Thomas F. Gallagher

                              EMPLOYMENT AGREEMENT

          AGREEMENT  dated as of August 21, 2001  between  Thomas F.  Gallagher,
whose address is _________________________________  ("Executive"), and HomeBase,
Inc., a Delaware  corporation,  whose principal office is in Irvine,  California
("Employer" or "Company")

          The  parties  hereto,   in  consideration  of  the  mutual  agreements
hereinafter  contained  and  intending  to be  legally  bound  hereby,  agree as
follows:

          1. Employment.  The Executive is currently an employee of the Company.
Employer will employ  Executive  and  Executive  will be an employee of Employer
under the terms and conditions  hereinafter set forth. This Agreement supersedes
and replaces any prior employment  agreement  between  Executive and Employer or
its  subsidiaries  or  divisions,  except for any  Change of  Control  Severance
Agreement between Executive and Employer.

          2. Effective Date; Term of Agreement. Executive's employment under the
terms of this  Agreement  shall  commence on the date hereof and shall  continue
until August 21, 2002 and  thereafter  until  terminated by either  Executive or
Employer,  subject to earlier  termination  as provided  herein  (such period of
employment  hereinafter  called the "Employment  Period").  Notwithstanding  the
foregoing,  the Change of Control  Severance  Agreement  between the Company and
Executive of even date herewith (the Change of Control Agreement),  shall remain
in full force and effect.

          3. Duties.  Executive shall diligently perform the duties of President
and  Chief  Operating  Officer  of the  Company  or such  executive  duties  and
responsibilities  as shall from time to time be  assigned  to  Executive  by the
Chief Executive Officer.

          4. Extent of Services.  Except for  illnesses  and  vacation  periods,
Executive  shall  devote  substantially  all of  Executive's  working  time  and
attention and Executive's best efforts to the performance of Executive's  duties
and responsibilities  under this Employment Agreement;  provided,  however, that
nothing  herein  contained  shall be  deemed  to  prevent  or limit the right of
Executive (a) to make any passive  investments  where Executive is not obligated
or required to, and shall not in fact,  devote any managerial  efforts or (b) to
participate  in charitable or community  activities or in trade or  professional
organizations,  except  only that  Employer  shall  have the right to limit such
participation  if the Chief  Executive  Officer  believes that the time spent on
such  activities   infringes  upon  the  time  required  by  Executive  for  the
performance  of  Executive's   duties  under  this  Agreement  or  is  otherwise
incompatible with those duties.

          5. Base Salary. During the Employment Period,  Executive shall receive
a base salary at the rate of  $350,000.00  per year,  or such  higher  amount as
Employer shall determine from time to time. Base salary shall be payable in such
manner and at such times as Employer  shall pay base  salary to other  executive
employees.

          6.  Policies  and  Fringe  Benefits.  Executive  shall be  subject  to
Employer's policies applicable to its executives generally,  and Executive shall
be entitled to receive all such fringe  benefits as Employer  shall from time to
time make available to other Employer executives generally (subject to the terms
of any applicable fringe benefit plan).

          7.     Termination of Employment; in General.

          a) Employer shall have the right to end Executive's  employment at any
time and for any reason,  with or without cause.  Cause shall mean dishonesty by
Executive in the  performance  of  Executive's  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 of Directors of the Company),  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.

          b) The  Employment  Period shall  terminate  when  Executive  -becomes
entitled to receive  long-term  disability  compensation  pursuant to Employer's
long-term disability plan. In addition, if by reason of any incapacity Executive
is unable to perform  Executive's duties for at least six months in any 12 month
period,  the Employment  Period will be terminated  for incapacity  upon written
notice by Employer to Executive.

          c) Whenever the Employment  Period shall  terminate,  Executive  shall
resign all offices or other positions  Executive shall hold with Employer or any
parent  corporation  and any  subsidiaries  or divisions of Employer or any such
parent.

          8.     BENEFITS UPON TERMINATION OF EMPLOYMENT.

          a)  Termination  by  Employer  Other  Than for  Cause.  Disability  or
Incapacity.  If the Employment Period shall have been terminated by Employer for
any reason other than cause, disability or incapacity,  no compensation or other
benefits shall be payable to or accrue to Executive hereunder except as follows:
                   (i) Vested vacation pay accrued at date of termination  shall
be paid upon termination.

                   (ii) Employer  will continue to pay to Executive  Executive's
          then  base  salary  for a  period  of  12  months  from  the  date  of
          termination, which base salary shall be reduced after three months for
          compensation earned from other employment or self-employment.

                   (iii)  Until the  expiration  of the  period  of base  salary
          payments  described in (ii) immediately above or until Executive shall
          commence other  employment or  self-employment,  whichever shall first
          occur,  Employer will provide such medical and hospital  insurance and
          life insurance (but not long-term disability  insurance) for Executive
          and  Executive's  family,  comparable  to the  insurance  provided for
          executives generally,  as Employer shall determine,  and upon the same
          terms and  conditions as shall be provided for  Employer's  executives
          generally.

                   (iv)  Employer  will pay to  Executive,  without  offset  for
          compensation  earned from other  employment  or  self-employment,  the
          following amounts under Employer's  Management  Incentive Plan ("MIP")
          applicable to Executive:

                   First, if not already paid, any amounts to which Executive is
                   entitled  under MIP for the  fiscal  year  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 during which the termination of employment occurs
                   (prorated  for the period of active  employment  during  such
                   fiscal  year).  This  amount will be paid at the same time as
                   other MIP awards for the year of termination are paid.

                   (v) Executive  shall also be entitled to payments or benefits
          under other  plans of  Employer to the extent that such plans  provide
          benefits following a termination of employment.

          b) Termination for Death. Disability or Incapacity.  If the Employment
Period  shall  terminate  at  any  time  by  reason  of  death,  disability,  or
incapacity,  no  compensation or other benefits shall be payable to or accrue to
Executive hereunder except as follows:

                   (i) Vested vacation pay accrued at date of termination  shall
be paid upon termination.

                   (ii)  Employer  will pay to  Executive,  without  offset  for
          compensation  earned from other  employment  or  self-employment,  the
          following amounts under MIP applicable to Executive:

                   First, if not already paid, any amounts to which Executive is
                   entitled  under MIP for the  fiscal  year  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 during which the termination of employment occurs
                   (prorated  for the period of active  employment  during  such
                   fiscal  year).  This  amount will be paid at the same time as
                   other MIP awards for the year of termination are paid.

                 (iii)  Executive shall also be entitled to payments or benefits
          under other  plans of  Employer to the extent that such plans  provide
          benefits following a termination of employment.

          c) Voluntary Termination;  Termination for Cause; Violation of Certain
Covenants.  If Executive  should end  Executive's  employment  voluntarily or if
Employer  should end Executive's  employment for cause,  or if Executive  should
violate the protected  persons or  non-competition  provisions of Section 9, all
compensation  and benefits  otherwise  payable  pursuant to this Agreement shall
cease.  Employer  does not  waive  any  rights  it may have for  damages  or for
injunctive relief.

          9.     Agreement Not to Solicit or Compete.

          (a) Upon the termination of the Employment  Period at any time for any
reason, Executive shall not during the Prohibited Period 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  in which  Executive  has any  direct or  indirect
interest (other than a less-than-one percent equity interest in an entity), with
which  Executive is  affiliated  or for which  Executive  renders any  services.
"Prohibited  Period"  shall  mean a period  coterminous  with the period of base
salary  continuation   (without  regard  to  reduction  for  income  from  other
employment  or  self-employment)  which is  applicable  or which would have been
applicable  had the  termination  been  pursuant to Section  8(a).  A "protected
person"  shall be a person  known by Executive to be employed by Employer or its
subsidiaries at or 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 of, (B)  solicitation  of, and (C) unsolicited
acceptance of services from, 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 Executive's  employment,  Executive will have
learned many trade  secrets of the Company and will have access to  confidential
information and business plans of the Employer.  Therefore,  if Executive should
end  Executive's  employment  voluntarily  at any time,  including  by reason of
retirement,  disability or  incapacity,  or if Employer  should end  Executive's
employment at any time for cause, then during the Prohibited  Period,  Executive
will not  engage,  either  as a  principal,  employee,  partner,  consultant  or
investor (other than a less-than-one  percent equity interest in an entity) , in
a business  which is a  competitor  of  Employer.  A business  shall be deemed a
competitor  of  Employer  if  it  shall  operate  a  chain  of  home  decorating
superstores that includes a store located within 10 miles of any "then existing"
Company  superstore.  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.  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.

          If the Employment  Period  terminates,  Executive agrees (i) to notify
Employer   immediately   upon  Executive's   securing   employment  or  becoming
self-employed  during any period when  Executive's  compensation  from  Employer
shall be subject to reduction or Executive's benefits provided by Employer shall
be  subject  to  termination  as  provided  in Section 8, and (ii) to furnish to
employer  written  evidence  of  Executive's  compensation  earned from any such
employment or  self-employment  as Employer shall from time to time request.  In
addition,  upon  termination of the Employment  Period for any reason other than
the death of  Executive,  Executive  shall  immediately  return to Employer  all
written trade secrets,  confidential  information and business plans of Employer
and shall execute a certificate  certifying that Executive has returned all such
items in Executive's  possession or under Executive's  control.  In the event of
the death of Executive, Executive's estate shall comply with this obligation.

          10. ASSIGNMENT.  The rights and obligations of Employer shall inure to
the benefit of and shall be binding upon the successors and assigns of Employer.
The rights and  obligations  of Executive  are not  assignable  except only that
payments  payable  to  Executive  after  Executive's  death  shall  be  made  to
Executive's estate.

          11. NOTICES. All notices and other  communications  required hereunder
shall be in writing and shall be given either by personal delivery or by mailing
the same by certified or registered  mail,  return  receipt  requested,  postage
prepaid.  If sent to  Employer,  the same  shall be mailed to  Employer  at 3345
Michelson Drive, Irvine, CA 92612,  Attention:  Chief Executive Officer, or such
other address as Employer may hereafter designate by notice to Executive; and if
sent to  Executive,  the same shall be mailed to  Executive  at his  address set
forth above,  or at such other address as Executive  may hereafter  designate by
notice to Employer. Notices shall be effective upon receipt.

          12.  GOVERNING LAW. This  Agreement and the rights and  obligations of
the parties hereunder shall be governed by the -laws of the State of California.

         WITNESS the execution hereof the day and year first above written.


                                      HOMEBASE, INC.

/s/THOMAS F. GALLAGHER                /s/HERBERT J. ZARKIN
------------------------              ---------------------------
Thomas F. Gallagher, Executive        Herbert J. Zarkin, Chief Executive Officer