 1995. Pro forma interest expense represents Waban's
consolidated interest less an allocation of interest expense to BJ's, which
was based on BJ's ratio of net assets to Waban's consolidated net assets plus
debt.
The pro forma financial data of Waban should be read in conjunction with the
audited Consolidated Financial Statements of Waban and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Waban included in Waban's Annual Report on Form 10-K for the
fiscal year ended January 25, 1997, which is incorporated by reference herein.
52
<PAGE>
BJI CAPITALIZATION
The following table sets forth the pro forma capitalization of BJI at
January 25, 1997 after giving effect to the conversion of the Convertible
Debentures into 4,386,585 shares of Waban Common Stock, or alternatively, the
redemption for cash of $53,474,500 Convertible Debentures and the conversion
of the remaining Convertible Debentures into Waban Common Stock. Both pro
forma presentations give effect to (i) the transfer of BJI's current taxes
payable to Waban through its intercompany account, (ii) borrowings of long-
term debt under BJI's proposed credit agreement and repayment of the remaining
intercompany debt to Waban and (iii) Waban's contribution to BJI's equity
through the forgiveness of a portion of intercompany debt. This data should be
read in conjunction with the historical financial statements and the unaudited
pro forma financial data of BJI included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA PRO FORMA
FOR FULL FOR PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
ACTUAL DEBENTURES DEBENTURES
-------- ------------- -------------
<S> <C> <C> <C>
Short-term debt and current maturities of
long-term debt........................... $ 163 $ 163 $ 163
Loans and advances from Waban Inc......... 148,081 -- --
Long-term debt, less current maturities... 2,592 100,092 140,198
Stockholder's equity:
Common stock............................ 327 371 349
Additional paid-in capital.............. -- 63,012 22,906
Retained earnings....................... 275,280 275,236 275,258
-------- -------- --------
Total stockholder's equity.............. 275,607 338,619 298,513
-------- -------- --------
Total capitalization.................. $426,443 $438,874 $438,874
======== ======== ========
</TABLE>
53
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BJI
The following table summarizes selected historical financial data of BJI for
each fiscal year in the five-year period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of
the BJ's Division. The BJI financial statements include certain allocations of
the overhead expenses incurred by Waban that support BJI's business. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI.
The historical financial data is not necessarily indicative of BJI's future
results of operations or financial condition. The data set forth below should
be read in conjunction with the unaudited pro forma financial data and the
notes thereto of BJI, the audited Combined Financial Statements of BJI and the
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations of BJI included elsewhere in this Proxy
Statement/Prospectus. The historical financial data is audited except for the
1992 fiscal year. For a discussion of the basis of presentation of the BJI
Combined Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Combined Financial Statements. For a discussion of certain financial
information for the 13-week period ended April 26, 1997, see "Recent
Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(53 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $1,786,916 $2,003,385 $2,293,091 $2,529,608 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 1,618,004 1,807,586 2,054,167 2,263,532 2,605,602
Selling, general and
administrative
expenses............... 137,596 155,425 174,416 183,419 212,660
Interest on debt and
capital leases (net)... 446 7,807 13,665 14,757 16,838
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 30,870 32,567 50,843 67,900 87,732
Provision for income
taxes.................. 9,733 12,351 19,941 26,350 34,108
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
principle changes...... 21,137 20,216 30,902 41,550 53,624
Cumulative effect of
accounting principle
changes................ -- 2,107 -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 21,137 $ 22,323 $ 30,902 $ 41,550 $ 53,624
========== ========== ========== ========== ==========
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 43,907 $ 71,248 $ 58,252 $ 77,207 $ 62,942
Total assets............ 369,533 506,034 563,931 676,675 737,211
Long-term debt and
obligations under
capital leases......... 3,502 3,262 2,960 2,731 2,592
Loans and advances from
Waban Inc.............. 73,984 152,427 142,512 181,730 148,081
Stockholder's equity.... 127,208 149,531 180,433 221,983 275,607
CLUBS OPEN AT END OF
PERIOD................. 39 52 62 71 81
</TABLE>
54
<PAGE>
PRO FORMA FINANCIAL DATA OF BJI
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of intercompany indebtedness and current taxes payable, (ii) new
borrowings under BJI's proposed credit agreement, and (iii) the impact of the
full or partial conversion of the Convertible Debentures (the "Related BJI
Transactions"). The Company has called the Convertible Debentures for
redemption and, in connection therewith, has entered into a standby
underwriting agreement. Shares of Waban Common Stock will be issued under the
standby agreement only to the extent that more than 50% of the Convertible
Debentures outstanding on the date of the call ($53,474,500 as of May 27,
1997) are required to be redeemed. See "Standby Agreement" and "Risk Factors--
Conversion or Redemption of Convertible Debentures". The pro forma financial
data has been prepared to present two alternative scenarios. Scenario A gives
pro forma effect to the conversion of all of the Convertible Debentures into
Waban Common Stock. Scenario B gives pro forma effect to the redemption of
$53,474,500 of the Convertible Debentures for cash and the conversion of the
remaining Convertible Debentures into Waban Common Stock. The pro forma
balance sheet data is based on the January 25, 1997 balance sheet of BJI and
assumes the Distribution and Related BJI Transactions were consummated on that
date. The pro forma income statement data gives effect to the Distribution and
Related BJI Transactions as if they occurred at the beginning of fiscal 1996.
The unaudited pro forma financial data should be read in conjunction with the
historical financial statements of BJI included elsewhere in this Proxy
Statement/Prospectus.
The pro forma financial data of BJI does not purport to represent what the
financial position or results of operations of BJI would have been if the
Distribution and Related BJI Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based
upon available information and upon certain assumptions that BJI's management
believes are reasonable in these circumstances.
55
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ -- $ --
Accounts receivable....................... 34,006 34,006
Merchandise inventories................... 295,216 295,216
Current deferred income taxes............. 6,549 6,549
Prepaid expenses.......................... 6,091 6,091
-------- --------
Total current assets.................... 341,862 341,862
Property, net of depreciation............... 380,610 380,610
Other assets................................ 14,739 14,739
-------- --------
Total assets............................ $737,211 $737,211
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...... $ 163 $ 163
Accounts payable.......................... 200,024 200,024
Accrued expenses and other current
liabilities.............................. 66,302 66,302
Accrued federal and state income taxes.... 12,431 (12,431)(1) --
-------- --------
Total current liabilities............... 278,920 266,489
Noncurrent liabilities...................... 28,466 28,466
Deferred income taxes....................... 3,545 3,545
Loans and advances from Waban Inc........... 148,081 12,431 (1) --
(63,012)(3)
(97,500)(4)
Long-term debt.............................. 2,592 97,500 (4) 100,092
STOCKHOLDER'S EQUITY
Common stock................................ 327 44 (2) 371
Additional paid-in capital.................. -- 63,012 (3) 63,012
Retained earnings........................... 275,280 (44)(2) 275,236
-------- --------
Total stockholder's equity................ 275,607 338,619
-------- --------
Total liabilities and stockholder's
equity................................... $737,211 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
56
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales.................................. $2,868,561 $2,868,561
Membership fee income...................... 54,271 54,271
---------- ----------
Total revenues............................. 2,922,832 2,922,832
---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,605,602 2,605,602
Selling, general and administrative
expenses.................................. 212,660 212,660
Interest on debt and capital leases, net... 16,838 (11,219)(1) 5,619
---------- ----------
Total expenses............................. 2,835,100 2,823,881
---------- ----------
Income before income taxes................. 87,732 98,951
Provision for income taxes................. 34,108 4,544 (2) 38,652
---------- ----------
Net income................................. $ 53,624 $ 60,299
========== ==========
Pro forma earnings per share............... $ 1.61
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
57
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to reflect additional shares outstanding as a result of
conversion of Waban's Convertible Debentures into 4,386,585 shares of
common stock.
(3) Adjustment to record Waban's contribution of $63,012,000 to the
equity of BJI through the forgiveness of intercompany indebtedness.
(4) Adjustment to record borrowings under BJI's proposed credit agreement
and repayment of outstanding intercompany indebtedness to Waban.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$97,500,000 borrowing under BJ's Wholesale Club, Inc.'s proposed credit
agreement in lieu of interest expense on intercompany borrowings from
Waban. Interest on credit agreement borrowings is assumed to be 6.50%. Each
variance of 1/8 of one percent from this assumed interest rate would change
interest expense by $121,875.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
Pro forma earnings per share is based on 37,127,526 shares of common stock
outstanding (including 4,386,585 shares of common stock issued upon conversion
of Waban's Convertible Debentures) plus common equivalent shares of 427,139,
using the treasury stock method of accounting for outstanding stock options.
Management believes the historical financial statements reflect BJI's
historical costs of doing business. As a publicly owned company, BJI will
likely incur additional costs. Such additional costs, estimated to be
approximately $2,000,000 on an annual basis, are not reflected in the Pro
Forma Condensed Statement of Income.
58
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ -- $ --
Accounts receivable....................... 34,006 34,006
Merchandise inventories................... 295,216 295,216
Current deferred income taxes............. 6,549 6,549
Prepaid expenses.......................... 6,091 6,091
-------- --------
Total current assets.................... 341,862 341,862
Property, net of depreciation............... 380,610 380,610
Other assets................................ 14,739 14,739
-------- --------
Total assets............................ $737,211 $737,211
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...... $ 163 $ 163
Accounts payable.......................... 200,024 200,024
Accrued expenses and other current
liabilities.............................. 66,302 66,302
Accrued federal and state income taxes.... 12,431 (12,431)(1) --
-------- --------
Total current liabilities............... 278,920 266,489
Noncurrent liabilities...................... 28,466 28,466
Deferred income taxes....................... 3,545 3,545
Loans and advances from Waban Inc........... 148,081 12,431 (1) --
(22,906)(3)
(137,606)(4)
Long-term debt.............................. 2,592 137,606 (4) 140,198
STOCKHOLDER'S EQUITY
Common stock................................ 327 22 (2) 349
Additional paid-in capital.................. -- 22,906 (3) 22,906
Retained earnings........................... 275,280 (22)(2) 275,258
-------- --------
Total stockholder's equity................ 275,607 298,513
-------- --------
Total liabilities and stockholder's
equity................................... $737,211 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
59
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales................................... $2,868,561 $2,868,561
Membership fee income....................... 54,271 54,271
---------- ----------
Total revenues.............................. 2,922,832 2,922,832
---------- ----------
Cost of sales, including buying and
occupancy costs............................ 2,605,602 2,605,602
Selling, general and administrative
expenses................................... 212,660 212,660
Interest on debt and capital leases, net.... 16,838 (8,613)(1) 8,225
---------- ----------
Total expenses.............................. 2,835,100 2,826,487
---------- ----------
Income before income taxes.................. 87,732 96,345
Provision for income taxes.................. 34,108 3,488 (2) 37,596
---------- ----------
Net income.................................. $ 53,624 $ 58,749
========== ==========
Pro forma earnings per share................ $ 1.66
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
60
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to reflect additional shares outstanding as a result of
conversion of Waban's Convertible Debentures into 2,226,000 shares of
common stock.
(3) Adjustment to record Waban's contribution of $22,906,000 to the
equity of BJI through the forgiveness of intercompany indebtedness.
(4) Adjustment to record borrowings under BJI's proposed credit agreement
and repayment of outstanding intercompany indebtedness to Waban.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$137,606,000 borrowing under BJI's proposed credit agreement in lieu of
interest expense on intercompany borrowings from Waban. Interest on credit
agreement borrowings is assumed to be 6.50%. Each variance of 1/8 of one
percent from this assumed interest rate would change interest expense by
$172,008.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
Pro forma net income is based on 34,966,941 shares of common stock
outstanding (including 2,226,000 shares of common stock issued upon conversion
of Waban's Convertible Debentures) plus common equivalent shares of 427,139,
using the treasury stock method of accounting for outstanding stock options.
Management believes the historical financial statements reflect BJI's
historical costs of doing business. As a publicly owned company, BJI will
likely incur additional costs. Such additional costs, estimated to be
approximately $2,000,000 on an annual basis, are not reflected in the Pro
Forma Condensed Statement of Income.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BJI
Fiscal year references apply to BJI's fiscal year which ends on the last
Saturday in January of the following calendar year. For example, the fiscal
year ended January 25, 1997 is referred to as "1996" or "fiscal 1996."
RESULTS OF OPERATIONS
The following table presents selected income statement data for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
----------------- ----------------- -----------------
% OF % OF % OF
$ REVENUES $ REVENUES $ REVENUES
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $2,244.6 97.9% $2,478.3 98.0% $2,868.5 98.1%
Membership fee income.... 48.5 2.1 51.3 2.0 54.3 1.9
-------- ----- -------- ----- -------- -----
Total revenues........... $2,293.1 100.0% $2,529.6 100.0% $2,922.8 100.0%
Cost of sales, including
buying and occupancy
costs................... 2,054.2 89.6 2,263.5 89.5 2,605.6 89.1
Selling, general and
administrative expenses. 174.4 7.6 183.4 7.2 212.7 7.3
Interest on debt and
capital leases (net).... 13.7 .6 14.8 .6 16.8 .6
-------- ----- -------- ----- -------- -----
Income before income
taxes................... 50.8 2.2 67.9 2.7 87.7 3.0
Provision for income
taxes................... 19.9 .9 26.3 1.1 34.1 1.2
-------- ----- -------- ----- -------- -----
Net income............... $ 30.9 1.3% $ 41.6 1.6% $ 53.6 1.8%
======== ===== ======== ===== ======== =====
</TABLE>
1996 COMPARED WITH 1995 AND 1994
Total revenues of BJI increased by 15.5% from 1995 to 1996 and by 10.3% from
1994 to 1995. The increases in both years were due principally to the opening
of new warehouse stores. Comparable store sales increased by 5.5% from 1995 to
1996 and by .4% from 1994 to 1995. The comparable store sales increase in 1996
was attained through marketing and merchandising programs that positively
impacted both food and general merchandise sales. The effect of increased
competition and opening of new BJ's clubs in the same markets as existing BJ's
clubs was less pronounced in 1996 than in the two previous years.
Total revenues included membership fee income of $54.3 million in 1996,
$51.3 million in 1995 and $48.5 million in 1994.
Cost of sales (including buying and occupancy costs) as a percentage of
total revenues was 89.1% in 1996, 89.5% in 1995 and 89.6% in 1994. The
decreases in the cost of sales percentage resulted from BJI's continuing
ability to introduce higher margin products into the merchandise mix and
maintaining tight control over inventory.
Selling, general and administrative ("SG&A") expenses as a percentage of
total revenues were 7.3% in 1996, 7.2% in 1995 and 7.6% in 1994. The decrease
in the SG&A ratio from 1994 to 1995 was due to effective expense control and
leveraging home office expenses on a growing number of warehouse clubs.
62
<PAGE>
The components of net interest expense in the last three years were as
follows (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense on debt............. $14.4 $ 14.6 $16.6
Interest income...................... (1.1) (.1) (.1)
----- ------ -----
Interest on debt (net)............... 13.3 14.5 16.5
Interest on capital leases........... .4 .3 .3
----- ------ -----
Interest on debt and capital leases
(net)............................... $13.7 $ 14.8 $16.8
===== ====== =====
</TABLE>
Interest expense on debt represents interest on intercompany borrowings from
Waban, charged at an annual rate of 10%, less capitalized interest.
Capitalized interest was $1.0 million, $1.5 million and $1.1 million in 1996,
1995 and 1994, respectively.
BJI's income tax provision was 38.9% of pre-tax income in 1996, 38.8% in
1995 and 39.2% in 1994. The decrease in the tax provision rate from 1994 to
1995 was due primarily to a lower effective state income tax rate.
Net income was $53.6 million, or 1.8% of total revenues, in 1996 versus
$41.6 million, or 1.6% of total revenues, in 1995 and $30.9 million, or 1.3%
of total revenues, in 1994.
BJI's business, in common with the business of retailers generally, is
subject to seasonal influences. BJI's sales and operating income have
typically been strongest in the Christmas holiday season and lowest in the
first quarter of each fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $105.2 million in 1996 versus
$50.6 million in 1995. This increase was due mainly to an improved accounts
payable-to-inventory ratio and higher net income before depreciation and
amortization.
Cash expended for property additions was $71.7 million in 1996 versus $90.2
million in 1995. BJI opened ten new BJ's clubs in 1996 and nine new clubs in
1995. Six of the new stores opened in 1996 were owned versus seven in the
previous year. Cash expended for property additions in 1995 included
significant land acquisition and building costs for stores that opened in
1996. Expenditures in 1996 for stores opening in 1997 were immaterial.
Capital expenditures for the full 1997 year are expected to be approximately
$80 million, based on opening ten new BJ's clubs. The timing of actual store
openings and the amount of related expenditures could vary from these
estimates due to the complexity of the real estate development process.
To date, BJI's operations and expansion have been financed through loans
advanced by Waban as needed. BJI expects to establish its own credit agreement
to finance its operations and expansion after the Distribution.
BJI's Pro Forma Condensed Balance Sheet (see "Pro Forma Financial Data of
BJI") summarizes BJI's financial position assuming the Distribution and
related transactions were consummated on January 25, 1997. The Distribution is
conditioned upon, among other things, the conversion into common stock or the
redemption for cash of Waban's Convertible Debentures. If the Convertible
Debentures were converted into common stock on January 25, 1997, BJI would
repay approximately $98 million of its intercompany indebtedness with
borrowings under BJI's proposed credit agreement and Waban would have
contributed approximately $63 million to BJI's equity through forgiveness of
BJI's remaining intercompany indebtedness to Waban. If $55,094,000 of the
Convertible Debentures were converted into Waban Common Stock and the
remainder were
63
<PAGE>
redeemed for cash as of January 25, 1997, BJI would repay approximately $138
million of its intercompany indebtedness with borrowings under BJI's proposed
credit agreement and Waban would have contributed approximately $23 million to
BJI's equity through forgiveness of BJI's remaining intercompany indebtedness
to Waban.
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for the Company's fiscal year ended January 25, 1997. SFAS No. 128, "Earnings
Per Share," was issued in February 1997 and becomes effective for the
Company's fiscal year ending January 31, 1998.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. It also requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The implementation
of SFAS No. 121 did not have a material effect on the Company's financial
statements in fiscal 1996.
SFAS No. 123 provides a choice of adopting its fair value based method of
expense recognition for stock-based awards granted to employees or applying
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." The Company will apply the accounting provisions of APB No. 25 and
will adopt the disclosure-only provisions of SFAS No. 123 when it issues stock
options.
SFAS No. 128 modifies the way in which earnings per share ("EPS") is
calculated and disclosed. The Company will disclose primary and fully diluted
EPS when it becomes a separate public entity. Upon adoption of this standard
for the fiscal year ending January 31, 1998, the Company will disclose basic
and diluted EPS for the full fiscal year and will restate all prior period EPS
data presented. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS, similar to fully diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. The effect of adopting SFAS No. 128 is not expected to be
material.
64
<PAGE>
BJI BUSINESS AND PROPERTIES
GENERAL
The Company, through the BJ's Division, introduced the warehouse club
concept to New England in 1984 and has since expanded in the northeastern and
Mid-Atlantic states, as well as in southern Florida. As of January 25, 1997,
the Company operated 81 BJ's warehouse clubs in 12 states and had over four
million members. The table below shows BJ's warehouse club locations by state.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
New York....................................... 21
Massachusetts.................................. 12
New Jersey..................................... 10
Pennsylvania................................... 9
Maryland....................................... 6
Virginia....................................... 6
Connecticut.................................... 5
Florida........................................ 4
New Hampshire.................................. 4
Maine.......................................... 2
Delaware....................................... 1
Rhode Island................................... 1
---
Total........................................ 81
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse clubs typically sell a narrow assortment of brand name food and
general merchandise items within a wide range of product categories. In order
to achieve high sales volumes and rapid inventory turnover, merchandise
selections are generally limited to items that are brand name leaders in their
categories. Since warehouse clubs sell a diversified selection of product
categories, they attract customers from a wide range of other traditional
wholesale and retail distribution channels, such as supermarkets, discount
stores, office supply stores, consumer electronics stores, automotive stores
and wholesale distributors. The Company believes that it is difficult for
these higher cost channels of distribution to match the low prices offered by
warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing directly
from manufacturers and by storing merchandise on the sales floor rather than
in central warehouses. By operating no-frills, self-service warehouse
facilities, warehouse clubs have fixturing and operating costs substantially
below those of traditional retailers. Two broad groups of customers,
individual households and small businesses, have been attracted to the savings
on brand name merchandise made possible by the high sales volumes and low
operating costs achieved by warehouse clubs. The customers at warehouse clubs
are generally limited to members who pay an annual fee.
The 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.
EXPANSION
Since the beginning of fiscal 1992, the BJ's Division has grown from 29
clubs to 81 clubs in operation at January 25, 1997, one of which was closed in
April 1997. Approximately ten additional clubs are expected to open in fiscal
1997 in the Northeast (Connecticut, Massachusetts, New Jersey, New York and
Rhode Island) and Florida.
65
<PAGE>
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
CLUBS IN CLUBS CLUBS CLUBS IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD PERIOD PERIOD OF PERIOD
----------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
1992 29 10 -- 39
1993 39 13 -- 52
1994 52 11 1 62
1995 62 9 -- 71
1996 71 10 -- 81
</TABLE>
STORE PROFILE
As of January 25, 1997, the Company operated 72 warehouse clubs with an
average size of approximately 112,000 square feet and nine smaller format
warehouse clubs that averaged approximately 69,000 square feet. Three of the
ten new BJ's warehouse clubs planned for 1997 are expected to incorporate the
smaller format. The smaller format clubs are designed to serve markets whose
population is not sufficient to support a full-sized warehouse club and to
enhance market penetration where the Company has established a presence with
two or more larger clubs. Including space for parking, a typical full-sized
BJ's warehouse club requires eight to ten acres of land. The smaller version
typically requires approximately eight acres. BJ's warehouse clubs are located
in both free-standing locations and local shopping centers. In some locations,
BJ's warehouse clubs are combined with other large store retailers in shopping
centers known as power centers.
Construction and site development costs for a full-sized BJ's warehouse club
average approximately $5.0 million. Land acquisition costs for a warehouse
club generally range from $2.5 million to $5.5 million, but can be
significantly higher in some locations. Opening a traditional-sized BJ's
warehouse club entails an initial capital investment of approximately $2.4
million for fixtures and equipment, as well as approximately $2.0 million for
inventory (net of accounts payable) and pre-opening expenses.
MERCHANDISING
The Company seeks to service its current members and attract new members by
providing a broad range of high quality, brand name merchandise at everyday
prices that are consistently lower than the prices available through
traditional wholesalers, discount retailers, supermarkets and specialty retail
operators. The Company limits the items offered in each product line to fast
selling styles, sizes and colors and, therefore, carries an average of
approximately 5,000 active stock-keeping units ("SKUs"). By contrast,
supermarkets normally stock approximately 25,000 SKUs, and discount stores
typically stock approximately 60,000 SKUs. The Company works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to members.
A primary component of the Company's merchandising strategy is to provide a
constantly changing mix of food and general merchandise items for the retail
"Inner Circle(R)" member to create an exciting shopping experience. An equally
important merchandising objective is to provide the business member with
consistent low prices for frequently purchased items such as food service
items and cleaning and office supplies. A number of the Company's specialty
product categories such as eye care products and accessories, jewelry,
perfume, cellular phones and pagers and member services such as discount
travel, one-hour photo finishing, discounts for real estate and new car
purchases and an in-store food court featuring well-known fast food brands are
designed for member convenience as well as for their potential to generate
income and increase operating margins. "Members First" training programs for
the Company's employees support the creation and maintenance of a customer-
friendly shopping experience, despite the warehouse club's no-frills physical
environment.
In recent years, food has accounted for an increasing percentage of the BJ's
Division's sales mix and currently represents approximately 62% of annual
sales. The remaining 38% consists of a wide variety of general merchandise
items. Food categories at BJ's warehouse clubs include frozen foods, meat and
dairy products, dry
66
<PAGE>
grocery items, fresh produce, canned goods, and household paper products and
cleaning supplies. The Company also offers fresh meat and bakery departments
and imported cheeses in nearly all its clubs, and in some clubs is testing new
specialty food offerings such as fresh deli items and refrigerated produce.
General merchandise includes office supplies, office equipment, televisions,
stereos, small appliances, auto accessories, tires, jewelry, housewares,
health and beauty aids, greeting cards and apparel. Other products and
services offered by BJ's warehouse clubs include cellular phones, optical
centers, lottery tickets, an auto buying service and a travel service.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, the Company employs regional buyers who are responsible for
tailoring the product selection in individual warehouse clubs to the regional
and ethnic tastes of the local market.
SEASONALITY
Sales and operating income for the BJ's Division have typically been
strongest in the Christmas holiday season and lowest in the first quarter of
each fiscal year.
MEMBERSHIP
Paid membership is an integral part of the warehouse club concept. In
addition to providing a source of revenue which permits the Company to offer
low prices, membership also reinforces customer loyalty and allows BJI to
concentrate on serving high-volume, repeat customers. The Company has two
primary types of members: business members and Inner Circle members. BJ's
Inner Circle members are likely to be home owners and tend to have incomes
which are above the average for the Company's trading area. The Company
believes that a significant percentage of its business members are also active
BJ's warehouse club shoppers for their personal needs. At January 25, 1997,
the Company had over four million members (including supplemental
cardholders).
The Company charges an annual membership fee for individuals and qualified
businesses of $30 for the primary membership and provides one free
supplemental membership. Additional supplemental memberships for business
members cost $15 each. The Company's membership policy does not restrict
eligibility for membership to persons who belong to certain qualifying groups
(i.e., employees of a particular company or members of a particular
organization). In contrast, the Company's competitors have typically required
individual members to belong to a qualifying group. The Company believes that
its more liberal membership policy has attracted incremental sales without
adversely affecting its costs.
ADVERTISING
The Company increases customer awareness of its BJ's warehouse clubs
primarily through public relations efforts, new store marketing programs,
direct mail solicitations and, during the Christmas holiday season, radio and
television advertising. The Company also employs a team of dedicated marketing
personnel who solicit potential business members and who contact selected
community groups to increase the number of members. From time to time, the
Company runs free trial membership promotions to attract new members with the
objective of converting them to paid membership status and also uses one-day
passes to introduce non-members to its warehouse clubs.
The Company's policy is generally to limit advertising and promotional
expenses to new warehouse club openings and to utilize print and electronic
media advertising sparingly. The Company uses limited vendor-funded television
and radio advertising during the Christmas holiday season. These policies
result in very low marketing expenses as compared to typical discount
retailers and supermarkets.
WAREHOUSE CLUB OPERATIONS
The Company's ability to achieve profitable operations while offering high
quality, brand name merchandise at low prices depends upon the efficient
operation of its warehouse clubs and high sales volumes. The Company buys most
of its merchandise at volume discounts from manufacturers for shipment either
to a Company cross-
67
<PAGE>
docking facility or directly to BJ's warehouse clubs. This eliminates many of
the costs associated with traditional multiple-step distribution channels,
including distributors' commissions and the costs of storing merchandise in
central distribution facilities.
The Company routes a significant percentage of its general merchandise as
well as an increasing percentage of food purchases through cross-docking
facilities which break down truckload quantity shipments from manufacturers
and re-allocate these goods for shipment, generally on a same-day basis, to
individual warehouse clubs. This permits the Company to negotiate better
volume discounts and reduces freight expense, the number of trucks received at
each warehouse club and related receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a warehouse club. Most
merchandise is pre-marked by the manufacturer with the universal product code
(UPC) so that it does not require ticketing at the warehouse club. In
addition, the Company minimizes labor costs by designing its warehouse clubs
to be self-service for members. Merchandise for sale is displayed on pallets
containing large quantities of each item, thereby reducing labor required for
handling, stocking and restocking. Back-up merchandise is generally stored in
steel racks above the sales floor. The Company's goal is to keep at least one
day's supply of each item on the selling floor.
The Company has been able to limit inventory losses to levels well below
those typical of discount retailers by strictly controlling the exits of its
warehouse clubs, by generally limiting customers to members and by using
state-of-the-art electronic article surveillance technology. Problems
associated with payments by check have also been insignificant, since members
who issue dishonored checks are restricted to cash-only terms.
In October 1995, the Company believes that it became the first warehouse
club chain to accept MasterCard, and at the same time introduced a co-branded
BJ's MasterCard. Purchases made at BJ's warehouse clubs with the co-branded
BJ's MasterCard earn a 2% rebate. All other purchases with the BJ's MasterCard
earn a 1% rebate. Rebates are issued in the form of "BJ's Bucks," which can be
redeemed by members only at BJ's warehouse clubs. In addition to MasterCard,
the Company permits members to pay for their purchases by cash, check,
Discover card, or a BJ's credit card, which is provided by Beneficial National
Bank USA on a non-recourse basis.
MANAGEMENT INFORMATION SYSTEMS
Over the past several years, the Company has made a significant investment
in enhancing the efficiency with which it handles merchandise and captures
sales information. The Company believes that it was the first warehouse club
to introduce scanning devices which work in conjunction with its electronic
point of sale (EPOS) terminals. Sales data from the EPOS terminals is
continually transmitted to a minicomputer in the warehouse club and
transmitted daily to a mainframe computer which provides detailed sales
information to the Company's management and buying staff. The Company utilizes
a sophisticated merchandise replenishment algorithm to suggest quantities to
be re-ordered, which are monitored daily by the Company's buying staff. The
Company's fully integrated information system also maintains detailed
purchasing data on individual members, permitting the buying staff and store
managers to track changes in members' buying behavior.
COMPETITION
The Company competes with a wide range of national, regional and local
retailers and wholesalers selling food or general merchandise in its markets,
including supermarkets, general merchandise chains, specialty chains and other
warehouse clubs, some of which have significantly greater financial and
marketing resources than the Company. Major competitors that operate warehouse
clubs include Costco Companies, Inc. and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).
There is a large number of competitive membership warehouse clubs in the
Company's markets. As of January 25, 1997, seventy of the Company's 72 full-
sized BJ's warehouse clubs had at least one competitive membership warehouse
club in their trading areas at an average distance of approximately seven
miles and none of the smaller format clubs had direct competition from other
warehouse clubs.
68
<PAGE>
The Company believes price is the major competitive factor in the markets in
which it competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes its
efficient, low-cost form of distribution gives it a significant competitive
advantage over more traditional channels of wholesale and retail distribution.
As a regional chain, the Company strives to differentiate itself from other
membership warehouse club operators by its attention to local buying
preferences and seasonality.
EMPLOYEES
As of January 25, 1997, the BJ's Division had approximately 11,000
employees, of whom approximately 300 were considered part-time employees
(persons who work less than 20 hours per week). Approximately 600 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse clubs. None of the BJ's Division's employees
is represented by unions. The Company considers its relations with its
employees to be excellent.
PROPERTIES
The Company operated 81 BJ's warehouse clubs as of January 25, 1997, of
which 44 are leased under long-term leases and 27 are owned. The Company owns
the buildings at the remaining ten locations, which are subject to long-term
ground leases.
The unexpired terms of these leases range from approximately three to 44
years, and average approximately 16 years. The Company has options to renew
all but one of its leases for periods that range from approximately five to 50
years and average approximately 20 years. These leases require fixed monthly
rental payments which are subject to various adjustments. In addition, certain
leases require payment of a percentage of the warehouse's gross sales in
excess of certain amounts. All leases require that the Company pay all
property taxes, insurance, utilities and other operating costs.
The BJ's Division's home office in Natick, Massachusetts occupies 142,000
square feet under leases expiring January 31, 1999 with options to extend
these leases through January 31, 2006.
LEGAL PROCEEDINGS
The BJ's Division is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material adverse effect on its financial condition or
results of operations.
69
<PAGE>
HOMEBASE BUSINESS AND PROPERTIES
GENERAL
The Company believes that the HomeBase Division is the second largest
operator of home improvement warehouse stores in the western United States and
is the nation's eighth largest home improvement merchandiser. The HomeBase
Division offers a very broad assortment of home improvement and building
supply products at attractive prices to a customer base that includes both
serious and casual "Do-It-Yourself" ("DIY") customers, as well as professional
contractors. This merchandising presentation is supported by a strong
commitment to customer service aimed at developing ongoing relationships with
its customers.
The Company opened its first warehouse store in California in October 1983
and, as of January 25, 1997, operated 84 warehouse stores in ten western
states (including one store which the Company plans to close during 1997). The
table below shows HomeBase's locations by state as of January 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
California..................................... 48
Washington..................................... 9
Colorado....................................... 7
Arizona........................................ 5
Oregon......................................... 4
New Mexico..................................... 3
Utah........................................... 3
Nevada......................................... 2
Texas.......................................... 2
Idaho.......................................... 1
---
Total........................................ 84
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse-format home improvement stores typically provide lower prices than
traditional home improvement and building supply stores. The warehouse format
also offers a very broad assortment of home improvement products, combined
with a high level of service from knowledgeable, well-trained warehouse staff.
These factors are communicated to customers through ongoing, aggressive
advertising.
The warehouse format generally serves two broad customer groups within the
home improvement industry. The first group consists of individuals and
families that are making purchases and completing projects for their own homes
on a DIY basis. These DIY customers range from casual to serious, and require
varying levels of support in planning and selecting their purchases. The
second customer group consists of professional contractors and facility
managers who use home improvement and building supply products on a daily
basis in their businesses. This group is primarily interested in product
availability, low prices and fast, efficient service.
The Company believes that demographic and lifestyle factors such as the
aging of baby boomers, the increase in home-centered activities and the aging
housing stock will create growing demand for home improvement products and
services. The Company believes that the overall market for home improvement
products in the United States exceeded $135 billion in 1996.
Over the last ten years, warehouse-format home improvement retailers have
gained significant market share in the United States by offering lower prices,
greater product selection and more in-stock merchandise than traditional home
center, hardware and lumber yard operators. In addition, warehouse stores have
been able to take advantage of economies created by large sales volumes.
70
<PAGE>
EXPANSION
The Company is among the two largest home improvement operators in most of
the metropolitan markets which it serves. The Company's current expansion
strategy is oriented towards reinforcing its position in these existing
markets and expanding selectively to contiguous markets.
The following table shows the number of HomeBase stores opened and closed
during the last five fiscal years:
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
STORES IN STORES STORES STORES IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD THE PERIOD THE PERIOD OF PERIOD
----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
1992 73 13 -- 86
1993 86 5 9 82
1994 82 3 8 77
1995 77 4 2 79
1996 79 5 -- 84
</TABLE>
Since 1993, the Company has completed the remodeling or relocation of 38
older HomeBase stores to reflect its new prototype design. Waban expects to
continue the remodeling program and to open two new HomeBase stores (one in
California and the other in Nevada), and close one existing store (in
California), in fiscal 1997.
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.
71
<PAGE>
The Company strives to develop the skills of its HomeBase store personnel to
ensure that customers consistently receive knowledgeable and courteous
assistance. The Company's training programs emphasize the importance of
customer service and improve store employees' selling skills. The Company
provides extensive training for its entry level warehouse store personnel
through a comprehensive in-house training program that combines on-the-job
training with formal seminars and meetings. On an ongoing basis, warehouse
store personnel attend periodic in-house training sessions conducted by the
Company's training staff or by manufacturers' representatives, and they
receive sales, product and other information in frequent meetings with their
managers. The HomeBase Division's satellite television system permits it to
simultaneously broadcast training sessions from its Irvine, California
headquarters to every individual warehouse store location.
Most of the HomeBase Division's merchandise is purchased from manufacturers
for shipment either directly to the selling warehouse store or to cross-
docking facilities where large shipments are broken down and separated for
transfer to individual warehouse stores, generally on a same-day basis. By
operating no-frills warehouse stores, the HomeBase Division's fixturing and
operating costs are kept substantially below those of traditional home
improvement retailers.
The HomeBase Division offers its own private label credit card to customers
under a non-recourse program operated by a major financial institution and
also accepts MasterCard, Visa, Discover and American Express.
MERCHANDISING
HomeBase stores' large product offering (approximately 28,000 SKUs) provides
a broad selection of brand name merchandise to both DIY customers and
professional contractors. The Company believes that the operating efficiencies
of the warehouse format provide substantial savings over other channels of
home improvement and building supply product distribution. In order to achieve
greater operational efficiencies and reduce freight and handling costs, as
well as improve the manner in which it acquires products, the Home Base
Division has centralized its merchandise replenishment operations and improved
its logistics of distribution. This program also permits the Company to
redeploy more store personnel to customer service activities.
Merchandise sold by HomeBase stores includes lumber, building materials,
plumbing supplies and fixtures, electrical materials and fixtures, kitchen
cabinets, hand and power tools, hardware, paint, garden supplies, nursery
items, home decorative items and related seasonal and household merchandise.
HomeBase's brand name orientation allows customers to compare HomeBase's
prices to the same items offered by competitors. In selected categories, the
Company supplements these brand name offerings with high quality private label
products at lower prices.
SEASONALITY
Sales and earnings for the HomeBase Division have typically been lower in
the first and fourth quarters of the fiscal year and higher in the second and
third quarters, which include the most active season for home construction.
MARKETING AND ADVERTISING
The HomeBase Division addresses its primary target customers through a mix
of newspaper, direct mail, radio and television advertising. The primary
advertising medium is newspaper advertisements, including both freestanding
inserts and run-of-press ads. Television and radio advertising is used to
reinforce the HomeBase image of providing superior customer service and a
broad assortment of merchandise at everyday low prices. Additionally, the
Company participates in or hosts a variety of home shows, customer hospitality
events and contractor product shows. The HomeBase Division solicits vendor
participation in many of its advertising programs.
72
<PAGE>
STORE PROFILE
The average size of the 84 HomeBase warehouse stores in operation at January
25, 1997 was approximately 102,000 square feet. Most HomeBase warehouse stores
also utilize outside selling space for nursery and garden centers. HomeBase
warehouse stores are located in both free-standing locations and local
shopping centers. In some locations, HomeBase warehouse stores are combined
with membership warehouse clubs or other large store retailers in shopping
centers known as power centers.
Including space for parking, a typical new HomeBase warehouse store requires
eight to ten acres of land. Construction and site development costs for a new
HomeBase warehouse store average approximately $5.0 million. Land acquisition
costs for a new warehouse store generally range from $2.0 million to $6.0
million. A new HomeBase warehouse store entails an initial capital investment
of approximately $1.6 million for fixtures and equipment. In addition to
capital expenditures, each new warehouse store requires an investment of
approximately $2.7 million for inventory (net of accounts payable) and pre-
opening expenses.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on the performance of the
HomeBase business. Each HomeBase warehouse store operates point-of-sale
terminals which capture information on each item sold via UPC scanning.
Minicomputers at each warehouse store process and consolidate this information
during the selling day and transmit it each night to the HomeBase Division's
information center via satellite, where it is processed daily to support
merchandising, inventory replenishment and promotional decisions.
The Company introduced scanning to the home improvement industry and is a
leader in implementing electronic data interchange ("EDI"). EDI permits both
the HomeBase Division and its vendors to save money and reduce errors by
electronically transmitting advance shipment notices and purchase order and
invoicing information. The HomeBase Division now uses EDI with more than 1,200
vendors and continues to expand its use of this technology.
COMPETITION
The Company competes with other home improvement warehouse stores and a wide
range of businesses engaged in the wholesale or retail sale of home
improvement and building supply merchandise, including home centers, hardware
stores, lumber yards and discount stores. The Company believes the major
competitive factors in the markets in which the HomeBase Division competes are
customer service, price, product selection, location and name recognition. The
Company believes that its improved level of customer service, the value
offered by its low prices and the one-stop shopping available through its full
range of home improvement products give it an advantage over many of its
traditional home center competitors. The major competitor in the HomeBase
Division's market areas that also uses the warehouse merchandising format is
The Home Depot, Inc., which has significantly greater financial and marketing
resources than HomeBase. Approximately 85% of the HomeBase warehouse stores
compete with Home Depot units. The HomeBase Division also competes with
Builders Square (a division of Kmart Corp.), and a number of smaller regional
operators such as Eagle Hardware & Garden, Inc., Orchard Supply & Hardware (a
division of Sears) and Contractor's Warehouse (a division of Grossman's Inc.).
Approximately 95% of the HomeBase warehouse stores have at least one home
improvement warehouse retailer in their trading areas at an average distance
of approximately three miles.
EMPLOYEES
As of January 25, 1997, the HomeBase Division had approximately 8,500
employees, of whom approximately 2,600 were considered part-time employees
(persons who work less than 33 hours per week). Approximately 500 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse stores. None of the HomeBase Division's
employees is represented by unions. The Company considers its relations with
its employees to be excellent.
73
<PAGE>
PROPERTIES
The Company operated 84 HomeBase warehouse locations as of January 25, 1997,
of which 65 are leased under long-term leases, 18 are owned and one is
occupied under a tenancy at will. The unexpired terms of the leases range from
approximately four years to 19 years, and average approximately 13 years. The
Company has options to renew all of its HomeBase leases for periods that range
from approximately five to 25 years and average approximately 18 years. These
leases require fixed monthly rental payments which are subject to various
adjustments. In addition, certain leases require payment of a percentage of
the warehouse's gross sales in excess of certain amounts. The Company also
remains obligated under leases for three additional stores that have been
closed. Most HomeBase leases require that the Company pay all property taxes,
insurance, utilities and other operating costs.
The HomeBase Division's home office in Irvine, California occupies 164,000
square feet under a lease expiring July 24, 2004, with options to extend this
lease through July 24, 2019.
LEGAL PROCEEDINGS
The HomeBase Division is involved in various legal proceedings incident to
the character of its business. Although it is not possible to predict the
outcome of these proceedings, or any claims against the Company related
thereto, the Company believes that such proceedings will not, individually or
in the aggregate, have a material adverse effect on its financial condition or
results of operations.
74
<PAGE>
MANAGEMENT OF BJI
BJI BOARD
Following the Distribution, the business of BJI will be managed under the
direction of the BJI Board. Prior to the Distribution, Waban, as the sole
stockholder of BJI, plans to elect eight persons to the BJI Board, as set
forth below. In accordance with the BJI Certificate and the BJI By-laws, the
BJI Board will be divided into three classes with staggered terms. The initial
terms for Class I Directors, Class II Directors, and Class III Directors will
expire in 1998, 1999 and 2000, respectively. With the exception of the initial
terms, each class of directors will be elected for a term of three years and
until their respective successors are duly elected and qualified. Directors
for each class will be elected at the annual meeting of stockholders held in
the year in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of BJI immediately after the
Distribution.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
S. James Coppersmith, 64 (1998)..... Director of Waban since December 1993. He was
President and General Manager of WCVB-TV, a Boston
television station, from 1990 to 1994. From 1982
to 1990 he was Vice President and General Manager
of WCVB-TV. Mr. Coppersmith is a director of
Kushner-Locke Company, Chyron Corporation, All-
Comm Media Corporation, Sun America Management
Corporation and Uno Restaurant Corporation,
Chairman of the Board of Trustees of Emerson
College and a member of the Board of Governors of
the Boston Stock Exchange.
Thomas J. Shields, 50 (1998)........ Director of Waban since June 1992. He is President
of Shields & Company, Inc., an investment banking
firm. Mr. Shields is also a director of Seaboard
Corporation and Versar, Inc.
Herbert J. Zarkin, 58 (1998)........ Director, President and Chief Executive Officer of
Waban since May 1993. He was President of the BJ's
Division from May 1990 to May 1993. From April
1989 to May 1993 he was Executive Vice President
of Waban. Mr. Zarkin will be Chairman of the BJI
Board and Chairman of the HomeBase Board following
the Distribution.
Allyn L. Levy, 69 (1999)............ Director of Waban since October 1993. He has been a
private investor since 1988. From 1974 until 1986,
he was founder, Chairman of the Board and Chief
Executive Officer of Patriot Bank Corporation, a
commercial bank holding company. He is a director
of CV Reit, Inc.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
Lorne R. Waxlax, 63 (1999).......... Director of Waban since January 1990, and Chairman
of the Board of Waban since June 1996. He was an
Executive Vice President of The Gillette Company
from 1985 to 1993. Mr. Waxlax is also a director
of Quaker State Corporation, The Iams Company,
Hon Industries, Inc. and Clean Harbors, Inc. Mr.
Waxlax will also be a member of the HomeBase
Board following the Distribution.
Edward J. Weisberger, 55 (1999)..... Senior Vice President and Chief Financial Officer
of Waban since September 1994. From April 1989
until September 1994 he was Vice President-
Finance of Waban. Mr. Weisberger will be an
employee of both BJI and HomeBase after the
Distribution. Mr. Weisberger will also be a
member of the HomeBase Board following the
Distribution.
Kerry L. Hamilton, 46 (2000)........ Director of Waban since September 1994. Ms.
Hamilton is Vice President, Marketing for
Marshalls. Prior to joining Marshalls in April
1996, Ms. Hamilton was Vice Chairman of Pamet
River Partners, a marketing consulting firm, for
two years. Prior to joining Pamet River Partners,
Ms. Hamilton spent 17 years at Ingalls, Quinn &
Johnson in various capacities, during which time
she was a member of the Board of Directors, a
member of the Agency Executive Committee and
Senior Vice President, Director of Media
Services.
John J. Nugent, 50 (2000)........... Executive Vice President of Waban and President of
the BJ's Division since September 1993. From 1991
until 1993 he was Senior Vice President, Sales
Operations of the BJ's Division, and from 1989
until 1991, he was Vice President and Director,
Sales Operations of the BJ's Division.
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of BJI will be paid an annual retainer of
$20,000 and fees of $1,250 for each Board meeting attended, $750 for each
Committee meeting attended and $750 for certain telephone meetings. In
addition, the Chairman of the Audit Committee and the Chairman of the
Executive Compensation Committee will each be paid $2,500 per annum for their
services as such. All directors will be reimbursed for out-of-pocket expenses
incurred in attending such meetings. Directors may participate in BJI's
General Deferred Compensation Plan.
Pursuant to the director stock option plan to be adopted by BJI (the "BJI
Director Plan"), on the date of each annual meeting, each continuing non-
employee director will be granted an option to acquire 1,500 shares of BJI
Common Stock, and each non-employee director newly elected or elected
subsequent to the then most recent annual meeting (other than persons who,
immediately prior to the Distribution, were directors of Waban) will receive
an option to purchase 3,000 shares of BJI Common Stock. The option exercise
price for each of these options is the fair market value of a share of BJI
Common Stock on the date of grant. Each option will expire ten years after the
date of grant and will become exercisable in three equal annual installments
beginning
76
<PAGE>
on the first day of the month which includes the first anniversary of the date
of grant. If the director dies or otherwise ceases to be a director prior to
the date the option becomes exercisable, the option will immediately expire.
Any vested options will remain exercisable for a period of one year following
cessation of service as a director of BJI. All unexercised options will become
exercisable in full beginning 20 days prior to the consummation of a merger or
consolidation (as described in the BJI Director Plan), acquisition,
reorganization or liquidation and, to the extent not exercised, shall
terminate immediately after the consummation of such merger, consolidation,
acquisition, reorganization or liquidation. Except as the Board may otherwise
determine, options granted under the plan are not transferable.
Options granted under the Waban 1995 Director Stock Option Plan to persons
who will become directors of BJI following the Distribution (other than Mr.
Waxlax, who will be a director of both HomeBase and BJI) will be replaced with
options granted under the BJI Director Plan on a basis similar to that
applicable to Waban options granted under the Waban 1989 Stock Incentive Plan
to persons who will become employees of BJI. Options granted under the Waban
1995 Director Stock Option Plan to Mr. Waxlax will be replaced by options to
purchase an equal number of shares of both BJI Common Stock and HomeBase
Common Stock. The aggregate exercise price of the BJI and HomeBase options
will equal the exercise price of the replaced options, with the exercise price
of the BJI options being equal to (a) the per share exercise price of the
replaced Waban options, divided by (b) the Stock Value Ratio (as defined
below). See "--Incentive and Other Plans."
COMMITTEES OF THE BOARD
The BJI Board will have four committees: (i) Audit; (ii) Executive; (iii)
Executive Compensation; and (iv) Finance. Committee appointments are expected
to be determined prior to the Distribution.
The Audit Committee will review with management, the internal audit group
and the independent public accountants BJI's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
BJI and its accounting controls and procedures, and such other matters as the
Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate.
The Executive Committee will be authorized to act on behalf of the BJI Board
during intervals between meetings of the BJI Board. In addition, the Executive
Committee will have responsibility for consideration of the qualifications of,
and recommendation to the Board of Directors of, nominees to fill Board
vacancies and will consider nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of the
Company.
The Executive Compensation Committee will review salary policies and
compensation of officers and other members of management, including incentive
compensation plans for certain officers and other members of management. The
compensation policies adopted by Waban's Executive Compensation Committee for
the last fiscal year are described under the heading "Election of Directors--
Executive Compensation Committee Report." It is anticipated that the Executive
Compensation Committee of BJI will initially adopt similar compensation
policies. In addition, the Executive Compensation Committee will have
responsibility for matters of corporate governance other than recommendation
to the Board of Directors of nominees to fill Board vacancies.
The Finance Committee will review with management and advise the BJI Board
with respect to BJI's finances, including exploring methods of meeting BJI's
financing requirements and planning BJI's capital structure.
77
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of BJI immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AGE FIVE-YEAR EMPLOYMENT HISTORY
-------------- --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer
Chairman of the Board of Directors and Director of Waban since May 1993;
Executive Vice President of Waban
(1989-1993); President of the BJ's
Division (1990-1993)
John J. Nugent...................... 50 Executive Vice President of Waban and
President and Chief Executive President of the BJ's Division since
Officer September 1993; Senior Vice President
of the BJ's Division (1991-1993);
Director, Sales Operations of the
BJ's Division (1989-1993)
Frank D. Forward.................... 42 Executive Vice President, Finance of
Executive Vice President and Chief the BJ's Division since February
Financial Officer 1997; Senior Vice President, Finance
of the BJ's Division (1994-1997);
Vice President, Finance of the BJ's
Division (1991-1994)
Laura J. Sen........................ 40 Executive Vice President,
Executive Vice President, Merchandising of the BJ's Division
Merchandising since February 1997; Senior Vice
President, General Merchandise of the
BJ's Division (1993-1997); Vice
President, Logistics of the BJ's
Division (1991-1993)
Michael T. Wedge.................... 43 Executive Vice President, Sales
Executive Vice President, Sales Operations of the BJ's Division since
Operations February 1997; Senior Vice President,
Sales Operations of the BJ's Division
(1993-1997); Vice President, Sales
Operations of the BJ's Division
(1991-1993)
Sarah M. Gallivan................... 54 Vice President and General Counsel of
Vice President and General Counsel Waban since December 1989
</TABLE>
78
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth with respect to BJI certain information
concerning the annual and long-term compensation paid for services rendered to
Waban for fiscal 1994, 1995 and 1996 by those persons who are expected to be
the Chief Executive Officer and the four other most highly compensated
executive officers of BJI following the Distribution (collectively, the "Named
BJI Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION YEAR(1) SALARY BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6)
--------- ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $25,633 -- 250,000 $360,640 $34,792
Chairman of the 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Board 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
John J. Nugent.......... 1996 382,693 253,450 16,189 -- 20,000 303,278 23,635
President and Chief 1995 350,000 134,967 14,806 -- 50,000 -- 22,000
Executive Officer 1994 332,692 188,038 14,074 -- 65,000 -- 21,135
Frank D. Forward........ 1996 155,885 64,524 5,723 -- 5,000 101,092 12,225
Executive Vice
President, 1995 144,808 46,534 5,316 -- -- -- 11,740
Finance 1994 129,808 58,314 4,766 -- 12,500 -- 10,990
Laura J. Sen............ 1996 203,500 84,234 8,608 -- 5,000 141,530 14,675
Executive Vice
President, 1995 190,500 61,217 8,059 -- -- -- 14,025
Merchandising 1994 179,577 84,580 6,593 -- 20,000 -- 13,479
Michael T. Wedge........ 1996 193,174 79,959 8,172 -- 5,000 141,530 14,159
Executive Vice
President, 1995 178,769 57,447 7,562 -- -- -- 13,439
Sales Operations 1994 164,577 77,515 6,042 -- 20,000 -- 12,729
</TABLE>
- --------
(1) Refers to fiscal year ended in January of the following year.
(2) Includes for all Named BJI Officers the reimbursement for tax liabilities
related to Waban's contributions under the Waban Inc. Executive Retirement
Plan ("WERP") and excludes perquisites having an aggregate value of the
lesser of $50,000 or 10% of salary plus bonus.
(3) No restricted stock awards were granted to the Named BJI Officers in the
last three fiscal years. The following table presents the aggregate
restricted stock holdings as of January 25, 1997 and the value of such
holdings based on the fair market value of Waban Common Stock on January
25, 1997 ($27.25):
<TABLE>
<CAPTION>
RESTRICTED
STOCK HOLDINGS
AT 1/25/97
--------------
SHARES VALUE
------ -------
<S> <C> <C>
Herbert J. Zarkin......................................... 1,706 $46,489
John J. Nugent............................................ 1,440 39,240
Frank D. Forward.......................................... 720 19,620
Laura J. Sen.............................................. 864 23,544
Michael T. Wedge.......................................... 576 15,696
</TABLE>
Holders of restricted shares are entitled to the same dividends as those
paid to holders of unrestricted shares, including shares of BJI Common Stock
to be issued in the Distribution. Upon the Distribution, all unvested
restricted shares of Waban Common Stock and the shares of BJI Common Stock
to be issued in the Distribution to the Named BJI Officers (other than Mr.
Zarkin) will be forfeited to Waban, and a replacement award of BJI Common
Stock subject to the same restrictions and vesting schedule as the forfeited
shares will be made to the Named BJI Officers under the BJI 1997 Stock
Incentive Plan. Following the Distribution, the restricted shares of Waban
Common Stock held by Mr. Zarkin will continue to be subject to the same
restrictions as they were prior to the Distribution and the restricted
shares of BJI Common Stock will be subject to similar conditions related to
continued employment by BJI. In the event of a change of control (as
defined), each Named BJI Officer's restricted shares would become
unrestricted.
(4) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
79
<PAGE>
(5) Payouts for fiscal 1996 represent 50% of the Waban Growth Incentive Plan
("WGIP") award earned by the Named BJI Officers for the three-year
performance period ended January 25, 1997. The remaining 50% of the award
is payable in April 1998, contingent on employment continuing through
March 31, 1998.
(6) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin....................... $4,494 $30,298
John J. Nugent.......................... 4,500 19,135
Frank D. Forward........................ 4,431 7,794
Laura J. Sen............................ 4,500 10,175
Michael T. Wedge........................ 4,500 9,659
</TABLE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named BJI Officers during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE PER EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR SHARE(2) DATE 0%(3) 5% 10%
---- ---------- --------------- -------------- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
John J. Nugent.......... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Frank D. Forward........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Laura J. Sen............ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Michael T. Wedge........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Securities
and Exchange Commission (the "Commission") and are not intended to
forecast possible future stock price appreciation, if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted to the Named BJI Officers on April 11, 1996
vest in equal annual installments over four years; options granted on
September 19, 1996 vest in equal annual installments over three years. All
options vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
80
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
Waban stock options during fiscal 1996 by each of the Named BJI Officers and
the fiscal year-end value of unexercised options to purchase Waban Common
Stock held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
NUMBER OF AT FISCAL YEAR-END FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
John J. Nugent.......... -- -- 122,250 67,750 1,349,000 544,250
Frank D. Forward........ -- -- 16,000 13,500 141,125 97,625
Laura J. Sen............ 15,000 122,188 10,500 19,500 111,156 161,656
Michael T. Wedge........ -- -- 18,500 18,750 182,000 151,250
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named BJI Officers during fiscal 1996 pursuant to the
WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION --------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ -------------------- -----------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97--1/99 $ 468,000 $ 0 $ 1,710,000
John J. Nugent.......... 15 Units FYE 1/97--1/99 273,000 371,220 1,050,000
Frank D. Forward........ 5 Units FYE 1/97--1/99 91,000 123,740 450,000
Laura J. Sen............ 7 Units FYE 1/97--1/99 127,400 173,236 585,000
Michael T. Wedge........ 7 Units FYE 1/97--1/99 127,400 173,236 555,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for Mr. Zarkin because cumulative net income would be less
than 10% compounded growth over the base period amount. The dollar amounts in
the table are not intended to forecast future payments, if any, under WGIP.
81
<PAGE>
One-half of the cash award earned under WGIP for the three-year award period
ending January 30, 1999 will be paid in April 1999 to participants employed
through January 30, 1999. The remaining one-half of the award will be paid in
April 2000, contingent upon employment continuing through March 31, 2000.
INCENTIVE AND OTHER PLANS
1997 Stock Incentive Plan. BJI has adopted the BJI 1997 Stock Incentive
Plan, pursuant to which BJI will be permitted to grant a variety of stock and
stock-based awards to officers and key employees of BJI and its subsidiaries.
Following the Distribution Date, except for replacement awards to be granted
under the BJI 1997 Replacement Stock Incentive Plan in connection with the
Distribution, BJI generally expects to grant equity incentive awards under the
BJI 1997 Stock Incentive Plan. A description of the BJI 1997 Stock Incentive
Plan is set forth below, under "Approval of the BJI 1997 Stock Incentive
Plan."
1997 Replacement Stock Incentive Plan. BJI has adopted the BJI 1997
Replacement Stock Incentive Plan, pursuant to which BJI will be permitted to
grant options to purchase BJI Common Stock in replacement of outstanding Waban
options held by persons who become employees of BJI on the Distribution Date
and who surrender their Waban options. A description of the BJI 1997
Replacement Stock Incentive Plan is set forth below, under "Approval of the
BJI 1997 Replacement Stock Incentive Plan."
Current Waban employees who are expected to become employees of BJI on the
Distribution Date held as of January 25, 1997 options to purchase an aggregate
of 1,905,896 shares of Waban Common Stock under the Waban 1989 Stock Incentive
Plan. Generally, under such plan, outstanding vested options may be exercised
during the 90-day period following termination and unvested options lapse upon
termination. The Distribution will result in termination of employment of such
persons from Waban under the terms of the Waban 1989 Stock Incentive Plan.
The exercise price and the number of replacement options expected to be
granted under the BJI 1997 Replacement Stock Incentive Plan will be calculated
so as to preserve the Waban options' approximate value as of the date of the
Distribution. To accomplish this, the number of BJI options will be determined
by multiplying the number of shares subject to each outstanding Waban option
that is unexercised as of the Distribution Date by the Stock Value Ratio (as
defined below). The exercise price of each replacement BJI option will equal
(a) the per share exercise price of the surrendered Waban option it replaces,
divided by (b) the Stock Value Ratio. Fractions will be rounded to the next
lowest share and next highest cent, respectively. The "Stock Value Ratio"
equals the number determined by dividing the Waban Common Stock Value by the
BJI Common Stock Value, where the Waban Common Stock Value equals the average
of the closing prices of Waban Common Stock during the ten trading days
immediately preceding the Distribution Date, and the BJI Common Stock Value
equals the average of the closing prices of BJI Common Stock on the New York
Stock Exchange during the ten trading days immediately following the
Distribution Date.
Waban options held by Messrs. Weisberger and Zarkin, who will become
employees of both BJI and HomeBase after the Distribution, will be replaced by
options to purchase an equal number of shares of both BJI Common Stock and
HomeBase Common Stock. The aggregate exercise prices of the BJI and HomeBase
options will equal the exercise price of the replaced Waban options, with the
exercise price of each BJI option being equal to (a) the per share exercise
price of the applicable Waban option, divided by (b) the Stock Value Ratio.
Replacement options granted under the BJI 1997 Replacement Stock Incentive
Plan pursuant to the foregoing adjustments will be subject to the same general
terms as the corresponding replaced Waban options.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named BJI Officers during fiscal 1996 are reflected in the BJI Summary
Compensation Table and the BJI table entitled "Long-Term Incentive Plans--
Awards in Last Fiscal Year." BJI has adopted cash incentive plans similar to
the Waban Management Incentive Plan and Growth Incentive Plan. A description
of each of these plans is set forth below, under the respective discussions of
Distribution Proposal Seven ("Approval of the BJI Management Incentive Plan")
and Distribution Proposal Eight ("Approval of the BJI Growth Incentive Plan").
82
<PAGE>
Executive Retirement Plan. Effective as of January 30, 1994, the Waban
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy. BJI has adopted an executive
retirement plan similar to the WERP.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named BJI
Officers were credited with at least four years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
all Named BJI Officers participate, was frozen on July 4, 1992 and benefits
under the Retirement Plan ceased to accrue after that date. All Named BJI
Officers are fully vested in their accrued benefits. The estimated annual
benefits payable under the Retirement Plan upon normal retirement (age 65) on
the basis of a single life annuity are as follows: Mr. Zarkin, $65,667; Mr.
Nugent, $5,121, Mr. Forward, $8,077; Ms. Sen, $6,200; and Mr. Wedge, $2,982.
EMPLOYMENT AGREEMENTS
Prior to the Distribution, BJI expects to enter into an employment agreement
with Mr. Zarkin pursuant to which he will receive a minimum annual base salary
of $350,000 and will participate in specified incentive and other benefit
plans. BJI will be entitled to terminate Mr. Zarkin's employment at any time
with or without cause (as defined). If his employment terminates by reason of
death, disability, incapacity or termination by BJI other than for cause, or
if Mr. Zarkin resigns as a result of his being removed from his positions with
BJI or as a result of being relocated more than 40 miles from the current
headquarters of BJI, Mr. Zarkin will be entitled to payment of certain cash
compensation amounts and continuation of base salary and certain benefits for
a period of 12 months after termination at the rate in effect upon
termination. In addition, Mr. Zarkin will be entitled to payments under the
BJI Management Incentive Plan (the "BJI MIP") for the fiscal year ended
immediately prior to the date of termination of Mr. Zarkin's employment, and
an amount equal to his MIP target award for the year of termination. Any stock
options or other stock-based awards held by Mr. Zarkin on the date of
termination will become fully vested. The continuing base salary payments are
subject to reduction after three months for compensation earned by Mr. Zarkin
from other employment (other than employment at HomeBase), and the continuing
benefits are subject to reduction at any time for comparable benefits received
by Mr. Zarkin from other employment. Mr. Zarkin will enter into a
substantially similar employment agreement with HomeBase, providing for salary
and other compensation equivalent to that payable by BJI.
Prior to the Distribution, BJI expects to enter into an employment agreement
with Mr. Nugent pursuant to which he will receive a minimum annual base salary
of $520,000 and the other terms of which will be substantially similar to his
existing agreement with Waban. Under Waban's current employment agreement with
Mr. Nugent, he receives a minimum annual base salary of $400,000 and
participates in specified incentive and other benefit plans. If his employment
terminates by reason of death, disability, incapacity or termination by the
Company other than for cause, Mr. Nugent is entitled to payment of certain
cash compensation amounts and to certain benefits and continuation of base
salary for 12 months after termination at the rate in effect upon termination.
The continuing base salary payments are subject to reduction after three
months for compensation earned by Mr. Nugent from other employment, and the
continuing benefits are subject to reduction at any time for comparable
benefits received by Mr. Nugent from other employment.
Prior to the Distribution, BJI expects to enter into an employment agreement
with each of Messrs. Forward and Wedge, and Ms. Sen under which each will
receive a minimum annual base salary of $180,000, $230,000
83
<PAGE>
and $230,000, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by BJI other than for cause, each such executive
officer will be entitled to payment of certain cash compensation amounts and
to certain benefits and continuation of base salary for 12 months after
termination at the rate in effect upon termination. The continuing base salary
payments will be subject to reduction after three months for compensation from
other employment, and the continuing benefits will be subject to reduction at
any time for comparable benefits received from other employment.
In the event of a change of control followed by termination of employment as
described below under""--Change of Control Severance Benefits," each of the
Named BJI Officers would be entitled to the termination benefits described
thereunder, to the extent such benefits would exceed the benefits otherwise
described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
BJI expects to provide change of control severance benefits to each of the
Named BJI Officers under individual agreements to be entered into prior to the
Distribution. Under the agreements, in general, upon a change of control (as
defined) of BJI, the executive would be entitled to accelerated payment of the
BJI MIP target award for the year in which the change of control occurs. If,
during the 24-month period following a change of control, BJI were to
terminate the executive's employment other than for cause (as defined) or the
executive were to terminate his employment for reasons specified in the
agreement, or if employment were to terminate by reason of death, disability
or incapacity, the executive would be entitled to receive an amount equal to
two times the executive's annual base salary. For up to two years following
termination BJI would also be obligated to provide specified benefits,
including continued health, medical and life insurance benefits. The foregoing
benefits would be payable whether or not they gave rise to a federal excise
tax on so-called "excess parachute payments" or were non-deductible, except to
the extent a reduction in amounts paid would increase the executive's after-
tax benefits. BJI would also be obligated to pay all legal fees and expenses
reasonably incurred by the executive in seeking enforcement of contractual
rights following a change of control. In addition, upon involuntary
termination within 24 months following a change of control, any agreement by
the executive not to compete with BJI following termination of his employment
would cease to be effective.
INDEMNIFICATION AGREEMENTS
Prior to the Distribution, BJI will enter into indemnification agreements
with each of its directors and executive officers indemnifying them against
expenses, settlements, judgments and fines incurred in connection with any
threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that he or she is
or was a director or officer of BJI or served at BJI's request as a director
of another organization (except that indemnification is not provided against
judgments and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if he or she is found not to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of BJI, except to the extent Delaware law
permits broader contractual indemnification. The indemnification agreements
provide procedures, presumptions and remedies designed to substantially
strengthen the indemnity rights beyond those provided by BJI's Certificate of
Incorporation and by Delaware law.
84
<PAGE>
MANAGEMENT OF HOMEBASE
HOMEBASE BOARD
Following the Distribution, the business of HomeBase will be managed under
the direction of the HomeBase Board. In accordance with the HomeBase
Certificate, the HomeBase Board is divided into three classes with staggered
terms. Each class of directors is elected for a term of three years and until
their respective successors are duly elected and qualified. Directors for each
class will be elected at the annual meeting of stockholders held in the year
in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of HomeBase immediately after the
Distribution. Messrs. Loewy, Waxlax and Zarkin are currently members of the
Waban Board and Mr. Weisberger is a nominee for election to the Waban Board at
the Meeting. The Waban Board expects to appoint additional independent
directors prior to the Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR TERM PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT AND
EXPIRES FIVE-YEAR EMPLOYMENT HISTORY
----------------------- -----------------------------------------------
<S> <C>
Allan P. Sherman, 52 (1998)... Executive Vice President of Waban since May 1993
and President of the HomeBase Division since
September 1993. He was President of the BJ's
Division from May 1993 to September 1993 and
Senior Vice President and General Merchandise
Manager--Non-Food of the BJ's Division from 1991
to 1993.
Herbert J. Zarkin, 58 (1998).. Director, President and Chief Executive Officer
of Waban since May 1993. He was President of the
BJ's Division from May 1990 to May 1993. From
April 1989 to May 1993 he was Executive Vice
President of Waban. Mr. Zarkin will be Chairman
of the BJI Board and Chairman of the HomeBase
Board following the Distribution.
Lorne R. Waxlax, 63 (1999).... Director of Waban since January 1990, and
Chairman of the Board of Waban since June 1996.
He was an Executive Vice President of The
Gillette Company from 1985 to 1993. Mr. Waxlax
is also a director of Quaker State Corporation,
The Iams Company, Hon Industries, Inc. and Clean
Harbors, Inc. Mr. Waxlax will also be a member
of the BJI Board following the Distribution.
Arthur F. Loewy, 68 (2000)(1). Director of Waban since February 1989. He is a
director of The TJX Companies, Inc. and was
Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. from 1982 to
1989.
Edward J. Weisberger, 55 Senior Vice President and Chief Financial
(2000)(1).................... Officer of Waban since September 1994. From
April 1989 until September 1994 he was Vice
President-Finance of Waban. Mr. Weisberger will
be an employee of both BJI and HomeBase after
the Distribution. Mr. Weisberger will also be a
member of the BJI Board following the
Distribution.
</TABLE>
- --------
(1) Nominee for election to the Waban Board. See "Election of Directors."
85
<PAGE>
DIRECTOR COMPENSATION
The compensation to be paid to the members of the Board of Directors of
HomeBase after the Distribution will be the same as that currently payable to
the members of the Waban Board. Directors who are not employees of Waban are
paid an annual retainer of $20,000 and fees of $1,250 for each Board meeting
attended, $750 for each Committee meeting attended and $750 for certain
telephone meetings. As a non-employee Chairman of the Waban Board, Mr. Waxlax
is paid an additional retainer of $100,000 per annum. In addition, the
Chairman of the Audit Committee and the Chairman of the Executive Compensation
Committee are each paid $2,500 per annum for their services as such. All
directors are reimbursed for out-of-pocket expenses incurred in attending such
meetings. Directors may participate in HomeBase's General Deferred
Compensation Plan.
The stockholders approved the 1995 Director Stock Option Plan (the "Waban
Director Plan") at Waban's 1995 annual meeting of stockholders and each non-
employee director of Waban was granted on June 13, 1995 an option to purchase
3,000 shares of Waban Common Stock. On the date of each annual meeting
following the Distribution, each continuing non-employee director will be
granted an option to acquire an additional 1,500 shares of HomeBase Common
Stock, and each non-employee director newly elected or elected subsequent to
the then most recent annual meeting will receive an option to purchase 3,000
shares of HomeBase Common Stock. The option exercise price for each of these
options is the fair market value of a share of HomeBase Common Stock on the
date of grant. Each option is nontransferable except upon death, will expire
10 years after the date of grant and will become exercisable in three equal
annual installments beginning on the first day of the month which includes the
first anniversary of the date of grant. If the director dies or otherwise
ceases to be a director prior to the date the option becomes exercisable, the
option will immediately expire. Any vested options will remain exercisable for
a period of one year following cessation of service as a director of HomeBase.
All unexercised options will become exercisable in full beginning 20 days
prior to the consummation of a merger or consolidation (as described in the
Waban Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
Options granted under the Waban Director Plan to persons who will continue
as directors of HomeBase following the Distribution (other than Mr. Waxlax,
who will be a director of both HomeBase and BJI) will be adjusted on a basis
similar to that applicable to Waban options granted under the Waban 1989 Stock
Incentive Plan to persons who will continue as employees of HomeBase. The
aggregate exercise price of options granted under the Waban 1995 Director
Stock Option Plan to Mr. Waxlax will be adjusted. The aggregate exercise price
of the BJI and HomeBase options will equal the exercise price of the replaced
options, with the exercise price of the BJI options being equal to (a) the per
share exercise price of the replaced Waban options, divided by (b) the Stock
Value Ratio. See "--Incentive and Other Plans."
During fiscal 1996, the Waban Board held twelve meetings and took action by
written consent once. Each director attended at least 75% of all meetings of
the Board and committees of which he or she is a member.
COMMITTEES OF THE BOARD
The HomeBase Board will continue to have four committees: (i) Audit; (ii)
Executive; (iii) Executive Compensation; and (iv) Finance. Committee
appointments are expected to be determined prior to the Distribution.
The Audit Committee reviews with management, the internal audit group and
the independent public accountants HomeBase's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
HomeBase and its accounting controls and procedures, and such other matters as
the Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate. The Audit Committee held three meetings during fiscal 1996.
86
<PAGE>
The Executive Committee is authorized to act on behalf of the HomeBase Board
during intervals between meetings of the HomeBase Board. In addition, the
Executive Committee has responsibility for consideration of the qualifications
of, and recommendation to the Board of Directors of, nominees to fill Board
vacancies and considers nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of
HomeBase. The Executive Committee held one meeting during fiscal 1996.
The Executive Compensation Committee reviews salary policies and
compensation of officers and other members of management, including incentive
compensation plans for certain officers and other members of management. The
compensation policies adopted by Waban's Executive Compensation Committee for
the last fiscal year are described under the heading "Election of Directors--
Executive Compensation Committee Report." It is anticipated that the Executive
Compensation Committee of HomeBase will initially adopt similar compensation
policies. In addition, the Executive Compensation Committee has responsibility
for matters of corporate governance other than recommendation to the Board of
Directors of nominees to fill Board vacancies. The Executive Compensation
Committee held five meetings during fiscal 1996.
The Finance Committee reviews with management and advises the HomeBase Board
with respect to HomeBase's finances, including exploring methods of meeting
HomeBase's financing requirements and planning HomeBase's capital structure.
The Finance Committee did not meet during fiscal 1996.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of HomeBase immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AFTER THE
DISTRIBUTION AGE FIVE-YEAR EMPLOYMENT HISTORY
------------------------ --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer and Director
Chairman of the Board of Directors of Waban since May 1993; Executive Vice
President of Waban (1989-1993); President of the
BJ's Division (1990-1993)
Allan P. Sherman.................... 52 Executive Vice President of Waban since May
President and Chief Executive 1993; President of the HomeBase Division since
Officer September 1993; President of the BJ's Division
(May 1993-September 1993); Senior Vice President
and General Merchandise Manager-Non-Food of the
BJ's Division (1991-1993)
Thomas F. Gallagher ................ 45 Executive Vice President, Store Operations of
Executive Vice President, the HomeBase Division since May 1996; Vice
Store Operations President, Sales Operations of the BJ's Division
(1993-1996); Assistant Vice President, Regional
Manager of the BJ's Division (1991-1993)
Scott Richards...................... 39 Executive Vice President, Merchandising of the
Executive Vice President, Merchan- HomeBase Division since August 1996; Vice
dising President, Merchandising of the HomeBase
Division (1993-1996); Buyer for the HomeBase
Division (1991-1993)
William B. Langsdorf................ 40 Senior Vice President, Finance of the HomeBase
Executive Vice President and Division since September 1993; Assistant Vice
Chief Financial Officer President, Finance of the HomeBase Division
(1991-1993)
</TABLE>
87
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation paid for services rendered to Waban for fiscal 1994,
1995 and 1996 by (i) those persons who are expected to be the Chief Executive
Officer and the four other most highly compensated executive officers of
HomeBase following the Distribution (the "Named HomeBase Officers") and (ii)
those persons (other than Mr. Nugent, information with respect to whom is
provided under the caption "Management of BJI--Executive Compensation") who
were the Chief Executive Officer and the four most highly compensated
executive officers of Waban during fiscal 1996 who were serving as executive
officers of Waban on January 25, 1997 (the "Named Waban Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION(1) YEAR(2) SALARY BONUS SATION(3) AWARDS(4) OPTIONS(5) PAYOUTS(6) SATION(7)
------------------ ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $ 25,633 $ -- 250,000 $360,640 $ 34,792
President and Chief 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Executive Officer of 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
Waban; Chairman of the
Board of HomeBase
Allan P. Sherman........ 1996 451,346 -- 238,170 -- 20,000 83,190 27,019
President and Chief 1995 435,000 40,000 241,786 -- 50,000 -- 26,250
Executive Officer of 1994 422,885 189,420 219,829 -- 65,000 -- 101,114
HomeBase
Thomas F. Gallagher..... 1996 176,078 40,484 190,670 155,250 15,000 80,874 13,304
Executive Vice 114,634 29,470 3,895 -- -- -- 10,232
President, 1995
Store Operations of 1994 106,558 40,152 3,621 -- 4,000 -- 9,191
HomeBase
Scott Richards.......... 1996 167,910 2,709 6,610 129,375 13,000 24,957 12,562
Executive Vice
President, 1995 131,538 11,122 5,229 -- -- -- 11,027
Merchandising of 1994 123,943 40,871 4,870 -- 7,000 -- 10,125
HomeBase
William B. Langsdorf.... 1996 155,553 -- 6,218 -- 4,000 27,730 12,076
Executive Vice
President, 1995 143,942 7,500 5,766 -- -- -- 11,697
Finance of HomeBase 1994 129,904 38,790 5,204 -- 12,000 -- 10,366
Edward J. Weisberger.... 1996 238,077 46,996 10,071 -- 70,000 180,320 16,404
Senior Vice President
and 1995 225,000 40,567 9,518 -- 40,000 -- 15,750
Chief Financial Officer 1994 197,847 86,777 8,369 -- 40,000 -- 14,392
of Waban
Sarah M. Gallivan....... 1996 154,904 20,385 5,687 -- 6,000 72,128 12,245
Vice President, General 1995 144,808 17,406 5,316 -- -- -- 11,740
Counsel of Waban 1994 131,885 43,074 4,842 -- 10,000 -- 10,849
</TABLE>
- --------
(1) Does not include Mr. Nugent, who also was one of Waban's four most highly
compensated executive officers during fiscal 1996. Information regarding
Mr. Nugent's compensation is described above under "Management of BJI."
During 1996, Mr. Zarkin served as President and Chief Executive Officer of
Waban and Mr. Sherman served as Executive Vice President of Waban and
President of the HomeBase Division of Waban.
(2) Refers to fiscal year ended in January of the following year.
88
<PAGE>
(3) Includes for Mr. Sherman $130,344, $135,204 and $137,240 in fiscal 1996,
fiscal 1995 and fiscal 1994, respectively, for loan forgiveness and the
value of the interest-free component of a housing loan from Waban pursuant
to the terms of his employment contract, and $80,671, $80,797 and $60,374
in fiscal 1996, fiscal 1995 and fiscal 1994, respectively, for
reimbursement of tax liabilities related to that loan and certain items
under "All Other Compensation." Includes for Mr. Gallagher $102,141 in
fiscal 1996 for relocation costs and $74,727 for reimbursement of tax
liabilities related to those costs and certain items under "All Other
Compensation." Includes for Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan in fiscal 1996, fiscal 1995 and fiscal 1994
and for Mr. Gallagher in fiscal 1995 and fiscal 1994 the reimbursement for
tax liabilities related to Waban's contributions under the WERP and
excludes perquisites having an aggregate value of the lesser of $50,000 or
10% of salary plus bonus.
(4) Restricted stock awards were issued at no cost to Mr. Gallagher and Mr.
Richards in 1996. The dollar value of these awards is based on the closing
market price of the Company's Common Stock on the date of grant. Fifty
percent of the shares granted to Mr. Gallagher vest in February 1998 and
25% vest in each of February 1999 and 2000. Forty percent of the shares
granted to Mr. Richards vest in June 1997, with 20% vesting in each of
June 1998, 1999 and 2000. Vesting is contingent upon continued employment
on the vesting dates. The following table presents aggregate restricted
stock holdings as of January 25, 1997 and the value of such holdings based
on the fair market value of Waban Common Stock on January 25, 1997
($27.25):
<TABLE>
<CAPTION>
RESTRICTED
NUMBER OF SHARES STOCK HOLDINGS
OF RESTRICTED STOCK ISSUED AT 1/25/97
----------------------------- ---------------
1996 1995 1994 SHARES VALUE
---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin.............. 0 0 0 1,706 $ 46,489
Allan P. Sherman............... 0 0 0 5,312 144,752
Thomas F. Gallagher............ 6,000 0 0 6,432 175,272
Scott Richards................. 5,000 0 0 5,450 148,513
William B. Langsdorf........... 0 0 0 450 12,263
Edward J. Weisberger........... 0 0 0 847 23,081
Sarah M. Gallivan.............. 0 0 0 484 13,189
</TABLE>
In the event of a change of control (as defined), each person's restricted
shares would become unrestricted. Holders of restricted shares are entitled
to the same dividends as those paid to holders of unrestricted shares,
including shares of BJI Common Stock to be issued in the Distribution.
Shares of BJI Common Stock received as a dividend will be subject to the
same restrictions and vesting schedule as the restricted shares on account
of which the special dividend was made.
(5) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
(6) Payouts for fiscal 1996 represent 50% of the WGIP award earned by the
named person for the three-year performance period ended January 25, 1997.
The remaining 50% of the award is payable in April 1998, contingent on
employment continuing through March 31, 1998.
(7) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin............................................ $4,494 $30,298
Allan P. Sherman............................................. 4,500 22,519
Thomas F. Gallagher.......................................... 4,500 8,804
Scott Richards............................................... 4,312 8,250
William B. Langsdorf......................................... 4,314 7,762
Edward J. Weisberger......................................... 4,500 11,904
Sarah M. Gallivan............................................ 4,500 7,745
</TABLE>
89
<PAGE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named HomeBase Officers and the Named Waban Officers during fiscal
1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER PERCENT OF POTENTIAL REALIZABLE
OF TOTAL OPTIONS VALUE AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------------------
NAME GRANTED YEAR PER SHARE(2) DATE 0%(3) 5% 10%
---- ---------- ------------- ------------ ---------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
Allan P. Sherman........ 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Thomas F. Gallagher..... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
12,000 1.5% 25.875 6/11/06 0 195,272 494,857
Scott Richards.......... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
10,000 1.3% 22.875 9/19/06 0 143,860 364,569
William B. Langsdorf.... 4,000 0.5% 24.750 4/11/06 0 62,261 157,781
Edward J. Weisberger.... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
50,000 6.4% 22.875 9/19/06 0 719,298 1,822,843
Sarah M. Gallivan....... 6,000 0.8% 24.750 4/11/06 0 93,391 236,671
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Commission
and are not intended to forecast possible future stock price appreciation,
if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted on April 11, 1996 and June 11, 1996 vest in
equal annual installments over four years; options granted on September
19, 1996 vest in equal annual installments over three years. All options
vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1996 by each of the Named HomeBase Officers and
the Named Waban Officers and the fiscal year-end value of unexercised options
held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR-END (2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
Allan P. Sherman........ 19,000 215,688 108,250 67,750 1,140,844 546,594
Thomas F. Gallagher..... 2,950 33,038 0 18,725 0 65,184
Scott Richards.......... 2,970 31,185 4,800 18,168 49,350 104,581
William B. Langsdorf.... 4,750 56,031 7,550 12,700 84,459 99,447
Edward J. Weisberger.... 500 6,688 72,000 95,500 754,250 508,563
Sarah M. Gallivan....... -- -- 11,750 12,750 107,406 82,406
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
90
<PAGE>
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named HomeBase Officers and the Named Waban Officers
during fiscal 1996 pursuant to the WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION -----------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97 - 1/99 $ 468,000 $ 0 $ 1,710,000
Allan P. Sherman........ 15 Units FYE 1/97 - 1/99 194,400 0 1,305,000
Thomas F. Gallagher..... 8 Units FYE 1/97 - 1/99 103,680 0 351,216
Scott Richards.......... 8 Units FYE 1/97 - 1/99 103,680 0 402,000
William B. Langsdorf.... 5 Units FYE 1/97 - 1/99 64,800 0 450,000
Edward J. Weisberger.... 10 Units FYE 1/97 - 1/99 234,000 0 675,000
Sarah M. Gallivan....... 6 Units FYE 1/97 - 1/99 140,400 0 450,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for each of the Named HomeBase Officers or Named Waban
Officers because cumulative net or pre-tax income would be less than 10%
compounded growth over the base period amount. The dollar amounts in the table
are not intended to forecast future payments, if any, under WGIP.
One-half of the cash award earned under the WGIP for the three-year award
period ending January 30, 1999 will be paid in April 1999 to participants
employed through January 30, 1999. The remaining one-half of the award will be
paid in April 2000, contingent upon employment continuing through March 31,
2000.
INCENTIVE AND OTHER PLANS
Stock Incentive Plans. Prior to the Distribution, Waban has granted stock
and stock-based awards to officers and key employees of HomeBase and its
subsidiaries pursuant to the Waban 1989 Stock Incentive Plan. Following the
Distribution Date, except for replacement awards to be granted under the Waban
1989 Stock Incentive Plan in connection with the Distribution, Waban generally
expects to grant equity incentive awards under the Waban 1997 Stock Incentive
Plan. Descriptions of the Waban 1989 Stock Incentive Plan and the Waban 1997
Stock Incentive Plan are set forth below under "Approval of Amendments to the
Waban 1989 Stock Incentive Plan and Continuance of Plan" and "Approval of
Waban 1997 Stock Incentive Plan."
Effective upon the Distribution, all unvested options and vested but
unexercised options granted under the Waban 1989 Stock Incentive Plan and held
by persons who remain HomeBase employees (other than persons who will also be
employees of BJI) will be adjusted so that the number of shares subject to
such options and the exercise price of such options will preserve the
approximate value of the Waban options held by such persons immediately prior
to the Distribution. To accomplish this, the number of Waban options held by
each such person immediately prior to the Distribution will be multiplied by
the pre-Distribution price of a share of Waban Common Stock and the resulting
number will be divided by the average of the closing prices of shares of Waban
91
<PAGE>
Common Stock on the New York Stock Exchange during the ten trading days
immediately following the date of the Distribution (the "Post-Distribution
Waban Share Price"). The exercise price of the Waban option will be multiplied
by the Post-Distribution Waban Share Price and the resulting number will be
divided by the pre-Distribution price of a share of Waban Common Stock.
Fractions will be rounded to the next lower share and the next higher cent,
respectively. The pre-Distribution price per share of Waban Common Stock will
be the average of the closing prices of shares of Waban Common Stock on the
New York Stock Exchange during the ten trading days immediately preceding the
date of the Distribution.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named HomeBase Officers during fiscal 1996 are reflected in the HomeBase
Summary Compensation Table and the HomeBase table entitled "Long-Term
Incentive Plans--Awards in Last Fiscal Year." These plans are similar to the
Management Incentive Plan and the Growth Incentive Plan proposed to be adopted
by BJI and described below under the respective discussions of Distribution
Proposal Seven ("Approval of the BJI Management Incentive Plan") and
Distribution Proposal Eight ("Approval of the BJI Growth Incentive Plan").
Executive Retirement Plan. Effective as of January 30, 1994, the Waban Inc.
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named
HomeBase Officers and Named Waban Officers were credited with at least four
years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
Messrs. Zarkin, Richards, Langsdorf and Weisberger and Ms. Gallivan
participated, was frozen on July 4, 1992 and benefits under the Retirement
Plan ceased to accrue after that date. Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan are fully vested in their accrued benefits. The
estimated annual benefits payable to such persons under the Retirement Plan
upon normal retirement (age 65) on the basis of a single life annuity are as
follows: Mr. Zarkin, $65,667; Mr. Richards, $7,140; Mr. Langsdorf, $5,209; Mr.
Weisberger, $27,553; and Ms. Gallivan, $2,472.
EMPLOYMENT AGREEMENTS
Prior to the Distribution, HomeBase expects to enter into an employment
agreement with Mr. Zarkin substantially similar to the employment agreement he
will enter into with BJI. See "Management of BJI--Employment Agreements."
Under the Company's existing employment agreement with Mr. Zarkin (which will
be modified in connection with the Distribution in accordance with the
preceding sentence), Mr. Zarkin receives a minimum annual base salary of
$625,000 and participates in specified incentive and other benefit plans. The
Company is entitled to terminate Mr. Zarkin's employment at any time with or
without cause (as defined). If his employment terminates by reason of death,
disability, incapacity or termination by the Company other than for cause, or
if a change of control occurs, Mr. Zarkin is entitled to payment of certain
cash compensation amounts and continuation of base salary and certain benefits
for a period of 24 months after termination at the rate in effect upon
termination. The continuing base salary payments are subject to reduction
after twelve months for compensation earned by Mr. Zarkin from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Zarkin from other employment.
92
<PAGE>
Under the Company's employment agreement with Mr. Sherman, Mr. Sherman
receives a minimum annual base salary of $460,000 and participates in
specified incentive and other benefit plans. Prior to the Distribution,
HomeBase expects to amend Mr. Sherman's employment agreement to increase his
minimum annual base salary to $520,000. In addition, in connection with his
election as President of the HomeBase Division in 1993, the Company agreed to
extend to him an interest-free loan of $700,000 for the purchase of a
residence in California and to forgive the loan over seven years in equal
installments, $100,000 of which was forgiven in each of fiscal 1994, 1995 and
1996. The Company also agreed to make certain tax "gross-up" payments to Mr.
Sherman. The Company is entitled to terminate Mr. Sherman's employment at any
time with or without cause (as defined). If Mr. Sherman's employment
terminates by reason of death, disability or termination by the Company other
than for cause, the Company is required to pay certain cash compensation
amounts, to continue payment of Mr. Sherman's base salary and certain benefits
for 52 weeks after termination at the rate in effect upon termination, and to
extend the term of Mr. Sherman's relocation loan, including the provisions for
debt forgiveness. The continuing base salary payments are subject to reduction
after three months for compensation earned by Mr. Sherman from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Sherman from other employment.
Prior to the Distribution, HomeBase expects to enter into an employment
agreement with each of Messrs. Gallagher, Richards and Langsdorf under which
each will receive a minimum annual base salary of $220,000, $220,000 and
$190,000, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by HomeBase other than for cause, each such
executive officer will be entitled to payment of certain cash compensation
amounts and to certain benefits and continuation of base salary for 12 months
after termination at the rate in effect upon termination. The continuing base
salary payments will be subject to reduction after three months for
compensation from other employment, and the continuing benefits will be
subject to reduction at any time for comparable benefits received from other
employment.
The Company has an employment agreement with each of Mr. Weisberger and Ms.
Gallivan under which they receive minimum annual base salaries of $245,000 and
$157,500, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, each such
executive is entitled to payment of certain cash compensation amounts and to
certain benefits and continuation of base salary for 12 months after
termination at the rate in effect upon termination. The continuing base salary
payments are subject to reduction after three months for compensation earned
by the executive from other employment, and the continuing benefits are
subject to reduction at any time for comparable benefits received by the
executive from other employment.
In the event of a change of control followed by termination of employment as
described below under "--Change of Control Severance Benefits," each of the
Named HomeBase Officers and Named Waban Officers would be entitled to the
termination benefits described thereunder, to the extent such benefits would
exceed the benefits otherwise described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
HomeBase expects to provide change of control severance benefits to each of
the Named HomeBase Officers under individual agreements to be entered into
prior to the Distribution. Under the agreements, in general, upon a change of
control (as defined) of HomeBase, the executive would be entitled to
accelerated payment of the HomeBase Management Incentive Plan target award for
the year in which the change of control occurs. If, during the 24-month period
following a change of control, HomeBase were to terminate the executive's
employment other than for cause (as defined) or the executive were to
terminate his employment for reasons specified in the agreement, or if
employment were to terminate by reason of death, disability or incapacity, the
executive would be entitled to receive an amount equal to two times the
executive's annual base salary. For up to two years following termination
HomeBase would also be obligated to provide specified benefits, including
continued health, medical and life insurance benefits. The foregoing benefits
would be payable whether or not they gave rise to a federal excise tax on so-
called "excess parachute payments" or were non-deductible, except to the
extent a reduction in amounts paid would increase the executive's after-tax
benefits.
93
<PAGE>
HomeBase would also be obligated to pay all legal fees and expenses reasonably
incurred by the executive in seeking enforcement of contractual rights
following a change of control. In addition, upon involuntary termination
within 24 months following a change of control, any agreement by the executive
not to compete with HomeBase following termination of his employment would
cease to be effective.
INDEMNIFICATION AGREEMENTS
Prior to the Distribution, HomeBase will enter into indemnification
agreements with each of its directors and executive officers indemnifying them
against expenses, settlements, judgments and fines incurred in connection with
any threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that he or she is
or was a director or officer of HomeBase or served at HomeBase's request as a
director of another organization (except that indemnification is not provided
against judgments and fines in a derivative suit unless permitted by Delaware
law). An individual may not be indemnified if he or she is found not to have
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of HomeBase, except to the extent Delaware
law permits broader contractual indemnification. The indemnification
agreements provide procedures, presumptions and remedies designed to
substantially strengthen the indemnity rights beyond those provided by
HomeBase's Certificate of Incorporation and by Delaware law. Each of the Named
Waban Officers has entered into an indemnification agreement as described in
this paragraph.
PRICE RANGE OF WABAN COMMON STOCK
The Waban Common Stock is listed on the New York Stock Exchange and is
traded under the symbol "WBN". The following table sets forth, for the fiscal
periods indicated, the high and low sales prices per share of the Waban Common
Stock as reported on the New York Stock Exchange Composite Tape. On October
22, 1996, the trading date preceding public announcement of the proposed
Distribution, the high, low and closing prices per share of Waban Common Stock
on the New York Stock Exchange were $24 1/4, $23 5/8 and $23 7/8,
respectively. On May 28, 1997, the closing price per share of Waban Common
Stock on the New York Stock Exchange was $30.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995
1st Quarter............................................ $20 3/8 $15 7/8
2nd Quarter............................................ $16 3/4 $13 1/2
3rd Quarter............................................ $19 1/4 $15 1/2
4th Quarter............................................ $19 5/8 $15 1/4
FISCAL 1996
1st Quarter............................................ $27 1/8 $18 3/4
2nd Quarter............................................ $28 $17 7/8
3rd Quarter............................................ $27 5/8 $18 3/8
4th Quarter............................................ $28 3/8 $25
FISCAL 1997
1st Quarter............................................ $29 3/4 $26 3/8
2nd Quarter (through May 28, 1997)..................... $30 $26 3/8
</TABLE>
94
<PAGE>
OWNERSHIP OF WABAN COMMON STOCK
The table following sets forth information as to the beneficial ownership of
Waban Common Stock as of March 31, 1997 by (i) each person or entity known to
the Company to beneficially own more than 5% of the outstanding shares of
Waban Common Stock, (ii) each director or nominee for director of Waban, BJI
or HomeBase, (iii) each of the Named Waban Officers and all current directors
and executive officers of Waban as a group, (iv) each of the Named BJI
Officers and all persons expected to serve as directors or executive officers
of BJI as a group and (v) each of the Named HomeBase Officers and all persons
expected to serve as directors or executive officers of HomeBase as a group.
The following table also reflects the beneficial ownership of BJI Common Stock
and HomeBase Common Stock as of the Distribution Date as if the Distribution
took place on March 31, 1997 by each such person or group.
<TABLE>
<CAPTION>
SHARES OF WABAN PERCENT OF OUTSTANDING SHARES OF
NAME AND ADDRESS OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- ------------------- --------------------- --------------------------------
<S> <C> <C>
The Prudential
Insurance Company of
America............... 2,983,308(2) 9.09%
751 Broad Street
Newark, New Jersey
01102
Franklin Resources,
Inc. et al............ 2,516,800(3) 7.67%
777 Mariners Island
Blvd.
P.O. Box 7777
San Mateo, CA 94404
David J. Greene and
Company............... 2,428,555(4) 7.40%
599 Lexington Avenue
New York, New York
10022
Morgan Stanley Group
Inc. ................. 1,811,495(5) 5.52%
1585 Broadway
New York, NY 10036
S. James Coppersmith... 3,000 *
Stanley H.
Feldberg(6)........... 16,218 *
Kerry L. Hamilton...... 1,200 *
Allyn L. Levy.......... 6,000 *
Arthur F. Loewy(6)..... 9,632 *
Thomas J. Shields...... 1,500 *
Lorne R. Waxlax........ 8,000 *
Herbert J. Zarkin...... 413,932 1.25%
Sarah M. Gallivan...... 20,896 *
John J. Nugent......... 163,316 *
Allan P. Sherman....... 153,750 *
Edward J. Weisberger... 103,917 *
Frank D. Forward....... 30,922 *
Laura J. Sen........... 23,796 *
Michael T. Wedge....... 26,364 *
Thomas F. Gallagher.... 9,523 *
Scott Richards......... 13,774 *
William B. Langsdorf... 12,425 *
All Directors and
Executive Officers of
Waban as a Group (12
persons).............. 901,361 2.69%
All Directors and
Executive Officers of
BJI as a Group
(12 persons).......... 802,843 2.40%
All Directors and
Executive Officers of
HomeBase as a Group (8
persons).............. 724,953 2.17%
</TABLE>
95
<PAGE>
- --------
* Indicates less than 1%
(1) Includes the following shares of Common Stock that may be acquired upon
exercise of outstanding stock options which were exercisable on March 31,
1997 or within 60 days thereafter: Mr. Coppersmith, 1,000 shares; Mr.
Feldberg, 1,000 shares; Ms. Hamilton, 1,000 shares; Mr. Levy, 1,000
shares; Mr. Loewy, 1,000 shares; Mr. Shields, 1,000 shares; Mr. Waxlax,
1,000 shares; Mr. Zarkin, 301,250 shares; Ms. Gallivan, 16,000 shares; Mr.
Nugent, 142,750 shares; Mr. Sherman, 128,750 shares; Mr. Weisberger,
82,500 shares; Mr. Forward, 20,750 shares; Ms. Sen, 17,000 shares; Mr.
Wedge, 24,250 shares; Mr. Gallagher, 2,875 shares; Mr. Richards, 7,918
shares; Mr. Langsdorf, 11,825 shares; all Directors and Executive Officers
of Waban as a group, 678,250 shares; all Directors and Executive Officers
of BJI as a group, 609,500 shares; all Directors and Executive Officers of
HomeBase as a group, 537,118 shares. Unexercised Waban stock options held
by BJI employees as of the Distribution Date will be replaced by options
that are exercisable for shares of BJI Common Stock based upon a
conversion formula to be calculated after the Distribution Date. See
"Management of BJI--Incentive and Other Plans." See "Management of
HomeBase--Incentive and Other Plans" for a discussion of adjustments to
outstanding HomeBase options that will be made after the Distribution
Date.
(2) As of March 31, 1997 based on information provided to the Company by The
Prudential Insurance Company of America ("Prudential"). Prudential
reported that it has sole power to vote 144,200 shares and shared power to
vote 2,783,734 shares and has sole dispositive power with respect to
193,800 and shared dispositive power with respect to 2,783,734 shares.
Includes 5,818 shares issuable upon conversion of the Convertible
Debentures.
(3) As of March 31, 1997 based on information provided to the Company by
Franklin Resources, Inc., et al. Franklin Mutual Advisors, Inc. reported
that (i) it has sole power to vote or to direct the voting of 2,280,800
shares and Templeton Investment Counsel, Inc. has sole power to vote or
direct the voting of 236,000 shares; and (ii) it has sole dispositive
power with respect to 2,280,800 shares and Templeton Investment Counsel,
Inc. has sole dispositive power with respect to 236,000 shares.
(4) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the Commission by David J. Greene and Company, a registered
broker-dealer and investment adviser. David J. Greene and Company reported
that it has sole power to vote 152,400 shares and shared power to vote
1,546,500 shares and has sole dispositive power with respect to 152,400
shares and shared dispositive power with respect to 2,428,555 shares.
(5) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the SEC by Morgan Stanley Group Inc. ("Morgan Stanley"). Morgan
Stanley reported that it has shared voting power with respect to 1,708,895
shares and shared dispositive power with respect to 1,811,495 shares.
(6) Includes the following shares beneficially owned by the following persons
as trustees or custodians of which beneficial interest is disclaimed
unless otherwise indicated: Stanley H. Feldberg (8,366 shares). Excludes
the following shares beneficially owned by or held in trust by or for the
benefit of the respective spouses of the following persons and any shares
held in a trust for which the following persons are income beneficiaries,
as to which the following persons disclaim beneficial ownership: Stanley
H. Feldberg (84 shares); Arthur F. Loewy (413 shares).
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DESCRIPTION OF BJI CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As of the Distribution Date, BJI's authorized capital stock will consist of
200 million shares of capital stock, of which 180 million shares will be
designated as BJI Common Stock, $.01 par value per share, and 20 million
shares will be designated as preferred stock, $.01 par value per share (the
"Preferred Stock"). The following summary description of BJI's capital stock
is qualified in its entirety by reference to the BJI Certificate and the BJI
By-laws, as the same will be in effect on the Distribution Date.
COMMON STOCK
BJI will be authorized to issue 180 million shares of BJI Common Stock.
Based on the number of shares of Waban Common Stock outstanding as of March
31, 1997, approximately 32.8 million shares of BJI Common Stock are expected
to be issued and outstanding immediately following the Distribution Date. If
all of the Convertible Debentures are converted prior to the Distribution, an
additional 4,332,080 shares of BJI Common Stock would be outstanding
immediately following the Distribution Date.
Subject to the rights of holders of Preferred Stock and any other senior
class of stock, holders of BJI Common Stock will be entitled to receive such
dividends as may from time to time be declared by the Board of Directors of
BJI. Holders of BJI Common Stock will be entitled to one vote per share on
every question submitted to them at a meeting of stockholders or otherwise. In
the event of a liquidation, dissolution or winding up and distribution of the
assets of BJI, after paying or setting aside for the holders of Preferred
Stock and any other senior class of stock the full preferential amounts to
which they are entitled, and subject to the rights of any series of Preferred
Stock to participate pro rata with the BJI Common Stock with respect to
distributions, the holders of BJI Common Stock will be entitled to receive pro
rata all of the remaining assets of BJI available for distribution to BJI
stockholders. There are no pre-emptive rights with respect to BJI Common
Stock. The shares of BJI Common Stock to be issued in the Distribution will
not be liable to further calls or assessments.
PREFERRED STOCK
BJI will be authorized to issue up to 20 million shares of Preferred Stock
without further stockholder approval (except as may be required by applicable
stock exchange rules). Accordingly, the Board of Directors will be authorized
to determine, without any further action by the holders of the BJI Common
Stock, the dividend rights, dividend rate, conversion or exchange rights,
voting rights, rights and terms of redemption, liquidation preferences and
sinking fund terms of any series of Preferred Stock, the number of shares
constituting any such series, and the designation thereof. No shares of
Preferred Stock are expected to be issued and outstanding immediately
following the Distribution.
Should the BJI Board elect to exercise its authority to issue any additional
series of Preferred Stock, the rights, preferences and privileges of holders
of BJI Common Stock would be made subject to the rights, preferences and
privileges of such additional series.
CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
The internal affairs of BJI will be governed by, among other things, the
laws of the State of Delaware, the BJI Certificate and the BJI By-laws. The
BJI Certificate will contain several provisions, certain of which are
substantially similar to provisions in Waban's Certificate of Incorporation,
that may impede the acquisition of control of BJI by means of a tender offer,
proxy fight or other means. The BJI By-laws will also contain provisions,
certain of which are substantially similar to provisions contained in Waban's
By-laws, that could have an anti-takeover effect. Set forth below is a
description of such provisions in the BJI Certificate and the BJI By-laws, and
of certain related provisions of Delaware law.
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CLASSIFIED BOARD OF DIRECTORS
The BJI Certificate and BJI By-laws will provide for the BJI Board to be
divided into three classes of directors serving staggered three-year terms. As
a result, beginning in 1998, approximately one-third of the BJI Board will be
elected each year. The classified board is designed to ensure continuity and
stability in the BJI Board's leadership and policies in the event of a hostile
takeover attempt or proxy contest.
The classified board would significantly extend the time required to effect
any change in control of the BJI Board and may tend to discourage any hostile
takeover bid for BJI. Because only a minority of the directors will be elected
at each annual meeting, it would normally take at least two annual meetings
for holders of even a significant majority of BJI's voting stock to effect a
change in the composition of a majority of the BJI Board, absent approval of
the BJI Board. Because of the additional time required to change the
composition of the BJI Board, a classified board may also make the removal of
incumbent management more difficult, even if such removal would be beneficial
to stockholders generally, and may tend to discourage certain tender offers.
The Waban Board believes the classified board provisions will enable the BJI
Board to better protect the interests of BJI stockholders by aiding the BJI
Board to negotiate more favorable terms with a potential acquiror since such
acquiror would be faced with a delay in obtaining control of BJI absent
approval of the BJI Board.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The BJI By-laws will provide that the number of directors will be not less
than three, with the exact number of directors to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
BJI Board. The authority of the BJI Board to determine the exact number of
directors could be used to prevent a stockholder from obtaining majority
representation on the BJI Board simply by enlarging the BJI Board and filling
the new directorships with its own nominees. Moreover, the BJI Certificate
will provide that directors may be removed only for cause (as defined therein)
and only by a vote of at least 67% of the outstanding shares of BJI Common
Stock. This removal provision of the BJI Certificate may only be amended by
the supermajority stockholder votes described below under "--Amendment of
Certain Provisions of the BJI Certificate and the BJI By-laws."
The BJI By-laws will provide that vacancies on the BJI Board may only be
filled by the majority vote of the remaining directors and not by the
stockholders, except that in the case of newly created directorships, if the
remaining directors fail to fill any such vacancy, the stockholders may do so
at the next annual meeting or a special meeting called for that purpose. Any
director so elected to fill a vacancy shall hold office until the next
election of the class for which such director shall have been chosen and until
his or her successor shall have been elected and qualified. This provision may
have the effect in practice of limiting the power to fill vacancies only to
the BJI Board because the BJI By-laws will not permit stockholders to call a
special meeting (at which such vacancies could be filled). See "--Special
Meetings; Stockholder Action by Written Consent" below. In addition, this
vacancy provision of the BJI By-laws may not be amended by the stockholders
without the supermajority stockholder votes described below under "--Amendment
of Certain Provisions of the BJI Certificate and the BJI By-laws."
These removal and vacancy provisions of the BJI Certificate and the BJI By-
laws will preclude the holder of a majority of the BJI Common Stock from
removing incumbent directors, or otherwise taking advantage of vacancies on
the BJI Board, and simultaneously gaining control of the BJI Board by filling
such resulting vacancies with its own nominees.
SPECIAL MEETINGS; STOCKHOLDER ACTION BY WRITTEN CONSENT
The BJI By-laws will provide that special meetings of stockholders may be
called only by the President or the Chairman of the Board or by vote of a
majority of the entire BJI Board. This provision precludes independent
stockholder action to call a special meeting of stockholders for consideration
of any proposals, including
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proposals for certain takeovers or proposals to remove directors from office
prior to the annual meeting of stockholders, unless such officers or the BJI
Board believe consideration of such proposals to be appropriate.
The BJI Certificate will provide that all stockholder action must be
effected at a duly called meeting (and not by a consent in writing). This
provision will give all of the stockholders of BJI an opportunity to
participate in determining the appropriateness of any proposed action and
prevents the holders of a majority of the voting stock from using the written
consent procedure permitted by Delaware law to take action, including any
attempt to gain control of BJI.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER NOMINATIONS OF DIRECTORS AND OTHER
STOCKHOLDER PROPOSALS
The BJI By-laws will establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Board of Directors,
or by a stockholder of BJI who is entitled to vote at the meeting who has
given to the Secretary of BJI timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The
chairman of such meeting has the authority to make such determinations. Only
persons who are nominated by, or at the direction of, the Board of Directors,
or who are nominated by a stockholder who has given timely notice, in proper
form, to the Secretary prior to a meeting at which directors are to be elected
will be eligible for election as directors of BJI.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of BJI at the principal
executive offices of BJI not less than 70 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the ninetieth day prior to such annual meeting and not later than the
close of business on the later of the seventieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors at a special meeting of stockholders at which a
vacant newly created directorship is to be filled shall be delivered to the
Secretary of BJI at the principal executive offices of BJI not earlier than
the ninetieth day prior to such special meeting and not later than the close
of business on the later of the seventieth day prior to such special meeting
or the tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of BJI held by, the
stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of BJI entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information
regarding each nominee proposed by such stockholder as would have been
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission had each nominee been nominated, or intended to be
nominated, by the Board of Directors; and the consent of each nominee to serve
as a director if so elected.
CONSIDERATION OF NON-STOCKHOLDER CONSTITUENCIES
The BJI Certificate will provide that in determining whether to take or to
refrain from taking corporate action on any matter, the BJI Board may take
into account the interests of creditors, customers, employees and
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other constituencies of BJI and its subsidiaries, and the effect upon
communities in which BJI and its subsidiaries do business in addition to any
other considerations which the BJI Board may lawfully take into account. The
purpose of these provisions is to specifically authorize the BJI Board to
consider the interests of various constituencies of BJI and its subsidiaries,
in addition to the interests of stockholders. Waban believes that these
provisions are desirable to emphasize the BJI Board's authority to act to
maintain and protect BJI as an enterprise.
AMENDMENT OF CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
Under Delaware law, the stockholders may adopt, amend or repeal the by-laws,
and with the approval of the board of directors, the certificate of
incorporation. If the certificate so provides, the by-laws may be adopted,
amended or repealed by the board of directors. The BJI Certificate will
provide for such actions to be taken by the BJI Board, except as provided
below. The BJI Certificate will contain provisions requiring the affirmative
vote of the holders of at least 80% of all outstanding shares of BJI Common
Stock, (i) to alter, amend, repeal or adopt certain provisions of the BJI
Certificate (including the provisions of the BJI Certificate discussed above
in this Section and including the amendment provisions described in this
sentence) or (ii) to amend, alter or repeal provisions of the BJI By-laws
(including the provisions of the BJI By-laws described above in this Section).
These supermajority voting requirements will make it more difficult for
stockholders to make changes in the above-described provisions of the BJI
Certificate or the BJI By-laws, including changes designed to facilitate the
exercise of control over BJI. In addition, these supermajority voting
requirements will enable the holders of a minority of the outstanding shares
of BJI Common Stock to prevent the holders of a majority or more from amending
the above-described provisions of the BJI Certificate or the BJI By-laws. The
supermajority vote requirements may be difficult to obtain, since the holders
of at least 80% of all outstanding shares of BJI Common Stock must be present
or represented by proxy at any meeting at which any such amendment is proposed
and must vote in favor of such amendment.
PREFERRED STOCK
The BJI Certificate will authorize the BJI Board to determine (without any
further vote of the stockholders, except as may be required by applicable
stock exchange rules), with respect to any series of Preferred Stock, the
terms and rights of such series. See "Description of BJI Capital Stock--
Preferred Stock."
In connection with the planned adoption of its Preferred Stock Purchase
Rights, BJI will designate and reserve for issuance upon exercise of such
Rights 100,000 shares of Series A Junior Participating Preferred Stock. See
"--Preferred Stock Purchase Rights" below. Although BJI has no intention at
the present time of doing so, it could issue another series of Preferred Stock
that could, depending on the terms of such series, either impede or facilitate
the completion of a merger, tender offer or other takeover attempt. The BJI
Board is not expected to seek stockholder approval prior to any issuance of
authorized capital stock, including Preferred Stock, unless otherwise required
by law or stock exchange rules. Frequently, opportunities arise that require
prompt action, and the BJI Board believes that the delay occasioned by seeking
stockholder approval of a specific issuance could be detrimental to BJI and
its stockholders.
The provisions of the BJI Certificate and the BJI By-laws described above
pertaining to the classification of the BJI Board, the number, removal and
nomination of directors, the filling of vacancies on the BJI Board,
stockholder action by written consent, special meetings of stockholders and
the related amendment provisions will be made subject to the provisions of any
series of Preferred Stock or any other securities of BJI with respect to the
election of directors upon specified circumstances or the voting of such
securities, as the case may be.
CERTAIN RELATED PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law, a corporation is
prohibited from engaging in a business combination (as defined in said Section
203) with any Interested Stockholder (defined to include any person or group
owning more than 15% of the corporation's outstanding voting stock) for a
period of three years
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following the time such person or group became an Interested Stockholder. This
prohibition does not apply if (i) prior to such time, the corporation's Board
of Directors approved either the pertinent business combination or the
transaction in which the Interested Stockholder became such, (ii) upon
consummation of the transaction which resulted in such person or group first
becoming an Interested Stockholder, such Interested Stockholder owned at least
85% of the corporation's voting stock outstanding at the time the transaction
commenced (excluding, in the calculation of such 85% ownership level, shares
owned by persons who are both officers and directors and shares owned by
employee benefit plans under which participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) subsequent to such time, the
pertinent business combination is approved by the corporation's Board of
Directors and holders of at least two-thirds of the corporation's voting stock
not owned by the Interested Stockholder voting at an annual or special
stockholders' meeting. Any such special stockholders' meeting could only be
called in the manner described above under "--Special Meetings; Stockholder
Action by Written Consents." In addition, subject to certain notice and
related timing requirements, business combinations consisting of (x) mergers
or consolidations requiring stockholder approval, (y) certain asset sales or
related transactions and (z) tender or exchange offers for more than 50% of
the corporation's voting stock are permitted where such business combination
(i) is with a person or group which either was not an Interested Stockholder
during the preceding three years or which became such with the approval of the
corporation's Board of Directors and (ii) is approved (or not opposed) by a
majority of the disinterested directors (as defined in said Section 203).
Delaware law provides certain procedures for a corporation to elect not to
be covered by Section 203. BJI will not seek to adopt any procedure opting out
of Section 203 prior to the Distribution, and, consequently, absent such an
election in the future, any business combination involving an Interested
Stockholder must comply with these provisions of Delaware law. Following the
Distribution Date, any future election to opt out of Section 203 can be
effected only by an amendment to the BJI Certificate or the BJI By-laws. Any
such election would not be effective for a period of 12 months following the
date of adoption of such amendment and would not apply to a business
combination with any Interested Stockholder who became such prior to such date
of adoption.
INDEMNIFICATION AND INSURANCE
Under Delaware law, directors and officers of BJI, as well as other
employees and individuals, may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation (a "derivative action")) if they acted in good faith
in a manner they reasonably believed to be in or not opposed to the best
interests of BJI, and, with respect to any criminal action or proceeding had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with defense or settlement of such actions and Delaware law
requires court approval before there can be any indemnification where the
person seeking indemnification has been found liable to BJI.
The BJI Certificate will provide that each person who was or is made a party
to, or is involved in, any threatened, pending or completed action, suit,
proceeding or claim by reason of the fact that he or she is or was a director
or officer of BJI (or if such person is or was serving at the request of BJI
as a director, officer, employee or agent for any other entity) shall be
indemnified and held harmless by BJI, to the full extent authorized by
Delaware law, as in effect from time to time, against all expenses (including
attorneys' fees), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses to be provided by
the BJI Certificate do not apply to any action, suit, proceeding or claim
initiated by or on behalf of a person otherwise entitled to the benefit of
such provisions. Any person seeking indemnification under the BJI Certificate
shall be deemed to have met the standard of conduct required for such
indemnification unless the contrary shall be established. The BJI Certificate
will provide that the rights to indemnification and the payment of expenses
provided thereby shall not be
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exclusive of any other right which any person may have or acquire under any
statute, provision of the BJI Certificate or BJI By-laws, or otherwise. Any
repeal or modification of such indemnification provisions shall not adversely
affect any right or protection of a director or officer with respect to any
acts or omissions of such director or officer occurring prior to such repeal
or modification.
BJI will also enter into indemnification agreements with each of its
directors and officers. See "Management of BJI--Indemnification Agreements."
BJI is expected to maintain insurance, at its expense, to protect itself and
any of its directors, officers, employees or agents covered thereby against
any expense, liability or loss, whether or not BJI would have the power to
indemnify such person against such expense, liability or loss under the
Delaware law, so long as such insurance is available at reasonable rates.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Consistent with applicable provisions of Delaware law, the BJI Certificate
will limit a director's monetary liability to BJI or its stockholders for
breach of fiduciary duty, except for situations entailing bad faith,
intentional misconduct, a knowing violation of law, unlawful dividend payments
or stock purchases or redemptions, acquisition of improper personal benefit or
breach of duty of loyalty. Future amendments to such provisions of Delaware
law will automatically be applied to BJI without any requirement of
stockholder approval. Consequently, such amendments could result in the
expansion of directors' protections under such exculpation provisions without
additional consideration by stockholders. As a result of inclusion of this
provision, stockholders may be unable to recover monetary damages against
directors for actions which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders for any
particular case, stockholders may not have any effective remedy against the
challenged conduct. Thus, directors will have a personal stake, at the
potential expense of stockholders, in such exculpation provisions of the BJI
Certificate. Such exculpation provisions would not limit directors' liability
for violation of the federal securities laws. Such provisions will not apply
to officers who are not directors of BJI.
PREFERRED STOCK PURCHASE RIGHTS
The BJI Board is expected to authorize a Rights Agreement, pursuant to which
one preferred stock purchase right (a "Right") will be distributed together
with and will attach to each share of BJI Common Stock to be distributed in
the Distribution. The Rights will expire on the tenth anniversary of the
Distribution Date, unless earlier redeemed or exchanged. Each Right will
entitle the holder to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock (the "Series A Preferred Stock") of BJI
at an exercise price to be determined by the BJI Board prior to the
Distribution. The Rights will be exercisable only if a person or group has
acquired beneficial ownership of 20% or more of the outstanding BJI Common
Stock or commences a tender or exchange offer that would result in such person
or group owning 30% or more of the BJI Common Stock. If any person becomes the
beneficial owner of 20% or more of the shares of BJI Common Stock (an
"Acquiring Person"), except pursuant to a Permitted Offer (as defined in the
Rights Agreement), each Right not owned by such Acquiring Person will enable
its holder to purchase that number of shares of the BJI Common Stock which
equals the exercise price of the right divided by one-half of the current
market price of the BJI Common Stock at the date of the occurrence of the
event. In addition, if, after a person or group has become an Acquiring
Person, BJI is involved in a merger or other business combination transaction
in which it is not the surviving corporation or in connection with which the
BJI Common Stock is changed or exchanged (other than a merger which follows a
Permitted Offer), or it sells or transfers 50% or more of its assets or
earning power, each Right that has not previously been exercised or voided
will entitle its holder to purchase that number of shares of common stock of
such other person which equals the exercise price of the Right divided by one-
half of the current market price of such common stock at the date of the
occurrence of the event. BJI will generally be entitled to redeem the Rights
at $.01 per Right at any time until the tenth business day following public
announcement that a person or group has become an Acquiring Person.
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The Series A Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Subject to the rights of holders of any shares of any
Preferred Stock ranking prior and superior to the Series A Preferred Stock,
each share of Series A Preferred Stock will be entitled to a preferential
quarterly dividend payment of the greater of (a) $10.00 per share or (b) an
aggregate dividend of 1,000 times the dividend declared per share of BJI
Common Stock. In the event of liquidation, the holders of the Series A
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $1,000 per share and will be entitled to an aggregate payment of 1,000
times the payment made per share of BJI Common Stock. Each share of Series A
Preferred Stock will have 1,000 votes, voting together with the BJI Common
Stock. Finally, in the event of any merger, consolidation or other transaction
in which BJI Common Stock is exchanged, each share of Series A Preferred Stock
will be entitled to receive 1,000 times the amount received per share of BJI
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of one one-thousandth of a share of
Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of BJI Common Stock.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of BJI, including without limitation the right to vote or
receive dividends.
The Rights are designed to protect stockholders of BJI in the event of
unsolicited offers to acquire BJI and other coercive takeover tactics. The
Rights may cause substantial dilution to a person or group that attempts to
acquire BJI on terms not approved by the BJI Board, and therefore may render
an unsolicited takeover of BJI more difficult or less likely to occur.
However, the Rights should not interfere with any merger or other business
combination approved by the BJI Board since the Rights may be redeemed by BJI
at $.01 per Right prior to the tenth business day following public
announcement that a person or group has become an Acquiring Person.
APPROVAL OF AMENDMENT TO THE WABAN CERTIFICATE OF INCORPORATION
Approval of the Distribution Proposals will also constitute approval of an
amendment to the Certificate of Incorporation of Waban which would change the
name of Waban Inc. to "HomeBase, Inc.", effective only if the Distribution
occurs (the "Name Change"). Even if the Distribution Proposal is approved by
stockholders, the Waban Board may determine not to file the amendment to the
Waban Certificate reflecting the Name Change. In such case, Waban intends to
propose an alternative name change for a vote by the stockholders of Waban at
the next annual meeting of stockholders.
APPROVAL OF AMENDMENTS TO THE WABAN 1989 STOCK INCENTIVE PLAN AND CONTINUANCE
OF PLAN
Stockholders are being asked to approve (i) an amendment to Waban's 1989
Stock Incentive Plan (the "Waban 1989 Stock Incentive Plan") increasing the
maximum number of shares of Common Stock issuable under the Waban 1989 Stock
Incentive Plan from 5,750,000 to 7,250,000 and (ii) the continuance of the
Waban 1989 Stock Incentive Plan, on the terms described below, for a period
ending on the earlier of six months after the Distribution Date or June 14,
1999. Stockholder approval of the additional 1,500,000 shares is being sought
in part to provide the increased number of shares estimated to be required in
connection with the proportionate adjustment to be made to currently
outstanding options under the Waban 1989 Stock Incentive Plan as a result of
the Distribution. See "Management of HomeBase--Incentive and Other Plans."
As of March 31, 1997, options and stock-based awards had been granted under
the Waban 1989 Stock Incentive Plan with respect to an aggregate of 4,203,602
shares (net of cancellations and forfeitures) and 1,546,398 shares remained
available for future grants under the Waban 1989 Stock Incentive Plan. Waban
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believes the 1,500,000 additional shares, together with those which currently
remain available for grant and those which will become available for grant as
a result of the termination of outstanding options currently held by persons
who do not continue as employees of Waban after the Distribution, should
provide a sufficient number of shares to enable options and other awards to be
granted through the life of the Waban 1989 Stock Incentive Plan. The following
persons are expected to be eligible to participate in the Waban 1989 Stock
Incentive Plan immediately following the Distribution: five executive officers
and approximately 200 other key employees of HomeBase. The approval of the
amendment to, and continuance of, the Waban 1989 Stock Incentive Plan is not
conditioned upon the approval of any of the other Distribution Proposals.
DESCRIPTION OF THE WABAN 1989 STOCK INCENTIVE PLAN
The following summary of the Waban 1989 Stock Incentive Plan is qualified in
its entirety by reference to the plan, a copy of which may be obtained by
making a written request to the Secretary of the Company.
The Waban 1989 Stock Incentive Plan permits the granting of a variety of
stock and stock-based awards to officers and key employees of Waban and its
subsidiaries, including: stock options; restricted and unrestricted shares;
rights to receive cash or shares on a deferred basis or based on performance;
rights to receive cash or shares in respect of increases in the value of
Common Stock; cash payments sufficient to offset the federal ordinary income
taxes of participants resulting from transactions under the Waban 1989 Stock
Incentive Plan; loans to participants in connection with awards; and other
Common Stock-based awards, including the sale or award of convertible
securities, that meet the requirements of the Waban 1989 Stock Incentive Plan.
The Waban 1989 Stock Incentive Plan also provides that option holders may,
unless otherwise provided at the time of grant, surrender outstanding options
in exchange for a cash payment during the 60-day period following a Change of
Control of Waban (as defined in the Waban 1989 Stock Incentive Plan).
The Waban 1989 Stock Incentive Plan is administered by the Executive
Compensation Committee. The Executive Compensation Committee has full power to
select, from among the employees eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to any participants
and to determine the specific terms of each grant, subject to the provisions
of the Waban 1989 Stock Incentive Plan.
Subject to adjustment for stock splits and similar events, currently a total
of 5,750,000 shares of Common Stock may be issued under the Waban 1989 Stock
Incentive Plan, and no more than 250,000 shares per calendar year may be made
subject to awards granted to any single participant. If stockholders approve
the amendments at the Meeting, the maximum number of shares of Common Stock
issuable under the Plan will increase to 7,250,000 and the maximum number of
shares that may be made subject to awards granted to any single participant
will increase to 700,000 for the calendar year in which the Distribution Date
occurs. The Waban 1989 Stock Incentive Plan also permits the issuance of
securities convertible into Common Stock, including a maximum of 500,000
shares of preferred stock of Waban. Awards and shares which are forfeited,
reacquired by Waban or satisfied by a cash payment or otherwise without the
issuance of Common Stock are not counted toward the Plan limitations.
The Executive Compensation Committee is required to make appropriate
adjustments in connection with outstanding awards to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation or
similar event, the Committee may provide for substitution or adjustments or
may accelerate or, upon payment or other consideration for the vested portion
of any awards as the Executive Compensation Committee deems equitable,
terminate such awards (subject to the provisions described under "Change of
Control" below). The Board of Directors may at any time amend or discontinue
the Waban 1989 Stock Incentive Plan and the Executive Compensation Committee
may at any time amend or cancel awards (or provide substitute awards or
reduced exercise or purchase prices, including lower-priced awards upon the
termination of any then outstanding awards) and may accelerate awards and
waive conditions and restrictions on any awards to the extent it may determine
to be appropriate. However, no such action may adversely affect any rights
under outstanding awards without the holder's consent. Moreover, any amendment
that would cause the Waban 1989 Stock Incentive Plan to fail to satisfy any
then applicable incentive stock option rules under the Code shall be
ineffective unless approved by the stockholders.
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Persons eligible to participate in the Waban 1989 Stock Incentive Plan are
those full- or part-time officers and other key employees of Waban or its
subsidiaries who are responsible for or contribute to the management, growth
or profitability of the business of Waban, as selected from time to time by
the Executive Compensation Committee. Persons who are not employees of Waban
or a parent or subsidiary (as those terms are used in Section 422 of the Code)
are not eligible to receive grants of incentive options, as defined below. The
Waban 1989 Stock Incentive Plan limits the terms of awards to ten years (ten
years and one day in the case of non-statutory options, as defined below) and
currently prohibits the granting of awards after June 14, 1999.
The Waban 1989 Stock Incentive Plan is also being amended to revise or
delete certain existing provisions which made reference to old Rule 16b-3
under the Exchange Act.
Stock Options. The Waban 1989 Stock Incentive Plan permits the granting of
non-transferable stock options to acquire Common Stock that qualify as
incentive stock options ("incentive options") under Section 422 of the Code
and non-transferable stock options that do not so qualify ("nonstatutory
options"). The Executive Compensation Committee may provide that, upon
exercise of an option, the participant will receive shares of Restricted Stock
or Deferred Stock awards (see below). The exercise price of each option is
determined by the Executive Compensation Committee, but may not be less than
100% of the fair market value of the shares on the date of grant.
The Executive Compensation Committee determines the term of each option and
at what time or times each option may be exercised, and the exercisability of
options may be accelerated by the Executive Compensation Committee. In the
event of termination of employment by reason of normal retirement, disability
or death, an option may thereafter be exercised (to the extent it was then
exercisable) for a period of three years, or such shorter period as may be
specified by the Executive Compensation Committee at the time of grant,
subject to the stated term of the option. In the event of termination of
employment for any reason other than normal retirement, disability or death,
an option may thereafter be exercised, to the extent then exercisable, for
three months (or such longer period of up to three years as the Executive
Compensation Committee determines at or after the grant date) following
termination, subject to the stated term of the option. However, options cease
to be exercisable upon termination for Cause (as defined in the Waban 1989
Stock Incentive Plan).
Stock Appreciation Rights. The Executive Compensation Committee may grant
non-transferable stock appreciation rights entitling the holder upon exercise
to receive an amount, in any combination of cash or shares of unrestricted
Common Stock, Restricted Stock or Deferred Stock awards, not greater in value
than the increase since the date of grant in the value of the shares covered
by such right. Stock appreciation rights may be granted separately from or in
tandem with the grant of an option. In addition, the Executive Compensation
Committee may determine, if so requested by an option holder, that Waban will
pay the optionee, in cancellation of an option not accompanied by a related
stock appreciation right, any combination of cash, unrestricted Common Stock,
Restricted Stock or Deferred Stock awards not greater in value than the
increase since the date of grant in the value of the shares covered by the
option. The exercise value of a stock appreciation right is generally
determined by reference to the closing sale price of Common Stock on the date
of exercise.
Restricted Stock and Unrestricted Stock. The Executive Compensation
Committee may award shares of Common Stock subject to such conditions and
restrictions (including vesting) as the Committee may determine ("Restricted
Stock"). The purchase price, if any, of shares of Restricted Stock may not
exceed the par value of those shares.
The Executive Compensation Committee may at any time waive such
restrictions, including the waiver of vesting periods through acceleration.
Shares of Restricted Stock are non-transferable and if a participant who holds
shares of Restricted Stock terminates employment for any reason (including
death) prior to the lapse or waiver of the restrictions, Waban may require the
forfeiture of or repurchase the shares. A holder of Restricted Stock has all
rights of a stockholder with respect to such stock, subject only to conditions
and restrictions generally applicable to Restricted Stock or specifically set
forth in the Restricted Stock award agreement.
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The Executive Compensation Committee may grant shares (at no cost or for a
purchase price equal to par value or less) which are free from any
restrictions under the Waban 1989 Stock Incentive Plan ("Unrestricted Stock").
Deferred Stock. The Executive Compensation Committee may make Deferred Stock
awards under the Waban 1989 Stock Incentive Plan. These are non-transferable
awards entitling the recipient to receive shares of Common Stock without any
payment in one or more installments at a future date or dates. Receipt of
Deferred Stock may be conditioned on such matters as the Executive
Compensation Committee shall determine, including continued employment or
attainment of performance goals. Except as otherwise determined by the
Executive Compensation Committee prior thereto, all such rights terminate upon
the participant's termination of employment.
Performance Units. The Executive Compensation Committee may award non-
transferable Performance Units entitling the recipient to receive shares of
Common Stock or cash in such combinations as the Executive Compensation
Committee may determine. Payment of the award may be conditioned on
achievement of specified performance goals over a fixed or determinable period
and such other conditions as the Executive Compensation Committee may
determine. Except as otherwise determined by the Executive Compensation
Committee prior thereto, rights under a Performance Unit award terminate upon
a participant's termination of employment.
Other Stock-Based Awards. The Executive Compensation Committee may grant
other types of awards of, or based on, Common Stock ("Other Stock-Based
Awards"). Such awards may include securities convertible into or exchangeable
for shares of Common Stock upon such conditions, including attainment of
performance goals, as the Executive Compensation Committee may determine.
Convertible securities offered under Other Stock-Based Awards may be
convertible debt or shares, not exceeding in the aggregate 500,000 shares, of
convertible preferred stock.
The Executive Compensation Committee may determine the amount and form of
consideration, if any, payable upon the issuance or exercise of Other Stock-
Based Awards. However, Common Stock must be issued (including upon conversion,
exchange or otherwise) either as bonus stock or for a price equal to at least
50% of its fair market value on the grant or the effective date (or conversion
or exchange date), and securities convertible into Common Stock must be issued
as a bonus or for a price equal to at least 50% of their fair market value on
the grant or issuance date. The Executive Compensation Committee may prescribe
limitations or conditions requiring forfeiture by the participant, or
permitting repurchase by Waban, of Other Stock-Based Awards or related Common
Stock or securities, and may at any time accelerate or waive any such
limitations or conditions. The recipient of an Other Stock-Based Award will
have rights of a stockholder to the extent, if any, specified by the Executive
Compensation Committee in the Other Stock-Based Award agreement.
Supplemental Grants. The Executive Compensation Committee may authorize
loans from Waban in connection with awards granted or exercised under the
Waban 1989 Stock Incentive Plan. Loans may be for up to ten years, may be
secured or unsecured and may be with or without recourse against the
participant. Each loan shall be subject to such additional terms and
conditions and shall bear such rate of interest, if any, as the Executive
Compensation Committee shall determine. However, the amount of any loan may
not exceed the total exercise or purchase price plus an amount equal to the
cash payment which could have been paid to the borrower in respect of taxes as
described in the next paragraph.
The Executive Compensation Committee may at any time grant to a participant
the right to receive a cash payment in connection with taxable events
(including the lapse of restrictions) under grants or awards. The amount of
such payment is determined in relation to the taxable amount recognized in
respect of such other grant or award, based on the maximum marginal federal
tax rate (or such lower rate as the Executive Compensation Committee may
determine) in effect at the time such taxable income is recognized. The amount
of any such payment may be up to but may not exceed the amount estimated to be
necessary to cover the federal income tax so calculated as due with respect to
such other grant or award and with respect to the cash payment itself.
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Dividends and Deferrals. The Executive Compensation Committee may require or
permit the immediate payment or the waiver, deferral or investment of
dividends paid on awards under the Waban 1989 Stock Incentive Plan and amounts
equal to dividends which would have been paid if shares subject to an award
had been outstanding, and may permit participants to make elections to defer
receipt of benefits under the Waban 1989 Stock Incentive Plan. The Executive
Compensation Committee may also provide for the accrual of interest or
dividends on amounts deferred under the Waban 1989 Stock Incentive Plan on
such terms as the Executive Compensation Committee may determine.
Change of Control. The Waban 1989 Stock Incentive Plan provides that, in the
event of a Change of Control of Waban, unless otherwise expressly provided at
the time of grant, all stock options and stock appreciation rights will become
immediately exercisable. Restrictions and conditions on other awards will
automatically be deemed satisfied to the extent that the Executive
Compensation Committee may determine (whether at or after the time of grant).
The definition of Change of Control, however, provides that, unless otherwise
determined by the Executive Compensation Committee, a transaction shall not be
deemed to be a Change of Control with respect to a participant if the
participant takes part in the transaction (within the meaning of the
definition).
Also in the event of a Change of Control, during the 60-day period following
such Change of Control each optionholder (other than the holder of an option
as to whom the Executive Compensation Committee determined at the time of
grant that the rights described below would not apply, and other than any
optionholder who initiates the Change of Control or who participates in the
transaction in the manner specified in the definition of Change of Control)
may, upon notice to Waban, surrender outstanding options to Waban in exchange
for a cash payment equal to the excess of the fair market value (subject to
the special rule for nonstatutory options described below) on the date of
surrender of the shares subject to the option over the aggregate exercise
price. For purposes of the surrender of nonstatutory options, "fair market
value" means the highest reported sales price, regular way, of a share of
Common Stock on the New York Stock Exchange Composite Transactions Index
during the 60-day period prior to the Change of Control or, if higher (in the
case of a Change of Control occurring by reason of certain acquisitions), the
highest per share price paid or reported in connection with such acquisition.
The granting of awards under the Waban 1989 Stock Incentive Plan is
discretionary, and except for the additional options to be issued to adjust
for the Distribution (as described under the caption "Management of HomeBase--
Incentive and Other Plans"), Waban cannot now determine the number or type of
awards to be granted in the future to any particular person or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the issuance and exercise of options to the optionee and the
registrant, while accurate, does not purport to be a complete description of
federal tax aspects of the Waban 1989 Stock Incentive Plan.
Incentive Options. The grant of an incentive option does not produce taxable
income to the optionee or a deduction to Waban. If an incentive option is
exercised while the optionee is employed or within three months following the
termination of employment (twelve months in the case of termination of
employment because of permanent disability), or after the optionee's death if
death occurs during the foregoing periods, exercise of the option will in
general also not produce taxable ordinary income to the optionee or a
deduction to Waban. For alternative minimum tax purposes, however, such
exercise will increase the optionee's "alternative minimum taxable income" and
may result in a liability to pay the alternative minimum tax.
To the extent that the aggregate fair market value of the stock (determined
at time of grant) with respect to which incentive options granted under all
option plans of Waban and its subsidiary corporations are exercisable for the
first time by an individual during any calendar year exceeds $100,000, such
options will be treated as nonstatutory stock options.
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If stock acquired upon the exercise of an incentive option is disposed of
more than two years after the date the option is granted and one year after
the date the option is exercised, gain or loss recognized upon disposition of
the stock will be capital gain or loss. If these one-year and two-year holding
period requirements are not satisfied, the optionee will realize ordinary
income at the time of disposition of the stock. (A disposition giving rise to
such ordinary income is referred to as "disqualifying disposition".) Upon a
disqualifying disposition, an optionee will generally realize ordinary income
equal to the lesser of (a) the difference between fair market value of the
stock on the date of exercise and the exercise price, or (b) the difference
between the sales price of the shares and the exercise price, and Waban will
be entitled to a deduction equal to such amount. Any additional gain
recognized in the disposition will be a capital gain for which no deduction
will be available to the Company.
If an optionee exercises an incentive option in whole or in part by
surrendering previously acquired stock, no gain or loss is recognized on the
exchange of the previously acquired shares unless the exchange results in a
disqualifying disposition of the shares surrendered. Such a disqualifying
disposition may result in the realization of ordinary income.
Nonstatutory Options. The grant of a nonstatutory option does not produce
taxable income to the optionee or a deduction to Waban. An optionee exercising
a nonstatutory option recognizes ordinary income in the amount of the
difference between the fair market value of the shares at the time of exercise
and the exercise price of the shares, and Waban is entitled to a corresponding
deduction. An optionee will have a basis in the shares acquired upon exercise
of the option equal to the exercise price plus ordinary income recognized upon
exercise of the option. Upon selling the shares, the optionee will recognize a
capital gain or loss equal to the difference between the sale price of the
shares and the optionee's basis in the shares. The capital gain or loss will
be a long term gain or loss if the shares are held more than one year from the
date of exercise.
Waban will have a withholding obligation with respect to any ordinary income
recognized by an optionee.
If an optionee exercises a nonstatutory option by surrendering previously
acquired stock, no gain or loss is recognized on the exchange for an
equivalent number of new shares. The optionee will recognize ordinary income,
and Waban will be entitled to a corresponding deduction, in general equal to
the fair market value of any new shares received in excess of the number of
previously acquired shares surrendered in the exchange.
Surrender of Options. If an optionee surrenders all or any portion of an
option in exchange for cash or stock, the optionee realizes ordinary income
subject to withholding (and Waban is in general entitled to a deduction) equal
to the amount of cash and the fair market value of the stock received.
REASONS FOR STOCKHOLDER APPROVAL
The Waban 1989 Stock Incentive Plan, as proposed to be amended, has been
designed so that options granted under the plan will qualify as performance-
based compensation and, accordingly, not be subject to the deduction limit
imposed by Section 162(m) of the Code. However, in order to qualify as
performance-based compensation, and thereby ensure the Federal tax
deductibility of options granted under the Waban 1989 Stock Incentive Plan,
stockholder approval of the amendment and continuance of the plan at the
Meeting is required. If the stockholders do not vote to continue the Waban
1989 Stock Incentive Plan, the Company will not grant any further options or
make any further awards of restricted stock under the Waban 1989 Stock
Incentive Plan and the plan will terminate. However, options issued prior to
the date of termination will not be affected.
APPROVAL OF WABAN 1997 STOCK INCENTIVE PLAN
Stockholders are being asked to approve the Waban 1997 Stock Incentive Plan
(the "Waban 1997 Plan"). Following the Distribution Date, except for
replacement awards to be granted under the Waban 1989 Stock Incentive Plan in
connection with the Distribution, Waban generally expects to grant equity
incentive awards under the Waban 1997 Plan.
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Subject to adjustment in the event of stock splits and other similar events,
awards may be made under the Waban 1997 Plan for up to the sum of (i)
1,000,000 shares of Waban Common Stock plus (ii) such additional number of
shares of Waban Common Stock (up to 2,500,000) as is equal to the sum of (x)
the number of shares which remain available for grant under the Waban 1989
Stock Incentive Plan upon its expiration and (y) the number of shares subject
to awards granted under the Waban 1989 Stock Incentive Plan which are not
actually issued because such awards expire or otherwise result in shares not
being issued.
SUMMARY OF THE WABAN 1997 PLAN
The following summary of the Waban 1997 Plan is qualified in its entirety by
reference to the plan, a copy of which may be obtained by making a written
request to the Secretary of Waban.
Description of Awards
The 1997 Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards and other stock-based
awards, including the grant of shares based upon certain conditions, the grant
of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may not be granted at
an exercise price which is less than 100% of the fair market value of the
Common Stock on the date of grant and may not be granted for a term in excess
of ten years. The 1997 Plan permits the Board to determine the manner of
payment of the exercise price of options, including through payment by cash,
check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the
end of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the Waban 1997 Plan, the Waban Board has the
right to grant other Awards based upon the Common Stock having such terms and
conditions as the Board may determine, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of Waban and its
subsidiaries will be eligible to receive Awards under the Waban 1997 Plan,
including, after the Distribution, five executive officers and approximately
200 other key employees of HomeBase. The maximum number of shares with respect
to which an Award may be granted to any participant under the Waban 1997 Plan
may not exceed 500,000 shares per calendar year.
The granting of Awards under the Waban 1997 Plan is discretionary, and Waban
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group.
Administration
The Waban 1997 Plan is administered by Waban's Board of Directors. The Board
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Waban 1997 Plan and to interpret the
provisions of the Waban 1997 Plan. Pursuant to the terms of the Waban 1997
Plan, the Board of Directors may delegate authority under the Waban 1997 Plan
to one or more committees of the Board, and subject to certain limitations, to
one or more executive officers of the Company. The Board has authorized the
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Waban Executive Compensation Committee to administer certain aspects of the
Waban 1997 Plan, including the granting of options to executive officers.
Subject to any applicable limitations contained in the Waban 1997 Plan, the
Board of Directors, the Waban Executive Compensation Committee, or any other
committee or executive officer to whom the Board delegates authority, as the
case may be, selects the recipients of Awards and determines (i) the number of
shares of Common Stock covered by options and the dates upon which such
options become exercisable, (ii) the exercise price of options (which may not
be less than 100% of fair market value on the date of grant), (iii) the
duration of options (which may not exceed ten years), and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the Waban 1997 Plan and any outstanding Awards to reflect
stock dividends, stock splits and certain other events. In the event of a
merger, liquidation or other Acquisition Event (as defined in the Waban 1997
Plan), the Board of Directors is authorized to provide for outstanding Options
or other stock-based Awards to be assumed or substituted for, to accelerate
the Awards to make them fully exercisable prior to consummation of the
Acquisition Event or to provide for a cash-out of the value of any outstanding
options. In addition, upon the occurrence of a Change of Control Event (as
defined in the Waban 1997 Plan) all Options and stock appreciation rights then
outstanding will automatically become immediately exercisable in full and the
restrictions and conditions on all other Awards then outstanding shall
automatically be deemed to be waived to the extent, if any, specified by the
Board at or after the time of grant. If any Award expires or is terminated,
surrendered, canceled or forfeited, the unused shares of Common Stock covered
by such Award will again be available for grant under the Waban 1997 Plan.
Amendment or Termination
No Award may be made under the Waban 1997 Plan after the tenth anniversary
of the Distribution Date, but Awards previously granted may extend beyond that
date. The Board of Directors may at any time amend, suspend or terminate the
Waban 1997 Plan, except that no Award designated as subject to Section 162(m)
of the Code by the Board of Directors after the date of such amendment shall
become exercisable, realizable or vested (to the extent such amendment was
required to grant such Award) unless and until such amendment shall have been
approved by the Company's stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, Awards under the Waban 1997 Plan will be
treated in the same manner as described above under "Approval of Amendments to
the Waban 1989 Stock Incentive Plan and Continuance of the Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The Waban 1997 Plan has been designed so that options granted under the plan
will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
federal tax deductibility of options granted under the Waban 1997 Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the Waban 1997 Plan, the plan will not be
effective and Waban will not grant any options or make any stock-based awards
under the plan. The approval of the Waban 1997 Plan is not conditioned upon
the approval of any of the other Distribution Proposals.
APPROVAL OF THE BJI 1997 REPLACEMENT STOCK INCENTIVE PLAN
Stockholders are being asked to approve the BJI 1997 Replacement Stock
Incentive Plan (the "BJI Replacement Plan") pursuant to which BJI intends to
grant replacement awards to holders of awards under the Waban 1989 Plan who
become employees of BJI in connection with the Distribution as described under
"Management of BJI--Incentive and Other Plans."
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DESCRIPTION OF THE BJI REPLACEMENT PLAN
The principal provisions of the BJI Replacement Plan are identical to those
of the Waban 1989 Stock Incentive Plan. See "Approval of Amendments to the
Waban 1989 Stock Incentive Plan and Continuance of Plan--Description of the
Waban 1989 Stock Incentive Plan." The following summary of the BJI Replacement
Plan is qualified in its entirety by reference to the plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. In addition, copies may be obtained by
making a written request to the Secretary of the Company.
Under the terms of the BJI Replacement Plan, a maximum of 2,500,000 shares
(subject to adjustment as provided in the plan) of authorized but unissued BJI
Common Stock will be reserved for issuance and no more than 700,000 shares per
calendar year may be made subject to awards granted to any single participant.
Grants of awards may be made under the BJI Replacement Plan during the period
beginning on the Distribution Date and ending on the date which is six months
after the Distribution Date. The following persons are expected to be eligible
to participate in the BJI Replacement Plan immediately following the
Distribution: six executive officers and approximately 200 other key employees
of BJI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, awards under the BJI Replacement Plan will
be treated in the same manner as described above under "Approval of Amendments
to the Waban 1989 Stock Incentive Plan and Continuance of Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The BJI Replacement Plan has been designed so that options granted under the
plan will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of options granted under the BJI Replacement Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the BJI Replacement Plan, the plan will
not be effective and the Company will not grant any options or make any stock
based awards under the plan.
APPROVAL OF THE BJI 1997 STOCK INCENTIVE PLAN
Stockholders are being asked to approve the BJI 1997 Stock Incentive Plan
(the "BJI 1997 Plan"). Following the Distribution Date, except for replacement
awards to be granted under the BJI Replacement Plan in connection with the
Distribution, BJI generally expects to grant equity incentive awards under the
BJI 1997 Plan.
Subject to adjustment in the event of stock splits and other similar events,
awards may be made under the BJI 1997 Plan for up to the sum of (i) 1,000,000
shares of BJI Common Stock plus (ii) such additional number of shares of BJI
Common Stock (up to 2,000,000) as is equal to the sum of (x) the number of
shares which remain available for grant under the BJI Replacement Plan upon
its expiration and (y) the number of shares subject to awards granted under
the BJI Replacement Plan which are not actually issued because such awards
expire or otherwise result in shares not being issued.
SUMMARY OF THE BJI 1997 PLAN
The principal provisions of the BJI 1997 Plan are identical to those of the
Waban 1997 Plan. See "Approval of Waban 1997 Stock Incentive Plan." The
summary of the BJI 1997 Plan contained herein is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of BJI.
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Officers, employees, directors, consultants and advisors of BJI and its
subsidiaries will be eligible to receive Awards under the BJI 1997 Plan,
including, after the Distribution, six executive officers and approximately
200 other key employees of BJI. The maximum number of shares with respect to
which an Award may be granted to any participant under the BJI 1997 Plan may
not exceed 500,000 shares per calendar year.
The granting of Awards under the BJI 1997 Plan is discretionary, and Waban
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, Awards under the BJI 1997 Plan will be
treated in the same manner as described above under "Approval of Amendments to
the Waban 1989 Stock Incentive Plan and Continuance of the Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The BJI 1997 Plan has been designed so that options granted under the plan
will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
federal tax deductibility of options granted under the BJI 1997 Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the BJI 1997 Plan, the Plan will not be
effective and the Company will not grant any options or make any stock based
awards under the Plan.
APPROVAL OF THE BJI MANAGEMENT INCENTIVE PLAN
Stockholders are being asked to approve the BJI Management Incentive Plan
(the "BJI MIP") which is intended to provide executive officers and other key
employees of BJI with cash incentive awards, based upon the attainment of
annual performance goals. The BJI MIP is similar to the Waban Management
Incentive Plan ("WMIP") and will provide for continuation or replacement
incentive awards to BJI's employees currently covered by the Waban Management
Incentive Plan.
DESCRIPTION OF BJI MANAGEMENT INCENTIVE PLAN
The following summary of the BJI MIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Key employees of BJI, as designated by the BJI Executive Compensation
Committee, will be eligible to receive cash awards under the BJI MIP. The
total number of participants in the BJI MIP is expected to be approximately
600. The following persons are expected to participate in the BJI MIP: (i) six
executive officers, including the Named BJI Officers; and (ii) approximately
600 other employees of the Company.
At the commencement of the performance period (i.e., the fiscal year), the
BJI Executive Compensation Committee will establish performance goals and
corresponding target awards, based on one or more objective performance
criteria. Such goals, criteria and target awards may vary among participants.
The performance criteria are expected to be one or more of the following
objective measurements: operating income, pre-tax income, net income, gross
profit dollars, costs, any of the preceding measures as a percent of sales,
earnings per share, sales, return on equity, and return on investment.
Awards will be based upon the level of achievement of the pre-established
performance goals. Awards will be paid in cash as soon as practicable after
the performance period, except to the extent deferred under any deferred
compensation plan which may be adopted by BJI and applicable to the awards.
Under the BJI MIP, the BJI Executive Compensation Committee may not make any
adjustments to the performance criteria to increase the incentive payment to
executive officers subject to Section 162(m) of the Code, except to make
appropriate
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adjustments in the event of certain specified types of transactions; provided
that in no case shall any such adjustment be made if it would cause an award
to no longer qualify as performance-based compensation under Section 162(m) of
the Code.
Under the BJI MIP, no participant may receive a cash award in excess of
$1,000,000 in any calendar year or, if less, 100% of the base salary earned by
the participant for the applicable performance period.
The granting of awards under the BJI MIP will be discretionary, and except
for continuation and replacement incentive awards anticipated to be granted in
connection with the Distribution in replacement of existing awards under the
WMIP, BJI cannot now determine the nature of the awards to be granted in the
future to any particular person or group. The continuation incentive awards
will be granted on substantially the same basis as existing awards under the
WMIP, with modifications necessary to reflect changes resulting from the
Distribution. The replacement incentive awards will be granted on such terms
and conditions as the BJI Executive Compensation Committee deems appropriate.
The BJI Executive Compensation Committee shall have full power to administer
and interpret the BJI MIP and to establish rules for its administration. The
BJI Executive Compensation Committee or the BJI Board may amend, suspend or
terminate the BJI MIP at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI MIP has been designed so that cash awards made under the BJI MIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI MIP, stockholder
approval of the BJI MIP at the Meeting is required. If the stockholders do not
vote to approve the BJI MIP, the plan will not become effective and the
Company will not grant any awards under the plan.
APPROVAL OF THE BJI GROWTH INCENTIVE PLAN
Stockholders are being asked to approve the BJI Growth Incentive Plan (the
"BJI GIP"), which is intended to provide high-level executives of BJI with
cash awards, based upon the growth and performance of BJI. The BJI GIP is
designed to enhance the ability of BJI to attract and retain individuals of
exceptional managerial talent upon whom the sustained progress, growth and
profitability of BJI will depend. The BJI GIP is similar to the Waban Growth
Incentive Plan ("WGIP") and will provide for continuation or replacement
incentive awards to BJI's employees currently covered by the WGIP.
DESCRIPTION OF BJI GROWTH INCENTIVE PLAN
The following summary of the BJI GIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Employees in high-level management positions in BJI, as selected by the BJI
Executive Compensation Committee, will be eligible to receive cash awards
under the BJI GIP. The total number of participants in the BJI GIP immediately
following the Distribution is expected to be 23. The following persons are
expected to participate in the BJI GIP: (i) six executive officers, including
the Named BJI Officers, and (ii) approximately 17 non-executive officer
employees of BJI.
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It is anticipated that awards granted under the WGIP prior to the
Distribution will be replaced by continuation or replacement incentive awards
under the BJI GIP for Waban employees who become employees of BJI.
Each participant in the BJI GIP will be eligible to receive a cash award for
each award period, which is expected to consist of a certain number of fiscal
years. Each participant's cash award will correspond to BJI's level of
performance or growth during such award period. Such growth is determined by
and based upon one or more of the following objective measures of performance
or growth, as selected by the BJI Executive Compensation Committee at the
beginning of the award period: operating income, pre-tax income, net income,
costs, any of the preceding measures as a percent of sales, earnings per
share, sales, return on equity, and return on investment. All relevant factors
upon which the cash award is expected to be based (e.g., performance
measurement, length of award period, relation between performance and cash
award) will be determined at the beginning of the award period by the BJI
Executive Compensation Committee.
Under the BJI GIP, no participant may receive a cash award in excess of
$2,000,000 in any calendar year.
Cash awards will be paid as soon as practicable after the end of the award
period, and, in the BJI Executive Compensation Committee's discretion, payment
of a portion of the cash award may be deferred until one or more years
thereafter. Under the BJI GIP, the BJI Executive Compensation Committee may
not make any adjustments to the performance criteria to increase the incentive
payment to executive officers subject to Section 162(m) of the Code, except to
make appropriate adjustments in the event of certain specified types of
transactions; provided that in no case shall any such adjustment be made if it
would cause an award to no longer qualify as performance-based compensation
under Section 162(m) of the Code.
In the event of a change of control (as defined), the participants are
entitled to a cash award based on BJI's performance for that portion of the
award period immediately preceding the change of control.
The granting of awards under the BJI GIP will be discretionary, and except
for continuation and replacement incentive awards anticipated to be granted in
connection with the Distribution in replacement of existing awards under the
WGIP, BJI cannot now determine the nature of the awards to be granted in the
future to any particular person or group. The continuation incentive awards
will be granted on substantially the same basis as existing awards under the
WGIP, with modifications necessary to reflect changes resulting from the
Distribution. The replacement incentive awards will be granted on such terms
and conditions as the BJI Executive Compensation Committee deems appropriate.
The BJI Executive Compensation Committee will have full power to administer
and interpret the BJI GIP and to establish rules for its administration. The
BJI Executive Compensation Committee or the BJI Board may amend, suspend or
terminate the BJI GIP at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI GIP has been designed so that cash awards made under the BJI GIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI GIP, stockholder
approval of the BJI GIP at the Meeting is required. If the stockholders do not
vote to approve the BJI GIP, the plan will not become effective and the
Company will not grant any awards under the plan.
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APPROVAL OF THE BJI 1997 DIRECTOR STOCK OPTION PLAN
Stockholders are being asked to approve the BJI 1997 Director Stock Option
Plan (the "BJI Director Plan"), which is intended to increase the proprietary
interest in BJI of non-employee directors by providing a portion of their
compensation in the form of options to acquire shares of BJI Common Stock and
thereby align the interests of those directors more closely with the interests
of the stockholders.
DESCRIPTION OF THE BJI DIRECTOR PLAN
The principal provisions of the BJI Director Plan are summarized under the
caption "Management of BJI-- Director Compensation." Such summary is qualified
in its entirety by reference to the plan, a copy of which has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
forms a part. In addition, copies may be obtained by making a written request
to the Secretary of the Company.
Under the terms of the BJI Director Plan, a maximum of 150,000 shares
(subject to adjustment as provided in the plan) of authorized but unissued BJI
Common Stock will be reserved for issuance.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, options granted under the BJI Director Plan
are treated as non-statutory options in the manner described above under
"Approval of Amendment to the Waban 1989 Stock Incentive Plan--Certain Federal
Income Tax Consequences."
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ELECTION OF DIRECTORS
The Board of Directors has voted to fix the number of directors of Waban at
eight. The Company's Restated Certificate of Incorporation and by-laws provide
for the classification of the Board of Directors into three classes, as nearly
equal in number as possible, with the term of office of one class expiring
each year. The enclosed proxy will be voted to elect the three nominees named
below, unless otherwise instructed, as directors for a term of three years
expiring at the 2000 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified (provided, however, that upon the
Distribution, the Board of Directors is expected to be reconstituted as
described above in this Proxy Statement/Prospectus). Stanley H. Feldberg,
whose term of office will expire at the Annual Meeting, will not stand for re-
election after serving as a director since the Company's inception. If any
nominee should become unavailable, such proxy will be voted either for a
substitute nominee designated by the Board of Directors or such lesser number
of directors as may be designated by the Board of Directors, unless
instructions are given to the contrary. Management does not anticipate that
any of the nominees will become unavailable. The nominees as directors and
incumbent directors are as follows:
NOMINEES AS DIRECTORS--TERMS EXPIRING 2000
Kerry L. Hamilton, 46, has been a director of the Company since September
1994. Ms. Hamilton is Vice President, Marketing for Marshalls. Prior to
joining Marshalls in April 1996, Ms. Hamilton was Vice Chairman of Pamet River
Partners, a marketing consulting firm, for two years. Prior to joining Pamet
River Partners, Ms. Hamilton spent 17 years at Ingalls, Quinn & Johnson in
various capacities, during which time she was a member of the Board of
Directors, a member of the Agency Executive Committee and Senior Vice
President, Director of Media Services. Ms. Hamilton is a member of the Audit
Committee.
Arthur F. Loewy, 68, has been a director of the Company since February 1989.
He is a director of The TJX Companies, Inc. and was Chief Financial Officer
and Executive Vice President--Finance of Zayre Corp. from 1982 to 1989. Mr.
Loewy is Chairman of the Audit Committee, Chairman of the Finance Committee
and a member of the Executive Committee.
Edward J. Weisberger, 55, has been Senior Vice President and Chief Financial
Officer of Waban since September 1994. From 1989 to 1994 he was Vice
President--Finance of the Company.
INCUMBENT DIRECTORS--TERMS EXPIRING 1999
Allyn L. Levy, 69, has been a director of the Company since October 1993. He
has been a private investor since 1988. From 1974 until 1986, he was founder,
Chairman of the Board and Chief Executive Officer of Patriot Bank Corporation,
a commercial bank holding company. He is a director of CV Reit, Inc. Mr. Levy
is a member of the Audit Committee.
Lorne R. Waxlax, 63, has been a director of the Company since January 1990
and Chairman of the Board of the Company since June 1996. He was an Executive
Vice President of The Gillette Company from 1985 to 1993. Mr. Waxlax is also a
director of Quaker State Corporation, The Iams Company, Hon Industries, Inc.
and Clean Harbors, Inc. Mr. Waxlax is Chairman of the Executive Committee and
a member of the Finance Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1998
S. James Coppersmith, 64, has been a director of the Company since December
1993. He was President and General Manager of WCVB-TV, a Boston television
station, from 1990 to 1994. From 1982 to 1990 he was Vice President and
General Manager of WCVB-TV. Mr. Coppersmith is a director of Kushner-Locke
Company, Chyron Corporation, All-Comm Media Corporation, Sun America Asset
Management Corporation and Uno Restaurant Corporation, Chairman of the Board
of Trustees of Emerson College and a member of the Board of Governors of the
Boston Stock Exchange. Mr. Coppersmith is a member of the Executive
Compensation Committee.
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Thomas J. Shields, 50, has been a director of the Company since June 1992.
He is President of Shields & Company, Inc., an investment banking firm. Mr.
Shields is also a director of Seaboard Corporation and Versar, Inc. Mr.
Shields is Chairman of the Executive Compensation Committee and a member of
the Executive Committee.
Herbert J. Zarkin, 58, has been a director, President and Chief Executive
Officer of the Company since May 1993 and was President of the BJ's Division
from May 1990 to May 1993. From April 1989 to May 1993 he was Executive Vice
President of the Company. Mr. Zarkin is a member of the Executive Committee
and the Finance Committee.
BOARD AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, decisions concerning compensation of Waban's executive
officers were made by the Executive Compensation Committee. Until June 11,
1996, the Executive Compensation Committee consisted of Messrs. Waxlax,
Coppersmith and Feldberg. Effective upon his election as Chairman of the Waban
Board on June 11, 1996, Mr. Waxlax ceased to serve on the Executive
Compensation Committee and was replaced by Mr. Shields.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The following report has been submitted to the Board of Directors of Waban
by its Executive Compensation Committee, in compliance with requirements of
the Commission:
As members of the Executive Compensation Committee ("ECC") of Waban, it is
our responsibility to review the Company's compensation policies and programs,
approve or, with respect to the Chief Executive Officer, recommend to the
Board of Directors for approval, incentive plan awards and all elements of
compensation for the Company's executive officers, and administer the
Company's stock incentive plans. All of the members of the ECC are
independent, non-employee directors.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's executive compensation program is designed to provide
competitive levels of compensation that:
--Integrate compensation with the achievement of the Company's annual and
long-term performance goals and business strategies
--Recognize management initiatives and achievements
--Reward outstanding corporate performance
--Attract and retain key executives critical to the long-term success of
the Company
--Link management's long-term interests with stockholders' interests
through stock-based awards
With respect to Section 162(m) of the Code, which limits the ability of
publicly-held corporations to deduct non-performance-based compensation for
certain executive officers, the ECC believes that the Company's compensation
plans should be structured to satisfy the requirements for tax deductibility,
unless doing so is determined by the ECC to be not in the best interests of
the Company.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
The total compensation program for all executive officers consists of both
cash and equity-based compensation and takes into account applicable
provisions of employment agreements of such officers. Through stock options
and stock grants available under the Company's incentive stock plan, the ECC
seeks to align executive officers' long-range interests with those of
stockholders by providing executive officers with the opportunity to
participate in the growth of the Company's stock value. The ECC is advised by
Frederic W. Cook & Co., Inc. ("Cook"), compensation consultants, concerning
salary competitiveness and the design of the Company's executive compensation
programs. Cook provides services to the Company, which are billed at hourly
rates, on an "as requested" basis. The Company does not have a retainer or
other contract with Cook. The Company has consulted with Cook on at least an
annual basis during the past three years.
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Base Salary. Base salaries for the Company's executive officers, including
Mr. Zarkin, are set within ranges that are determined based upon a review of
publicly available information concerning compensation paid to executives with
similar responsibilities at certain peer companies. The ECC utilizes a
compensation consulting firm to assist in the compilation and interpretation
of this data. The companies selected for these purposes are retail companies,
including major competitors of the Company, as to which compensation
information is available. While some of these peer companies are included in
the Dow Jones Industry Group Index OTS--Other Specialty Retailers appearing in
the Performance Graph on page , these peer companies are not all the same as
the companies comprising that index. While the ECC's overall objective is to
set base salaries at approximately the midpoint of competitive ranges, an
individual executive's placement within a range and salary adjustments are
based upon the ECC's subjective evaluation of the executive's performance and
value to the Company.
Annual Incentive Program. Under the Company's Management Incentive Plan
("MIP"), executive officers and other members of management are eligible to
receive incentive awards based upon the attainment of annual corporate or
divisional performance goals, primarily specified levels of earnings per
share, net income, or divisional income. The ECC approves the MIP goals and
participation opportunities at the beginning of each fiscal year and reviews
the payout calculations after the year's financial results have been audited.
Target awards for executive officers, other than Mr. Zarkin, range from 20% to
40% of salary, but if targets are not met, there would be either no MIP award
or a reduced award based on a percentage of the target realized. If results
exceed goal(s), an executive officer, other than Mr. Zarkin, could earn an
additional award, depending upon the extent to which goals are exceeded. No
executive officer may receive a MIP award in excess of 100% of the executive's
base salary as of the beginning of the fiscal year. For 1996, MIP awards for
Messrs. Zarkin and Weisberger and Ms. Gallivan were based on three equally
weighted criteria: BJ's Wholesale Club Division's pre-tax income, HomeBase
Division's pre-tax income, and fully diluted earnings per share of the
Company; Mr. Sherman's MIP award was based on HomeBase Division's pre-tax
income; and Mr. Nugent's MIP award was based on BJ's Wholesale Club Division's
pre-tax income. For 1996, pre-tax income of HomeBase was less than the MIP
goal, resulting in no payout to Mr. Sherman. Pre-tax income of BJ's Wholesale
Club exceeded its MIP goal, resulting in a payout to Mr. Nugent equal to
165.6% of targeted bonus. For 1996, fully diluted earnings per share of the
Company were less than the MIP goal and payouts to Messrs. Zarkin and
Weisberger and Ms. Gallivan were equal to 65.8% of targeted bonus.
Long-Term Incentive Program. The Waban Inc. Growth Incentive Plan ("WGIP"),
is intended to provide high-level executives of the Company, as selected by
the ECC, with cash awards based upon the growth and performance of the
Company. All of the executive officers participate in the WGIP, as well as 35
non-executive officer employees of the Company. Depending on responsibilities
within the Company, awards are earned based on one or more of the following
objective measures of performance or growth, as selected by the ECC at the
beginning of the award period: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a percent of
sales, earnings per share, sales, return on equity, and return on investment.
All relevant factors upon which the cash award is based (e.g., performance
measurement, length of award period, relation between performance and cash
award) are determined at the beginning of the award period by the ECC. Awards
issued to Messrs. Zarkin, Weisberger and Ms. Gallivan in 1994 and 1996 were
based on cumulative net income for the Company for the three-year periods
ending January 25, 1997 and January 30, 1999, respectively. Awards issued to
Mr. Nugent in 1994 and 1996 were based on cumulative pre-tax income for the
BJ's Wholesale Club Division for the three-year periods ending January 25,
1997 and January 30, 1999, respectively. Awards issued to Mr. Sherman in 1994
and 1996 were based on cumulative pre-tax income for HomeBase for the three-
year periods ending January 25, 1997 and January 30, 1999, respectively. Fifty
percent of awards issued under the WGIP in 1994 were paid in April 1997, and
the remaining 50% is payable in cash in April 1998, contingent on employment
continuing through March 31, 1998. All awards issued under the WGIP in 1996
are payable in cash, 50% in April 1999, contingent on employment continuing
through January 30, 1999, and 50% in April 2000, contingent on employment
continuing through March 31, 2000. There is no target amount for each award.
However, there is a threshold amount based on the Company's growth, and the
value of each award increases as achievement of the performance measurement
increases. No award can exceed 300% of the recipient's annual base salary at
the beginning of the performance period.
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The Company has made it a practice to provide incentives to its executive
officers and other senior executives to achieve long-range goals that are
typically expressed as either a compounded rate of earnings growth or three-
year cumulative earnings. In determining the level of long-term incentive
awards, the ECC also takes into account a survey of the same peer companies
referred to above, but does not target a specific percentile.
Stock-Based Incentives. Stock options are awarded to the Company's key
employees, including executive officers, by the ECC, based upon such factors
as the compensation level and responsibility of the particular employee, the
employee's contribution towards Company performance, and a review of
competitive compensation data of executives at the same group of peer
companies referred to previously in this report, with the ECC generally
targeting awards to the median of such survey. The options are designed to
reward recipients to the extent the Company's stock value is enhanced. Because
of the vesting provisions of such grants, the options also provide an
incentive for the employee to remain with the Company. Since the ECC does not
grant options on a cumulative basis, the size of previous grants is not a
factor in making current grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to the terms of Mr. Zarkin's employment contract, his salary is
reviewed annually by the ECC. His salary was increased to $625,000 on June 1,
1996, setting his salary to approximately the 50th percentile of the
compensation range of the survey of peer companies referred to previously in
this report. The number of options granted to Mr. Zarkin in 1996 was
subjectively determined based on Mr. Zarkin's success in providing leadership
to the Company and after a review of competitive compensation data of
executives at the same group of peer companies referred to previously in this
report without targeting a specific percentile range. The granting of options
encourages long-term performance and promotes management retention while
further aligning shareholders' and management's interests in enhancing the
value of the Company's Common Stock.
Mr. Zarkin's MIP award provides a target opportunity equal to 50% of base
salary earned during the fiscal year if performance goals are met; the actual
payout can vary between 0% and 100% of annualized base salary at the beginning
of the fiscal year. The MIP payout to Mr. Zarkin for 1996 was equal to 32.9%
of his fiscal 1996 salary.
Executive Compensation Committee
Thomas J. Shields, Chairman
S. James Coppersmith
Stanley H. Feldberg
Lorne R. Waxlax*
- --------
* Member of Executive Compensation Committee until June 11, 1996.
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies on the Standard and
Poor's 500 Stock Index and the Dow Jones Industry Group Index OTS--Other
Specialty Retailers from January 25, 1992 to January 25, 1997. The Dow Jones
Industry Group Index OTS--Other Specialty Retailers is comprised currently of
208 specialty retail companies, including the Company and all other publicly
traded membership warehouse clubs and home improvement chains (other than
those operated as divisions of other companies). This index does not include
department stores, discount stores, drug stores or supermarkets. The graph
assumes that the value of the investment at January 25, 1992 was $100 and that
all dividends were reinvested. The values of investments in the companies in
the Standard & Poor's 500 Stock Index and the Dow Jones Industry Group Index
OTS--Other Specialty Retailers were measured as of the date nearest the end of
the Company's fiscal year for which index data is readily available.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1/25/92 1/30/93 1/29/94 1/28/95 1/27/96 1/25/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Waban Inc. $100.00 $ 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>
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INFORMATION FOR HOLDERS OF CONVERTIBLE DEBENTURES
REDEMPTION OF CONVERTIBLE DEBENTURES AND ALTERNATIVES TO REDEMPTION
Waban has called for redemption on July , 1997 (the "Redemption Date"), all
of Waban's outstanding Convertible Debentures. As of June , 1997, $
principal amount of Convertible Debentures was outstanding.
The following alternatives are available to holders of Convertible
Debentures:
1. Conversion into Common Stock. Holders may convert Convertible Debentures
(or any principal portion thereof which is $1,000 or an integral multiple
thereof) into Waban Common Stock at a conversion price of $24.75 of principal
amount of Convertible Debentures per share of Waban Common Stock (equivalent
to 40.404 shares of Common Stock for each $1,000 principal amount of
Convertible Debentures). No fractional shares of Waban Common Stock will be
issued upon conversion of Convertible Debentures. Instead of issuing any
fractional share of Waban Common Stock that would otherwise be issuable upon
conversion of any Convertible Debenture, Waban will pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the
closing price per share of Waban Common Stock, regular way, at the close of
business on the business day immediately preceding the day of conversion. The
"closing price" means the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked prices
regular way on the NYSE. The Convertible Debentures will not be convertible
after 6:00 p.m., Boston, Massachusetts time, on June , 1997.
Waban will pay the persons in whose names outstanding Convertible Debentures
are registered at the close of business on June 15, 1997 (i.e., the next
scheduled regular record date for interest payments) the interest payment due
on July 1, 1997 (i.e., the next scheduled regular interest payment date). No
other payment or adjustment to the conversion price will be made on account of
interest on the Convertible Debentures accruing after January 1, 1997. Any
holder that converts Convertible Debentures after June 15, 1997 must submit
with the Convertible Debentures being converted an amount, in New York
Clearing House funds or other funds acceptable to Waban, equal to the interest
payable on such Convertible Debenture on July 1, 1997, and such holder
therefore will not receive the economic benefit of such interest payment.
Convertible Debentures may be held in book-entry form through the facilities
of The Depository Trust Company or another depository (the "Depository").
Accordingly, in order for a beneficial owner of an interest in a Convertible
Debenture to exercise conversion rights, such beneficial owner must comply
with the procedures of the Depository, if a participant in the Depository (a
"participant"), or if such beneficial owner is not a participant in the
Depository, through the procedures of the participant through which such
beneficial owner owns its interest in the Convertible Debentures, to effect a
conversion.
Waban will decide, in its sole discretion, all questions as to the form of
documents and the validity, eligibility (including time of receipt) and
acceptance for conversion by Waban of any Convertible Debentures. Any defect
or irregularity in the surrender or delivery of any document in connection
with the conversion of Convertible Debentures may result in such Convertible
Debentures not being converted into Waban Common Stock and, therefore, being
redeemed on the Redemption Date.
SINCE IT IS THE TIME OF ACTUAL RECEIPT THAT DETERMINES WHETHER CONVERTIBLE
DEBENTURES HAVE BEEN PROPERLY PRESENTED FOR CONVERSION, SUFFICIENT TIME SHOULD
BE ALLOWED FOR DELIVERY TO BE MADE, PRIOR TO 6:00 P.M., BOSTON, MASSACHUSETTS
TIME, ON JUNE , 1997. CONVERTIBLE DEBENTURES NOT ACTUALLY RECEIVED FOR
CONVERSION PRIOR TO SUCH TIME WILL BE REDEEMED AS SET FORTH BELOW.
2. Sale in Open Market. Holders may sell the Convertible Debentures in the
open market. Holders of Convertible Debentures who wish to sell their
Convertible Debentures in the open market should consult with their own
advisors regarding if and when they should sell their Convertible Debentures
and the tax consequences thereof. Holders may incur various fees and expenses
in connection with any such sale.
121
<PAGE>
3. Redemption. Holders may allow the Convertible Debentures to be redeemed
on July , 1997. Pursuant to the terms of the Indenture between Waban and
Continental Bank, National Association, as Trustee (including its successor,
First Trust National Association), dated as of July 1, 1992, holders of the
Convertible Debentures will be entitled to receive upon redemption 102.889% of
the principal amount of Convertible Debentures, plus accrued interest from
July 1, 1997 to the Redemption Date. The holder of $1,000 principal amount of
Convertible Debentures redeemed at the Redemption Price would receive $ in
cash. Payment of the Redemption Price will be made by First Trust National
Association, as paying and conversion agent (the "Agent") upon surrender of
Convertible Debentures to the Agent by holders of Convertible Debentures. On
and after the Redemption Date, interest will cease to accrue on the
Convertible Debentures (unless Waban shall default in the payment of the
Redemption Price) and holders of Convertible Debentures will not have any
rights as such holders other than the right to receive the Redemption Price
upon such surrender for redemption. All Convertible Debentures outstanding on
the Redemption Date will be deemed to be redeemed by Waban, whether or not
they have been surrendered for redemption. Holders of Convertible Debentures
are referred to the Notice of Redemption and Expiration of Conversion Right
for information concerning how and when the Convertible Debentures are to be
surrendered for payment of the Redemption Price.
On June , 1997, the closing price of the Waban Common Stock as reported on
the NYSE 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
$ , which amount is higher than the amount ($ ) to be received upon
redemption. The market price of the Common Stock received upon conversion,
however, is subject to fluctuation, and the holder may incur various
transaction costs if such Common Stock is sold. So long as the market price of
the Common Stock is greater than $ per share at the time of conversion, a
holder of Convertible Debentures who exercises such holder's conversion rights
will receive Common Stock, plus cash in lieu of any fractional share, with a
market value greater than the amount of cash the holder would otherwise be
entitled to receive upon the redemption of the Convertible Debentures (before
deducting any taxes, commissions and other costs which would likely be
incurred on sale of the Common Stock received upon conversion of the
Convertible Debentures). Holders of Convertible Debentures are urged to obtain
current market quotations for the Common Stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material United States federal
income tax considerations relevant to the conversion, redemption or sale of
Convertible Debentures by a beneficial owner of Convertible Debentures. This
summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations (including Proposed Regulations and Temporary
Regulations) promulgated thereunder, Internal Revenue Service ("IRS") rulings,
official pronouncements and judicial decisions, all as in effect on the date
hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. This summary is applicable only to
holders who are United States persons for federal income tax purposes and who
hold Convertible Debentures as capital assets and who will hold any 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
122
<PAGE>
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.
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."
123
<PAGE>
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.
STANDBY AGREEMENT
Under the terms and subject to the conditions in the Standby Purchase
Agreement dated June , 1997 among Waban, BJI and the Standby Purchaser (the
"Standby Agreement"), the Standby Purchaser has agreed to purchase from Waban,
at Waban's option, for settlement on , 1997, such number of shares of Waban
Common Stock as would have been issuable upon conversion of the Convertible
Debentures that have not been surrendered for conversion on or prior to the
Expiration Date, for a purchase price equal to $ per share; provided,
however, that the Standby Purchaser will only purchase shares of Waban Common
Stock from Waban to the extent that more than $53,474,500 principal amount of
the Convertible Debentures are required to be redeemed.
On or prior to the Redemption Date, the Standby Purchaser may also purchase
Waban Common Stock and Convertible Debentures in the open market or otherwise.
The Standby Purchaser has agreed to convert into Waban Common Stock all
Convertible Debentures owned by it. Such Waban Common Stock may be used by the
Standby Purchaser to cover any short position in the Waban Common Stock
established by the Standby Purchaser.
Waban has been advised by the Standby Purchaser that it proposes to offer
for resale to the public at prices set from time to time by the Standby
Purchaser any shares of Common Stock purchased from Waban or acquired upon
conversion of Convertible Debentures and not used to cover any short position.
The Standby Purchaser may also make sales of such shares to certain securities
dealers at prices that may reflect concessions from the prices at which such
shares are then being offered to the public. The amount of such concessions
will be determined from time to time by the Standby Purchaser.
Pursuant to the terms of the Standby Agreement and in consideration of the
Standby Purchaser's obligations thereunder, Waban has agreed to pay the
Standby Purchaser (i) a standby fee equal to $ and (ii) an additional $
per share for the aggregate number of shares of Common Stock purchased by the
Standby Purchaser pursuant to the Standby Agreement.
Waban and BJI have jointly and severally agreed to indemnify the Standby
Purchaser against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Standby Purchaser may be
required to make in respect thereof. Waban has agreed to reimburse the Standby
Purchaser for one-half of its out-of-pocket expenses up to an aggregate of
$ .
Each of Waban and BJI has agreed that it will not, from the date of the
Standby Agreement through the date that is days after the Redemption Date,
without the prior written consent of the Standby Purchaser, with certain
exceptions, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, or announce the offering of, any shares of its common
stock or any securities convertible into or exercisable or exchangeable for
its common stock (whether such shares or any such securities are now owned by
Waban or BJI or are hereafter acquired) other than pursuant to stock incentive
plans of Waban or BJI or (ii) enter into any swap or arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of its common stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Waban Common Stock or
other such securities, in cash or otherwise.
In connection with the sale of Waban Common Stock to the Standby Purchaser
pursuant to the Standby Agreement, the Standby Purchaser may purchase shares
of Waban Common Stock and Convertible Debentures,
124
<PAGE>
including purchases of Waban Common Stock to cover some or all of a short
position in the Waban Common Stock maintained by the Standby Purchaser, which
may result in the maintenance of the price of the Waban Common Stock at a
level above that which might otherwise prevail in the open market or may
otherwise affect the market price of the Waban Common Stock. Such purchases
are not required, and, if they are undertaken, they may be discontinued at any
time.
EXPERTS
The consolidated balance sheets of Waban as of January 25, 1997 and January
27, 1996 and the consolidated statements of income, stockholders' equity and
cash flows of Waban for each of the three years in the period ended January
25, 1997, incorporated by reference in this Proxy Statement/Prospectus, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined balance sheets of BJI as of January 25, 1997 and January 27,
1996 and the combined statements of income, stockholders' equity and cash
flows of BJI for each of the three years in the period ended January 25, 1997,
included in this Proxy Statement/Prospectus, have been included in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of BJI Common Stock and the BJI Rights to be
issued to the stockholders of Waban in connection with the Distribution will
be passed upon for BJI by Hale and Dorr LLP, Boston, Massachusetts. The
validity of the shares of Waban Common Stock (and the associated Preferred
Stock Purchase Rights) issuable upon conversion of the Convertible Debentures
will be passed upon for Waban by Hale and Dorr LLP, Boston, Massachusetts.
Certain legal matters in connection with the sale of the Waban Common Stock
pursuant to the Standby Agreement will be passed upon for the Standby
Purchaser by .
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
125
<PAGE>
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 , 1998 in order to be considered for inclusion in the Company's
proxy materials for that meeting. Proposals must be in writing and sent via
registered or certified mail addressed to Waban Inc., Attention: Corporate
Secretary at One Mercer Road, Natick, Massachusetts 01760 or following the
Distribution at 3345 Michelson Drive, Irvine, CA 92715. In addition, the
Company's by-laws specify requirements relating to the timing and content of
the notice which stockholders must provide to the Secretary of the Company for
any matter, including a stockholder nomination for director to be properly
presented at a stockholder meeting.
OTHER MATTERS
The Company has no knowledge of any other matter which may come before the
Meeting and does not intend to present any such other matter. However, if any
such other matters shall properly come before the Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to
vote the shares represented by the accompanying proxy in accordance with their
own judgment.
Neither the Executive Compensation Committee Report appearing above at pages
through , nor the Performance Graph appearing above on page 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
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
BJ's Wholesale Club, Inc. Combined Statements of Income for the fiscal
years ended January 28, 1995, January 27, 1996 and January 25, 1997..... F-3
BJ's Wholesale Club, Inc. Combined Balance Sheets as of January 27, 1996
and January 25, 1997.................................................... F-4
BJ's Wholesale Club, Inc. Combined Statements of Cash Flows for the
fiscal years ended January 28, 1995, January 27, 1996 and January 25,
1997.................................................................... F-5
BJ's Wholesale Club, Inc. Combined Statements of Stockholder's Equity for
the fiscal years ended January 28, 1995, January 27, 1996 and January
25, 1997................................................................ F-6
Notes to Combined Financial Statements of BJ's Wholesale Club, Inc. ..... F-7
</TABLE>
The audited financial statements listed above reflect BJ's Wholesale Club,
Inc. combined with the BJ's Wholesale Club Division of Waban Inc. Separate
audited financial statements of BJ's Wholesale Club, Inc. have been omitted
because BJ's Wholesale Club, Inc. is a newly formed shell corporation into
which the assets and liabilities of the BJ's Wholesale Club Division will be
transferred prior to the Distribution.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF BJ'S WHOLESALE CLUB, INC.
We have audited the accompanying combined balance sheets of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997, and
the related combined statements of income, stockholder's equity, and cash
flows for each of the three fiscal years in the period ended January 25, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997 and
the combined results of their operations and their cash flows for each of the
three fiscal years in the period ended January 25, 1997 in conformity with
generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Boston Massachusetts February 25, 1997, except
as to the information
presented in Note B, for which
the date is April 18, 1997
F-2
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................. $2,244,591 $2,478,319 $2,868,561
Membership fee income...................... 48,500 51,289 54,271
---------- ---------- ----------
Total revenues............................. 2,293,091 2,529,608 2,922,832
---------- ---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,054,167 2,263,532 2,605,602
Selling, general and administrative
expenses.................................. 174,416 183,419 212,660
Interest on debt and capital leases (net).. 13,665 14,757 16,838
---------- ---------- ----------
Total expenses............................. 2,242,248 2,461,708 2,835,100
---------- ---------- ----------
Income before income taxes................. 50,843 67,900 87,732
Provision for income taxes................. 19,941 26,350 34,108
---------- ---------- ----------
Net income................................. $ 30,902 $ 41,550 $ 53,624
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................ $ -- $ --
Accounts receivable................................. 30,942 34,006
Merchandise inventories............................. 271,438 295,216
Current deferred income taxes....................... 8,375 6,549
Prepaid expenses.................................... 6,732 6,091
-------- --------
Total current assets.............................. 317,487 341,862
-------- --------
Property at cost:
Land and buildings.................................. 234,972 265,971
Leasehold costs and improvements.................... 33,230 34,764
Furniture, fixtures and equipment................... 163,908 186,696
-------- --------
432,110 487,431
Less accumulated depreciation and amortization...... 83,338 106,821
-------- --------
348,772 380,610
-------- --------
Property under capital leases......................... 4,100 6,219
Less accumulated amortization....................... 2,090 1,618
-------- --------
2,010 4,601
-------- --------
Other assets.......................................... 8,406 10,138
-------- --------
Total assets...................................... $676,675 $737,211
======== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $169,115 $200,024
Accrued expenses and other current liabilities...... 60,808 66,302
Accrued federal and state income taxes.............. 10,102 12,431
Obligations under capital leases due within one
year............................................... 255 163
-------- --------
Total current liabilities......................... 240,280 278,920
-------- --------
Obligations under capital leases, less portion due
within one year...................................... 2,731 2,592
Other noncurrent liabilities.......................... 26,034 28,466
Deferred income taxes................................. 3,917 3,545
Loans and advances from Waban Inc..................... 181,730 148,081
<CAPTION>
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C>
Common stock, par value $.01, authorized 180,000,000
shares, issued and outstanding 32,740,941 shares..... 327 327
Retained earnings..................................... 221,656 275,280
-------- --------
Total stockholder's equity........................ 221,983 275,607
-------- --------
Total liabilities and stockholder's equity........ $676,675 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 30,902 $ 41,550 $ 53,624
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property............................ 21,829 27,185 33,796
Loss on property disposals........... 903 142 256
Deferred income taxes................ (1,161) (1,040) 1,453
Increase (decrease) in cash due to
changes in:
Accounts receivable................ 1,118 (7,740) (3,064)
Merchandise inventories............ (22,462) (37,581) (23,778)
Prepaid expenses................... (944) (1,039) 641
Other assets....................... (1,477) (700) (1,431)
Accounts payable................... 12,280 18,911 30,909
Accrued expenses................... 8,213 9,014 7,995
Accrued income taxes............... 11,612 (3,278) 2,329
Other noncurrent liabilities....... 9,306 5,177 2,432
-------- -------- --------
Net cash provided by operating
activities.......................... 70,119 50,601 105,162
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions................... (74,506) (90,212) (71,722)
Property disposals................... 6,508 98 440
-------- -------- --------
Net cash used in investing
activities.......................... (67,998) (90,114) (71,282)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease
obligations......................... (276) (304) (231)
Increase (decrease) in loans and
advances from Waban Inc............. (9,915) 39,218 (33,649)
-------- -------- --------
Net cash provided by (used in)
financing activities................ (10,191) 38,914 (33,880)
-------- -------- --------
Net increase (decrease) in cash.... (8,070) (599) --
Cash at beginning of period........ 8,669 599 --
-------- -------- --------
Cash at end of period.............. $ 599 $ -- $ --
======== ======== ========
Supplemental cash flow information:
Interest paid...................... $ 14,774 $ 14,811 $ 16,889
Income taxes paid.................. 9,490 30,668 30,325
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDER'S
PAR VALUE $.01 EARNINGS EQUITY
-------------- -------- -------------
<S> <C> <C> <C>
Balance, January 29, 1994................. $ 327 $149,204 $149,531
Net income.............................. -- 30,902 30,902
----- -------- --------
Balance, January 28, 1995................. 327 180,106 180,433
Net income.............................. -- 41,550 41,550
----- -------- --------
Balance, January 27, 1996................. 327 221,656 221,983
Net income.............................. -- 53,624 53,624
----- -------- --------
Balance, January 25, 1997................. $ 327 $275,280 $275,607
===== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
BJ's Wholesale Club, Inc. (the "Company") is a newly formed Delaware
corporation which is a wholly-owned subsidiary of Waban Inc. ("Waban"). Waban
currently operates two divisions; BJ"s Wholesale Club, a food & general
merchandise warehouse club business, and HomeBase, a home improvement
warehouse business. On October 23, 1996, Waban announced a proposal for a tax-
free distribution (the "Distribution") of all of the outstanding shares of
common stock of the Company held by Waban. Prior to the Distribution, Waban
will transfer all of the assets and liabilities of its BJ's Wholesale Club
Division to the Company. The combined financial statements of the Company
present the financial results of the BJ's Wholesale Club Division.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving
or obsolete inventory in cost of sales when such write-downs are probable and
estimable.
Property and Equipment
Buildings, furniture, fixtures and equipment are depreciated by use of the
straight-line method over the estimated useful lives of the assets. Leasehold
costs and improvements are amortized by use of the straight-line method over
the lease term or their estimated useful life, whichever is shorter.
Membership Fees
Membership fees are included in revenue when received, but not before a
warehouse club opens.
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and are charged to operations within the fiscal year that a new warehouse club
opens.
Interest on Debt and Capital Leases (Net)
Interest on debt and capital leases in the Combined Statements of Income is
presented net of interest income and investment income of $51,000 in 1996,
$54,000 in 1995 and $1,109,000 in 1994. Interest on debt represents interest
on intercompany loans and advances.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $966,000, $1,547,000 and $1,061,000 was
capitalized in 1996, 1995 and 1994, respectively.
Stock-Based Compensation
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
stock-based compensation.
F-7
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. RELATED PARTY TRANSACTIONS
Waban loans funds to the Company as needed. The intercompany balance is
considered to be long-term debt. Waban charges interest expense to the Company
at the annual rate of 10% based on the Company's average monthly intercompany
balance (net of cash). The Company's intercompany interest expense was
$17,557,000, $16,032,000 and $15,480,000 in fiscal 1996, 1995 and 1994,
respectively.
Selling, general and administrative expenses include certain allocations of
overhead incurred by Waban that support the Company's business. These
expenses, which totalled $3,891,000, $3,587,000 and $5,639,000 in fiscal 1996,
1995 and 1994, respectively, were generally allocated based on specific
identification and management's estimates of the relative time devoted to
supporting the Company.
B. COMMITMENTS AND CONTINGENCIES
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rentals based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 45 years and have
varying renewal options. The fixture and equipment leases range up to 5 years.
Future minimum lease payments as of January 25, 1997 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING JANUARY LEASES LEASES
--------------------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998........................................... $ 419 $ 44,130
1999........................................... 426 48,122
2000........................................... 427 47,819
2001........................................... 427 46,850
2002........................................... 427 45,332
Later years.................................... 2,387 515,020
---------- ------------
Total minimum lease payments................... 4,513 $ 747,273
============
Less amount representing interest.............. 1,758
----------
Present value of net minimum capital lease
payments...................................... $ 2,755
==========
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $40,185,000, $37,561,000 and $33,282,000 in
1996, 1995 and 1994, respectively.
In connection with the spinoff of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban
agreed to indemnify TJX against any liabilities that TJX might incur with
respect to 45 current HomeBase leases as to which TJX was either a lessee or
guarantor. In settlement of legal proceedings filed by TJX, the Company agreed
in April 1997 that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities that TJX may incur with respect
to HomeBase leases and thereafter it will indemnify TJX for 50% of such
liabilities. The Company believes that since Waban is primarily liable for
these leases, the Company's contingent liability under this agreement will not
have a material effect on the Company's financial condition.
F-8
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material effect on its financial condition or results of
operations.
C. CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS
The historical capitalization of the Company has been retroactively restated
to reflect the anticipated issuance of 32,740,941 shares of common stock for
all periods presented in order to reflect the equity of the Company on an
ongoing basis, as a result of the planned distribution of all of the Company's
common stock to holders of Waban's outstanding shares (the "Distribution").
The Company's authorized capital stock also includes 20,000,000 shares of
Preferred Stock, $.01 par value per share.
The Company intends to adopt a 1997 Replacement Stock Incentive Plan and
1997 Stock Incentive Plan (the "1997 Plans"). The 1997 Plans will permit the
granting of stock options, restricted stock and other stock-based awards. The
Company intends to reserve up to 3,500,000 shares of common stock for issuance
under the 1997 Plans. The Company also intends to adopt a 1997 Director Stock
Option Plan for external directors and intends to reserve 150,000 shares of
common stock for issuance under this plan.
Certain key employees participate in the Waban stock incentive plan. As of
January 25, 1997, these individuals held a total of 1,905,896 options to
purchase Waban stock (of which 859,680 were exercisable). Upon completion of
the Distribution, the Company intends to issue options of equal intrinsic
value, with similar vesting provisions, option periods and ratios of exercise
price to market value per share, under the 1997 Replacement Stock Incentive
Plan to replace unexercised options outstanding under the Waban stock
incentive plan held by the Company's employees.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 and became effective for the Company's fiscal year ending January
25, 1997. SFAS No. 123 provides a choice of adopting its fair value based
method of expense recognition for stock-based awards granted to employees or
applying the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." The pro forma impact on net income related to the Waban options
granted to BJI employees is immaterial. The Company will apply the accounting
provisions of APB No. 25 and adopt the disclosure-only provisions of SFAS No.
123 when it issues stock options.
D. INCOME TAXES
The Company is included in the consolidated federal income tax return of
Waban and, where applicable, is consolidated for state reporting purposes. The
Company believes the income tax provision is representative of the Company's
tax provision as if it were a stand-alone company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current................................ $17,187 $22,710 $27,208
Deferred............................... (903) (814) 1,153
State
Current................................ 3,915 4,680 5,447
Deferred............................... (258) (226) 300
------- ------- -------
Total income tax provision............... $19,941 $26,350 $34,108
======= ======= =======
</TABLE>
F-9
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
and the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate....... 35% 35% 35%
State income taxes, net of federal tax
benefit................................ 5 4 4
Targeted jobs tax credit................ (1) -- --
--- --- ---
Effective income tax rates.............. 39% 39% 39%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 27, 1996 and January 25, 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................ $10,858 $11,516
Rental step liabilities............................ 3,294 3,951
Compensation and benefits.......................... 2,788 3,392
Other.............................................. 2,518 2,071
------- -------
Total deferred tax assets........................ 19,458 20,930
------- -------
Deferred tax liabilities:
Accelerated depreciation-property.................. 14,696 15,375
Real estate taxes.................................. -- 2,390
Other.............................................. 304 161
------- -------
Total deferred tax liabilities................... 15,000 17,926
------- -------
Net deferred tax assets.............................. $ 4,458 $ 3,004
======= =======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
E. PENSIONS
The Company participates in Waban's non-contributory defined benefit
retirement plan covering full-time employees who have attained twenty-one
years of age and have completed one year of service. Benefits are based on
compensation earned in each year of service. No benefits have accrued under
this plan since July 4, 1992, when it was frozen. The Company's share of
Waban's pension expense amounted to $129,000, $124,000 and $144,000 in fiscal
1996, 1995 and 1994, respectively.
F-10
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the following tables present the periodic
pension cost and funded status of the Waban plans in accordance with SFAS No.
87:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $ 209 $ 182 $ 180
Interest cost on projected benefit
obligation............................. 435 429 455
Actual return on assets................. (73) (1,245) (940)
Net amortization and deferrals.......... (264) 892 561
----- ------- -----
Net pension cost........................ $ 307 $ 258 $ 256
===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested benefits................................... $ 5,991 $6,451
======= ======
Projected benefit obligation........................ $ 5,991 $6,451
Plan assets at fair market value.................... 5,997 6,455
------- ------
Projected benefit obligation less than plan assets.. (6) (4)
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions........................................ (1,088) (878)
------- ------
Prepaid pension cost included in balance sheets..... $(1,094) $ (882)
======= ======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% in 1996 and 1995. The
expected long-term rate of return on assets used was 9.0% in 1996 and 1995.
The Company's funding policy is to contribute annually an amount allowable for
federal income tax purposes. Pension plan assets consist primarily of equity
and fixed income securities.
The Company also participates in Waban's 401(k) Savings Plans, under which
participating employees may make pre-tax contributions up to 15% of covered
compensation. Waban matches employee contributions at 100% of the first one
percent of covered compensation and 50% of the next four percent. Beginning in
1996, Waban's matching contribution is payable as of the end of each calendar
quarter. Previously, the matching contribution was payable at the end of the
year. The Company's share of expense under these plans was $2,259,000 in 1996,
$1,867,000 in 1995 and $1,669,000 in 1994.
In 1994, Waban established a non-contributory defined contribution
retirement plan for certain key employees, including certain of the Company's
employees. Under the plan, Waban funds annual retirement contributions for the
designated participants, on an after-tax basis. For 1994 through 1996, Waban's
contribution equaled 5% of the participants' base salary. Participants become
fully vested in their contribution accounts at the end of the fiscal year in
which they complete four years of service. The Company's share of expense
under this plan was $522,000 in 1996, $485,000 in 1995 and $439,000 in 1994.
F. POSTRETIREMENT MEDICAL BENEFITS
The Company participates in Waban's defined benefit postretirement medical
plan that covers employees (and their spouses) who retire after age 55 with at
least 10 years of service, who are not eligible for Medicare,
F-11
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and who participated in a Waban-sponsored medical plan. Amounts contributed by
retired employees under this plan are based on years of service prior to
retirement. The plan is not funded.
In fiscal 1996, 1995 and 1994, the Company's share of Waban's postretirement
medical benefit expense was $87,000, $73,000 and $76,000, respectively. Waban
does not segregate plan liabilities by participating subsidiary company and,
as a result, the following tables present the net periodic postretirement
benefit cost and the funded status of the Waban plan in accordance with SFAS
No. 106:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $128 $120 $140
Interest cost........................... 42 44 42
Net amortization and deferrals.......... -- (10) (10)
---- ---- ----
Net periodic postretirement benefit
cost................................... $170 $154 $172
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants.............................. $ -- $ --
Fully eligible active participants................ 63 67
Other active participants......................... 515 693
---- ----
Unfunded accumulated postretirement benefit
obligation......................................... 578 760
Unrecognized net gain............................... 232 222
---- ----
Accrued postretirement benefit cost included in
balance sheets..................................... $810 $982
==== ====
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost
of medical coverage of 8% in 1996 grading down to 4.5% after 8 years was
assumed as of January 27, 1996. Increasing the assumed health care cost trend
rate one percentage point would increase the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1996
by $35,000 and would increase the accumulated postretirement benefit
obligation as of January 25, 1997 by $129,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation of January 25, 1997 and January 27, 1996 was
7.25%.
G. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Employee compensation............................... $11,208 $14,998
Self-insurance reserves............................. 11,565 13,134
Sales and use taxes, rent, utilities, advertising,
fixed asset additions and other.................... 38,035 38,170
------- -------
$60,808 $66,302
======= =======
</TABLE>
F-12
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. Waban
maintains insurance coverage for the Company for individual occurrences above
$250,000 for worker's compensation and general liability, and above $200,000
for medical claims. In addition to the amounts shown above in current
liabilities, noncurrent self-insurance reserves of $15.3 million and $15.2
million as of January 25, 1997 and January 27, 1996, respectively, are
included in other noncurrent liabilities.
H. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal year ended January 25, 1997
Total revenues....................... $622,388 $733,688 $697,818 $868,938
Gross earnings(a).................... 60,079 76,453 73,906 106,792
Net income........................... 5,385 12,780 9,589 25,870
Fiscal year ended January 27, 1996
Total revenues....................... $531,106 $632,371 $604,426 $761,705
Gross earnings(a).................... 48,959 65,351 61,719 90,047
Net income........................... 3,123 10,151 6,926 21,350
</TABLE>
- --------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
I. SUBSEQUENT EVENT
Subsequent to year-end, the Company transferred certain real estate assets
into a subsidiary, Natick Realty, Inc. Natick Realty, Inc. fully and
unconditionally guarantees Waban's senior notes ($24 million), senior
subordinated notes ($100 million) and borrowings under Waban's credit
agreement.
F-13
<PAGE>
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 Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Natick, Commonwealth of Massachusetts, on this 29th day of May, 1997.
BJ'S WHOLESALE CLUB, INC.
/s/ John J. Nugent
By: __________________________________
John J. Nugent
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities indicated below on the 29th day of May, 1997.
SIGNATURE TITLE
President
/s/ John J. Nugent (Principal
- ------------------------------------ Executive Officer)
JOHN J. NUGENT
Treasurer
* (Principal
- ------------------------------------ Financial and
FRANK D. FORWARD Accounting
Officer)
Director
*
- ------------------------------------
HERBERT J. ZARKIN
Director
/s/ Edward J. Weisberger
- ------------------------------------
EDWARD J. WEISBERGER
/s/ Edward J. Weisberger
* By:_______________________________
EDWARD J. WEISBERGER
ATTORNEY-IN-FACT
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Natick, Commonwealth of Massachusetts, on the 29th day of May, 1997.
WABAN INC.
/s/ Edward J. Weisberger
By: _________________________________
Edward J. Weisberger
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities indicated below on the 29th day of May, 1997.
SIGNATURE TITLE
Chairman of the
* Board
- -------------------------------------
LORNE R. WAXLAX
President, Chief
* Executive Officer
- ------------------------------------- and Director
HERBERT J. ZARKIN (Principal
Executive Officer)
Senior Vice
/s/ Edward J. Weisberger President and Chief
- ------------------------------------- Financial Officer
EDWARD J. WEISBERGER (Principal
Financial and
Accounting Officer)
Director
*
- -------------------------------------
S. JAMES COPPERSMITH
Director
*
- -------------------------------------
STANLEY H. FELDBERG
Director
*
- -------------------------------------
KERRY L. HAMILTON
Director
*
- -------------------------------------
ALLYN L. LEVY
Director
*
- -------------------------------------
ARTHUR F. LOEWY
Director
*
- -------------------------------------
THOMAS J. SHIELDS
/s/ Edward J. Weisberger
*By:_________________________________
EDWARD J. WEISBERGER
ATTORNEY-IN-FACT
II-5
<PAGE>
BJ'S WHOLESALE CLUB, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1* Certificate of Incorporation of BJI.
3.2 Form of Amended and Restated Certificate of Incorporation of
BJI, to be filed prior to the Distribution.
3.3* By-Laws of BJI.
3.4* Form of Amended and Restated By-Laws of BJI, to be effective
prior to the Distribution.
4.1 Specimen Certificate for Shares of Common Stock, $.01 par
value per share, of BJI.
4.2 Form of Rights Agreement to be entered into between BJI and
the Rights Agent thereunder.
5** Opinion of Hale and Dorr LLP with respect to the validity of
the securities being registered.
10.1 Form of Separation and Distribution Agreement to be entered
into between BJI and Waban.
10.2* Form of Services Agreement to be entered into between BJI
and Waban.
10.3* Form of Tax Sharing Agreement to be entered into between BJI
and Waban.
10.4* Form of Employee Benefits Agreement to be entered into
between BJI and Waban.
10.5 Management Incentive Plan of BJI.
10.6 Growth Incentive Plan of BJI.
10.7* 1997 Director Stock Option Plan of BJI.
10.8* Executive Retirement Plan of BJI.
10.9* Form of Indemnification Agreement between BJI and each of
its directors and executive officers.
10.10 1997 Replacement Stock Incentive Plan of BJI.
10.11 1997 Stock Incentive Plan of BJI.
10.12 General Deferred Compensation Plan of BJI.
10.13* Indemnification Agreement, dated as of April 18, 1997,
between BJI and The TJX Companies, Inc.
21* Subsidiaries of BJI.
23.1** Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3* Consent of S. James Coppersmith.
23.4* Consent of Thomas J. Shields.
23.5* Consent of Herbert J. Zarkin.
23.6* Consent of Allyn L. Levy.
23.7* Consent of Lorne R. Waxlax.
23.8* Consent of Edward J. Weisberger.
23.9* Consent of Kerry L. Hamilton.
23.10* Consent of John J. Nugent.
24* Power of Attorney.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
<PAGE>
WABAN INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1A** Standby Agreement
4A.1 Restated Certificate of Incorporation of Waban(1)
4A.2 By-laws, as amended, of Waban(2)
4A.3 Rights Agreement dated as of May 23, 1989 between Waban and
Morgan Shareholder Services Trust Company, as Rights Agent(1)
4A.4 Indenture dated as of July 1, 1992 between Waban and
Continental Bank, National Association, as Trustee, with
respect to 6 1/2% Convertible Subordinated Debentures due
July 1, 2002(3)
4A.5 Specimen Certificate for Shares of Common Stock, $.01 per
value per share, of Waban
5A** Opinion of Hale and Dorr LLP
23A.1 Consent of Coopers & Lybrand L.L.P.
23A.2** Consent of Hale and Dorr LLP (included in Exhibit 5)
23A.3* Consent of Allan P. Sherman
24A* Power of Attorney
99A.1** Letter of Transmittal
99A.2 1989 Stock Incentive Plan of Waban (as proposed to be
amended)
99A.3 1997 Stock Incentive Plan
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(1) Incorporated herein by reference to the Registrant's Form 10 (#1-10259)
(2) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 27, 1990 (#1-10259)
(3) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423)
<PAGE>
EXHIBIT 3.2
-----------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BJ'S WHOLESALE CLUB, INC.
The Certificate of Incorporation of BJ's Wholesale Club, Inc. (which was
originally incorporated in Delaware on November 1, 1996), is hereby amended and
restated, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, to read in its entirety as follows:
ARTICLE I
The name of the Corporation is BJ's Wholesale Club, Inc.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at 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.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 200,000,000 shares, consisting of 180,000,000
shares of Common Stock, $.01 par value per share (the "Common Stock"), and
20,000,000 shares of Preferred Stock, $.01 par value per share (the "Preferred
Stock").
ARTICLE V
5.1. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Amended and Restated Certificate of
Incorporation, to provide for the issuance of the shares of Preferred Stock in
series and, by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series, and to fix the designations, powers, preferences and rights
of the shares of each such series and the qualifications, limitations
<PAGE>
or restrictions thereof. Except as may be required by law, the shares in any
series of Preferred Stock or any shares of stock of any other class need not be
identical. Such authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) Whether that series shall have dividend rights and, if so, the
dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion or exchange
privileges, and, if so, the terms and conditions of such conversion or
exchange, including provision for adjustment of the conversion or exchange
rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption, including the
manner of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms and
amount of such sinking fund;
(vii) The right of the shares of that series to the benefit of any
conditions or restrictions upon the actions, conditions or affairs of the
Corporation or any subsidiary, including without limitation: (a)
conditions or restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issuance of any additional stock
(including additional shares of such series or any other series) and upon
the payment of dividends or the making of other distributions on, or the
purchase, redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding stock of the Corporation, and (b) conditions
or restrictions in the nature of financial covenants;
-2-
<PAGE>
(viii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(ix) Any other powers, or other designations, preferences or
relative, participating, optional or other special rights, qualifications,
limitations or restrictions of that series.
5.2. Any preferential dividends on outstanding shares of any series of
Preferred Stock shall be paid, or declared and set apart for payment, before any
dividends shall be paid or declared and set apart for payment on outstanding
shares of Common Stock or any other series of Preferred Stock not entitled to
preferential dividends with respect to such series. Except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of Preferred Stock, if upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets available for
distribution to holders of shares of Preferred Stock of all series shall be
insufficient to pay such holders the full preferential amount to which they are
entitled, then such assets shall be distributed ratably among the shares of all
series of Preferred Stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.
5.3. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or which, if
convertible or exchangeable, have been converted into or exchanged for shares of
stock of any other class or classes shall have the status of authorized and
unissued shares of Preferred Stock of the same series and may be reissued as a
part of the series of which they were originally a part or may be reclassified
and reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors or as part of any other
series of Preferred Stock, all subject to the conditions and the restrictions on
issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock.
5.4. Subject to the provisions of any applicable law, this Amended and
Restated Certificate of Incorporation and the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall exclusively possess voting power for
the election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in such holder's name on the books of the Corporation.
5.5. Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, after payment shall
have been made to the holders of Preferred Stock of the full amount of dividends
to which they shall be entitled pursuant to the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of Common
Stock shall be entitled, to the exclusion of the
-3-
<PAGE>
holders of Preferred Stock of any and all series, to receive such dividends as
from time to time may be declared by the Board of Directors.
5.6. Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of Preferred Stock, in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders of Preferred
Stock of the full amount to which they shall be entitled pursuant to the
resolution or resolutions providing for the issue of any series of Preferred
Stock, the holders of Common Stock shall be entitled, to the exclusion of
holders of Preferred Stock of any and all series, to share ratably according to
the number of shares of Common Stock held by them, in all remaining assets of
the Corporation available for distribution.
ARTICLE VI
Subject to the terms of any series of Preferred Stock or any other
securities of the Corporation with respect to the voting of shares of such
series or of such other securities, as the case may be, following the spin-off
of the Corporation by Waban Inc., a Delaware corporation ("Waban"), any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders. Subject to any such terms of any series of Preferred Stock or any
such other securities of the Corporation, special meetings of stockholders of
the Corporation may be called only as provided in the By-laws of the
Corporation.
ARTICLE VII
The books of the Corporation may (subject to any statutory requirements) be
kept outside the State of Delaware as may be designated by the Board of
Directors or in the Bylaws of the Corporation.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by law and this Amended and Restated
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation.
ARTICLE IX
9.1. Subject to the rights of the holders of any series of Preferred Stock
or any other securities of the Corporation to elect additional directors under
specified circumstances, the directors of the Corporation shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number
-4-
<PAGE>
as possible, as shall be provided in the By-laws of the Corporation, one class
whose term expires at the annual meeting of stockholders to be held in calendar
year 1998, another class whose term expires at the annual meeting of
stockholders to be held in calendar year 1999, and another class whose term
expires at the annual meeting of stockholders to be held in calendar year 2000,
with each class to hold office until its successors are elected and qualified.
The classes shall be initially comprised of directors serving on the Board of
Directors on the effective date of the filing of this Amended and Restated
Certificate of Incorporation, and the membership of each class shall be
initially determined by the Board of Directors at (or prior to) such time. At
each annual meeting of the stockholders of the Corporation, the date of which
shall be fixed by or pursuant to the By-laws of the Corporation, the successors
of the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director. Any director elected to fill a newly created directorship or
any vacancy on the Board of Directors resulting from any death, resignation,
removal or other cause shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
9.2. Except as otherwise provided by the terms of any series of Preferred
Stock or any other securities of the Corporation with respect to directorships
which may be established upon specified circumstances and filled by the vote of
such series or such other securities, as the case may be, any director of the
Corporation may be removed from office only for cause and only by the
affirmative vote of the holders of at least 67% of the then outstanding shares
of Common Stock. For purposes of this Section 9.2 "cause" shall mean the willful
and continuous failure of a director to substantially perform such director's
duties to the Corporation (other than any such failure resulting from incapacity
due to physical or mental illness) or the willful engaging by a director in
gross misconduct materially and demonstrably injurious to the Corporation.
ARTICLE X
The Corporation shall, to the maximum extent permitted from time to time
under the law of the State of Delaware, indemnify and upon request shall advance
expenses to any person who is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit, proceeding or claim,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee or agent of
any corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against expenses
(including attorneys' fees and expenses), judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or
-5-
<PAGE>
defense of such action, suit, proceeding or claim; provided, however, that the
foregoing shall not require the Corporation to indemnify or advance expenses to
any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such indemnification
shall not be exclusive of other indemnification rights arising under any by-law,
agreement, vote of directors or stockholders or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person. Any person
seeking indemnification under this Article X shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. Any repeal or modification of the foregoing provisions of this
Article X shall not adversely affect any right or protection of a director or
officer of the Corporation with respect to any acts or omissions of such
director or officer occurring prior to such repeal or modification.
ARTICLE XI
A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that exculpation from liability is not permitted under the
Delaware General Corporation Law as in effect at the time such liability is
determined. No amendment or repeal of this Article XI 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 or repeal.
ARTICLE XII
The election of directors need not be by ballot unless the By-laws shall so
require.
ARTICLE XIII
In addition to any other considerations which the Board of Directors may
lawfully take into account in determining whether to take or to refrain from
taking corporate action on any matter, including proposing any matter to the
stockholders of the Corporation, the Board of Directors may take into account
the interests of creditors, customers, employees and other constituencies of the
Corporation and its subsidiaries and the effect thereof upon communities in
which the Corporation and its subsidiaries do business.
ARTICLE XIV
In furtherance and not in limitation of the powers conferred by law or in
this Amended and Restated Certificate of Incorporation, the Board of Directors
(and any committee of the Board of Directors) is expressly authorized to take
such action or actions as the Board or such committee may determine to be
reasonably necessary or desirable to (A) encourage any person to enter into
negotiations with the Board of Directors and management of the
-6-
<PAGE>
Corporation with respect to any transaction which may result in a change in
control of the Corporation which is proposed or initiated by such person or (B)
contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the stockholders of
the Corporation, including, without limitation, the adoption of such plans or
the issuance of such rights, options, capital stock, notes, debentures or other
evidence of indebtedness or other securities of the Corporation, which rights,
options, capital stock, notes, evidences of indebtedness and other securities
(i) may be exchangeable for or convertible into cash or other securities on such
terms and conditions as may be determined by the Board of Directors (or any such
committee) and (ii) may provide for the treatment of any holder or class of
holders thereof designated by the Board of Directors (or any such committee) in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
ARTICLE XV
15.1. In addition to any requirements of law and any other provisions
of this Amended and Restated Certificate of Incorporation or the terms of any
series of Preferred Stock or any other securities of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Amended and Restated Certificate of Incorporation or the terms of any series of
Preferred Stock or any other securities of the Corporation), following the spin-
off of the Corporation by Waban, the affirmative vote of the holders of 80% or
more of the then outstanding shares of Common Stock of the Corporation shall be
required (x) to authorize any amendment, alteration or repeal of any provision
of Article VI, Article IX, Article XIII, Article XIV or this Article XV, or (y)
to adopt any provision in this Amended and Restated Certificate of Incorporation
which is inconsistent with Article VI, Article IX, Article XIII or Article XIV
or this Article XV.
15.2. In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal from time to time By-laws of the Corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to amend, alter and repeal, in accordance with Section 15.3 hereof, By-laws made
by the Board of Directors.
15.3. In addition to any requirements of law and any other provisions
of this Amended and Restated Certificate of Incorporation or the terms of any
series of Preferred Stock or any other securities of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Amended and Restated Certificate of Incorporation or the terms of any series of
Preferred Stock or any such other securities of the Corporation), any amendment,
alteration or repeal of any provision of the By-laws by the stockholders of the
Corporation shall require the affirmative vote of the holders of 80% of the then
outstanding shares of Common Stock of the Corporation. In addition, the
affirmative
-7-
<PAGE>
votes of said holders shall be required to permit the stockholders to adopt any
provision of the Certificate of Incorporation which is inconsistent with any
provision of the By-laws.
IN WITNESS WHEREOF, BJ'S WHOLESALE CLUB, INC. has caused this Certificate
to be signed in its name and on its behalf by its President this _____ day of
June, 1997.
BJ'S WHOLESALE CLUB, INC.
By: ___________________________________
President
-8-
<PAGE>
EXHIBIT 4.1
BJ'S WHOLESALE CLUB, INC.
Number _________________ Shares_________________
[GRAPHIC APPEARS HERE]
CUSIP 05548J 10 6
Incorporated This Certificate
under the Laws of is Transferable in
the State of Delaware New York, New York
See reverse for certain definitions
This Certifies that ___________________
is the owner of ____________________
fully paid and non-assessable shares of the par value of one cent ($.01) each,
of the common stock of BJ's Wholesale Club, Inc. (herein called the
"Corporation") transferable upon the books of the Corporation in person or by
attorney upon surrender of this certificate duly endorsed or assigned. This
certificate and the shares represented hereby are subject to the laws of the
State of Delaware, and to the Certificate of Incorporation and the By-laws of
the Corporation, as amended from time to time (copies of which are on file with
the Transfer Agent). This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
In Witness Whereof, BJ's Wholesale Club, Inc. has caused its facsimile corporate
seal and the facsimile signatures of its duly authorized officers to be hereunto
affixed.
Dated: ____________________
[SEAL]
/s/ Arthur T. Silk, Jr. /s/ John J. Nugent
TREASURER PRESIDENT
Countersigned and Registered:
First Chicago Trust Company of New York
Transfer Agent and Registrar
By:
Authorized Signature
<PAGE>
BJ'S WHOLESALE CLUB, INC.
The Corporation will furnish without charge to each stockholder who so
requests, 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. Requests may be directed to BJ's Wholesale Club, Inc., One Mercer Road,
Natick, Massachusetts 01760, or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT -- ________Custodian________
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common ---------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney to transfer the
-----------------
said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated ___________________________________
-----------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Signature(s) Guaranteed:
By: _____________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Rights Agreement between BJ's Wholesale Club, Inc. and First
Chicago Trust Company of New York, dated as of ___________, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of BJ's Wholesale
Club, Inc. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. BJ's Wholesale Club, Inc. will mail to the holder
of this certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. As described in the Rights Agreement, Rights
issued to or held by any Person who becomes an Acquiring Person (as defined in
the Rights Agreement) shall become null and void.
<PAGE>
EXHIBIT 4.2
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of ____________, 1997 (the "Agreement"), between
BJ's Wholesale Club, Inc., a Delaware corporation (the "Company"), and First
Chicago Trust Company of New York, a national banking association, as Rights
Agent (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on ____________, 1997 the Board of Directors of the Company (the
"Board" or "Board of Directors") authorized and declared a dividend distribution
of one Right for each share of Common Stock (as hereinafter defined) of the
Company outstanding at the close of business on _______________ (the "Record
Date"), and authorized the issuance of one Right (as such number may hereinafter
be adjusted pursuant to the provisions of Section 11(p) hereof) for each share
of Common Stock of the Company issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and the earlier of
the Distribution Date or the Expiration Date, each Right initially representing
the right to purchase one one-thousandth of a share of Series A Junior
Participating Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designations attached hereto
as Exhibit A, upon the terms and subject to the conditions hereinafter set forth
---------
(the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding, but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or of any Subsidiary of the Company, or (iv) any
Person organized, appointed or established by the Company for or pursuant to the
terms of any such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the shares of
<PAGE>
Common Stock of the Company then outstanding; provided, however, that if a
-------- -------
Person shall become the Beneficial Owner of 20% or more of the shares of Common
Stock of the Company then outstanding as the result of an acquisition of Common
Stock by the Company and shall, after such acquisition of Common Stock by the
Company, become the Beneficial Owner of any additional Common Stock of the
Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement unless and until such
Person shall again become an "Acquiring Person." Notwithstanding the foregoing,
Waban Inc. shall not be an "Acquiring Person" as a result of its ownership of
shares of Common Stock prior to the distribution of shares of Common Stock to
the stockholders of Waban Inc. pursuant to the Separation and Distribution
Agreement between Waban Inc. and the Company.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, beneficially owns or has the right to
acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities),
whether or not in writing, or upon the exercise of conversion rights,
exchange rights, other rights, warrants or options, or otherwise; provided,
--------
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
-------
"beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, or (B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event, or (C) securities issuable
upon exercise of Rights from and after the occurrence of a Triggering Event
which Rights were acquired by such Person
2
<PAGE>
or any of such Person's Affiliates or Associates prior to the Distribution
Date or pursuant to Section 3(a) or Section 22 hereof (the "Original
Rights") or pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, or any comparable or
successor rule), including pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), whether or not in writing; provided, however, that
-------- -------
a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," any security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a revocable
proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (B) is not then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), whether or not in writing, for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph (d)) or
disposing of any voting securities of the Company.
For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations
under the Exchange Act.
(e) "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in the Commonwealth of Massachusetts are
authorized or obligated by law or executive order to close.
3
<PAGE>
(f) "Close of business" on any given date shall mean 5:00 p.m.,
Boston time, on such date; provided, however, that if such date is not a
-------- -------
Business Day it shall mean 5:00 p.m., Boston time, on the next succeeding
Business Day.
(g) "Common Stock" shall mean the common stock, $0.01 par value, of
the Company, except that "Common Stock" when used with reference to any Person
other than the Company shall mean the capital stock of such Person with the
greatest voting power, or the equity securities or other equity interest having
power to control or direct the management, of such Person.
(h) "Common stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(i) "Continuing Director" shall mean any member of the Board of
Directors, while such person is a member of the Board of Directors, who is not
an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative or nominee of an Acquiring Person or of any such Affiliate or
Associate, and who either (i) was a member of the Board of Directors prior to
the time that any Person became an Acquiring Person (other than pursuant to a
Permitted Offer) or (ii) subsequently became a member of the Board of Directors,
and whose nomination for election or election to the Board of Directors was
recommended or approved by a majority of the Continuing Directors then on the
Board of Directors.
(j) "Current market price" shall have the meaning set forth in
Section 11(d)(i) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section 1(c)
hereof.
(n) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(o) "Final Expiration Date" shall mean the close of business on
__________, 200_.
(p) "Permitted Offer" shall mean a tender offer or an exchange offer
for all outstanding shares of Common Stock at a price and on terms determined,
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<PAGE>
prior to the consummation of such tender offer or exchange offer, by at least a
majority of the members of the Board of Directors (provided, that at the time of
such approval of the Board of Directors there are then in office not less than
two Continuing Directors and such offer is approved by a majority of the
Continuing Directors then in office), after receiving advice from a nationally
recognized investment banking firm selected by the Board of Directors, to be (a)
at a price that is fair to stockholders (taking into account all factors which
such members of the Board deem relevant including, without limitation, prices
which could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in the best
interests of the Company and its stockholders.
(q) "Person" shall mean any individual, firm, corporation,
partnership, trust, association or other entity.
(r) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, $.01 par value, of the Company having the rights
and preferences set forth in the form of Certificate of Designations attached to
this Agreement as Exhibit A and, to the extent that there is not a sufficient
---------
number of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred Stock,
$.01 par value, of the Company designated for such purpose containing terms
substantially similar to the terms of the Series A Junior Participating
Preferred Stock.
(s) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(t) "Purchase Price" shall have the meaning set forth in Section
4(a) hereof.
(u) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.
(v) "Redemption Date" shall have the meaning set forth in Section
7(a) hereof.
(w) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(x) "Rights" shall have the meaning set forth in the WHEREAS clause
at the beginning of the Agreement.
(y) "Rights Certificates" shall have the meaning set forth in
Section 3(a) hereof.
5
<PAGE>
(z) "Section 11(a)(ii) Event" shall mean an acquisition of Common
Stock described in the first sentence of Section 11(a)(ii) hereof.
(aa) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(bb) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(cc) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(dd) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(ee) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(ff) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(gg) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(hh) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
---------------------------
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable upon ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such co-Rights Agent.
6
<PAGE>
Section 3. Issue of Rights.
---------------
(a) Until the earlier of (i) the close of business on the tenth
Business Day (or such later date as may be determined by the Board of Directors
of the Company) after the Stock Acquisition Date (or, if the tenth Business Day
after the Stock Acquisition Date occurs before the Record Date, the close of
business on the Record Date), or (ii) the close of business on the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors of the Company) after the date that a tender or exchange offer by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any Person
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the Beneficial Owner of 30% or more
of the shares of Common Stock then outstanding (the earlier of (i) and (ii)
being herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will send by first-
class, insured, postage prepaid mail, to each record holder of the Common Stock
as of the close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, one or more rights certificates, in
substantially the form of Exhibit B hereto (the "Rights Certificates"),
---------
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(p)
hereof, at the time of distribution of the Right Certificates, the Company shall
make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of and after the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C, by first-class, postage
---------
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for the Common Stock outstanding as
of the close of business on the Record Date, until the Distribution Date, the
Rights will be evidenced
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<PAGE>
by such certificates for the Common Stock and the registered holders of the
Common Stock shall also be the registered holders of the associated Rights.
(c) Rights shall be issued (i) in respect of all shares of Common
Stock that are issued (either as an original issuance or from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date and (ii) in connection with the issuance or sale of
Common Stock following the Distribution Date and prior to the Expiration Date
upon the exercise of stock options, or upon the exercise, conversion or exchange
of securities, granted or issued by the Company prior to the Distribution Date.
Certificates representing such shares of Common Stock (including, without
limitation, certificates issued upon transfer or exchange of Common Stock) shall
also be deemed to be certificates for Rights, and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between BJ's Wholesale
Club, Inc. (the "Company") and First Chicago Trust Company of New York (the
"Rights Agent") dated as of ______________ 1997, as the same may be
amended, restated or renewed from time to time (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a copy
of the Rights Agreement, as in effect on the date of mailing, without
charge promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held
by, any Person who is, was or becomes an Acquiring Person or any Affiliate
or Associates thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any subsequent
holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights.
(d) Until the earlier of the Distribution Date or the Expiration
Date, the transfer of any certificates representing shares of Common Stock in
respect of which Rights have been issued shall also constitute the transfer of
the Rights associated with such shares of Common Stock. In the event that the
Company purchases or acquires any shares of Common Stock after the Record Date
but prior to
8
<PAGE>
the Distribution Date, any Rights associated with such shares of Common Stock
shall be deemed cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the shares of Common Stock which are no
longer outstanding.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to purchase,
certification and assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
---------
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or over-the-counter market on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall entitle the holders thereof to purchase such number
of one one-thousandths of a share of Preferred Stock as shall be set forth
therein at the price set forth therein (such exercise price per one one-
thousandth of a share, the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3 or Section
22 hereof that represents Rights beneficially owned by persons known to be: (i)
an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding that has as a primary
purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate
issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in this
sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined
9
<PAGE>
in the Rights Agreement). Accordingly, this Rights Certificate and the
Rights represented hereby may become null and void in the circumstances
specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof, which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent shall keep or
cause to be kept, at its office designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates, the Certificate number and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates (other than Rights Certificates representing
Rights that have become void pursuant to Section 7(e) hereof or that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the
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<PAGE>
Rights Certificate or Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged, with the form of assignment and certificate
appropriately executed, at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the office of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, at or
prior to the earliest of (i) the Final Expiration Date, (ii) the time at which
the Rights expire as provided in Section 13(d) hereof, (iii) the time at which
the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date")
or (iv) the time at which such
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<PAGE>
Rights are exchanged as provided in Section 24 hereof (the earliest of (i),
(ii), (iii) and (iv) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $______,
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
ac companied by payment, with respect to each Right so exercised, of the
Purchase Price per one one-thousandth of a share of Preferred Stock (or other
shares, securities, cash or other assets, as the case may be) to be purchased as
set forth below and an amount equal to any applicable transfer tax, the Rights
Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the shares of Preferred Stock (or make
available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-thousandths of a share of Preferred
Stock to be purchased and the Company hereby authorizes its transfer agent to
comply with such requests, or (B) if the Company shall have elected to deposit
the total number of shares of Preferred Stock issuable upon exercise of the
Rights hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-thousandths of a share
of Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company hereby directs the
depositary agent to comply with such requests, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) may be made in cash or by certified bank
check or money order payable to the order of the Company. In the event that the
Company is obligated to issue other securities (including Common Stock) of the
Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company shall make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such
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<PAGE>
Rights Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding that has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Company shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Rights Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
transfer or exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate following the form of
assignment or election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such assignment or exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the
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written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
---------------------------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights are eligible for listing on the
Nasdaq National Market or any national securities exchange, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be so listed upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Act, with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction
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<PAGE>
unless the requisite registration or qualification in such jurisdiction shall
have been effected or obtained.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges that
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be)
upon the exercise of Rights. The Company shall not, however, be required (i) to
pay any transfer tax that may be payable in respect of any transfer or delivery
of Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificate evidencing Rights
surrendered for exercise or (ii) to issue or deliver any certificates for a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
---------------------------
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
-------- -------
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate, as such, shall not be entitled to
15
<PAGE>
any rights of a stockholder of the Company with respect to securities for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
----------------------------------------------------------
Number of Rights. The Purchase Price, the number and kind of shares covered by
- ----------------
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Purchase Price then in effect, the aggregate number and kind of shares of
Preferred Stock or capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event occurs
that would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement, in the event that any
Person, alone or together with its Affiliates or Associates, becomes an
Acquiring Person (other than pursuant to a Permitted Offer), then, promptly
following the first occurrence of such event, proper provision shall be
made so that each holder of a Right (except as provided below and in
Section 7(e) hereof) shall thereafter have the right to receive (subject to
the last sentence of Section 23(a)), upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, in
lieu of a number of one one-thousandths of a share of Preferred Stock, such
number of shares of Common
16
<PAGE>
Stock of the Company that equals the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which,
following such first occurrence, shall thereafter be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement) by 50%
of the current market price (determined pursuant to Section 11(d) hereof) per
share of Common Stock on the date of such first occurrence (such number of
shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock that are
authorized by the Company's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A)
determine the excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value") over (2) the Purchase Price (such
excess, the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Stock or other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock which the Board of
Directors of the Company has deemed to have the same value as shares of Common
Stock (such shares of preferred stock, "common stock equivalents")), (4) debt
securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company; provided, however, if the
-------- -------
Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's
right of redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareholder approval for the authorization of such additional shares
17
<PAGE>
(such period, as it may be extended, the "Substitution Period"). To the extent
that the Company determines that some action need be taken pursuant to the
first and/or second sentences of this Section 11(a)(iii), the Company (x)
shall provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate form
of distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Stock shall be the current market price
(as determined pursuant to Section 11(d) hereof) per share of the Common Stock
on the Section 11(a)(ii) Trigger Date and the value of any "common stock
equivalent" shall be deemed to have the same value as the Common Stock on such
date.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes. Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
18
<PAGE>
Such adjustment shall be made successively whenever such a record date is fixed,
and in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to all
holders of Preferred Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock on such record date. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current market
price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date, and for purposes of computations made pursuant to Section
11(a)(iii) hereof, the "current market price" per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices per share
of such Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the current
-------- -------
market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such Common
Stock or securities convertible into shares of such Common Stock (other than
the Rights), or (B) any subdivision, combination or reclassification of such
Common Stock, and prior to the
19
<PAGE>
expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price" shall
be properly adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and the low
asked prices in the over-the-counter market, as reported by the Nasdaq Stock
Market ("Nasdaq") or such other system then in use, or, if on any such date the
shares of Common Stock are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors. If on
any such date no market maker is making a market in the Common Stock, the fair
value of such shares on such date as determined in good faith by the Board of
Directors shall be used. The term "Trading Day" shall mean a day on which
Nasdaq or any national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business or, if
the shares of Common Stock are not listed or admitted to trading on Nasdaq or
any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "current market price" per share shall
mean the fair value per share as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current market
price" per share of Preferred Stock shall be determined in the same manner as
set forth above for the Common Stock in clause (i) of this Section 11(d) (other
than the last sentence thereof). If the current market price per share of
Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner described
in clause (i) of this Section 11(d), the "current market price" per share of
Preferred Stock shall be conclusively deemed to be an amount equal to 1,000 (as
such number may be appropriately adjusted for such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock occurring after
the date of this Agreement) multiplied by the current market price per share of
the Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current
20
<PAGE>
market price" per share of the Preferred Stock shall mean the fair value per
share as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. For all purposes of this Agreement,
the "current market price" of one one-thousandth of a share of Preferred Stock
shall be equal to the "current market price" of one share of Preferred Stock
divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
- -----------------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-millionth of a share of Preferred
Stock, or hundred-thousandth of a share of Common Stock or other security, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three (3) years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any securities other than Preferred Stock, thereafter the
number of such other securities so receivable upon exercise of any Right and the
Purchase Price thereof shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g),
(h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14
hereof with respect to the Preferred Stock shall apply on like terms to any such
other securities.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a share of Preferred Stock (calculated to the nearest ten-millionth) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such
21
<PAGE>
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-thousandths of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-hundred-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-thousandth of a
share and the number of one one-thousandths of a share which were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then stated value, if any, of the number of one one-
thousandths of a share of Preferred Stock issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
22
<PAGE>
counsel, be necessary in order that the Company may validly and legally issue
such number of one one-thousandths of a share of fully paid and nonassessable
Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the number
of one one-thousandths of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
--------
however, that the Company shall deliver to such holder a due bill or other
- -------
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or
23
<PAGE>
would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such other Person shall have executed and delivered to the Rights Agent a
supplemental agreement evidencing compliance with this Section 11(n).
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23, Section 24 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Record Date and prior to
the Distribution Date (i) declare or pay any dividend on the outstanding shares
of Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, the number of Rights associated
with each share of Common Stock then outstanding, or issued or delivered
thereafter but prior to the Distribution Date, shall be proportionately adjusted
so that the number of Rights thereafter associated with each share of Common
Stock following any such event shall equal the result obtained by multiplying
the number of Rights associated with each share of Common Stock immediately
prior to such event by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the occurrence of such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any adjustment unless and
until it shall have received such certificate.
24
<PAGE>
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
--------------------------------------------------------------
Power.
- -----
(a) In the event that, at any time after a Person has become an
Acquiring Person, (x) the Company shall consolidate with, or merge with and
into, any other Person (other than a Subsidiary of the Company in a transaction
that complies with Section 11(o) hereof), and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person (other than a Subsidiary of the Company in a transaction that complies
with Section 11(o) hereof) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property (other than a merger or consolidation in which the shares of
Common Stock of the Company outstanding immediately prior to such merger or
consolidation are changed into or exchanged for shares of common stock
representing more than 75% of the voting power of such other Person), or (z) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons (other than the Company or any Subsidiary of the Company in
one or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case and except as contemplated by Section 13(d) hereof,
proper provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid, non-assessable and freely tradeable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then current Purchase Price by the
number of one one-thousandths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13 Event (or,
if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one one-thousandths of a share
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and (2) dividing that product (which, following the
first occurrence of a Section 13 Event, shall be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by 50% of the
current market price (determined pursuant to Section 11(d)(i) hereof) per share
of the Common Stock of such Principal Party on the date of consummation of such
Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the obligations and duties
of the Company pursuant to this Agreement; (iii) the term
25
<PAGE>
"Company" shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall apply only
to such Principal Party following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of shares of its Common Stock) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the first occurrence of any
Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted in
such merger or consolidation, and if no securities are so issued, the Person
that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
- -------- -------
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
(2) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value; and (3)
in case such Person is owned, directly or indirectly, by a joint venture formed
by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the
chains of ownership having an interest in such joint venture as if such party
were a "Subsidiary" of both or all of such joint ventures and the Principal
Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear
to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
26
<PAGE>
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times meeting
the requirements of the Act) until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights and
the securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that comply in
all respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons (or a wholly owned subsidiary of any such Person or Persons)
who acquired shares of Common Stock pursuant to a Permitted Offer, (ii) the
price per share of Common Stock paid in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such Permitted Offer, and (iii) the form
of consideration paid in such transaction is the same as the form of
consideration paid pursuant to such Permitted Offer. Upon consummation of any
such transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
27
<PAGE>
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(i) or (p)
hereof, or to distribute Rights Certificates that evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which the Rights are
listed or admitted to trading, or if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and the low asked prices in the over-the-
counter market, as reported by Nasdaq or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Rights selected by the Board of Directors. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors
shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates that evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock), the Company shall pay to the registered holders of
Rights Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
one-thousandth of a share of Preferred Stock. For purposes of this Section
14(b), the current market value of one one-thousandth of a share of Preferred
Stock shall be one one-thousandth of the closing price of a share of Preferred
Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common
28
<PAGE>
Stock. In lieu of fractional shares of Common Stock, the Company shall pay to
the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market price of one (1) share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, except the rights of action expressly given to the Rights Agent in
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
---------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates duly completed and fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is
29
<PAGE>
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
-------- -------
efforts to prevent the issuance of any such order, decree or ruling and to have
any such order, decree or ruling lifted or otherwise overturned as soon as
possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
thousandths of a share of Preferred Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this
30
<PAGE>
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
-------- -------
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
31
<PAGE>
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11, Section 13 or Section 24 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after receipt of a
certificate describing any such adjustment, delivered pursuant to Section 12);
nor shall it by any act hereunder be deemed to make any representation or
warranty as
32
<PAGE>
to the authorization or reservation of any shares of Common Stock or Preferred
Stock to be issued pursuant to this Agreement or any Rights Certificate or as to
whether any shares of Common Stock or Preferred Stock will, when so issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent with respect to its duties or
obligations under this Rights Agreement and the date on and/or after which such
action shall be taken or omitted and the Rights Agent shall not be liable for
any action taken or omitted in accordance with a proposal included in any such
application on or after the date specified therein (which date shall not be less
than five Business Days after the date any such officer actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking or omitting any such action, the Rights
Agent has received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or
33
<PAGE>
misconduct; provided, however, reasonable care was exercised in the selection
-------- -------
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if there shall be reasonable grounds for believing that repayment of such funds
or adequate indem nification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Company and the Rights Agent will deem the beneficial owner of
the rights evidenced by such Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof and such assignment or election to purchase will
not be honored.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States (or of any
state of the United States) in good standing, which is authorized under such
laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000 or (b) an affiliate of a corporation described in clause (a)
of this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder,
34
<PAGE>
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
-----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption and Termination.
--------------------------
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the Distribution Date or (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"); provided, however, that from and after
the time that any Person shall become an Acquiring Person (other than pursuant
to a Permitted Offer), but prior to the expiration of the right of redemption
set forth in this sentence, the Company may redeem the Rights only if at the
time of the action of the Board of Directors there are then in office not less
than two Continuing Directors and such redemption is approved by a majority of
the Continuing Directors then in office. The redemption of the Rights by the
Board may be made effective at such time, on such basis and with such conditions
as the Board of Directors in its sole discretion may establish. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Section 11(a)(ii) Event until such
time as the Company's right of redemption hereunder has expired.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights shall terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and
35
<PAGE>
the holders of the then outstanding Rights by mailing such notice to all such
holders at each holder's last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
(c) The Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release announcing
the manner of redemption of the Rights in accordance with this Agreement and
(ii) mailing payment of the Redemption Price to the registered holders of the
Rights at their last addresses as they appear on the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent of the Common Shares, and upon such action, all outstanding
Rights and Right Certificates shall be null and void without any further action
by the Company.
Section 24. Exchange.
--------
(a) The Board of Directors of the Company may, at its option, at
any time after a Section 11(a)(ii) Event, exchange all or part of the then
outstanding and exercisable Rights (which (i) shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof, and (ii) shall
include, without limitation, any Rights issued after the Distribution Date) for
shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Stock for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24, evidence of which shall have been filed with the Rights Agent, and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
-------- -------
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The
36
<PAGE>
Company promptly shall mail a notice of any such exchange to all of the holders
of such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such
notice of exchange shall state the method by which the exchange of shares of
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or equivalent preferred stock, as such
term is defined in Section 11(b) hereof) for shares of Common Stock exchangeable
for Rights, at the initial rate of one one-thousandth of a share of Preferred
Stock (or equivalent preferred stock) for each share of Common Stock, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Stock pursuant to Section 3(A) of the Certificate of Designations
attached hereto as Exhibit A, so that the fraction of a share of Preferred Stock
---------
(or equivalent preferred stock) delivered in lieu of each share of Common Stock
shall have the same voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient shares of Common
Stock or Preferred Stock issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock or Preferred Stock for issuance upon exchange
of the Rights.
(e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the registered holders of the Right Certificates with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this subsection (e), the current market value
of a whole share of Common Stock shall be the closing price per share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to
37
<PAGE>
subscribe for or to purchase any additional shares of Preferred Stock or shares
of stock of any class or any other securities, rights or options, or (iii) to
effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision of outstanding shares of
Preferred Stock), or (iv) to effect any consolidation or merger into or with any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or to effect any sale or other transfer (or
to permit one or more of its Subsidiaries to effect any sale or other transfer),
in one transaction or a series of related transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of a
Rights Certificate, to the extent feasible and in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock,
whichever shall be the earlier.
(b) In case a Section 11(a)(ii) Event shall occur, then, in any
such case, (i) the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Section
11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer also to Common Stock and/or,
if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to
-------
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, MA 01760
Attention: President
38
<PAGE>
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First Chicago Trust Company of New York
---------------------------------
---------------------------------
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
--------------------------
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may, in its sole and absolute discretion, and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of the Rights.
At any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable, provided that
--------
no such supplement or amendment shall adversely affect the interests of the
holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person); and provided further, that this Agreement may
-------- -------
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed, or (B)
any other time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders of
Rights. Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment. Notwithstanding anything contained in this Agreement
to the contrary, no supplement or amendment shall be made which changes the
Redemption Price or the Final Expiration Date. Prior to the Distribution Date,
the
39
<PAGE>
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Stock.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Actions by the Board of Directors, etc. The Board of
--------------------------------------
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend this Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other parties, and (y) not subject the Board to
any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement, each Right and each Rights
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an
40
<PAGE>
original, and all such counterparts shall together constitute but one and the
same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: BJ'S WHOLESALE CLUB, INC.
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: By:
------------------------------- ---------------------------------
Name: Name:
Title: Title:
41
<PAGE>
EXHIBIT A
<PAGE>
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
BJ'S WHOLESALE CLUB, INC.
------------------------------
BJ's Wholesale Club, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter called the "Corporation"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation at a meeting duly called and held on __________, 1997:
RESOLVED: That pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, as amended, the Board of Directors hereby creates a series of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes
the relative rights, preferences and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be one hundred thousand (100,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
--------
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock, par value $.01
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Corporation legally available for the payment of
dividends, quarterly dividends payable in cash on the last day of each fiscal
quarter of the Corporation in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $10 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under
clause (b) of the first sentence of this Section 2(A) shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Series A Preferred Stock that were outstanding immediately prior to
such event and the
2
<PAGE>
denominator of which is the number of shares of Series A Preferred Stock
outstanding immediately after such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock) and the Corporation shall pay such
dividend or distribution on the Series A Preferred Stock before the dividend or
distribution declared on the Common Stock is paid or set apart; provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or
3
<PAGE>
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event. In the event the Corporation shall at any time declare or
pay any dividend on the Series A Preferred Stock payable in shares of Series A
Preferred Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Series A Preferred Stock (by reclassification or otherwise
than by payment of a dividend in shares of Series A Preferred Stock) into a
greater or lesser number of shares of Series A Preferred Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Series A Preferred Stock that were outstanding immediately prior to
such event and the denominator of which is the number of shares of Series A
Preferred Stock outstanding immediately after such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock shall
be in arrears in an amount equal to six quarterly dividends thereon, the holders
of the Series A Preferred Stock, voting as a separate series from all other
series of Preferred Stock and classes of capital stock, shall be entitled to
elect two members of the Board of Directors in addition to any Directors elected
by any other series, class or classes of securities and the authorized number of
Directors will automatically be increased by two. Promptly thereafter, the Board
of Directors of this Corporation shall, as soon as may be practicable, call a
special meeting of holders of Series A Preferred Stock for the purpose of
electing such members of the Board of Directors. Said special meeting shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Preferred
Stock, voting as a separate series, shall be entitled and shall have exercised
their right to elect two Directors, then and during such time as such right
continues (a) the then authorized number of Directors shall be increased by two,
and the holders of Series A Preferred Stock, voting as a separate series, shall
be entitled to elect the
4
<PAGE>
additional Directors so provided for, and (b) each such additional Director
shall not be a member of any existing class of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election of
Directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of Series A
Preferred Stock shall be entitled to elect two Directors, there is no such
Director in office by reason of resignation, death or removal, then, promptly
thereafter, the Board of Directors shall call a special meeting of the holders
of Series A Preferred Stock for the purpose of filling such vacancy and such
vacancy shall be filled at such special meeting. Such special meeting shall in
any event be held within 45 days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A Preferred Stock
outstanding are paid, and, in addition thereto, at least one regular dividend
has been paid subsequent to curing such arrearage, the term of office of any
Director elected pursuant to this Section 3(C), or his successor, shall
automatically terminate, and the authorized number of Directors shall
automatically decrease by two, the rights of the holders of the shares of the
Series A Preferred Stock to vote as provided in this Section 3(C) shall cease,
subject to renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Preferred Stock shall have only the limited
voting rights elsewhere herein set forth.
(D) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
5
<PAGE>
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred
6
<PAGE>
Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received $1000 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1,000 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
(B) Neither the consolidation, merger or other business combination of
the Corporation with or into any other corporation nor the sale, lease, exchange
or conveyance of all or any part of the property, assets or business of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.
(C) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of paragraph (A) of this Section 6 shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series
7
<PAGE>
A Preferred Stock, then in each such case the aggregate amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to such
event under the proviso in clause (1) of paragraph (A) of this Section 6 shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Series A Preferred Stock that were outstanding
immediately prior to such event and the denominator of which is the number of
shares of Series A Preferred Stock outstanding immediately after such event.
Section 7. Consolidation, Merger, etc. Notwithstanding anything to the
---------------------------
contrary contained herein, in case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event. In the event the Corporation shall at any time declare or
pay any dividend on the Series A Preferred Stock payable in shares of Series A
Preferred Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Series A Preferred Stock (by reclassification or otherwise
than by payment of a dividend in shares of Series A Preferred Stock) into a
greater or lesser number of shares of Series A Preferred Stock, then in each
such case the amount set forth in the first sentence of this Section 7 with
respect to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding immediately
prior to such event and the denominator of which is the number of shares of
Series A Preferred Stock outstanding immediately after such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
8
<PAGE>
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Preferred Stock issued either before or after the
issuance of the Series A Preferred Stock, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. At such time as any shares of Series A Preferred
---------
Stock are outstanding, the Certificate of Incorporation, as amended, of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
-----------------
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board this ____ day of __________,
1997.
BJ'S WHOLESALE CLUB, INC.
By:
------------------------------
9
<PAGE>
EXHIBIT B
<PAGE>
[Form of Rights Certificate]
----------------------------
Certificate No. R- ______ Rights
NOT EXERCISABLE AFTER _____________, 200_OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]/1/
BJ'S WHOLESALE CLUB, INC.
Rights Certificate
This certifies that _____________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ___________, 1997 (the "Rights Agreement"), between BJ's
Wholesale Club, Inc., a Delaware corporation (the "Company"), and First Chicago
Trust Company of New York, a national banking association (the "Rights Agent"),
to purchase from the Company after the Distribution Date (as such term is
defined on the Rights Agreement) and at any time prior to _____ .m. (Boston
time) on _____________, 200 at the office of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one one-thousandth of a fully
paid, non-assessable share of Series A Junior Participating Preferred Stock (the
"Preferred Stock") of the Company, $.01 par value per share, at a purchase price
of $______ in cash per one one-thousandth of a share (the "Purchase Price"),
upon presentation and surrender of this Rights Certificate with the Form of
Election to Purchase and related Certificate duly
- --------------------------
/1/ The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE>
executed. The number of Rights evidenced by this Rights Certificate (and the
number of one one-thousandth of a share of Preferred Stock which may be
purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of the close of business on
__________, 1997, based on the Preferred Stock as constituted at such date.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights evidenced
by this Rights Certificate are beneficially owned by (i) an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement), (ii) a transferee of any such Acquiring
Person, Associate or Affiliate who becomes a transferee after the Acquiring
Person becomes an Acquiring Person, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, concurrently
with or after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Section 11(a)(ii) Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal offices of the
Company and are available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, with
the Form of Election and Certificate set forth on the reverse side duly
executed, may be exchanged for another Rights Certificate or Rights Certificates
of like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of one one-thousandths of a share of Preferred Stock as the
Rights evidenced by the Rights
2
<PAGE>
Certificate or Rights Certificates surrendered shall have entitled such holder
to purchase. If this Rights Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right at any time prior to the earlier of (i) the Distribution
Date or (ii) the Final Expiration Date.
Subject to the provisions of the Rights Agreement, the Company may, at its
option, at any time after a Section 11(a)(ii) Event, exchange all or part of the
Rights evidenced by this Certificate for shares of the Company's Common Stock or
for Preferred Stock (or shares of a class or series of the Company's preferred
stock having the same rights, privileges and preferences as the Preferred
Stock).
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions af affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of _______________, 199_
3
<PAGE>
ATTEST: BJ'S WHOLESALE CLUB, INC.
By:
- -------------------------- ---------------------------
Secretary
Title:
-------------------------
COUNTERSIGNED:
First Chicago Trust Company
of New York, as Rights Agent
By:
---------------------------
Authorized Signature
4
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED _____________________________________________ hereby sells,
assigns and transfers unto _____________________________________________
________________________________________________________________________
(Please print name and address of transferee)
_________________________________________________________________________ this
Rights Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________________, 19__
-----------------------------
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not being beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined pursuant to the Rights
Agreement).
Dated: ______________, 19__
-----------------------------
Signature
Signature Guaranteed:
Reverse Side of Rights Certificate
1
<PAGE>
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
Reverse Side of Rights Certificate
2
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: The First National Bank of Boston
The undersigned hereby irrevocably elects to exercise ___________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
--------------------------------------------------
- ---------------------------------------------------------------------------
(Please print name and address)
- ---------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
--------------------------------------------------
- ---------------------------------------------------------------------------
(Please print name and address)
- ---------------------------------------------------------------------------
Dated: ______________, 19__
-----------------------------
Signature
Signature Guaranteed:
Reverse side of Rights Certificate
3
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate thereof (as such terms are defined pursuant
to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate thereof.
Dated: _______________, 19__
-----------------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
Reverse Side of Rights Certificate
4
<PAGE>
EXHIBIT C
<PAGE>
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On ___________, 1997, the Board of Directors of BJ's Wholesale Club, Inc.
(the "Company"), declared a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of the Company's Common Stock to
stockholders of record at the close of business on _______________, 199__ (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company a unit consisting of one one-thousandth of a share (a "Unit") of Series
A Junior Participating Preferred Stock, $.01 par value per share (the "Preferred
Stock"), at a purchase price of $______ in cash per Unit (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of ______________, 1997 (the "Rights Agreement")
between the Company and First Chicago Trust Company of New York, as Rights
Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 business days (or such
later date as may be determined by the Board of Directors of the Company)
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days (or such
later date as may be determined by the Board of Directors of the Company)
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 30% or more of such outstanding shares
of Common Stock. Until the Distribution Date (or earlier redemption or
expiration of the rights), (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates issued after the Record Date
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding, even without such notation, will also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
upon the earliest of the close of business on ______________, 200 (the "Final
Expiration Date") or the redemption or exchange of the Rights as described
below.
As soon as practicable after the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution Date
and, thereafter, such separate Rights Certificates alone will represent the
Rights.
<PAGE>
In the event that any Person becomes an Acquiring Person, unless the event
causing the 20% threshold to be crossed is a Permitted Offer (as defined in the
Rights Agreement), then, promptly following the first occurrence of such event,
proper provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) of the Rights Agreement) shall thereafter
have the right to receive, upon exercise thereof at the then current Purchase
Price, in lieu of a number of one one-thousandths of a share of Preferred Stock,
such number of shares of Common Stock of the Company that equals the result
obtained by (x) multiplying the then current Purchase Price by the then number
of one one-thousandths of a share of Preferred Stock for which a Right is then
exercisable, and (y) dividing that product by 50% of the current market price
per share of Common Stock on the date of such first occurrence. Notwithstanding
any of the foregoing, following the occurrence of the event set forth in this
paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null
and void. The event summarized in this paragraph is referred to as "Section
11(a)(ii) Event."
In the event that, at any time after any Person becomes an Acquiring
Person, (i) the Company is acquired in certain merger or other business
combination transactions in which the Company is not the surviving corporation
or its Common Stock is changed or exchanged (other than a merger which follows a
Permitted Offer), or (ii) 50% or more of the Company's assets or earning power
is sold or transferred, each holder of a Right (except Rights which previously
have been voided as set forth above) shall thereafter have the right to receive,
upon exercise, that number of shares of common stock of the acquiring company
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.
The events summarized in this paragraph are referred to as "Section 13 Events."
Section 11(a)(ii) Events and Section 13 Events are collectively referred to as
"Triggering Events."
At any time after the occurrence of a Section 11(a)(ii) Event, subject to
certain conditions, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person which have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or one one-thousandth of a share of Preferred Stock (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if
2
<PAGE>
holders of the Preferred Stock are granted certain rights or warrants to
subscribe for Preferred Stock or convertible securities at less than the then-
current market price of the Preferred Stock, or (iii) upon the distribution to
holders of the Preferred Stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings) or of
subscription rights or warrants (other than those referred to above).
The number of Rights associated with each share of Common Stock is also
subject to adjustment in the event of a stock split of the Common Stock or a
stock dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $10 per share and will be entitled to
an aggregate dividend of 1000 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Preferred Stock will be
entitled to a minimum preferential liquidation payment of $1000 per share and
will be entitled to an aggregate payment of 1000 times the payment made per
share of Common Stock. Each share of Preferred Stock will have 1000 votes,
voting together with the Common Stock. In the event of any merger, consolidation
or other transaction in which Common Stock is exchanged, each share of Preferred
Stock will be entitled to receive 1000 times the amount received per share of
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of one one-thousandth of a share of Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
At any time prior to the earlier of (i) the Distribution Date, or (ii) the
Final Expiration Date, the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"), payable in cash,
provided, however, that from and after the time that any Person shall become an
Acquiring Person (other than pursuant to a Permitted Offer) and prior to the
expiration of the Company's
3
<PAGE>
redemption right, the Company may redeem the Rights only if at the time of the
action of the Board of Directors there are then in office not less than two
Continuing Directors (as defined in the Rights Agreement) and such redemption is
approved by a majority of the Continuing Directors then in office. Immediately
upon the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Subject to certain exceptions, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company prior to such
time as the Rights are no longer redeemable.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
___________, 1997. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is incorporated herein by reference.
4
<PAGE>
EXHIBIT 10.1
================================================================================
SEPARATION AND DISTRIBUTION AGREEMENT
Dated as of June ____, 1997
BETWEEN
WABAN INC.
AND
BJ'S WHOLESALE CLUB, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS................................................. 1
ARTICLE 2 THE SEPARATION.............................................. 6
2.1 Adoption of BJI Charter, BJI By-Laws and BJI Rights Plan..... 6
2.2 Transfer of BJI Assets and Assumption of BJI Assumed
Liabilities.................................................. 6
2.2.1 BJI Assets............................................ 6
2.2.2 BJI Assumed Liabilities............................... 6
2.2.3 Transfers Not Consummated On or Prior to the
Distribution Date..................................... 7
2.2.4 Further Assurances; Subsequent Transfers.............. 7
2.2.5 No Representations or Warranties; Consents............ 8
2.3 Intercompany Accounts......................................... 9
2.4 Ancillary Agreements.......................................... 9
2.5 Issuance of BJI Common Stock.................................. 9
2.6 Resignations.................................................. 9
2.7 Insurance..................................................... 10
2.7.1. General................................................ 10
2.7.2 Certain Insured Claims................................. 10
2.8 Non-Exclusive License to Name................................. 11
ARTICLE 3 THE DISTRIBUTION............................................. 11
3.1 Action Prior to the Distribution.............................. 11
3.1.1 BJI Form 8-A........................................... 11
3.1.2 S-8 Registration Statement............................. 11
3.1.3 Matters Pertaining to Blue Sky Laws Compliance......... 11
3.1.4 New York Stock Exchange Listing........................ 12
3.2 Conditions Precedent to the Distribution...................... 12
3.3 Waban Board Action............................................ 13
3.4 The Distribution.............................................. 13
ARTICLE 4 CERTAIN MATTERS RELATING TO LEASE LIABILITIES................ 13
4.1 Certain Definitions........................................... 13
4.2 Indemnified Home Base Lease Liabilities....................... 15
4.2.1 Control of HomeBase Third Party Claims................. 15
4.2.2 Reports................................................ 17
4.2.3 Settlements............................................ 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
4.2.4 Indemnification Agreement............................ 17
4.3 Lease Renewals.............................................. 17
4.4 Reimbursement............................................... 18
ARTICLE 5 INDEMNIFICATION............................................ 18
5.1 Certain Definitions......................................... 18
5.2 Indemnification by Waban.................................... 19
5.3 Indemnification by BJI...................................... 19
5.4 Limitations on Indemnification Obligations.................. 19
5.5 Procedure for Indemnification............................... 20
5.5.1 Third Party Claims; Notice........................... 20
5.5.2 Defense of Third Party Claims........................ 20
5.5.3 Cooperation by Indemnitee............................ 20
5.5.4 Limitation on Authority to Settle Claim.............. 21
5.5.5 Other Claims......................................... 21
5.5.6 Advancement of Certain Expenses...................... 21
5.5.7 Subrogation to Rights of Indemnitee.................. 22
5.6 Insurance and Indemnification............................... 22
5.7 Special Provision Relating to Certain Pre-Distribution
Liabilities................................................. 22
5.8 Remedies Cumulative......................................... 22
ARTICLE 6 ACCESS TO INFORMATION...................................... 22
6.1 Provision of Corporate Records.............................. 22
6.2 Access to Information....................................... 22
6.3 Production of Witnesses..................................... 23
6.4 Reimbursement............................................... 23
6.5 Retention of Records........................................ 23
6.6 Confidentiality............................................. 24
ARTICLE 7 MISCELLANEOUS.............................................. 24
7.1 Rule of Construction........................................ 24
7.2 Survival of Agreements...................................... 24
7.3 Expenses.................................................... 24
7.4 Governing Law............................................... 25
7.5 Notices..................................................... 25
7.6 Amendments.................................................. 25
Successors and Assigns...................................... 25
7.8 Termination................................................. 26
7.9 No Third Party Beneficiaries................................ 26
7.10 Titles and Headings......................................... 26
7.11 Exhibits and Schedules...................................... 26
</TABLE>
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<PAGE>
7.12 Counterparts................................................ 26
7.13 Legal Enforceability........................................ 26
SCHEDULES
A BJ's Assets
B BJ's Assumed Liabilities
C BJ's Subsidiaries
D HomeBase Subsidiaries
E Intercompany Accounts
-iii-
<PAGE>
SEPARATION AND DISTRIBUTION AGREEMENT
This SEPARATION AND DISTRIBUTION AGREEMENT (the "Agreement"), dated as of
June ___, 1997, is between Waban Inc., a Delaware corporation ("Waban"), and
BJ's Wholesale Club, Inc., a Delaware corporation and, as of the date hereof, a
wholly owned subsidiary of Waban ("BJI").
WHEREAS, Waban currently owns and operates "BJ's Wholesale Club," a food
and general merchandise warehouse club business, and "HomeBase", a home
improvement warehouse business;
WHEREAS, the Board of Directors of Waban has determined that it is in the
best interests of Waban and its stockholders to separate the "BJ's Wholesale
Club" and "HomeBase" businesses into two distinct companies by transferring the
BJ's Wholesale Club business to BJI (the "Separation") and, then, distributing
all of the outstanding shares of BJI Common Stock on a pro rata basis to the
holders of Waban Common Stock (the "Distribution"); and
WHEREAS, Waban and BJI have determined that it is necessary and desirable
to set forth the principal corporate transactions required to effect the
Separation and the Distribution and to set forth other agreements that will
govern certain relationships and other matters between Waban and BJI in
connection with, and following, the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Action" means any action, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Affiliate" means "affiliate" as defined in Rule 12b-2 promulgated under
---------
the Exchange Act, as such Rule is in effect on the date hereof; provided,
--------
however, that
- -------
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<PAGE>
BJI and the BJI Subsidiaries, on the one hand, and Waban and the Waban
Subsidiaries, on the other hand, shall not be deemed Affiliates of each other
for purposes of this Agreement.
"Ancillary Agreements" means all of the agreements, instruments,
--------------------
understandings, assignments or other arrangements entered into in connection
with the Distribution, including, without limitation, (i) the Conveyancing
Instruments, (ii) the Services Agreement, (iii) the Tax Sharing Agreement and
(iv) the Employee Benefits Agreement.
"BJI" has the meaning ascribed in the Preamble.
---
"BJI Assets" means collectively, those assets of Waban identified on
----------
Schedule A hereto to be transferred to BJI in accordance with Article 2 of this
- ----------
Agreement.
"BJI Assumed Liabilities" means collectively, those Liabilities of Waban
-----------------------
identified on Schedule B hereto to be assumed by BJI in accordance with Article
----------
2 of this Agreement.
"BJI Board" means the Board of Directors of BJI.
---------
"BJI Business" means the business, assets and operations of the "BJ's
------------
Wholesale Club" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued prior to
the Distribution Date (provided, however, that the warehouse clubs initially
operated by the BJ's Wholesale Club division and subsequently transferred to the
HomeBase division shall be considered part of the BJI Business only for the
period operated by the BJ's Wholesale Club division).
"BJI By-Laws" means the Amended and Restated By-Laws of BJI, substantially
-----------
in the form filed as an exhibit to the BJI Form S-1, to be in effect on the
Distribution Date.
"BJI Charter" means the Amended and Restated Certificate of Incorporation
-----------
of BJI, substantially in the form filed as an exhibit to the BJI Form S-1, to be
in effect on the Distribution Date.
"BJI Common Stock" means the common stock, par value $.01 per share, of
----------------
BJI.
"BJI Default Period" has the meaning ascribed in Section 4.1.
------------------
"BJI Form S-1" means the Registration Statement on Form S-1 filed by BJI
------------
and the Registration Statement on Form S-3 filed by Waban with the Commission to
-2-
<PAGE>
effect, among other things, the registration of the BJI Common Stock and the BJI
Rights to be issued in the Distribution pursuant to the Securities Act.
"BJI Indemnitees" has the meaning ascribed in Section 5.1.
---------------
"BJI Lease" has the meaning ascribed in Section 4.1.
---------
"BJI Rights" means the Preferred Stock Purchase Rights of BJI issued under
----------
the BJI Rights Plan.
"BJI Rights Plan" means the BJI Preferred Stock Purchase Rights Plan, in
---------------
substantially the form filed as an exhibit to the BJI Form S-1, to be adopted by
BJI prior to the Distribution Date.
"BJI Subsidiaries" means the Subsidiaries of Waban listed on Schedule C
---------------- ----------
hereto, each of which will become Subsidiaries of BJI, or of another Subsidiary
of BJI, on or prior to the Distribution Date.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
----
include corresponding provisions of any subsequently enacted federal tax law.
"Commission" means the Securities and Exchange Commission.
----------
"Conveyancing Instruments" means collectively, the various agreements,
------------------------
instruments and other documents, in form and substance mutually satisfactory to
Waban and BJI, to be entered into to effect the transfer of the BJI Assets by
Waban to BJI and the assumption by BJI of the BJI Assumed Liabilities.
"Distribution" has the meaning ascribed in the Preamble.
------------
"Distribution Agent" means the distribution agent for the stockholders of
------------------
Waban, as appointed by Waban, to distribute shares of BJI Common Stock and the
BJI Rights pursuant to the Distribution.
"Distribution Date" means the close of business on the date to be
-----------------
determined by the Waban Board as of which the Distribution shall be effected.
"Distribution Record Date" means the close of business on the date to be
------------------------
determined by the Waban Board as the record date for the Distribution.
"Employee Benefits Agreement" means the Employee Benefits Agreement in
---------------------------
substantially the form filed as an exhibit to the BJI Form S-1, to to be entered
into between Waban and BJI.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
-3-
<PAGE>
"HomeBase Control Event" has the meaning ascribed in Section 4.2.
----------------------
"HomeBase Control Period" has the meaning ascribed in Section 4.1.
-----------------------
"HomeBase Business" means the business, assets and operations of the
-----------------
"HomeBase" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued prior to
Distribution Date (provided, however, that the warehouse clubs initially
operated by the BJ's Wholesale Club division of Waban and subsequently
transferred to the HomeBase division shall not be considered part of the
HomeBase Business for the period operated by the BJ's Wholesale Club division).
"HomeBase Lease" has the meaning ascribed in Section 4.1.
--------------
"HomeBase Third Party Claim" has the meaning ascribed in Section 4.1.
--------------------------
"Indemnifiable Losses" has the meaning ascribed in Section 5.1.
--------------------
"Indemnified HomeBase Lease Liabilities" has the meaning ascribed in
--------------------------------------
Section 4.1.
"Indemnifying Party" has the meaning ascribed in Section 5.4.
------------------
"Indemnitee" has the meaning ascribed in Section 5.4.
----------
"Information" has the meaning ascribed in Section 6.2.
-----------
"Insurance Program" means the various insurance policies maintained by
-----------------
Waban pursuant to which various insurance carriers provide insurance coverage to
Waban and its subsidiaries (including, prior to the Distribution Date, BJI and
the BJI Subsidiaries).
"IRS" means the Internal Revenue Service.
---
"Liabilities" means any and all debts, liabilities and obligations,
-----------
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising (unless otherwise
specified in this Agreement), including all costs and expenses (including
attorneys' fees) relating thereto, and including, without limitation, those
debts, liabilities and obligations arising under any law, rule, regulation,
Action, threatened Action, order or consent decree of any governmental entity or
any award of any arbitrator of any kind, and those arising under any contract,
commitment or undertaking.
-4-
<PAGE>
"Person" means any natural person or any corporation, association,
------
partnership, limited liability company, joint venture, company, trust,
organization, business or government or any governmental agency or political
subdivision thereof.
"Prospectus/Proxy Statement" means the Prospectus/Proxy Statement included
--------------------------
in the BJ's Form S-1 and sent to the holders of Waban Common Stock in connection
with the meeting of stockholders of Waban called to approve the Distribution.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Services Agreement" means the Services Agreement, in substantially the
------------------
form filed as an exhibit to the BJI Form S-1, pursuant to which BJI will provide
various services to Waban.
"Subsidiary" means with respect to any Person, any other Person of which
----------
such Person shall at the time own, directly or indirectly through one or more
Subsidiaries, at least a majority of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally, or shall hold at
least a majority of partnership or similar interests, or shall be a general
partner.
"Tax Sharing Agreement" means the Tax Sharing Agreement, in substantially
---------------------
the form filed as an exhibit to the BJI Form S-1, to be entered into between
Waban and BJI.
"Third Party Claim" has the meaning ascribed in Section 5.5.1.
-----------------
"TJX" means The TJX Companies, Inc.
---
"TJX Indemnification Agreement" has the meaning ascribed in Section 4.1.
-----------------------------
"Waban" has the meaning ascribed in the Preamble.
-----
"Waban Board" means the Board of Directors of Waban.
-----------
"Waban Business" means the assets, business and operations of Waban
--------------
heretofore, currently or hereafter held or conducted, including without
limitation all businesses, assets or operations managed or operated by, or
operationally related to, any of such businesses which have been sold or
otherwise disposed of or discontinued prior to the Distribution Date, in each
case other than the BJI Business.
"Waban Common Stock" means the common stock, par value $.01 per share, of
------------------
Waban.
"Waban Indemnitees" has the meaning ascribed in Section 5.1.
-----------------
-5-
<PAGE>
"Waban Liabilities" means all Liabilities of Waban or any Waban Subsidiary,
-----------------
including all Liabilities arising out of or in connection with or relating
principally to the Waban Business including, without limitation, any and all
liabilities arising under any lease for which Waban is or may be liable, other
than leases which are BJI Assumed Liabilities (such leases, excluding leases
which are BJI Assumed Liabilities, being referred to as the "Waban Leases");
provided, however, that the term "Waban Liabilities" shall not include any BJI
- -------- -------
Assumed Liabilities.
"Waban Rights" means the Preferred Stock Purchase Rights of Waban issued
------------
under Waban's Preferred Stock Purchase Rights Plan.
"Waban Subsidiaries" means the Subsidiaries of Waban other than BJI or any
------------------
BJI Subsidiary, including, without limitation, the entities listed on
Schedule D.
- ----------
ARTICLE 2
THE SEPARATION
This Article 2 sets forth certain transactions to be consummated on or
prior to the Distribution Date in connection with the separation of Waban's BJ's
Wholesale Club and HomeBase divisions into two separate companies and the
transfer of the BJ's Wholesale Club business of Waban to BJI in contemplation of
the Distribution. Subject to the terms and conditions of this Agreement, the
parties shall consummate such transactions on or prior to the Distribution Date
at such times and in such sequence as they shall mutually agree.
2.1 Adoption of BJI Charter, BJI By-Laws and BJI Rights Plan. On or prior
--------------------------------------------------------
to the Distribution Date, BJI and Waban shall cause the Certificate of
Incorporation and By-Laws of BJI to be amended and restated, substantially in
the form of the BJI Charter and the BJI By-Laws, respectively, and shall cause
the BJI Rights Plan to be adopted.
2.2 Transfer of BJI Assets and Assumption of BJI Assumed Liabilities.
----------------------------------------------------------------
2.2.1 BJI Assets. On or prior to the Distribution Date, Waban
----------
shall, by means of appropriate Conveyancing Instruments, convey, transfer,
assign and deliver to BJI, and BJI will accept from Waban, all of Waban's
rights, title and interest in and to all of the BJI Assets, which transfers
shall be deemed to be effective as of ________, 1997.
-6-
<PAGE>
2.2.2 BJI Assumed Liabilities. On or prior to the Distribution
-----------------------
Date, except as set forth in the Tax Sharing Agreement or the Employee
Benefits Agreement, BJI shall, by means of appropriate Conveyancing
Instruments, assume all of Waban's duties, obligations and responsibilities
with respect to the BJI Assumed Liabilities, which assumption shall be
deemed to be effective as of ________, 1997.
2.2.3 Transfers Not Consummated On or Prior to the Distribution Date.
--------------------------------------------------------------
Subject to Section 2.2.4 hereof, to the extent that the transfer to BJI of
any of the BJI Assets or the assumption by BJI of any of the BJI Assumed
Liabilities shall not have been consummated on or prior to the Distribution
Date, Waban and BJI shall cooperate to effect such consummation as promptly
thereafter as shall be practicable, it nonetheless being understood and
agreed by Waban and BJI that neither shall be liable in any manner to any
person who is not a party to this Agreement for any failure of any of the
transfers contemplated by Section 2 to be consummated on or subsequent to
the Distribution Date. Whether or not all of the BJI Assets or the BJI
Assumed Liabilities shall have been legally transferred to BJI as of the
Distribution Date, Waban and BJI agree that, as of the Distribution Date,
BJI shall have, and shall be deemed to have acquired, complete and sole
beneficial ownership over all of the BJI Assets, together with all of
Waban's rights, powers and privileges incident thereto, and shall be deemed
to have assumed in accordance with the terms of this Agreement all of the
BJI Assumed Liabilities and all of Waban's duties, obligations and
responsibilities incident thereto.
2.2.4 Further Assurances; Subsequent Transfers.
----------------------------------------
(a) Each of Waban and BJI will execute and deliver such further
instruments of conveyance, transfer and assignment and will take such other
actions as each of them may reasonably request of the other in order to
effectuate the purposes of this Agreement and to carry out the terms
hereof. Without limiting the generality of the foregoing, at any time and
from time to time after the Distribution Date, at the request of BJI and
without further consideration, Waban will execute and deliver to BJI such
other instruments of transfer, conveyance, assignment and confirmation
(including estoppel certificates) and take such action as BJI may
reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to BJI and to confirm BJI's title to all of the
BJI Assets, to put BJI in actual possession and operating control thereof
and to permit BJI to exercise all rights with respect thereto (including,
without limitation, rights under contracts and other arrangements as to
which the consent of any third party to the transfer thereof shall not have
previously been obtained) and BJI will execute and deliver to Waban all
instruments, undertakings or other documents and take such other
-7-
<PAGE>
action as Waban may reasonably deem necessary or desirable in order to have
BJI properly assume and discharge the BJI Assumed Liabilities and relieve
Waban of any Liability or obligations with respect thereto and evidence the
same to third parties. Notwithstanding the foregoing, Waban and BJI shall
not be obligated, in connection with the foregoing, to expend monies other
than reasonable out-of-pocket expenses and attorneys' fees.
(b) Waban and BJI will use their best efforts to obtain any consent
required to assign all agreements, leases, licenses and other rights of any
nature whatsoever relating to the BJI Assets to BJI and the BJI
Subsidiaries; provided, however, that Waban shall not be obligated to pay
-------- -------
any consideration therefor (except for filing fees and other administrative
charges) to the third party from whom such consents, approvals and
amendments are requested. In the event and to the extent that Waban is
unable to obtain any such required consent, (i) Waban shall continue to be
bound thereby and (ii) unless not permitted by law or the terms thereof,
BJI shall pay, perform and discharge fully all the obligations of Waban
thereunder from and after the Distribution Date and indemnify Waban for all
Indemnifiable Losses arising out of such performance by BJI. Waban shall,
without further consideration therefor, pay, assign and remit to BJI
promptly all monies, rights and other considerations received in respect of
such performance. Waban shall exercise or exploit its rights and options
under all such agreements, leases, licenses and other rights and
commitments referred to in this Section 2.2.4(b) only as reasonably
directed by BJI and at BJI's expense. If and when any such consent shall be
obtained or such agreement, lease, license or other right shall otherwise
become assignable or able to be novated, Waban shall promptly assign and
novate all its rights and obligations thereunder to BJI without payment of
further consideration and BJI shall, without the payment of any further
consideration therefor, assume such rights and obligations.
2.2.5 No Representations or Warranties; Consents. BJI understands and
------------------------------------------
hereby agrees that Waban is not, in this Agreement or in any other
agreement or document contemplated by this Agreement or otherwise, nor
shall Waban be deemed or implied to be, representing or warranting in any
way (i) as to the value or freedom from encumbrance of, or any other matter
concerning, any assets to be transferred to BJI as contemplated by this
Section 2.2 or (ii) as to the legal sufficiency to convey title to any such
asset of the execution, delivery and filing of this Agreement or any
Conveyancing Instrument, IT BEING UNDERSTOOD AND HEREBY AGREED THAT ALL
SUCH ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that BJI shall bear
the economic and legal risk that any conveyances of such assets shall prove
to be insufficient (subject to Section 2.2.4(a)) or that BJI or any of its
Subsidiaries' title to any such assets shall be other than good and
marketable
-8-
<PAGE>
and free from encumbrances. Similarly, BJI understands and hereby agrees
that Waban is not, in this Agreement or in any other agreement or document
contemplated by this Agreement or otherwise, nor shall Waban be deemed or
implied to be, representing or warranting in any way that the obtaining of
any consents or approvals, the execution and delivery of any amendatory
agreements and the making of any filings or applications contemplated by
this Agreement or such other agreements or documents shall satisfy the
provisions of any or all applicable agreements or the requirements of any
or all applicable laws or judgments, it being understood and hereby agreed
that BJI shall bear the economic and legal risk that any necessary consents
or approvals are not obtained or that any requirements of laws or judgments
are not complied with. Notwithstanding the foregoing, the parties shall use
reasonable efforts to obtain all consents and approvals, to enter into all
amendatory agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement.
2.3 Intercompany Accounts. On or prior to the Distribution Date, Waban
---------------------
and BJI shall pay or otherwise settle all intercompany accounts between them all
as more specifically provided on Schedule E and shall make the other payments or
----------
dividends specifically provided on Schedule E.
----------
2.4 Ancillary Agreements. On or prior to the Distribution Date, Waban and
--------------------
BJI shall enter into each of the (i) Tax Sharing Agreement, (ii) the Services
Agreement and (iii) the Employee Benefits Agreement.
2.5 Issuance of BJI Common Stock. In consideration for the conveyance,
----------------------------
assignment, transfer and delivery of the BJI Assets pursuant to Article 2
hereof, BJI shall issue to Waban, on or prior to the Distribution Date, one
share of BJI Common Stock (including one BJI Right) for each share of Waban
Common Stock outstanding on the Distribution Record Date, reduced by the number
of shares of BJI Common Stock (and associated BJI Rights) theretofore held by
Waban.
2.6 Resignations. Each party shall cause all of its own and all of
------------
its Subsidiaries' employees to resign, effective upon the Distribution, from all
boards of directors or similar governing bodies of the other party or any
Subsidiary of the other party on which they serve, and from all positions as
officers of the other party or any Subsidiary of the other party in which they
serve, except as otherwise provided in the Prospectus/Proxy Statement with
respect to individuals continuing to hold positions with both Waban and BJI.
-9-
<PAGE>
Prior to the Distribution Date, Waban shall take all steps necessary so that,
effective immediately after the Distribution, the directors and officers of BJI
shall be those individuals named in the Prospectus/Proxy Statement.
2.7. Insurance.
---------
2.7.1. General. Waban shall keep in effect all policies under its
-------
Insurance Program in effect as of the date of this Agreement insuring the
BJI Assets and operations of the BJI Business until 12:00 midnight on the
Distribution Date, unless BJI shall have earlier obtained appropriate
coverage and notified Waban in writing to that effect. In addition, Waban
shall keep in effect all property insurance policies under its Insurance
Program in effect as of the date of this Agreement insuring the BJI Assets
and operations of the BJI Business until 12:00 midnight on October 31,
1997, unless BJI shall have earlier obtained appropriate coverage and
notified Waban in writing to that effect. BJI agrees that, prior to the
expiration of each insurance policy referred to in the first two sentences
of this Section, it will purchase insurance policies which (i) provide
coverage similar to that provided by the policies maintained by Waban
under the Insurance Program with respect to the BJI Assets and the BJI
Business and (ii) allow BJI to make claims for occurrences prior to the
Distribution Date (provided, however, that clause (ii) shall not apply to
the Director and Officer liability policy to be obtained by BJI). Waban
shall, if so requested by BJI, use reasonable efforts to assist BJI in
obtaining such initial insurance coverage for BJI from and after the
Distribution Date in such amounts as are agreed upon by Waban and BJI.
Following the Distribution Date, each of Waban and BJI shall cooperate with
and assist the other party in the prevention of conflicts or gaps in
insurance coverage and/or collection of proceeds.
2.7.2 Certain Insured Claims. Notwithstanding anything to the contrary
----------------------
in this Agreement, Waban will indemnify and hold BJI harmless from and
against any and all Indemnifiable Losses resulting, directly or indirectly,
from claims made or deemed made (under the applicable insurance policy)
prior to the Distribution Date (or with respect to property insurance
policies, prior to October 31, 1997) which relate to the BJI Assets or the
BJI Business and which arise from or relate to events or occurrences prior
to the Distribution Date (or with respect to property insurance policies,
prior to October 31, 1997), if such claims would be covered by the
Insurance Program; provided, however, that Waban shall only be required to
-------- -------
indemnify and hold BJI harmless pursuant to this Section 2.7.2 (i) to the
extent such Indemnifiable Losses exceed any applicable deductibles under
the Insurance Program (the payment of which deductibles shall be the
responsibility of BJI) and (ii) to the
-10-
<PAGE>
extent Waban actually receives a payment under the Insurance Program with
respect to such Indemnifiable Losses. To the extent that BJI seeks any
indemnity pursuant to this Section 2.7.2, the provisions of Section 5
hereof shall apply thereto, and BJI shall be treated as the Indemnitee and
Waban shall be treated as the Indemnifying Party under such provisions;
provided, however, that BJI shall pay all out of pocket costs which are
-------- -------
reasonably incurred by Waban after the Distribution Date in defending any
such claims under an insurance policy relating to the BJI Assets or the BJI
Business and BJI shall make available to Waban such of its employees as
Waban may reasonably request as witnesses or deponents in connection with
Waban's defense of claims, at BJI's sole cost and expense.
2.8 Non-Exclusive License to Name. Waban hereby grants to BJI a non-
-----------------------------
exclusive right and license during the period commencing on the Distribution
Date and ending on the date which is six months after the Distribution Date to
use the trademark "Waban" in connection with the BJI Business.
ARTICLE 3
THE DISTRIBUTION
3.1 Action Prior to the Distribution.
--------------------------------
3.1.1 BJI Form 8-A. Waban and BJI shall prepare, and shall cause to
------------
be filed with the Commission, the BJI Form 8-A with respect to the BJI
Common Stock and the BJI Rights. Waban and BJI shall use reasonable efforts
to cause the BJI Form 8-A to become effective under the Exchange Act.
3.1.2 S-8 Registration Statements. Waban and BJI shall cooperate in
---------------------------
preparing and filing with the Commission any registration statements or
amendments thereof which are necessary or appropriate to reflect the
establishment of, or amendments to, any employee benefit and other plans
contemplated by the Employee Benefits Agreement or otherwise described in
the Prospectus/Proxy Statement.
3.1.3 Matters Pertaining to Blue Sky Laws Compliance. Waban and BJI
----------------------------------------------
shall use reasonable efforts to take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement.
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<PAGE>
3.1.4 New York Stock Exchange Listing. Waban and BJI shall prepare,
-------------------------------
and BJI shall file and seek to make effective, an application to permit the
listing of BJI Common Stock and the BJI Rights on the New York Stock
Exchange, subject to official notice of issuance.
3.2 Conditions Precedent to the Distribution. The obligation of the
----------------------------------------
parties hereto to consummate the Distribution shall be subject to each of the
following conditions, any of which may be waived by Waban in its sole
discretion:
(a) the declaration by the Waban Board of the Distribution;
(b) the conversion into Waban Common Stock or redemption for cash of
all of Waban's 6.5% Convertible Subordinated Debentures due 2002 (the
"Convertible Debentures") and, if applicable, the consummation of the
transactions contemplated by the standby agreement entered into in connection
with the call for redemption of the Convertible Debentures.
(c) the transactions contemplated by Article 2 hereof shall have been
consummated in all material respects;
(d) the BJI Common Stock and the BJI Rights shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance;
(e) BJI and Waban having entered into agreements with lenders to
provide sufficient financing upon consummation of the Distribution;
(f) the BJI Form 8-A shall have been declared or become effective and
the transactions contemplated by this Agreement shall otherwise be in compliance
with all applicable federal and state securities laws; and
(g) as of the Distribution Date, the private letter ruling previously
received by Waban from the IRS shall remain applicable with respect to the tax-
free nature of the Distribution;
provided, however, that the satisfaction of such conditions shall not create any
- -----------------
obligation on the part of Waban to effect the Distribution or in any way limit
Waban's power of termination set forth in Section 7.8 hereof or alter the
consequences of any such termination from those specified in said Section 7.8.
-12-
<PAGE>
3.3 Waban Board Action. Subject to the satisfaction of the conditions set
------------------
forth in Section 3.2, the Waban Board shall, in its sole discretion, establish
the Distribution Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution.
3.4 The Distribution. Prior to the Distribution Date, subject to the terms
----------------
and conditions of this Agreement, Waban shall deliver to the Distribution Agent
a certificate representing all of the then outstanding shares of BJI Common
Stock (including the associated BJI Rights) owned by Waban. Subject to the terms
and conditions of this Agreement, Waban and BJI shall instruct the Distribution
Agent to distribute, on or as soon as practicable following the Distribution
Date, one share of BJI Common Stock (including the associated BJI Right) in
respect of each share of Waban Common Stock held by holders of record of Waban
Common Stock on the Distribution Record Date. BJI agrees to provide all
certificates that the Distribution Agent shall require in order to effect the
Distribution. All of the shares of BJI Common Stock issued in the Distribution
shall be fully paid, nonassessable and free of preemptive rights.
ARTICLE 4
CERTAIN MATTERS RELATING TO LEASE LIABILITIES
4.1 Certain Definitions.
-------------------
"BJI Default Period" shall mean a period commencing upon the occurrence of
------------------
any of the events set forth in clauses (i) through (iv) below and ending on the
first date thereafter when none of the events set forth in clauses (i) through
(iv) below are continuing:
(i) BJI is in default with respect to rent payments under at least five BJI
Leases, which such defaults have not been cured within the applicable grace
period;
(ii) (a) BJI shall fail to maintain at the end of any fiscal quarter an
actual or implied senior debt rating of at least B- by Standard & Poor's or B3
by Moody's Investors Service ("Moody's"), or, if not rated by Standard & Poor's
or Moody's, a National Association of Insurance Commissioners ("NAIC") rating of
at least 4, and (b) at the end of such quarter, BJI shall have failed to
maintain on a consolidated basis as of the end of such fiscal quarter a Fixed
Charge Coverage Ratio (as such term is defined in the Agreement, dated as of
April 4, 1995, between Waban, The First National Bank of Boston, and the other
lenders party thereto, without regard to any subsequent amendments) greater than
1.20 to 1.0;
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<PAGE>
(iii) BJI or any of its subsidiaries shall be in default in the payment of
any obligation for borrowed money exceeding $10 million in principal amount
which has been accelerated and is beyond any grace period provided with respect
thereto; or
(iv) any of the following bankruptcy events shall have occurred and be
continuing:
(a) any decree or order for relief in respect of BJI or any
Significant Subsidiary (as defined in SEC Regulation S-X) of BJI
or any other three subsidiaries of BJI is entered under any
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law
(collectively, the "Bankruptcy Law") of any jurisdiction; or
(b) BJI or any Significant Subsidiary of BJI or any other three
subsidiaries of BJI petitions or applies to any tribunal for, or
consents to, the appointment of, or the taking of possession by,
a trustee, receiver, custodian, liquidator or similar official of
BJI or any Significant Subsidiary of BJI or any other three
subsidiaries of BJI, or of any substantial part of the assets of
BJI or any Significant Subsidiary of BJI or any other three
subsidiaries of BJI, or commences a voluntary case under the
Bankruptcy Law of the United States or any similar proceedings
relating to BJI or any Significant Subsidiary of BJI or any
other three subsidiaries of BJI under the Bankruptcy Law of any
other jurisdiction; or
(c) any petition or application referred to in clause (b) above is
filed, or any such proceedings are commenced, against BJI, any
Significant Subsidiary of BJI or any other three subsidiaries of
BJI and BJI or such Significant Subsidiary or such other three
subsidiaries by any act indicates its or their approval thereof
or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any
such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 60 days.
"BJI Lease" means any real estate lease that constitutes a BJI Assumed
---------
Liability, other than any ground lease.
"HomeBase Control Period" shall mean the period commencing on the date
-----------------------
hereof and ending upon a HomeBase Control Event (as defined in Article 4).
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<PAGE>
"HomeBase Lease" means any lease under which Waban may be liable as a
--------------
tenant, sublessee, surety or guarantor, other than leases that constitute BJI
Assumed Liabilities.
"HomeBase Third Party Claim" means the assertion by any Person (other
--------------------------
than Waban, BJI or any of their Affiliates) of any claim, or the commencement by
any such Person of any Action, against BJI or Waban with respect to an
Indemnified HomeBase Lease Liability.
"Indemnified HomeBase Lease Liabilities" means any liabilities of Waban
--------------------------------------
that arise under a HomeBase Lease and for which BJI may have liability,
including liability for indemnification to TJX under the TJX Indemnification
Agreement.
"TJX Indemnification Agreement" means the Indemnification Agreement dated
-----------------------------
as of April 18, 1997 between BJI and TJX.
Section 4.2 Indemnified HomeBase Lease Liabilities.
--------------------------------------
4.2.1. Control of HomeBase Third Party Claims.
--------------------------------------
(a) During the HomeBase Control Period, (i) Waban shall have the right
to control the defense and settlement of all HomeBase Third Party Claims, (ii)
BJI shall have the right to participate, at its expense, with Waban in the
defense and settlement of any such HomeBase Third Party Claims, and (iii) Waban
shall not consent to the entry of any judgment or enter into any settlement with
respect to any HomeBase Third Party Claims without the prior written consent of
BJI, which consent will not be unreasonably withheld.
(b) BJI shall have the right at any time following the occurrence of a
HomeBase Control Event (as defined below), which is not cured within 30 days
following written notice thereof by BJI to Waban, to elect to control the
defense and settlement of all HomeBase Third Party Claims. A HomeBase Control
Event shall mean the occurrence of any of the following events:
(i) the first date on which Waban is in default with respect to
rent payments under at least five HomeBase Leases;
(ii) Waban shall have failed to perform in a material respect
any of its obligations hereunder;
(iii) (a) Waban shall have failed to maintain at the end of
any fiscal quarter an actual or implied senior debt rating of at least B- by
Standard & Poor's or B3 by Moody's or, if not rated by Standard & Poor's or
Moody's, a NAIC
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<PAGE>
rating of at least 4, and (b) at the end of such quarter, Waban shall have
failed to maintain on a consolidated basis as of the end of such fiscal quarter
a Fixed Charge Coverage Ratio (as such term is defined in the Agreement, dated
as of April 4, 1995, between Waban, The First National Bank of Boston, and the
other lenders party thereto, without regard to any subsequent amendments)
greater than 1.20 to 1.0;
(iv) Waban or any of its subsidiaries shall have defaulted in
the payment of any obligation for borrowed money exceeding $10 million in
principal amount which has been accelerated and is beyond any grace period
provided with respect thereto; or
(v) any of the following bankruptcy events shall have
occurred:
(a) any decree or order for relief in respect of Waban or
any Significant Subsidiary (as defined in SEC
Regulation S-X) of Waban or any other three
subsidiaries of Waban is entered under any Bankruptcy
Law, of any jurisdiction; or
(b) Waban or any Significant Subsidiary of Waban or any
other three subsidiaries of Waban petitions or applies
to any tribunal for, or consents to, the appointment
of, or the taking of possession by, a trustee,
receiver, custodian, liquidator or similar official of
Waban or any Significant Subsidiary of Waban or any
other three subsidiaries of Waban, or of any
substantial part of the assets of Waban or any
Significant Subsidiary of Waban or any other three
subsidiaries of Waban, or commences a voluntary case
under the Bankruptcy Law of the United States or any
similar proceedings relating to Waban or any
Significant Subsidiary of Waban or any other three
subsidiaries of Waban under the Bankruptcy Law of any
other jurisdiction; or
(c) any petition or application referred to in clause (b)
above is filed, or any such proceedings are commenced,
against Waban, any Significant Subsidiary of Waban or
any other three subsidiaries of Waban and Waban or such
Significant Subsidiary or such other three subsidiaries
by any act indicates its or their approval thereof or
acquiescence therein, or an order, judgment or decree
is entered appointing any
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<PAGE>
such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any
such proceedings, and such order, judgment or
decree remains unstayed and in effect for more
than 60 days.
4.2.2 Reports. Waban shall promptly report in writing to BJI any failure
-------
at any time of Waban to comply with any of the tests set forth in Section
4.2.1(b).
4.2.3 Settlements. After the exercise by BJI of the right to control
-----------
HomeBase Third Party Claims pursuant to Section 4.2.1(b), BJI shall have the
right to consent to the entry of any judgment or enter into any settlement with
respect to any HomeBase Third Party Claims in any manner it may deem
appropriate. BJI shall provide Waban with prior written notice of any
settlement agreement between BJI and the holder of any HomeBase Third Party
Claim. Waban shall have the right to participate, at its expense, in the
defense and settlement of any such HomeBase Third Party Claim.
4.2.4 Indemnification Agreement. Notwithstanding anything to the
-------------------------
contract in this Article 4, all rights of Waban and BJI with respect to the
defense and settlement of HomeBase Third Party Claims shall be subject to the
rights of TJX under the TJX Indemnification Agreement, and to the extent of any
inconsistency between the rights of the parties under this Agreement and the
rights of BJI and TJX under the TJX Indemnification Agreement, the provisions of
the TJX Indemnification Agreement shall control.
Section 4.3 Lease Renewals.
--------------
(a) Waban hereby covenants that it shall not increase the amount of base
rents scheduled to come due under, extend the term of, or exercise any option to
renew or extend any HomeBase Lease without first securing from the Person
holding the landlord's interest and from any mortgagee with respect to the
HomeBase Lease in question (if the consent of such Person or mortgagee is
required to release any liability of TJX and its Affiliates or BJI and its
Affiliates, as the case may be, on such HomeBase Lease), a full and complete
release of liability of TJX and its Affiliates, or BJI and its Affiliates, as
the case may be, on any such HomeBase Lease, in a form reasonably satisfactory
to BJI. Waban shall not transfer or assign any HomeBase Lease unless the
transferee or assignee shall execute and deliver an agreement to be bound by
terms equivalent to the terms of this Section 4.3 (which would also condition
subsequent transfers or assignments upon an equivalent transfer restriction),
and Waban shall be liable to BJI for any breach thereof.
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<PAGE>
(b) BJI hereby covenants that it will not, during any BJI Default
Period, increase the amount of base rents scheduled to come due under, extend
the term of, or exercise any option to renew or extend any BJI Lease without
first securing from the Person holding the landlord's interest and from any
mortgagee with respect to the BJI Lease in question (if the consent of such
Person or mortgagee is required to release any liability of Waban and its
Affiliates on such BJI Lease), a full and complete release of liability of Waban
and its Affiliates on any such BJI Lease, in a form reasonably satisfactory to
Waban.
Section 4.4 Reimbursement. If BJI is required to make any payment to any
-------------
Person other than Waban with respect to any HomeBase Third Party Claim, Waban
shall promptly reimburse BJI for any such payments. To the extent of any
inconsistency between the provisions of this Article 4 and Article 5, the
provisions of this Article 4 shall control.
ARTICLE 5
INDEMNIFICATION
5.1 Certain Definitions.
-------------------
"BJI Indemnitees" means BJI and each Affiliate of BJI and each of
---------------
their respective directors, officers, employees and agents and each of the
heirs, executors, successors and assigns of any of the foregoing.
"Indemnifiable Losses" means all losses, liabilities, claims, damages,
--------------------
obligations, payments, costs and expenses, matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown
(including, without limitation, the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and compromises
relating thereto and reasonable attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
"Waban Indemnitees" means Waban and each Affiliate of Waban and each
-----------------
of their respective directors, officers, employees and agents and each of the
heirs, executors, successors and assigns of any of the foregoing.
5.2 Indemnification by Waban. Except as set forth in the Tax Sharing
------------------------
Agreement, the Services Agreement or the Employee Benefits Agreement, Waban
shall indemnify, defend and hold harmless the BJI Indemnitees from and against:
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<PAGE>
(i) the Waban Liabilities; and
(ii) any and all Indemnifiable Losses of the BJI Indemnitees arising
out of, or due to, directly or indirectly, any failure to perform, or violation
of, any provision of this Agreement, the Ancillary Agreements or any other
agreement entered into in connection with this Agreement, which is to be
performed or complied with by Waban or the Waban Subsidiaries.
5.3 Indemnification by BJI. Except as set forth in the Tax Sharing
----------------------
Agreement, the Services Agreement or the Employee Benefits Agreement, BJI shall
indemnify, defend and hold harmless the Waban Indemnitees from and against:
(i) the BJI Assumed Liabilities; and
(ii) any and all Indemnifiable Losses of the Waban Indemnitees arising
out of, or due to, directly or indirectly, any failure to perform, or violation
of, any provision of this Agreement, the Ancillary Agreements or any other
agreements to be entered into in connection with this Agreement, which is to be
performed or complied with by BJI or the BJI Subsidiaries.
5.4 Limitations on Indemnification Obligations. The amount which any
------------------------------------------
party (an "Indemnifying Party") is or may be required to pay to any other party
(an "Indemnitee") pursuant to this Article 5 hereof shall be reduced (including,
without limitation, retroactively) by any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnitee in reduction of the
related Indemnifiable Loss. If any Indemnitee shall have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive insurance proceeds or
other amounts in respect of such Indemnifiable Loss, then such Indemnitee shall
pay to such Indemnifying Party a sum equal to the amount of such insurance
proceeds or other amounts actually received (net of any expenses in obtaining
the same), but not to exceed the net amount of the payments previously received
by the Indemnitee from the Indemnifying Party in respect of such Indemnifiable
Loss.
5.5 Procedure for Indemnification.
-----------------------------
5.5.1 Third Party Claims; Notice. If an Indemnitee shall receive
--------------------------
notice or otherwise learn of the assertion by any other Person of any claim
or of the commencement by any such Person of any Action (a "Third Party
Claim") with respect to which an Indemnifying Party may be obligated to
provide indemnification pursuant to this Article 5, such Indemnitee shall
give the Indemnifying Party written notice thereof within 10 business days
after becoming aware of such Third Party Claim; provided, however, that the
-------- -------
failure
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<PAGE>
of any Indemnitee to give notice as provided in this Section 5.5.1 shall
not relieve the related Indemnifying Party of its obligations under this
Article 5, except to the extent that such Indemnifying Party actually is
prejudiced by such failure to give notice. Such notice shall describe the
Third Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee. Thereafter, such Indemnitee shall deliver to
such Indemnifying Party, within five business days after the Indemnitee's
receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnitee relating to the Third Party Claim.
5.5.2 Defense of Third Party Claims. In case any Third Party Claim is
-----------------------------
brought against an Indemnitee, the Indemnifying Party will be entitled to
participate in and to assume the defense thereof to the extent that it may
wish, with counsel reasonably satisfactory to such Indemnitee, and after
notice from an Indemnifying Party to such Indemnitee of its election so to
assume the defense thereof and for so long as the Indemnifying Party
diligently pursues such defense, such Indemnifying Party will not be liable
to such Indemnitee for any legal or other expenses subsequently incurred by
such Indemnitee in connection with the defense thereof; provided, however,
-------- -------
that, if the defendants in any such claim include both the Indemnifying
Party and one or more Indemnitees and in any Indemnitee's reasonable
judgment a conflict of interest between one or more of such Indemnitees and
such Indemnifying Party exists in respect of such claim, such Indemnitees
shall have the right to employ separate counsel to represent such
Indemnitees, and in that event the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably
satisfactory to the Indemnifying Party for all Indemnitees with respect to
any single Third Party Claim or group of consolidated related Third Party
Claims) shall be paid by such Indemnifying Party. If the Indemnifying Party
undertakes to assume the defense of a Third Party Claim, it shall promptly
notify the Indemnitee in writing of its intention to do so.
5.5.3 Cooperation by Indemnitee. If an Indemnifying Party chooses to
-------------------------
defend or to seek to compromise or settle any Third Party Claim, each
related Indemnitee shall make available to such Indemnifying Party any
personnel or any books, records or other documents within its control or
which it otherwise has the ability to make available that are necessary or
appropriate for such defense, settlement or comprise, and shall otherwise
cooperate in the defense, settlement or compromise of such Third Party
Claim.
5.5.4 Limitation on Authority to Settle Claim. Notwithstanding
---------------------------------------
anything else in this Section 5.5 to the contrary, neither an Indemnifying
Party
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<PAGE>
nor an Indemnitee shall settle or compromise any Third Party Claim over the
objection of the other; provided, however, that consent to compromise or
-------- -------
settlement shall not be unreasonably withheld, except that consent to any
compromise or settlement involving equitable or injunctive relief against any
Indemnifying Party or Indemnitee may be withheld by such Indemnifying Party or
Indemnitee for any reason. No Indemnifying Party shall consent to any judgment
or enter into any settlement or compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
related Indemnitee of a written release from all Liability with respect to such
Third Party Claim.
5.5.5 Other Claims. Any claim on account of any Indemnifiable Loss
------------
which does not result from a Third Party Claim shall be asserted by written
notice given by the Indemnitee to the related Indemnifying Party. Such
Indemnifying Party shall have a period of 30 days after the receipt of such
notice within which to respond thereto. If such Indemnifying Party does not
respond within such 30-day period, such Indemnifying Party shall be deemed to
have accepted responsibility to make payment and shall have no further right to
contest the validity of such claim. If such Indemnifying Party does respond
within such 30-day period and rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
Indemnitee under applicable law.
5.5.6 Advancement of Certain Expenses. Upon the written demand of an
-------------------------------
Indemnitee, an Indemnifying Party shall reimburse or advance funds to such
Indemnitee for all Indemnifiable Losses reasonably incurred by it in connection
with investigating or defending any Third Party Claim in advance of its final
disposition; provided, however, that such reimbursement need be made only upon
-------- -------
delivery to the Indemnifying Party of an undertaking by such Indemnitee to repay
all amounts so reimbursed or advanced if it shall ultimately be determined that
such Indemnitee is not entitled to indemnification under this Article 5 or
otherwise.
5.5.7 Subrogation to Rights of Indemnitee. In the event of payment by
-----------------------------------
an Indemnifying Party to any Indemnitee in connection with any Third Party Claim
of the full amount payable under this Article 5 in respect thereof, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such Indemnitee
may have any right or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or as against any other
Person. In such event, such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
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5.6 Insurance and Indemnification. Waban shall provide each
-----------------------------
individual who served as a director or officer of Waban at any time prior to the
Distribution Date with liability insurance for a period of six years after the
Distribution Date no less favorable in coverage and amount than any applicable
insurance in effect immediately prior to the Distribution Date. Waban shall not,
for a period of six years after the Distribution Date, take any action to alter
or impair any exculpatory or indemnification provisions now existing in any
indemnification agreement or in the Certificate of Incorporation or By-laws of
Waban for the benefit of any individual who served as a director or officer of
Waban at any time prior to the Distribution Date, except, with respect to the
Certificate of Incorporation or By-laws of Waban, for changes in applicable law
and any changes which do not affect the application of such provisions to acts
or omissions of such individuals prior to the Distribution Date. BJI agrees to
indemnify, defend and hold harmless each individual who served as a director or
officer of Waban at any time prior to the Distribution Date, and their heirs,
executors, successors and assigns, from and against any and all Indemnifiable
Losses suffered by any such persons arising out of, or due to, the approval by
such persons of the Separation and the Distribution in their capacities as
director or officer; provided, however, that BJI's obligation to provide such
indemnification shall only apply to the extent that (A) such persons have no
right to indemnification from Waban or insurance coverage for such
Indemnification Losses, or (B) Waban, following written demand therefor by such
director or officer, fails to satisfy any such indemnification obligation. In
the event that BJI provides such indemnification because of the circumstances in
clause (B) of the preceding sentence, the amount so paid by BJI shall be deemed
to be a Waban Liability for purposes of this Agreement.
5.7 Special Provision Relating to Certain Pre-Distribution
------------------------------------------------------
Liabilities. Notwithstanding anything contained herein to the contrary, if a
- -----------
Third Party Claim relates to a Liability referred to in Item 2(b) of Schedule B
as to which BJI is assuming 75% of the Liability, then BJI shall have the right
to control the defense and settlement of such claim.
5.8 Remedies Cumulative. The remedies provided in this Article 5
-------------------
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party; provided, however, that all remedies sought or asserted by
-------- -------
an Indemnitee against an Indemnifying Party with respect to an Indemnifiable
Loss shall be limited by and be subject to the provisions of this Article 5.
ARTICLE 6
ACCESS TO INFORMATION
6.1 Provision of Corporate Records. Prior to or as soon as
------------------------------
practicable following the Distribution Date, Waban shall deliver to BJI all
existing corporate books and records in Waban's possession relating to the BJI
Business, including original corporate minute books, stock ledgers and
certificates and corporate seals of each of BJI and each BJI Subsidiary, and all
active agreements, active litigation files and records of filings. From and
after the Distribution Date, all such books and records shall be the property of
BJI.
6.2 Access to Information. From and after the Distribution Date,
---------------------
each of Waban and BJI shall afford to the other and the other's authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to third parties possessing
information and providing reasonable access to its own employees who are in
possession of relevant information) and duplicating rights during normal
business hours to all records, books, contracts, instruments, computer data and
other data and information (collectively, "Information") within the possession
or control of Waban or BJI, as the case may be, relating to the other's pre-
Distribution business, insofar as such access is reasonably required by the
other party. Information may be requested under this Section 6.2 for, without
limitation, audit, accounting, claims, litigation, insurance and tax purposes,
as well as for purposes of fulfilling disclosure and reporting obligations and
for performing this Agreement and the transactions contemplated hereby.
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<PAGE>
6.3 Production of Witnesses. From and after the Distribution Date,
-----------------------
each of BJI and Waban shall use reasonable efforts to make available to the
other upon written request, its and its Subsidiaries' officers, directors,
employees and agents as witnesses to the extent that such persons may reasonably
be required in connection with any legal, administrative or other proceedings in
which the requesting party may from time to time be involved relating to its
pre-Distribution business.
6.4 Reimbursement. Except to the extent otherwise contemplated by
-------------
the Services Agreement or any other Ancillary Agreement, a party providing
Information or personnel to the other party under this Article 6 shall be
entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements and
other out-of-pocket expenses, as may be reasonably incurred in providing such
Information; provided, however, that no such reimbursements shall be required
-------- -------
for the salary or cost of fringe benefits or similar expenses pertaining to
employees or directors of the providing party.
6.5 Retention of Records. Except as otherwise required by law or
--------------------
agreed to in writing, each of Waban and BJI shall retain, and shall cause each
of its Subsidiaries to retain, in accordance with such party's record retention
program, all material Information within such party's possession or under its
control relating to the other and the other's Subsidiaries. Notwithstanding the
foregoing, in lieu of retaining any specific Information, Waban or BJI may offer
in writing to deliver such Information to the other and, if such offer is not
accepted within 45 days, the offered Information may be destroyed or otherwise
disposed of at any time. If a recipient of such offer shall request in writing
prior to the scheduled date for such destruction or disposal that any of the
information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested at the cost
of the requesting party.
6.6 Confidentiality. Each of Waban and BJI shall hold, and shall
---------------
use reasonable efforts to cause its Subsidiaries, Affiliates, consultants and
advisors to hold, in strict confidence all Information concerning the other
obtained by it prior to the Distribution Date or furnished by the other or the
other's representatives pursuant to this Agreement (except to the extent that
such Information has been (i) in the public domain through no fault of such
party, or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other Person,
except its auditors, attorneys, financial advisors, bankers and other
consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law.
ARTICLE 7
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<PAGE>
MISCELLANEOUS
7.1 Rules of Construction. Notwithstanding any other provisions in this
---------------------
Agreement, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement (or any Conveyancing Instrument) and the
provisions of the Tax Sharing Agreement, the Services Agreement or the Employee
Benefits Agreement, the provisions of the Tax Sharing Agreement, the Services
Agreement or the Employee Benefits Agreement, as the case may be, shall control.
Waban and BJI have participated jointly in the negotiation and drafting of this
Agreement and the Ancillary Agreements. In the event an ambiguity or question
of intent or interpretation arises, this Agreement and the Ancillary Agreements
shall be construed as if drafted jointly by the parties and no presumption or
burden of proof shall arise favoring or disfavoring either party by virtue of
the authorship of any of the provisions of this Agreement or the Ancillary
Agreements.
7.2 Survival of Agreements. Except as otherwise contemplated by this
----------------------
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
7.3 Expenses. Except as otherwise set forth in this Agreement or any
--------
Ancillary Agreement, Waban and BJI shall bear 25% and 75%, respectively, of all
costs and expenses incurred in connection with the preparation, execution,
delivery and implementation of this Agreement, and with the consummation of the
transactions to effect the Distribution contemplated by this Agreement,
including, without limitation, registration fees, listing fees, printing costs
and legal and accounting fees, to the extent such fees have not been paid prior
to the Distribution Date.
7.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or provision
that would result in the application of the domestic substantive laws of any
other jurisdiction.
7.5 Notices. Any notice, request, demand, claim, or other communication
-------
hereunder shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, and shall be deemed duly given on the date which
is three days after the date such notice, request, demand, claim, or other
communication is sent:
to Waban:
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<PAGE>
Waban Inc.
3345 Michelson Drive
Irvine, California 02715
Attention: President
to BJI:
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: President
Notwithstanding the foregoing, any party may send any notice, request, demand,
claim, or other communication hereunder to the intended recipient at the address
set forth above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it is actually received by the
intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
7.6 Amendments. This Agreement may not be modified or amended except by
----------
an agreement in writing signed by the parties hereto.
7.7 Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
7.8 Termination. This Agreement may be terminated and the Distribution
-----------
abandoned at any time prior to the Distribution Date by and in the sole
discretion of the Waban Board without the approval of BJI or of Waban's
stockholders. In the event of such termination, no party shall have any
liability of any kind under this Agreement to any other party.
7.9 No Third Party Beneficiaries. Except for the provisions of Article 5
----------------------------
hereof relating to Indemnitees, this Agreement is solely for the benefit of the
parties hereto and their respective Subsidiaries and Affiliates and shall not be
deemed to confer upon third parties any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference to
this Agreement.
-25-
<PAGE>
7.10 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Exhibits and Schedules. The Exhibits and Schedules shall be
----------------------
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
7.12 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
7.13 Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or remedies otherwise available to any party
hereto. Without prejudice to any rights or remedies otherwise available to any
party hereto, each party hereto acknowledges that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder shall be specifically enforceable.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
WABAN INC.
By
--------------------------------------
President
BJ'S WHOLESALE CLUB, INC.
By
--------------------------------------
President
-26-
<PAGE>
SCHEDULE A
BJI Assets
----------
1. All assets arising out of or in connection with or related principally to
the BJI Business, including, without limitation:
(a) all assets reflected on the pro forma condensed balance sheet of BJI as
at the fiscal month end coincident with or immediately preceding the
Distribution Date, as prepared and agreed to by Waban and BJI;
(b) all of the issued and outstanding stock of the BJI Subsidiaries held,
directly or indirectly, by Waban;
(c) the real property owned by Waban or a Waban Subsidiary and used
exclusively in the BJI Business, including all buildings, structures and
improvements thereon;
(d) all right, title and interest of Waban or any Waban Subsidiary in and
to all agreements, contracts and leases relating to the operations of the BJI
Business;
(e) all machinery, equipment and other items of tangible personal property
owned by Waban or a Waban Subsidiary which are used exclusively in the BJI
Business;
(f) all right, title and interest of Waban or any Waban Subsidiary in and
to intellectual property rights consisting of tradenames, trademarks and similar
intangible items relating solely to the BJI Business;
(g) all books and records of Waban or any Waban Subsidiary (including
computerized books and records) that relate principally to the BJI Business and
are necessary for BJI and its Subsidiaries to operate the BJI Business,
including without limitation, the corporate documents and records of corporate
proceedings of the BJI Business, all books and records relating to BJI
employees, the purchase of supplies and services by the BJI Business, and all
files relating to any Action being assumed by BJI as part of the BJI Assumed
Liabilities owned by Waban or any Waban Subsidiary (other than those required by
law to be maintained by Waban or any Waban Subsidiary); and
(h) cash (as calculated by Waban in accordance with past practices) in an
amount of $5,000,000.
-27-
<PAGE>
2. All of Waban's right, title and interest in and to the leases relating to
Waban's headquarters located in Natick, Massachusetts and all machinery,
equipment and other items of tangible personal property owned by Waban which are
located in Natick, Massachusetts.
-28-
<PAGE>
SCHEDULE B
BJI Assumed Liabilities
-----------------------
1. All Liabilities arising out of or in connection with or related principally
to the BJI Business, whether arising before or after the Distribution Date,
including without limitation:
(a) all Liabilities reflected on the pro forma condensed balance sheet of
BJI as at the fiscal month end coincident with or immediately preceding the
Distribution Date, as prepared and agreed to by Waban and BJI;
(b) all Liabilities of Waban under agreements, contracts and leases that
are BJI Assets; and
(c) all Liabilities relating to Actions arising out of or in connection
with the operations of the BJI Business.
2. The following liabilities of Waban:
(a) 75% of the principal amount of all bank indebtedness of Waban existing
as of the Distribution Date; and
(b) 75% of all other Liabilities of Waban not specifically allocable to the
BJI Business or the HomeBase Business relating to events occurring prior to the
Distribution and any Actions relating thereto.
-29-
<PAGE>
SCHEDULE C
BJI Subsidiaries
----------------
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
Natick Security Corp.................Massachusetts
Natick Corporation...................Delaware
Natick First Realty Corp.............Connecticut
Natick Second Realty Corp............Massachusetts
Natick NJ Flemington Realty Corp.....New Jersey
Natick Fourth Realty Corp............New Jersey
Natick Fifth Realty Corp.............Maryland
Natick Sixth Realty Corp.............Connecticut
Natick MA Realty Corp................Massachusetts
Natick NH Realty Corp................New Hampshire
Natick NY Realty Corp................New York
Natick NY 1992 Realty Corp...........New York
Natick PA Realty Corp................Pennsylvania
Natick VA Realty Corp................Virginia
Natick Portsmouth Realty Corp........New Hampshire
Natick NJ Realty Corp................New Jersey
Natick NJ 1993 Realty Corp...........New Jersey
BJ's PA Distribution Center, Inc.....Pennsylvania
BJ's MA Distribution Center, Inc.....Massachusetts
Natick CT Realty Corp................Connecticut
Natick ME 1995 Realty Corp...........Maine
Natick NY 1995 Realty Corp...........New York
Natick MA 1995 Realty Corp...........Massachusetts
Natick NH 1994 Realty Corp...........New Hampshire
Natick PA 1995 Realty Corp...........Pennsylvania
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C>
CWC Beverages Corp...................Connecticut
FWC Beverages Corp...................Florida
JWC Beverages Corp...................New Jersey
Mormax Beverages Corp................Delaware
Mormax Corporation...................Massachusetts
RWC Beverages Corp...................Rhode Island
YWC Beverages Corp...................New York
Natick Lancaster Realty Corp.........Pennsylvania
Natick Yorktown Realty Corp..........New York
Natick Waterford Realty Corp.........Connecticut
Natick Sennett Realty Corp...........New York
Natick Bowie Realty Corp.............Maryland
Natick Pembroke Realty Corp..........Florida
Natick PA Plymouth Realty Corp.......Pennsylvania
Natick Realty, Inc...................Maryland
Waban Export Inc.....................Barbados
</TABLE>
-31-
<PAGE>
SCHEDULE D
Waban Subsidiaries
------------------
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
HomeClub, Inc.............................Nevada
HomeClub, Inc. of Texas...................Delaware
Fullerton Corporation.....................Delaware
HCI Development Corp......................California
HomeClub First Realty Corp................Colorado
HCWA Realty Corp..........................Washington
HCCA Realty Corp..........................California
HBNM Realty Corp..........................New Mexico
HBCA 1993 Realty Corp.....................California
HBOR Realty Corp..........................Oregon
HBUT Realty Corp..........................Utah
HCWA 1993 Realty Corp.....................Washington
HBCO Realty Corp..........................Colorado
HBNM 1994 Realty Corp.....................New Mexico
HBCO 1994 Realty Corp.....................Colorado
HBCA Pomona Realty Corp...................California
HBCA Vacaville Realty Corp................California
</TABLE>
-32-
<PAGE>
SCHEDULE E
Intercompany Accounts
---------------------
Matters Relating to Natick Corporation
- --------------------------------------
On or prior to the Distribution Date, Waban will repay to Natick
Corporation all outstanding loans made by Natick Corporation to Waban, together
with all accrued interest thereon. Immediately after such repayment, Natick
Corporation shall declare and pay to Waban a dividend equal to all of the
retained earnings and surplus of Natick Corporation.
Cash
- ----
As contemplated by Item 1(h) of Schedule A, as of the Distribution Date,
Waban shall provide for BJI to have cash (as calculated by Waban in accordance
with past practices) in an amount of $5,000,000.
General
- -------
As contemplated by Item 2(a) of Schedule B, BJI shall assume 75% of the
principal amount of all bank indebtedness of Waban existing as of the
Distribution Date. Except as otherwise contemplated by this Agreement or any
Ancillary Agreement, effective as of the Distribution Date, all loans and
advances from Waban to BJI (or any corporation which will become a BJI
Subsidiary) outstanding immediately prior to the Distribution shall be deemed to
be a contribution to capital from Waban to BJI.
-33-
<PAGE>
EXHIBIT 10.5
------------
BJ'S WHOLESALE CLUB, INC.
MANAGEMENT INCENTIVE PLAN
1. Purpose
The purpose of the BJ's Wholesale Club, Inc. Management Incentive Plan
(the "Plan") is to provide officers and other employees who are key to the
growth and profitability of BJ's Wholesale Club, Inc. and its subsidiaries
with reward opportunities commensurate with their performance relative to
annual objectives.
2. Definitions
Unless the context requires otherwise, the following expressions as
used in the Plan shall have the meanings ascribed to each below, it being
understood that masculine, feminine and neuter pronouns are used
interchangeably, and that each comprehends the others.
"Committee" shall mean the BJ's Wholesale Club, Inc. Incentive Plan
Committee, consisting of the President and Chief Executive Officer of BJ's
Wholesale Club, Inc., who shall serve as the Chairman of the Committee; the
Chairman of the Board of BJ's Wholesale Club, Inc.; the Chief Financial Officer
of BJ's Wholesale Club, Inc.; and others who from time to time are designated by
the Chairman of the Committee to serve as members of the Committee.
"Company" shall mean BJ's Wholesale Club, Inc. and its subsidiaries.
"ECC" shall mean the Executive Compensation Committee of the Board of
Directors of BJ's Wholesale Club, Inc.
"Effective Date" shall mean the date on which Waban Inc. completes the
spin-off of the Company by distributing to Waban's stockholders on a pro rata
basis all of the outstanding shares of Common Stock of the Company held by
Waban Inc.
"Fiscal Year" shall mean the period ending on the last Saturday in January,
and commencing on (i) the Sunday following the last Saturday in January of the
preceding calendar year or (ii) with respect to the Fiscal Year in which the
Effective Date occurs, such Effective Date.
"Participant" shall mean an officer or other employee of the Company who is
designated a participant pursuant to Section 5 below.
<PAGE>
"Performance Criteria" shall mean the standards of measurement of Company
performance and individual performance for each Performance Period as
established by the Committee and the ECC pursuant to paragraph (a) of Section 6
below.
"Performance Goals" shall mean the levels of performance with respect to
each Performance Criterion at which awards are payable pursuant to this Plan.
Performance goals are established by the Committee and the ECC pursuant to
paragraph (b) of Section 6 below.
"Performance Period" shall mean one Fiscal Year or, with respect to the
Fiscal Year in which the Effective Date occurs, the remainder of such Fiscal
Year.
3. Administration
This Plan shall be administered by the ECC, which in its sole
discretion, may take into account recommendations of the Committee. The ECC
shall have full authority to interpret the Plan; to establish, amend, and
rescind rules for carrying out the Plan; to administer the Plan; to
determine the terms and provisions of any agreements pertaining to the
Plan; and to make all other determinations necessary or advisable for its
administration.
Any person objecting to any interpretation, rule, determination or
other action made or taken by the Committee or the ECC which affects said
person shall have the right to appeal in writing to the ECC, setting forth
the objections in reasonable detail, provided that such appeal shall be
made within 90 days after promulgation of such interpretation, rule, or
other determination, or such additional time as the ECC shall deem
reasonable.
The ECC shall not be bound to any standards of uniformity or
similarity of action, interpretation or conduct in the discharge of its
duties hereunder, regardless of the apparent similarity of the matters
coming before the ECC. Its determination shall be binding on all parties.
No member or former member of the Committee, the ECC, or the Board of
Directors of the Company shall be liable for any action or determination
made in good faith with respect to the Plan or any award or payment made
under the Plan.
4. Eligibility
For each Performance Period, the ECC shall designate, based upon
recommendations of the Committee, Participants to receive annual management
incentive awards, subject to the terms and conditions of the Plan.
Participants in the Plan shall be key employees of the Company, including
such executives and
-2-
<PAGE>
other full-time employees of the Company as the ECC shall, at any time,
designate as Participants for said Performance Period.
5. Description of Awards
(a) Designation of Performance Criteria
At the commencement of each Performance Period, the Committee shall
recommend, for the ECC's approval, one or more Performance Criteria
for said Performance Period and the relative weight to be given to
each Performance Criterion. Performance Criteria and the weighting
thereof may vary by Participant and may be different for different
Performance Periods. Such Performance Criteria shall include only the
following measures: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a
percent of sales, earnings per share, sales, return on equity, and
return on investment.
(b) Performance Goals
At the commencement of each Performance Period, the Committee shall
establish a range of Performance Goals from minimum to target to
maximum for each Performance Criterion for said Performance Period.
Performance Goals may vary by Participant and may be different for
different Performance Periods.
At any time designated by the ECC during a Performance Period or
thereafter, but prior to award payment, appropriate adjustments in the
Performance Goals may be made to avoid undue windfalls or hardships
due to external conditions outside the control of management,
nonrecurring or abnormal items, changes in accounting practices or
such other matters as the Committee shall, in its sole discretion,
determine, subject to paragraph (d) below.
Performance Goals and any adjustments thereto shall be reported to the
ECC. The ECC shall have the right at its election to reject any
Performance Goals or adjustments and direct reconsideration by the
Committee.
(c) Award Opportunity
At the commencement of each Performance Period, the Committee shall
assign to each Participant the minimum, target, and maximum award
opportunities to be earned for said Performance Period based upon the
Participant's position and ability to impact annual performance
relative to
-3-
<PAGE>
goals during the Performance Period. Said award opportunities are
subject to the approval of the ECC. Award opportunity may be expressed
as a fixed amount or as a percentage of the Participant's base salary
earned for the Performance Period. No individual award opportunity in
any calendar year shall exceed $1,000,000 or, if less, 100% of the
base salary earned by the Participant for the applicable Performance
Period.
From time to time, discretionary awards, in addition to the annual
management incentive awards, may be made by the Committee to any
Participant due to outstanding performance or extraordinary
circumstances which occur during the Performance Period. No
discretionary award shall be made to any Participant whose
compensation is subject to the approval of the ECC, unless such award
shall be approved by the ECC. All discretionary awards shall be
reported to the ECC for each Performance Period.
(d) Adjustments to Performance Goals for Certain Officers
The Committee shall make no adjustments to the Performance Goals whose
effect is to increase the incentive payment to the Chief Executive
Officer or to other executive officers as of the end of the fiscal
year who are named in the proxy statement, except for the following:
1) Events classified as extraordinary items or discontinued
operations or presented as special nonrecurring charges (or
income) in accordance with generally accepted accounting
principles.
2) Disposal of a business segment or a group of two or more
warehouse stores, a major administrative unit, or major assets,
if quantified and disclosed in Management's Discussion and
Analysis of Financial Condition and Results of Operations of the
Company's Annual Report on Form 10-K.
3) Conversion of convertible bonds or preferred stock convertible
into common stock; a repurchase by the Company of outstanding
shares of stock, if such a repurchase has a material impact on
the performance that is being measured; or an increase in the
number of shares of common stock for earnings per share
calculation purposes due to a new equity or convertible debenture
offering, but not by exercise of stock options, restricted stock
or other stock-based awards under the Company's 1997 Stock
Incentive Plans or any similar plan.
-4-
<PAGE>
4) Balance sheet recapitalization or restructuring that materially
alters the allocation between debt and equity for the Company.
5) Changes in accounting practice to comply with new legislation or
with rules promulgated by the Securities and Exchange Commission
or the Financial Accounting Standards Board and changes in tax
laws that affect tax rates, credits, or the definition of taxable
income, if material.
6) Unusual and material losses beyond the Company's control, such as
acts of God (e.g., earthquake or widespread hurricane damage).
7) Reserves for future period events which will not occur until
after the performance measurement period.
8) Adjustments attributable to prior periods in the case of a newly
acquired business.
9) Adjustments of goals made immediately after completion by the
Company's independent public accountants of the audit of the
Company's financial statements for the fiscal year immediately
preceding the Performance Period, made solely to "true-up" goals
that were based on estimated results for said preceding year.
10) Gains and losses from sales of a minority interest in a
subsidiary.
11) Net incremental expense incurred by the Company as a result of
opening new warehouse stores in excess of the number incorporated
in the Performance Goals. The amount of the adjustment shall be
equal to the average operating loss incurred by new warehouse
stores opened by the Company in the same fiscal year.
In no event, however, shall the Committee make any adjustment which
would cause incentive awards not to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
6. Determination of Awards
(a) Upon completion of each Performance Period and certification of the
Company's financial statements by the Company's independent public
accountants for the Fiscal Year included in such Performance Period,
the ECC will review performance relative to Performance Goals, as
adjusted from time to time in accordance with paragraph (b) of Section
5 above, and determine the value of the awards for each Performance
Period.
-5-
<PAGE>
Achievement of all Performance Goals will result in payment of a
Participant's target award. Failure to achieve Performance Goals will
result in a decrease or elimination of the Participant's award.
Exceeding performance goals will result in an award greater than the
target award but not greater than the maximum award.
(b) If an employee becomes a Participant after the beginning of a
Performance Period, the award payable to such employee will be pro-
rated in accordance with the portion of the Performance Period during
which such employee is a Participant.
(c) In the event of termination of employment of a Participant for any
reason prior to the last day of the Performance Period, a Participant
shall have no further rights under the Plan thereafter and shall not
be entitled to payment of any award.
If termination of employment occurs (i) by reason of death, (ii) due
to normal retirement under a retirement plan of the Company, or (iii)
due to early retirement after age 55 with the consent of the Company,
the ECC may, in its sole discretion, value and direct that some
portion of the award be deemed earned and payable, taking into account
the duration or employment during the Performance Period, the
Participant's performance, and such other matters as the ECC shall
deem appropriate.
In the event of termination of employment for cause, as defined and
determined by the ECC in its sole discretion, no payment shall be made
with regard to any prior or current Performance Period.
(d) If a Participant shall be actively employed less than a full
Performance Period because of an accident or illness but shall
complete active employment during one-half of the weeks of said
Performance Period, the incentive award otherwise payable to said
Participant for said Performance Period shall not be reduced because
of a failure of active employment because of such accident or illness.
If a Participant shall be actively employed less than a full
Performance Period because of an accident or illness and shall not
complete active employment during one-half of the weeks of said
Performance Period, said Participant shall receive such incentive
award, if any, for said Performance Period as the Committee shall
determine, subject to approval by the ECC. The time during which a
Participant receives sick leave and/or vacation payments shall be
deemed active employment time. Time during which a Participant
receives short-term income protection, short-term disability
-6-
<PAGE>
and/or long-term disability payments shall not be deemed active
employment time.
7. Payment of Awards
As soon as practicable after valuation of the award for each
Performance Period, payment will be made in cash with respect to the award
earned by each Participant.
8. Deferral of Awards
Participants who are designated by the ECC as being eligible to
participate in the Company's General Deferred Compensation Plan may elect
to defer all or a portion of their awards in accordance with the terms of
such General Deferred Compensation Plan.
9. Designation of Beneficiary
(a) Subject to applicable law, each Participant shall have the right to
file with the Company, to the attention of the ECC or the Committee, a
written designation of one or more persons as the beneficiary(ies) who
shall be entitled to receive the amount, if any, payable under the
Plan upon his death. A Participant may from time to time revoke or
change the beneficiary by filing a new designation with the ECC or the
Committee. The last such designation received by the ECC or the
Committee shall be controlling; provided, however, that no
designation, change, or revocation thereof shall be effective unless
received by the ECC or the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to receipt.
(b) If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with law, the payment of
the amount, if any, payable under the Plan upon the Participant's
death shall be made to the Participant's estate by the Committee. If
the Committee is in doubt as to the right of any person to receive any
amount, the Committee may retain such amount, without liability for
any interest thereon, until the rights thereto are determined, or the
Committee may pay such amount into any court of appropriate
jurisdiction, and such payment shall be a complete discharge of the
liability of the Plan, the Company, the Committee and the ECC
therefor.
10. Notices
-7-
<PAGE>
Each Participant whose employment relationship with the Company has
terminated, either voluntarily or involuntarily, shall be responsible for
furnishing the Committee or the Chief Financial Officer of the Company with
the current and proper address for mailing of notices and the delivery of
agreements and payments. Any notice required or permitted to be given
shall be deemed given if directed to the person to whom addressed at such
address and mailed by regular United States mail, first-class and prepaid.
If any item mailed to such address is returned undeliverable to the
addressee, mailing will be suspended until the Participant furnishes the
proper address.
11. Rights of Participants
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant or such Participant's
legal representative or designated beneficiary, or other persons.
If and to the extent that any Participant or his legal representative
or designated beneficiary, as the case may be, acquires a right to receive
any payment from the Company pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company.
12. No Employment Rights
Nothing in the Plan or any other document describing or referring to
the Plan shall be deemed to confer on any Participant the right to continue
in the employ of the Company or affect the right of the Company to
terminate the employment of any such person with or without cause.
13. Certain Payments Upon a Change of Control
If, upon a Change of Control (as defined in Annex A hereto) of the
Company, amounts payable or that would or might be payable in respect of an
individual under the Plan instead are paid to such individual or such
individual's estate or beneficiary pursuant to any change of control
severance plan or agreement, or any similar plan, agreement or arrangement
to which the Company is a party, payments in respect of such individual
hereunder shall be reduced pro tanto.
14. Nonalienation of Awards
No amounts payable or other rights under the Plan shall be sold,
transferred, assigned, pledged, or otherwise disposed of or encumbered by a
-8-
<PAGE>
Participant, except as provided herein, nor shall they be subject to
attachment, garnishment, execution, or other creditor's processes.
15. Withholding Taxes
The Company shall have the right to deduct withholding taxes from any
payments made pursuant to the Plan, or make such other provisions as it
deems necessary or appropriate to satisfy its obligations for withholding
federal, state, or local income or other taxes from payments to the
Participant.
16. Termination, Amendment, and Modification
The Committee, ECC or the Board of Directors may from time to time
amend, modify, or discontinue the Plan or any provision hereof. No
amendment to, or discontinuance or termination of, the Plan shall, without
the written consent of the Participant, adversely affect any rights of such
Participant that have vested. This Plan shall continue until terminated by
the Committee, ECC or the Board of Directors of the Company.
17. Headings and Captions
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not
be employed in the construction of the Plan.
18. Controlling Law
This Plan shall be construed and enforced according to the laws of the
Commonwealth of Massachusetts, to the extent not preempted by Federal law,
which shall otherwise control.
19. Miscellaneous Provisions
(a) All costs and expenses involved in administering the Plan as provided
herein, or incident thereto, shall be borne by the Company.
(b) If any Participant shall also participate in other annual incentive
plans of the Company, the ECC shall determine the amount, if any, by
which such Participant's award under the Plan shall be adjusted, so as
to coordinate the benefits under the Plan with the other plans.
(c) The Committee or the ECC may, in its sole discretion, reduce or
eliminate awards granted or money payable to any Participant or all
Participants if it determines that such awards or payments may cause
the Company to
-9-
<PAGE>
violate any applicable law, regulation, controls, or guidelines. Such
reduction or elimination may be made notwithstanding that the possible
violation might be eliminated by reducing or not increasing
compensation or benefits of other associates, it being the intent of
the Plan not to inhibit the discretion of the Company to provide such
forms and amounts of compensation and benefits to employees as it
deems advisable.
20. CONTINUATION INCENTIVE AWARDS AND REPLACEMENT INCENTIVE AWARDS GRANTED IN
CONNECTION WITH SPIN-OFF
Notwithstanding any other provision of the Plan, in connection with the
spin-off of the Company by Waban Inc. ("Waban"), the Committee, subject to
the approval of the ECC, which approval may be granted or withheld in the
ECC's sole discretion, may grant to any Participant (i) incentive awards
which are intended to serve as a continuation of incentive awards
previously granted to such Participant ("Continuation Incentive Awards")
under the Waban Management Incentive Plan (the "WMIP"), and (ii) incentive
awards which are intended to serve as a replacement of incentive awards
previously granted to such Participant ("Replacement Incentive Awards")
under the WMIP.
Each Continuation Incentive Award shall (i) be considered to be a
continuation of the incentive award previously granted under the WMIP, as
adjusted to reflect the assumption by the Company of Waban's obligations
under such incentive award, (ii) be based upon the same Performance Periods
and Performance Criteria as the continued incentive award, as adjusted to
reflect the effects of the spin-off on the Company structure (e.g.,
interest expense, corporate overhead), and (iii) as determined by the
Committee (subject to the approval of the ECC), provide no additional value
or benefits other than those provided by the continued incentive award, the
approval of the ECC to be final and binding for all purposes. In addition,
with respect to each Continuation Incentive Award, a Change in Control
shall have the meaning set forth in Annex B hereto. Except as otherwise
set forth in this Section 20 or determined by the Committee (subject to the
approval of the ECC), each Continuation Incentive Award shall be subject to
all other terms of the Plan and shall be subject, before payment, to
certification by the ECC that all Performance Criteria have been satisfied.
Each Replacement Incentive Award shall be granted upon such terms and
conditions as the Committee (subject to the approval of the ECC) deems
appropriate and in accordance with such Performance Periods (including a
Performance Period beginning prior to the effective date of the Plan) and
Performance Criteria as the Committee deems appropriate.
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EXHIBIT 10.6
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BJ'S WHOLESALE CLUB, INC.
GROWTH INCENTIVE PLAN
WHEREAS, the Participants are in high-level management positions in the
Company or its subsidiaries and are key to the long-term success of the Company;
WHEREAS, the Company desires to provide an incentive to focus the
Participants' attention and efforts on long-term growth and profitability;
NOW THEREFORE, the Company hereby adopts the Plan, as hereinafter set
forth, effective as of the Effective Date.
* * * * * *
ARTICLE 1. DEFINITIONS
The following terms as used in the Plan shall have the following meanings:
"Award Period" shall mean a period of a certain number of consecutive
fiscal years (or portions thereof), as determined by the Committee in its
discretion. Award Periods may overlap and employees may participate
simultaneously with respect to more than one Award Period.
"Committee" shall mean the Executive Compensation Committee of the Board of
Directors of BJ's Wholesale Club, Inc.
"Company" shall mean BJ's Wholesale Club, Inc. and its subsidiaries.
"Effective Date" shall mean the date on which Waban Inc. completes the
spin-off of the Company by distributing to Waban's stockholders on a pro rata
basis all of the outstanding shares of Common Stock of the Company held by
Waban Inc.
"Incentive Measurement" shall mean any one or combination of the following
objective measures of performance or growth, as the Committee shall determine:
operating income, pre-tax income, net income, costs, any of the preceding
measures as a percent of sales, earnings per share, sales, return on equity, and
return on investment.
"Incentive Unit" shall mean an incentive unit granted to each Participant,
the value of which equals a certain percentage of the growth in the Incentive
Measurement achieved over the Award Period, as determined by the Committee.
<PAGE>
"Participant" shall mean an employee in a high-level management position in
the Company who is selected by the Committee, in its discretion, to be a
participant in the Plan.
"Plan" shall mean the BJ's Wholesale Club, Inc. Growth Incentive Plan, as
herein set forth, including any and all amendments hereto and restatements
hereof.
ARTICLE 2. BENEFITS UNDER THE PLAN
2.1 Granting of Awards.
(a) The Grant. On or before the commencement of each Award Period,
the Committee shall determine (i) which employees shall be Participants in the
Plan, (ii) the amount of Incentive Units to be granted to each Participant, and
(iii) the method or formula for determining the value of each Incentive Unit,
based on the Incentive Measurement.
(b) Payment Dates. On or before the commencement of each Award
Period, the Committee shall determine (i) the date or dates on or about which
payment in respect of Incentive Units shall be made, and (ii) the amount of each
Participant's Incentive Units which may be redeemed on such payment dates. One
such payment date shall occur at some time within three (3) months after the end
of the Award Period and other payment date(s) may occur one (1) or more years
after such date (the "Deferred Payment Date").
2.2 Value of Incentive Units. On or before the commencement of each Award
Period, the Committee shall determine (i) the factor(s) comprising the Incentive
Measurement, and (ii) the Incentive Measurement's base value, i.e., the value
against which growth shall be measured. Notwithstanding the prior sentence, the
Incentive Measurement's base value may be appropriately adjusted by the
Committee, pursuant to Section 2.5(i) hereof, after the certification of the
Company's financial statements by the Company's independent public accountant
for the fiscal year immediately preceding the commencement of the Award Period.
In the Committee's discretion, Incentive Measurements may vary with respect to
Incentive Unit grants made to individual Participants or groups of Participants.
2.3 Award Opportunity. Upon the completion of each Award Period and the
certification of the Company's financial statements by the Company's independent
public accountants for the last fiscal year in said Award Period, the Committee
shall cause to be re-valued the Incentive Measurement in order to determine the
growth over the Incentive Measurement's base value and, thus, the value of each
Incentive Unit. Notwithstanding anything to the contrary herein contained or
implied, the Committee may make appropriate adjustments to the value of the
Incentive Measurement to avoid
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<PAGE>
undue windfalls or hardships due to external conditions outside the control of
management, nonrecurring or abnormal items, changes in accounting practices, or
such other matters as the Committee, in its discretion, shall determine;
however, the Committee shall make no adjustments to the performance criteria
whose effect is to increase the growth incentive payment to the Chief Executive
Officer or to other executive officers as of the end of the year who are named
in the proxy statement, except as provided in Section 2.5 hereof.
2.4 Payment of Awards.
(a) Employees on Last Day of Award Period or Deferred Payment Date.
Participants employed by the Company on the last day of the Award Period shall
be entitled to receive payment (to the extent not deferred) as soon as
practicable thereafter; Participants employed on the Deferred Payment Date shall
be entitled to receive payment of deferred amounts, if applicable, as soon as
practicable thereafter. Notwithstanding anything to the contrary herein
contained or implied, in no event shall a Participant's incentive payment for an
Award Period exceed $2,000,000 in any calendar year.
(b) Termination of Employment in the Event of Death, Disability or
Retirement. If the termination of employment of a Participant occurs before the
end of an Award Period due to: (i) death, (ii) disability (as defined under the
Company's long-term disability plan), or (iii) retirement on or after the
attainment of age fifty-five (55), the Participant shall be entitled to pro-
rated payment in respect of Incentive Units, determined as of the end of the
fiscal year in which the Participant's termination of employment due to death,
disability or retirement occurs. Payment shall be made as soon as practicable
following the end of the fiscal year in which termination of employment due to
death, disability or retirement has occurred. In the event of termination of
employment due to death, disability or retirement after the end of the Award
Period and prior to a Deferred Payment Date, payment with respect to any
outstanding deferred payment amount shall be made as soon as practicable after
such termination.
(c) Termination of Employment for Any Reason Other than Death,
Disability or Retirement. In the event of the Participant's termination of
employment for any reason other than death, disability or retirement prior to
the end of the Award Period, the Participant shall have no rights under the Plan
and shall not be entitled to receive payment with respect to any Incentive Unit.
In the event of the Participant's termination of employment for any reason other
than death, disability or retirement prior to a Deferred Payment Date, the
Participant shall not be entitled to receive payment with respect to any
outstanding deferred payment amount.
2.5 Restrictions on Adjustments to Incentive Measurement. The Committee
shall make no adjustments to the Incentive Measurement whose effect is to
increase the
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<PAGE>
growth incentive payment to the Chief Executive Officer or to other executive
officers as of the end of the year who are named in the proxy statement, except
for the following:
(a) Events classified as extraordinary items or discontinued
operations or presented as special nonrecurring charges (or income) in
accordance with generally accepted accounting principles.
(b) Disposal of a business segment or a group of two or more
warehouse stores, a major administrative unit, or major assets, if quantified
and disclosed in Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company's Annual Report on Form 10-K.
(c) Conversion of convertible bonds or convertible preferred stock
into common stock; a repurchase by the Company of outstanding shares of stock,
if such a repurchase has a material impact on the Incentive Measurement; or an
increase in the number of common shares for earnings per share calculation
purposes due to a new equity or convertible debenture offering, but not by stock
options, restricted stock or other stock-based awards under the Company's 1997
Stock Incentive Plans or any similar plan.
(d) Balance sheet recapitalization or restructuring that materially
alters the allocation between debt and equity for the Company.
(e) Changes in accounting practice to comply with new legislation or
with rules promulgated by the Securities and Exchange Commission or the
Financial Accounting Standards Board and changes in tax laws that affect tax
rates, credits, or the definition of taxable income, if material.
(f) Unusual and material losses beyond the Company's control, such as
acts of God (e.g., earthquake or widespread hurricane damage).
(g) Reserves for future period events which will not occur until
after the performance measurement period.
(h) Adjustments attributable to prior periods in the case of a newly
acquired business.
(i) Adjustments of the Incentive Measurement's base value made
immediately after completion of the audit of the fiscal year immediately
preceding the Award Period, made solely to "true-up" amounts that were based on
estimated results for said preceding year.
(j) Gains and losses from sales of a minority interest in a
subsidiary.
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<PAGE>
(k) Net incremental expense incurred by the Company as a result of
opening new warehouse stores in excess of the number incorporated in the
Incentive Measurement. The amount of the adjustment shall be equal to the
average operating loss incurred by new warehouse stores opened by the Company in
the same fiscal year.
In no event, however, shall the Committee make any adjustment which would
cause incentive awards not to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 3. DESIGNATION OF BENEFICIARY
Each Participant shall have the right to file with the Committee a written
designation of one or more persons as beneficiary(ies) who shall be entitled to
receive the amount, if any, payable under the Plan upon the Participant's death.
A Participant may modify the beneficiary designation by filing a new designation
with the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation or modification thereof
shall be effective unless received by the Committee prior to the Participant's
death.
If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the Participant,
the amount payable under the Plan upon the Participant's death shall be made to
the Participant's surviving spouse; if there is no surviving spouse, payment
shall be made to the Participant's estate.
ARTICLE 4. PLAN ADMINISTRATION AND INDEMNIFICATION
4.1 Plan Administration. This Plan shall be administered by the
Committee. The Committee shall have full authority to interpret the Plan; to
establish, amend, and rescind rules for carrying out the Plan; to interpret the
terms and provisions of the Plan; and to make all other determinations necessary
or advisable for its administration. The Committee's determination shall be
final and binding on all parties.
4.2 Indemnification. The Company shall indemnify and save harmless each
member of the Committee against all expenses and liabilities arising out of
membership on such Committee, excepting only expenses and liabilities arising
from such member's own gross negligence or willful misconduct, as determined by
the Board of Directors or outside counsel designated by the Board of Directors.
ARTICLE 5. EFFECT ON EMPLOYMENT RIGHTS
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<PAGE>
The Plan shall not constitute an employment contract and nothing contained
in the Plan shall confer upon the Participant the right to be retained in the
service of the Company nor limit the right of the Company to discharge or
otherwise deal with the Participant without regard to the existence of the Plan.
ARTICLE 6. CHANGE OF CONTROL
In the event of the merger, sale, consolidation, dissolution, liquidation,
or Change of Control of the Company (as defined in Annex A hereto), the
Committee shall thereupon cause to be re-valued the Incentive Measurement, in
the manner described herein, and shall provide that Incentive Units be redeemed
as soon as practicable thereafter in lieu of payments that would otherwise be
made under Article 2 hereof, regardless of when the end of the Award Period or
Deferred Payment Date is scheduled to occur. Such re-valuation of the Incentive
Measurement shall be determined based on (i) the Company's actual performance or
growth with respect to those fiscal years within the Award Period which have
ended prior to the merger, sale, consolidation, dissolution, liquidation, or
Change of Control, plus (ii) for the fiscal year in which occurs the merger,
sale, consolidation, dissolution, liquidation, or Change of Control, the
Company's projected performance or growth as provided in the fiscal year's
financial plan (as presented to the Company's Board of Directors at the
beginning of the fiscal year) pro-rated based on the number of days in said
fiscal year preceding the merger, sale, consolidation, dissolution, liquidation,
or Change of Control.
ARTICLE 7. AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be amended, suspended or terminated in whole or in part at any
time and from time to time by the Committee. No such amendment, suspension or
termination shall retroactively impair or otherwise adversely affect the rights
of any Participant to benefits under this Plan if the end of the Award Period
has occurred prior to the date of such amendment, suspension or termination.
ARTICLE 8. NON-ASSIGNMENT
The right to benefits hereunder shall not be assignable, and the
Participant shall not be entitled to have such payments commuted or made
otherwise than in accordance with the provisions of the Plan.
ARTICLE 9. CONSTRUCTION
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<PAGE>
9.1 Heading and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
9.2 Singular Includes Plural. Except where otherwise clearly indicated by
context, the singular shall include the plural, and vice-versa.
ARTICLE 10 CONTINUATION INCENTIVE UNITS AND REPLACEMENT INCENTIVE UNITS GRANTED
IN CONNECTION WITH SPIN-OFF
Notwithstanding any other provision of the Plan, in connection with the
spin-off of the Company by Waban Inc. ("Waban"), the Committee may grant to
any Participant (i) incentive units which are intended to serve as a
continuation of incentive units previously granted to such Participant
("Continuation Incentive Units") under the Waban Growth Incentive Plan (the
"WGIP"), and (ii) incentive units which are intended to serve as a
replacement of incentive units previously granted to such Participant
("Replacement Incentive Units") under the WGIP.
Each Continuation Incentive Unit shall (i) be considered to be a
continuation of the incentive unit previously granted under the WGIP, as
adjusted to reflect the assumption by the Company of Waban's obligations
under such incentive unit, (ii) be based upon the same Award Periods and
Incentive Measurements as the continued incentive unit, as adjusted to
reflect the effects of the spin-off on the Company structure (e.g.,
interest expense, corporate overhead), and (iii) as determined by the
Committee (subject to the approval of the ECC), provide no additional value
or benefits other than those provided by the continued incentive unit, the
approval of the ECC to be final and binding for all purposes. In addition,
with respect to each Continuation Incentive Unit, a Change in Control
shall have the meaning set forth in Annex B hereto. Except as otherwise
set forth in this Article 10 or determined by the Committee (subject to the
approval of the ECC), each Continuation Incentive Unit shall be subject to
all other terms of the Plan and shall be subject, before payment, to
certification by the ECC that all Incentive Measurements have been
satisfied.
Each Replacement Incentive Unit shall be granted upon such terms and
conditions, and in accordance with such Award Periods (including an Award
Period beginning prior to the current Fiscal Year) and Incentive
Measurements, as the Committee deems appropriate.
ARTICLE 11. RELEVANT LAW
This Plan shall be construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts to the extent such laws are not preempted by
federal law.
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<PAGE>
ANNEX A
DEFINITION OF CHANGE IN CONTROL
-------------------------------
For the purposes of this Plan, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
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<PAGE>
ANNEX B
DEFINITION OF CHANGE IN CONTROL
WITH RESPECT TO CONTINUATION INCENTIVE UNITS
--------------------------------------------
For the purposes of the Plan, "Change of Control" with respect to
Continuation Incentive Units shall mean the occurrence of any one of the
following events:
(a) there occurs a change of control of the Company of a nature that
would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); provided,
however, that no transaction shall be deemed to be a Change of
Control as to a Participant (i) if the person or each member of a
group of persons acquiring control is excluded from the definition of
the term "Person" hereunder or (ii) unless the ECC shall otherwise
determine prior to such occurrence, if the Participant or a
Participant Related Party is the Person or a member of a group
constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly owned subsidiary of the
Company, or any employee benefit plan of the Company or such a
subsidiary becomes the owner of 20% or more of the Company's Common
Stock and thereafter individuals who were not directors of the
Company prior to the date such Person became a 20% owner are elected
as directors pursuant to an arrangement or understanding with, or
upon the request of or nomination by, such Person and constitute at
least 1/4 of the Company's Board of Directors; provided, however,
that unless the ECC shall otherwise determine prior to the
acquisition of such 20% ownership, such acquisition of ownership
shall not constitute a Change of Control as to a Participant if the
Participant or a Participant Related Party is the Person or a member
of a group constituting the Person acquiring such ownership; or
(c) there occurs any solicitation or series of solicitations of proxies
by or on behalf of any Person other than the Company's Board of
Directors and thereafter individuals who were not directors of the
Company prior to the commencement of such solicitation or series of
solicitations are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such
Person and constitute at least 1/4 of the Company's Board of
Directors; or
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date
provided for in such agreement, all or substantially all of the
business and/or assets of the Company shall be owned, leased or
otherwise controlled by another Person and (ii) individuals who are
directors of the Company when such agreement is executed shall not
constitute a majority of the board of directors of the survivor or
successor entity immediately after the effective date provided for in
such agreement; provided, however, that unless otherwise determined
by the ECC, no transaction shall constitute a Change of Control as to
Participant if, immediately after such transaction, the Participant
or any Participant Related Party shall own equity securities of any
surviving corporation ("Surviving Entity") having a fair value as a
percentage of the fair value of the equity securities of such
Surviving Entity greater than 125% of the fair value of the equity
securities of the Company owned by the Participant and any
Participant Related Party immediately prior to such transaction,
expressed as a percentage of the fair value of all equity securities
of the Company immediately prior to such transaction (for purposes of
this paragraph ownership of equity securities shall be determined in
the same manner as ownership of Common Stock); and provided, further,
that, for purposes of this paragraph (d), if such agreement requires
as a condition precedent approval by the Company's shareholders of
the agreement or transaction, a Change of Control shall not be deemed
to have taken place unless and until such approval is secured (but
upon any such approval, a Change of Control shall be deemed to have
occurred on the date of execution of such agreement).
In addition, for purposes of this Annex B the following terms have the
meanings set forth below:
"Common Stock" shall mean the then outstanding Common Stock of
the Company plus, for purposes of determining the stock ownership of
any Person, the number of unissued shares of Common Stock which such
Person has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) upon the exercise of
conversion rights, exchange rights, warrants or options or otherwise.
Notwithstanding the foregoing, the term Common Stock shall not
include shares of Preferred Stock or convertible debt or options or
warrants to acquire shares of Common Stock (including any shares of
Common Stock issued or issuable upon the conversion or exercise
thereof) to the extent that the Board of Directors of the Company
shall expressly so determine in any future transaction or
transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as
such term is defined in Rule 13d-3 promulgated by the
Securities and Exchange Commission (the "Commission") under
the Exchange Act, as in effect on March 1, 1989; or
(ii) of which such Person would be the "beneficial owner" for
purposes of Section 16 of the Exchange Act and the rules of
the Commission promulgated thereunder, as in effect on
March 1, 1989; or
(iii) which such Person or any of its affiliates or associates
(as such terms are defined in Rule 12b-2 promulgated by the
Commission under the Exchange Act, as in effect on March 1,
1989) has the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise.
"Person" shall have the meaning used in Section 13(d) of the
Exchange Act, as in effect on March 1, 1989; provided, however, that the
term "Person" shall not include (a) any individuals who are descendants of
Max Feldberg or Morris Feldberg, (b) any relatives of the fourth degree of
consanguinity or closer of such descendants or (c) custodians, trustees or
legal representatives of such persons.
A "Participant Related Party" shall mean any affiliate or
associate of the Participant other than the Company or a Subsidiary of the
Company. The terms "affiliate" and "associate" shall have the meanings
ascribed thereto in Rule 12b-2 under the Exchange Act (the term
"registrant" in the definition of "associate" meaning, in this case, the
Company).
"Participant" means a participant in the Plan.
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<PAGE>
EXHIBIT 10.10
-------------
BJ'S WHOLESALE CLUB, INC.
1997 REPLACEMENT STOCK INCENTIVE PLAN
The BJ's Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan (the
"Plan") is being adopted by BJ's Wholesale Company, Inc. (the "Company") in
connection with the spin-off of the Company by Waban Inc. ("Waban"). The
effective date of the Plan is the date on which Waban completes the spin-off by
distributing to its stockholders, on a pro-rata basis, all of the then
outstanding shares of common stock of the Company (the "Distribution Date").
Following the Distribution Date, the Company will grant Awards (as defined
below) under the Plan in replacement for awards previously granted under the
Waban Inc. 1989 Stock Incentive Plan which are held by persons who leave
employment at Waban on the Distribution Date or within three months thereafter
and become employees of the Company. Replacement options granted under the Plan
are intended to comply with the requirements of Sections 424(a) and 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), relating to the
replacement of options in connection with corporate reorganizations.
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The purpose of the Plan is to secure for the Company and its stockholders
the benefit of the incentives inherent in Common Stock ownership and the receipt
of incentive awards by selected key employees of the Company and its
Subsidiaries who contribute to and will be responsible for its continued long-
term growth. The Plan is intended to stimulate the efforts of such key employees
by providing an opportunity for capital appreciation and giving suitable
recognition for services which contribute materially to the success of the
Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Award" or "Awards" except where referring to a particular category of
grant under the Plan shall include Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Unrestricted Stock Awards, Deferred Stock Awards, Performance Unit Awards
and Other Stock-based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's willful
misconduct or dishonesty, any of which is directly harmful to the business
or
<PAGE>
reputation of the Company or any Subsidiary.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
(f) "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee shall
be exercised by the Board.
(g) "Deferred Stock Award" is defined in Section 9(a).
(h) "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's long
term disability program.
(i) "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the New
York Stock Exchange Composite Transactions Index or, where applicable, the
value of a share of Stock as determined by the Committee in accordance with
the applicable provisions of the Code.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.
(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(l) "Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the normal retirement date
specified in the Waban Inc. Retirement Plan as in effect on the
Distribution Date.
(m) "Other Stock-based Award" is defined in Section 11(a).
(n) "Performance Unit Award" is defined in Section 10(a).
(o) "Restricted Stock Award" is defined in Section 8(a).
(p) "Stock" means the Common Stock, $.01 par value, of the Company,
subject to adjustments pursuant to Section 3.
(q) "Stock Appreciation Right" means a right described in Section 7(a) and
granted, either independently of other Awards or in tandem with the grant
of a Stock Option.
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<PAGE>
(r) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
(s) "Subsidiary" means any corporation or other entity (other than the
Company) 50% or more of the total combined voting power of all classes of
stock or other interests of which is owned, directly or indirectly, by the
Company.
(t) "Unrestricted Stock Award" is defined in Section 8(b).
SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS,
ETC.
The Plan shall be administered by a Committee of not less than two members,
who shall be appointed by the Board and who shall serve at the pleasure of the
Board.
The Committee shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Unrestricted Stock, Deferred
Stock, Performance Units and any Other Stock-based Awards, or any
combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares to be covered by any Award
(subject, however, to the per participant limitation contained in
Section 3(a));
(iv) to determine the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms
and conditions may differ among individual Awards and participants;
(v) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant
and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(vi) to adopt, alter and repeal such rules, guidelines and practices for
administration of the Plan and for its own acts and proceedings as
it shall deem advisable; to interpret the terms and provisions of
the Plan and any
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Award (including related Award Agreements); to make all
determinations it deems advisable for the administration of the
Plan; to decide all disputes arising in connection with the Plan;
and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) Shares Issuable; Per Participant Limit.
The maximum number of shares of Stock reserved and available for issuance
under the Plan shall be 2,500,000, including shares issued in lieu of or upon
reinvestment of dividends arising from Awards. For purposes of this limitation,
Awards and Stock which are forfeited, reacquired by the Company or satisfied
without the issuance of Stock shall not be counted and such limitation shall
apply only to shares which have become free of any restrictions under the Plan.
Subject to such overall limitation, shares may be issued up to such maximum
pursuant to any type or types of Award, including Incentive Stock Options.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company. Subject to adjustment as provided in Section 3(b)
below, the maximum number of shares of Stock with respect to which Stock Options
and Stock Appreciation Rights may be granted to any employee under the Plan
shall not exceed 700,000 shares of Stock during any one calendar year. For
purposes of calculating such maximum number, (i) each Stock Option and Stock
Appreciation Right shall continue to be treated as outstanding notwithstanding
its repricing, cancellation or expiration, (ii) the repricing of an outstanding
Stock Option or Stock Appreciation Right or the issuance of a new Stock Option
or Stock Appreciation Right in substitution for a cancelled Stock Option or
Stock Appreciation Right shall be deemed to constitute the grant of a new
additional Stock Option or Stock Appreciation Right separate from the original
grant of the Stock Option or Stock Appreciation Right that is repriced or
cancelled and (iii) a Stock Appreciation Right that is granted in tandem with a
Stock Option shall not be included.
(b) Stock Dividends, Mergers, etc.
In the event of a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities on which
Awards may thereafter be granted, (ii) the number and kind of shares remaining
subject to outstanding Awards, and (iii) the option or purchase price in respect
of such shares. In the event of any merger, consolidation, dissolution or
liquidation of the Company, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate number
of shares reserved for issuance under the Plan and in the number
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and purchase price (if any) of shares subject to such Awards as it may
determine, or accelerate, amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Committee deems equitable in the circumstances), subject, however, to the
provisions of Section 15.
(c) Substitute Awards.
The Company may grant Awards under the Plan in substitution for stock and
stock-based awards held by employees of another corporation who concurrently
become employees of the Company or a Subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Committee may direct that the substitute Awards be
granted on such terms and conditions as the Committee considers appropriate in
the circumstances.
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part time officers and other
key employees of the Company and its Subsidiaries (excluding any director who is
not an employee) who are responsible for or contribute to the management, growth
or profitability of the Company and its Subsidiaries and who are selected from
time to time by the Committee, in its sole discretion. Persons who are not
employees of the Company or a subsidiary (within the meaning of Section 422 of
the Code) shall not be eligible to receive grants of Incentive Stock Options.
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS.
(a) Duration of Awards.
Subject to Sections 16(a) and 16(c) below, no restrictions or limitations
on Awards shall extend beyond 10 years (or 10 years and one day in the case of
Non-Qualified Stock Options) from the grant date, except that deferrals elected
by participants of the receipt of Stock or other benefits under the Plan may
extend beyond such date.
(b) Latest Grant Date.
No Award shall be granted more than six months after the Distribution Date,
but then-outstanding Awards may extend beyond such date.
SECTION 6. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
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Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted to the Committee under the Plan be
so exercised, so as to disqualify the Plan or, without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price.
The option price per share of Stock purchasable under a Stock Option shall
be determined by the Committee at the time of grant but shall be not less than
100% of Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the option price shall be not less
than 110% of Fair Market Value on the grant date.
(b) Option Term.
The term of each Stock Option shall be fixed by the Committee, but no
Incentive Stock Option shall be exercisable more than ten years after the date
the option is granted and no Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(c) Exercisability.
Stock Options shall be exercisable at such future time or times, whether or
not in installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability of all
or any portion of any Stock Option.
(d) Method of Exercise.
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Stock Options may be exercised in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by certified or bank check or other instrument acceptable to the
Committee. As determined by the Committee, in its discretion, at (or, in the
case of Non-Qualified Stock Options, at or after) grant, payment in full or in
part may also be made either (i) through the surrender by the optionee of shares
of Stock not then subject to restrictions under any Company plan or (ii) through
the withholding by the Company of shares of Stock which would otherwise be
delivered to the optionee upon exercise of the option. Such surrendered or
withheld shares shall be valued at Fair Market Value on the exercise date. An
optionee shall have the rights of a shareholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options.
Notwithstanding the foregoing paragraph, during the 60-day period following
a Change of Control as defined in Exhibit A, any optionee shall have the right
(by giving written notice to the Company in form satisfactory to the Committee)
to surrender all or part of the Stock Option to the Company and to receive a
cash payment equal to the excess of the fair market value per share of Stock on
the date of exercise over the option exercise price per share times the number
of shares subject to the surrendered Stock Option. The foregoing right shall
not apply to (i) any Stock Option as to which the Committee shall expressly
exclude such right at the date of grant, (ii) any Stock Option held by an
optionee who initiates the Change of Control or (iii) any Stock Option held by
an optionee described in any of the following provisions of the definition of
Change of Control set forth in Exhibit A: the proviso to paragraph (a) of such
definition; the proviso to paragraph (b) of such definition; or the first
proviso to paragraph (d) of such definition. For purposes of clause (iii) of
the immediately preceding sentence, whether an optionee is described in any of
the provisos specified in such clause shall be determined without regard to any
discretionary determination by the Committee pursuant to the terms of Exhibit A
hereto. As used in this paragraph with respect to an election by an optionee to
receive cash in respect of a Non-Qualified Stock Option the term "fair market
value" shall mean the higher of (x) the highest reported sales price, regular
way, of a share of the Stock on the New York Stock Exchange Composite
Transactions Index during the 60-day period prior to the Change of Control and
(y) if the Change of Control is the result of a transaction or series of
transactions described in paragraphs (a), (b) or (d) of the definition of Change
of Control set forth in Exhibit A, the highest price per share of the Stock paid
in such transaction or series of transactions (which in the case of paragraph
(b) shall be the highest price per share of the Stock as reflected in a Schedule
13D filed by the person having made the acquisition), and as used in this
paragraph with respect to an election by an optionee to receive cash in respect
of an Incentive Stock Option the term "fair market value" shall mean Fair Market
Value.
(e) Non-transferability of Options.
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No Stock Option shall be transferable by the optionee otherwise then by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(f) Termination by Death.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of death, the Stock Option may thereafter be exercised, to the extent
then exercisable (or on such accelerated basis as the Committee shall at any
time determine prior to death), by the legal representative or legatee of the
optionee, for a period of three years (or such shorter period as the Committee
shall specify at time of grant) from the date of death or until the expiration
of the stated term of the option, if earlier.
(g) Termination by Reason of Disability.
Any Stock Option held by an optionee whose employment by the Company and
its Subsidiaries has terminated, or who has been designated an inactive
employee, by reason of Disability may thereafter be exercised to the extent it
was exercisable at the time of the earlier of such termination or such
designation (or on such accelerated basis as the Committee shall at any time
determine prior to such termination or designation) for a period of three years
(or such shorter period as the Committee shall specify at time of grant) from
the date of such termination of employment or designation or until the
expiration of the stated term of the option, if earlier. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
the final year of such exercise period shall extend such period for one year
following death, subject to termination on the expiration of the stated term of
the option, if earlier. The Committee shall have the authority to determine
whether a participant has been terminated or designated an inactive employee by
reason of Disability.
(h) Termination by Reason of Normal Retirement.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of Normal Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent that it was then exercisable (or on such
accelerated basis as the Committee shall at any time determine) for a period of
three years (or such shorter period as the Committee shall specify at time of
grant) from the date of Normal Retirement or until the expiration of the stated
term of the option, if earlier. Except as otherwise provided by the Committee
at the time of grant, the death of an optionee during the final year of such
exercise period shall extend such period for one year following death, subject
to earlier termination on the expiration of the stated term of the option, if
earlier.
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(i) Other Termination.
Unless otherwise determined by the Committee, if an optionee's employment
by the Company and its Subsidiaries terminates for any reason other than death,
Disability, Normal Retirement, or for Cause, any Stock Option held by such
optionee may thereafter be exercised to the extent it was exercisable on the
date of termination of employment (or on such accelerated basis as the Committee
shall determine at or after grant) for a period of three months (or such longer
period up to three years as the Committee shall specify at or after grant) from
the date of termination of employment or until the expiration of the stated term
of the option, if earlier. If an optionee's employment terminates for Cause,
the unexercised portion of any Stock Option then held by the optionee shall
immediately terminate.
(j) Form of Settlement.
Subject to Section 16(a) and Section 16(c) below, shares of Stock issued
upon exercise of a Stock Option shall be free of all restrictions under the
Plan, except as provided in the following sentence. The Committee may provide at
time of grant that the shares to be issued upon the exercise of a Stock Option
shall be in the form of Restricted Stock or Deferred Stock, or may reserve the
right to so provide after time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS.
(a) Nature of Stock Appreciation Right.
A Stock Appreciation Right is an Award entitling the recipient to receive
an amount in cash or shares of Stock (or in a form of payment permitted under
paragraph (e) below) or a combination thereof having a value equal to (or if the
Committee shall so determine at time of grant, less than) the excess of the Fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the option exercise
price, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares with respect to which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights.
Stock Appreciation Rights may be granted in tandem with, or independently
of, any Stock Option granted under the Plan. In the case of a Stock Appreciation
Right granted in tandem with a Non-Qualified Stock Option, such Right may be
granted either at or after the time of the grant of such option. In the case of
a Stock Appreciation Right granted in tandem with an Incentive Stock Option,
such Right may be granted only at the time of the grant of the option.
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A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not covered
by the Stock Appreciation Right.
(c) Terms and Conditions of Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
shall be determined from time to time by the Committee, subject to the
following:
(i) Stock Appreciation Rights granted in tandem with Stock
Options shall be exercisable only at such time or times and
to the extent that the related Stock Options shall be
exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the
applicable portion of any related Stock Option shall be
surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock
Option shall be transferable only with such Stock Option.
Other Stock Appreciation Rights shall not be transferable
otherwise than by will or the laws of descent and
distribution. All Stock Appreciation Rights shall be
exercisable during the participant's lifetime only by the
participant or the participant's legal representative.
(iv) A Stock Appreciation Right granted in tandem with an
Incentive Stock Option may be exercised only when the market
price of the Stock subject to the Incentive Stock Option
exceeds the exercise price of such option.
(d) Discretionary Payments.
Notwithstanding that a Stock Option at the time of exercise shall not be
accompanied by a related Stock Appreciation Right, if the market price of the
shares subject to such Stock Option exceeds the exercise price of such Stock
Option at the time of its exercise, the Committee may, in its discretion, cancel
such Stock Option, in which event the Company shall pay to the person exercising
such Stock Option an amount equal to the difference between the Fair Market
Value of the Stock to have been purchased pursuant to such exercise of such
Stock Option (determined on the date the Stock Option is cancelled) and the
aggregate consideration to have been paid by such person upon such exercise.
Such payment shall be by check, bank draft or in Stock (or
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in a form of payment permitted under paragraph (e) below) having a Fair Market
Value (determined on the date the payment is to be made) equal to the amount of
such payments or any combination thereof, as determined by the Committee. The
Committee may exercise its discretion under the first sentence of this paragraph
(d) only in the event of a written request of the person exercising the option,
which request shall not be binding on the Committee.
(e) Settlement in the Form of Restricted Shares or Rights to Receive
Deferred Stock.
Subject to Sections 16(a) and 16(c) below, shares of Stock issued upon
exercise of a Stock Appreciation Right or as a Discretionary Payment shall be
free of all restrictions under the Plan, except as provided in the following
sentence. The Committee may provide at the time of grant in the case of a Stock
Appreciation Right (and at the time of payment in the case of a Discretionary
Payment) that such shares shall be in the form of shares of Restricted Stock or
rights to acquire Deferred Stock, or in the case of a Stock Appreciation Right
may reserve the right to so provide at any time after the time of grant. Any
such shares and any shares subject to rights to acquire Deferred Stock shall be
valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right or the date the Stock Option is cancelled in the case of Discretionary
Payments.
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award.
A Restricted Stock Award is an Award entitling the recipient to acquire
shares of Stock for a purchase price (which may be zero) equal to or less than
their par value, subject to such conditions, including a Company right during a
specified period or periods to repurchase such shares at their original purchase
price (or to require forfeiture of such shares, if the purchase price was zero)
upon participant's termination of employment, as the Committee may determine at
the time of grant.
(b) Award Agreement.
A participant who is granted a Restricted Stock Award shall have no rights
with respect to such Award unless the participant shall have accepted the Award
within 60 days (or such shorter date as the Committee may specify) following the
award date by making payment to the Company by certified or bank check or other
instrument acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the Award and by executing and
delivering to the Company a Restricted Stock Award Agreement in such form as the
Committee shall determine.
(c) Rights as a Shareholder.
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Upon complying with paragraph (b) above, a participant shall have all the
rights of a shareholder with respect to the Restricted Stock including voting
and dividend rights, subject to nontransferability restrictions and Company
repurchase or forfeiture rights described in this Section and subject to any
other conditions contained in the Award Agreement. Unless the Committee shall
otherwise determine, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares are free of any
restrictions under the Plan.
(d) Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of except as specifically provided herein.
In the event of termination of employment with the Company and its subsidiaries
for any reason such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero, except as set
forth below.
(i) The Committee at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of
performance goals and other conditions) on which the
nontransferability of the Restricted Stock and the obligation to
resell such shares to the Company shall lapse. The Committee at
any time may accelerate such date or dates and otherwise waive
or, subject to Section 13, amend any conditions of the Award.
(ii) Except as may otherwise be provided in the Award Agreement, in
the event of termination of employment by the Company and its
Subsidiaries for any reason (including death), a participant or
the participant's legal representative shall offer to resell to
the Company, at the price paid therefor, all Restricted Stock,
and the Company shall have the right to purchase the same at
such price, or if the price was zero to require forfeiture of
the same, provided that except as otherwise specified in the
Award Agreement, the Company must exercise such right of
repurchase or forfeiture not later than the 60th day following
such termination of employment.
(e) Waiver, Deferral and Reinvestment of Dividends.
The Restricted Stock Award Agreement may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock. Unless otherwise specified in the Award Agreement, dividends will be paid
at the same time as dividends are paid with respect to shares of Stock not
subject to restrictions under the Plan.
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(f) Unrestricted Stock.
The Committee may, in its sole discretion, grant (or sell at a purchase
price not to exceed par value per share) to any participant shares of Stock free
of restrictions under the Plan ("Unrestricted Stock"). Shares of Unrestricted
Stock may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration.
SECTION 9. DEFERRED STOCK AWARDS.
(a) Nature of Deferred Stock Award.
A Deferred Stock Award is an award entitling the recipient to acquire
shares of Stock without payment in one or more installments at a future date or
dates, all as determined by the Committee. The Committee may condition such
acquisition on the attainment of specified performance goals.
(b) Award Agreement.
A participant who is granted a Deferred Stock Award shall have no rights
with respect to a such Award unless within 60 days of the grant of such Award or
such shorter period as the Committee may specify, the participant shall have
accepted the Award by executing and delivering to the Company a Deferred Stock
Award Agreement.
(c) Restrictions on Transfer.
Deferred Stock Awards and all rights with respect to such Awards may not be
sold, assigned, transferred, pledged or otherwise encumbered. Rights with
respect to such Awards shall be exercisable during the participant's lifetime
only by the participant or the participant's legal representative.
(d) Rights as a Shareholder.
A participant receiving a Deferred Stock Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate for shares of Deferred Stock only upon satisfaction of all
conditions therefor specified in the Deferred Stock Award Agreement.
(e) Termination.
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Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Deferred Stock Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment the
Committee may in its discretion accelerate, waive, or, subject to Section 13,
amend any or all of the restrictions or conditions imposed under any Deferred
Stock Award.
(g) Payments in Respect of Deferred Stock.
Without limiting the right of the Committee to specify different terms, the
Deferred Stock Award Agreement may either make no provisions for, or may require
or permit the immediate payment, deferral or investment of amounts equal to, or
less than, any cash dividends which would have been payable on the Deferred
Stock had such Stock been outstanding, all as determined by the Committee in its
sole discretion.
SECTION 10. PERFORMANCE UNIT AWARDS.
(a) Nature of Performance Units.
A Performance Unit Award is an award entitling the recipient to acquire
cash or shares of Stock, or a combination of cash and Stock, upon the attainment
of specified performance goals. The Committee in its sole discretion shall
determine whether and to whom Performance Unit Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Unit. Performance Units may be awarded
independently of or in connection with the granting of any other Award under the
Plan.
(b) Award Agreement.
A participant shall have no rights with respect to a Performance Unit Award
unless within 60 days of the grant of such Award or such shorter period as the
Committee may specify, the participant shall have accepted the Award by
executing and delivering to the Company a Performance Unit Award Agreement.
(c) Restrictions on Transfer.
Performance Unit Awards and all rights with respect to such Awards may not
be sold, assigned, transferred, pledged or otherwise encumbered, and if
exercisable over a
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specified period, shall be exercisable during the participant's lifetime only by
the participant or the participant's legal representative.
(d) Rights as a Shareholder.
A participant receiving a Performance Unit Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Unit Award only upon satisfaction of all conditions therefor specified in the
Performance Unit Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Performance Unit Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment by the
Company and its Subsidiaries, the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the goals,
restrictions or conditions imposed under any Performance Unit Award.
(g) Exercise.
The Committee in its sole discretion shall establish procedures to be
followed in exercising any Performance Unit, which procedures shall be set forth
in the Performance Unit Award Agreement. The Committee may at any time provide
that payment under a Performance Unit shall be made, upon satisfaction of the
applicable performance goals, without exercise by the participant. Except as
otherwise specified by the Committee, (i) a Performance Unit granted in tandem
with a Stock Option may be exercised only while the Stock Option is exercisable,
and (ii) the exercise of a Performance Unit granted in tandem with any Award
shall reduce the number of shares subject to the related Award on such basis as
is specified in the Performance Unit Award Agreement.
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS.
(a) Nature of Awards.
The Committee may grant other Awards under which Stock is or may in the
future be acquired ("Other Stock-based Awards"). Such awards may include,
without
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limitation, securities (including shares of Preferred Stock not exceeding in the
aggregate 500,000 shares) convertible into or exchangeable for shares of Stock
upon such conditions, including attainment of performance goals, as the
Committee shall determine. Subject to the purchase price limitations in
paragraph (b) below, such convertible or exchangeable securities may have such
terms and conditions as the Committee may determine at the time of grant.
However, no convertible or exchangeable debt or preferred stock shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt or
Preferred Stock to prevent a Company transaction by reason of covenants in such
debt or voting rights in such Preferred Stock.
(b) Purchase Price; Form of Payment.
The Committee may determine the consideration, if any, payable upon the
issuance or exercise of an Other Stock-based Award, subject to the following
conditions. No equity security other than Stock may be issued pursuant to an
Other Stock-based Award unless (i) issued at no cost to the recipient (or for a
purchase price not in excess of the par value of any preferred stock so issued)
or (ii) sold by the Company and the Company shall have received payment for such
equity security equal to at least 50% of its par value on the grant or issuance
date, as determined in good faith by the Committee. In addition, no shares of
Stock (whether acquired by purchase, conversion or exchange or otherwise) shall
be issued unless (i) issued at no cost to the recipient (or for a purchase price
not in excess of the par value of the Stock) or (ii) sold, converted or
exchanged by the Company, and the Company shall have received payment for such
Stock or securities so exchanged or converted equal to at least 50% of Fair
Market Value of the Stock on the grant or effective date, or the exchange or
conversion date, under the Award, as specified by the Committee. The Committee
may permit payment by certified check or bank check or other instrument
acceptable to the Committee or by surrender of other shares of Stock (excluding
shares then subject to restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions.
The Committee may determine the conditions under which an Other Stock-based
Award shall be forfeited or, in the case of an Award involving a payment by the
recipient, the conditions under which the Company may or must repurchase such
Award or related Stock. At any time the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the limitations
or conditions imposed under any Other Stock-based Award.
-16-
<PAGE>
(d) Award Agreements.
A participant shall have no rights with respect to any Other Stock-based
Award unless within 60 days after the grant of such Award (or such shorter
period as the Committee may specify) the participant shall have accepted the
Award by executing and delivering to the Company an Other Stock-based Award
Agreement.
(e) Nontransferability.
Other Stock-based Awards may not be sold, assigned, transferred, pledged or
encumbered except as may be provided in the Other Stock-based Award Agreement.
However, in no event shall any Other Stock-based Award be transferred other than
by will or by the laws of descent and distribution or be exercisable during the
participant's lifetime by other than the participant or the participant's legal
representative.
(f) Rights as a Shareholder.
A recipient of any Other Stock-based Award will have rights of a
shareholder only at the time and to the extent, if any, specified by the
Committee in the Other Stock-based Award Agreement.
(g) Deemed Dividend Payments; Deferrals.
Without limiting the right of the Committee to specify different terms at
or after grant, an Other Stock-based Award Agreement may require or permit the
immediate payment, waiver, deferral or investment of dividends or deemed
dividends payable on Stock subject to the Award.
(h) Supplemental Grants.
The Company may in its sole discretion make a loan to the recipient of an
Award hereunder, either on or after the date of grant of such Award. Such loans
may be made either in connection with the exercise of a Stock Option, a Stock
Appreciation Right, or an Other Stock-based Award, in connection with the
purchase of shares under any Award, or in connection with the payment of any
federal income tax in respect of income recognized under an Award. The Committee
shall have full authority to decide whether to make a loan hereunder and to
determine the amount, term and provisions of any such loan, including the
interest rate (which may be zero) charged in respect of any such loan, whether
the loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall
-17-
<PAGE>
have a term (including extensions) exceeding ten years in duration or be in an
amount exceeding the total exercise or purchase price paid by the borrower under
an Award under the Plan plus an amount equal to the cash payment permitted in
the following paragraph.
The Committee may at any time authorize a cash payment, in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award, which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
ordinary income recognized by the recipient under both the Award and such cash
payment, in each case assuming that such income is taxed at the regular maximum
marginal rate applicable to individuals under the Code as in effect at the time
such income is includable in the recipient's income. Subject to the foregoing,
the Committee shall have complete authority to decide whether to make such cash
payments in any case, to make provision for such payments either simultaneously
with or after the grant of the associated Award, and to determine the amount of
each such payment.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
reemployment is guaranteed either by a statute or by contract or under
the policy pursuant to which the leave of absence was granted or if
the Committee otherwise so provides in writing.
For purposes of the Plan, the employees of a Subsidiary of the Company shall be
deemed to have terminated their employment on the date on which such Subsidiary
ceases to be a Subsidiary of the Company.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent.
-18-
<PAGE>
However, no such amendment, unless approved by stockholders, shall be effective
if it would cause the Plan to fail to satisfy the incentive stock option
requirements of the Code as in effect on the date of such amendment.
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS.
As used herein, a Change of Control and related definitions shall have the
meanings set forth in Exhibit A to this Plan.
Upon the occurrence of a Change of Control:
(a) Each Stock Option and Stock Appreciation Right shall automatically
become fully exercisable unless the Committee shall otherwise
expressly provide at the time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Units and Other Stock-based Awards shall automatically be
deemed waived only if and to the extent, if any, specified (whether at
or after time of grant) by the Committee.
The Committee may at any time prior to or after a Change of Control accelerate
the exercisability of any Stock Options and Stock Appreciation Rights and may
waive restrictions, limitations and conditions on Restricted Stock, Deferred
Stock, Performance Units and Other Stock-based Awards to the extent it shall in
its sole discretion determine.
SECTION 16. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements, etc.
The Committee may require each person acquiring shares pursuant to an Award
to represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
-19-
<PAGE>
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan does not confer upon any employee any right to continued employment with
the Company or a Subsidiary, nor does it interfere in any way with the right of
the Company or a Subsidiary to terminate the employment of any of its employees
at any time.
(c) Tax Withholding, etc.
Each participant shall, no later than the date as of which the value of an
Award or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
The Committee may provide, in respect of any transfer of Stock or Preferred
Stock under an Award, that if and to the extent withholding of any Federal,
state or local tax is required in respect of such transfer, the participant may
elect, at such time and in such manner as the Committee shall prescribe, to have
the Company hold back from the transfer Stock (or Preferred Stock) having a
value calculated to satisfy such withholding obligation.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board of the Company on May 30, 1997 and
approved by the stockholders of Waban Inc. on ____________, 1997 and by Waban
Inc. as the sole stockholder of the Company on _____________, 1997. The
effective date of the Plan is the Distribution Date.
-20-
<PAGE>
EXHIBIT A
---------
Definition of "Change of Control"
--------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature that would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") or in any other filing under the Exchange Act; provided,
--------
however, that no transaction shall be deemed to be a Change of Control as to a
- -------
Participant (i) if the person or each member of a group of persons acquiring
control is excluded from the definition of the term "Person" hereunder or (ii)
unless the Committee shall otherwise determine prior to such occurrence, if the
Participant or a Participant Related Party is the Person or a member of a group
constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly owned subsidiary of the
Company, or any employee benefit plan of the Company or such a subsidiary
becomes the owner of 20% or more of the Company's Common Stock and thereafter
individuals who were not directors of the Company prior to the date such Person
became a 20% owner are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person and
constitute at least 1/4 of the Company's Board of Directors; provided, however,
-------- -------
that unless the Committee shall otherwise determine prior to the acquisition of
such 20% ownership, such acquisition of ownership shall not constitute a Change
of Control as to a Participant if the Participant or a Participant Related Party
is the Person or a member of a group constituting the Person acquiring such
ownership; or
(c) there occurs any solicitation or series of solicitations of proxies by
or on behalf of any Person other than the Company's Board of Directors and
thereafter individuals who were not directors of the Company prior to the
commencement of such solicitation or series of solicitations are elected as
directors pursuant to an arrangement or understanding with, or upon the request
of or nomination by, such Person and constitute at least 1/4 of the Company's
Board of Directors; or
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date provided for
in such agreement, all or substantially all of the business and/or assets of the
Company shall be owned, leased or otherwise controlled by another Person and
(ii) individuals who are directors of the Company when such agreement is
executed shall not constitute a majority of the board of directors of the
survivor or successor entity immediately after the effective date provided for
in such agreement; provided, however, that unless otherwise determined by the
-------- -------
Committee, no transaction shall constitute a Change of Control as to a
Participant if, immediately after such transaction, the Participant or any
A-1
<PAGE>
Participant Related Party shall own equity securities of any surviving
corporation ("Surviving Entity") having a fair value as a percentage of the fair
value of the equity securities of such Surviving Entity greater than 125% of the
fair value of the equity securities of the Company owned by the Participant and
any Participant Related Party immediately prior to such transaction, expressed
as a percentage of the fair value of all equity securities of the Company
immediately prior to such transaction (for purposes of this paragraph ownership
of equity securities shall be determined in the same manner as ownership of
Common Stock); and provided, further, that, for purposes of this paragraph (d),
-------- -------
if such agreement requires as a condition precedent approval by the Company's
shareholders of the agreement or transaction, a Change of Control shall not be
deemed to have taken place unless and until such approval is secured (but upon
any such approval, a Change of Control shall be deemed to have occurred on the
date of execution of such agreement).
In addition, for purposes of this Exhibit A the following terms have the
meanings set forth below:
"Common Stock" shall mean the then-outstanding Common Stock of the Company
plus, for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise. Notwithstanding the foregoing, the term Common Stock shall
not include shares of Preferred Stock or convertible debt or options or warrants
to acquire shares of Common Stock (including any shares of Common Stock issued
or issuable upon the conversion or exercise thereof) to the extent that the
Board of Directors of the Company shall expressly so determine in any future
transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as such
term is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, as in effect on March
1, 1989; or
(ii) of which such Person would be the "beneficial owner" for
purposes of Section 16 of the Exchange Act and the rules of the Commission
promulgated thereunder, as in effect on March 1, 1989; or
(iii) which such Person or any of its affiliates or associates (as
such terms are defined in Rule 12b-2 promulgated by the Commission under
the Exchange Act, as in effect on March 1, 1989) has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or
otherwise.
A-2
<PAGE>
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on March 1, 1989; provided, however, that the term "Person" shall
not include (a) any individuals who are descendants of Max Feldberg or Morris
Feldberg, (b) any relatives of the fourth degree of consanguinity or closer of
such descendants or (c) custodians, trustees or legal representatives of such
persons.
A "Participant Related Party" shall mean, with respect to a Participant,
any affiliate or associate of the Participant other than the Company or a
Subsidiary of the Company. The terms "affiliate" and "associate" shall have the
meanings ascribed thereto in Rule 12b-2 under the Exchange Act (the term
"registrant" in the definition of "associate" meaning, in this case, the
Company).
"Participant" means a participant in the Plan.
A-3
<PAGE>
EXHIBIT 10.11
-------------
BJ'S WHOLESALE CLUB, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of BJ's
Wholesale Club, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of BJ's Wholesale Club, Inc. as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered
------------------------------------
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to
<PAGE>
Awards and the maximum number of shares for any one Participant to be made by
such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). The Board shall
appoint one such Committee of not less than two members, each member of which
shall be an "outside director" within the meaning of Section 162(m) of the Code
and a "non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
----------------
be made under the Plan for up to the sum of (i) 1,000,000 shares of common
stock, $0.01 par value per share, of the Company (the "Common Stock") plus (ii)
such additional number of shares of Common Stock (up to 2,000,000) as is equal
to the sum of (x) the number of shares which remain available for grant under
the Company's 1997 Replacement Stock Incentive Plan (the "Replacement Plan")
upon its expiration and (y) the number of shares subject to awards granted under
the Replacement Plan which are not actually issued pursuant to such awards
because such awards expire or are terminated, surrendered or cancelled without
having been fully exercised or are forfeited in whole or in part or otherwise
result in any Common Stock not being issued. If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 500,000 per calendar year. The per-
participant limit described in this Section 4(b) shall be construed and applied
consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any
-2-
<PAGE>
distribution to holders of Common Stock other than a normal cash dividend, (i)
the number and class of securities available under this Plan, (ii) the number
and class of security and exercise price per share subject to each outstanding
Option, (iii) the repurchase price per security subject to each outstanding
Restricted Stock Award, and (iv) the terms of each other outstanding stock-based
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(c) applies and Section 8(e)(1) and/or Section 8(e)(2) also applies to
any event, then Section 8(e)(2) or Section 8(e)(1) (in that order) shall be
applicable to such event, and this Section 4(c) shall not be applicable.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement;
provided, however, that no Option shall be granted at an exercise price of less
than 100% of fair market value on the date of grant.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however that no Option will be granted
for a term in excess of ten years.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
-3-
<PAGE>
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option Agreement,
by (i) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price or
(iii) delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(3) to the extent permitted by the Board and explicitly provided in
an Option Agreement (i) by delivery of a promissory note of the Participant to
the Company on terms determined by the Board or (ii) by payment of such other
lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
-4-
<PAGE>
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events; Change of Control Events
--------------------------------------------
(1) Consequences of Acquisition Events. Subject to Section 8(e)(2),
-----------------------------------
upon the occurrence of an Acquisition Event (as defined below), or the execution
by the Company of any agreement with respect to an Acquisition Event, the Board
shall take any one or more of the following actions with respect to then
outstanding Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii) upon written
notice to the Participants, provide that all then unexercised Options will
become
-5-
<PAGE>
exercisable in full as of a specified time (the "Acceleration Time") prior to
the Acquisition Event and will terminate immediately prior to the consummation
of such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted Stock
Awards then outstanding shall become free of all restrictions prior to the
consummation of the Acquisition Event; and (v) provide that any other stock-
based Awards outstanding (A) shall become exercisable, realizable or vested in
full, or shall be free of all conditions or restrictions, as applicable to each
such Award, prior to the consummation of the Acquisition Event, or (B), if
applicable, shall be assumed, or equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
(2) Consequences of Change of Control Events. Except to the extent
----------------------------------------
otherwise provided in the instrument evidencing an Award or in any other
agreement between a Participant and the Company, (i) upon the occurrence of a
Change of Control Event, all Options and stock appreciation rights then
outstanding shall automatically become immediately exercisable in full and (ii)
the restrictions and conditions on all other Awards then outstanding shall
automatically be deemed waived only if and to the extent, if any, specified
(whether at the time of grant or otherwise) by the Board.
A "Change of Control Event" shall have the meaning set forth on Annex
A hereto.
(3) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The
-6-
<PAGE>
substitute Awards shall be granted on such terms and conditions as the Board
considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or
-7-
<PAGE>
otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan.
-------------------------------
(1) The Plan was adopted by the Board on May 30, 1997 and approved by
the stockholders of Waban Inc. on ______________, 1997 and by Waban Inc. as the
sole stockholder of the Company on _______________, 1997. The Plan shall become
effective on the date on which Waban Inc. completes the spin-off of the Company
by distributing to the stockholders of Waban Inc., on a pro rata basis, in a
tax-free distribution, all of the then outstanding shares of Common Stock of the
Company (the "Distribution Date").
(2) No Awards shall be granted under the Plan after the completion of
ten years from the Distribution Date, but Awards previously granted may extend
beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
-8-
<PAGE>
ANNEX A
DEFINITION OF CHANGE OF CONTROL EVENT
-------------------------------------
For the purpose of the Plan, a "Change of Control Event" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"))(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of
-9-
<PAGE>
the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
-10-
<PAGE>
EXHIBIT 10.12
BJ'S WHOLESALE CLUB, INC.
GENERAL DEFERRED COMPENSATION PLAN
1. Purpose
-------
The purpose of the BJ's Wholesale Club, Inc. General Deferred Compensation
Plan is to provide a means for selected participants to defer the payment
of compensation.
2. Definitions
-----------
a) "Company" shall mean BJ's Wholesale Club, Inc. and its subsidiaries,
except that as used in Exhibit A the term "Company" shall mean BJ's
---------
Wholesale Club, Inc. As used in the preceding sentence and in
Exhibit A, "subsidiary" means any corporation or other entity 50% or
---------
more of the total combined voting power of all classes of stock or
other interests of which are owned, directly or indirectly, by BJ's
Wholesale Club, Inc.
b) "Deferral Period" shall mean the period of time commencing on the date
a Participant makes an election to defer Eligible Compensation pursuant
to Section 4 and ending on the date on which payment of such Deferred
Compensation commences.
c) "Deferred Compensation" shall mean "Eligible Compensation," the payment
of which has been deferred by a "Participant."
d) "E.C.C." shall mean the Executive Compensation Committee of the Board
of Directors of BJ's Wholesale Club, Inc.
e) "Effective Date" shall mean the date on which Waban Inc. completes the
spin-off of the Company by distributing to Waban's stockholders on a
pro rata basis all of the outstanding shares of Common Stock of the
Company held by Waban Inc.
f) "Eligible Compensation" shall mean (i) any base salary payable, (ii)
any cash bonus payable pursuant to an annual or long-term incentive
plan of the Company, (iii) any annual retainer and/or meeting fees
payable to directors of BJ's Wholesale Club, Inc., and (iv) subject to
such exceptions as the E.C.C. may provide, other cash compensation
payable to a "Participant."
<PAGE>
g) "Eligible Participant" shall mean (i) an employee of the Company who
has been selected by the E.C.C. as eligible to defer compensation or
(ii) a director of the Company.
h) "Fiscal Year" shall mean the period ending on the last Saturday in
January, and commencing on (i) the Sunday following the last Saturday
in January of the preceding calendar year or (ii) with respect to the
fiscal year in which the Effective Date occurs, such Effective Date.
The First Quarter commences on the Sunday following the last Saturday
in January of the preceding calendar year and includes the first
through thirteenth week of a Fiscal Year; the Second Quarter includes
the fourteenth through twenty-sixth week of a Fiscal Year; the Third
Quarter includes the twenty-seventh through thirty-ninth week of a
Fiscal Year; the Fourth Quarter includes the fortieth through fifty-
second or fifty-third week of a Fiscal Year. Said Four Quarters are the
Fiscal Quarters of a Fiscal Year. If the Fiscal Year does not begin on
the Sunday following the last Saturday in January, then the Fiscal
Quarters shall include the balance of the Fiscal Quarter in which the
Effective Date occurs and the remaining Fiscal Quarters in such Fiscal
Year.
i) "Interest Rate" for a Fiscal Year shall mean a rate equal to the yield
as quoted in the Wall Street Journal on the first Monday of each Fiscal
Month upon the issue of United States Treasury Notes which have a
period remaining to maturity of not less than, but closest to, ten
years after the first day of such Fiscal Month, averaged over the
previous 12 months, or if there is no such quote, the E.C.C. shall
determine a rate of interest which is consistent with the foregoing.
j) "Participant" shall mean an Eligible Participant who has elected to
defer compensation in accordance with the Plan.
k) "Plan" shall mean this BJ's Wholesale Club, Inc. General Deferred
Compensation Plan as it may be amended from time to time.
l) "Termination Date" shall mean (i) in the case of an employee, the date
of severance of a Participant's employment with the Company, whether by
death, disability, retirement, resignation, discharge, or otherwise or
(ii) in the case of a director, the date the individual ceases to be a
director of the Company.
-2-
<PAGE>
3. Administration
--------------
This Plan shall be administered by the E.C.C. which, in addition to the
authority, power, and duty expressly set forth in the Plan, shall have the
authority, power, and duty, subject to the provisions of the Plan, to (A)
make rules and regulations for the deferral of compensation, the
designation of beneficiaries, and the payment of Deferred Compensation, (B)
interpret the Plan, and (C) make any other determinations that it believes
necessary or advisable for the administration of the Plan. Decisions and
determinations made by the E.C.C. shall be final and binding upon all
persons.
4. Deferral of Compensation
------------------------
A. Election to Defer
-----------------
Each Eligible Participant may make any election to defer receipt of all
or any part of payment of Eligible Compensation, pursuant to the rules
and regulations established by the E.C.C. for deferral.
At the time of making an election to defer, each Participant shall
elect (i) the specific date or event, before or after the Participant's
Termination Date, following which the first payment of any Deferred
Compensation and interest thereon will be made, and (ii) whether
payment(s) shall be made in a lump sum or in designated monthly
installments, not to exceed 120 months. If the Participant fails to
designate the payment period and/or schedule for payment with respect
to any Deferred Compensation, the payment of said Deferred Compensation
and interest thereon will be made in 120 monthly installments,
commencing as soon as reasonably practicable after the Participant's
Termination Date.
B. Notice of Election to Defer
---------------------------
Each Participant shall, within the time limits specified in paragraph C
below, notify the Company in writing on forms provided by the Company
of an election to defer the receipt of all or any part of payment of
Eligible Compensation. Each such notice shall state:
(1) the amount or percentage of the Eligible Compensation to be
deferred;
(2) the date on which, or the event following which, payment of said
Deferred Compensation is to commence;
-3-
<PAGE>
(3) the payment period, including number of months and schedule
elected for payment;
(4) the Beneficiary(ies), if any, with respect to said Deferred
Compensation (see Section 7(C) below).
For purposes of (1) above, the E.C.C. may specify a minimum amount or
percentage of deferral.
For purposes of (2) above, the E.C.C. may specify a minimum period of
deferral.
C. Time of Notice of Election to Defer
-----------------------------------
The Participant's written notice of election to defer all or any part
of Eligible Compensation must be received by the Company within the
following time limits:
Type of Compensation Notice Required
-------------------- ---------------
Base Salary For all or any part of base salary to be
earned in a Fiscal Quarter, the election
shall be filed with the E.C.C. prior to the
close of the immediately preceding Fiscal
Quarter.
Annual Incentive For all or any part of any cash bonus to be
earned in a Fiscal Year pursuant to an
annual incentive plan, the election shall
be filed with the E.C.C. prior to the close
of the Third Quarter of the Fiscal Year to
which such election relates.
Long-Term Incentive For all or any part of any cash bonus to be
earned in a multi-year award period
pursuant to a long-term incentive plan, the
election shall be filed with the E.C.C.
prior to the January 1st immediately
preceding the last Fiscal Year of the
applicable award period to which such
election relates.
Annual Retainer and/or For all or any part of directors' annual
Meeting Fees retainer and/or meeting fees to be earned
in a Fiscal Quarter, the election(s) shall
be filed with
-4-
<PAGE>
the E.C.C. prior to the close of the
immediately preceding Fiscal Quarter.
D. Revocation of Election
----------------------
(1) Within Eligible Time Periods for Filing Election. A Participant
------------------------------------------------
may revoke or modify an election to defer any compensation duly
made provided that notice of the same is filed with the E.C.C.
prior to the last day stated above for making an election to defer
such compensation.
(2) Hardships and Unusual Circumstances. In the case of hardship or
-----------------------------------
unusual circumstance, the E.C.C., in its sole discretion, may
modify any election previously made to defer any compensation
pursuant to this Section 4, if such modification shall be
requested by said Participant, or after the Participant's death,
by his designated Beneficiary or his estate, as the case may be.
5. Establishment of Deferred Account
---------------------------------
The Company shall establish and maintain a separate Deferred Account for
each deferral made by a Participant, except that a single aggregated
Deferred Account may be maintained for all deferrals by a Participant
having identical payout periods.
Each Deferred Account of a Participant shall consist of an amount of money
credited to such account by reason of the Participant's election to defer
Eligible Compensation, as follows:
(1) Principal
---------
The Participant's Deferred Account shall be credited with the amount of
such Eligible Compensation as the Participant shall elect to defer as of
the date on which it would be payable but for said deferral.
(2) Interest
--------
On the last day of each Fiscal Quarter of each Fiscal Year, the
Participant's Deferred Account shall be credited with interest computed on
the average monthly balance of said account during the Fiscal Quarter at
the Interest Rate designated for the Fiscal Year.
-5-
<PAGE>
After the close of each Fiscal Year, the Company shall deliver to each
Participant a written report summarizing the balance of the Participant's
Deferred Account(s) as of the last day of the Fiscal Year.
6. Payment of Deferred Compensation
--------------------------------
A. Amount of Payment
-----------------
Unless the Participant has selected a lump sum payment or some other
payment schedule or formula which has been approved by the E.C.C., the
amount to be paid to a Participant in any month during the payout
period specified in the Participant's election shall be paid in cash
and computed by multiplying the amount credited to the Deferred Account
by a fraction, the numerator of which is one and the denominator of
which is the number of months remaining in the applicable payment
period.
B. Time of Payment
---------------
(1) Distribution While Actively Employed. In the case in which a
------------------------------------
Participant elects to receive payment on a specified date or event and
the Participant is actively employed by the Company at such date or
event, all payments shall be made in accordance with the election(s)
filed with the Company.
(2) Distribution Upon Termination Date. The entire amount, if any,
----------------------------------
then credited to each Deferred Account of a Participant shall be paid
to him or his designated Beneficiary or his estate, as the case may be,
in accordance with the election(s) filed by the Participant with the
Company.
-6-
<PAGE>
7. General Provisions
------------------
A. Assignment
----------
No Participant's interest in any Deferred Account is assignable,
either by voluntary or involuntary assignment or by operation of law.
No part of any Deferred Compensation may be paid over, loaned, sold,
assigned, transferred, discontinued, pledged as collateral for a loan,
or in any other way encumbered until after the Deferral Period with
respect to such Deferred Compensation.
B. Unsegregated Funds
------------------
The Company shall be under no obligation to segregate any deferred
funds, and an election to defer Eligible Compensation hereunder shall
constitute an acknowledgement and agreement by the Participant that
such unsegregated funds belong absolutely and unconditionally to the
Company and are subject to the claims of the Company's unsecured
general creditors. Nothing herein contained shall be construed as
creating any trust, express or implied, for the benefit of any
Participant. Notwithstanding the foregoing, the Company in its
discretion may establish and fund a so-called "rabbi trust" or similar
grantor trust to provide for the payment of benefits hereunder.
C. Designation of Beneficiary
--------------------------
Subject to applicable law, each Participant may designate a
Beneficiary(ies) to receive payments to be made of Deferred
Compensation, if any, after the Participant's death. In the absence of
such designation, all such amounts shall be paid to the Participant's
estate. The designation shall be made on a form to be supplied by the
E.C.C. and may be revoked or superseded at any time. Payments to a
Beneficiary(ies) shall be made in accordance with a schedule
designated by the Participant.
D. Reservation of Rights
---------------------
-7-
<PAGE>
Nothing in this Plan shall be construed to (i) give any employee any
right to defer compensation other than as expressly authorized and
permitted by the E.C.C., (ii) limit in any way the right of the
Company to terminate a Participant's employment with the Company, or
(iii) be evidence of any agreement or understanding, express or
implied, that the Company will employ a Participant at any particular
rate of remuneration.
E. Amendment or Termination of the Plan
------------------------------------
The Board of Directors may, at any time, terminate or amend this Plan
provided that any such termination or amendment shall not adversely
affect the rights of Participants or Beneficiaries to payments of
amounts standing to the credit of Participants in their Deferred
Accounts at the time of such amendment or termination. In the event of
termination of this Plan, the E.C.C., in its sole discretion, may
establish classes of Participants and/or beneficiaries and apply
different payment rules to such classes and distribute all amounts in
the Deferred Accounts in such manner as it shall determine.
F. Withholding
-----------
The Company shall have the right to deduct or withhold from all
payments of Deferred Compensation any taxes or levies required by law
to be withheld from an employee with respect to such payments.
G. Change in Employment or Law
---------------------------
The E.C.C. may, in its sole discretion, make appropriate adjustments
with respect to the terms of the Plan and its applicability to
Participants, including termination of individual deferral agreements
or dilution or suspension of any provision of such agreements, in the
event (i) of a discontinuance by the Company of a Participant's
employment with the Company resulting from an event such as the
merger, sale or consolidation of the Company, or (ii) any of the
anticipated benefits of deferral pursuant to this Plan or any
provision hereof are altered by reason of any interpretation of or
change in law, policy or regulation.
H. Effective Date
--------------
This Plan shall become effective on the date on which Waban Inc.
completes the spin-off of the Company by distributing to the
stockholders of Waban Inc. on a pro rata basis all of the then
outstanding shares of Common Stock of the Company.
I. Change of Control
-----------------
-8-
<PAGE>
Notwithstanding any other provision of the Plan, upon a Change of
Control (as defined in Exhibit A) of the Company no further deferrals
---------
under Section 4 (whether elected prior to the Change of Control or
not) shall be permitted; the entire amount then credited to each
Deferred Account of each Participant shall promptly be paid to such
Participant (or his designated Beneficiary or his estate) in a lump
sum payment; and the Plan shall terminate.
J. Named Fiduciary
---------------
The E.C.C. shall serve as the Named Fiduciary of the Plan. With
respect to any claim for benefits made under the Plan, the E.C.C.
shall follow the claims and review procedure set forth in any savings
plan maintained by the Company which is subject to the requirements of
the Employee Retirement Income Security Act of 1974, as amended;
provided that the E.C.C. may designate one of its members to review
initial claims for benefits, but the full membership of the E.C.C.
shall review any denied claim when requested to do so by the claimant
in accordance with the procedure.
-9-
<PAGE>
EXHIBIT A
---------
Definition of "Change of Control"
--------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
<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
May 29, 1997
<PAGE>
EXHIBIT 4A.5
WABAN INC.
Number N_________________ Shares _________________
[GRAPHIC APPEARS HERE]
CUSIP 929394 10 4
Incorporated This Certificate
under the Laws of is Transferable in
the State of Delaware New York, New York
See reverse for certain definitions
This Certifies that ___________________
is the owner of ____________________
fully paid and non-assessable shares of the par value of one cent ($.01) each,
of the common stock of Waban Inc. (herein called the "Corporation") transferable
upon the books of the Corporation in person or by attorney upon surrender of
this certificate duly endorsed or assigned. This certificate and the shares
represented hereby are subject to the laws of the State of Delaware, and to the
Certificate of Incorporation and the By-laws of the Corporation, as amended from
time to time (copies of which are on file with the Transfer Agent). This
certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
In Witness Whereof, Waban Inc. has caused its facsimile corporate seal and the
facsimile signatures of its duly authorized officers to be hereunto affixed.
Dated: ____________________
[SEAL] /s/ Lorne R. Waxlax
CHAIRMAN OF THE BOARD
/s/ Arthur T. Silk, Jr. /s/ Herbert J. Zarkin
TREASURER PRESIDENT
Countersigned and Registered:
First Chicago Trust Company of New York
Transfer Agent and Registrar
By:
Authorized Signature
<PAGE>
WABAN INC.
The Corporation will furnish without charge to each stockholder who so
requests the 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.
Requests may be directed to Waban Inc., One Mercer Road, Natick, Massachusetts
01760, or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT -- ____Custodian____
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- --------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ________________ Attorney to transfer the
said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated ___________________________________
---------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
<PAGE>
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Rights Agreement between Waban Inc. and First Chicago Trust
Company of New York, dated as of May 23, 1989 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of Waban Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. Waban Inc. will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a written request therefor.
As described in the Rights Agreement, Rights issued to or held by any Person who
becomes an Acquiring Person (as defined in the Rights Agreement) shall become
null and void.
<PAGE>
EXHIBIT 23A.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion 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 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, which report is included in
the Annual Report on Form 10-K. We also consent to the reference to our firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 29, 1997
<PAGE>
EXHIBIT 99A.2
WABAN INC.
1989 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the Waban Inc. 1989 Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to secure for Waban Inc. (the "Company") and
its stockholders the benefit of the incentives inherent in Common Stock
ownership and the receipt of incentive awards by selected key employees of the
Company and its Subsidiaries who contribute to and will be responsible for its
continued long term growth. The Plan is intended to stimulate the efforts of
such key employees by providing an opportunity for capital appreciation and
giving suitable recognition for services which contribute materially to the
success of the Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Award" or "Awards" except where referring to a particular category of
grant under the Plan shall include Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance
Unit Awards and Other Stock-based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly harmful to
the business or reputation of the Company or any Subsidiary.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
(f) "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee
shall be exercised by the Board.
(g) "Deferred Stock Award" is defined in Section 9(a).
<PAGE>
(h) "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's
long term disability program.
(i) "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the
New York Stock Exchange Composite Transactions Index or, where
applicable, the value of a share of Stock as determined by the
Committee in accordance with the applicable provisions of the Code.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.
(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(l) "Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the normal retirement date
specified in the Waban Inc. Retirement Plan.
(m) "Other Stock-based Award" is defined in Section 11(a).
(n) "Performance Unit Award" is defined in Section 10(a).
(o) "Restricted Stock Award" is defined in Section 8(a).
(p) "Stock" means the Common Stock, $.01 par value, of the Company,
subject to adjustments pursuant to Section 3.
(q) "Stock Appreciation Right" means a right described in Section 7(a) and
granted, either independently of other Awards or in tandem with the
grant of a Stock Option.
(r) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
(s) "Subsidiary" means any corporation or other entity (other than the
Company) 50% or more of the total combined voting power of all classes
of stock or other interests of which is owned, directly or indirectly,
by the Company.
(t) "Unrestricted Stock Award" is defined in Section 8(b).
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<PAGE>
SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS,
ETC.
The Plan shall be administered by a Committee of not less than two members,
who shall be appointed by the Board and who shall serve at the pleasure of the
Board.
The Committee shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:
(i) to select the officers and other key employees of the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Unrestricted Stock, Deferred
Stock, Performance Units and any Other Stock-based Awards, or any
combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares to be covered by any Award
(subject, however, to the per participant limitation contained in
Section 3(a));
(iv) to determine the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms
and conditions may differ among individual Awards and participants;
(v) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant
and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(vi) to adopt, alter and repeal such rules, guidelines and practices for
administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the
Plan and any Award (including related Award Agreements); to make all
determinations it deems advisable for the administration of the Plan;
to decide all disputes arising in connection with the Plan; and to
otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
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<PAGE>
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) Shares Issuable; Per Participant Limit.
The maximum number of shares of Stock reserved and available for issuance
under the Plan shall be 7,250,000, including shares issued in lieu of or upon
reinvestment of dividends arising from Awards. For purposes of this limitation,
Awards and Stock which are forfeited, reacquired by the Company or satisfied
without the issuance of Stock shall not be counted and such limitation shall
apply only to shares which have become free of any restrictions under the Plan.
Subject to such overall limitation, shares may be issued up to such maximum
pursuant to any type or types of Award, including Incentive Stock Options.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company. Subject to adjustment as provided in Section 3(b)
below, the maximum number of shares of Stock with respect to which Stock Options
and Stock Appreciation Rights may be granted to any employee under the Plan
shall not exceed the greater of (i) 250,000 shares of Stock during any one
calendar year or (ii) 700,000 shares of Stock during the calendar year in which
the Company completes the spin-off (the "Spin-Off") of BJ's Wholesale Club, Inc.
("BJI") by distributing to the Company's stockholders, on a pro rata basis, all
of the outstanding shares of common stock of BJI. For purposes of calculating
such maximum number, (i) each Stock Option and Stock Appreciation Right shall
continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration, (ii) the repricing of an outstanding Stock Option or
Stock Appreciation Right or the issuance of a new Stock Option or Stock
Appreciation Right in substitution for a cancelled Stock Option or Stock
Appreciation Right shall be deemed to constitute the grant of a new additional
Stock Option or Stock Appreciation Right separate from the original grant of the
Stock Option or Stock Appreciation Right that is repriced or cancelled and (iii)
a Stock Appreciation Right that is granted in tandem with a Stock Option shall
not be included.
(b) Stock Dividends, Mergers, etc.
In the event of a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities on which
Awards may thereafter be granted, (ii) the number and kind of shares remaining
subject to outstanding Awards, and (iii) the option or purchase price in respect
of such shares. In the event of any merger, consolidation, dissolution or
liquidation of the Company, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate number
of shares reserved for issuance under the Plan and in the number and purchase
price (if any) of shares subject to such Awards as it may determine, or
accelerate, amend or terminate such Awards upon such terms and conditions as it
shall provide (which, in the case of the termination of the vested portion of
any Award, shall require payment or other consideration which the Committee
deems equitable in the circumstances), subject, however, to the provisions of
Section 15.
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<PAGE>
(c) Substitute Awards.
The Company may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company or a Subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Committee may direct that the substitute Awards be
granted on such terms and conditions as the Committee considers appropriate in
the circumstances.
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part time officers and other
key employees of the Company and its Subsidiaries (excluding any director who is
not an employee) who are responsible for or contribute to the management, growth
or profitability of the Company and its Subsidiaries and who are selected from
time to time by the Committee, in its sole discretion. Persons who are not
employees of the Company or a subsidiary (within the meaning of Section 422 of
the Code) shall not be eligible to receive grants of Incentive Stock Options.
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS.
(a) Duration of Awards.
Subject to Sections 16(a) and 16(c) below, no restrictions or limitations
on Awards shall extend beyond 10 years (or 10 years and one day in the case of
Non-Qualified Stock Options) from the grant date, except that deferrals elected
by participants of the receipt of Stock or other benefits under the Plan may
extend beyond such date.
(b) Latest Grant Date.
No Award shall be granted after the earlier to occur of (i) June 14, 1999
(i.e., the tenth anniversary of the effective date of the Plan) or (ii) six
months after the date on which the Company completes the Spin-Off; provided,
that then-outstanding Awards may extend beyond such date.
SECTION 6. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
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<PAGE>
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted to the Committee under the Plan be
so exercised, so as to disqualify the Plan or, without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price.
The option price per share of Stock purchasable under a Stock Option shall
be determined by the Committee at the time of grant but shall be not less than
100% of Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the option price shall be not less
than 110% of Fair Market Value on the grant date.
(b) Option Term.
The term of each Stock Option shall be fixed by the Committee, but no
Incentive Stock Option shall be exercisable more than ten years after the date
the option is granted and no Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(c) Exercisability.
Stock Options shall be exercisable at such future time or times, whether or
not in installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability of all
or any portion of any Stock Option.
(d) Method of Exercise.
Stock Options may be exercised in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by certified or
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<PAGE>
bank check or other instrument acceptable to the Committee. As determined by the
Committee, in its discretion, at (or, in the case of Non-Qualified Stock
Options, after) grant, payment in full or in part may also be made either (i)
through the surrender by the optionee of shares of Stock not then subject to
restrictions under any Company plan or (ii) through the withholding by the
Company of shares of Stock which would otherwise be delivered to the optionee
upon exercise of the option. Such surrendered or withheld shares shall be valued
at Fair Market Value on the exercise date. An optionee shall have the rights of
a shareholder only as to shares acquired upon the exercise of a Stock Option and
not as to unexercised Stock Options.
Notwithstanding the foregoing paragraph, during the 60-day period following
a Change of Control as defined in Exhibit A, any optionee shall have the right
(by giving written notice to the Company in form satisfactory to the Committee)
to surrender all or part of the Stock Option to the Company and to receive a
cash payment equal to the excess of the fair market value per share of Stock on
the date of exercise over the option exercise price per share times the number
of shares subject to the surrendered Stock Option. The foregoing right shall
not apply to (i) any Stock Option as to which the Committee shall expressly
exclude such right at the date of grant, (ii) any Stock Option held by an
optionee who initiates the Change of Control or (iii) any Stock Option held by
an optionee described in any of the following provisions of the definition of
Change of Control set forth in Exhibit A: the proviso to paragraph (a) of such
definition; the proviso to paragraph (b) of such definition; or the first
proviso to paragraph (d) of such definition. For purposes of clause (iii) of
the immediately preceding sentence, whether an optionee is described in any of
the provisos specified in such clause shall be determined without regard to any
discretionary determination by the Committee pursuant to the terms of Exhibit A
hereto. As used in this paragraph with respect to an election by an optionee to
receive cash in respect of a Non-Qualified Stock Option the term "fair market
value" shall mean the higher of (x) the highest reported sales price, regular
way, of a share of the Stock on the New York Stock Exchange Composite
Transactions Index during the 60-day period prior to the Change of Control and
(y) if the Change of Control is the result of a transaction or series of
transactions described in paragraphs (a), (b) or (d) of the definition of Change
of Control set forth in Exhibit A, the highest price per share of the Stock paid
in such transaction or series of transactions (which in the case of paragraph
(b) shall be the highest price per share of the Stock as reflected in a Schedule
13D filed by the person having made the acquisition), and as used in this
paragraph with respect to an election by an optionee to receive cash in respect
of an Incentive Stock Option the term "fair market value" shall mean Fair Market
Value.
(e) Non-transferability of Options.
No Stock Option shall be transferable by the optionee otherwise then by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
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<PAGE>
(f) Termination by Death.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of death, the Stock Option may thereafter be exercised, to the extent
then exercisable (or on such accelerated basis as the Committee shall at any
time determine prior to death), by the legal representative or legatee of the
optionee, for a period of three years (or such shorter period as the Committee
shall specify at time of grant) from the date of death or until the expiration
of the stated term of the option, if earlier.
(g) Termination by Reason of Disability.
Any Stock Option held by an optionee whose employment by the Company and
its Subsidiaries has terminated, or who has been designated an inactive
employee, by reason of Disability may thereafter be exercised to the extent it
was exercisable at the time of the earlier of such termination or such
designation (or on such accelerated basis as the Committee shall at any time
determine prior to such termination or designation) for a period of three years
(or such shorter period as the Committee shall specify at time of grant) from
the date of such termination of employment or designation or until the
expiration of the stated term of the option, if earlier. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
the final year of such exercise period shall extend such period for one year
following death, subject to termination on the expiration of the stated term of
the option, if earlier. The Committee shall have the authority to determine
whether a participant has been terminated or designated an inactive employee by
reason of Disability.
(h) Termination by Reason of Normal Retirement.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of Normal Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent that it was then exercisable (or on such
accelerated basis as the Committee shall at any time determine) for a period of
three years (or such shorter period as the Committee shall specify at time of
grant) from the date of Normal Retirement or until the expiration of the stated
term of the option, if earlier. Except as otherwise provided by the Committee
at the time of grant, the death of an optionee during the final year of such
exercise period shall extend such period for one year following death, subject
to earlier termination on the expiration of the stated term of the option, if
earlier.
(i) Other Termination.
Unless otherwise determined by the Committee, if an optionee's employment
by the Company and its Subsidiaries terminates for any reason other than death,
Disability, Normal Retirement, or for Cause, any Stock Option held by such
optionee may thereafter be exercised to the extent it was exercisable on the
date of termination of employment
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<PAGE>
(or on such accelerated basis as the Committee shall determine at or after
grant) for a period of three months (or such longer period up to three years as
the Committee shall specify at or after grant) from the date of termination of
employment or until the expiration of the stated term of the option, if earlier.
If an optionee's employment terminates for Cause, the unexercised portion of any
Stock Option then held by the optionee shall immediately terminate.
(j) Form of Settlement.
Subject to Section 16(a) and Section 16(c) below, shares of Stock issued
upon exercise of a Stock Option shall be free of all restrictions under the
Plan, except as provided in the following sentence. The Committee may provide at
time of grant that the shares to be issued upon the exercise of a Stock Option
shall be in the form of Restricted Stock or Deferred Stock, or may reserve the
right to so provide after time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS.
(a) Nature of Stock Appreciation Right.
A Stock Appreciation Right is an Award entitling the recipient to receive
an amount in cash or shares of Stock (or in a form of payment permitted under
paragraph (e) below) or a combination thereof having a value equal to (or if the
Committee shall so determine at time of grant, less than) the excess of the Fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the option exercise
price, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares with respect to which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights.
Stock Appreciation Rights may be granted in tandem with, or independently
of, any Stock Option granted under the Plan. In the case of a Stock Appreciation
Right granted in tandem with a Non-Qualified Stock Option, such Right may be
granted either at or after the time of the grant of such option. In the case of
a Stock Appreciation Right granted in tandem with an Incentive Stock Option,
such Right may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option
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<PAGE>
shall not be reduced until the exercise or termination of the related Stock
Option exceeds the number of shares not covered by the Stock Appreciation Right.
(c) Terms and Conditions of Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
shall be determined from time to time by the Committee, subject to the
following:
(i) Stock Appreciation Rights granted in tandem with Stock Options shall
be exercisable only at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the applicable
portion of any related Stock Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock Option shall
be transferable only with such Stock Option. Other Stock Appreciation
Rights shall not be transferable otherwise than by will or the laws
of descent and distribution. All Stock Appreciation Rights shall be
exercisable during the participant's lifetime only by the participant
or the participant's legal representative.
(iv) A Stock Appreciation Right granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of
such option.
(d) Discretionary Payments.
Notwithstanding that a Stock Option at the time of exercise shall not be
accompanied by a related Stock Appreciation Right, if the market price of the
shares subject to such Stock Option exceeds the exercise price of such Stock
Option at the time of its exercise, the Committee may, in its discretion, cancel
such Stock Option, in which event the Company shall pay to the person exercising
such Stock Option an amount equal to the difference between the Fair Market
Value of the Stock to have been purchased pursuant to such exercise of such
Stock Option (determined on the date the Stock Option is cancelled) and the
aggregate consideration to have been paid by such person upon such exercise.
Such payment shall be by check, bank draft or in Stock (or in a form of payment
permitted under paragraph (e) below) having a Fair Market Value (determined on
the date the payment is to be made) equal to the amount of such payments or any
combination thereof, as determined by the Committee. The Committee may exercise
its discretion under the first sentence of this paragraph (d) only in the event
of a written request of the person exercising the option, which request shall
not be binding on the Committee.
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<PAGE>
(e) Settlement in the Form of Restricted Shares or Rights to Receive
Deferred Stock.
Subject to Sections 16(a) and 16(c) below, shares of Stock issued upon
exercise of a Stock Appreciation Right or as a Discretionary Payment shall be
free of all restrictions under the Plan, except as provided in the following
sentence. The Committee may provide at the time of grant in the case of a Stock
Appreciation Right (and at the time of payment in the case of a Discretionary
Payment) that such shares shall be in the form of shares of Restricted Stock or
rights to acquire Deferred Stock, or in the case of a Stock Appreciation Right
may reserve the right to so provide at any time after the time of grant. Any
such shares and any shares subject to rights to acquire Deferred Stock shall be
valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right or the date the Stock Option is cancelled in the case of Discretionary
Payments.
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award.
A Restricted Stock Award is an Award entitling the recipient to acquire
shares of Stock for a purchase price (which may be zero) equal to or less than
their par value, subject to such conditions, including a Company right during a
specified period or periods to repurchase such shares at their original purchase
price (or to require forfeiture of such shares, if the purchase price was zero)
upon participant's termination of employment, as the Committee may determine at
the time of grant.
(b) Award Agreement.
A participant who is granted a Restricted Stock Award shall have no rights
with respect to such Award unless the participant shall have accepted the Award
within 60 days (or such shorter date as the Committee may specify) following the
award date by making payment to the Company by certified or bank check or other
instrument acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the Award and by executing and
delivering to the Company a Restricted Stock Award Agreement in such form as the
Committee shall determine.
(c) Rights as a Shareholder.
Upon complying with paragraph (b) above, a participant shall have all the
rights of a shareholder with respect to the Restricted Stock including voting
and dividend rights, subject to nontransferability restrictions and Company
repurchase or forfeiture rights described in this Section and subject to any
other conditions contained in the Award Agreement. Unless the Committee shall
otherwise determine, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares are free of any
restrictions under the Plan.
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(d) Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of except as specifically provided herein.
In the event of termination of employment with the Company and its subsidiaries
for any reason such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero, except as set
forth below.
(i) The Committee at the time of grant shall specify the date or dates
(which may depend upon or be related to the attainment of performance
goals and other conditions) on which the nontransferability of the
Restricted Stock and the obligation to resell such shares to the
Company shall lapse. The Committee at any time may accelerate such
date or dates and otherwise waive or, subject to Section 13, amend any
conditions of the Award.
(ii) Except as may otherwise be provided in the Award Agreement, in the
event of termination of employment by the Company and its Subsidiaries
for any reason (including death), a participant or the participant's
legal representative shall offer to resell to the Company, at the
price paid therefor, all Restricted Stock, and the Company shall have
the right to purchase the same at such price, or if the price was zero
to require forfeiture of the same, provided that except as otherwise
specified in the Award Agreement, the Company must exercise such right
of repurchase or forfeiture not later than the 60th day following such
termination of employment.
(e) Waiver, Deferral and Reinvestment of Dividends.
The Restricted Stock Award Agreement may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock. Unless otherwise specified in the Award Agreement, dividends will be paid
at the same time as dividends are paid with respect to shares of Stock not
subject to restrictions under the Plan.
(f) Unrestricted Stock.
The Committee may, in its sole discretion, grant (or sell at a purchase
price not to exceed par value per share) to any participant shares of Stock free
of restrictions under the Plan ("Unrestricted Stock"). Shares of Unrestricted
Stock may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration.
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<PAGE>
SECTION 9. DEFERRED STOCK AWARDS.
(a) Nature of Deferred Stock Award.
A Deferred Stock Award is an award entitling the recipient to acquire
shares of Stock without payment in one or more installments at a future date or
dates, all as determined by the Committee. The Committee may condition such
acquisition on the attainment of specified performance goals.
(b) Award Agreement.
A participant who is granted a Deferred Stock Award shall have no rights
with respect to a such Award unless within 60 days of the grant of such Award or
such shorter period as the Committee may specify, the participant shall have
accepted the Award by executing and delivering to the Company a Deferred Stock
Award Agreement.
(c) Restrictions on Transfer.
Deferred Stock Awards and all rights with respect to such Awards may not be
sold, assigned, transferred, pledged or otherwise encumbered. Rights with
respect to such Awards shall be exercisable during the participant's lifetime
only by the participant or the participant's legal representative.
(d) Rights as a Shareholder.
A participant receiving a Deferred Stock Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate for shares of Deferred Stock only upon satisfaction of all
conditions therefor specified in the Deferred Stock Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Deferred Stock Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
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<PAGE>
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment the
Committee may in its discretion accelerate, waive, or, subject to Section 13,
amend any or all of the restrictions or conditions imposed under any Deferred
Stock Award.
(g) Payments in Respect of Deferred Stock.
Without limiting the right of the Committee to specify different terms, the
Deferred Stock Award Agreement may either make no provisions for, or may require
or permit the immediate payment, deferral or investment of amounts equal to, or
less than, any cash dividends which would have been payable on the Deferred
Stock had such Stock been outstanding, all as determined by the Committee in its
sole discretion.
SECTION 10. PERFORMANCE UNIT AWARDS.
(a) Nature of Performance Units.
A Performance Unit Award is an award entitling the recipient to acquire
cash or shares of Stock, or a combination of cash and Stock, upon the attainment
of specified performance goals. The Committee in its sole discretion shall
determine whether and to whom Performance Unit Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Unit. Performance Units may be awarded
independently of or in connection with the granting of any other Award under the
Plan.
(b) Award Agreement.
A participant shall have no rights with respect to a Performance Unit Award
unless within 60 days of the grant of such Award or such shorter period as the
Committee may specify, the participant shall have accepted the Award by
executing and delivering to the Company a Performance Unit Award Agreement.
(c) Restrictions on Transfer.
Performance Unit Awards and all rights with respect to such Awards may not
be sold, assigned, transferred, pledged or otherwise encumbered, and if
exercisable over a specified period, shall be exercisable during the
participant's lifetime only by the participant or the participant's legal
representative.
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<PAGE>
(d) Rights as a Shareholder.
A participant receiving a Performance Unit Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Unit Award only upon satisfaction of all conditions therefor specified in the
Performance Unit Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Performance Unit Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment by the
Company and its Subsidiaries, the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the goals,
restrictions or conditions imposed under any Performance Unit Award.
(g) Exercise.
The Committee in its sole discretion shall establish procedures to be
followed in exercising any Performance Unit, which procedures shall be set forth
in the Performance Unit Award Agreement. The Committee may at any time provide
that payment under a Performance Unit shall be made, upon satisfaction of the
applicable performance goals, without exercise by the participant. Except as
otherwise specified by the Committee, (i) a Performance Unit granted in tandem
with a Stock Option may be exercised only while the Stock Option is exercisable,
and (ii) the exercise of a Performance Unit granted in tandem with any Award
shall reduce the number of shares subject to the related Award on such basis as
is specified in the Performance Unit Award Agreement.
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS.
(a) Nature of Awards.
The Committee may grant other Awards under which Stock is or may in the
future be acquired ("Other Stock-based Awards"). Such awards may include,
without limitation, securities (including shares of Preferred Stock not
exceeding in the aggregate 500,000 shares) convertible into or exchangeable for
shares of Stock upon such conditions, including attainment of performance goals,
as the Committee shall determine.
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<PAGE>
Subject to the purchase price limitations in paragraph (b) below, such
convertible or exchangeable securities may have such terms and conditions as the
Committee may determine at the time of grant. However, no convertible or
exchangeable debt or preferred stock shall be issued unless the Committee shall
have provided (by Company right of repurchase, right to require conversion or
exchange or other means deemed appropriate by the Committee) a means of avoiding
any right of the holders of such debt or Preferred Stock to prevent a Company
transaction by reason of covenants in such debt or voting rights in such
Preferred Stock.
(b) Purchase Price; Form of Payment.
The Committee may determine the consideration, if any, payable upon the
issuance or exercise of an Other Stock-based Award, subject to the following
conditions. No equity security other than Stock may be issued pursuant to an
Other Stock-based Award unless (i) issued at no cost to the recipient (or for a
purchase price not in excess of the par value of any preferred stock so issued)
or (ii) sold by the Company and the Company shall have received payment for such
equity security equal to at least 50% of its par value on the grant or issuance
date, as determined in good faith by the Committee. In addition, no shares of
Stock (whether acquired by purchase, conversion or exchange or otherwise) shall
be issued unless (i) issued at no cost to the recipient (or for a purchase price
not in excess of the par value of the Stock) or (ii) sold, converted or
exchanged by the Company, and the Company shall have received payment for such
Stock or securities so exchanged or converted equal to at least 50% of Fair
Market Value of the Stock on the grant or effective date, or the exchange or
conversion date, under the Award, as specified by the Committee. The Committee
may permit payment by certified check or bank check or other instrument
acceptable to the Committee or by surrender of other shares of Stock (excluding
shares then subject to restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions.
The Committee may determine the conditions under which an Other Stock-based
Award shall be forfeited or, in the case of an Award involving a payment by the
recipient, the conditions under which the Company may or must repurchase such
Award or related Stock. At any time the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the limitations
or conditions imposed under any Other Stock-based Award.
(d) Award Agreements.
A participant shall have no rights with respect to any Other Stock-based
Award unless within 60 days after the grant of such Award (or such shorter
period as the Committee may specify) the participant shall have accepted the
Award by executing and delivering to the Company an Other Stock-based Award
Agreement.
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<PAGE>
(e) Nontransferability.
Other Stock-based Awards may not be sold, assigned, transferred, pledged or
encumbered except as may be provided in the Other Stock-based Award Agreement.
However, in no event shall any Other Stock-based Award be transferred other than
by will or by the laws of descent and distribution or be exercisable during the
participant's lifetime by other than the participant or the participant's legal
representative.
(f) Rights as a Shareholder.
A recipient of any Other Stock-based Award will have rights of a
shareholder only at the time and to the extent, if any, specified by the
Committee in the Other Stock-based Award Agreement.
(g) Deemed Dividend Payments; Deferrals.
Without limiting the right of the Committee to specify different terms at
or after grant, an Other Stock-based Award Agreement may require or permit the
immediate payment, waiver, deferral or investment of dividends or deemed
dividends payable on Stock subject to the Award.
(h) Supplemental Grants.
The Company may in its sole discretion make a loan to the recipient of an
Award hereunder, either on or after the date of grant of such Award. Such loans
may be made either in connection with the exercise of a Stock Option, a Stock
Appreciation Right, or an Other Stock-based Award, in connection with the
purchase of shares under any Award, or in connection with the payment of any
federal income tax in respect of income recognized under an Award. The Committee
shall have full authority to decide whether to make a loan hereunder and to
determine the amount, term and provisions of any such loan, including the
interest rate (which may be zero) charged in respect of any such loan, whether
the loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall have a
term (including extensions) exceeding ten years in duration or be in an amount
exceeding the total exercise or purchase price paid by the borrower under an
Award under the Plan plus an amount equal to the cash payment permitted in the
following paragraph.
The Committee may at any time authorize a cash payment, in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award, which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
ordinary income recognized by the recipient under both the Award and such cash
payment, in each case assuming that such income
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<PAGE>
is taxed at the regular maximum marginal rate applicable to individuals under
the Code as in effect at the time such income is includable in the recipient's
income. Subject to the foregoing, the Committee shall have complete authority to
decide whether to make such cash payments in any case, to make provision for
such payments either simultaneously with or after the grant of the associated
Award, and to determine the amount of each such payment.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
reemployment is guaranteed either by a statute or by contract or under
the policy pursuant to which the leave of absence was granted or if
the Committee otherwise so provides in writing.
For purposes of the Plan, the employees of a Subsidiary of the Company shall be
deemed to have terminated their employment on the date on which such Subsidiary
ceases to be a Subsidiary of the Company.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by stockholders, shall be effective if it would cause the Plan
to fail to satisfy the incentive stock option requirements of the Code as in
effect on the date of such amendment.
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award
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<PAGE>
or Awards. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the Company's obligations to deliver Stock
or make payments with respect to awards hereunder, provided that the existence
of such trusts or other arrangements is consistent with the provision of the
foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS.
As used herein, a Change of Control and related definitions shall have the
meanings set forth in Exhibit A to this Plan.
Upon the occurrence of a Change of Control:
(a) Each Stock Option and Stock Appreciation Right shall automatically
become fully exercisable unless the Committee shall otherwise
expressly provide at the time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Units and Other Stock-based Awards shall automatically be
deemed waived only if and to the extent, if any, specified (whether at
or after time of grant) by the Committee.
The Committee may at any time prior to or after a Change of Control accelerate
the exercisability of any Stock Options and Stock Appreciation Rights and may
waive restrictions, limitations and conditions on Restricted Stock, Deferred
Stock, Performance Units and Other Stock-based Awards to the extent it shall in
its sole discretion determine.
SECTION 16. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements, etc.
The Committee may require each person acquiring shares pursuant to an Award
to represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such
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approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of the Plan does not confer
upon any employee any right to continued employment with the Company or a
Subsidiary, nor does it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Tax Withholding, etc.
Each participant shall, no later than the date as of which the value of an
Award or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
The Committee may provide, in respect of any transfer of Stock or Preferred
Stock under an Award, that if and to the extent withholding of any Federal,
state or local tax is required in respect of such transfer, the participant may
elect, at such time and in such manner as the Committee shall prescribe, to have
the Company hold back from the transfer Stock (or Preferred Stock) having a
value calculated to satisfy such withholding obligation.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board and approved by Zayre Corp. as sole
stockholder of the Company on April 6, 1989. The effective date of the Plan is
June 14, 1989 (i.e., the date of the spin-off by Zayre Corp. of the stock of the
Company to the stockholders of Zayre Corp.)
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<PAGE>
EXHIBIT A
---------
Definition of "Change of Control"
--------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature that would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") or in any other filing under the Exchange Act; provided,
--------
however, that no transaction shall be deemed to be a Change of Control as to a
- -------
Participant (i) if the person or each member of a group of persons acquiring
control is excluded from the definition of the term "Person" hereunder or (ii)
unless the Committee shall otherwise determine prior to such occurrence, if the
Participant or a Participant Related Party is the Person or a member of a group
constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly-owned subsidiary of the
Company, or any employee benefit plan of the Company or such a subsidiary
becomes the owner of 20% or more of the Company's Common Stock and thereafter
individuals who were not directors of the Company prior to the date such Person
became a 20% owner are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person and
constitute at least 1/4 of the Company's Board of Directors; provided, however,
-------- -------
that unless the Committee shall otherwise determine prior to the acquisition of
such 20% ownership, such acquisition of ownership shall not constitute a Change
of Control as to a Participant if the Participant or a Participant Related Party
is the Person or a member of a group constituting the Person acquiring such
ownership; or
(c) there occurs any solicitation or series of solicitations of proxies by
or on behalf of any Person other than the Company's Board of Directors and
thereafter individuals who were not directors of the Company prior to the
commencement of such solicitation or series of solicitations are elected as
directors pursuant to an arrangement or understanding with, or upon the request
of or nomination by, such Person and constitute at least 1/4 of the Company's
Board of Directors; or
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date provided for
in such agreement, all or substantially all of the business and/or assets of the
Company shall be owned, leased or otherwise controlled by another Person and
(ii) individuals who are directors of the Company when such agreement is
executed shall not constitute a majority of the board of directors of the
survivor or successor entity immediately after the effective date provided for
in such agreement; provided, however, that unless otherwise determined by the
-------- -------
Committee, no transaction shall constitute a Change of Control as to a
Participant if, immediately after such transaction, the Participant or any
Participant Related Party shall own equity securities of any surviving
corporation ("Surviving Entity") having a fair value as a percentage of the fair
value of the equity
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<PAGE>
securities of such Surviving Entity greater than 125% of the fair value of the
equity securities of the Company owned by the Participant and any Participant
Related Party immediately prior to such transaction, expressed as a percentage
of the fair value of all equity securities of the Company immediately prior to
such transaction (for purposes of this paragraph ownership of equity securities
shall be determined in the same manner as ownership of Common Stock); and
provided, further, that, for purposes of this paragraph (d),
- -------- -------
if such agreement requires as a condition precedent approval by the Company's
shareholders of the agreement or transaction, a Change of Control shall not be
deemed to have taken place unless and until such approval is secured (but upon
any such approval, a Change of Control shall be deemed to have occurred on the
date of execution of such agreement).
In addition, for purposes of this Exhibit A the following terms have the
meanings set forth below:
"Common Stock" shall mean the then outstanding Common Stock of the Company
plus, for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise. Notwithstanding the foregoing, the term Common Stock shall
not include shares of Preferred Stock or convertible debt or options or warrants
to acquire shares of Common Stock (including any shares of Common Stock issued
or issuable upon the conversion or exercise thereof) to the extent that the
Board of Directors of the Company shall expressly so determine in any future
transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as such term
is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, as in effect on March
1, 1989; or
(ii) of which such Person would be the "beneficial owner" for purposes
of Section 16 of the Exchange Act and the rules of the Commission
promulgated thereunder, as in effect on March 1, 1989; or
(iii) which such Person or any of its affiliates or associates (as
such terms are defined in Rule 12b-2 promulgated by the Commission under
the Exchange Act, as in effect on March 1, 1989) has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or
otherwise.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on March 1, 1989; provided, however, that the term "Person" shall
-------- -------
not include (a) any individuals who are descendants of Max Feldberg or Morris
Feldberg, (b) any
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relatives of the fourth degree of consanguinity or closer of such descendants or
(c) custodians, trustees or legal representatives of such persons.
A "Participant Related Party" shall mean, with respect to a Participant,
any affiliate or associate of the Participant other than the Company or a
Subsidiary of the Company. The terms "affiliate" and "associate" shall have the
meanings ascribed thereto in Rule 12b-2 under the Exchange Act (the term
"registrant" in the definition of "associate" meaning, in this case, the
Company).
"Participant" means a participant in the Plan.
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EXHIBIT 99A.3
WABAN INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Waban Inc., a
Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Waban Inc. as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to
<PAGE>
Awards and the maximum number of shares for any one Participant to be made by
such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). The Board shall
appoint one such Committee of not less than two members, each member of which
shall be an "outside director" within the meaning of Section 162(m) of the Code
and a "non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
----------------
be made under the Plan for up to the sum of (i) 1,000,000 shares of common
stock, $0.01 par value per share, of the Company (the "Common Stock") plus (ii)
such additional number of shares of Common Stock (up to 2,500,000) as is equal
to the sum of (x) the number of shares which remain available for grant under
the Company's 1989 Stock Incentive Plan (the "1989 Plan") upon its expiration
and (y) the number of shares subject to awards granted under the 1989 Plan which
are not actually issued pursuant to such awards because such awards expire or
are terminated, surrendered or cancelled without having been fully exercised or
are forfeited in whole or in part or otherwise result in any Common Stock not
being issued. If any Award expires or is terminated, surrendered or canceled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered by
such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 500,000 per calendar year. The per-
participant limit described in this Section 4(b) shall be construed and applied
consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the
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<PAGE>
number and class of securities available under this Plan, (ii) the number and
class of security and exercise price per share subject to each outstanding
Option, (iii) the repurchase price per security subject to each outstanding
Restricted Stock Award, and (iv) the terms of each other outstanding stock-based
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(c) applies and Section 8(e)(1) and/or Section 8(e)(2) also applies to
any event, then Section 8(e)(2) or Section 8(e)(1) (in that order) shall be
applicable to such event, and this Section 4(c) shall not be applicable.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement;
provided, however, that no Option shall be granted at an exercise price of less
than 100% of fair market value on the date of grant.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however that no Option will be granted
for a term in excess of ten years.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
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<PAGE>
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option Agreement,
by (i) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price or
(iii) delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(3) to the extent permitted by the Board and explicitly provided in an
Option Agreement (i) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board or (ii) by payment of such other lawful
consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
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7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events; Change of Control Events
--------------------------------------------
(1) Consequences of Acquisition Events. Subject to Section 8(e)(2),
-----------------------------------
upon the occurrence of an Acquisition Event (as defined below), or the execution
by the Company of any agreement with respect to an Acquisition Event, the Board
shall take any one or more of the following actions with respect to then
outstanding Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii) upon written
notice to the Participants, provide that all then unexercised Options will
become
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<PAGE>
exercisable in full as of a specified time (the "Acceleration Time") prior to
the Acquisition Event and will terminate immediately prior to the consummation
of such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted Stock
Awards then outstanding shall become free of all restrictions prior to the
consummation of the Acquisition Event; and (v) provide that any other stock-
based Awards outstanding (A) shall become exercisable, realizable or vested in
full, or shall be free of all conditions or restrictions, as applicable to each
such Award, prior to the consummation of the Acquisition Event, or (B), if
applicable, shall be assumed, or equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
(2) Consequences of Change of Control Events. Except to the extent
----------------------------------------
otherwise provided in the instrument evidencing an Award or in any other
agreement between a Participant and the Company, (i) upon the occurrence of a
Change of Control Event, all Options and stock appreciation rights then
outstanding shall automatically become immediately exercisable in full and (ii)
the restrictions and conditions on all other Awards then outstanding shall
automatically be deemed waived only if and to the extent, if any, specified
(whether at the time of grant or otherwise) by the Board.
A "Change of Control Event" shall have the meaning set forth on Annex
A hereto.
(3) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The
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<PAGE>
substitute Awards shall be granted on such terms and conditions as the Board
considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or
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<PAGE>
otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE>
ANNEX A
DEFINITION OF CHANGE OF CONTROL EVENT
-------------------------------------
For the purpose of the Plan, a "Change of Control Event" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"))(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
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<PAGE>
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
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