UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number
October 31, 1998 1-10259
HOMEBASE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
3345 Michelson Drive
Irvine, CA 92612
(Address of principal executive offices) (Zip Code)
(949) 442-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At November 28,1998, there were 37,879,450 shares outstanding.
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
October 31, October 25, October 31, October 25,
1998 1997 1998 1997
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 360,067 $ 368,432 $ 1,133,588 $ 1,149,040
Cost of sales, including buying and
occupancy costs 280,267 289,527 879,433 898,835
- -------------------------------------------------- --------------- ---------------- --------------- ---------------
Gross profit 79,800 78,905 254,155 250,205
Selling, general and administrative
expenses 67,763 68,635 216,468 213,355
Store closures and other charges - 27,000 - 27,000
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Operating income (loss) 12,037 (16,730) 37,687 9,850
Interest on debt and capital leases, net 462 355 2,229 4,528
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Income (loss) from continuing operations before
income taxes and extraordinary loss 11,575 (17,085) 35,458 5,322
Provision (benefit) for income taxes 4,410 (6,797) 13,510 2,121
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Income (loss) from continuing operations
before extraordinary loss 7,165 (10,288) 21,948 3,201
Income from discontinued operations, net of
income taxes of $16,496 - - - 20,575
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Income (loss) before extraordinary loss 7,165 (10,288) 21,948 23,776
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $5,896 - - - (8,663)
- -------------------------------------------------- --------------- ---------------- --------------- ---------------
Net income (loss) $ 7,165 $ (10,288) $ 21,948 $ 15,113
================================================== =============== ================ =============== ================
Basic net income (loss) per share:
Income (loss) from continuing operations
before extraordinary loss $ 0.19 $ (0.27) $ 0.58 $ 0.09
Income from discontinued operations - - - 0.59
Extraordinary loss - - - (0.25)
- -------------------------------------------------- --------------- ---------------- --------------- ---------------
Net income (loss) $ 0.19 $ (0.27) $ 0.58 $ 0.43
================================================== =============== ================ =============== ================
Diluted net income (loss) per share:
Income (loss) from continuing operations
before extraordinary loss $ 0.17 $ (0.27) $ 0.51 $ 0.09
Income from discontinued operations - - - 0.57
Extraordinary loss - - - (0.24)
- -------------------------------------------------- --------------- ---------------- --------------- ---------------
Net income (loss) $ 0.17 $ (0.27) $ 0.51 $ 0.42
================================================== =============== ================ =============== ================
Shares used in computation of net income (loss) per share:
Basic 37,879 37,556 37,834 35,162
Diluted 47,909 37,556 48,032 35,768
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
October 31, January 31, October 25,
1998 1998 1997
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,784 $ 44,603 $ 3,714
Marketable securities 47,534 5,515 -
Accounts receivable (net of allowance for doubtful
accounts of $297, $293 and $725) 31,684 27,781 35,128
Merchandise inventories 332,403 314,188 326,715
Current deferred income taxes 12,539 11,973 16,439
Prepaid expenses and other current assets 20,338 9,857 5,161
Prepaid and refundable income taxes - 10,265 -
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current assets 494,282 424,182 387,157
Property, net 256,160 258,697 245,540
Property under capital leases, net 5,308 5,637 5,747
Deferred income taxes 13,298 13,965 14,574
Other assets 6,322 13,127 10,092
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total assets $ 775,370 $ 715,608 $ 663,110
================================================================= ================ ================= ===============
LIABILITIES
Current liabilities:
Accounts payable $ 136,210 $ 96,122 $ 136,580
Restructuring reserve 6,642 6,151 4,775
Accrued expenses and other current liabilities 76,217 80,783 89,413
Accrued income taxes 6,706 - 2,578
Current installments of long-term debt 6,715 72 70
Obligations under capital leases due within one year 274 226 203
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current liabilities 232,764 183,354 233,619
Long-term debt 100,313 107,015 7,034
Obligations under capital leases, less portion due
within one year 8,441 8,650 8,716
Noncurrent restructuring reserve 3,997 6,537 8,764
Other noncurrent liabilities 48,059 50,385 41,658
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized
190,000,000 shares; issued and outstanding 37,878,122,
37,707,372 and 37,593,829 shares 379 377 376
Additional paid-in capital 374,662 375,026 374,268
Unearned compensation (1,023) (1,570) (1,037)
Unrealized holding gains 2 6 -
Retained earnings (deficit) 7,776 (14,172) (10,288)
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total stockholders' equity 381,796 359,667 363,319
Total liabilities and stockholders' equity $ 775,370 $ 715,608 $ 663,110
================================================================= ================ ================= ===============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks Ended
- -------------------------------------------------------------------------------- ----------------------------------
October 31, October 25,
1998 1997
- -------------------------------------------------------------------------------- ---------------- -----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,948 $ 15,113
Adjustments to reconcile net income to net cash provided by operating
activities:
Net income from discontinued operations - (20,575)
Depreciation and amortization 20,320 18,482
Extraordinary loss - 8,663
(Gain) loss on property disposals 175 66
Amortization of discount on marketable securities (142) -
Other non-cash items 470 264
Deferred income taxes 101 (9,837)
Increase (decrease) in cash due to changes in:
Accounts receivable (6,287) (9,867)
Merchandise inventories (18,215) (10,177)
Prepaid expenses and other current assets (3,168) (186)
Other assets (1,280) (386)
Accounts payable 40,088 51,677
Restructuring reserve (2,049) (253)
Accrued expenses and other current liabilities 7,714 21,270
Accrued income taxes 17,394 13,538
Other noncurrent liabilities (2,326) 6,569
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by operating activities of:
Continuing operations 74,743 84,361
Discontinued operations - 7,455
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by operating activities 74,743 91,816
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (47,070) (7,694)
Sale of marketable securities 2,689 -
Maturity of marketable securities 2,865 -
Property additions (28,510) (15,336)
Property disposals 301 416
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash used in investing activities of:
Continuing operations (69,725) (22,614)
Discontinued operations - (23,269)
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash used in investing activities (69,725) (45,883)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (59) (130,728)
Repayment of capital lease obligations (161) (137)
Debt issuance costs (258) (986)
Proceeds from sale and issuance of common stock 641 5,801
Cash paid to BJ's Wholesale Club, Inc. in spin-off - (5,000)
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by (used in) financing activities of:
Continuing operations 163 (131,050)
Discontinued operations - 71,935
- -------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by (used in) financing activities 163 (59,115)
Net increase (decrease) in cash and cash equivalents 5,181 (13,182)
Cash and cash equivalents at beginning of year 44,603 16,896
- -------------------------------------------------------------------------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 49,784 $ 3,714
================================================================================ ================ =================
Supplemental cash flow information (prior year includes discontinued
operations):
Interest paid $ 2,407 $ 9,251
Income taxes paid (refunds received) (4,132) 29,729
Non-cash financing and investing activities:
Tax benefit of employee stock options $ 424 $ 2,194
Conversion of long-term debt to stock, net - 107,061
================================================================================ ================ =================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------- -------------------- ----------- -------------- ----------- ----------- ------------------- ------------
Unrealized
Additional Holding Retained Total
Paid-In Unearned Gains Earnings Stockholders'
Common Stock Capital Compensation (Losses) (Deficit) Treasury Stock Equity
- --------------------------- -------------------- ----------- -------------- ----------- ----------- ------------------- ------------
Shares Amount Shares Amount
---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 25, 1997 33,270 $ 333 $ 330,941 $ (1,222) $ - $ 311,873 (529) $(10,000) $631,925
Net income - - - - - 15,113 - - 15,113
Exercise of stock options 155 2 1,768 - - - 213 4,031 5,801
Income tax benefit of
stock options - - 2,194 - - - - - 2,194
Restricted stock grants 153 2 1,216 (1,218) - - - - -
Amortization of restricted
stock grants - - - 263 - - - - 263
Cancellation of restricted
stock grants (46) (1) (1,139) 1,140 - - - - -
Conversion of 6.5%
debentures 4,062 40 101,052 - - - 316 5,969 107,061
Equity transfer in spin-off
of BJ's Wholesale Club,Inc. - - (61,764) - - (337,274) - - (399,038)
- --------------------------- -------------------- ----------- -------------- ----------- ----------- -------------------- -----------
Balance, October 25, 1997 37,594 $ 376 $ 374,268 $(1,037) $ - $ (10,288) - $ - $363,319
=========================== ========== ========= =========== ============== =========== =========== ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------- -------------------- ----------- -------------- ----------- ----------- ------------------- ------------
Unrealized
Additional Holding Retained Total
Paid-In Unearned Gains Earnings Stockholders'
Common Stock Capital Compensation (Losses) (Deficit) Treasury Stock Equity
- --------------------------- -------------------- ----------- -------------- ----------- ----------- ------------------- ------------
Shares Amount Shares Amount
---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 37,707 $ 377 $ 375,026 $(1,570) $ 6 $ (14,172) - $ - $359,667
Net income - - - - - 21,948 - - 21,948
Unrealized holding
gains (losses) - - - - (4) - - - (4)
Exercise of stock options 181 2 639 - - - - - 641
Income tax benefit of
stock options - - 424 - - - - - 424
Amortization of
restricted stock grants - - - 470 - - - - 470
Cancellation of
restricted stock grants (10) - (78) 77 - - - - (1)
Equity transfer in spin-off
of BJ's Wholesale Club, Inc. - - (1,349) - - - - - (1,349)
- --------------------------- -------------------- ----------- -------------- ----------- ----------- -------------------- -----------
Balance, October 31, 1998 37,878 $ 379 $ 374,662 $(1,023) $ 2 $ 7,776 - $ - $381,796
=========================== ========== ========= =========== ============== =========== =========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, all adjustments (consisting
of normal and recurring accruals) considered necessary for a fair presentation
have been included. These interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K for the fiscal year ended January
31, 1998. The January 31, 1998 balances reported herein are derived from the
audited financial statements included in the Annual Report on Form 10-K for the
fiscal year ended January 31, 1998.
The results for the interim periods are not necessarily indicative of results
for the full fiscal year because, among other things, the Company's business is
subject to seasonal influences. Sales and profits have typically been lower in
the first and fourth quarters of the fiscal year and higher in the second and
third quarters, which include the most active seasons for home improvement
sales.
The fiscal years ending January 30, 1999 and January 31, 1998 are referred to
herein as "fiscal 1998" and "fiscal 1997", respectively. The 13 weeks ended
October 31, 1998 and October 25, 1997 are referred to herein as the "third
quarter of fiscal 1998" and the "third quarter of fiscal 1997", respectively.
The consolidated financial statements of the Company include the financial
statements of the Company's subsidiaries, all of which are wholly owned.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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.
3. Reclassifications
Certain prior period amounts have been reclassified to conform to the current
year presentation.
4. New Accounting Standards
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company currently does not have any
derivative financial instruments and does not currently employ any hedging
activities.
5. Discontinued Operations
On July 26, 1997, the Company transferred all of the net assets of its BJ's
Wholesale Club division ("BJ's") to BJ's Wholesale Club, Inc. ("BJI"). On July
28, 1997, the Company distributed to its stockholders on a pro-rata basis all of
the outstanding common stock of BJI (the "Distribution").
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The financial statements as of and for the 39 weeks ended October 25, 1997 have
been restated to present BJ's as a discontinued operation. Corporate interest
expense for the 39 weeks ended October 25, 1997 was allocated to discontinued
operations based on the ratio of BJ's net assets to the sum of consolidated net
assets plus consolidated debt. In the first quarter of fiscal 1998, the Company
recorded an additional equity transfer to BJI of approximately $1.3 million,
related to a net asset adjustment of BJ's at the time of the distribution.
Net sales from discontinued operations were $1,464.4 million for the 39 weeks
ended October 25, 1997.
6. Change in Accounting Principle
In the first quarter of fiscal 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), Accounting for the
Costs of Start-Up Activities, which requires entities to expense as incurred
start-up and pre-opening costs that may not otherwise be capitalized as
long-lived assets. The Company adopted SOP 98-5 in the first quarter of fiscal
1998, which did not have an effect on net income or net income per share.
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") was issued. SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. It is effective for fiscal years
beginning after December 15, 1998. The Company adopted SOP 98-1 in the second
quarter of fiscal 1998, which did not have a material effect on net income or
net income per share.
7. Interest on Debt and Capital Leases
Interest on debt and capital leases in the consolidated statements of income is
presented net of interest and investment income of $1.5 million and $0.2 million
in the third quarter of fiscal 1998 and fiscal 1997, respectively, and is
reported net of interest and investment income of $3.6 million and $1.5 million
in the 39 weeks ended October 31, 1998 and October 25, 1997, respectively.
8. Net Income (Loss) Per Share
The following is a reconciliation of the numerator and the denominator used in
the calculation of net income (loss) per share:
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
- ----------------------------------------------------- ------------- ------------- ------------- -------------
October 31, October 25, October 31, October 25,
(In thousands) 1998 1997 1998 1997
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing operations
before extraordinary loss $ 7,165 $(10,288) $ 21,948 $ 3,201
Income from discontinued operations (net of tax) - - - 20,575
Extraordinary loss (net of tax) - - - (8,663)
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Numerator for basic net income (loss) per share 7,165 (10,288) 21,948 15,113
Effect of dilutive securities:
5.25% convertible subordinated notes 893 - 2,680 -
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Numerator for diluted net income (loss) per share $ 8,058 $(10,288) $ 24,628 $ 15,113
===================================================== ============= ============= ============= =============
</TABLE>
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
- ----------------------------------------------------- ------------- ------------- ------------- -------------
October 31, October 25, October 31, October 25,
(In thousands) 1998 1997 1998 1997
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic net income (loss) per
share - Weighted average shares 37,879 37,556 37,834 35,162
Effect of dilutive securities:
Employee stock options(1) 243 - 411 606
Assumed conversion of 5.25% convertible
notes 9,787 - 9,787 -
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Denominator for diluted net income (loss) per share 47,909 37,556 48,032 35,768
===================================================== ============= ============= ============= =============
(1) For the third quarter of fiscal 1997, the effect of the stock options has
been excluded from the computation of diluted net income per share because
they were antidilutive.
</TABLE>
9. Supplemental Balance Sheet Information
Property and equipment consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ----------------- ---------------- -----------------
October 31, January 31, October 25,
(In thousands) 1998 1998 1997
- ----------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Land and buildings $ 157,730 $ 157,488 $ 157,354
Leasehold improvements 66,827 62,310 57,947
Furniture, fixtures and equipment 147,036 144,662 134,018
- ----------------------------------------------------- ----------------- ---------------- -----------------
371,593 364,460 349,319
Accumulated depreciation (115,433) (105,763) (103,779)
- ----------------------------------------------------- ----------------- ---------------- -----------------
Total $ 256,160 $ 258,697 $ 245,540
===================================================== ================= ================ =================
</TABLE>
Property under capital leases consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ----------------- ---------------- -----------------
October 31, January 31, October 25,
(In thousands) 1998 1998 1997
- ----------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Property under capital leases $ 9,696 $ 9,696 $ 9,696
Accumulated depreciation (4,388) (4,059) (3,949)
- ----------------------------------------------------- ----------------- ---------------- -----------------
Total $ 5,308 $ 5,637 $ 5,747
===================================================== ================= ================ =================
</TABLE>
10. Pension Plan
In the first quarter of fiscal 1998, the Company completed the settlement of the
Waban Inc. Retirement Plan (the "Plan"), which was terminated effective July 26,
1997. Net income for the 39 weeks ended October 31, 1998 includes a charge of
approximately $0.7 million, net of taxes, related to the settlement of the Plan.
11. Debt
In July 1998, the Company increased its revolving credit facility to $105
million from $90 million, and extended the expiration date to July 9, 2001. All
other terms remained unchanged.
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
12. Stock Plans
In the third quarter of fiscal 1998, the Board of Directors elected to suspend
the Waban Inc. 1995 Director Stock Option Plan. Any future grants to Directors
will be issued under the Company's 1997 Stock Incentive Plan.
13. Restructuring Reserve
As of January 31, 1998, $12.7 million of the Company's fiscal 1993 restructuring
charge remained accrued on the Company's consolidated balance sheet. During the
39 weeks ended October 31, 1998, the Company incurred cash expenditures of $2.1
million, primarily for lease obligations on closed facilities. As of October 31,
1998, $10.6 million remained accrued on the Company's balance sheet consisting
primarily of lease obligations on closed facilities, which extend through 2007.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Organization and Presentation
On July 26, 1997, HomeBase, Inc. (the "Company"), formerly known as Waban Inc.,
transferred all of the net assets of its BJ's Wholesale Club division ("BJ's")
to BJ's Wholesale Club, Inc. ("BJI"). On July 28, 1997, the Company distributed
to its stockholders, on a pro-rata basis, all of the outstanding common stock of
BJI (the "Distribution"). The financial statements for the 39 weeks ended
October 25, 1997 have been restated to present BJ's as a discontinued operation.
The discussion that follows pertains to the continuing operations of the Company
unless otherwise noted.
The fiscal year ending January 30, 1999 and the fiscal year ended January 31,
1998 are referred to herein as "fiscal 1998" and "fiscal 1997", respectively.
The 13 weeks ended October 31, 1998 and October 25, 1997 are referred to herein
as the "third quarter of fiscal 1998" and the "third quarter of fiscal 1997",
respectively.
The following table presents the results of operations for the periods indicated
as a percentage of net sales.
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
- ----------------------------------------------------- --------------------------- ---------------------------
October 31, October 25, October 31, October 25,
1998 1997 1998 1997
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy
costs 77.8 78.6 77.6 78.2
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Gross profit 22.2 21.4 22.4 21.8
Selling, general and administrative expenses 18.8 18.6 19.1 18.6
Store closures and other charges - 7.3 - 2.3
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Operating income (loss) 3.4 (4.5) 3.3 0.9
Interest on debt and capital leases, net 0.2 0.1 0.2 0.4
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes and extraordinary loss 3.2 (4.6) 3.1 0.5
Provision (benefit) for income taxes 1.2 (1.8) 1.2 0.2
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before extraordinary loss 2.0 (2.8) 1.9 0.3
Income from discontinued operations, net of
income taxes - - - 1.8
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary loss 2.0 (2.8) 1.9 2.1
Extraordinary loss on early extinguishment of
debt, net of income taxes - - - (0.8)
- ----------------------------------------------------- ------------- ------------- ------------- -------------
Net income (loss) 2.0% (2.8)% 1.9% 1.3%
===================================================== ============= ============= ============= =============
</TABLE>
Net Sales
Net sales for the third quarter of fiscal 1998 decreased 2.3% to $360.1 million
from $368.4 million in the third quarter of fiscal 1997 primarily due to a
decline in same store sales of 1.5% and a smaller store base. Same store sales
decreased due to increased competition in many of the markets in which the
Company operates and lower sales of weather related products in certain markets
as compared to the prior year. The Company had one less store open in the third
quarter of fiscal 1998 compared to the prior year.
Net sales for the 39 weeks ended October 31, 1998 decreased 1.3% to $1,133.6
million from $1,149.0 million in the comparable prior-year period. The decrease
in net sales was primarily due to declines in same store sales of 0.9% and net
store closures. Same store sales declined primarily due to the disruption caused
by store remodel construction during the first quarter of fiscal 1998, abnormal
weather patterns during much of the first half of the year and increased
competition in many of the markets in which the Company operates. During the 39
weeks ended October 31, 1998, 18 stores were remodeled, compared to 10 stores in
the 39 weeks ended October 25, 1997. In addition, during the nine-month prior
year period, two new stores were opened and three stores were closed.
Cost of Sales
Cost of sales, which includes buying and occupancy costs, was 77.8% of net sales
for the third quarter of fiscal 1998, compared to 78.6% in the third quarter of
fiscal 1997. Cost of sales for the 39 weeks ended October 31, 1998 was 77.6% of
sales compared to 78.2% for the 39 weeks ended October 25, 1997. The decrease as
a percentage of net sales for the 13 and 39 weeks ended October 31, 1998 was
primarily due to higher average selling margins caused by a change in the mix of
product sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased to 18.8% of net
sales for the third quarter of fiscal 1998, from 18.6% of net sales for the
third quarter of fiscal 1997. The increase is primarily due to increased
advertising expenses and the overall decline in net sales.
SG&A was 19.1% of sales for the 39 weeks ended October 31, 1998 compared to
18.6% for the 39 weeks ended October 25, 1997. The increase as a percentage of
net sales was primarily attributable to higher remodel related costs, increased
advertising expenses, the overall decline in net sales and pre-tax settlement
costs of approximately $1.1 million associated with the termination of the Waban
Inc. Retirement Plan. In the 39 weeks ended October 31, 1998, the Company
incurred remodel related costs of approximately $4.3 million, compared to $1.4
million in the 39 weeks ended October 25, 1997.
Interest Expense
Net interest expense from continuing operations for the third quarter of fiscal
1998 was $0.5 million compared to $0.4 million for the third quarter of fiscal
1997. Net interest expense increased primarily due to higher average debt
balances in the third quarter of fiscal 1998 as compared to the prior year. Net
interest expense was partially offset by higher interest and investment income
in the third quarter of fiscal 1998 as compared to the prior year.
Net interest expense from continuing operations was $2.2 million for the 39
weeks ended October 31, 1998 compared to $4.5 million for the 39 weeks ended
October 25, 1997. Corporate interest expense for the 39 weeks ended October 25,
1997 was allocated to discontinued operations based on the ratio of BJ's net
assets to the sum of consolidated net assets plus consolidated debt. The decline
in net interest expense from continuing operations for the 39 weeks ended
October 31, 1998 was primarily attributable to a lower average interest rate and
higher interest and investment income compared to the respective prior-year
periods.
Interest and investment income was $1.5 million for the third quarter of fiscal
1998 compared to $0.2 million for the third quarter of fiscal 1997 and was $3.6
million compared to $1.5 million for the nine months ended October 31, 1998 and
October 25, 1997, respectively.
<PAGE>
Store Closures and Other Charges
In the third quarter of fiscal 1997, the Company recorded store closures and
other charges of $27.0 million consisting of $22.3 million for store closures
and other related settlement costs, a $3.0 million increase in the fiscal 1993
restructuring reserve and $1.7 million in asset impairment charges.
Income Tax Provision
The income tax provision rate for the 39 weeks ended October 31, 1998 was 38.1%
compared to 39.8% for the 39 weeks ended October 25, 1997. The decrease in the
tax provision rate was primarily attributable to the realization of certain
state tax credits during fiscal 1998. For fiscal 1999, the Company expects the
tax provision rate to range between 39% and 40%.
Income (Loss) From Continuing Operations Before Extraordinary Loss
Income (loss) from continuing operations before extraordinary loss for the third
quarter of fiscal 1998 was $7.2 million, or $0.17 per share, diluted, compared
to ($10.3) million, or $(0.27) per share, diluted, in the third quarter of
fiscal 1997. Excluding store closures and other charges, income (loss) from
continuing operations in the third quarter of fiscal 1997 was $6.0 million, or
$0.16 per share, diluted. Income (loss) from continuing operations before
extraordinary loss as a percentage of net sales was 2.0% for the 13 weeks ended
October 31, 1998 compared to (2.8)% in the third quarter of fiscal 1997. The
increase was primarily due to a higher gross profit percentage during the 13
weeks ended October 31, 1998 and store closures and other charges recorded in
fiscal 1997.
Income (loss) from continuing operations before extraordinary loss for the 39
weeks ended October 31, 1998 was $21.9 million, or $0.51 per share, diluted,
compared to $3.2 million, or $0.09 per share, diluted, in the 39 weeks ended
October 25, 1997. Excluding store closures and other charges, income (loss) from
continuing operations for the 39 weeks ended October 25, 1997 was $19.5 million,
or $0.54 per share, diluted. Income (loss) from continuing operations before
extraordinary loss as a percentage of net sales was 1.9% for the 39 weeks ended
October 31, 1998 compared to 0.3% for the 39 weeks ended October 25, 1997. The
increase was primarily due to store closures and other charges in the prior
year, as well as a higher gross profit percentage, lower net interest expense
and a lower tax provision, partially offset by higher SG&A, in the current year.
Income (loss) from continuing operations for the 39 weeks ended October 25, 1997
include all of the corporate overhead expenses incurred by the Company prior to
the Distribution and an allocation of the Company's interest expense prior to
the Distribution. As a result of the Distribution, the conversion of the
convertible subordinated debt into common stock and the refinancing of $112
million of other indebtedness, income from continuing operations for periods
preceding the Distribution is not comparable to the Company's income (loss) from
continuing operations after the Distribution.
Net Income (Loss)
Net income (loss) for the third quarter of fiscal 1998 was $7.2 million, or
$0.17 per share, diluted, compared to $(10.3) million, or $(0.27) per share,
diluted, for the third quarter of fiscal 1997. Net income (loss) for the 39
weeks ended October 31, 1998 was $21.9 million, or $0.51 per share, diluted,
compared to $15.1 million, or $0.42 per share, diluted, for the 39 weeks ended
October 25, 1997.
Net income (loss) for the 39 weeks ended October 31, 1998 includes a pension
termination charge of $0.7 million, net of tax.
The 39 weeks ended October 25, 1997 include income from discontinued operations
of $20.6 million, or $0.57 per share, diluted, and an extraordinary loss of
$(8.7) million, net of tax, recorded in July 1997, associated with the early
extinguishment of debt.
Restructuring Reserve
As of January 31, 1998, $12.7 million of the Company's fiscal 1993 restructuring
charge remained accrued on the Company's consolidated balance sheet. During the
third quarter of fiscal 1998, the Company incurred cash expenditures of $2.1
million, primarily for lease obligations on closed facilities. As of October 31,
1998, $10.6 million remained accrued on the Company's balance sheet consisting
primarily of lease obligations on closed facilities, which extend through 2007.
Seasonality
The Company's business is subject to seasonal influences. Sales and profits have
typically been lower in the first and fourth quarters of the fiscal year and
higher in the second and third quarters, which include the most active seasons
for home improvement sales.
Change in Accounting Principle
In the first quarter of fiscal 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), Accounting for the
Costs of Start-Up Activities, which requires entities to expense as incurred
start-up and pre-opening costs that may not otherwise be capitalized as
long-lived assets. The Company adopted SOP 98-5 in the first quarter of fiscal
1998, which did not have an effect on net income or net income per share.
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") was issued. SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. It is effective for fiscal years
beginning after December 15, 1998. The Company adopted SOP 98-1 in the second
quarter of fiscal 1998, which did not have a material effect on net income or
net income per share.
New Accounting Standards
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company currently does not have any
derivative financial instruments and does not currently employ any hedging
activities.
Year 2000 Compliance
The Company has conducted a review of its computer systems and has identified
the systems that could be affected by the Year 2000 ("Y2K") issue. The Y2K issue
relates to the inability of information systems to recognize and process
date-sensitive information beyond December 31, 1999. In addition, many systems
and equipment that are not typically thought of as "computer-related" (referred
to as "non-IT") contain imbedded hardware and software that may be
date-sensitive and can be impacted by the Y2K issue. If the Company's computer
systems cannot recognize a date using "00" as the Year 2000, it could result in
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoice payments or
engage in other normal business activities.
<PAGE>
Early in fiscal 1996, the Company commenced a program to address the Y2K issue
and to pursue compliance with vendors. The scope of the project includes:
ensuring the compliance of all applications, operating systems and hardware on
mainframe, PC and LAN platforms; addressing issues related to non-IT embedded
software and equipment; and addressing the compliance of third party vendors.
The Company estimates the total cost of this compliance program to be less than
$2.0 million, including internal staff costs and the cost to write off any
unamortized existing hardware and software that may need to be replaced. The
Company expects to incur approximately $0.8 million through fiscal 1998, with
the remaining $1.2 million in fiscal 1999.
The Company believes that more than 90% of its mainframe applications, including
all financial and accounting systems, are now Y2K compliant. The Company expects
that the remaining mainframe systems will be Year 2000 compliant by the second
quarter of fiscal 1999. All other equipment and systems (PC, LAN, and other
peripherals) are expected to be Y2K compliant by the third quarter of fiscal
1999.
Although management anticipates that its systems and applications will be Y2K
compliant on a timely basis, there can be no assurance that the systems of other
companies with which the Company does business will be Y2K compliant in the same
time frame. In March 1998, the Company established a Year 2000 Committee, which
includes members from various business units within the Company. The Committee
members identified the major third party vendors from their respective business
units. The Company sent Y2K compliance questionnaires and, to date, has received
responses from approximately 45% of the vendors polled. Management is reviewing
their responses and assessing the need to develop contingency plans for those
vendors who may not be Y2K compliant. The risks involved with not solving the
Y2K issue include, but are not limited to, the following: loss of local or
regional electric power, loss of telecommunication services, delays or
cancellations of shipping or transportation, the inability to process credit
card transactions and bank errors.
The discussion of the Company's efforts, and management's expectations, relating
to Y2K compliance are forward-looking statements. The Company's ability to
achieve Y2K compliance could be affected by, among other things, the
availability of programming and testing resources, failure to identify all
susceptible systems, non-compliance by third parties, and other similar
uncertainties. These and other unforeseen factors could have a material adverse
impact on the Company's financial position, liquidity and results of operations.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents and marketable securities totaled $97.3 million as of
October 31, 1998. Cash flow from operations and amounts available under the
Company's $105 million revolving credit facility are the Company's principal
sources of liquidity.
In July 1998, the Company increased its revolving credit facility to $105
million from $90 million, and extended the expiration date to July 9, 2001. All
other terms remained unchanged.
At October 31, 1998, the Company had no borrowings under its revolving credit
facility, and had $10.8 million of letters of credit outstanding. At November
28, 1998, the Company had $94.1 million available for borrowing under the
revolving credit facility.
During the 39 weeks ended October 31, 1998, net cash provided by operating
activities of continuing operations was $74.7 million compared to $84.4 million
for the 39 weeks ended October 25, 1997. The decrease in the current year was
primarily attributable to lower accrued expenses and other current liabilities
at the end of the third quarter of fiscal 1998 as compared to fiscal 1997,
relative to the beginning of the respective fiscal years.
Net cash used in investing activities of continuing operations was $69.7 million
for the 39 weeks ended October 31, 1998, compared to $22.6 million for the 39
weeks ended October 25, 1997. Investing activities primarily consist of capital
expenditures and investments in marketable securities. During the 39 weeks ended
October 31, 1998, the Company had net purchases of marketable securities of
$41.5 million, compared to net purchases of $7.7 million during the 39 weeks
ended October 25, 1997.
Year-to-date capital expenditures for property additions were $28.5 million this
year versus $15.3 million in the comparable prior-year period. Capital
expenditures for the 39 weeks ended October 31, 1998 include the remodeling of
18 stores and one store opening, compared to capital expenditures for the
remodeling of 10 stores (eight of which had been completed) and two store
openings for the 39 weeks ended October 25, 1997. The Company's capital
expenditures in fiscal 1998 are expected to total approximately $35 to $40
million.
Net cash provided by financing activities of continuing operations was $0.2
million for the 39 weeks ended October 31, 1998, compared to net cash used of
$131.1 million for the 39 weeks ended October 25, 1997. Current year activities
primarily consisted of proceeds from the sale and issuance of common stock of
$0.6 million, partially offset by payments of real estate debt and capital
leases of $0.2 million.
During the 39 weeks ended October 25, 1997, the Company repaid its senior 9.58%
notes totaling $24.0 million and repaid $93.4 million of its 11% senior
subordinated notes, replacing this debt with $96 million of short-term bank
borrowings. BJI assumed $72.0 million of the bank borrowings at the time of the
Distribution. In connection with these repayments, the Company incurred a
pre-tax extraordinary loss of $14.6 million. In addition, during the nine months
ended October 25, 1997, $106.7 million of the Company's 6.5% convertible
subordinated debentures were converted into common stock and the remaining $0.2
million was redeemed for cash.
The Company expects that its current resources, including the revolving credit
facility, together with anticipated cash flow from operations, will be
sufficient to finance its operations and capital expenditures through January
29, 2000.
<PAGE>
Forward-Looking Information
This report on Form 10-Q contains "forward-looking statements," within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. When used in this
report, the words "believe," "estimate," "expect," "anticipate," "plans," and
similar expressions are intended to identify forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those expected. Although the Company believes that
comments reflected in such forward-looking statements are reasonable, they are
based on information existing at the time they are made. Important factors that
could cause actual results to differ materially from expectations include, but
are not limited to, the successful implementation of the Company's accelerated
growth strategy, general economic conditions prevailing in the Company's
markets, competition and other risk factors described in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1998.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.22 Change of Control Severance Agreement, dated August 31, 1998 with
Herbert J. Zarkin
10.23 Employment Agreement, dated June 1, 1998 with Allan P. Sherman
10.24 Change of Control Severance Agreement,dated August 31, 1998 with Allan P.
Sherman
10.25 Change of Control Severance Agreement, dated August 31, 1998 with
Thomas F. Gallagher
10.26 Change of Control Severance Agreement, dated August 31, 1998 with
William B. Langsdorf
10.27 Change of Control Severance Agreement, dated August 31, 1998 with
Scott L. Richards
10.28 Change of Control Severance Agreement, dated August 31, 1998 with
Edward J. Weisberger
10.29 Change of Control Severance Benefit Plan for Key Employees, dated
August 31, 1998
10.30 HomeBase, Inc. Executive Retirement Plan, First Amendment, dated
August 31, 1998
27 Financial Data Schedule
b) Reports on Form 8-K
On October 22, 1998, the Company filed a report on Form 8-K under Item 5
thereof, announcing that it had amended its 1989 Stockholders' Rights
Plan. The amendments served principally to modify the definition of
"beneficial ownership" so that it is consistent with the definition in
Rule 13d-3 under the Securities Exchange Act of 1934.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HomeBase, Inc.
Date: December 10, 1998 /s/ ALLAN P. SHERMAN
-------------------- --------------------
Allan P. Sherman
President and Chief
Executive Officer
Date: December 10, 1998 /s/ WILLIAM B. LANGSDORF
-------------------- ------------------------
William B. Langsdorf
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> Oct-31-1998
<CASH> 49,784
<SECURITIES> 47,534
<RECEIVABLES> 31,981
<ALLOWANCES> (297)
<INVENTORY> 332,403
<CURRENT-ASSETS> 494,282
<PP&E> 371,593
<DEPRECIATION> 115,433
<TOTAL-ASSETS> 775,370
<CURRENT-LIABILITIES> 232,764
<BONDS> 100,313
0
0
<COMMON> 379
<OTHER-SE> 381,417
<TOTAL-LIABILITY-AND-EQUITY> 775,370
<SALES> 1,133,588
<TOTAL-REVENUES> 1,133,588
<CGS> 879,433
<TOTAL-COSTS> 879,433
<OTHER-EXPENSES> 216,468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,229
<INCOME-PRETAX> 35,458
<INCOME-TAX> 13,510
<INCOME-CONTINUING> 21,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,948
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.51
</TABLE>
Herbert J. Zarkin
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and Herbert J. Zarkin ("Executive"), dated as of August 31, 1998
(the "Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to two times Executive's Base Salary for one year
at the rate in effect immediately prior to the Date of
Termination or the Change of Control (or if Executive's Base
Salary was reduced within 180 days before the commencement of a
Standstill Period, the rate in effect immediately prior to such
reduction), plus the accrued and unpaid portion of Executive's
Base Salary through the Date of Termination. Any payments made to
Executive under any long term disability plan of the Company with
respect to the two years following termination of employment
shall be offset against such two times Base Salary payment.
Executive shall promptly make reimbursement payments to the
Company to the extent any such disability payments are received
after the Base Salary payment; and
(ii) an amount equal to two times Executive's automobile allowance for
one year at the rate in effect immediately prior to the Date of
Termination or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the commencement of
a Standstill Period, the rate in effect immediately prior to such
reduction unless such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion of
Executive's automobile allowance payable but unpaid through the
Date of Termination; and
(iii)an amount equal to the Target Bonus amount, as defined and
determined under Section 1.1(a) above.
(b)(i) Until the day 24 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: President
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by
reference to the title of any section. ------
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change
in Executive's titles or offices as in effect immediately prior
to a Change of Control, or any removal of Executive from or any
failure to reelect Executive to such positions, except in
connection with the termination of Executive's employment by the
Company (or a Subsidiary) for Cause or by Executive other than
for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to Executive in
the completed fiscal year immediately preceding the Change of
Control, or if Executive's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any
fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the Change of Control
unless any such reduction represents an overall reduction of no
more than 10 percent in the rate of Base Salary paid or cash
compensation opportunities made available, as the case may be,
and affects all other executives in the same organizational level
(it being the Company's burden to establish this fact); or
(III)the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life
insurance, medical insurance or disability plan in which
Executive was participating immediately prior to a Change of
Control unless the Company (or a Subsidiary) provides Executive
with a plan or plans that provide substantially similar benefits,
or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially
reduce Executive's benefits under any of such plans or deprive
Executive of any material fringe benefit enjoyed by Executive
immediately prior to a Change of Control unless the elimination
or reduction of any such benefit, perquisite or plan is of an
aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other executives in the same
organizational level (it being the Company's burden to establish
this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period
which is not effected in compliance with paragraph (b) of this
Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control;
or
(VI) any other breach by the Company of any provision of this
Agreement; or
(VII) the Company sells or otherwise disposes of, in one transaction or
a series of related transactions, assets or earning power
aggregating more than 30 percent of the assets (taken at asset
value as stated on the books of the Company determined in
accordance with generally accepted accounting principles
consistently applied) or earning power of the Company (on an
individual basis) or the Company and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those
terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or
sells or otherwise disposes of, in one transaction or a series of
related transactions, assets or earning power aggregating more
than 30 percent of the assets (taken at asset value as stated on
the books of the Subsidiary determined in accordance with
generally accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis) or such
Subsidiary and its subsidiaries (on a consolidated basis) to any
other Person or Persons (as those terms are defined in Exhibit
B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one
day after the Change of Control and ending 12 months after the
Change of Control, provided, that in the event of any such
voluntary termination pursuant to this clause (IX), the Executive
shall be entitled to receive only one-half (1/2) of the lump sum
amount provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half (1/2) the
number of months from the Date of Termination stipulated in that
Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
Allan P. Sherman
EMPLOYMENT AGREEMENT
AGREEMENT dated as of June 1, 1998 between Allan P. Sherman of 2198
Ruby Place, Laguna Beach, California 92651 ("Executive") and HomeBase, Inc., a
Delaware corporation (the "Company"), whose principal office is in Irvine,
California.
RECITALS
The Company desires that Executive serve as President and Chief
Executive Officer of the Company and Executive is willing to serve in such
capacity.
The Company and Executive deem it desirable to enter into this
Agreement.
AGREEMENT
In consideration of the mutual agreements hereinafter contained, the
parties agree as follows:
1. EFFECTIVE DATE; TERM OF AGREEMENT; DEFINITIONS. This Agreement shall
become effective as of June 1, 1998 (the "Effective Date"). This Agreement shall
supersede any existing employment agreement between Executive and the Company or
any of its Subsidiaries. Notwithstanding the foregoing, the Change of Control
Severance Agreement between the Company and Executive, as it may be amended or
superseded (the "Change of Control Agreement"), shall remain in full force and
effect. The employment shall continue on the terms provided herein until May 30,
1999 and thereafter for an unspecified period until terminated by either
Executive or the Company, subject to earlier termination as provided herein
(such period of employment hereinafter called the "Employment Period"). The
terms defined in Exhibit A hereto are used as so defined.
2. SCOPE OF EMPLOYMENT.
(a) Nature of Services. Executive shall diligently perform the
duties and the responsibilities of President and Chief Executive Officer of the
Company and such additional executive duties and responsibilities as shall from
time to time be agreed by Executive and the Board of Directors.
(b) Extent of Services. Except for illnesses and vacation
periods, Executive shall devote substantially all his working time and attention
and his best efforts to the performance of his duties and responsibilities under
this Agreement. However, Executive may (a) make any passive investments where he
is not obligated or required to, and shall not in fact, devote any managerial
efforts, (b) participate in charitable or community activities or in trade or
professional organizations or (c) subject to approval of the Board, hold
directorships in public companies, except only that the Board shall have the
right to limit such services as a director or such participation whenever the
Board shall believe that the time spent on such activities infringes in any
material respect upon the time required by Executive for the performance of his
duties under this Agreement or is otherwise incompatible with those duties.
3. COMPENSATION AND BENEFITS.
(a) Base Salary. Executive shall be paid a base salary at the
annualized rate of not less than $556,000 per year, to be reviewed annually by
the Executive Compensation Committee of the Board (the "Base Salary"). Base
Salary shall be payable in such manner and at such times as the Company shall
pay base salary to other executive employees.
(b) MIP Awards. Executive shall be eligible to receive awards under the
Company's Management Incentive Plan ("MIP") applicable to Executive. In each
fiscal year, Executive shall be eligible to earn up to a specified percentage of
his Base Salary as a Target Award or as a Maximum Award, as the case may be. The
Target Award shall equal 50% of the Executive's Base Salary, and the Maximum
Award shall not exceed $1,000,000 or, if less, 100% of Executive's Base Salary
annualized as of the beginning of the applicable performance period.
(c) Policies and Fringe Benefits. Executive shall be subject to Company
policies applicable to its executives generally and Executive shall be entitled
to receive all such fringe benefits as the Company shall from time to time make
available to other executives generally (subject to the terms of the applicable
fringe benefits plan).
(d) Real Estate Assistance. In connection with Executive's relocation
in 1993 from Massachusetts to California, the Company agreed to extend to
Executive an interest-free loan of $700,000 for the purchase by Executive of a
residence in California. The current loan balance is $300,000 and the Company
shall forgive $100,000 principal outstanding amount of the loan on each of
January 25, 1999, 2000 and 2001, whether or not Executive shall then be employed
hereunder. In addition, the Company shall pay for Executive's benefit a total of
$186,000 of federal and state withholding taxes (the "Loan Cash Payment"). The
Loan Cash Payment shall be paid in installments on one or more dates of
forgiveness of principal in an amount proportionate to the amount of the Loan
which Executive recognizes as forgiven on his federal tax return for any year
(so that the Loan Cash Payment would be $62,000 in each of three years if such
tax recognition occurred in equal annual amounts over three years). The loan
shall automatically be accelerated and become due 60 days after termination in
the event Executive shall voluntarily terminate his employment hereunder or
shall be terminated by the Company for Cause. The loan and the Company's
obligation to make Loan Cash Payments shall remain in effect following
termination for any other reason, including but not limited to a Qualified
Termination pursuant to the Change of Control Agreement. The loan is secured by
a valid and perfected first mortgage on Executive's residence in California. The
net proceeds from any sale of such residence shall be applied to reduce or
eliminate the loan and such net proceeds shall be subsequently reloaned by the
Company to Executive on a similar secured basis by the Company at the closing of
Executive's subsequent purchase of another residence within or outside
California. Such reloan shall have the same terms and maturity date as the
original loan and shall be treated as constituting part of the original loan, if
any part of the original loan is then outstanding. Upon a reloan, Executive
shall receive credit for any debt forgiveness and Loan Cash Payments which would
have occurred had the loan been continuously outstanding. Such repayment and
relending provisions shall apply to all subsequent sales and purchases of
residences by Executive.
4. TERMINATION OF EMPLOYMENT; IN GENERAL.
(a) The Company shall have the right to end the Employment Period (and
thereby terminate Executive's employment) at any time, with or without notice,
and for any reason with or without Cause.
(b) Unless otherwise prohibited by law, the Employment Period shall
terminate when Executive becomes Disabled. In addition, if by reason of
Incapacity Executive is unable to perform his duties for at least six continuous
months, the Employment Period will be terminated for Incapacity upon written
notice by the Company to Executive.
(c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions he shall hold with the Company and any
affiliated corporations, including any position on the Board.
5. BENEFITS UPON TERMINATION OF EMPLOYMENT.
(a) Certain Terminations. If the Employment Period shall have
terminated prior to, on or after May 30, 1999 (i) by reason of death, Disability
or Incapacity of Executive, or (ii) by termination by the Company for any reason
other than Cause, then all compensation and benefits for Executive shall be as
follows:
(i) For 78 weeks after such termination, the Company will
continue to pay to Executive Base Salary at the rate in effect at
termination of employment. Base Salary shall be paid for the first
three months of the period without reduction for compensation earned
from other employment or self-employment, and shall thereafter be
reduced by such compensation earned from other employment or
self-employment.
(ii) Until the expiration of the period of Base Salary
payments described in (i) above, except to the extent that Executive
shall obtain the same from another employer or from self-employment,
the Company will provide such medical and hospital insurance and life
insurance for Executive and his family, comparable to the insurance
provided for executives generally, as the Company shall determine, and
upon the same terms and conditions as the same shall be provided for
other Company executives generally; provided, however, that in no event
shall such benefits or the terms and conditions thereof be less
favorable to Executive than those afforded to him as of the date of
termination.
(iii) The Company will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under the Company's MIP applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year of the Company ended
immediately prior to Executive's termination of employment.
These amounts will be paid at the same time as other awards
for such prior year are paid.
Second, such amount as Executive would have earned under MIP
if Executive's employment had continued until the end of the
fiscal year in which termination of employment occurs
(prorated for Executive's period of service during such year
prior to termination). This amount will be paid at the same
time as other MIP awards for the year of termination are paid.
In addition, the Company will pay to Executive such amounts as
Executive shall have deferred (but not received) under the Company's
General Deferred Compensation Plan in accordance with the provisions of
that Plan.
(iv) Executive shall also be entitled to payments or benefits
under other plans of the Company to the extent that such plans provide
benefits following a termination of employment.
(v) If termination occurs by reason of Incapacity or
Disability, Executive shall be entitled to such compensation, if any,
as is payable pursuant to the Company's long-term disability plan or
any successor Company disability plan. Any payments made to Executive
under any long-term disability plan of the Company with respect to the
salary continuation period in clause (i) above shall be offset against
such salary continuation payments and to the extent not so offset,
Executive shall promptly make reimbursement payments to the Company of
such disability payments.
(b) Certain Voluntary Terminations; Termination for Cause; Violation of
Certain Agreements. If Executive should end his employment voluntarily at any
time or if the Company should at any time end Executive's employment for Cause,
or, notwithstanding (a) above, if Executive should at any time violate the
provisions of Section 6, all compensation and benefits otherwise payable
pursuant to this Agreement shall cease, other than (x) such amounts as Executive
shall have deferred (but not received) under the Company's General Deferred
Compensation Plan in accordance with the provisions of that Plan, and (y) any
payments or benefits under the Company's 401(k) Savings Plan to the extent that
such plan provides benefits following a termination of employment. The Company
does not waive any rights, including rights it may have for damages or for
injunctive relief.
(c) Benefits Upon Change of Control. Upon a Change of Control (as
defined in the Change of Control Agreement) any stock options then held by
Executive shall automatically become fully exercisable and all restrictions and
conditions, including vesting conditions, applicable to any shares of restricted
stock (including Performance-Accelerated Restricted Stock) then held by
Executive shall be deemed automatically waived. Following a Change of Control
(as defined in the Change of Control Agreement), any rights of Executive under
this Agreement or any other agreement or plan with respect to uncompleted MIP
periods or cycles shall be governed solely by the Change of Control Agreement.
Upon a Qualified Termination (as defined in the Change of Control Agreement),
all rights of Executive with respect to salary continuation, life insurance,
medical insurance and disability benefits and auto allowance or auto lease
benefits shall be governed solely by the Change of Control Agreement but Section
3(d) hereof shall remain in effect notwithstanding the occurrence of a Change of
Control or Qualified Termination.
6. AGREEMENT NOT TO SOLICIT OR COMPETE.
(a) Upon the termination of employment at any time for any reason, then
for a period of two years after the termination of the Employment Period,
Executive shall not under any circumstances employ, solicit the employment of,
or accept unsolicited the services of, any "protected person" or recommend the
employment of any "protected person" to any other business organization. A
"protected person" shall be a person known by Executive (i) to be employed by
the Company or its Subsidiaries or (ii) to have been employed by Company or its
Subsidiaries within six months prior to the commencement of conversations with
such person with respect to employment.
As to (i) each "protected person" to whom the foregoing applies (ii)
each limitation on (A) employment, (B) solicitation and (C) unsolicited
acceptance of services of each "protected person" and (iii) each month of the
period during which the provisions of this Subsection (a) apply to each of the
foregoing, the provisions set forth in this Subsection (a) are deemed to be
separate and independent agreements and in the event of unenforceability of any
such agreement, such unenforceable agreement shall be deemed automatically
deleted from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this Subsection (a) or any other term
of this Agreement.
(b) During the course of his employment, Executive will have learned
many trade secrets of the Company and will have had access to confidential
information and business plans of the Company. Therefore, if Executive should
end his employment voluntarily at any time, including by reason of retirement or
disability, or if the Company should end Executive's employment at any time for
Cause, then for a period of two years thereafter, Executive will not engage,
either as a principal, employee, partner, consultant or investor (other than a
less-than-1% stock interest in a corporation), in a business which is a
competitor of the Company (a "Competitive Business"). A business shall be deemed
a Competitive Business if it shall operate a chain of home improvement stores
(such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware, or
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional or full mark-up
department stores, general merchandise discount department stores, or apparel
stores. In addition, if during a period of salary continuation under Section
5(a)(i) following Executive's termination by the Company for any reason other
than Cause, Executive so engages in a Competitive Business, Executive's rights
to any further salary continuation or benefits continuation under Sections
5(a)(i) and 5(a)(ii) shall terminate. Executive agrees that if, at any time,
pursuant to action of any court or administrative or governmental body, the
operation of any part of this paragraph shall be determined to be unlawful or
otherwise unenforceable, then the coverage of this paragraph shall be deemed to
be restricted as to duration, geographical scope or otherwise, to the extent,
and only to the extent, necessary to make this paragraph lawful and enforceable
in the particular jurisdiction in which such determination is made.
(c) During the Employment Period and upon termination for any reason,
Executive shall keep confidential and not disclose Company plans or other
confidential or proprietary information of the Company to any unauthorized
person unless legally required to do so, in which case Executive will first
notify the Company and cooperate with the Company to obtain a judicial or
administrative order protecting such confidentiality. If the Employment Period
terminates, Executive agrees (i) to notify the Company promptly upon his
securing employment or becoming self-employed during any period when Executive's
compensation from the Company shall be subject to reduction or his benefits
provided by the Company shall be subject to termination as provided in Section 5
and (ii) to furnish to the Company written evidence of his compensation earned
from any such employment or self-employment as the Company shall from time to
time reasonably request. In addition, upon termination of the Employment Period
for any reason other than the death of Executive, Executive shall immediately
return all Company property and all written trade secrets, confidential
information and business plans of the Company and shall execute a certificate
certifying that he has returned all such items in his possession or under his
control. In the event of the death of Executive, Executive's estate shall comply
with this obligation.
7. ASSIGNMENT. The rights and obligations of the Company (including,
without limitation, the provisions of Section 3(d)) shall inure to the benefit
of and shall be binding upon the successors and assigns of the Company. The
rights and obligations of Executive are not assignable except only that payments
payable to him after his death shall be made by devise or descent.
8. NOTICES. All notices and other communications required hereunder
shall be in writing and shall be given by mailing the same by certified or
registered mail, return receipt requested, postage prepaid. If sent to the
Company, the same shall be mailed to the Company at 3345 Michelson Drive,
Irvine, CA 92612, Attention: Chairman of the Board, or such other address as the
Company may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at 2198 Ruby Place, Laguna
Beach, CA 92651 or at such other address as Executive may hereafter designate by
notice to the Company.
9. WITHHOLDING. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
10. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the
domestic substantive laws of the State of California without giving effect to
any choice or conflict of laws rule or provision that would cause the
application of the domestic substantive laws of any other jurisdiction.
11. CONSENT TO JURISDICTION, ETC. Each party hereto (i) irrevocably
submits to the nonexclusive jurisdiction of the state courts of the State of
California and to the nonexclusive jurisdiction of the United States District
Court for the Central District of California for the purpose of any suit,
action, or other proceeding arising out of or based upon this Agreement or the
subject matter hereof or in any way connected with or related or incidental to
the dealings of either party hereto in connection with any of the above; (ii)
agrees that any such proceeding shall be brought or maintained only in such
courts; (iii) waives to the extent not prohibited by applicable law, and agrees
not to assert (by way of motion, as a defense, or otherwise) in any such
proceeding, any claim that it or he is not subject personally to the
jurisdiction of the above-named courts, that it or he is immune from
extraterritorial injunctive relief or other injunctive relief, that its or his
property is exempt or immune from attachment or execution, that any such
proceeding may not be properly brought or maintained in one of the above-named
courts, that any such proceeding brought or maintained in one of the above-named
courts should be dismissed on grounds of forum non conveniens, should be
transferred to any court other than one of the above-named courts, or should be
stayed by reason of the pendency of some other proceeding in any court other
than one of the above-named courts, or that this Agreement or the subject matter
hereof may not be enforced in or by any of the above-named courts; (iv) agrees
that service of process in any such proceeding may be made in any manner
permitted by the law applicable in the court where any such proceeding is
brought or maintained or by registered or certified mail, return receipt
requested, at its or his principal place of business to its or his notice
address for purpose of this Agreement; (v) agrees that service of process made
in accordance with clause (iv) is reasonably calculated to give actual notice of
any such proceeding; and (vi) waives and agrees not to assert (by way of motion,
as a defense, or otherwise) in any such proceeding any claim that service of
process made in accordance with clause (iv) does not constitute good and
sufficient service of process.
12. SEVERABILITY. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
13. AMENDMENT OF MODIFICATION, WAIVER. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
14. ENTIRE AGREEMENT. This Agreement, including Exhibit A incorporated
herein, supersedes all prior written or oral agreements between the Company and
Executive and represents the entire agreement between the parties relating to
the terms of the Executive's employment by the Company, except the Change of
Control Agreement.
Executive:
Allan P. Sherman
HOMEBASE, INC.
By:
Herbert J. Zarkin
Chairman of the Board
<PAGE>
EXHIBIT A
Certain Definitions
In this Agreement, the following terms shall have the following meanings:
(a) "Base Salary" means, for any period, the amount described in
Section 3(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Executive Compensation Committee of the
Board.
(d) "Cause" means dishonesty of Executive in the performance of his
duties, conviction of a felony (other than a conviction arising
solely under a statutory provision imposing criminal liability
upon Executive on a per se basis due to the Company offices held
by Executive, so long as any act or omission of Executive with
respect to such matter was not taken or omitted in contravention
of any applicable policy or directive of the Board), gross
neglect of duties (other than as a result of Incapacity,
Disability or death), or conflict of interest which conflict
shall continue for 30 days after the Company gives written notice
to Executive requesting the cessation of such conflict.
(e) "Date of Termination" means the date on which Executive's
employment is terminated.
(f) "Disability" has the meaning given it in the Company's long-term
disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is
entitled to receive long-term disability compensation pursuant to
such long-term disability plan.
(g) "Incapacity" means a disability (other than Disability within the
meaning of (f) above) or other impairment of health that renders
Executive unable to perform his duties to the reasonable
satisfaction of the Board.
(h) "Stock" means the common stock, $0.01 par value, of the Company.
(i) "Subsidiary" means any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
Allan P. Sherman
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and Allan P. Sherman ("Executive"), dated as of August 31, 1998 (the
"Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to three times Executive's Base
Salary for one year at the rate in effect immediately
prior to the Date of Termination or the Change of
Control (or if Executive's Base Salary was reduced
within 180 days before the commencement of a
Standstill Period, the rate in effect immediately
prior to such reduction), plus the accrued and unpaid
portion of Executive's Base Salary through the Date
of Termination. Any payments made to Executive under
any long term disability plan of the Company with
respect to the three years following termination of
employment shall be offset against such three times
Base Salary payment. Executive shall promptly make
reimbursement payments to the Company to the extent
any such disability payments are received after the
Base Salary payment; and
(ii) an amount equal to three times Executive's
automobile allowance for one year at the rate in
effect immediately prior to the Date of Termination
or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the
commencement of a Standstill Period, the rate in
effect immediately prior to such reduction unless
such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion
of Executive's automobile allowance payable but
unpaid through the Date of Termination; and
(iii) an amount equal to the Target Bonus amount, as
defined and determined under Section 1.1(a) above.
(b)(i) Until the day 36 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: Chairman of the Board
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by reference
to the title of any section.
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with Executive's
positions, duties, responsibilities, reporting requirements, and status with the
Company (or a Subsidiary) immediately prior to a Change of Control, or a
substantive change in Executive's titles or offices as in effect immediately
prior to a Change of Control, or any removal of Executive from or any failure to
reelect Executive to such positions, except in connection with the termination
of Executive's employment by the Company (or a Subsidiary) for Cause or by
Executive other than for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position, authority, duties
or responsibilities, other than an insubstantial and inadvertent action which is
remedied by the Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less than
100 percent of the rate of Base Salary paid to Executive in the completed fiscal
year immediately preceding the Change of Control, or if Executive's total cash
compensation opportunities, including salary, incentives and automobile
allowance, for any fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the completed fiscal
year immediately preceding the Change of Control unless any such reduction
represents an overall reduction of no more than 10 percent in the rate of Base
Salary paid or cash compensation opportunities made available, as the case may
be, and affects all other executives in the same organizational level (it being
the Company's burden to establish this fact); or
(III) the failure of the Company (or a Subsidiary) to continue
in effect any benefits or perquisites, or any pension,
life insurance, medical insurance or disability plan in
which Executive was participating immediately prior to a
Change of Control unless the Company (or a Subsidiary)
provides Executive with a plan or plans that provide
substantially similar benefits, or the taking of any
action by the Company (or a Subsidiary) that would
adversely affect Executive's participation in or
materially reduce Executive's benefits under any of such
plans or deprive Executive of any material fringe benefit
enjoyed by Executive immediately prior to a Change of
Control unless the elimination or reduction of any such
benefit, perquisite or plan is of an aggregate value of no
more than 5 percent of the rate of Base Salary and affects
all other executives in the same organizational level (it
being the Company's burden to establish this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill
Period which is not effected in compliance with paragraph
(b) of this Exhibit; or
(V) any relocation of Executive of more than 40 miles from the
place where Executive was located at the time of the
Change of Control; or
(VI) any other breach by the Company of any provision of this Agreement;
or
(VII) the Company sells or otherwise disposes of, in one
transaction or a series of related transactions, assets or
earning power aggregating more than 30 percent of the
assets (taken at asset value as stated on the books of the
Company determined in accordance with generally accepted
accounting principles consistently applied) or earning
power of the Company (on an individual basis) or the
Company and its subsidiaries (on a consolidated basis) to
any other Person or Persons (as those terms are defined in
Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company,
such Subsidiary either ceases to be a Subsidiary of the
Company or sells or otherwise disposes of, in one
transaction or a series of related transactions, assets or
earning power aggregating more than 30 percent of the
assets (taken at asset value as stated on the books of the
Subsidiary determined in accordance with generally
accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis)
or such Subsidiary and its subsidiaries (on a consolidated
basis) to any other Person or Persons (as those terms are
defined in Exhibit B); or
(IX) the voluntary termination by Executive of Executive's
employment at any time during the period commencing eight
months plus one day after the Change of Control and ending
12 months after the Change of Control, provided, that in
the event of any such voluntary termination pursuant to
this clause (IX), the Executive shall be entitled to
receive only one-half (1/2) of the lump sum amount
provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half
(1/2) the number of months from the Date of Termination
stipulated in that Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
Thomas F. Gallagher
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and Thomas F. Gallagher ("Executive"), dated as of August 31, 1998
(the "Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to 2.5 times Executive's Base
Salary for one year at the rate in effect immediately
prior to the Date of Termination or the Change of
Control (or if Executive's Base Salary was reduced
within 180 days before the commencement of a
Standstill Period, the rate in effect immediately
prior to such reduction), plus the accrued and unpaid
portion of Executive's Base Salary through the Date
of Termination. Any payments made to Executive under
any long term disability plan of the Company with
respect to the 2.5 years following termination of
employment shall be offset against such 2.5 times
Base Salary payment. Executive shall promptly make
reimbursement payments to the Company to the extent
any such disability payments are received after the
Base Salary payment; and
(ii) an amount equal to 2.5 times Executive's
automobile allowance for one year at the rate in
effect immediately prior to the Date of Termination
or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the
commencement of a Standstill Period, the rate in
effect immediately prior to such reduction unless
such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion
of Executive's automobile allowance payable but
unpaid through the Date of Termination; and
(iii) an amount equal to the Target Bonus amount, as
defined and determined under Section 1.1(a) above.
(b)(i) Until the day 30 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: President
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by
reference to the title of any section.
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change
in Executive's titles or offices as in effect immediately prior
to a Change of Control, or any removal of Executive from or any
failure to reelect Executive to such positions, except in
connection with the termination of Executive's employment by the
Company (or a Subsidiary) for Cause or by Executive other than
for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to Executive in
the completed fiscal year immediately preceding the Change of
Control, or if Executive's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any
fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the Change of Control
unless any such reduction represents an overall reduction of no
more than 10 percent in the rate of Base Salary paid or cash
compensation opportunities made available, as the case may be,
and affects all other executives in the same organizational level
(it being the Company's burden to establish this fact); or
(III)the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life
insurance, medical insurance or disability plan in which
Executive was participating immediately prior to a Change of
Control unless the Company (or a Subsidiary) provides Executive
with a plan or plans that provide substantially similar benefits,
or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially
reduce Executive's benefits under any of such plans or deprive
Executive of any material fringe benefit enjoyed by Executive
immediately prior to a Change of Control unless the elimination
or reduction of any such benefit, perquisite or plan is of an
aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other executives in the same
organizational level (it being the Company's burden to establish
this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period
which is not effected in compliance with paragraph (b) of this
Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control;
or
(VI) any other breach by the Company of any provision of this
Agreement; or
(VII) the Company sells or otherwise disposes of, in one transaction or
a series of related transactions, assets or earning power
aggregating more than 30 percent of the assets (taken at asset
value as stated on the books of the Company determined in
accordance with generally accepted accounting principles
consistently applied) or earning power of the Company (on an
individual basis) or the Company and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those
terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or
sells or otherwise disposes of, in one transaction or a series of
related transactions, assets or earning power aggregating more
than 30 percent of the assets (taken at asset value as stated on
the books of the Subsidiary determined in accordance with
generally accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis) or such
Subsidiary and its subsidiaries (on a consolidated basis) to any
other Person or Persons (as those terms are defined in Exhibit
B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one
day after the Change of Control and ending 12 months after the
Change of Control, provided, that in the event of any such
voluntary termination pursuant to this clause (IX), the Executive
shall be entitled to receive only one-half (1/2) of the lump sum
amount provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half (1/2) the
number of months from the Date of Termination stipulated in that
Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
William B. Langsdorf
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and William B. Langsdorf ("Executive"), dated as of August 31, 1998
(the "Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to 2.5 times Executive's Base
Salary for one year at the rate in effect immediately
prior to the Date of Termination or the Change of
Control (or if Executive's Base Salary was reduced
within 180 days before the commencement of a
Standstill Period, the rate in effect immediately
prior to such reduction), plus the accrued and unpaid
portion of Executive's Base Salary through the Date
of Termination. Any payments made to Executive under
any long term disability plan of the Company with
respect to the 2.5 years following termination of
employment shall be offset against such 2.5 times
Base Salary payment. Executive shall promptly make
reimbursement payments to the Company to the extent
any such disability payments are received after the
Base Salary payment; and
(ii) an amount equal to 2.5 times Executive's
automobile allowance for one year at the rate in
effect immediately prior to the Date of Termination
or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the
commencement of a Standstill Period, the rate in
effect immediately prior to such reduction unless
such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion
of Executive's automobile allowance payable but
unpaid through the Date of Termination; and
(iii) an amount equal to the Target Bonus amount, as
defined and determined under Section 1.1(a) above.
(b)(i) Until the day 30 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: President
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by
reference to the title of any section.
------
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change
in Executive's titles or offices as in effect immediately prior
to a Change of Control, or any removal of Executive from or any
failure to reelect Executive to such positions, except in
connection with the termination of Executive's employment by the
Company (or a Subsidiary) for Cause or by Executive other than
for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to Executive in
the completed fiscal year immediately preceding the Change of
Control, or if Executive's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any
fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the Change of Control
unless any such reduction represents an overall reduction of no
more than 10 percent in the rate of Base Salary paid or cash
compensation opportunities made available, as the case may be,
and affects all other executives in the same organizational level
(it being the Company's burden to establish this fact); or
(III)the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life
insurance, medical insurance or disability plan in which
Executive was participating immediately prior to a Change of
Control unless the Company (or a Subsidiary) provides Executive
with a plan or plans that provide substantially similar benefits,
or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially
reduce Executive's benefits under any of such plans or deprive
Executive of any material fringe benefit enjoyed by Executive
immediately prior to a Change of Control unless the elimination
or reduction of any such benefit, perquisite or plan is of an
aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other executives in the same
organizational level (it being the Company's burden to establish
this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period
which is not effected in compliance with paragraph (b) of this
Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control;
or
(VI) any other breach by the Company of any provision of this Agreement;
or
(VII)the Company sells or otherwise disposes of, in one transaction
or a series of related transactions, assets or earning power
aggregating more than 30 percent of the assets (taken at asset
value as stated on the books of the Company determined in
accordance with generally accepted accounting principles
consistently applied) or earning power of the Company (on an
individual basis) or the Company and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those
terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or
sells or otherwise disposes of, in one transaction or a series of
related transactions, assets or earning power aggregating more
than 30 percent of the assets (taken at asset value as stated on
the books of the Subsidiary determined in accordance with
generally accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis) or such
Subsidiary and its subsidiaries (on a consolidated basis) to any
other Person or Persons (as those terms are defined in Exhibit
B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one
day after the Change of Control and ending 12 months after the
Change of Control, provided, that in the event of any such
voluntary termination pursuant to this clause (IX), the Executive
shall be entitled to receive only one-half (1/2) of the lump sum
amount provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half (1/2) the
number of months from the Date of Termination stipulated in that
Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
Scott L. Richards
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and Scott L. Richards ("Executive"), dated as of August 31, 1998
(the "Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to 2.5 times Executive's Base
Salary for one year at the rate in effect immediately
prior to the Date of Termination or the Change of
Control (or if Executive's Base Salary was reduced
within 180 days before the commencement of a
Standstill Period, the rate in effect immediately
prior to such reduction), plus the accrued and unpaid
portion of Executive's Base Salary through the Date
of Termination. Any payments made to Executive under
any long term disability plan of the Company with
respect to the 2.5 years following termination of
employment shall be offset against such 2.5 times
Base Salary payment. Executive shall promptly make
reimbursement payments to the Company to the extent
any such disability payments are received after the
Base Salary payment; and
(ii) an amount equal to 2.5 times Executive's
automobile allowance for one year at the rate in
effect immediately prior to the Date of Termination
or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the
commencement of a Standstill Period, the rate in
effect immediately prior to such reduction unless
such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion
of Executive's automobile allowance payable but
unpaid through the Date of Termination; and
(iii) an amount equal to the Target Bonus amount, as
defined and determined under Section 1.1(a) above.
(b)(i) Until the day 30 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: President
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by
reference to the title of any section. ------
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change
in Executive's titles or offices as in effect immediately prior
to a Change of Control, or any removal of Executive from or any
failure to reelect Executive to such positions, except in
connection with the termination of Executive's employment by the
Company (or a Subsidiary) for Cause or by Executive other than
for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to Executive in
the completed fiscal year immediately preceding the Change of
Control, or if Executive's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any
fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the Change of Control
unless any such reduction represents an overall reduction of no
more than 10 percent in the rate of Base Salary paid or cash
compensation opportunities made available, as the case may be,
and affects all other executives in the same organizational level
(it being the Company's burden to establish this fact); or
(III)the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life
insurance, medical insurance or disability plan in which
Executive was participating immediately prior to a Change of
Control unless the Company (or a Subsidiary) provides Executive
with a plan or plans that provide substantially similar benefits,
or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially
reduce Executive's benefits under any of such plans or deprive
Executive of any material fringe benefit enjoyed by Executive
immediately prior to a Change of Control unless the elimination
or reduction of any such benefit, perquisite or plan is of an
aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other executives in the same
organizational level (it being the Company's burden to establish
this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period
which is not effected in compliance with paragraph (b) of this
Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control;
or
(VI) any other breach by the Company of any provision of this Agreement;
or
(VII)the Company sells or otherwise disposes of, in one transaction
or a series of related transactions, assets or earning power
aggregating more than 30 percent of the assets (taken at asset
value as stated on the books of the Company determined in
accordance with generally accepted accounting principles
consistently applied) or earning power of the Company (on an
individual basis) or the Company and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those
terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or
sells or otherwise disposes of, in one transaction or a series of
related transactions, assets or earning power aggregating more
than 30 percent of the assets (taken at asset value as stated on
the books of the Subsidiary determined in accordance with
generally accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis) or such
Subsidiary and its subsidiaries (on a consolidated basis) to any
other Person or Persons (as those terms are defined in Exhibit
B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one
day after the Change of Control and ending 12 months after the
Change of Control, provided, that in the event of any such
voluntary termination pursuant to this clause (IX), the Executive
shall be entitled to receive only one-half (1/2) of the lump sum
amount provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half (1/2) the
number of months from the Date of Termination stipulated in that
Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
Edward J. Weisberger
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and Edward J. Weisberger ("Executive"), dated as of August 31, 1998
(the "Effective Date").
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of
the Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should
Executive's employment terminate in specified circumstances following a change
of control of the Company and to assure Executive of certain other benefits upon
a change of control.
In consideration of Executive's continued employment with the Company
or a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
1.1 In General. Within 30 days following a Change of Control, whether
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if the Target Bonus is reduced within 180 days
before the commencement of a Standstill Period, the "Target Bonus"
applicable to Executive for the fiscal year in which such reduction
occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to
be paid to Executive upon a Change of Control pursuant to the
provisions of such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(i) an amount equal to two times Executive's Base
Salary for one year at the rate in effect immediately
prior to the Date of Termination or the Change of
Control (or if Executive's Base Salary was reduced
within 180 days before the commencement of a
Standstill Period, the rate in effect immediately
prior to such reduction), plus the accrued and unpaid
portion of Executive's Base Salary through the Date
of Termination. Any payments made to Executive under
any long term disability plan of the Company with
respect to the two years following termination of
employment shall be offset against such two times
Base Salary payment. Executive shall promptly make
reimbursement payments to the Company to the extent
any such disability payments are received after the
Base Salary payment; and
(ii) an amount equal to two times Executive's
automobile allowance for one year at the rate in
effect immediately prior to the Date of Termination
or the Change of Control, (or if such automobile
allowance was reduced within 180 days before the
commencement of a Standstill Period, the rate in
effect immediately prior to such reduction unless
such reduction was offset by an increase in Base
Salary during such 180-day period), plus any portion
of Executive's automobile allowance payable but
unpaid through the Date of Termination; and
(iii) an amount equal to the Target Bonus amount, as
defined and determined under Section 1.1(a) above.
(b)(i) Until the day 24 months after the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to Executive for any reason, including termination of the plan, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life insurance or medical insurance plans and programs
shall be deemed satisfied to the extent (but only to the extent) of any such
insurance coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard to
whether such payments (or any other payments) would subject Executive to the
federal excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to or for
the benefit of Executive(including acceleration of vesting of benefits under
existing plans), after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by PricewaterhouseCoopers LLP or by such other
certified public accounting firm as the Executive Compensation Committee of the
Company's Board of Directors may designate prior to a Change of Control. In the
event of any underpayment or overpayment under Sections 1.1 or 1.2, as
determined by PricewaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or refunded to
the Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
Executive not to engage in competition with the Company subsequent to the
termination of Executive's employment, whether contained in an employment
contract or other agreement, shall no longer be effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., or its successors or assigns, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92612
Attention: Chairman of the Board
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
8.1 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in paragraph
(j) of Exhibit A) under this Agreement. This Agreement shall not otherwise be
assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be
amended unless agreed to in writing by Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4 Titles. No provision of this Agreement is to be construed by
reference to the title of any section. ------
8.5 Continued Employment. This Agreement shall not give Executive any
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This
Agreement shall be automatically terminated upon the first to occur of (i) the
date five (5) years after the Effective Date of this Agreement unless a
Standstill Period is in effect on such date, in which case such termination
shall occur upon the expiration of such Standstill Period or (ii) the
termination of Executive's employment for any reason, whether voluntary or
involuntary, at any time other than during a Standstill Period or (iii) the
180th day after a change in Executive's title to a level below that of
Executive's Current Title unless a Standstill Period was in effect on the date
of such change or within 180 days thereafter or (iv) if Executive is employed by
a Subsidiary of the Company, the date on which the Subsidiary either ceases to
be a Subsidiary of the Company or sells or otherwise disposes of all or
substantially all of its assets, unless such event occurs during a Standstill
Period and Executive's employment shall have been terminated in a Qualified
Termination within 90 days of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
herein as so defined.
8.9 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HOMEBASE, INC.
By___________________________
Executive:
-----------------------------
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Agreement shall have the
following meanings:
(a) "Base Salary" shall mean Executive's annual base salary,
exclusive of any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross
neglect of duties (other than as a result of Incapacity, Disability or
death), or conflict of interest which conflict shall continue for 30 days
after the Company gives written notice to Executive requesting the cessation
of such conflict.
In respect of any termination during a Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to
Executive), and at which Executive together with his counsel was given an
opportunity to be heard, finding that Executive was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend Executive
and withhold payment of Executive's Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of
Executive for Cause effected in accordance with the foregoing procedures (in
which case Executive shall not be entitled to Executive's Base Salary for
such period), (b) a determination by a majority of the Company's directors
that Executive was not guilty of the conduct described in the definition of
"Cause" above (in which case Executive shall be reinstated and paid any of
Executive's previously unpaid Base Salary for such period), or (c) the 90th
day after notice of termination is given (in which case Executive shall be
reinstated and paid any of Executive's previously unpaid Base Salary for
such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit
B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Current Title" shall mean Executive's title on the date 180
days prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's
long-term disability plan. Executive's employment shall be deemed to be
terminated for Disability on the date on which Executive is entitled to
receive long-term disability compensation pursuant to such long-term
disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability
within the meaning of the immediately preceding definition) or other
impairment of health that renders Executive unable to perform Executive's
duties to the reasonable satisfaction of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform
Executive's duties for at least six months in any 12-month period, upon
written notice by the Company the employment of Executive shall be deemed to
have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of
Executive's employment during a Standstill Period (1) by the Company other
than for Cause, or (2) by Executive for good reason, or (3) by reason of
death, Incapacity or Disability.
For purposes of this definition, termination for "good reason"
shall mean the voluntary termination by Executive of Executive's employment
(A) within 120 days after the occurrence without Executive's express written
consent of any of the events described in clauses (I), (II), (III), (IV),
(V) or (VI) below, provided that Executive gives notice to the Company at
least 30 days in advance requesting that the situation described in those
clauses be remedied, and the situation remains unremedied upon expiration of
such 30-day period; (B) within 120 days after the occurrence without
Executive's express written consent (which must expressly refer to such
consent as being given under this Agreement) of the events described in
clauses (VII) or (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause(IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change
in Executive's titles or offices as in effect immediately prior
to a Change of Control, or any removal of Executive from or any
failure to reelect Executive to such positions, except in
connection with the termination of Executive's employment by the
Company (or a Subsidiary) for Cause or by Executive other than
for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to Executive in
the completed fiscal year immediately preceding the Change of
Control, or if Executive's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any
fiscal year are less than 100 percent of the total cash
compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the Change of Control
unless any such reduction represents an overall reduction of no
more than 10 percent in the rate of Base Salary paid or cash
compensation opportunities made available, as the case may be,
and affects all other executives in the same organizational level
(it being the Company's burden to establish this fact); or
(III)the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life
insurance, medical insurance or disability plan in which
Executive was participating immediately prior to a Change of
Control unless the Company (or a Subsidiary) provides Executive
with a plan or plans that provide substantially similar benefits,
or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially
reduce Executive's benefits under any of such plans or deprive
Executive of any material fringe benefit enjoyed by Executive
immediately prior to a Change of Control unless the elimination
or reduction of any such benefit, perquisite or plan is of an
aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other executives in the same
organizational level (it being the Company's burden to establish
this fact); or
(IV) any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period
which is not effected in compliance with paragraph (b) of this
Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control;
or
(VI) any other breach by the Company of any provision of this
Agreement; or
(VII)the Company sells or otherwise disposes of, in one transaction or
a series of related transactions, assets or earning power
aggregating more than 30 percent of the assets (taken at asset
value as stated on the books of the Company determined in
accordance with generally accepted accounting principles
consistently applied) or earning power of the Company (on an
individual basis) or the Company and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those
terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or
sells or otherwise disposes of, in one transaction or a series of
related transactions, assets or earning power aggregating more
than 30 percent of the assets (taken at asset value as stated on
the books of the Subsidiary determined in accordance with
generally accepted accounting principles consistently applied) or
earning power of such Subsidiary (on an individual basis) or such
Subsidiary and its subsidiaries (on a consolidated basis) to any
other Person or Persons (as those terms are defined in Exhibit
B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one
day after the Change of Control and ending 12 months after the
Change of Control, provided, that in the event of any such
voluntary termination pursuant to this clause (IX), the Executive
shall be entitled to receive only one-half (1/2) of the lump sum
amount provided for in Section 1.2(a) and the benefits provided
for in Section 1.2(b)(i) shall be provided for one-half (1/2) the
number of months from the Date of Termination stipulated in that
Section.
(k) "Standstill Period" shall be the period commencing on the date
of a Change of Control and continuing until the close of business on the
last business day of the 24th calendar month following such Change of
Control.
(l) "Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly, 50 percent or more of the total combined
voting power of all classes of stock.
<PAGE>
EXHIBIT B
Definition of Change of Control
A "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequently to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board
(except that this proviso shall not apply to any individual whose initial
assumption of office as a director occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"),
in each case, unless, immediately following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination 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.
HOMEBASE, INC.
Change of Control Severance Benefit
Plan for Key Employees *
<PAGE>
HomeBase, Inc. (the "Company") desires to assure that it and its
Subsidiaries (collectively, the "Employer") will have the benefit of the
continued service and experience of certain of their key employees and to assure
the Employer and such employees of the continuity of management of the Company
and the Employer in the event of a change of control of the Company, and adopts
this plan (the "Plan") to provide such assurances. This Plan is intended to
cover as Participants those employees of the Employer who are designated or
otherwise described as a Participant in Exhibit A, paragraph (j).
1. Benefits Upon Change of Control.
1.01 In General. Within 30 days following a Change of Control, whether
or not a Participant's employment has been terminated, the Company shall pay to
the Participant the following in a lump sum:
(a) an amount equal to the product of (i) the "Target Bonus"
under the HomeBase, Inc. Management Incentive Plan or any other annual
incentive plan which is applicable to the Participant for the fiscal
year in which the Change of Control occurs and (ii) a fraction, the
numerator of which is the number of days in such fiscal year prior to
the Change of Control and the denominator of which is 365; and
(b) if the Participant is a participant in any long-range
incentive plan at the time of the Change of Control, the benefits and
payment provided for by the terms of such plan upon the occurrence of a
Change of Control.
1.02 Benefits Following a Qualified Termination. Participants whose
employment terminates in a Qualified Termination shall be entitled to the
following additional benefits:
(a) Within 30 days following the Participant's Date of
Termination, the Employer shall pay to the Participant an amount equal
to the accrued and unpaid portion of the Participant's Base Salary
through the Date of Termination.
* As amended and restated August 31, 1998
(b) In addition to the amount described in paragraph (a)
above, but subject to paragraph (c) below, the Employer shall pay
and/or provide to the Participant all other benefits to which the
Participant is entitled upon termination of the Participant's
employment as set forth in the Company's Severance Policy in existence
immediately prior to the Change of Control (or in existence on the Date
of Termination, if the benefits thereunder are greater), at the times
and in the manner described in such Severance Policy.
(c) In addition to amounts described in paragraph (a) above,
the Employer shall pay in a single lump sum an amount equal to the
Participant's Base Salary, determined as hereinafter provided,
multiplied by the Applicable Number of Weeks, determined as provided in
Exhibit B, to any Participant who had been employed by the Employer for
at least 12 months prior to the Date of Termination. The Base Salary
payable under this paragraph shall equal the Participant's Base Salary
as in effect immediately prior to the Change of Control or, if greater,
the Participant's Base Salary as in effect immediately prior to the
Date of Termination. The benefit described in this paragraph shall be
paid in lieu of the benefit described in paragraph (b) unless the
benefit described in paragraph (b) is greater, in which case the
benefit described in paragraph (b) shall be paid in lieu of the benefit
described in this paragraph (c).
(d) The Employer shall arrange and pay for continuation of
medical and life insurance benefits for the Participant (which shall be
in amount and terms substantially comparable to those in effect
immediately prior to the Change of Control) for a period commencing on
the Date of Termination and continuing for the Applicable Number of
Weeks. To the extent the Participant, immediately prior to the Change
of Control, was responsible for paying a portion of the premiums with
respect to such insurance benefits, the Participant shall be required
to continue to pay such amount.
1.03 Coordination with Certain Tax Rules. Payments under Sections 1.01
and 1.02 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of the Participant) would
be limited or precluded by Internal Revenue Code Section 280G and without regard
to whether such payments (or any other payments) would subject the Participant
to the federal excise tax levied on certain "excess parachute payments" under
Internal Revenue Code Section 4999; provided, that if the total of all payments
to or for the benefit of the Participant, after reduction for all federal taxes
(including the tax described in Internal Revenue Code Section 4999, if
applicable) with respect to such payments (the "Participant's total after-tax
payments"), would be increased by the limitation or elimination of any payment
under Sections 1.01 or 1.02, amounts payable under Sections 1.01 and 1.02 shall
be reduced to the extent, and only to the extent, necessary to maximize the
Participant's total after-tax payments. The determination as to whether and to
what extent payments under Sections 1.01 and 1.02 are required to be reduced in
accordance with the preceding sentence shall be made at the Company's expense by
Coopers & Lybrand L.L.P. or by such other certified public accounting firm as
the Executive Compensation Committee of the Company's Board of Directors may
designate prior to a Change of Control. In the event of any underpayment or
overpayment under Sections 1.01 or 1.02 as determined by Coopers & Lybrand
L.L.P. (or such other firm as may have been designated in accordance with the
preceding sentence), the amount of such underpayment or overpayment shall
forthwith be paid to the Participant or refunded to the Company, as the case may
be, with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
Withholding.
2.01 Noncompetition. Upon a Change of Control, any agreement by a
Participant not to engage in competition with the Employer subsequent to the
termination of his employment, whether contained in an employment contract or
other agreement, shall no longer be effective.
2.02 No Duty to Mitigate Damages. A Participant's benefits under this
Plan shall be considered severance pay in consideration of his past and future
services, and his entitlement thereto shall neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation he may receive from future employment.
2.03 Other Severance Payments. In the event that the Participant has an
employment contract or any other agreement with the Employer which entitles the
Participant to severance payments upon the termination of his employment with
the Employer (other than payments to be made under the Company's Severance
Policy as described in Section 1.02(b)), the amount of any such severance
payments shall be deducted from the payments to be made to the Participant under
this Plan so as to avoid duplication of severance benefits.
2.04 Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Employer hereunder to a Participant shall be
subject to the withholding of such amounts, if any, relating to tax and other
payroll deductions as the Employer may reasonably determine it should withhold
pursuant to any applicable law or regulation.
3. Notice of Termination. During a Standstill Period, a Participant's
employment may be terminated by the Employer only upon 30 days' written notice
to the Participant.
4. Notices. All notices shall be in writing and shall be deemed given
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Employer: c/o HomeBase, Inc.
3345 Michelson Drive
Irvine, California 92612
Attention: Treasurer
To the Participant: At his home address, as last shown on the records of the
Employer
5. Severability. In the event that any provision of this Plan shall be
determined to be invalid or unenforceable, such provision shall be enforceable
in any other jurisdiction in which valid and enforceable. In any event the
remaining provisions shall remain in full force and effect to the fullest extent
permitted by law.
6. Continued Employment. This Plan shall not give a Participant any
right of continued employment or any right to any compensation or benefits from
the Company or the Employer except the benefits specifically provided for herein
and shall not limit the Employer's right to change the terms of or terminate the
Participant's employment, with or without Cause, at any time other than during a
Standstill Period, except as may be otherwise provided in a written employment
agreement between the Participant and the Employer.
7. Amendment and Termination. This Plan shall be effective for three
years starting from the Effective Date and thereafter for successive three-year
periods if, prior to the conclusion of each such period (including the initial
term) the Company, acting through its Board of Directors, elects to renew this
Plan. The Board of Directors of the Company shall review this Plan every three
years, such review to commence at least one year prior to the scheduled
termination of this Plan. Notwithstanding the foregoing, this Plan and the
employee benefits described herein may be amended or terminated as to all
Participants or as to any specific Participant at any time by the Company acting
by its Board of Directors and shall be terminated with respect to any specific
Participant upon the first to occur of the following: (i) he no longer has the
title "Senior Vice President," "Vice President," "Assistant Vice President,"
"Manager of," "Buyer," or "District Manager" (or such other management title as
the Board of Directors of the Company may from time to time specify for purposes
of Exhibit A, paragraph (j)) or (ii) his employment is terminated or (iii) if he
is employed by a Subsidiary of the Company, the Subsidiary either ceases to be a
Subsidiary of the Company or sells or otherwise disposes of all or substantially
all of its assets; provided that no such amendment or termination which occurs
during a Standstill Period shall terminate or affect the existing rights of any
Participant hereunder except that all such rights shall terminate as to a
Participant employed by a Subsidiary which has either ceased to be a Subsidiary
of the Company or sold all or substantially all of its assets during a
Standstill Period unless the employment of the Participant shall have been
terminated in a Qualified Termination within 90 days of such event.
8. Legal Fees and Expenses. The Employer shall pay all legal fees and
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. incurred by a Participant in reasonably contesting or disputing that
the termination of his employment during a Standstill Period is for Cause or
other than for good reason (as defined in Exhibit A, paragraph (k)) or in
obtaining any right or benefit to which the Participant is entitled under this
Plan. Any amount payable under this Plan that is not paid when due shall accrue
interest at the prime rate as from time to time in effect at BankBoston (or any
successor thereto, or if there is no successor entity thereto, such other
commercial banking institution as shall be selected by the Executive
Compensation Committee of the Company's Board of Directors) until paid in full.
9. Binding on Successors. This Plan shall be binding on any successor
to all or substantially all of the Company's business or assets.
10. Governing Law. This Plan shall be governed by the laws of the State
of California.
<PAGE>
EXHIBIT A
Definitions
The following terms as used in this Plan and Exhibits shall have the
following meanings:
(a) "Base Salary" shall mean the Participant's weekly base salary,
exclusive of any bonus or other benefits he may receive; provided, however, that
for purposes of Section 1.02(c) only, Base Salary shall include the dollar
amount of any auto allowance.
(b) "Cause" shall mean, with respect to any Participant, dishonesty,
conviction of a felony, gross neglect of duties (other than as a result of
Disability or death), or conflict of interest which conflict shall continue for
30 days after the Company gives written notice to the Participant requesting the
cessation of such conflict.
In respect of any termination during a Standstill Period, the
Participant shall not be deemed to have been terminated for Cause until the
later to occur of (i) the 30th day after notice of termination is given and (ii)
the delivery to the Participant of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Company's directors at a
meeting called and held for that purpose (after reasonable notice to the
Participant), and at which the Participant together with his counsel was given
an opportunity to be heard, finding that the Participant was guilty of conduct
described in the definition of "Cause" above, and specifying the particulars
thereof in detail; provided, however, that the Company may suspend the
Participant and withhold payment of his Base Salary from the date that notice of
termination is given until the earliest to occur of (a) termination of the
Participant for Cause effected in accordance with the foregoing procedures (in
which case the Participant shall not be entitled to his Base Salary for such
period), (b) a determination by a majority of the Company's directors that the
Participant was not guilty of the conduct described in the definition of "Cause"
above (in which case the Participant shall be reinstated and paid any of his
previously unpaid Base Salary for such period), or (c) the 90th day after notice
of termination is given (in which case the Participant shall be reinstated and
paid any of his previously unpaid Base Salary for such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit C.
(d) "Company" shall mean HomeBase, Inc. or any successor.
(e) "Date of Termination" shall mean the date on which the
Participant's employment is terminated.
(f) "Disability" shall have the meaning given it in the Company's
long-term disability plan. A Participant's employment shall be deemed to be
terminated for Disability on the date on which the Participant is entitled to
receive long-term disability compensation pursuant to such long-term disability
plan.
(g) "Employer" shall have the meaning set forth in the first paragraph
of this Plan.
(h) "Effective Date" shall mean the date on which the Company completes
the spin-off of the BJ's Wholesale Club division of the Company by distributing
to the stockholders of the Company, on a pro rata basis, all of the then
outstanding shares of Common Stock of BJ's Wholesale Club, Inc.
(i) "Incapacity" shall mean a disability (other than Disability within
the meaning of paragraph (f) of this Exhibit A) or other impairment of health
that renders the Participant unable to perform his duties to the satisfaction of
the Executive Compensation Committee of the Board of Directors of the Company.
If by reason of Incapacity the Participant is unable to perform his duties for
at least six months in any 12-month period, upon written notice by the Company
to the Participant the employment of the Participant shall be deemed to have
been terminated by reason of Incapacity.
(j) "Participant" shall mean any employee of the Employer who has the
management title "Senior Vice President," "Vice President," "Assistant Vice
President," "Manager of," "Buyer," or "District Manager" (or such other
management title as the Board of Directors of the Company may from time to time
specify, with reference to this definition), and who does not have a separate
severance agreement with the Employer relating to a Change of Control. The
Company shall keep a current list of the names of all Participants.
(k) "Qualified Termination" shall mean the termination of the
Participant's employment during a Standstill Period (i) by the Employer other
than for Cause, or (ii) by the Participant for good reason, or (iii) by reason
of death, Incapacity or Disability.
For purposes of this definition, termination for "good reason" shall
mean, with respect to any Participant, the voluntary termination by the
Participant of his employment (A) within 120 days after the occurrence without
the Participant's express written consent of any of the events described in
clauses (I), (II), (III), (IV), (V) or (VI) below, provided that the Participant
gives notice to the Company at least 30 days in advance requesting that the
situation described in those clauses be remedied, and the situation remains
unremedied upon expiration of such 30-day period; or (B) within 120 days after
the occurrence without the Participant's express written consent of the events
described in clauses (VII) or (VIII) below, provided that the Participant gives
notice to the Company at least 30 days in advance:
(I) the assignment to him of any duties inconsistent with his positions,
duties, responsibilities, and status with the Employer immediately
prior to a Change of Control, or a change in the Participant's titles
or offices as in effect immediately prior to a Change of Control, or
any removal of the Participant from or any failure to reelect him to
such positions, except in connection with the termination of the
Participant's employment by the Employer for Cause or by the
Participant other than for good reason; or
(II) if the Participant's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to the Participant in
the completed fiscal year immediately preceding the Change of Control,
or if the Participant's total cash compensation opportunities,
including salary, incentives and automobile allowance, for any fiscal
year are less than 100 percent of the total cash compensation
opportunities made available to the Participant in the completed
fiscal year immediately preceding the Change of Control unless any
such reduction represents an overall reduction of no more than 10
percent in the rate of Base Salary paid or cash compensation
opportunities made available, as the case may be, and affects all
other employees having similar job titles (it being the Employer's
burden to establish this fact); or
(III)the failure of the Employer to continue in effect any benefit or
perquisite, or any pension, life insurance, medical insurance or
disability plan in which the Participant was participating immediately
prior to a Change of Control unless the Employer provides the
Participant with a plan or plans that provide substantially similar
benefits, or the taking of any action by the Employer that would
adversely affect the Participant's participation in or materially
reduce the Participant's benefits under any of such plans or deprive
the Participant of any material fringe benefit enjoyed by the
Participant immediately prior to a Change of Control unless the
elimination or reduction of any such beneft, perquisite or plan is of
an aggregate value of no more than 5 percent of the rate of Base
Salary and affects all other employees having similar job titles (it
being the Employer's burden to establish this fact); or
(IV) any purported termination of the Participant's employment by the
Employer for Cause during a Standstill Period which is not effected in
compliance with paragraph (b) of this Exhibit; or
(V) any relocation of the Participant of more than 40 miles from the place
where the Participant was located at the time of the Change of
Control; or
(VI) any other breach by the Company with respect to the Participant of any
provision of this Plan; or
(VII)the Company sells or otherwise disposes of, in one transaction or a
series of related transactions, assets or earning power aggregating
more than 30 percent of the assets (taken at asset value as stated on
the books of the Company determined in accordance with generally
accepted accounting principles consistently applied) or earning power
of the Company (on an individual basis) or the Company and its
Subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit C); or
(VIII) if the Participant is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a subsidiary of the Company or sells or
otherwise disposes of, in one transaction or a series of related
transactions, assets or earning power aggregating more than 30 percent
of the assets (taken at asset value as stated on the books of the
Subsidiary determined in accordance with generally accepted accounting
principles consistently applied) or earning power of such Subsidiary
(on an individual basis) or such Subsidiary and its subsidiaries (on a
consolidated basis) to any other Person or Persons (as those terms are
defined in Exhibit C).
(l) "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
(m) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power of
all classes of stock.
<PAGE>
EXHIBIT B
Determination of Benefits Following a Qualified Termination
The "Applicable Number of Weeks" with respect to a Participant is as
follows:
- --------------------------------------- --------------------------------
If the Participant's title Then the Applicable Number of
immediately prior to the Change of Weeks
Control is...
- ------------- -----
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Senior Vice President 78 weeks
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Vice President 78 weeks
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Assistant Vice President 52 weeks
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Buyer 39 weeks
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
District Manager 39 weeks
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Director/Manager of 26 weeks
- --------------------------------------- --------------------------------
<PAGE>
EXHIBIT C
Definition of Change of 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.
HOMEBASE, INC.
EXECUTIVE RETIREMENT PLAN
-------------------------
FIRST AMENDMENT
-------------------------
HomeBase, Inc., having adopted the HomeBase, Inc. Executive Retirement
Plan, as amended and restated effective as of July 27, 1997 (the "Plan") and
having reserved to itself the right to amend the Plan at any time and from time
to time, hereby adopts the following amendment to the Plan, effective as of
August 31, 1998:
* * * * * *
1.Section 3.1 is deleted in its entirety and the following is substituted
therefor:
"3.1 Four Year Rule. Notwithstanding the provisions of Section 2.1
hereof, the Company will make payment in respect of a Participant's Annual
Retirement Contribution for a Plan Year only if the Participant has been
credited with at least four (4) Years of Service by, and is employed by the
Company at, the end of such Plan Year, except as follows: Upon a Change of
Control (as defined in Schedule B), the provisions of Section 3.6 hereof shall
apply."
2. Section 3.3 is deleted in its entirety and the following is
substituted therefor:
"3.3 Forfeitures. Except as provided in Section 3.5 hereof, if a
Participant hereunder terminates employment with the Company prior to being
credited with four (4) Years of Service, the Participant shall forfeit the right
to any benefit accrued hereunder."
3. A new Section 3.5 is added as follows:
"3.5 Accelerated Vesting Upon Change of Control. Notwithstanding any
other provision of the Plan, upon a Change of Control (as defined in
Schedule B), a Participant will become 100% vested in all benefits accrued
hereunder."
4. A new Section 3.6 is added as follows:
"3.6 Full Funding Upon Change of Control. Notwithstanding any other
provision of the Plan, upon a Change of Control (as defined in Schedule B), the
following shall apply: As soon as administratively feasible following the end of
the Plan Year during which a Change of Control (as defined in Schedule B)
occurs, with respect to each Participant in the Plan, the Company will fully
fund the Annual Retirement Contribution accrued by such Participant during the
Plan Year in which the Change of Control occurs and the Company will fully fund
all Annual Retirement Contributions accrued by such Participant during all Plan
Years prior to the Plan Year in which the Change of Control occurred."
5. Schedule B is added as follows:
"SCHEDULE B
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 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
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 that 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 wee 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."
6. Except as herein above specifically amended, all provisions of the
Plan shall continue in full force and effect.
* * * * *
IN WITNESS WHEREOF, HomeBase, Inc. has caused this instrument to be
executed in its name on its behalf this 31st day of August, 1998.
HOMEBASE, INC
By: ___________________________
William Langsdorf
EVP - CFO
ATTEST:
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