<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HomeBase, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF HOMEBASE, INC.]
3345 Michelson Drive
Irvine, CA 92612
April 16, 1998
Dear Stockholder:
We invite you to attend our 1998 Annual Meeting of Stockholders on Thursday,
May 21, 1998 at 10:00 a.m. PDT at the offices of Gibson, Dunn & Crutcher LLP,
14th Floor, 4 Park Plaza, Irvine, California 92614.
At this meeting, you are being asked to elect two directors. Your vote is
important regardless of the number of shares you own. Accordingly, we urge you
to read the proxy statement and to complete, sign and return your proxy
promptly in the enclosed envelope.
We hope that you will join us on May 21st.
Sincerely,
[SIGNATURE LOGO OF ALLAN P. SHERMAN] [SIGNATURE LOGO OF HERBERT J. ZARKIN]
Allan P. Sherman Herbert J. Zarkin
President and Chief Executive Officer Chairman of the Board
<PAGE>
[LOGO OF HOMEBASE, INC.]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
----------------
The Annual Meeting of Stockholders of HomeBase, Inc. will be held at the
offices of Gibson, Dunn & Crutcher LLP, 14th Floor, 4 Park Plaza, Irvine,
California 92614, on Thursday, May 21, 1998 at 10:00 a.m. PDT for the
following purposes:
1. To elect two directors to serve until the 2001 Annual Meeting of
Stockholders; and
2. To transact any other business which may properly be brought before the
meeting.
Stockholders of record at the close of business on March 16, 1998 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
A list of stockholders entitled to vote at the meeting will be open to
examination by stockholders during normal business hours for the ten-day
period preceding the meeting at the offices of Gibson, Dunn & Crutcher LLP, 4
Park Plaza, Irvine, California 92612.
By Order of the Board of Directors
John L. Price
Secretary
Irvine, California
April 16, 1998
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF HOMEBASE, INC.]
ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
PROXY STATEMENT
----------------
The enclosed proxy is solicited on behalf of the Board of Directors of
HomeBase, Inc. (the "Company"). Unless instructions to the contrary are given,
shares represented by duly executed proxies will be voted for the election of
the two nominees set forth below. Any proxy may be revoked prior to the voting
thereof by a written revocation received by the Secretary of the Company at
its address set forth below, the receipt of a later dated proxy or by a
request at the meeting that the proxy be revoked.
Stockholders of record at the close of business on March 16, 1998 are
entitled to receive notice of and to vote at the meeting. Each share of Common
Stock, par value $.01, of the Company (the "Common Stock") outstanding on the
record date is entitled to one vote. As of the close of business on March 16,
1998, there were outstanding and entitled to vote 37,788,135 shares of Common
Stock.
This Proxy Statement, the enclosed proxy and the Annual Report for the
Company's fiscal year ended January 31, 1998 ("fiscal 1997") were first mailed
to stockholders on or about the date of the Notice of Meeting. The Company's
address is 3345 Michelson Drive, Irvine, California 92612.
VOTE REQUIRED
Under the Company's by-laws, so long as a quorum is present at the meeting,
the election of directors will require the affirmative vote of the holders of
shares representing a plurality of the votes cast at the meeting. Although
shares which withhold authority for any nominee and broker non-votes (i.e.,
shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners and with respect to which the broker or
nominee indicates that it does not have discretionary authority to vote such
shares) will be counted as present at the meeting for quorum purposes, such
shares will not be considered to be votes cast with respect to the election of
directors. Accordingly, shares which withhold authority and broker non-votes
will have no effect on the voting on the matters being presented for
stockholder action at the meeting.
ELECTION OF DIRECTORS
The Board of Directors has voted to fix the number of directors at six. The
Company's Restated Certificate of Incorporation and by-laws provide for the
classification of the Board of Directors into three classes, as nearly equal
in number as possible, with the term of office of one class expiring each
year. The enclosed proxy will be voted to elect the two nominees named below,
unless otherwise instructed, as directors for a term of three years expiring
at the 2001 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified. If any nominee should become
unavailable, such proxy will be voted either for a substitute nominee
designated by the Board of Directors or such lesser number of directors as may
be designated by the Board of Directors, unless instructions are given to the
contrary. Management does not anticipate that any of the nominees will become
unavailable. The nominees as directors and incumbent directors are as follows:
NOMINEES AS DIRECTORS--TERMS EXPIRING 2001
Allan P. Sherman, 53, has been a Director, President and Chief Executive
Officer of the Company since July 1997. From 1993 to 1997 he served as
Executive Vice President of the Company and President of its then
<PAGE>
HomeBase Division. From May 1993 to September 1993 he served as Executive Vice
President of the Company and President of the Company's former BJ's Wholesale
Club Division (the "BJ's Division"). From 1991 to May 1993 he served as Senior
Vice President and General Merchandise Manager--Non-Food of the BJ's Division.
Mr. Sherman is a member of the Executive Committee and the Finance Committee.
Herbert J. Zarkin, 59, has been Chairman of the Board since July 1997 and a
Director since May 1993. From May 1993 to July 1997 Mr. Zarkin served as
President and Chief Executive Officer of the Company. From 1990 to May 1993 he
served as President of the BJ's Division. From 1989 to May 1993 he served as
Executive Vice President of the Company. Mr. Zarkin is also Chairman of the
Board of Directors of BJ's Wholesale Club, Inc. Mr. Zarkin is the Chairman of
the Company's Executive Committee and a member of the Finance Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 2000
Arthur F. Loewy, 69, has been a Director of the Company since February 1989.
From 1982 to 1989 he served as Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. Mr. Loewy also serves as a Director of The
TJX Companies, Inc. Mr. Loewy is Chairman of the Audit Committee and the
Finance Committee and is a member of the Executive Committee.
Edward J. Weisberger, 56, has been a Director and Senior Vice President,
Finance since July 1997. From 1994 to July 1997 he served as Senior Vice
President and Chief Financial Officer of the Company. From April 1989 to
September 1994 he served as Vice President--Finance of the Company. Mr.
Weisberger is also an employee of BJ's Wholesale Club, Inc. and a Director of
BJ's Wholesale Club, Inc. Mr. Weisberger is a member of the Company's Finance
Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1999
John D. Barr, 50, has been a Director since July 1997. Since 1995 Mr. Barr
has been a Director, President and Chief Operating Officer of Quaker State
Corporation. From 1987 to 1995 he served as Senior Vice President of Ashland,
Inc. and President of its subsidiary, The Valvoline Company. Mr. Barr is a
member of the Executive Compensation Committee.
Lorne R. Waxlax, 64, has been a Director since January 1990 and was Chairman
of the Board from 1996 to July 1997. From 1985 to 1993, Mr. Waxlax was
Executive Vice President of The Gillette Company. Mr. Waxlax is a Director of
BJ's Wholesale Club, Inc., Clean Harbors, Inc., Hon Industries, Inc., Quaker
State Corporation and The Iams Company. Mr. Waxlax is Chairman of the
Executive Compensation Committee and a member of the Executive Committee and
the Audit Committee.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual retainer
of $20,000 and fees of $1,250 for each Board meeting attended, $750 for each
Committee meeting attended and $750 for certain telephone meetings. The
Chairman of the Audit Committee and the Chairman of the Executive Compensation
Committee are each paid $2,500 per annum for their services as such. All
directors are reimbursed for out-of-pocket expenses incurred in attending such
meetings. Directors may participate in the Company's General Deferred
Compensation Plan.
Under the Company's 1995 Director Stock Option Plan (the "Director Plan")
each new non-employee director receives an initial grant of options to
purchase 3,000 shares of Common Stock and annual grants of options to purchase
1,500 shares of Common Stock thereafter. The exercise price for each of these
options is the fair market value of a share of Common Stock on the date of
grant. Each option is nontransferable except upon death, will expire 10 years
after the date of grant and will become exercisable in three equal annual
installments
2
<PAGE>
beginning on the first day of the month which includes the first anniversary
of the date of grant. If the director dies or otherwise ceases to be a
director prior to the date that the option or a portion thereof becomes
exercisable, the option will immediately expire with respect to the shares
that are not yet exercisable. Any vested options will remain exercisable for a
period of one year following cessation of service as a director of the
Company. All unexercised options will become exercisable in full beginning 20
days prior to the consummation of a merger or consolidation (as described in
the Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board has four committees: (i) Audit, (ii) Executive
Compensation, (iii) Executive and (iv) Finance.
The Audit Committee, which held three meetings during fiscal 1997, reviews
with management, the internal audit group and the independent public
accountants the Company's financial statements, the accounting principles
applied in their preparation, the scope of the audit, any comments made by the
public accountants upon the financial condition of the Company and its
accounting controls and procedures, and such other matters as the Committee
deems appropriate. The Committee reviews with management such matters relating
to compliance with corporate policies as the Committee deems appropriate.
The Executive Compensation Committee, which held five meetings during fiscal
1997, reviews compensation policies and compensation of officers and other
members of management, including incentive compensation plans. In addition,
the Executive Compensation Committee has responsibility for matters of
corporate governance other than recommendations to the Board of Directors of
nominees to fill vacancies on the Board of Directors.
The Executive Committee of the Board of Directors is authorized to act on
behalf of the Board during intervals between meetings of the Company's Board
of Directors. In addition, the Executive Committee has responsibility for
consideration of the qualifications of, and recommendation to the Board of
Directors of, nominees to fill vacancies on the Board of Directors and
considers nominees recommended by stockholders if such recommendations are in
writing and timely filed with the Secretary of the Company. The Executive
Committee did not meet during fiscal 1997.
The Finance Committee of the Board of Directors reviews with management and
advises the Company's Board with respect to the Company's finances, including
exploring methods of meeting the Company's financing requirements and planning
the Company's capital structure. The Finance Committee did not meet during
fiscal 1997.
During fiscal 1997 the Board of Directors held 12 meetings and took action
by written consent three times. Each director attended at least 75% of all
meetings of the Board and Committees of which he is a member.
3
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of March 16, 1998,
concerning beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to beneficially own more than five percent of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer of the Company appearing in the
Summary Compensation Table on page 6, and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, all amounts
reflected in the table represent shares in which the beneficial owners have
sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
SHARES OF SHARES OF
NAME AND ADDRESS OF BENEFICIAL COMMON STOCK COMMON STOCK
OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------------------ --------------------- --------------------
<S> <C> <C>
David J. Greene and Company, LLC.. 5,278,655(2) 14.0%
599 Lexington Avenue
New York, NY 10022
Franklin Resources, Inc. et al.... 4,273,200(3) 11.3%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94404
First Pacific Advisors, Inc....... 4,256,013(4) 11.3%
11400 West Olympic Blvd, Suite
1200
Los Angeles, CA 90064
The Prudential Insurance Company
of America....................... 3,440,724(5) 9.1%
751 Broad Street
Newark, NJ 07102-3777
Vanguard/Windsor Funds, Inc....... 2,487,900(6) 6.6%
P.O. Box 2600
Valley Forge, PA 19482-2600
FMR Corp.......................... 2,205,400(7) 5.8%
82 Devonshire Street
Boston, MA 02109
Arthur F. Loewy................... 9,707(8) *
Lorne R. Waxlax................... 9,500 *
Herbert J. Zarkin................. 446,075 1.2%
Allan P. Sherman.................. 532,950 1.4%
Edward J. Weisberger.............. 119,212 *
John D. Barr...................... -0- *
Thomas F. Gallagher............... 35,110 *
Scott L. Richards................. 36,559 *
William B. Langsdorf.............. 37,839 *
All Directors and Executive
Officers as a Group (10 Persons). 1,230,952 3.2%
</TABLE>
4
<PAGE>
- --------
* Indicates less than 1%.
(1) Includes the following shares of Common Stock that may be acquired upon
exercise of outstanding stock options which were exercisable on March 16,
1998 or within 60 days thereafter: Mr. Loewy, 2,075 shares; Mr. Waxlax,
2,500 shares: Mr. Zarkin, 383,400 shares; Mr. Sherman, 464,125 shares; Mr.
Weisberger, 106,670 shares; Mr. Gallagher, 6,431 shares; Mr. Richards,
19,292 shares; Mr. Langsdorf, 20,848 shares; all Directors and Executive
Officers as a group, 1,005,341 shares.
(2) Information is as of December 31, 1997 and is based on a Schedule 13G/A
filed with the Securities and Exchange Commission (the "Commission") by
David J. Greene and Company, LLC. David J. Greene and Company, LLC
reported that it has sole power to vote 399,200 shares and shared power to
vote 2,717,200 shares and has sole dispositive power with respect to
399,200 shares and shared dispositive power with respect to 4,879,455
shares.
(3) Information is as of December 31, 1997 and is based on a Schedule 13G/A
filed with the Commission by Franklin Resources, Inc., et al. Franklin
Resources, Inc., et al. reported that (i) Franklin Mutual Advisors, Inc.
has sole power to vote or to direct the voting of 2,068,200 shares;
Franklin Advisory Services, Inc. has sole power to vote or direct the
voting of 2,045,000 shares; and Templeton Investment Counsel, Inc. has the
sole power to vote or direct the voting of 160,000 shares; and (ii)
Franklin Mutual Advisors, Inc. has sole dispositive power with respect to
2,068,200 shares; Franklin Advisory Services, Inc. has sole dispositive
power with respect to 2,045,000 shares; and Templeton Investment Counsel,
Inc. has sole dispositive power with respect to 160,000 shares.
(4) Information is as of December 31, 1997 and is based on a Schedule 13G/A
filed with the Commission by First Pacific Advisors, Inc. First Pacific
Advisors, Inc. reported that it has shared power to vote 1,395,697 shares
and shared dispositive power with respect to 4,256,013 shares; includes
shares of Common Stock either owned directly or obtainable upon conversion
of the Company's 5.25% Convertible Subordinated Notes due 2004.
(5) Information is of December 31, 1997 based on a Schedule 13G filed with the
Commission by The Prudential Insurance Company of America ("Prudential").
Prudential reported that it has sole power to vote 202,500 shares and
shared power to vote 2,895,674 shares and has sole dispositive power with
respect to 202,500 shares and shared dispositive power with respect to
2,895,674 shares.
(6) Information is as of December 31, 1997 and is based on a Schedule 13G
filed with the Commission by Vanguard/Windsor Funds, Inc. Vanguard/Windsor
Funds, Inc. reported that it has sole power to vote 2,487,900 shares and
shared dispositive power with respect to 2,487,900 shares; such
dispositive power is shared with its investment advisor, Wellington
Management Company, LLP, which has also filed a Schedule 13G with the
Commission.
(7) Information is as of December 31, 1997 and is based on a Schedule 13G
filed with the Commission by FMR Corp. FMR Corp. reported that it had no
power to vote shares and sole dispositive power with respect to 2,205,400
shares.
(8) Excludes 413 shares beneficially owned by or for the benefit of the spouse
of Arthur F. Loewy, as to which Mr. Loewy disclaims beneficial ownership.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation provided to Mr. Zarkin, who served as Chief Executive
Officer until July 1997, to Mr. Sherman, the Company's current Chief Executive
Officer, and to the four other most highly compensated executive officers
(collectively the "Named Executive Officers") whose salary and bonus exceeded
$100,000 for fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- --------------------------------
AWARDS PAYOUTS
--------------------- ----------
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION(1) YEAR SALARY(2) BONUS COMPENSATION(3) AWARDS(4) OPTIONS(5) PAYOUTS(6) COMPENSATION(7)
------------------ ------ --------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin...... 1997 $505,769 $ -- $ 15,776 $ -- 40,000 $180,320 $21,259
Chairman of the Board 1996 605,962 199,361 25,633 -- 250,000 360,640 34,792
1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Allan P. Sherman....... 1997 511,538 -- 237,860 145,560 200,000 83,190 30,354
President and Chief 1996 451,346 -- 237,562 -- 82,976 83,190 27,019
Executive Officer 1995 435,000 40,000 241,652 -- 207,440 -- 26,250
Thomas F. Gallagher.... 1997 217,308 -- 83,639 176,248 75,000 80,874 15,665
Executive Vice
President, 1996 176,078 40,484 190,318 155,250 46,673 80,874 13,304
Store Operations 1995 114,634 29,470 3,895 -- -- -- 10,232
Scott L. Richards...... 1997 217,308 -- 9,972 94,536 75,000 24,957 15,665
Executive Vice
President 1996 167,923 2,709 6,610 129,375 50,822 24,957 12,562
Merchandising 1995 130,539 11,122 21,927 -- -- -- 11,027
Edward J. Weisberger... 1997 208,846 -- 5,335 -- -- 90,160 11,918
Senior Vice President 1996 238,077 46,996 10,071 -- 70,000 180,320 16,404
Finance 1995 225,000 40,567 9,518 -- 40,000 -- 15,750
William B. Langsdorf... 1997 183,961 -- 7,370 129,516 75,000 27,730 13,377
Executive Vice 1996 155,558 -- 6,218 -- 16,595 27,730 12,076
President and Chief
Financial Officer 1995 143,942 7,500 24,031 -- -- -- 11,697
</TABLE>
- -------
(1) Mr. Zarkin is currently Chairman of the Board; he served as President and
Chief Executive Officer of the Company until July 1997. Mr. Sherman has
been President and Chief Executive Officer since July 1997. Messrs.
Gallagher, Richards and Langsdorf have been executive officers since July
1997. Mr. Weisberger served as Senior Vice President and Chief Financial
Officer until July 1997; since then he has been Senior Vice President,
Finance, a non-executive office. "Annual Compensation" includes
compensation from the Company in all capacities.
(2) Salary for fiscal 1997 is calculated based on a 53-week year and on 52-
week years for fiscal 1996 and 1995.
(3) Includes for Mr. Sherman $125,120, $130,344 and $135,204 in fiscal 1997,
fiscal 1996 and fiscal 1995, respectively, for loan forgiveness and the
value of the interest-free component of a housing loan from the Company
pursuant to the terms of his employment contract, and $85,475, $80,671 and
$80,797 in fiscal 1997, fiscal 1996 and fiscal 1995, respectively, for
reimbursement of tax liabilities related to that loan and certain items
under "All Other Compensation." Includes for Mr. Gallagher $32,961 and
$102,141 in fiscal 1997 and 1996, respectively, for relocation costs and
$35,497 and $74,727 in fiscal 1997 and 1996, respectively, for
reimbursement of tax liabilities related to those costs and to certain
items under "All Other Compensation." Includes for Messrs. Zarkin,
Richards, Langsdorf and Weisberger in fiscal 1997, fiscal 1996 and fiscal
1995 and for Mr. Gallagher in fiscal 1995 the reimbursement for tax
liabilities related to the Company's contributions under the Company's
Executive Retirement Plan and excludes perquisites having an aggregate
value less than the lesser of $50,000 or 10% of salary plus bonus.
6
<PAGE>
(4) Restricted stock awards were issued at no cost to Messrs. Sherman,
Gallagher, Richards and Langsdorf in fiscal 1997 and to Mr. Gallagher and
Mr. Richards in fiscal 1996. All awards issued in fiscal 1997 to
Messrs. Sherman, Gallagher and Richards, as well as approximately 10% of
those issued to Mr. Langsdorf, were automatic adjustments in prior
holdings to reflect the terms of the Distribution. The dollar value of
these awards is based on the closing market price of the Company's Common
Stock on the date of grant. The shares subject to each award generally
vest in fixed annual percentages over three to five year periods. Vesting
is contingent upon continued employment on the vesting dates. The dollar
values of restricted stock holdings based on the fair market value of the
Company's Common Stock on January 31, 1998 were as follows: Mr. Zarkin,
$5,758; Mr. Sherman, $93,332; Mr. Gallagher, $185,672; Mr. Richards,
$98,570; Mr. Weisberger, $1,606; and Mr. Langsdorf $110,207. In the event
of a change of control (as defined), each person's restricted shares would
become unrestricted. Holders of restricted shares are entitled to the same
dividends as those paid to holders of unrestricted shares.
(5) Reflects the grant of options to purchase Common Stock. The Company has
never granted stock appreciation rights.
(6) Payouts for fiscal 1997 reflect the Company's Growth Incentive Plan award
earned by the named person for the three-year performance period ended
January 25, 1997.
(7) For fiscal 1997, represents the Company's contributions under its 401(k)
Savings Plan for Salaried Employees and the Company's Executive Retirement
Plan as presented below:
<TABLE>
<CAPTION>
1997 COMPANY
CONTRIBUTIONS
------------------
401(K) EXECUTIVE
SAVINGS RETIREMENT
NAME PLAN PLAN
---- ------- ----------
<S> <C> <C>
Herbert J. Zarkin..................................... $4,071 $17,188
Allan P. Sherman...................................... 4,777 25,577
Thomas F. Gallagher................................... 4,800 10,865
Scott L. Richards..................................... 4,800 10,865
Edward J. Weisberger.................................. 4,750 7,168
William B. Langsdorf.................................. 4,179 9,198
</TABLE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by the Company
to the Named Executive Officers during fiscal 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR PER SHARE(2) DATE 0%(3) 5% 10%
---- ---------- ------------ ------------ ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 4.8% $4.635 1/27/07 $-- $116,597 $ 295,480
Allan P. Sherman........ 100,000 12.1 7.820 8/19/07 -- 491,796 1,246,307
100,000 12.1 8.440 12/2/07 -- 530,787 1,345,119
Thomas F. Gallagher..... 25,000 3.0 7.820 8/19/07 -- 122,949 311,577
50,000 6.0 8.440 12/2/07 -- 265,394 672,559
Scott L. Richards....... 25,000 3.0 7.820 8/19/07 -- 122,949 311,577
50,000 6.0 8.440 12/2/07 -- 265,394 672,559
Edward J. Weisberger.... -- -- -- -- -- -- --
William B. Langsdorf.... 25,000 3.0 7.820 8/19/07 -- 122,949 311,577
50,000 6.0 8.440 12/2/07 -- 265,394 672,559
</TABLE>
7
<PAGE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Securities
and Exchange Commission and are not intended to forecast possible future
stock price appreciation, if any.
(2) All options granted in fiscal 1997 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant, as adjusted as a consequence of the
Distribution, and expire ten years from the date of grant. The options
vest in equal annual installments over four years except for those granted
on January 27, 1997 to Mr. Zarkin, which vest in equal annual installments
over three years, and those granted on December 2, 1997 to Messrs.
Sherman, Gallagher, Richards and Langsdorf, which fully vest in January,
2000. All options vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately.
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1997 by the Named Executive Officers and the
fiscal year-end value of unexercised options held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 403,400 236,600 $1,477,391 $662,959
Allan P. Sherman........ 170,642 801,943 389,447 370,100 945,728 314,975
Thomas F. Gallagher..... 24,375 58,641 -- 128,311 -- 42,719
Scott L. Richards....... 32,851 110,618 10,372 127,066 12,758 74,245
Edward J. Weisberger.... -- -- 103,170 64,330 369,230 186,277
William B. Langsdorf.... 44,911 169,453 6,742 107,360 12,597 58,895
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Company's Common Stock on January
31, 1998, less the option exercise price.
RETIREMENT BENEFITS
Under the Company's Executive Retirement Plan, employees in high-level
management positions in the Company, as selected by the Company's Executive
Compensation Committee (the "ECC"), including all executive officers, are
eligible to receive annual cash retirement contributions in an amount
determined by the ECC, provided that the smallest annual retirement
contribution shall equal, on an after-tax basis, at least three percent of the
participant's base salary. All amounts paid under the Executive Retirement
Plan are to be used exclusively to fund an investment vehicle, selected by the
ECC, which is appropriate to provide retirement income, such as an insurance
policy.
The Company made retirement contributions after the end of 1997 equal to 5%
(net of taxes) of each participant's base salary during 1997. If the
participant terminates employment prior to the end of the fiscal year in which
the participant is credited with four years of service, the participant
forfeits the right to any benefit under the Executive Retirement Plan. As of
January 31, 1998, all Named Executive Officers were credited with at least
four years of service.
The Waban Inc. Retirement Plan (the "Retirement Plan"), in which Messrs.
Zarkin, Richards, Langsdorf and Weisberger participated, was frozen on July 4,
1992 and benefits under the Retirement Plan ceased to accrue
8
<PAGE>
after that date. Messrs. Zarkin, Richards, Langsdorf and Weisberger are fully
vested in their accrued benefits. The estimated annual benefits payable to
such persons under the Retirement Plan upon normal retirement (age 65) on the
basis of a single life annuity are as follows: Mr. Zarkin, $65,667; Mr.
Richards, $7,140; Mr. Langsdorf, $5,209; and Mr. Weisberger, $27,553.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the Named
Executive Officers. Pursuant to his employment agreement, Mr. Zarkin is
employed as Chairman of the Board of Directors of the Company. Mr. Zarkin
receives an annual base salary of $350,000 and participates in specified
incentive and other benefit plans. Mr. Zarkin generally must devote
approximately one-half of his working time and attention to the performance of
his duties and responsibilities under his employment agreement. The Company is
entitled to terminate Mr. Zarkin's employment at any time with or without
cause (as defined). If his employment terminates by reason of death,
disability, incapacity or termination by the Company other than for cause, or
if Mr. Zarkin resigns as a result of his being removed from his positions with
the Company or as a result of his failure to be reelected to the office of
Chairman of the Board of Directors and a member of the Executive Committee,
Mr. Zarkin is entitled to payments of certain cash compensation amounts and
continuation of base salary and certain benefits for a period of 12 months
after termination at the rate in effect upon termination. In addition, Mr.
Zarkin will be entitled to payments under the Company's Management Incentive
Plan (the "MIP") for the fiscal year ended immediately prior to the date of
termination of Mr. Zarkin's employment (if not already paid), and a pro rated
MIP award for the year of termination. Any stock options or other stock-based
awards held by Mr. Zarkin on the date of termination continue to vest. The
continuing base salary payments are subject to reduction after three months
for compensation earned by Mr. Zarkin from other employment (other than
employment at BJ's Wholesale Club, Inc.), and the continuing benefits are
subject to reduction at any time for comparable benefits received by Mr.
Zarkin from other employment. Mr. Zarkin entered into a substantially similar
employment agreement with BJ's Wholesale Club, Inc., providing for salary and
other compensation equivalent to that payable by the Company.
Under the Company's employment agreement with Mr. Sherman, Mr. Sherman is
employed as the President and Chief Executive Officer of the Company and
receives a minimum annual base salary of $520,000. Mr. Sherman also
participates in specified incentive and other benefit plans. In addition, in
connection with his election as President of the Company's then HomeBase
Division in 1993, the Company agreed to extend to him an interest-free loan of
$700,000 for the purchase of a residence in California and to forgive the loan
over seven years in equal installments, $100,000 of which was forgiven in each
of fiscal 1994, 1995, 1996 and 1997. The Company also agreed to make certain
tax "gross-up" payments to Mr. Sherman. The Company is entitled to terminate
Mr. Sherman's employment at any time with or without cause (as defined). If
Mr. Sherman's employment terminates by reason of death, disability or
termination by the Company other than for cause, the Company is required to
pay certain cash compensation amounts, to continue payment of Mr. Sherman's
base salary and certain benefits for 52 weeks after termination at the rate in
effect upon termination, and to extend the term of Mr. Sherman's relocation
loan, including the provisions for debt forgiveness. The continuing base
salary payments are subject to reduction after three months for compensation
earned by Mr. Sherman from other employment, and the continuing benefits are
subject to reduction at any time for comparable benefits received by Mr.
Sherman from other employment.
The Company has entered into an employment agreement with each of Messrs.
Gallagher, Richards and Langsdorf under which each serves as an executive
officer of the Company, receives a minimum annual base salary of $220,000,
$220,000 and $190,000, respectively, and participates in specified incentive
and other benefit plans. If employment terminates by reason of termination by
the Company other than for cause, each such executive officer will be entitled
to payment of certain cash compensation amounts and to certain benefits and
continuation of base salary for 12 months after termination at the rate in
effect upon termination. The continuing base salary payments will be subject
to reduction after three months for compensation from other employment, and
the continuing benefits will be subject to reduction at any time for
comparable benefits received from other employment.
9
<PAGE>
Pursuant to Mr. Weisberger's employment agreement, Mr. Weisberger is
employed as Senior Vice President, Finance, a non-executive office of the
Company. Mr. Weisberger receives a minimum annual base salary of $150,000 and
participates in specified incentive and other benefit plans. Mr. Weisberger
must generally devote approximately one-half of his working time and attention
to the performance of his duties and responsibilities under his employment
agreement. If his employment is terminated by the Company other than for
cause, Mr. Weisberger is entitled to certain cash compensation amounts and to
certain benefits and continuation of base salary for 12 months after
termination (but not beyond July 29, 2000) at the rate in effect upon
termination. The continuing base salary payments are subject to reduction
after three months for compensation earned by Mr. Weisberger from other
employment (other than employment at BJ's Wholesale Club, Inc.), and the
continuing benefits are subject to reduction at any time for comparable
benefits received from other employment.
In the event of a change of control followed by termination of employment as
described below under "Change of Control Severance Benefits," each of the
Named Executive Officers would be entitled to the termination benefits
described thereunder, to the extent such benefits would exceed the benefits
otherwise described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
The Company provides change of control severance benefits, under separate
change of control agreements, to each of the Company's Named Executive
Officers. Under such agreements, in general, upon a change of control (as
defined) of the Company, the executive would be entitled to accelerated
payment of the MIP target award for the year in which the change of control
occurs. If, during the 24-month period following a change of control, the
Company were to terminate the executive's employment other than for cause (as
defined) or the executive were to terminate his employment for reasons
specified in the agreement, or if employment were to terminate by reason of
death, disability or incapacity, the executive would be entitled to receive a
lump-sum amount equal to two times the executive's annual base salary plus one
times the executive's MIP target award. For up to two years following
termination, the Company would also be obligated to provide specified
benefits, including continued health, medical and life insurance benefits. The
foregoing benefits would be payable whether or not they gave rise to a federal
excise tax on so-called "excess parachute payments" or were non-deductible,
except to the extent a reduction in amounts paid would increase the
executive's after-tax benefits. The Company would also be obligated to pay all
legal fees and expenses reasonably incurred by the executive in seeking
enforcement of contractual rights following a change of control. In addition,
upon involuntary termination within 24 months following a change of control,
any agreement by the executive not to compete with the Company following
termination of his employment would cease to be effective.
INDEMNIFICATION AGREEMENTS
The Company entered into indemnification agreements with each of its
directors and executive officers indemnifying them against expenses,
settlements, judgments and fines incurred in connection with any threatened,
pending or completed action, suit, arbitration or proceeding, where the
individual's involvement is by reason of the fact that he or she is or was a
director or officer of the Company or served at the Company's request as a
director or officer of another organization (except that indemnification is
not provided against judgments and fines in a derivative suit unless permitted
by Delaware law). An individual may not be indemnified if he or she is found
not to have acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interest of the Company, except to the
extent Delaware law permits broader contractual indemnification. The
indemnification agreements provide procedures, presumptions and remedies
designed to substantially strengthen the indemnity rights beyond those
provided by the Company's Certificate of Incorporation and by Delaware law.
10
<PAGE>
EXECUTIVE COMPENSATION COMMITTEE REPORT
The following report has been submitted to the Board of Directors of the
Company by its Executive Compensation Committee, in compliance with
requirements of the Commission:
As members of the Executive Compensation Committee ("ECC") of the Company it
is our responsibility to review the Company's compensation policies and
programs, approve or, with respect to the Chairman of the Board and Chief
Executive Officer, recommend to the Board of Directors for approval, incentive
plan awards and all elements of compensation for the Company's executive
officers, and administer the Company's stock incentive plans. All of the
members of the ECC are independent, non-employee directors.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's executive compensation program is designed to provide
competitive levels of compensation that:
--Integrate compensation with the achievement of the Company's annual and
long-term performance goals and business strategies
--Recognize management initiatives and achievements
--Reward outstanding corporate performance
--Attract and retain key executives critical to the long-term success of the
Company
--Link management's long-term interests with stockholders' interests through
stock-based awards.
With respect to Section 162(m) of the Code, which limits the ability of
publicly-held corporations to deduct non-performance-based compensation for
certain executive officers, the ECC believes that the Company's compensation
plans should be structured to satisfy the requirements for tax deductibility
unless doing so is determined by the ECC to be not in the best interest of the
Company.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
The total compensation program for all executive officers consists of both
cash and equity-based compensation and takes into account applicable
provisions of employment agreements of such officers. Through stock options
and stock grants available under the Company's stock incentive plan, the ECC
seeks to align executive officers' long-range interests with those of
stockholders by providing executive officers with the opportunity to
participate in the growth of the Company's stock value. The ECC is advised by
Towers Perrin, compensation consultants, concerning salary competitiveness and
the design of the Company's executive compensation programs. Towers Perrin
provides services to the Company, which are billed at hourly rates, on an "as
requested" basis. The Company does not have a retainer or other contract with
Towers Perrin. The Company has consulted with Towers Perrin during the past
year.
Base Salary. Base salaries for the Company's executive officers, including
Mr. Sherman, are set within ranges that are determined based upon a review of
publicly available information concerning compensation paid to executives with
similar responsibilities at certain peer companies. The ECC utilizes a
compensation consulting firm to assist in the compilation and interpretation
of this data. The companies selected for these purposes are retail companies,
including major competitors of the Company, as to which compensation
information is available. While some of these peer companies are included in
the Dow Jones Industry Group Index OTS--Other Specialty Retailers appearing in
the Performance Graph on page 15, these peer companies are not all the same as
the companies comprising that index. The ECC's overall objective is to set
base salaries at approximately the midpoint of competitive ranges. However,
any individual executive's placement within a range and salary adjustments are
based upon the ECC's evaluation of the executive's performance and value to
the Company.
Annual Incentive Program. Under the Company's Management Incentive Plan
("MIP"), executive officers and other members of management are eligible to
receive incentive awards based upon the attainment of
11
<PAGE>
annual performance goals, primarily a specified level of post-tax income. The
ECC approves the MIP goals and participation opportunities at the beginning of
each fiscal year and reviews the payout calculations after the year's
financial results have been audited. Target awards for executive officers
range from 25% to 50% of salary but if target goals are not met, there would
be either no MIP award or a reduced award based on a percentage of the target
realized. If results exceed goal(s), an executive officer could earn an
additional award, depending upon the extent to which goals are exceeded.
Neither Mr. Zarkin nor Mr. Sherman may receive a MIP award in excess of 100%
of the executive's base salary as of the beginning of the fiscal year. For
1997, no Named Executive Officers received MIP awards because annual
performance goals were not met.
Long-Term Incentive Program. The Company's Growth Incentive Plan ("GIP") is
intended to provide high-level executives of the Company, as selected by the
ECC, with cash awards based upon the growth and performance of the Company.
All of the Named Executive Officers are eligible to participate in the GIP, as
well as 16 other officers of the Company. Depending on responsibilities within
the Company, awards are earned based on one or more of the following objective
measures of performance or growth, as selected by the ECC at the beginning of
the award period: operating income, pre-tax income, net income, gross profit
dollars, costs, any of the preceding measures as a percent of sales, earnings
per share, sales, return on equity, and return on investment. All relevant
factors upon which the cash award is based (e.g., performance measurement,
length of award period, relation between performance and cash award) are
determined at the beginning of the award period by the ECC. There is no target
amount for each award. However, there is a threshold amount based on the
Company's growth, and the value of each award increases as achievement of the
performance measurement increases. No award can exceed 300% of the recipient's
annual base salary at the beginning of the performance period. No awards were
issued in fiscal 1997 to the Named Executive Officers.
The Company has made it a practice to provide incentives to its executive
officers and other senior executives to achieve long-range goals that are
typically expressed as either a compounded rate of earnings growth or three-
year cumulative earnings. In determining the level of long-term incentive
awards, the ECC takes into account a survey of the same peer companies
referred to above, but does not target a specific percentile.
Stock-Based Incentives. Stock options are awarded to the Company's key
employees, including executive officers, by the ECC based upon such factors as
the compensation level and responsibility of the particular employee, the
employee's contribution towards Company performance, and review of competitive
compensation data for executives at the same group of peer companies referred
to previously in this report, with the ECC generally targeting awards to the
median of such surveys. The options are designed to reward recipients to the
extent the Company's stock value is enhanced and, because of the vesting
provisions of such grants, also provide an incentive for the employee to
remain with the Company. Since the ECC does not grant options on a cumulative
basis, the size of previous grants is not a factor in making current grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to the terms of Mr. Sherman's employment contract, his salary is
reviewed annually by the ECC. His salary was increased to $520,000 on June 1,
1997, setting his salary to approximately the 40th percentile of the
compensation range of the survey of peer companies referred to previously in
this report. The number of options granted to Mr. Sherman in 1997 was
determined based on Mr. Sherman's success in providing leadership to the
Company and after a review of competitive compensation data of executives at
the same group of peer companies referred to previously in this report without
targeting a specific percentile range. The granting of options encourages
long-term performance and promotes management retention while further aligning
shareholders' and management's interest in enhancing the value of the
Company's Common Stock.
Mr. Sherman's MIP award provides a target opportunity equal to 50% of base
salary earned during the fiscal year if performance goals are met; the actual
payout can vary between 0% and 100% of annualized base salary at the beginning
of the fiscal year. Mr. Sherman did not receive an MIP payout for 1997.
Executive Compensation Committee
Lorne R. Waxlax, Chairman
John D. Barr
12
<PAGE>
RELATIONSHIP BETWEEN BJ'S WHOLESALE CLUB, INC. AND HOMEBASE, INC.
Prior to July 28, 1997, the Company, then known as Waban Inc., operated
through two divisions--the HomeBase Division and the BJ's Wholesale Club
Division (the "BJ's Division"). As of July 26, 1997, the Company transferred
all of the net assets of its BJ's Division to a wholly-owned subsidiary, 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") and changed its name from Waban Inc. to HomeBase, Inc.
In connection with the Distribution, BJI and the Company entered into a
series of agreements, described below. Although the following summaries of
these agreements set forth an accurate description of their material terms and
provisions, such summaries are qualified in their entirety by reference to the
detailed provisions of the agreements, copies of which have been filed with
the Securities and Exchange Commission and are incorporated herein by
reference.
DISTRIBUTION AGREEMENT
BJI and the Company entered into a Separation and Distribution Agreement
(the "Distribution Agreement"), which provided for, among other things, (i)
the principal corporate transactions required to effect the Distribution, (ii)
the division between BJI and the Company of certain assets and liabilities and
(iii) the execution and delivery of the Services Agreement, the Employee
Benefits Agreement and the Tax Sharing Agreement, each of which, as described
below, governs certain aspects of the relationship between BJI and the Company
following the Distribution.
The Distribution Agreement provided for, among other things, (i) the
transfer by the Company to BJI of all of the assets of the BJ's Division,
including the stock of subsidiaries which held assets of the BJ's Division,
and the assets associated with the Company's corporate headquarters in
Massachusetts, (ii) BJI's assumption of the leases and other liabilities of
the BJ's Division and 75% of the amount of all bank indebtedness of the
Company existing as of the date of the Distribution, and (iii) the issuance by
BJI to the Company of the Common Stock of BJI to be distributed in the
Distribution.
Under the Distribution Agreement, except as provided in the Employee
Benefits Agreement or the Tax Sharing Agreement, the Company agreed to
indemnify BJI for liabilities relating to the Company's business. Similarly,
BJI agreed to indemnify the Company for liabilities pertaining to BJI's
business. The Distribution Agreement also requires BJI and the Company to
indemnify each other for losses incurred due to a failure to perform their
respective obligations under the Distribution Agreement or any other agreement
entered into in connection with the Distribution. In addition, the
Distribution Agreement provides that the Company will provide liability
insurance for a period of six years following the Distribution to each
individual who served as a director or officer of the Company prior to the
Distribution. BJI also agreed to indemnify, defend and hold harmless each such
individual from any losses and liabilities incurred by them in connection with
the approval of the Distribution Agreement.
LEASES
Upon the Distribution, BJI assumed all liabilities to third-party lessors
with respect to leases entered into by the Company with respect to the BJ's
Division. While the Company continues to be liable, by law, with respect to
such lease liabilities, BJI has agreed to indemnify the Company for such
liabilities.
In connection with the spin-off of the Company by The TJX Companies, Inc.
("TJX") in 1989, the Company and TJX entered into an agreement (the "1989
Agreement") pursuant to which the Company must indemnify TJX against any
liabilities that TJX might incur with respect to 45 current Company real
estate leases as to which TJX is either a lessee or guarantor. On April 10,
1997, TJX filed complaints against the Company in the Superior Court for
Middlesex County, Massachusetts, alleging, among other things, that BJI is
required under the terms of the 1989 Agreement to assume the Company's
indemnification obligations under the 1989 Agreement. On April 18, 1997, in
exchange for mutual releases, TJX and the Company settled such litigation by
13
<PAGE>
agreeing that BJI would assume a portion of the Company's obligations under
the 1989 Agreement. Specifically, under the settlement agreements, BJI agreed
that for approximately five years after the Distribution it will indemnify TJX
with respect to any liabilities (as defined in the 1989 Agreement) that TJX
may incur with respect to the Company leases and thereafter it will indemnify
TJX for 50% of such liabilities. In addition, the Company has agreed that
after the Distribution, the Company will not renew any lease identified in the
1989 Agreement as to which TJX is a lessee or guarantor unless the applicable
lessor agrees to remove TJX as a lessee or guarantor.
The Distribution Agreement contains restrictions on the renewal of Company
leases similar to those contained in the agreement between the Company and
TJX. BJI may not renew any of its real estate leases (other than ground
leases) for which the Company may be liable during any period during which BJI
does not meet certain standards of creditworthiness.
SERVICES AGREEMENT
BJI and the Company entered into a Services Agreement (the "Services
Agreement") pursuant to which BJI provides certain tax administration services
with respect to the Company's tax year ending January 31, 1998. In addition,
to the extent requested by the Company, BJI provides risk management, legal,
investor relations and treasury service to the Company for a period of up to
twelve months following the Distribution. The Services Agreement provides that
the Company pay BJI a fixed fee of $72,000 for tax administration services
through November 22, 1997, and that tax services (after November 22, 1997),
risk management, legal, investor relations and treasury services requested by
the Company to be provided by BJI are to be billed on an hourly basis at
2.5 times the providing employee's hourly rate. BJI and the Company believe
that such rates are as favorable as could have been obtained from
disinterested third parties. If a dispute arises between the parties under the
Services Agreement that cannot be resolved, it will be submitted to
arbitration.
EMPLOYEE BENEFITS AGREEMENT
The Company and BJI entered into an Employee Benefits Agreement (the
"Employee Benefits Agreement") which contains a number of provisions
pertaining to employee benefit plan matters. BJI agreed to establish employee
benefit plans substantially similar to the employee benefit plans currently
maintained by the Company and to assume or retain under the applicable BJI
Plan with respect to each BJI employee or former employee of the BJ's Division
all liabilities under the corresponding Company plan accrued for the period
ending on the date on which the employee's employment is transferred to BJI or
its affiliates (or the date of the former employee's termination of
employment). In addition, the Employee Benefits Agreement provides for the
Waban Inc. Retirement Plan to be terminated and, in connection with such
termination, BJI agreed to pay the Company an appropriate portion of any
amount contributed or to be contributed by the Company to the Waban Inc.
Retirement Plan after the date of the Distribution in order for the Waban Inc.
Retirement Plan to pay all accrued benefits.
TAX SHARING AGREEMENT
The Company and BJI entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement") providing for the allocation between the parties of federal,
state, local and foreign tax liabilities, and the entitlement to tax refunds,
for periods ending on or prior to the Distribution Date, and various related
matters.
PROCEDURES FOR ADDRESSING CONFLICTS
As a result of the Distribution, BJI and the Company have significant
contractual and other ongoing relationships that may present certain conflict
situations for Mr. Zarkin, who serves as Chairman of the Board of Directors of
both companies, and for Messrs. Waxlax and Weisberger, who serve as directors
of both companies. Each of these persons also owns (or has options or other
rights to acquire) significant number of shares of common stock in both
companies. The Company has adopted procedures to be followed by its Board of
Directors to limit the involvement of such person in conflict situations
whereby all transactions being considered by the
14
<PAGE>
Company which relate to BJI must (i) be approved by a majority of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on the
Company's Common Stock, based on the market price of the Common Stock (as
adjusted to reflect the Distribution), with the cumulative total return of
companies in the Standard and Poor's 500 Stock Index and the Dow Jones
Industry Group Index OTS--Other Specialty Retailers form January 30, 1993 to
January 31, 1998. The Dow Jones Industry Group Index OTS--Other Specialty
Retailers is comprised currently of 263 specialty retail companies, including
the Company and all other publicly traded home improvement chains (other than
those operated as divisions of other companies). This index does not include
department stores, discount stores, drug stores or supermarkets. The graph
assumes that the value of the investment at January 30, 1993 was $100 and that
all dividends were reinvested. The values of investments in the companies in
the Standard & Poor's 500 Stock Index and the Dow Jones Industry Group Index
OTS--Other Specialty Retailers were measured as of the date nearest the end of
the Company's fiscal year for which index data is readily available. This
information was furnished by Media General Financial Services.
FIVE-YEAR PERFORMANCE
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG [COMPANY MAME HERE], S&P 500 INDEX AND PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period Dow Jones Standard & Poor's
(Fiscal Year Covered) HomeBase, Inc. Industry Index 500 Index
- -------------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Measurement Pt-1993 $100.00 $100.00 $100.00
FYE 1994 $ 85.93 $106.14 $112.88
FYE 1995 $102.96 $101.68 $113.47
FYE 1996 $114.07 $103.52 $157.36
FYE 1997 $160.74 $119.21 $198.81
FYE 1998 $178.57 $154.59 $252.30
</TABLE>
15
<PAGE>
OTHER MATTERS
INDEPENDENT ACCOUNTANTS
The Directors have appointed Coopers & Lybrand L.L.P. as independent
accountants to audit the financial statements of the Company for the fiscal
year ending January 30, 1999. The Company expects that representatives of
Coopers & Lybrand L.L.P. will be present at the Meeting, will have the
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the SEC
and the New York Stock Exchange initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based on a review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-ten-percent beneficial owners were
complied with during fiscal 1997.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders must be received by the Company no later than 5 p.m.
PST on December 18, 1998 in order to be considered for inclusion in the
Company's proxy materials for that meeting. Proposals must be in writing and
sent via registered or certified mail addressed to HomeBase, Inc., Attention:
Corporate Secretary at 3345 Michelson Drive, Irvine, CA 92612. In addition,
the Company's by-laws specify requirements relating to the timing and content
of the notice which stockholders must provide to the Secretary of the Company
for any matter, including a stockholder nomination for director, to be
properly presented at a meeting of stockholders.
OTHER MATTERS
The Company has no knowledge of any other matter which may come before the
Meeting and does not intend to present any such other matter. However, if any
such other matters shall properly come before the Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to
vote the shares represented by the accompanying proxy in accordance with their
own judgment.
Neither the Executive Compensation Committee Report appearing above at pages
11 and 12 nor the Performance Graph appearing above on page 15 shall be deemed
incorporated by reference by any general statement incorporating this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such information by reference, and shall not
otherwise be deemed filed under such Acts.
The cost of solicitation of proxies will be borne by the Company. The
Company has retained Shareholder Communications Corporation to assist in
soliciting proxies by mail, telephone and personal interview for a fee of
$4,000 plus expenses. Officers and employees of the Company may also assist in
soliciting proxies in the same manner.
BY ORDER OF THE BOARD OF DIRECTORS
John L. Price
Secretary
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PROXY
HomeBase, Inc.
Proxy for the Annual Meeting of Stockholders
To be held May 21, 1998
This Proxy is Solicited on Behalf of the Board of Directors of the Company
and should be returned as soon as possible to the First Chicago Trust Company
of New York
The undersigned, having received notice of the Annual Meeting and the Board of
Directors' proxy statement therefor, and revoking all prior proxies, hereby
appoint(s) Arthur F. Loewy, William B. Langsdorf and John L. Price, and each of
them, attorneys or attorney of the undersigned (with full power of substitution
in them and each of them) for and in the name(s) of the undersigned to attend
the Annual Meeting of Stockholders of HomeBase, Inc. (the "Company") to be held
on Thursday, May 21, 1998, at 10:00 a.m. PDT at the offices of Gibson, Dunn &
Crutcher, LLP, 14th floor, 4 Park Plaza, Irvine, California 92814, and any
adjournments thereof, and there to vote and act upon the following matters in
respect of all shares of stock of the Company which the undersigned may be
entitled to vote or act upon, with all the powers the undersigned would possess
if personally present.
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof. The
shares represented by this proxy will be voted as directed by the undersigned.
If no direction is given with respect to any proposal, this proxy will be voted
as recommended by the Board of Directors. Attendance of the undersigned at the
meeting or at any adjournment thereof will not be deemed to revoke this proxy
unless the undersigned shall revoke this proxy in writing.
Change of address:
___________________________________
___________________________________
(If you have written in the above space, please mark the corresponding box
on the reverse side of this card.)
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
SEE REVERSE SIDE
<PAGE>
X Please mark your
votes as in this 2741 01428 68480 53 352 2741
example.
The Board of Directors of the Company recommends that stockholders vote "FOR"
all of the following proposal. To vote in accordance with the Board of
Directors' recommendations just sign this Proxy; no boxes need to be checked.
Unless marked otherwise, this Proxy will be voted in accordance with the Board
of Directors' recommendations.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
1. Election of three Directors for a term to expire in
2001 (for all nominees except marked below)
_________________________________________________
NOMINEES: Allan P. Sherman and Herbert J. Zarkin
2. To consider such other business, if any, as may
properly come before the meeting or any adjournment
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE ON THE REVERSE
SIDE OF THIS CARD.
</TABLE>
SIGNATURE(S) _________________________________________ DATE ________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
