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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended JANUARY 24, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-13380
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OFFICEMAX, INC.
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(Exact name of registrant as specified in its charter)
OHIO 34-1573735
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3605 WARRENSVILLE CENTER ROAD, SHAKER HEIGHTS, OHIO 44122
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 921-6900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
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. X Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 23, 1998 was approximately $2,148,222,419.
The number of Common Shares, without par value, of the Registrant outstanding as
of March 23, 1998 was 124,534,633.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement dated April 10, 1998, for use at
the Annual Meeting of Shareholders to be held on May 14, 1998 are incorporated
by reference in Part III hereof.
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PART I
Certain statements in this Form 10-K constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 and releases issued by the Securities and Exchange
Commission. See "Business - Forward-Looking Statements."
ITEM 1. BUSINESS
GENERAL
OfficeMax, Inc. ("OfficeMax" or the "Company") is the largest operator of
high-volume, deep-discount office product superstores in the United States in
terms of the number of stores and breadth of geographic coverage. As of January
24, 1998, OfficeMax operated 713 superstores in over 290 markets in 48 states
and Puerto Rico, as well as two national call centers, 17 delivery centers and
OfficeMax retail joint ventures in Mexico and Japan.
The Company sells its merchandise primarily to small and medium-size
businesses, home office customers and individual consumers. Through its
growing delivery and catalog operations, OfficeMax also serves the medium
and larger corporate customer. Additionally, the Company operates OfficeMax
OnLine on the Internet at http://www.OfficeMax.com, which enables consumers
and businesses to buy a wide assortment of OfficeMax merchandise using
personal computers.
The typical full-size OfficeMax superstore is approximately 23,500
square feet. OfficeMax superstores offer over 7,700 office products,
computers, business machines and related items, together with
store-within-a-store modules of FurnitureMax and CopyMax, which are devoted
to office furniture and "print-for-pay" services, respectively. The Company's
new format now includes a "TechMax" department, which showcases the latest in
computers, wireless digital technology and similarly related technology
products.
HISTORY
OfficeMax, which was co-founded by Michael Feuer, its current Chairman
and Chief Executive Officer, opened its first superstore in suburban Cleveland,
Ohio in July 1988. During the subsequent 28 months, the Company opened 28
superstores and acquired an additional seven stores from OfficeWorld, Inc., a
deep-discount office products retailer located in the greater Chicago area.
In November 1990, Kmart Corporation ("Kmart") acquired a 21.6% equity
interest in the Company. As part of this transaction, OfficeMax acquired from
Kmart five deep-discount office products superstores that operated under the
name "Office Square" in the Chicago, Illinois and Akron/Canton, Ohio markets. In
November 1991, Kmart increased its ownership interest in the Company to in
excess of 90% by purchasing all of the outstanding capital shares of the Company
except for certain shares held by the Company's two co-founders.
In June 1992, the Company acquired OW Office Warehouse, Inc., a 41
store office products superstore chain with stores located primarily in the
Mid-Atlantic region. In March 1993, the Company acquired BizMart, Inc., a 105
store national office products superstore chain with stores located in the
Southwest, West and Pacific Northwest regions of the United States. Immediately
following each acquisition, the acquired stores were operationally integrated,
remodeled, remerchandised and converted to the OfficeMax name, merchandise
presentation and format. As a result of these acquisitions and the opening of
new superstores, OfficeMax achieved a national presence.
On November 2, 1994, the Company completed an initial public offering
("IPO") of its Common Shares at $8.44 per share (adjusted to give effect for
3-for-2 splits of the Company's Common Shares effected in the form of dividends
paid on July 12, 1995 and July 9, 1996). The net proceeds from the IPO were paid
to Kmart in exchange for certain funding amounts previously provided by Kmart to
the Company. As a result of the IPO, Kmart's ownership interest in OfficeMax was
reduced to approximately 24.6%.
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On July 20, 1995, the Company completed a primary and secondary offering
("the Secondary Offering") consisting of 8,627,774 primary shares and 28,205,289
secondary shares owned by Kmart. Net proceeds to the Company from the Secondary
Offering were $110,177,000. Following completion of the Secondary Offering,
Kmart no longer owned an interest in OfficeMax.
On September 11, 1995, the Company sold its approximate 20% interest in
the contract stationer, Corporate Express, Inc. ("Corporate Express"), for
$195,831,000, resulting in a pre-tax gain of approximately $118,014,000
($69,124,000 after-tax gain, or $0.57 per share).
In August 1996, the joint venture partnership in Mexico opened its first
superstore in Mexico City. At January 24, 1998, the joint venture operated nine
OfficeMax superstores in Mexico. In December 1996, the Company signed an
agreement with its joint venture partner in Japan which opened its first
superstore in November 1997.
INDUSTRY OVERVIEW
Over the past approximately nine years, the office products industry has
experienced rapid growth which the Company believes is attributable primarily to
a shift in the United States to a more service oriented economy and the
increasing utilization of technology, such as computers and fax machines, in
businesses and homes. The Company believes that these trends will continue to
expand the office products industry and will create opportunities for continued
growth in market share for operators of high-volume office products superstores
such as OfficeMax.
Small and Medium-Size Business Market. The Company's primary target
market consists of small and medium-size businesses, employing between one and
100 employees, home office customers and individual consumers. Historically,
this market was served primarily by traditional office products retailers which
typically operated small stores offering limited services and a limited
selection of in-stock merchandise purchased from wholesalers or other
distributors and sold to the ultimate consumer at manufacturers' or catalog list
prices. Conversely, office products superstores, such as OfficeMax, feature a
wide selection of name-brand and private label merchandise purchased directly
from manufacturers and sold at deep-discount prices that are typically 30% to
70% below manufacturers' suggested retail and catalog list prices. As a result
of their ability to offer selection, service and discount prices, office
products superstores are capturing an increasing percentage of the retail office
products market in the United States.
Large Business Market. Large businesses, employing over 100 people, have
historically been served primarily by traditional commercial office suppliers,
known as "contract stationers," which provide their large business customers
with a wide variety of office products purchased from manufacturers and
intermediate wholesalers, generally for next business day delivery. This is a
large and very fragmented segment of the office products industry with the six
largest contract stationers only controlling 25% of the market. Contract
stationers typically utilize an in-house, commissioned sales force to solicit
orders from the purchasing departments of their customers, which order
merchandise from the contract stationer's or an intermediate wholesaler's
catalog.
BUSINESS STRATEGY
The Company's strategy is to enhance its market share, to be a leading
provider of office products, supplies and services in each of the markets in
which it competes and to continue expanding into new markets, including
expansion internationally. The key elements of this strategy are as follows:
* Extensive Selection of Merchandise in an Easy to Shop
Presentation. Each OfficeMax superstore offers over 7,700 stock keeping units
("SKU's") of quality, in-stock, name-brand and private label merchandise. This
represents a breadth and depth of in-stock items that are not available from
traditional office products retailers, specialty office products retailers, mass
merchandisers or wholesale clubs. The Company's merchandise presentation is
highlighted by wide aisles, bright lighting with open ceilings, colorful signage
and bold graphics. This easy-to-shop
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presentation is designed to enhance customer convenience, create an enjoyable
shopping experience different from that provided by the Company's competitors
and promote impulse buying, thereby increasing sales.
* Everyday Low Prices. The Company's everyday low price policy
is to offer deep-discount prices that are typically 30% to 70% below
manufacturers' suggested retail and catalog list prices. In addition,
the Company guarantees its low prices up to 155%. OfficeMax will match
any advertised price or refund the difference on an item purchased
within seven days. An additional 55% merchandise credit (up to $55.00)
will be issued if the lower price is from an office products superstore
such as Staples, Inc. ("Staples") or Office Depot ("Office Depot").
* Customer Service. To develop and maintain customer loyalty,
OfficeMax has fostered a customer-oriented culture that demands a high
level of customer service from each associate. The Company views the
quality of its customers' interaction with its associates as critical
to its success. Toward this end, the Company emphasizes training and
personnel development, seeks to attract and retain well-qualified,
highly motivated associates, and has centralized most administrative
functions at its corporate office and call centers to enable in-store
associates to focus on serving customers.
* Focused Expansion. The Company enters markets that provide
multi-store opportunities as well as markets in which the Company
believes a single OfficeMax superstore can be one of the dominant
office products suppliers. Prospective locations are evaluated using
on-site surveys conducted by real estate consultants and field
operations personnel coupled with a proprietary real estate selection
model, which assesses potential store locations and incorporates
computer-generated mapping. The model analyzes a number of factors that
have contributed to the success of existing OfficeMax locations
including the location's size, visibility, accessibility and parking
capacity, potential sales transfer effects on existing OfficeMax stores
and relevant demographic information, such as the number of businesses
and the income and education levels in the area.
* New retailing concepts. During the last three years,
OfficeMax has launched new retailing concepts which provide additional
products and services to the Company's customers and an opportunity for
incremental store traffic. These new concepts include the
store-within-a-store modules, CopyMax and FurnitureMax. CopyMax offers
customers a wide range of "print-for-pay" services, from self-service
black and white copying to full service state of the art digital
printing and publishing. FurnitureMax provides an expanded furniture
selection and specialized services. The Company's newest format,
TechMax, features the latest in communication products. These concepts
are discussed in greater detail under the headings "Stores" and
"Expansion."
* Non-Store Retailing. The Company's strategy for the catalog
business is to capitalize on the OfficeMax brand name awareness with
"Tier II customers" which the Company defines as small to medium-size
businesses which employ 20 to 50 white-collar employees. These
businesses spend approximately $400 per year for office supplies per
employee. This customer group is one of the fastest growing segments of
OfficeMax, providing the Company with incremental sales opportunities.
Tier II customers receive a full assortment catalog of all the items
found in OfficeMax stores plus a variety of merchandise available from
a third party distributor. The Company also provides special order
catalogs containing more than 20,000 items that ensure customers needs
are meet. While pricing is important to be competitive, this Tier II
customer base is much more concerned with service, such as guaranteed
next business day delivery, than just price discounts alone.
* Electronic Commerce. The Company's online electronic
retailing division consists of components designed to capitalize on the
emerging and rapidly expanding online computer industry. The OfficeMax
OnLine web site, introduced in March 1995, features over 20,000 office
products, computers, software and related merchandise. OfficeMax OnLine
currently is available on America OnLine (keyword OfficeMax) and
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the Internet through the Company's world wide web site,
www.officemax.com. The other components of electronic commerce are the
CD-ROM catalogs and OfficeMax Corporate Direct. The interactive CD-ROM
catalogs provide the small office/home office customer with real time
information, instant pricing updates and electronic ordering
capability. OfficeMax Corporate Direct enables the Company to increase
its emphasis on targeting companies employing between 50 and 300 office
employees. Corporate Direct is an Internet based purchasing system for
these larger companies which is currently being tested in several
markets. This initiative will be supported by the Company's existing
delivery center facilities, systems and online technology.
* International Opportunities. During fiscal 1997, the Company
opened seven OfficeMax superstores in Mexico through a joint venture
with Grupo OpriMax, a Mexican corporation, ending the year with nine
superstores. In fiscal 1998, the joint venture plans to open up to ten
more superstores in Mexico. Additionally, the Company's other joint
venture created during fiscal 1996 with JUSCO Company Ltd., a Japanese
corporation, opened its first superstore in Yokkaichi, Japan on
November 22, 1997. The expansion plan for Japan includes opening up to
ten more superstores in fiscal 1998. OfficeMax owns a 19% interest in
each joint venture.
MERCHANDISING
The Company's merchandising strategy focuses on offering an extensive
selection of quality, name-brand and private label office products at
deep-discount prices. OfficeMax superstores feature over 7,700 SKU's generally
in the categories of office supplies, computers, computer software, business
electronics and office furniture. The following table sets forth the approximate
percentage of net sales attributable to each merchandise group for the periods
presented:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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JANUARY 24, JANUARY 25, JANUARY 27,
1998 1997 1996
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<S> <C> <C> <C>
Office supplies, including "print-for-pay" services (1) 37.6% 37.7% 40.7%
Electronics, business machines, computers,
software, peripherals and related consumable
products such as printer cartridges, ribbons
and paper 50.6 51.1 47.5
Office furniture 11.8 11.2 11.8
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100.0% 100.0% 100.0%
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</TABLE>
(1) Excludes consumable supplies relating to computers and business machines.
The Company emphasizes a wide selection of name-brand office products,
packaged and sold in multi-unit packages for the business customer and single
units for the individual consumer. The Company also offers private label
products under the OfficeMax(R) label in order to provide customers additional
savings on selected commodity products for which management believes national
brand recognition is not a key determinant of customer satisfaction. These
commodity items include various paper products such as computer and copy paper,
legal pads and notebooks, envelopes and similar functional items. Despite lower
selling prices, these items typically carry higher gross margins than comparable
branded items and help build consumer recognition for the OfficeMax family of
Max brand products. The Company's merchandising staff regularly evaluates new
name-brand and private label merchandise to maximize profit opportunities and to
provide customers with the best value. The Company also includes its toll-free
telephone
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number on the packaging of certain commodity and private label goods to increase
repeat sales as commodity goods are used and replenished.
PURCHASING AND DISTRIBUTION
OfficeMax maintains a centralized group of merchandise and category
managers who average approximately 20 years of retail buying and merchandising
experience. In 1997, OfficeMax implemented category merchandise management, the
process of managing categories as strategic business units. Using a detailed
merchandise planning system, this group selects the merchandise mix for each
store in conjunction with systematic, frequent input from field management and
store personnel. The Company utilizes a proprietary merchandise replenishment
system, "ForeMax," which automatically analyzes and forecasts sales trends for
each SKU statistically and then estimates each store's merchandise requirements.
The Company believes that it has good relationships with its vendors
and does not consider itself dependent on any single source for its merchandise.
As the number of stores increases pursuant to the Company's store expansion
plan, the Company believes that it will be able to continue to obtain sufficient
merchandise for all of its stores on a timely basis.
MARKETING, PROMOTIONS AND ADVERTISING
OfficeMax directs its marketing efforts at small and medium-size
businesses, home office customers, and individual consumers. A multimedia
approach is used to attract new customers while re-emphasizing the Company's
value message to existing customers. Included in these campaigns are national
television commercials, newspaper ads, seasonal spot television and radio
commercials, direct mail promotions, circulars, and outdoor billboards, sports
arena and other such signage. OfficeMax also publishes full-color catalogs and
has introduced a catalog on CD-ROM to further communicate the benefits of
shopping at OfficeMax.
Advertising campaigns and promotions are conducted continuously
throughout the year to reach new and existing customers. To further increase
sales, OfficeMax takes advantage of seasonal selling opportunities. Special
marketing programs are developed to support the Back-To-School selling period,
the Christmas holiday season, plus the January "re-stocking" Back-To-Basics
period. Additional marketing opportunities arise during the Mother's Day,
Father's Day and graduation selling periods.
As part of its ongoing efforts to strengthen customer loyalty and
enhance the image of its stores as a value destination, the Company introduced
MaxRebates(TM), MaxValues(TM) and MaxLease(TM) in fiscal 1997. MaxRebates, the
industry's first one-check rebate program, allows customers to complete just one
form for all rebate qualified purchases and receive one check in return. This is
an added value each time customers shop at OfficeMax. MaxValues provides
customers with value added items, such as three free legal pads with the
purchase of a twelve-pack. MaxLease is a partnership between OfficeMax and GE
Capital to offer business customers a financing alternative in the form of a
lease program for the purchase of furniture, computers and office equipment.
STORES
The typical full-size OfficeMax superstore is approximately 23,500
square feet. OfficeMax superstores are generally destination oriented locations
in high-traffic, suburban strip-mall shopping centers that provide customers
easy access and ample store-front parking. Each superstore displays merchandise
in accordance with a corporate developed plan-o-gram to ensure that it utilizes
optimal display techniques and provides a consistent and attractive shopping
environment for customers. The Company continuously evaluates the attributes of
its prototype store model and periodically makes adjustments to the desired
store layout. These changes are integrated into new stores as they are opened
and are also considered when the Company remodels existing units. The Company's
latest prototype is characterized by an increased degree of visual acuity, a
central computer and business electronics section, and a segregated CopyMax
"print-for-pay" area. Management believes that attractive and up-to-date stores
contribute to
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customer satisfaction and loyalty, leading to increased sales. Due to the
success of the latest prototype, 124 existing superstores were remodeled during
fiscal 1997 and plans are in place to remodel 75 more stores during fiscal 1998.
Introduced in July 1995, the store-within-a-store CopyMax modules
feature a broad assortment of "print-for-pay" services for businesses and
consumers ranging from self-service copying to digital printing and publishing
as well as color copying, custom printing and related specialty services.
Approximately 4,000 to 6,000 square feet are devoted to a full service CopyMax
"hub" location, which utilizes the latest digital printing equipment and
technology and serves as a centralized production facility. The mini-CopyMax or
"spoke" locations are smaller store-within-a-store concepts averaging
approximately 900-square feet. These spoke locations are served by a hub
utilizing the "CopyMax Link" software. This software, a modem based solution
that provides the capability to transmit documents to any CopyMax location,
creates a "hub-and-spoke" concept that optimizes equipment in the CopyMax hubs.
Customers can use PrintLink@CopyMax(TM), a unique custom printing site on the
Internet which allows customers to design and purchase a variety of products
including stationary, business cards, announcements and labels right from their
own computer keyboard.
Another store-within-a-store module, FurnitureMax, features an
extensive selection of office furniture from the ready-to-assemble products
currently sold by OfficeMax to a broader assortment of office chairs, dividers,
filing cabinets and higher-end case goods, desks and credenzas. FurnitureMax
also offers specialized services such as customized space planning, on site
consultation, installation, furniture setup and free delivery. Full-size
FurnitureMax hubs are an approximately 4,000 to 8,000 square foot addition to an
existing OfficeMax superstore while mini-FurnitureMax modules contain
approximately 2,000 square feet.
A TechMax department is now included in the Company's newest store
format. This module showcases the latest in computers, wireless digital
technology, communications products and similarly related technology products
and features specially trained associates to serve the TechMax customers.
During fiscal 1998, OfficeMax plans to test its new PDQ concept.
OfficeMax PDQ is a smaller express store footprint offering about 2,000
high-volume commodity products combined with a full-service CopyMax hub in a
6,000 to 7,000 square foot retail site. The OfficeMax PDQ format will allow the
Company to penetrate high-density urban locations, satellite locations within
metro markets and international locations.
EXPANSION
Small and Medium-Size Business Market. The Company's expansion strategy
primarily focuses on new store growth and its new retailing concepts. The
Company opened 150 superstores in fiscal 1997 and intends to continue its rapid
growth by opening approximately 120 additional superstores in fiscal 1998. At
the end of fiscal 1997, OfficeMax operated 142 full size FurnitureMax units of
which 48 were opened in fiscal 1997. During fiscal 1997, the Company opened 55
CopyMax hub units, bringing the total number of hub units to 129.
Large Business Market. OfficeMax has undertaken several initiatives to
better serve the needs of its larger customers, predominately through its
catalog and delivery operations. The Company serves the needs of large
businesses through its expanded full-color catalogs featuring approximately
5,000 items and with other specialized catalogs. These catalogs, which are
distributed periodically to businesses and individual customers, feature
toll-free telephone ordering and typically offer next business day delivery. In
addition, the Company employs a commercial sales force to attract new customers
as well as maintain existing customers. The Company continues to develop a
network of delivery centers in the major markets OfficeMax serves. In contrast
to the small business, home office and individual consumer customer focus of
OfficeMax's retail superstores, the Company's expanded catalogs , commercial
sales force and delivery centers enable larger businesses, municipalities and
school systems to purchase from OfficeMax on much the same basis as they could
from contract stationers and other traditional office product suppliers.
International. The Company has entered into a joint venture agreement
with Grupo Oprimax, a Mexican corporation, and operates nine OfficeMax
superstores in Mexico with up to ten more stores planned to open in fiscal
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1998. In addition, the Company has a joint venture agreement with JUSCO Company
Ltd., a Japanese corporation, and opened its first OfficeMax superstore in Japan
in fiscal 1997, with up to ten more stores planned to open in fiscal 1998. The
Company is also currently exploring new joint venture opportunities in South
America. Ultimately, the Company's international expansion will depend upon
general economic and business conditions affecting consumer spending, the
availability of desirable locations, the negotiation of acceptable terms and the
availability of adequate capital.
CUSTOMER SERVICE
The Company believes that a fundamental element of its success is its
customer-oriented culture that demands a high level of customer service from
each of its associates. The Company views the quality of its customers'
interaction with its associates as critical to maintaining customer confidence
and loyalty. Through its emphasis on training and personnel development, the
Company believes it attracts and retains well-qualified, highly motivated
associates committed to providing superior levels of customer service.
Management has undertaken a number of initiatives that demonstrate its
commitment to excellent in-store customer service. For example, by centralizing
most administrative functions at its corporate offices and call centers,
OfficeMax enables its in-store associates to focus primarily on customer
service. In addition, the Company implemented ServiceMax, a program that details
customer service standards to be met by each store-level associate and assigns
to each superstore one or more associates whose primary responsibility is to
ensure that each customer receives prompt, courteous and knowledgeable service.
The Company has also developed proprietary Computer Based Training (CBT) to
ensure that associates receive the training needed to keep pace with new
technology and learn more effective methods of customer service.
MANAGEMENT INFORMATION SYSTEMS
OfficeMax has developed comprehensive operational and administrative
controls using centralized computer systems which rapidly collect and
disseminate information between corporate headquarters and each store. This
system has enabled OfficeMax to enhance customer service and to achieve strong
financial controls by enabling management to react quickly and efficiently to
critical store-level information.
At its headquarters, the Company uses a platform of Unix-based parallel
processors which supports a wide variety of mission critical applications,
ranging from merchandise replenishment to order fulfillment, electronic commerce
and financial systems. This "open system" architecture provides seamless
connectivity to a number of special purpose applications that provide the
information required to make timely and informed decisions. This technology also
provides "scalability," the ability to support growth within the same platform.
During 1997, the Company continued to develop its internal computer
systems replatforming project, FutureMax, that will provide integrated
state-of-the-art client-server systems and technology. FutureMax is comprised of
three major application suites, merchandising, inventory management and
financial systems, as well as a broad replatforming of the Company's information
systems' technical infrastructure. OfficeMax has invested over $50 million in
the last three years to upgrade systems and controls and intends to continue
investing aggressively in this area to support the Company's growth.
The Company operates a proprietary, in-store computer system called
"StoreMax" that allows the daily tracking of inventory receipts through the use
of portable handheld radio frequency terminals. These terminals permit store
managers to scan a product on the shelf and instantly retrieve product specific
information, such as recent sales history, gross profit margin and inventory
levels. In-store point-of-sale registers capture sales information at the time
of each transaction at the category and SKU level by the use of bar-code
scanners that update store-level perpetual inventory levels. This information is
transmitted on a daily basis to corporate headquarters, where it is evaluated
and used in merchandising and replenishment decisions. In addition, StoreMax is
used to transmit data to each store relating to its key day-to-day operations.
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The Company utilizes an online advanced "frame-relay" network which
supports data communication between headquarters and its stores, delivery and
call centers. This technology is employed to centralize credit card and check
authorization and validate transactions. In addition, the network enhances
intra-Company communication and supports electronic maintenance of in-store
technology. The Company has also launched a plan to develop its own intranet,
know as @Max(TM), which will provide information on demand to all of the
Company's associates.
The Company has implemented a "quick response" program with its vendors
for the purpose of reducing inventory levels and increasing inventory turnover.
As part of this program, the Company uses electronic data interchange ("EDI"),
in lieu of paper copy, for approximately 90% of its purchase orders and
approximately 85% of its vendor invoices. EDI provides certain advantages such
as immediate confirmation of the price, delivery terms and quantity of
merchandise ordered. In addition, the Company has been experimenting with
vendor-managed inventory programs with a select number of vendors. Under these
programs, the Company shares its sales information for a particular SKU with the
vendor and the vendor, rather than the Company, assumes responsibility for
replenishment decisions.
COMPETITION
The office products industry, which includes both national superstore
chains and other indirect competitors, is highly competitive. Businesses in the
office products industry compete on the basis of pricing, product selection,
convenience, customer service and ancillary business offerings.
As a result of the consolidation of the office products superstore
industry, OfficeMax currently has only two direct competitors, Staples and
Office Depot, which are similar to the Company in terms of store format, pricing
strategy and product selection. Of the approximately 20 office products
superstore chains that were launched between approximately 1986 and 1994, all
but OfficeMax, Staples and Office Depot have either been acquired or gone out of
business.
Although not all OfficeMax stores currently compete with either Staples
or Office Depot stores, the Company believes it will face increased competition
from Staples and Office Depot as the three remaining office product superstore
chains expand their operations in the same markets. The Company believes that it
competes favorably with Staples and Office Depot through consistent execution of
its business strategy, the components of which are designed to favorably
differentiate OfficeMax from Staples and Office Depot.
OfficeMax's indirect competitors include traditional office product
retailers, electronics superstore retailers, mass merchandisers and wholesale
clubs, and direct mail operators. Although these non-superstore companies sell
office products and compete with OfficeMax in limited markets or with respect to
limited product categories, OfficeMax does not consider them to be major direct
competitors. These companies cannot provide all of the advantages that an office
products superstore has to offer such as one-stop shopping convenience, discount
prices, customer benefits and a full range of ancillary business services. For
example, electronic superstore retailers, such as Circuit City and Best Buy,
feature consumer electronics and computers which overlap with only a portion of
the merchandise selection provided by OfficeMax.
Some of OfficeMax's direct and indirect competitors may have greater
financial resources than the Company. There can be no assurance that increased
competition will not have an adverse effect on the Company.
ASSOCIATES
As of March 23, 1998, the Company had approximately 32,355 employees,
including 16,255 full time and 16,100 part-time associates, 1,548 of whom were
employed at its Corporate headquarters, divisional offices and call centers and
30,807 of whom were employed at OfficeMax stores and delivery centers. None of
the Company's
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associates is subject to a collective bargaining agreement. Management believes
that its relationship with its associates is satisfactory.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K, in future filings by the Company
with the Securities and Exchange Commission (the "Commission"), in the Company's
press releases, and in oral statements made by or with the approval of an
authorized executive officer of the Company constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 and releases issued by the Commission. The words "believe,"
"expect," "anticipate," "intend," "estimate," "plan" and other expressions which
are predictions of or indicate future events and trends and which do not relate
to historical matters identify forward-looking statements. Undue reliance should
not be placed on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
The future operating results of the Company may be affected by a number of
factors, including without limitation, the following:
The Company operates in the office products industry, which is highly
competitive. The Company competes with other high-volume, discount office
products superstore chains, such as Office Depot, Inc. and Staples, Inc., that
are similar to the Company in terms of store format, pricing strategy and
product selection. The Company's expansion into new geographic markets in which
its competitors are already established, and expansion of the Company's
competitors into markets in which the Company is currently operating, has a
tendency to dilute the customer base and may have an adverse effect on the
Company's operations. In addition, the Company believes that it will face
increased competition in the future as the Company and its competitors continue
to expand their operations. Any attempt by the Company or any of its competitors
to reduce prices systematically to gain market share or otherwise could result
in industry wide reduced prices and lower gross margins.
Over the last few years, the Company's rapid growth has resulted largely
from the Company's aggressive new store opening strategy. While the Company
intends to continue pursuing an aggressive new store expansion strategy by
opening at least 120 new superstores in fiscal 1998 and by continuing to
consider strategic acquisitions, there can be no assurance that the Company's
historic growth rate can or will continue or that such new store openings or
acquisitions will occur. The Company's ability to open new superstores at its
planned rate is dependent on a number of factors, including availability of
suitable sites, negotiation of acceptable leases and other factors, some of
which are beyond the control of the Company. In addition, the Company's
expansion strategy includes clustering new stores in existing markets, which
results in some transfer of sales from existing stores to the new locations.
While management believes that its aggressive expansion strategy will improve
its overall market position and, ultimately, its profitability, there can be no
assurance that this will occur.
The Company is largely dependent on the services of Michael Feuer, the
Company's Co-Founder, Chairman and Chief Executive Officer, and its senior
management. The loss of Mr. Feuer or any of the Company's other senior
management could have a material adverse impact on the Company.
The Company has entered into joint venture agreements with locally-based
companies in Mexico and Japan. The Company is also exploring the possibility of
expansion into other international markets, including Brazil. There is no
guarantee that the Company will develop or maintain significant operations
internationally or that any such operations will be successful. Any
international operations established by the Company will be subject to risks
similar to those affecting its North American operations in addition to a number
of other risks, including lack of
- 10 -
<PAGE> 11
complete operating control, lack of local business experience, foreign currency
fluctuations, language and other cultural barriers and political and economic
instability.
Although the Company continues to evaluate its distribution strategy
and methods in order to take advantage of new and improved technology to
increase inventory controls and reduce expenses and delivery lead times, there
can be no assurance that changes in the Company's current distribution methods
will accomplish these goals.
An element of the Company's growth strategy is the pursuit of strategic
acquisitions, that either expand or complement its business. The Company
routinely reviews such potential acquisition opportunities. Such acquisitions
involve a number of risks, including risks pertaining to integration of the
acquired business. In addition, the Company may incur debt to finance future
acquisitions.
The foregoing factors could affect the Company's actual results and
could cause the Company's actual results during fiscal 1998 and beyond to be
materially different from any anticipated results expressed in any
forward-looking statements made by or on behalf of the Company.
The Company expects that its current cash and cash equivalents and
funds available under its revolving credit facility will be sufficient to fund
its planned store openings and other operating cash needs for at least the next
12 months. However, there can be no assurance that the Company will not require
additional sources of financing prior to that time as a result of unanticipated
cash needs, acquisitions or other opportunities or disappointing operating
results. There also can be no assurance that any additional funds required by
the Company will be available to the Company on satisfactory terms.
- 11 -
<PAGE> 12
ITEM 2. PROPERTIES
OfficeMax superstores are relatively immature, having been open as of
March 23, 1998 an average of 3.3 years operating under the OfficeMax name and
format. Of the Company's 725 superstores, 325 have been opened by OfficeMax
within the last three years. Management believes that the Company's young stores
represent an opportunity for future sales growth as they proceed through the
maturation cycle.
The Company occupies virtually all of its stores under long-term lease
agreements. These leases generally have terms ranging from 10 to 25 years plus
renewal options. Most of these leases require the Company to pay minimum rents,
subject to periodic adjustments, plus other charges including utilities, real
estate taxes, common area maintenance and, in limited cases, contingent rentals
based on sales. Several of the Company's store leases are guaranteed by Kmart.
The Company and Kmart are parties to a Lease Guaranty, Reimbursement and
Indemnification Agreement, pursuant to which Kmart has agreed to maintain
existing guarantees and provide a limited number of additional guarantees, and
the Company has agreed, among other things, to indemnify Kmart against
liabilities incurred in connection with those guarantees.
As of March 23, 1998, OfficeMax had 725 superstores in 48 states and
Puerto Rico. The following table details OfficeMax superstores by state and
territory:
<TABLE>
<S> <C> <C> <C>
Alabama 9 Nebraska 6
Alaska 3 Nevada 8
Arkansas 1 New Hampshire 3
Arizona 17 New Jersey 15
California 66 New Mexico 6
Colorado 15 New York 40
Connecticut 9 North Carolina 16
Delaware 2 North Dakota 1
Florida 44 Ohio 46
Georgia 18 Oklahoma 5
Hawaii 3 Oregon 12
Idaho 5 Pennsylvania 30
Illinois 43 Rhode Island 2
Indiana 17 South Carolina 8
Iowa 6 South Dakota 2
Kansas 8 Tennessee 21
Kentucky 6 Texas 56
Louisiana 7 Utah 13
Maine 1 Washington 17
Massachusetts 14 Virginia 17
Michigan 37 West Virginia 5
Minnesota 19 Wisconsin 18
Mississippi 2 Wyoming 2
Missouri 17 Puerto Rico 4
Montana 3
</TABLE>
- 12 -
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation it initiated in October 1997 in
the United States District Court for the Northern District of Ohio against Ryder
Integrated Logistics, Inc. arising out of Ryder's failure to fulfill certain
payment guarantees pursuant to the terms of the Company's logistics service
agreement with Ryder. The Company terminated the logistics service agreement in
June 1997 based on numerous claims against Ryder under the agreement including,
among others, Ryder's refusal to honor its cost guarantees and its failure to
return overpayments to the Company. During the course of the agreement, the
Company recorded receivables from Ryder of approximately $19,000,000
representing overpayments due from Ryder pursuant to the terms of the agreement.
In January 1998, Ryder filed a counterclaim against the Company alleging damages
arising from the Company's termination of the agreement in the amount of
approximately $75,000,000. The Company believes the counterclaim is without
merit and intends to vigorously defend against such counterclaim.
Management is of the opinion that, although the ultimate resolution of
the Ryder litigation cannot be forecasted with certainty, final disposition of
this matter should not materially affect the Company's liquidity, financial
position or results of operations. However, in the event of an unanticipated
adverse final determination in this matter, the Company's consolidated net
income for the period in which such determination occurs could be materially
affected.
In addition, there are various claims, lawsuits and pending actions
against the Company incident to the Company's operations. It is the opinion of
management that the ultimate resolution of these matters will not have a
material effect on the Company's liquidity, financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, positions and ages of the executive
officers of the Company as of March 23, 1998. Each executive officer will serve
until his successor is selected by the Board of Directors or until his earlier
resignation or removal.
NAME POSITION AGE
Michael Feuer Chairman of the Board and 53
Chief Executive Officer
John C. Martin President, Retail Stores 48
James P. Mastrian Senior Executive Vice President, 55
Merchandise and Marketing
Edward L. Cornell Executive Vice President, 49
New Business Development
Jeffrey L. Rutherford Executive Vice President, 37
Chief Financial Officer
Mark L. Keschl Senior Vice President, 42
Real Estate
Ross H. Pollock Senior Vice President, 42
General Counsel and Secretary
Douglas J. Schwinn Senior Vice President, 47
Chief Information Officer
13
<PAGE> 14
Mr. Feuer is the Company's co-founder, Chairman of the Board and Chief
Executive Officer. He has served as a Director of the Company since its
inception in April 1988. Prior to becoming Chairman in March 1995, Mr. Feuer
served as President. From May 1970 through March 1988, Mr. Feuer was associated
with Fabri-Centers of America, Inc., a publicly held, New York Stock
Exchange-listed, national retail chain which then had over 600 stores. In his
most recent capacity prior to his departure, Mr. Feuer served Fabri-Centers as
Senior Vice President and a member of that company's executive committee.
Mr. Martin has served as President, Retail Stores of the Company since
March 1996. From November 1993 to March 1996, Mr. Martin served as Executive
Vice President, Store Operations of the Company. From March 1993 to November
1993, Mr. Martin served as Senior Vice President of the Company. From March 1992
to March 1993, Mr. Martin served as Vice President, Group Merchandise Manager.
From August 1988 to March 1992, Mr. Martin was Senior Vice President
Merchandising with Boston Distributors, Inc., a national hard goods distributor.
Mr. Martin has also held various merchandise management and vice president
positions with Gold Circle Stores and various subsidiaries of Federated
Department Stores, Inc.
Mr. Mastrian has served as Senior Executive Vice President, Merchandise
and Marketing of the Company since June 1997. From September 1990 to May 1997,
Mr. Mastrian was an officer of Revco D.S. Inc., serving most recently as
Executive Vice President, Marketing. Mr. Mastrian has also served as a
merchandising executive with a number of leading retailers, including The
Sherwin Williams Company, where Mr. Mastrian held various executive positions
including Senior Vice President for the Stores Division and President and
General Manager for its then 425 store Gray Drug Fair chain.
Mr. Cornell has served as Executive Vice President, New Business
Development of the Company since December 1995. From February 1993 to December
1995, Mr. Cornell served as Executive Vice President, Chief Financial Officer of
the Company. From February 1992 to February 1993, Mr. Cornell served as Senior
Vice President and Chief Financial Officer of the Company. From March 1983 to
February 1992, Mr. Cornell was employed by Things Remembered, a specialty retail
subsidiary of Cole National Corporation, serving most recently as Executive Vice
President and Chief Financial Officer. Mr. Cornell has also held various
management positions with Wal-Mart Stores, Inc. and Zayre Corporation.
Mr. Rutherford has served as Executive Vice President, Chief Financial
Officer of the Company since March 1998. From June 1997 to March 1998, Mr.
Rutherford served as Senior Vice President, Chief Financial Officer of the
Company. From February 1997 to June 1997, Mr. Rutherford served as Senior Vice
President, Finance and Treasurer of the Company. From January 1984 to January
1997, Mr. Rutherford was employed in various positions with Arthur Andersen LLP,
most recently as a Senior Manager.
Mr. Keschl has served as Senior Vice President, Real Estate of the
Company since September 1993. From September 1992 to August 1993, Mr. Keschl
worked as a real estate consultant, performing services for The Sports
Authority, Inc., a large format sporting goods retailer. From November 1984 to
August 1992, Mr. Keschl was employed by Toys-R-Us, Inc., serving most recently
as Senior Vice President of Real Estate. Mr. Keschl has also held various real
estate related positions with Arbor Drugs, a Michigan based chain of retail drug
stores.
Mr. Pollock has served as Senior Vice President, General Counsel and
Secretary of the Company since March 1998. From January 1997 to March 1998, Mr.
Pollock served as Vice President, General Counsel and Secretary of the Company.
From September 1988 to December 1996, Mr. Pollock practiced law with the law
firm of Benesch, Friedlander, Coplan & Aronoff in its Cleveland, Ohio office.
Mr. Schwinn has served as Senior Vice President, Chief Information
Officer of the Company since January 1997. From June 1993 to January 1997, Mr.
Schwinn was employed by FoxMeyer Drug Company, serving most recently as Senior
Vice President, Chief Information Officer. From May 1990 to June 1993, Mr.
Schwinn was Director, Information Systems Development at Mervyn's Department
Store.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER
MATTERS
The high and low sales prices of the Company's Common Shares during
each quarter of fiscal 1996 and fiscal 1997, as reported on the New York Stock
Exchange Consolidated Transaction reporting system, are listed below:
<TABLE>
<CAPTION>
Fiscal 1996 High Low
----------- ---- ---
<S> <C> <C> <C>
1st Quarter (ended April 27, 1996) $19.25 $13.625
2nd Quarter (ended July 27, 1996) 18.125 12.25
3rd Quarter (ended October 26, 1996) 15.75 12.125
4th Quarter (ended January 25, 1997) 15.25 9.875
Fiscal 1997 High Low
----------- ---- ---
1st Quarter (ended April 26, 1997) $15.125 $10.875
2nd Quarter (ended July 26, 1997) 15.25 11.375
3rd Quarter (ended October 25, 1997) 16.25 13.00
4th Quarter (ended January 24, 1998) 15.0625 11.8125
</TABLE>
The Company has never paid dividends on its Common Shares. The Company
does not anticipate paying any cash dividends on its Common Shares in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. The declaration
and payment of any dividends in the future will be at the discretion of the
Company's Board of Directors and will depend on, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to payment of dividends and
other factors deemed relevant by the Company's Board of Directors.
As of March 23, 1998, the Company had approximately 3,400 shareholders
of record. On March 23, 1998, the closing price of the Company's Common Shares
was $17.25.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data as of and for the fiscal years ended January
24, 1998, January 25, 1997, January 27, 1996, January 21, 1995, and January 22,
1994 is set forth below:
<TABLE>
<CAPTION>
(Dollars in millions, except per share and store data)
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
1997 1996 1995(1) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Sales $ 3,765.4 $ 3,179.3 $ 2,542.5 $ 1,841.2 $ 1,421.8
Gross profit 870.4 690.3 572.0 418.8 312.8
Operating income 145.9 105.5 86.3 55.6 20.0
Net income 89.6 68.8 125.8 30.4 10.8
Pro forma earnings
per common share: (2)
Basic 0.73 0.56 1.06 0.27 0.10
Diluted 0.72 0.55 1.04 0.27 0.09
OTHER FINANCIAL AND OPERATING DATA
Percentage increase in sales 18.4% 25.0% 38.1% 29.5% 169.2%
Comparable store sales increase(3) 1.1% 11.0% 16.7% 17.0% 18.2%
End of period stores 713 564 468 388 328
FINANCIAL POSITION
Working capital $ 561.5 $ 473.4 $ 499.4 $ 211.9 $ 113.6
Total assets 1,906.0 1,867.3 1,587.9 1,257.5 1,009.7
Total long-term debt, including
capital lease obligations 19.0 20.0 -- 0.3 0.8
Shareholders' equity 1,160.6 1,063.6 990.9 748.6 608.5
<FN>
(1) Net income and pro forma earnings per common share includes $69.1 million, or $0.57 per share,
after-tax gain from sale of Corporate Express, Inc.
(2) Pro forma earnings per Common Share data for fiscal 1993 and 1994 give effect to the issuance of all
shares at the time of the Offering and the proceeds from the Offering paid to Kmart as if such
transactions had taken place at the beginning of that period.
(3) Comparable store sales include the sales of a store beginning on the first day of the 53rd week of
its operation, except for 105 stores acquired from BizMart in March 1993. Stores acquired from
BizMart were first included in the comparable store sales calculation on August 21, 1994 to
correspond to the 53rd week following substantial completion of their remodeling, remerchandising
and conversion to the OfficeMax name, merchandise presentation and format.
</FN>
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for fiscal 1997 increased 18.4% to $3,765,444,000 versus
$3,179,274,000 in fiscal 1996. This followed a 25.0% increase in fiscal 1996
from $2,542,513,000 in fiscal 1995. The fiscal 1997 sales increase was primarily
attributable to the full year's sales from the 96 stores opened during fiscal
1996, the additional partial year's sales from 150 new stores opened in fiscal
1997 and a 1.1% comparable store sales increase. This 1.1% comparable store
increase was negatively impacted by deflationary pressures including a decrease
in the average selling prices for computers, printers and fax machines of
approximately 10.0%-13.0% along with a reduction in retail paper pricing of
about 13.0%. Same-store sales for this 52-week period advanced 4.1% excluding
computers which were adversely affected by the Company's deliberate decision to
drastically curtail promotions in 1997 versus 1996 as well as deflationary
pricing. Comparable store sales in fiscal 1996 increased 11.0% from fiscal 1995.
Cost of merchandise sold, including buying and occupancy costs,
decreased as a percentage of sales to 76.9% in fiscal 1997 from 78.3% in fiscal
1996 and 77.5% in fiscal 1995. Correspondingly, gross profit as a percent of
sales was 23.1% for fiscal 1997 compared to 21.7% and 22.5% for fiscal 1996 and
1995, respectively. The gross profit increase in fiscal 1997 was primarily
attributable to the reduction in the number of computer promotions in fiscal
1997 versus the prior year and the enhanced marketing of higher margin office
supply and furniture merchandise. The gross profit decline in fiscal 1996 was
primarily attributable to the increase in lower margin computer sales as a
percentage of the total merchandise mix.
Store operating and selling expenses, which consist primarily of store
payroll, operating and advertising expense, increased to 16.3% of sales in
fiscal 1997 from 15.8% of sales in fiscal 1996 and were basically flat to the
16.5% reported in fiscal 1995. This increase was primarily due to 21.0% of the
store's base being open less than one year in fiscal 1997 versus 17.0% in the
prior year as new stores typically begin to leverage fixed cost components in
their second year of operations when sales volumes commonly accelerate at double
digit rates. The Company also increased its advertising expense in fiscal 1997
to enhance brand awareness.
Pre-opening expense was $15,512,000, $10,649,000 and $6,818,000 for
fiscal 1997, 1996 and 1995, respectively, reflecting 150, 96 and 80 new store
openings. Pre-opening expense, which consists primarily of store payroll,
supplies and grand opening advertising increased to an average of approximately
$85,000 for an OfficeMax superstore which is up from $75,000 for 1996 and 1995.
Additionally, in fiscal 1997, 1996 and 1995, pre-opening expense included the
costs associated with opening 48, 70 and 22 FurnitureMax units, respectively,
which averaged approximately $25,000 per unit, along with 55, 66 and 8 CopyMax
hub units, respectively, which averaged approximately $35,000 per unit. The
Company expenses these costs during the first full month of the store's
operation. Consequently, pre-opening expenses in each period are generally a
function of the number of new stores opened during that period.
General and administrative expenses increased as a percentage of sales
to 2.3% in fiscal 1997 from 1.9% in fiscal 1996 and 2.0% in fiscal 1995. This
increase reflects the Company's continuing efforts to strengthen and enhance its
infrastructure and management team to support the planned growth both in the
United States and internationally and includes expenses associated with its
focus on building its information systems group.
Goodwill amortization was $9,390,000 in both fiscal 1997 and fiscal
1996 and was $9,414,000 in fiscal 1995. Goodwill is capitalized and amortized
over 40 years using the straight line method.
Operating income for fiscal 1997 increased to $145,917,000, or 3.9% of
sales, as compared to operating income of $105,456,000 and $86,253,000, or 3.3%
and 3.4% of sales, in fiscal 1996 and 1995, respectively, as a result of the
factors discussed above.
17
<PAGE> 18
Interest income, net was $514,000 for fiscal 1997, as compared to
$7,485,000 and $7,198,000 in fiscal 1996 and 1995, respectively. Interest income
decreased due to the Company's use of cash and equivalents to fund the
aggressive expansion plans and seasonal inventory requirements. Interest income
for fiscal 1996 and 1995 was primarily attributable to interest earned on cash
received from the Company's July 20, 1995 public offering and the sale of its
interest in the contract stationer, Corporate Express, Inc.
Equity income from affiliate was $2,178,000 in fiscal 1995 and
represents the Company's proportionate share of income reported by Corporate
Express, Inc. through September 10, 1995. On that date, the Company sold its
entire interest in Corporate Express, Inc., resulting in the $118,014,000 gain
on sale of affiliate.
Income taxes were $56,811,000 in fiscal 1997, $44,136,000 in fiscal
1996 and $87,880,000 in fiscal 1995 with effective tax rates of 38.8%, 39.1%,
and 41.1%, respectively. The effective tax rates for all three years were
different from the statutory income tax rate primarily as a result of tax exempt
interest, state and local taxes, equity income from affiliate and non-deductible
goodwill amortization expense.
Net income, as a result of the foregoing factors, was $89,620,000 in
fiscal 1997 and $68,805,000 in fiscal 1996. Net income in fiscal 1995 was
$125,763,000 which includes a net after-tax gain of $69,124,000 resulting from
the Company's sale of its entire interest in Corporate Express, Inc. Excluding
the gain from the sale of Corporate Express, Inc., net income for fiscal 1995
was $56,639,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operations in fiscal 1997 was $90,031,000. Major uses
of working capital included increases in inventory and accounts receivable as
well as a decrease in accounts payable. The inventory increase was due to the
additional 150 new superstores, as same-store inventory levels declined 3%. The
accounts receivable increase was a result of additional vendor funding based on
higher merchandise purchase volumes. The accounts payable decrease was due to
special purchases early in the fourth quarter and the taking advantage of
anticipation discounts, leading to a lower balance at year end. Net cash used
for investing activities was $104,496,000, principally as a result of the
purchase of fixed assets in the amount of $125,804,000 for fiscal 1997. Net cash
provided by financing was $3,217,000 for fiscal 1997 and included the proceeds
received from the sale of shares under the Company's share purchase plans.
In fiscal 1998, the Company plans to open at least 120 additional
superstores, approximately seven FurnitureMax hub units, 15 CopyMax hub units,
and remodel 75 existing superstores. Management estimates that the Company's
cash requirements for the openings and remodels, exclusive of pre-opening
expenses, will be approximately $1,200,000, $140,000, $350,000 and $250,000,
respectively, for each additional OfficeMax superstore, FurnitureMax unit,
CopyMax unit and store remodel. For an OfficeMax store, the requirements include
an average of approximately $450,000 for leasehold improvements, fixtures,
point-of-sales terminals and other equipment in the stores, and approximately
$750,000 for the portion of store inventory that is not financed by accounts
payable to vendors. Pre-opening expenses are expected to average approximately
$85,000 for an OfficeMax superstore, $20,000 for a FurnitureMax unit and $35,000
for a CopyMax unit.
On November 12, 1997, the Company's Board of Directors authorized the
Company to purchase up to $100,000,000 of its common shares in open market
transactions. At the end of fiscal 1997, the Company had purchased a total of
100,000 shares at a cost of $1,279,000. The Company can reissue the acquired
shares to satisfy its obligations under certain of its equity-based employee
plans. Future purchases of common shares will depend on the Company's cash
position and market conditions.
The Company has undertaken a comprehensive review of its computer-based
systems and applications to identify modifications necessitated by the century
change for the year 2000 and has implemented a plan to make such modifications.
18
<PAGE> 19
The Company intends to have all critical systems compliant with the century
change prior to the end of 1999 at a cost of approximately $1,000,000.
The Company expects its funds generated from operations as well as its
current cash reserves, and, when necessary, seasonal short-term borrowings will
be sufficient to finance its operations and capital requirements, including its
expansion strategy. The Company has a $500,000,000 revolving credit facility
available through June 2002, against which no borrowings were outstanding as of
January 24, 1998.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"). The statement establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements for periods beginning after December 15, 1997. As defined
in FAS 130, "Comprehensive income" includes all changes in equity (net assets)
during a period from nonowner sources. Reclassification of financial statements
for earlier periods for comparative purposes is required. The Company will adopt
FAS 130 in its financial statements for the year ending January 23, 1999,
however it is not expected to have a significant effect on the Company's
consolidated financial statements and related footnotes.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") was issued. The statement is effective for fiscal years beginning after
December 15, 1997. FAS 131 establishes standards for reporting information about
operating segments in annual reports and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are defined as enterprises for which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. The Company has not
determined the impact, if any, that FAS 131 will have on its consolidated
financial statements and related footnotes.
SEASONALITY AND INFLATION
The Company's business is somewhat seasonal, with sales and operating
income higher in the third and fourth quarters, which include the Back-to-School
period and the holiday selling season, respectively, followed by the traditional
new year office supply restocking month of January. Sales in the second
quarter's summer months are the slowest of the year primarily because of lower
office supplies consumption during the summer vacation period. Management
believes inflation has not had a material effect on the Company's financial
condition or operating results for the periods presented and, in fact, has
experienced deflation in paper and computer pricing.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Independent Accountants..................................................................... 20
Consolidated Statements of Income - Fiscal years ended January 24, 1998,
January 25, 1997 and January 27, 1996........................................................... 21
Consolidated Balance Sheets - January 24, 1998 and January 25, 1997.................................. 22
Consolidated Statements of Cash Flows - Fiscal years ended
January 24, 1998, January 25, 1997 and January 27, 1996......................................... 23
Consolidated Statements of Changes in Shareholders' Equity - Fiscal years ended
January 24, 1998, January 25, 1997 and January 27, 1996......................................... 24
Notes to Consolidated Financial Statements............................................................ 25
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of OfficeMax, Inc.
In our opinion, the consolidated financial statements listed in the index on
this page present fairly, in all material respects, the financial position of
OfficeMax, Inc. and its subsidiaries at January 24, 1998 and January 25, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended January 24, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
March 3, 1998
20
<PAGE> 21
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $3,765,444 $3,179,274 $2,542,513
Cost of merchandise sold,
including buying
and occupancy costs 2,895,084 2,489,016 1,970,536
------------ ------------ ------------
Gross profit 870,360 690,258 571,977
Store operating and selling expenses 614,890 503,161 418,391
Pre-opening expenses 15,512 10,649 6,818
General and administrative expenses 84,651 61,602 51,101
Goodwill amortization 9,390 9,390 9,414
------------ ------------ ------------
Total operating expenses 724,443 584,802 485,724
------------ ------------ ------------
Operating income 145,917 105,456 86,253
Interest income, net 514 7,485 7,198
------------ ------------ ------------
Income before income taxes and
equity income from affiliate 146,431 112,941 93,451
Equity income from affiliate -- -- 2,178
Gain on sale of affiliate -- -- 118,014
------------ ------------ ------------
Income before income taxes 146,431 112,941 213,643
Income taxes 56,811 44,136 87,880
------------ ------------ ------------
Net income $89,620 $68,805 $125,763
============ ============ ============
EARNINGS PER COMMON SHARE DATA:
Basic Earnings per common share $0.73 $0.56 $1.06
===== ===== =====
Weighted average number of
common shares outstanding 123,213,000 122,877,000 118,420,000
=========== =========== ===========
Diluted Earnings per common share $0.72 $0.55 $1.04
===== ===== =====
Weighted average number of
common shares outstanding 125,196,000 125,133,000 120,679,000
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE> 22
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
- -------------------------------------------------------------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $66,801 $258,111
Accounts receivable, net of
allowances of $837 and $861,
respectively 38,221 24,072
Merchandise inventories 1,086,228 894,407
Other current assets 37,255 28,691
----------- -----------
Total current assets 1,228,505 1,205,281
Property and Equipment:
Buildings and land 19,212 16,843
Leasehold improvements 172,878 167,527
Furniture and fixtures 287,728 224,582
----------- -----------
Total property and equipment 479,818 408,952
Less: Accumulated depreciation
and amortization (167,965) (116,084)
----------- -----------
Property and equipment, net 311,853 292,868
Other assets and deferred charges 41,280 35,377
Goodwill, net of accumulated amortization
of $51,231 and $41,842, respectively 324,355 333,744
----------- -----------
$1,905,993 $1,867,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $442,390 $490,417
Accrued expenses and other liabilities 128,674 161,815
Accrued salaries and related expenses 38,669 32,504
Taxes other than income taxes 55,953 45,865
Mortgage loan, current portion 1,300 1,300
----------- -----------
Total current liabilities 666,986 731,901
Mortgage loan 17,725 18,700
Other long-term liabilities 60,637 53,105
----------- -----------
Total liabilities 745,348 803,706
----------- -----------
Commitments and contingencies (Note 5) - -
Shareholders' equity:
Common stock, without par value;
200,000,000 shares authorized; 124,370,209
and 123,766,614 shares issued and
outstanding, respectively 861,991 854,094
Deferred stock compensation (306) (1,149)
Retained earnings 300,239 210,619
Less: Treasury stock (1,279) -
----------- -----------
Total shareholders' equity 1,160,645 1,063,564
$1,905,993 $1,867,270
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE> 23
OFFICEMAX, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JAN 24, JAN 25, JAN 27,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $89,620 $68,805 $125,763
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 67,320 51,613 41,209
Deferred income taxes 3,804 (2,529) (1,578)
Increase in other long-term liabilities 7,532 5,855 17,854
Gain on sale of affiliate -- -- (118,014)
Other-net (3,090) (14,974) (1,662)
Changes in current assets and current liabilities:
(Increase) in inventories (191,821) (258,196) (168,034)
Increase (decrease) in accounts payable (48,027) 141,812 16,444
(Increase) decrease in accounts receivable (14,149) 2,967 (2,809)
Increase (decrease) in accrued liabilities (1,220) (19,666) 52,055
--------- --------- ---------
Net cash (used for) operations (90,031) (24,313) (38,772)
--------- --------- ---------
INVESTING
Capital expenditures (125,804) (101,039) (81,433)
Purchase of treasury stock (1,279) -- --
Proceeds from sale of equipment 27,675 -- --
Transfer of cash on deposit
with related party -- -- 141,017
Proceeds from sale of affiliate -- -- 195,831
Other-net (5,088) (5,709) 700
--------- --------- ---------
Net cash provided by (used for)
investing (104,496) (106,748) 256,115
--------- --------- ---------
FINANCING
Reduction in capital lease obligations -- (16) (295)
Proceeds from mortgage loan -- 20,000 --
Payment of mortgage principal (975) -- --
Proceeds from issuance
of common stock, net 4,192 3,325 115,582
--------- --------- ---------
Net cash provided by financing 3,217 23,309 115,287
--------- --------- ---------
CASH AND CASH EQUIVALENTS
Net increase (decrease) for the period (191,310) (107,752) 332,630
Balance, beginning of period 258,111 365,863 33,233
--------- --------- ---------
Balance, end of period $66,801 $258,111 $365,863
========= ========= =========
</TABLE>
23
<PAGE> 24
OFFICEMAX, INC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES DEFERRED NOTES
--------------- STOCK RECEIVABLE RETAINED TREASURY
NUMBER AMOUNT COMPENSATION COMMON SHARE EARNINGS STOCK TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 21, 1995 114,627,108 $736,551 $(2,224) $(1,802) $16,051 $ - $748,576
Issuance of common shares
under director plan 17,678 226 (226) - - - -
Issuance of common shares at
July 20, 1995 offering 8,627,774 110,177 - - - - 110,177
Exercise of stock options 53,067 243 - - - - 243
Sale of shares under employee
share purchase plan
(including tax benefit) 170,543 3,360 - - - - 3,360
Amortization of
deferred compensation - - 968 - - - 968
Reduction of notes receivable,
common share stock - - - 1,802 - - 1,802
Net income - - - - 125,763 - 125,763
----------------------------------------------------------------------------------------------
BALANCE AT JANUARY 27, 1996 123,496,170 850,557 (1,482) - 141,814 - 990,889
Issuance of common shares
under director plan 18,749 212 (150) - - - 62
Exercise of stock options 164,980 926 - - - - 926
Sale of shares under management
share purchase plan
(including tax benefit) (7,848) 681 (475) - - - 206
Sale of shares under employee
share purchase plan
(including tax benefit) 94,563 1,718 - - - - 1,718
Amortization of deferred
compensation - - 958 - - - 958
Net Income - - - - 68,805 - 68,805
----------------------------------------------------------------------------------------------
BALANCE AT JANUARY 25, 1997 123,766,614 854,094 (1,149) - 210,619 - 1,063,564
Issuance of common shares under
director plan 12,445 176 (150) - - - 26
Exercise of stock options
(including tax benefit) 526,167 5,071 - - - - 5,071
Sale of shares under management
share purchase plan
(including tax benefit) (13,236) 1,692 - - - - 1,692
Sale of shares under employee
share purchase plan
(including tax benefit) 78,219 958 - - - - 958
Amortization of deferred compensation - - 993 - - - 993
Treasury stock purchased
(100,000 shares) - - - - - (1,279) (1,279)
Net income - - - - 89,620 - 89,620
----------------------------------------------------------------------------------------------
BALANCE AT JANUARY 24,1998 124,370,209 $861,991 $(306) $- $300,239 $(1,279) $1,160,645
==============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-24-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OfficeMax, Inc. ("OfficeMax" or the "Company") operates a chain of
high-volume, deep-discount office products superstores. At January 24, 1998, the
Company owned and operated 713 stores in 48 states and Puerto Rico as well as 17
delivery centers which service the Company's catalog and direct marketing
customers. The Company also had 19% investments in joint ventures in Mexico and
Japan. Both joint ventures operate OfficeMax superstores similar to those in the
United States.
BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in affiliates,
representing less than 20% of the ownership of such companies, are accounted for
under the cost method and loans, which the Company makes from time to time to
these affiliates, are recorded in other assets.
The Company's fiscal year ends on the Saturday prior to the last
Wednesday in January. Fiscal year 1997 ("fiscal 1997") and fiscal year 1996
("fiscal 1996") consisted of 52 weeks and ended on January 24, 1998 and January
25, 1997, respectively. Fiscal year 1995 ("fiscal 1995") consisted of 53 weeks
and ended on January 27, 1996.
Certain reclassifications have been made to prior year amounts to
conform to the current presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
CASH AND EQUIVALENTS
Cash and equivalents includes short-term investments with original
maturities of 90 days or less.
Marketable securities are classified as held-to-maturity. These
securities totaled $6,500,000 at January 24, 1998 and consisted primarily of
investments in commercial paper, government securities and repurchase agreements
with maturities of 90 days or less.
INVENTORIES
Inventories are valued at the lower of average cost or market.
ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of amounts due from vendors
under rebate, cooperative advertising and other contractual programs and trade
receivables not financed through outside programs. The Company has an
arrangement with a financial services company (the "Issuer") whereby the Issuer
manages the Company's private label credit card programs. The credit card
accounts, and receivables generated thereby, are owned by the Issuer. Under the
terms of the agreement, the Issuer charges the Company a fee to cover the
Issuers' cost of providing credit and collecting the receivables which are
non-recourse to the Company.
PROPERTY AND EQUIPMENT
Components of property and equipment are recorded at cost and
depreciated over their respective estimated useful lives using the straight-line
method for financial statement purposes and accelerated methods for income tax
purposes. Most store properties are leased, and improvements are amortized over
the lesser of the term of the lease or 20 years. Other annual rates used in
computing depreciation are 14%-20% for store fixtures and 20%-33% for other
fixtures and equipment.
INCOME TAXES
The Company uses the liability method whereby income taxes are
recognized during the year in which transactions enter into the determination of
financial statement income. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between
financial statement and tax basis of assets and liabilities.
-25-
<PAGE> 26
ADVERTISING
Advertising costs are either expensed or capitalized and amortized in
proportion to related revenues. The total amount capitalized in accordance with
the provisions of Statement of Position 93-7 issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
was $8,786,000 at January 24, 1998. This amount relates to the Company's catalog
and other direct response advertising and is amortized over the six month period
during which the merchandise contents and pricing are valid.
GOODWILL
Goodwill is amortized over 40 years using the straight-line method. The
Company evaluates the recoverability of goodwill and reviews the amortization
period on an annual basis by comparing the undiscounted cash flows from
operating activities with the carrying value of goodwill. Based on its review,
the Company does not believe that an impairment of its goodwill has occurred.
CURRENT LIABILITIES
Under the Company's cash management system, checks issued pending
clearance result in overdraft balances for accounting purposes and are included
in the accounts payable balance. The amounts reclassified were $110,921,000 and
$107,317,000 for fiscal 1997 and 1996, respectively.
FINANCIAL INSTRUMENTS
The recorded value of the Company's financial instruments, which
includes short term securities, accounts receivable, accounts payable and
mortgage payable, approximates fair value. Financial instruments, which
potentially subject the Company to concentration of credit risk, consist
principally of cash investments. The Company invests its excess cash in high
quality securities placed with major banks and financial institutions. The
Company has established guidelines relative to diversification and maturities to
maintain safety and liquidity.
STOCK BASED COMPENSATION
Effective January 27, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123"). As provided for under FAS 123, the Company has elected to continue to
account for stock based compensation under the provisions of Accounting
Principles Boards (`APB') Opinion No. 25, "Accounting for Stock Issued to
Employees." Compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Pro forma disclosures
of net earnings and earnings per share, as if the fair value based method of
accounting defined in FAS 123 had been applied, are presented in Note 9.
PRE-OPENING EXPENSES
Costs associated with the opening of a new store are expensed during
the first month of the store's operation.
EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("FAS
128"), effective for fiscal 1997. FAS 128 requires the Company to report both
basic earnings per share, which is based on the weighted average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive potential
common stock equivalents. Earnings per share data for all prior years have been
recalculated to reflect the provisions of FAS 128.
-26-
<PAGE> 27
A reconciliation of the basic and diluted per share computations is as
follows:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
-------- -------- --------
(000's) (000's)
<S> <C> <C> <C>
FISCAL 1997
Earnings per share of common stock- Basic $89,620 123,213 $0.73
Effect of dilutive securities:
Stock options 1,224
Restricted stock units 759
-------- -------- --------
Earnings per share of common stock -assuming dilution $89,620 125,196 $0.72
======== ======== ========
FISCAL 1996
Earnings per share of common stock- Basic $68,805 122,877 $0.56
Effect of dilutive securities:
Stock options 1,488
Restricted stock units 768
-------- -------- --------
Earnings per share of common stock -assuming dilution $68,805 125,133 $0.55
======== ======== ========
FISCAL 1995
Earnings per share of common stock- Basic $125,763 118,420 $1.06
Effect of dilutive securities:
Stock options 1,477
Restricted stock units 782
-------- -------- --------
Earnings per share of common stock -assuming dilution $125,763 120,679 $1.04
======== ======== ========
</TABLE>
NOTE 2. RELATIONSHIP WITH KMART CORPORATION
Prior to the Company's initial public offering (the "Offering") on
November 2, 1994, Kmart Corporation (`Kmart') owned a 92.7% equity interest in
the Company. The proceeds from the Offering were paid to Kmart, reducing Kmart's
ownership in the Company to approximately 25%. On July 20, 1995, the Company
sold common shares in a public offering (the "Secondary Offering"). As part of
the Secondary Offering, Kmart sold all of its remaining shares.
Kmart continues to guarantee certain of the Company's leases in effect
at the date of the Offering and provides guarantees which it previously
committed to with respect to stores opened after the Offering and prior to the
end of fiscal 1995. Such lease guarantees are provided by Kmart at no cost to
the Company. The Company has agreed to indemnify Kmart for any losses incurred
by Kmart as a result of actions, omissions or defaults on the part of OfficeMax,
as well as for all amounts paid by Kmart pursuant to Kmart's guarantees of the
Company's leases. The agreement contains certain financial and operating
covenants, including restrictions on the Company's ability to pay dividends,
incur indebtedness, incur liens or merge with another entity.
NOTE 3. ACQUISITIONS AND INVESTMENTS
CORPORATE EXPRESS
On September 11, 1995, the Company sold its interest in Corporate
Express, Inc. ("Corporate Express") for $195,831,000, resulting in a gain of
$118,014,000 (after-tax gain of $69,124,000, or $0.57 per share). Prior to the
sale of its investment, the Company owned approximately 20% of Corporate
Express.
-27-
<PAGE> 28
NOTE 4. DEBT
LINE OF CREDIT
On July 3, 1997, the Company entered into a five year, $500,000,000
revolving credit facility (the "revolving credit facility") with a group of 23
banks, which replaced the Company's $100,000,000 credit facility. The revolving
credit facility provides for borrowings bearing an interest rate at the bank's
prime or Eurodollar rate plus .1450% to .3125% (fixed at .16% until July 1998).
In addition, the Company must also pay quarterly fees on the full amount of the
revolving credit facility, fixed at .09% per annum until July 1998, and varying
between .08% and .1875% per annum thereafter. The revolving credit facility
expires on July 3, 2002. Standby letters of credit issued in connection with the
Company's self insurance program are considered outstanding amounts under the
revolving credit facility and totaled $16,000,000 and $10,675,000 as of January
24, 1998 and January 25, 1997, respectively. There were no borrowings under
either of the revolving credit facilities as of January 24, 1998 and January 25,
1997.
MORTGAGE
On January 16, 1997, the Company entered into a $20,000,000 mortgage
agreement (the "Mortgage") secured by its international corporate headquarters.
The Mortgage has a fixed term of 10 years, quarterly amortization payments of
$325,000 plus interest at 6.99% per annum (after giving effect to an interest
rate swap) with a final payment of $7,000,000 due at maturity. Maturities of
long term borrowings will be $1,300,000 over each of the next five years.
The revolving credit facility and the Mortgage contain similar
financial covenants with respect to fixed charge coverage and consolidated
leverage ratios.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is a party to litigation it initiated in October 1997 in
the United States District Court for the Northern District of Ohio against Ryder
Integrated Logistics, Inc. arising out of Ryder's failure to fulfill certain
payment guarantees pursuant to the terms of the Company's logistics service
agreement with Ryder. The Company terminated the logistics service agreement in
June 1997 based on numerous claims against Ryder under the agreement including,
among others, Ryder's refusal to honor its cost guarantees and its failure to
return overpayments to the Company. During the course of the agreement the
Company recorded receivables from Ryder of approximately $19,000,000
representing overpayments due from Ryder pursuant to the terms of the agreement.
In January 1998, Ryder filed a counterclaim against the Company alleging damages
arising from the Company's termination of the agreement in the amount of
approximately $75,000,000. The Company believes the counterclaim is without
merit and intends to vigorously defend against such counterclaim.
Management is of the opinion that, although the ultimate resolution of
the Ryder litigation cannot be forecasted with certainty, final disposition of
this matter should not materially affect the Company's liquidity, financial
position or results of operations. However, in the event of an unanticipated
adverse final determination in this matter, the Company's consolidated net
income for the period in which such determination occurs could be materially
affected.
In addition, there are various claims, lawsuits and pending actions
against the Company incident to the Company's operations. It is the opinion of
management that the ultimate resolution of these matters will not have a
material effect on the Company's liquidity, financial position or results of
operations.
-28-
<PAGE> 29
NOTE 6. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
--------------------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
(In thousands) 1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Current Federal $45,694 $39,275 $72,277
State and local 5,900 5,815 16,839
Foreign 1,413 1,575 342
Deferred 3,804 (2,529) (1,578)
--------------------------------------------
Total income taxes $56,811 $44,136 $87,880
============================================
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective tax
rate follows:
<TABLE>
<CAPTION>
--------------------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local taxes
net of federal tax benefit 2.6% 3.4% 5.2%
Goodwill amortization 2.2% 2.9% 1.5%
Tax exempt interest (0.2)% (1.6)% (0.6)%
Other (0.8)% (0.6)% -
--------------------------------------------
Total income taxes 38.8% 39.1% 41.1%
============================================
</TABLE>
Deferred tax assets (liabilities) resulted from the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JAN. 24, JAN. 25,
(In thousands) 1998 1997
--------------------------------
<S> <C> <C>
Inventory $1,134 $2,400
Property and equipment (3,474) (1,494)
Accrued expenses not
currently deductible 32,178 32,736
--------------------------------
Total deferred tax assets $29,838 $33,642
================================
</TABLE>
NOTE 7. LEASES
DESCRIPTION OF LEASING ARRANGEMENTS
The Company conducts operations primarily in leased facilities. Store
leases are generally for terms of 10 to 25 years with multiple five to 10 year
renewal options which allow the Company the option to extend the life of the
lease up to 20 years beyond the initial noncancellable term at escalated rents.
Certain leases provide for additional rental payments based on a
percent of sales in excess of a specified base. Also, certain leases provide for
payment by the Company of executory costs (taxes, maintenance and insurance).
-29-
<PAGE> 30
LEASE COMMITMENTS
Future minimum lease payments and future minimum rentals at January 24, 1998
were as follows:
<TABLE>
<CAPTION>
-----------------------------
FISCAL YEAR OPERATING
(In thousands) LEASES
-----------------------------
<S> <C>
1998 .............. $245,552
1999 .............. 239,802
2000 .............. 230,179
2001 .............. 213,466
2002 .............. 190,452
Later Years..........1,379,476
----------
Total minimum
lease payments......$2,498,927
==========
</TABLE>
RENTAL EXPENSE
A summary of operating lease rental expense and short-term rentals follows:
---------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
(In thousands) 1998 1997 1996
---------------------------------
Minimum rentals $218,271 $153,637 $117,294
Percentage rentals 428 783 555
---------------------------------
Total $218,699 $154,420 $117,849
=================================
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
---------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
(In thousands) 1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Cash transactions:
Cash paid for interest $2,269 - $218
Cash paid for income taxes $48,649 $26,060 $80,556
Non-cash transactions:
Liabilities accrued for
Property and Equipment
acquired $18,148 $53,956 -
Tax benefit related to
stock options $3,705 - -
</TABLE>
NOTE 9. EMPLOYEE BENEFIT PLANS
STOCK PURCHASE PLANS
In connection with the Offering, the Company adopted a Management Share
Purchase Plan (the "Management Plan"), an Employee Share Purchase Plan (the
"Employee Plan") and a Director Share Plan (the "Director Plan"). Under the
Management Plan, the Company's officers are required to use 20%, and may use up
to 100%, of their annual incentive
-30-
<PAGE> 31
bonuses to purchase restricted common shares of the Company at a 20% discount
from the fair value of the same number of unrestricted common shares. Restricted
common shares purchased under the Management Plan are generally restricted from
sale or transfer for three years from date of purchase. The maximum number of
common shares reserved for issuance under the Management Plan is 1,242,227. The
Company recognized compensation expense for the discount on the restricted
common shares of $623,000, $643,000 and $541,000 for fiscal 1997, 1996 and 1995,
respectively.
The Employee Plan is available to all full-time employees of the
Company who are not covered under the Management Plan and who have worked at
least 1,000 hours during a period of 12 consecutive months. Each eligible
employee has the right to purchase, on a quarterly basis, the Company's common
shares at a 15% discount from the fair market value per common share. Shares
purchased under the Employee Plan are generally restricted from sale or transfer
for one year from date of purchase. The maximum number of shares eligible for
purchase under the Employee Plan is 2,958,761. The Company is not required to
record compensation expense with respect to shares purchased under the Employee
Plan.
The Director Plan covers all directors of the Company who are not
officers or employees of the Company. Participants receive all of their annual
retainer in the form of restricted common shares paid at the beginning of the
relevant calendar year and all of their meeting fees in the form of unrestricted
common shares paid at the end of the calendar quarter in which the meetings
occurred. The restrictions on such shares generally lapse one year from the date
of grant. The maximum number of shares reserved for issuance under the Director
Plan is 112,929.
SAVINGS PLAN
Employees of the Company who meet certain service requirements are
eligible to participate in the Company's 401(k) savings plan. Participants may
contribute 2% to 15% of their annual earnings, subject to statutory limitations.
Effective August 25, 1995, the Company began matching 25% of the first 3% of the
employee's contribution. The Company increased the matching contribution to 50%
of the first 3%, effective February 1, 1997. Such matching Company contributions
are invested in shares of the Company's common stock and become vested 50% after
two years of service and 100% after three years of service. The charge to
operations for the Company's matching contribution amounted to $794,000,
$322,000 and $132,000 in fiscal 1997, 1996 and 1995, respectively.
STOCK OPTION PLANS
In fiscal 1996, the OfficeMax, Inc. 1994 Stock Option Plan (the "1994
Plan") was amended and restated as the Equity-Based Award Plan. As part of the
amendment to the 1994 Plan, the OfficeMax, Inc. Employee Non-Qualified Share
Option Plan was terminated and all outstanding options were merged into the
Equity-Based Award Plan. The Equity-Based Award Plan provides for the issuance
of share appreciation rights, restricted shares and up to 11,647,343 options to
purchase common shares. Options granted under the Equity-Based Award Plan become
exercisable from one to seven years after the date of grant and expire ten years
from date of grant. Options may be granted only at option prices not less than
the fair market value per common share on the date of the grant. The Company
recognized compensation expense on these grants of $233,000, $188,000 and
$240,000 for fiscal 1997, 1996 and 1995, respectively.
The Company also has a share option plan adopted in 1988 (the "1988
Plan"). As of January 24, 1998 there were 7,128 vested options outstanding and
no further grants may be made under the 1988 Plan. The related shares have been
placed in escrow for future exercise.
Exercisable options outstanding were 2,318,018 at January 24, 1998,
965,019 at January 25, 1997, and 546,677 at January 27, 1996.
-31-
<PAGE> 32
Option activity for each of the last three years was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- --------------------------------------------------------
<S> <C> <C>
Outstanding at
January 21, 1995 3,151,643 $6.74
Granted 1,290,299 11.79
Exercised (53,067) 4.58
Cancelled (473,225) 7.20
-----------------------
Outstanding at
January 27, 1996 3,915,650 8.38
Granted 3,416,719 14.54
Exercised (164,983) 5.61
Cancelled (356,094) 9.84
-----------------------
Outstanding at
January 25, 1997 6,811,292 11.46
Granted 3,416,130 12.26
Exercised (491,802) 5.77
Cancelled (1,586,530) 13.22
-----------------------
Outstanding at
January 24, 1998 8,149,090 $11.78
=======================
</TABLE>
STOCK BASED COMPENSATION
Under FAS 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model. The weighted average
assumptions used for grants in fiscal 1997, 1996 and 1995, respectively, were
expected volatility of 34.5%, 41.8% and 43.1% and risk-free interest rates of
6.25%, 6.21% and 7.23%. A dividend yield of zero and an expected life of five
years were used in the model for all three years.
The following table summarizes information about options outstanding at
January 24, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE OPTIONS EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.007 551,977 $ 4.01 4.67 551,977 $4.01
$7.993 to $8.447 1,091,108 8.08 2.48 1,091,108 8.08
$10.67 to $11.75 3,280,755 11.67 8.28 674,933 11.55
$13.88 to $14.75 3,137,185 14.42 8.38 - -
$15.29 to $17.09 88,065 16.55 5.86 - -
</TABLE>
Consistent with the method prescribed by FAS 123, the following table
summarizes the weighted average fair value at the date of grant for options
granted in fiscal 1997, 1996 and 1995. The table also illustrates pro forma net
earnings and pro forma earnings per share, giving effect to such compensation
costs. The pro forma amounts listed below do not take into consideration the pro
forma compensation expense related to grants made prior to fiscal 1995.
-32-
<PAGE> 33
<TABLE>
<CAPTION>
--------------------------------------------
FISCAL YEAR ENDED JAN. 24, JAN. 25, JAN. 27,
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Weighted Average Fair Value $5.08 $6.58 $5.78
Pro forma Net Earnings $84,822 $65,440 $124,305
Pro forma Earnings per Share:
Basic Earnings per Share $0.69 $0.52 $1.03
Diluted Earnings per Share $0.68 $0.52 $1.03
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-33-
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding Directors is contained
under the caption "Election of Directors" in the Proxy Statement which will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the end of the fiscal year which information under
such caption is incorporated herein by reference.
The information required by Item 10 regarding Executive Officers is
contained under the caption "Executive Officers of the Registrant" in Part I of
this Form 10-K which information under such caption is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained on pages 7 through 13
of the Proxy Statement and under the captions "Compensation of Directors" and
"Compensation Committee Interlocks and Insider Participation" contained in the
Proxy Statement which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained on pages 3 through 4
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
-34-
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
See Index on page 20 of this Annual Report.
(a)(2) Financial Statement Schedules:
None
(a)(3) Exhibits:
See Exhibit Index contained herein at pages 37 and 38.
(b) Reports on Form 8-K:
None
-35-
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OFFICEMAX, INC.
DATE: April 21, 1998 By: /s/ Michael Feuer
-------------------
Michael Feuer, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Michael Feuer Chairman and Chief April 21, 1998
- -------------------- Executive Officer and Director
Michael Feuer (Principal Executive Officer)
/s/ Jeffrey L. Rutherford Executive Vice President, Chief April 21, 1998
- --------------------------- Financial Officer (Principal
Jeffrey L. Rutherford Financial and Accounting Officer)
/s/ Raymond L. Bank Director April 21, 1998
- ---------------------
Raymond L. Bank
/s/ Burnett W. Donoho Director April 15, 1998
- -----------------------
Burnett W. Donoho
/s/ Carl D. Glickman Director April 21, 1998
- -----------------------
Carl D. Glickman
/s/ D. Dwayne Hoven Director April 21, 1998
- ----------------------
D. Dwayne Hoven
/s/ James F. McCann Director April 21, 1998
- --------------------
James F. McCann
/s/ Sydell L. Miller Director April 21, 1998
- --------------------
Sydell L. Miller
</TABLE>
-36-
<PAGE> 37
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential Page No.
or Incorporation
Exhibit No. Description of Exhibit by Reference
- ----------- ---------------------- ------------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation of the Company. (3)
3.2 Code of Regulations of the Company. (3)
4.1 Specimen Certificate for the Common Shares. (1)
10.1 Credit Agreement dated as of July 3, 1997 by and among the Company, the lenders party (6)
thereto, the co-agents party thereto, KeyBank National Association, as documentation
agent, and The Bank of New York, as administrative agent and as swing line lender.
10.2 Mortgage Loan Agreement dated November 6, 1996 by and between the Company and KeyBank (5)
National Association.
* 10.3 Amended and Restated Employment Agreement dated as of March 5, 1998 by and between
Michael Feuer and the Company (filed herewith).
10.4 Share purchase agreement dated August 25, 1995 by and among the Company, Corporate (4)
Express, Inc. and Synergom, Inc. relating to the purchase by Corporate Express from
OfficeMax of the outstanding Corporate Express Common Stock owned by OfficeMax.
* 10.5 OfficeMax Employee Share Purchase Plan. (1)
* 10.6 OfficeMax Management Share Purchase Plan. (1)
* 10.7 OfficeMax Director Share Plan. (1)
* 10.8 OfficeMax Amended and Restated Equity-Based Award Plan (filed herewith).
* 10.9 OfficeMax Annual Incentive Bonus Plan (filed herewith).
10.10 Lease Guaranty, Indemnification and Reimbursement Agreement dated November 9, 1994 (2)
between the Company and Kmart Corporation.
* 10.11 Forms of Severance Agreements (filed herewith).
* 10.12 Schedule of certain executive officers who are parties to the Severance Agreements in
the forms referred to in Exhibit 10.11 (filed herewith).
21 List of Subsidiaries. (5)
23 Consent of Independent Accountants (filed herewith).
27.1 Financial Data Schedule for fiscal year ended January 24, 1998 (filed herewith).
</TABLE>
-37-
<PAGE> 38
<TABLE>
<S> <C>
27.2 Restated Financial Data Schedule for the quarterly periods ended April 26, 1997, July
26, 1997 and October 25, 1997 (filed herewith).
27.3 Restated Financial Data Schedule for the quarterly period ended October 26, 1996 and the
fiscal year ended January 25, 1997 (filed herewith).
<FN>
(1) Included as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-83528) and
incorporated herein by reference.
(2) Included as an exhibit to the Company's Quarterly Report on Form 10-Q (No. 1-13380) for the quarter
ended October 22, 1994, and incorporated herein by reference.
(3) Included as an exhibit to the Company's Annual Report on Form 10-K (No. 1-13380) for the fiscal
year ended January 21, 1995, and incorporated herein by reference.
(4) Included as an exhibit to the Company's Annual Report on Form 10-K (No. 1-13380) for the fiscal
year ended January 27, 1996, and incorporated herein by reference.
(5) Included as an exhibit to the Company's Annual Report on Form 10-K (No. 1-13380) for the fiscal
year ended January 25, 1997, and incorporated herein by reference.
(6) Included as an exhibit to the Company's Quarterly Report on Form 10-Q (No. 1-13380) for the quarter
ended October 25, 1997, and incorporated herein by reference.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant
to Item 14(c) of Form 10-K.
</FN>
</TABLE>
-38-
<PAGE> 1
10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into
as of the 5th day of March, 1998, between OFFICEMAX, INC., an Ohio corporation
(the "Company"), and MICHAEL FEUER ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and Executive are parties to an Amended
and Restated Employment Agreement entered into as of March 9, 1995 (the "Prior
Employment Agreement"); and
WHEREAS, the Compensation Committee (the "Compensation
Committee") of the Board of Directors (the "Board") of the Company has approved
and recommended the amendment of the Prior Employment Agreement so as, INTER
ALIA, to provide for the determination of the amount of bonus compensation to be
included in the payments by the Company to Executive in the event of the
termination by the Company of Executive's employment with the Company without
"Cause" (as hereinafter defined); and
WHEREAS, in furtherance of the foregoing, it is deemed
advisable to amend and restate in full the Prior Employment Agreement as
provided herein; and
WHEREAS, the Board approved the execution and delivery of this
Agreement by the Company at a meeting of the Board held on March 5, 1998,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby agree as follows:
<PAGE> 2
1. EMPLOYMENT.
(a) The Company hereby employs Executive as its
Chairman of the Board and Chief Executive Officer, and Executive hereby accepts
such employment, on the terms and conditions set forth herein.
(b) During the term of this Agreement and any
renewal hereof (all references herein to the term of this Agreement shall
include references to the period of renewal hereof, if any), Executive shall be
and have the titles, duties and authority of the Chairman of the Board and Chief
Executive Officer of the Company and shall devote his entire business time and
all reasonable efforts to his employment and perform diligently such duties as
are customarily performed by the chairman of the board, president and chief
executive officer of a company the size and structure of the Company, together
with such other duties as may be reasonably requested from time to time by the
Board, which duties shall be consistent with his position as set forth above and
as provided in Paragraph 2.
(c) Executive shall not, without the prior
written consent of the Company, directly or indirectly, during the term of this
Agreement, other than in the performance of duties naturally inherent to the
businesses of the Company and in furtherance thereof, render services of a
business, professional or commercial nature to any other person or firm, whether
for compensation or otherwise; provided, however, that so long as it does not
materially interfere with his full-time employment hereunder, Executive may
attend to outside investments, serve as
-2-
<PAGE> 3
a director of a corporation which does not compete with the Company (as provided
in Paragraph 10), and serve as a director, trustee or officer of, or otherwise
participate in, educational, welfare, social, religious and civic organizations.
The Company hereby acknowledges that Executive is currently serving a three year
term as a member of the Advisory Committee of the New York Stock Exchange Board
of Directors.
2. TERM AND POSITIONS.
(a) Subject to the provisions for renewal and
termination hereinafter provided, the term of this Agreement shall begin on the
date hereof and shall continue for the current "Fiscal Year" (as hereinafter
defined) and for the succeeding two (2) Fiscal Years. As of January 24, 1999,
and the first day of each succeeding Fiscal Year thereafter, such term
automatically shall be extended for one (1) additional Fiscal Year, beginning
with the Fiscal Year commencing January 28, 2001, and thereafter, unless (i)
this Agreement is terminated as provided in Paragraph 8, or (ii) either the
Company or Executive shall give at least two (2) Fiscal Years' written notice of
termination of this Agreement to the other at least thirty (30) days before
January 24, 1999, or thereafter, at least thirty (30) days before the beginning
of any such succeeding Fiscal Year (for example, unless such written notice of
termination is given on or prior to December 25, 1998, the term of this
Agreement automatically will be extended, effective January 24, 1999, until the
end of the second Fiscal Year succeeding the Fiscal Year including such date,
which is January 26, 2002). The term "Fiscal Year" means
-3-
<PAGE> 4
the period beginning on the day after the Saturday immediately preceding the
last Wednesday in January of one year and ending on the Saturday immediately
preceding the last Wednesday in January of the immediately following year.
(b) Executive, without any compensation in
addition to that which is specifically provided in this Agreement, shall serve,
and shall be entitled and have the right to serve, as a member of the Board,
Chairman of the Board, President and Chief Executive Officer of the Company.
Without limiting the generality of any of the foregoing, except as hereafter
expressly agreed in writing by Executive (i) Executive shall not be required to
report to any single individual and shall report only to the Board as an entire
body, (ii) no individual shall be elected or appointed as Chairman of the Board,
President or Chief Executive Officer of the Company, (iii) the highest levels of
Vice-Presidents and other executive officers of the Company shall report to no
individual other than Executive, and (iv) no individual or group of individuals
(including a committee established or other designee appointed by the Board)
shall have any authority over or equal to the authority of Executive in his role
as Chairman of the Board, President and Chief Executive Officer (except that the
Compensation Committee shall continue to have such powers as may be required to
maintain the compliance of the Company's benefit plans under Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder), and neither the Company, the Board, nor any member of
the Board
-4-
<PAGE> 5
shall take any action which will or could have the effect of, or appear to have
the effect of, giving such authority to any such individual or group. For
service as a director, officer and employee of the Company, Executive shall be
entitled to the full protection of the applicable indemnification provisions of
the corporate charter, code of regulations, by-laws and other policies and
procedures of the Company.
(c) If:
(i) the Company materially changes
Executive's duties and responsibilities as set forth in
Paragraphs 1(b) and 2(b) without his consent (including,
without limitation, by violating any of the provisions of
clauses (i), (ii), (iii) and (iv) of Paragraph 2(b)); or
(ii) Executive's place of employment or the
principal executive offices of the Company are located more
than fifty (50) miles from the geographical center of
Cleveland, Ohio; or
(iii) there occurs a material breach by the
Company of any of its obligations under this Agreement, which
breach has not been cured in all material respects within ten
(10) days after Executive gives notice thereof to the Company;
or
(iv) there occurs a "Change in Control" (as
hereinafter defined) of the Company,
then in any such event Executive shall have the right to terminate his
employment with the Company, but such termination
-5-
<PAGE> 6
shall not be considered a voluntary resignation or termination by Executive of
such employment or of this Agreement but rather a discharge of Executive by the
Company without "Cause" (as hereinafter defined).
(d) Executive shall be deemed not to have
consented to any material change in his duties and responsibilities unless he
shall give written notice of his consent thereto to the Board within fifteen
(15) days after receipt of a written proposal setting forth such change. If
Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to
Executive given within ten (10) days after the end of said fifteen (15) day
period.
(e) The term "Change in Control" means the first
to occur of the following events:
(i) any person or group of commonly
controlled persons owns or controls, directly or indirectly,
thirty percent (30%) or more of the voting control or value of
the capital stock of the Company; or
(ii) the shareholders of the Company approve
an agreement to merge or consolidate with another corporation
or other entity resulting (whether separately or in connection
with a series of transactions) in a change in ownership of
thirty percent (30%) or more of the voting control or value of
the capital stock of the Company, or an agreement to
-6-
<PAGE> 7
sell or otherwise dispose of all or substantially all
of the Company's assets (including, without limitation,
a plan of liquidation or dissolution), or otherwise
approve of a fundamental alteration in the nature of
the Company's business.
3. COMPENSATION.
(a) For all services he may render to the Company
during the term of this Agreement, the Company shall pay to
Executive the following:
(i) for the period beginning on the date
hereof and ending January 23, 1999, salary equal to an annual
salary of Nine Hundred Fifty Thousand Dollars ($950,000)
MULTIPLIED BY the ratio of the number of days in the period
beginning on the date hereof and ending on the last day of the
current Fiscal Year to the total number of days in such Fiscal
Year;
(ii) for the Fiscal Year beginning on
January 24, 1999, and for each Fiscal Year thereafter during
the term of this Agreement, salary as determined by the
Compensation Committee, which in no event shall be less than
the annual salary that was payable by the Company to Executive
under this Paragraph 3(a) for the immediately preceding Fiscal
Year; and
(iii) notwithstanding the foregoing, at any
time and from time to time during the term of this Agreement,
the Compensation Committee may increase (but not decrease)
Executive's annual salary.
-7-
<PAGE> 8
Salary payable by the Company to Executive under this Paragraph 3(a) shall be
payable in those installments customarily used in payment of salaries to the
Company's executives (but in no event less frequently than monthly).
(b) In addition to the salary provided in
Paragraph 3(a), the Company shall pay to Executive bonus compensation (i) under
the OfficeMax, Inc. Annual Incentive Bonus Plan, or (ii) if such plan ceases to
be in effect in substantially the same form as in effect on the date of this
Agreement, at least annually in respect of each Fiscal Year not later than
ninety (90) days after the close of each Fiscal Year as determined by the
Compensation Committee and based on the performance of the Company (which shall
be based on criteria no less favorable to Executive than criteria used by the
Compensation Committee to determine bonus compensation for other senior
executives of the Company).
4. SALARY AND BONUS; PAYMENT IN THE EVENT OF DEATH OR
PERMANENT DISABILITY. In the event of Executive's death or "Permanent
Disability" (as hereinafter defined) during the term of this Agreement:
(a) The Company shall pay to Executive a pro rata
portion of the bonus applicable to the Fiscal Year in which such death or
Permanent Disability occurs, as such bonus is determined under Paragraph 3(b).
Such pro rata portion shall be determined by MULTIPLYING the amount, if any, of
bonus that would have been payable pursuant to such Paragraph 3(b) if Executive
had remained employed under this Agreement for the entire applicable Fiscal
-8-
<PAGE> 9
Year and achieved 100% of Executive's personal goals for the fiscal year by a
fraction (the "Partial Year Fraction"), the numerator of which is the number of
days in the applicable Fiscal Year elapsed prior to the date of death or
Permanent Disability, as the case may be, and the denominator of which is three
hundred sixty-five (365). In the event of Executive's Permanent Disability
during the term of this Agreement, in addition to the foregoing bonus payment,
the Company shall pay to Executive an amount equal to three (3) times
Executive's then effective annual salary, as determined under Paragraph 3(a).
(b) The pro rata portion of the bonus described
in Paragraph 4(a) shall be paid when and as provided in Paragraph 3(b). The
remainder of the benefit to be paid pursuant to Paragraph 4(a) shall be paid
within ninety (90) days after the date of Permanent Disability.
(c) Except as otherwise provided in Paragraphs
4(a), 5, 6 and 7, Executive's employment hereunder shall terminate and Executive
shall be entitled to no further compensation or other benefits under this
Agreement, except as to that portion of any unpaid salary and other benefits
accrued and earned by him hereunder up to and including the date of such death
or Permanent Disability, as the case may be.
(d) For purposes of this Agreement, Executive's
"Permanent Disability" shall be deemed to have occurred after one hundred twenty
(120) days in the aggregate during any consecutive twelve (12) month period, or
after ninety (90) consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the
-9-
<PAGE> 10
case may be, Executive, by reason of his physical or mental disability or
illness, shall have been unable to discharge his duties under this Agreement.
The date of Permanent Disability shall be such one hundred twentieth (120th) or
ninetieth (90th) day, as the case may be. In the event either the Company or
Executive, after receipt of notice of Executive's Permanent Disability from the
other, disputes Executive's Permanent Disability, Executive promptly shall
submit to a physical examination by the chief of medicine of any major
accredited hospital in the Cleveland, Ohio, area and, unless such physician
shall issue his written statement to the effect that in his opinion, based on
his diagnosis, Executive is capable of resuming his employment and devoting his
full time and energy to discharging his duties within thirty (30) days after the
date of such statement, such Permanent Disability shall be deemed to have
occurred.
5. OPTIONS TO ACQUIRE COMMON SHARES; CERTAIN OTHER
PAYMENTS.
(a) The Company has granted to Executive under
the Prior Employment Agreement and pursuant to Stock Option Agreements executed
prior to the date hereof options (all of which, together with any additional
options hereafter granted under the Plan (defined below) are referred to as the
"Options") to purchase common shares of the Company, without par value, under
the OfficeMax, Inc. Equity-Based Award Plan as in effect on the date of this
Agreement (the "Plan", the terms in this
-10-
<PAGE> 11
Paragraph 5 having the same meaning as under the Plan, unless otherwise defined
in this Agreement).
(b) The Compensation Committee has determined that
the following provisions shall apply to the grant of the Options, in addition to
or in substitution for the provisions of the Plan:
(i) Except as otherwise provided in this
Agreement, (A) the Options granted to Executive as of March 9,
1995 (the "1995 Options") shall expire on March 9, 2005, and
shall not be exercisable thereafter, and (B) Executive may
exercise, and shall have the irrevocable and nonforfeitable
right to exercise, the 1995 Options to the extent not
previously exercised and thereby purchase any number of Shares
up to but not in excess of the cumulative number of Shares set
forth below on or after the corresponding dates:
- 337,500 Shares on or after January 27, 1996;
- 675,000 Shares on or after January 25, 1997; and
- 1,012,500 Shares on or after January 24, 1998.
(ii) In the event of the cessation of
Executive's employment with the Company for Cause prior to the
end of the term of this Agreement (subject to the provisions
of Paragraph 2(c)), any unexercised Options shall terminate
and be of no further force or effect simultaneously with such
cessation; otherwise, the Options and Executive's right to
exercise the Options shall not be affected by the cessation of
his
-11-
<PAGE> 12
employment with the Company for any reason except as expressly
provided in this Agreement or in the Plan.
(iii) In the event of the cessation of
Executive's employment with the Company for any reason other
than (A) Cause, (B) Executive's death, or (C) Permanent
Disability, in addition to any other Options which Executive
is then entitled to exercise hereunder, prior to any of the
dates referred to in Paragraph 5(b)(i) Executive shall be
entitled to exercise all of the Options. In the event of the
cessation of Executive's employment with the Company as a
result of his death or Permanent Disability, in addition to
any other Options which Executive is then entitled to exercise
hereunder, prior to any of the dates referred to in Paragraph
5(b)(i) Executive shall be entitled to exercise a number of
Options equal to the additional number he would have been
eligible to exercise on the next date described in Paragraph
5(b)(i) after Executive's death or Permanent Disability
MULTIPLIED BY the Partial Year Fraction in respect of the
Fiscal Year in which such death or Permanent Disability
occurred.
(iv) In the event of and in connection with
any Change in Control, all of the Options shall be fully and
immediately exercisable by Executive, notwithstanding the
terms of Paragraph 5(b)(i).
(v) Notwithstanding the provisions of
Paragraph 5(b)(i) or of any Stock Option Agreement
-12-
<PAGE> 13
between the Company and Executive relating to the period
during which Options may be exercised, if one of the events
described in Paragraphs 5(b)(iii) or 5(b)(iv) occurs, thereby
accelerating any dates under Paragraph 5(b)(i) on which
Options first may be exercised, all of the Options shall
expire on the date which is three (3) years after the date of
such event, and shall not be exercisable thereafter.
(c) If the Plan is altered, amended, suspended or
discontinued as provided in Section 11 thereof in a manner that could have the
effect of denying Executive the benefits of the Options as granted under the
Plan as in effect on the date hereof, subject to the provisions of this
Agreement, the terms of the Plan as in effect on the date hereof shall be deemed
to be incorporated into and thereby become obligations of the Company under this
Agreement, notwithstanding such alteration, suspension or discontinuation of the
Plan.
(d) If all or any portion of the amounts payable
to Executive under this Agreement, including under this Paragraph 5(d) and the
issuance of Shares, constitutes "excess parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
that are subject to the excise tax imposed by Section 4999 of the Code (or any
similar tax or assessment) and is not payable to Executive as a result of the
termination of his employment for Cause or the voluntary termination of his
employment by him prior to the end of the term of this Agreement (subject to the
provisions of
13
<PAGE> 14
Paragraph 2(c)), the amounts payable hereunder shall be increased to the extent
necessary to place Executive in the same after-tax position as he would have
been in had no such tax assessment been imposed on any such payment paid or
payable to Executive under this Agreement or any other payment that Executive
may receive in connection therewith. Such incremental payment shall be made
promptly after the amount has been determined and in any event no later than
five (5) business days before such excise or other similar tax or assessment is
due. If it subsequently is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a court of
competent jurisdiction, Internal Revenue Service audit assessment, or otherwise)
that the amount of such excise or other similar taxes or assessments payable by
Executive is greater than the amount initially so determined, then the Company
shall pay Executive an amount equal to the sum of: (i) such additional excise or
other taxes, PLUS (ii) any interest, fines and penalties resulting from such
underpayment, PLUS (iii) an amount necessary to reimburse Executive for any
income, excise or other tax assessment payable by Executive with respect to the
amounts specified in (i) and (ii) above, and the reimbursement provided by this
clause (iii), in the manner described above in this Paragraph 5(d). Payment
thereof shall be made within five (5) business days after the date upon which
such subsequent determination is made.
-14-
<PAGE> 15
6. RETIREMENT BENEFITS.
Executive shall participate in all retirement and other
benefit plans of the Company (both qualified and nonqualified) generally
available to classifications of employees of the Company of which Executive is a
member and for which Executive qualifies under the terms thereof (and nothing in
this Agreement shall or shall be deemed to in any way adversely affect
Executive's right and benefits thereunder).
7. LIFE INSURANCE AND OTHER BENEFITS.
(a) The Company shall provide to Executive and his
spouse and dependents the life, health and dental insurance coverage described
on Annex A to this Agreement.
(b) The Company shall provide Executive with a
monthly automobile allowance which shall not be less than the monthly automobile
allowance for Executive in effect on the date hereof, adjusted annually to
reflect inflation as measured by changes in the Consumer Price Index or other
comparable index.
(c) Executive shall be entitled to such periods of
vacation and sick leave allowance each year determined by Executive in his
reasonable and good faith discretion, which in any event shall be not less than
as provided under the Company's vacation and sick leave policy for executive
officers.
(d) Executive shall be entitled to participate in any
equity or other employee benefit plan that is generally available to senior
executive officers, as distinguished from general management, of the Company.
Executive's participation in and benefits under any such plan shall be on the
terms and
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subject to the conditions specified in the governing document of the particular
plan.
(e) The Company shall provide Executive with tax and
financial advisory and tax return preparation services at an annual cost to the
Company not to exceed five thousand dollars ($5,000), adjusted annually to
reflect inflation as measured by changes in the Consumer Price Index or other
comparable index.
8. TERMINATION.
(a) The employment of Executive under this Agreement,
and the term hereof, may be terminated by the Company:
(i) on death or Permanent Disability of
Executive, or
(ii) for Cause at any time by action of the
Board. For purposes hereof, the term "Cause" shall mean:
(A) Executive's fraud, commission of
a felony or of an act or series of acts which result
in material injury to the business reputation of the
Company, commission of an act or series of repeated
acts of dishonesty, which act is or acts are
materially inimical to the best interests of the
Company, or Executive's willful and repeated failure
to perform his duties under this Agreement, which
failure has not been cured within fifteen (15) days
after the Company gives notice thereof to Executive;
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(B) Executive's material breach of
any material provision of this Agreement, which
breach has not been cured in all substantial respects
within ten (10) days after the Company gives notice
thereof to Executive;
(C) Executive's engagement as an
officer, director, employee or consultant of an
entity in competition with the Company (as defined in
Paragraph 10(b)); or
(D) Executive's direct or indirect
involvement as a shareholder, proprietor or partner
of an entity in competition with the Company (as
defined in Paragraph 10(b)); provided, however, that
ownership of less than one percent (1%) of a class of
publicly traded securities of an entity shall not be
deemed to be a violation of the foregoing clause.
Any termination by reason of the foregoing shall not be in
limitation of any other right or remedy the Company may have
under this Agreement or otherwise. On any termination of this
Agreement, Executive shall be deemed to have resigned from all
offices and directorships held by Executive in the Company and
in each of its subsidiaries and affiliates, as the case may
be.
(b) In the event of a termination claimed by the
Company to be for "Cause" pursuant to Paragraph 8(a)(ii),
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Executive shall have the right to have the justification for said termination
determined by arbitration in Cleveland, Ohio. In such event, Executive shall
serve on the Company within thirty (30) days after termination a written request
for arbitration. The Company immediately shall request the appointment of an
arbitrator by the American Arbitration Association and thereafter the question
of "Cause" shall be determined under the rules of the American Arbitration
Association, and the decision of the arbitrator shall be final and binding on
both parties. The parties shall use all reasonable efforts to facilitate and
expedite the arbitration, and shall act to cause the arbitration to be completed
as promptly as possible. During the pendency of the arbitration, Executive shall
continue to receive all compensation and benefits to which he is entitled
hereunder, and if at any time during the pendency of such arbitration the
Company fails to pay and provide all compensation and benefits to Executive in a
timely manner the Company shall be deemed to have automatically waived whatever
rights it then may have had to terminate Executive's employment for Cause.
Expenses of the arbitration shall be borne by the Company.
(c) In the event of termination for any of the
reasons set forth in subparagraph (a) of this Paragraph 8, except as otherwise
provided in Paragraphs 4, 5, 6 and 7, Executive shall be entitled to no further
compensation or other benefits under this Agreement, except as to that portion
of any unpaid salary and other benefits accrued and earned by him hereunder up
to and including the effective date of such termination.
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(d) In the event of the termination by the Company of
Executive's employment with the Company for any reason other than one of the
reasons set forth in subparagraph (a) of this Paragraph 8, in addition to
whatever other rights or remedies Executive may have against the Company as a
result of such termination, the Company shall continue for the remainder of the
term of this Agreement then in effect to pay and provide to Executive all of the
salary and bonus compensation and other rights and benefits provided for herein;
provided, however, that such bonus compensation in respect of each Fiscal Year
included within the remainder of the term of this Agreement then in effect shall
be the greater of (i) the bonus compensation paid or payable to Executive in
respect of the Fiscal Year immediately preceding the Fiscal Year during which
such termination occurs or (ii) the average of the bonus compensation paid or
payable to Executive in respect of each of the three Fiscal Years immediately
preceding the Fiscal Year during which such termination occurs.
9. REIMBURSEMENT. The Company shall reimburse Executive or
provide him with an expense allowance during the term of this Agreement for
travel, entertainment and other expenses reasonably and necessarily incurred by
Executive in connection with the Company's business. Executive shall furnish
such documentation with respect to reimbursement to be paid under this Paragraph
9 as the Company shall reasonably request.
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10. COVENANTS AND CONFIDENTIAL INFORMATION.
(a) During the term of this Agreement, including any
periods during which Executive is not providing services to the Company but is
receiving payments of compensation hereunder (but not including payments under
Paragraphs 5, 6 or 7), Executive shall not, directly or indirectly, do or suffer
any of the following:
(i) Own, manage, control or participate in
the ownership, management, or control of, or be employed or
engaged by or otherwise affiliated or associated as a
consultant, independent contractor or otherwise with, any
other corporation, partnership, proprietorship, firm,
association or other business entity, or otherwise engage in
any business, which is in competition with the Company (as
described in Paragraph 10(b)); provided, however, that the
ownership of not more than one percent (1%) of any class of
publicly traded securities of any entity shall not be deemed a
violation of this covenant;
(ii) Employ, assist in employing, or
otherwise associate in business with any senior executive of
the Company who was so employed or retained at any time during
the one (1) year period preceding the date on which
Executive's employment with the Company ceases;
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(iii) Induce any person who is a senior
executive or officer of the Company to terminate said
relationship; and
(iv) Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, the Company
any confidential information or trade secrets of the Company,
it being acknowledged by Executive that all such information
regarding the business of the Company compiled or obtained by,
or furnished to, Executive while Executive shall have been
employed by or associated with the Company is confidential
information and the Company's exclusive property.
(b) For purposes of this Agreement, an entity shall
be deemed to be in competition with the Company if and only if more than
twenty-five per cent (25%) of the gross revenues of such entity are derived from
the business of selling office supplies, office furniture, computers, and such
other products of the type as are sold at or from a majority of OfficeMax stores
on the date of the termination of Executive's employment hereunder.
(c) Executive expressly agrees and understands that
the remedy at law for any breach by him of this Paragraph 10 will be inadequate
and that the damages flowing from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that, upon
adequate proof of Executive's violation of any legally enforceable provision of
this Paragraph 10, the Company shall be entitled to immediate
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injunctive relief and may obtain a temporary order restraining any threatened or
further breach. Nothing in this Paragraph 10 shall be deemed to limit the
Company's remedies at law or in equity for any breach by Executive of any of the
provisions of this Paragraph 10 which may be pursued or availed of by the
Company.
(d) Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 10, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of Executive, would not operate as a bar to Executive's sole
means of support, are fully required to protect the legitimate interests of the
Company and do not confer a benefit upon the Company disproportionate to the
detriment to Executive.
11. WITHHOLDING TAXES. Certain payments to Executive under
this Agreement may be subject to withholding on account of federal, state and
local taxes as required by law. Except with respect to income realized by
Executive as described in Paragraph 5(d), if any particular payment required
hereunder is insufficient to provide the amount of such taxes required to be
withheld, the Company may withhold such taxes from any other payment due
Executive. Except with respect to income realized by Executive as described in
Paragraph 5(d), in the event all cash payments due Executive are insufficient to
provide the required
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amount of such withholding taxes, Executive, within five (5) days of written
notice from the Company, shall pay to the Company the amount of such withholding
taxes in excess of all cash payments due Executive at the time such withholding
is required to be made by the Company.
12. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially unenforceable provision to the extent enforceable in any jurisdiction
nevertheless shall be binding and enforceable.
13. BINDING AGREEMENT. The rights and obligations of the
Company under this Agreement shall inure to the benefit of, and shall be binding
on, the Company and its successors and assigns, and the rights and obligations
(other than obligations to perform services) of Executive under this Agreement
shall inure to the benefit of, and shall be binding upon, Executive and his
heirs, personal representatives and successors and assigns.
14. ENFORCEMENT OF RIGHTS; ARBITRATION.
(a) If the Company terminates Executive's employment
with the Company other than for Cause or as a result of his death or Permanent
Disability or Executive alleges that the Company otherwise has breached or the
Company otherwise breaches this Agreement or any of its obligations hereunder,
in order for Executive to enforce and continue to enjoy his rights hereunder,
including without limitation the right to continue to receive compensation and
other payments and benefits hereunder
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for the remainder of the term of this Agreement, Executive shall be under no
duty to seek other employment or otherwise mitigate his damages as a result of
such termination of employment or alleged breach or breach by the Company.
(b) The Company shall indemnify and reimburse
Executive for his costs and expenses, including reasonable attorneys' fees,
incurred in connection with enforcing his rights hereunder.
(c) Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Cleveland, Ohio, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess
the powers to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this Paragraph 14 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
Executive of any of his covenants contained in Paragraph 10 hereof.
15. NOTICES. Any notice to be given under this Agreement shall
be personally delivered in writing or shall have been deemed duly given when
received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be
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addressed to its principal place of business, attention: General Counsel, and if
mailed to Executive, shall be addressed to him at his home address last known on
the records of the Company, or at such other address or addresses as either the
Company or Executive may hereafter designate in writing to the other.
16. WAIVER. The failure of either party to enforce any
provision or provisions of this Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
17. MISCELLANEOUS. This Agreement supersedes all prior
agreements and understandings between the parties and may not be modified or
terminated orally. No modification, termination or attempted waiver shall be
valid unless in writing and signed by the party against whom the same is sought
to be enforced.
18. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Ohio.
19. CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph
headings used herein are for convenience and are not a part of this Agreement
and shall not be used in construing it.
20. MISCELLANEOUS. Where necessary or appropriate to the
meaning hereof, the singular and plural shall be deemed to
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include each other, and the masculine, feminine and neuter shall be deemed to
include each other.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the day and year first set forth above.
OFFICEMAX, INC.
By: /s/ Ross Pollock
------------------------------------
Ross H. Pollock
Secretary
/s/ Michael Feuer
------------------------------------
Michael Feuer
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EXHIBIT 10.8
OFFICEMAX, INC.
AMENDED AND RESTATED EQUITY-BASED AWARD PLAN
(AMENDED AND RESTATED 1994 SHARE OPTION PLAN)
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the OfficeMax, Inc. Equity-Based Award Plan (the "Plan") is
to enable OfficeMax, Inc. (the "Company") to attract, retain and reward key
employees of the Company and strengthen the mutuality of interests between those
key employees and the Company's shareholders by offering designated employees
equity or equity-based incentives. This Plan is amended and restated as of March
5, 1998 to increase the number of Shares subject to the Plan (subject to
shareholder approval) and to make certain changes made appropriate by changes to
Rule 16b-3 of the Securities and Exchange Commission under the Exchange Act.
For purposes of the Plan, the following terms are defined as follows:
(a) "Affiliate" means any entity (other than the Company and any
Subsidiary) that is designated by the Board as a participating employer
under the Plan.
(b) "Award" means any award of Stock Options, Share Appreciation
Rights or Restricted Shares under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" has the meaning set forth in Section 8(b).
(e) "Change in Control Price" has the meaning set forth in Section
8(d).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "Committee" means the Committee referred to in Section 2 of the
Plan.
(h) "Company" means OfficeMax, Inc., an Ohio corporation, or any
successor corporation.
(i) "Disability" means disability as defined in Section 422(c)(6) of
the Code.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means the closing selling price, regular way,
of the Shares on the New York Stock Exchange on the trading date
immediately preceding the date of grant (or, if the Shares no longer trade
on the New York Stock Exchange, any other national exchange). If the Shares
are no longer traded on any national exchange, then the Fair Market Value
of the Shares as of any date is the value determined for that date by the
Committee in good faith.
(l) "Incentive Stock Option" means any Stock Option intended to be and
designated as, and that otherwise qualifies as, an "Incentive Stock
Option," within the meaning of Section 422 of the Code or any successor
section thereto.
(m) "Non-Employee Director" has the meaning set forth in Rule
16b-3(b)(3)(i) as promulgated by the Securities and Exchange Commission
under the Exchange Act, or any successor definition adopted by the
Securities and Exchange Commission.
(n) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(o) "Outside Director" has the meaning set forth in Section 162(m) of
the Code and the regulations promulgated thereunder.
(p) "Plan" means the OfficeMax, Inc. Equity-Based Award Plan, as
amended from time to time.
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(q) "Potential Change in Control" has the meaning set forth in Section
8(c).
(r) "Restricted Shares" means an award of shares that is granted
pursuant to Section 7 and is subject to restrictions.
(s) "Section 16 Participant" means a participant under the Plan who is
subject to Section 16 of the Exchange Act.
(t) "Share Appreciation Right" means an award of a right to receive an
amount from the Company that is granted pursuant to Section 6.
(u) "Shares" means the Common Shares, without par value, of the
Company.
(v) "Stock Option" or "Option" means any option to purchase Shares
(including Restricted Shares, if the Committee so determines) that is
granted pursuant to Section 5.
(w) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in that chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee of the Board
(the "Committee"). The Committee shall consist of not less than three directors
of the Company, all of whom shall be Non-Employee Directors and Outside
Directors. Those directors shall be appointed by the Board and shall serve as
the Committee at the pleasure of the Board. The functions of the Committee
specified in the Plan shall be exercised by the Board if and to the extent that
no Committee exists that has the authority to so administer the Plan.
The Committee shall have full power to interpret and administer the Plan
and full authority to select the individuals to whom Awards will be granted and
to determine the type and amount of any Award to be granted to each participant,
the consideration, if any, to be paid for any Award, the timing of each Award,
the terms and conditions of any Award granted under the Plan and the terms and
conditions of the related agreements that will be entered into with
participants. As to the selection of and grant of Awards to participants who are
not Section 16 Participants, the Committee may delegate its responsibilities to
members of the Company's management in any manner consistent with applicable
law.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreement relating thereto); to direct
employees of the Company or other advisors to prepare such materials or perform
such analyses as the Committee deems necessary or appropriate; and otherwise to
supervise the administration of the Plan.
Any interpretation or administration of the Plan by the Committee, and all
actions and determinations of the Committee, shall be final, binding and
conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all
participants in the Plan, their respective legal representatives, successors and
assigns, and all persons claiming under or through any of them. No member of the
Board or of the Committee shall incur any liability for any action taken or
omitted, or any determination made, in good faith in connection with the Plan.
SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) Aggregate Shares Subject to the Plan. Subject to adjustment as
provided in Section 3(c), the total number of Shares reserved and available for
Awards under the Plan is 17,000,000 (including Shares issued under the Company's
1992 Nonqualified Stock Option Plan from the reserved and available Shares under
the 1992 Nonqualified Stock Option Plan). Any Shares issued hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
(b) Forfeiture or Termination of Awards of Shares. If any Shares subject
to any Award granted hereunder are forfeited or an Award otherwise terminates or
expires without the issuance of Shares, the Shares subject to
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that Award shall again be available for distribution in connection with future
Awards under the Plan as provided in Section 3(a), unless the participant who
had been awarded those forfeited Shares or the expired or terminated Award has
theretofore received dividends or other benefits of ownership with respect to
those Shares. For purposes hereof, a participant shall not be deemed to have
received a benefit of ownership with respect to those Shares by the exercise of
voting rights, or by the accumulation of dividends that are not realized because
of the forfeiture of those Shares or the expiration or termination of the
related Award without issuance of those Shares.
(c) Adjustment. In the event of any merger, reorganization, consolidation,
recapitalization, share dividend, share split, combination of shares or other
change in corporate structure of the Company affecting the Shares, such
substitution or adjustment shall be made in the aggregate number of Shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, in the number of Share
Appreciation Rights granted under the Plan and in the number of shares subject
to Restricted Share Awards granted under the Plan as may be approved by the
Committee, in its sole discretion, but the number of shares subject to any Award
shall always be a whole number. In addition, in the event of a merger or sale of
the Company, the Committee will have the authority to substitute Awards with
similar awards of equity of the surviving or acquiring entity. Any fractional
shares shall be eliminated.
(d) Annual Award Limit. No participant may be granted Stock Options or
other Awards under the Plan with respect to an aggregate of more than 500,000
Shares (subject to adjustment as provided in Section 3(c) hereof) during any
calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company, and of its Subsidiaries
and Affiliates, if any, who are responsible for or contribute to the management,
growth or profitability of the business of the Company (or of its Subsidiaries
or Affiliates, if any), are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to or in tandem
with other Awards granted under the Plan or cash awards made outside the Plan.
The Committee shall determine the individuals to whom, and the time or times at
which, grants of Stock Options will be made, the number of Shares purchasable
under each Stock Option and the other terms and conditions of the Stock Options
in addition to those set forth in Sections 5(b) and 5(c). Any Stock Option
granted under the Plan shall be in such form as the Committee may from time to
time approve.
Stock Options granted under the Plan may be of two types which shall be
indicated on their face: (i) Incentive Stock Options and (ii) Non-Qualified
Stock Options. Subject to Section 5(c), the Committee shall have the authority
to grant to any participant Incentive Stock Options, Non-Qualified Stock Options
or both types of Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall be
evidenced by Option Agreements, shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(1) Option Price. The option price per share of Shares purchasable
under a Non-Qualified Stock Option or an Incentive Stock Option shall be
determined by the Committee at the time of grant and shall be not less than
100% of the Fair Market Value of the Shares at the date of grant (or, with
respect to an incentive stock option, 110% of the Fair Market Value of the
Shares at the date of grant in the case of a participant who at the date of
grant owns Shares possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or its parent or
subsidiary corporations (as determined under Sections 424(d), (e) and (f)
of the Code)).
(2) Option Term. The term of each Stock Option shall be determined by
the Committee and may not exceed ten years from the date the Option is
granted (or, with respect to an Incentive Stock Option, five years in the
case of a participant who at the date of grant owns Shares possessing more
than ten percent of
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the total combined voting power of all classes of stock of the Company or
its parent or subsidiary corporations (as determined under Sections 424(d),
(e) and (f) of the Code)).
(3) Exercise. Stock Options shall be exercisable at such time or
times and shall be subject to such terms and conditions as shall be
determined by the Committee at or after grant; but, except as provided in
Section 5(b)(6) and Section 8, unless otherwise determined by the Committee
at or after grant, no Stock Option shall be exercisable prior to six months
and one day following the date of grant. If any Stock Option is exercisable
only in installments or only after specified exercise dates, the Committee
may waive, in whole or in part, such installment exercise provisions, and
may accelerate any exercise date or dates, at any time at or after grant
based on such factors as the Committee shall determine, in its sole
discretion.
(4) Method of Exercise. Subject to any installment exercise
provisions that apply with respect to any Stock Option, and the six month
and one day holding period set forth in Section 5(b)(3), that Stock Option
may be exercised in whole or in part, at any time during the option period,
by the holder thereof giving to the Company written notice of exercise
specifying the number of Shares to be purchased.
That notice shall be accompanied by payment in full of the option
price of the Shares for which the Option is exercised, in cash or Shares or
by check or such other instrument as the Committee may accept. The value of
each such Share surrendered or withheld shall be 100% of the Fair Market
Value of the Shares on the date the option is exercised.
No Shares shall be issued on an exercise of an Option until full
payment has been made. A participant shall not have rights to dividends or
any other rights of a shareholder with respect to any Shares subject to an
Option unless and until the participant has given written notice of
exercise, has paid in full for those Shares, has given, if requested, the
representation described in Section 11(a), and those Shares have been
issued to him.
(5) Non-Transferability of Options. No Stock Option shall be
transferable by any participant other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations
order (as defined in the Code or the Employment Retirement Income Security
Act of 1974, as amended) except that, if so provided in the Option
Agreement, the participant may transfer the Option during his lifetime to
one or more members of his family, to one or more trusts for the benefit of
one or more members of his family, or to a partnership or partnerships of
members of his family, provided that no consideration is paid for the
transfer and that the transfer would not result in the loss of any
exemption under Rule 16b-3 of the Exchange Act with respect to any Option.
The transferee of an Option will be subject to all restrictions, terms and
conditions applicable to the Option prior to its transfer, except that the
Option will not be further transferable by the transferee other than by
will or by the laws of descent and distribution.
(6) Termination by Death. Subject to Section 5(c), if any
participant's employment with the Company or any Subsidiary or Affiliate
terminates by reason of death, any Stock Option held by that participant
not previously exercised and vested will become fully vested and
exercisable, by the estate of the participant (acting through its
fiduciary), for a period of one year from the date of that death (or such
other period as the Committee may specify at or after grant).
(7) Termination by Reason of Disability. Subject to Sections 5(b)(3)
and 5(c), if a participant's employment with the Company or any Subsidiary
or Affiliate terminates by reason of Disability, any Stock Option held by
that participant not previously exercised and vested will become fully
vested and exercisable by the participant or by the participant's duly
authorized legal representative if the participant is unable to exercise
the Option as a result of the participant's Disability, for a period of one
year from the date of such termination of employment (or such other period
as the Committee may specify at or after grant), but in no event may any
such Option be exercised prior to six months and one day from the date of
grant; and if the participant dies within that one-year period (or such
other period as the Committee shall specify at or after grant), any
unexercised Stock Option held by that participant shall thereafter be
exercisable by the estate of the participant (acting through its fiduciary)
to the same extent to which it was exercisable at the time of death, for a
period of one year from the date of that termination of employment.
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(8) Other Termination. Unless otherwise determined by the Committee
at or after the time of granting any Stock Option, if a participant's
employment with the Company or any Subsidiary or Affiliate terminates for
any reason other than death or Disability, all Stock Options held by that
participant shall terminate 90 days after the date employment terminates.
(c) Incentive Stock Options. Notwithstanding Sections 5(b)(6) and (7), an
Incentive Stock Option shall be exercisable by (i) a participant's authorized
legal representative (if the participant is unable to exercise the Incentive
Stock Option as a result of the participant's Disability) only if, and to the
extent, permitted by Section 422 of the Code and (ii) by the participant's
estate, in the case of death, or authorized legal representative, in the case of
Disability, no later than ten years from the date the Incentive Stock Option was
granted (in addition to any other restrictions or limitations that may apply).
Anything in the Plan to the contrary notwithstanding, no term or provision of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the participants affected, to disqualify any Incentive
Stock Option under that Section 422 or any successor Section thereto.
(d) Buyout Provisions. The Committee may at any time buy out for a payment
in cash, Shares or Restricted Shares an Option previously granted, based on such
terms and conditions as the Committee shall establish and agree upon with the
participant, but no such transaction involving a Section 16 Participant shall be
structured or effected in a manner that would result in any liability on the
part of the participant under Section 16(b) of the Exchange Act or the rules and
regulations promulgated thereunder.
SECTION 6. SHARE APPRECIATION RIGHTS.
(a) Grant. Share Appreciation Rights may be granted in connection with all
or any part of an Option, either concurrently with the grant of the Option or,
if the Option is a Non-Qualified Stock Option, by an amendment to the Option at
any time thereafter during the term of the Option. Share Appreciation Rights may
be exercised in whole or in part at such times under such conditions as may be
specified by the Committee in the participant's Option Agreement.
(b) Terms and Conditions. The following terms and conditions will apply to
all Share Appreciation Rights that are granted in connection with Options:
(1) Rights. Share Appreciation Rights shall entitle the participant,
upon exercise of all or any part of the Share Appreciation Rights, to
surrender to the Company unexercised that portion of the underlying Option
relating to the same number of Shares as is covered by the Share
Appreciation Rights (or the portion of the Share Appreciation Rights so
exercised) and to receive in exchange from the Company an amount (paid as
provided in Section 6(b)(5)) equal to the excess of (x) the Fair Market
Value, on the date of exercise, of the Shares covered by the surrendered
portion of the underlying Option over (y) the exercise price of the Shares
covered by the surrendered portion of the underlying Option. The Committee
may limit the amount that the participant will be entitled to receive upon
surrender of a Share Appreciation Right.
(2) Surrender of Option. Upon the exercise of the Share Appreciation
Right and surrender of the related portion of the underlying Option, the
Option, to the extent surrendered, will not thereafter be exercisable. The
underlying Option may provide that such Share Appreciation Rights will be
payable solely in cash. The terms of the underlying Option shall provide a
method by which an alternative fair market value of the Shares on the date
of exercise shall be calculated based on one of the following: (x) the
closing price of the Shares on the national exchange on which they are then
traded on the business day immediately preceding the day of exercise; (y)
the highest closing price of the Shares on the national exchange on which
they have been traded, during the 90 days immediately preceding the Change
in Control; or (z) the greater of (x) and (y).
(3) Exercise. In addition to any further conditions upon exercise
that may be imposed by the Committee, the Share Appreciation Rights shall
be exercisable only to the extent that the related Option is exercisable,
except that in no event will a Share Appreciation Right held by a Section
16 Participant be exercisable within the first six months after it is
awarded even though the related Option is or becomes
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exercisable, and each Share Appreciation Right will expire no later than
the date on which the related Option expires. A Share Appreciation Right
may only be exercised at a time when the Fair Market Value of the Shares
covered by the Share Appreciation Right exceeds the exercise price of the
Shares covered by the underlying Option. No Share Appreciation Right held
by a Section 16 Participant shall be exercisable by its terms within the
first six months after it is granted, and a Section 16 Participant may only
exercise a Share Appreciation Right during a period beginning on the third
business day and ending on the twelfth business day following the release
for publication of quarterly or annual summary statements of the Company's
sales and earnings.
(4) Method of Exercise. Share Appreciation Rights may be exercised by
the participant's giving written notice of the exercise to the Company,
stating the number of Share Appreciation Rights he has elected to exercise
and surrendering the portion of the underlying Option relating to the same
number of Shares as the number of Share Appreciation Rights elected to be
exercised.
(5) Payment. The manner in which the Company's obligation arising
upon the exercise of the Share Appreciation Right will be paid will be
determined by the Committee and shall be set forth in the participant's
Option Agreement. The Committee may provide for payment in Shares or cash,
or a fixed combination of Shares or cash, or the Committee may reserve the
right to determine the manner of payment at the time the Share Appreciation
Right is exercised. Shares issued upon the exercise of a Share Appreciation
Right will be valued at their Fair Market Value on the date of exercise.
SECTION 7. RESTRICTED SHARES.
(a) Grant. Restricted Shares may be issued alone, in addition to or in
tandem with other Awards under the Plan or cash awards made outside of the Plan.
The Committee shall determine the individuals to whom, and the time or times at
which, grants of Restricted Shares will be made, the number of Restricted Shares
to be awarded to each participant, the price (if any) to be paid by the
participant (subject to Section 7(b)), the date or dates upon which Restricted
Share Awards will vest and the period or periods within which those Restricted
Share Awards may be subject to forfeiture, and the other terms and conditions of
those Awards in addition to those set forth in Section 7(b).
The Committee may condition the grant of Restricted Shares upon the
attainment of specified performance goals or such other factors as the Committee
may determine in its sole discretion.
(b) Terms and Conditions. Restricted Shares awarded under the Plan shall
be subject to the following terms and conditions and such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall deem desirable. A participant who receives a Restricted Share Award shall
not have any rights with respect to that Award, unless and until the participant
has executed an agreement evidencing the Award in the form approved from time to
time by the Committee and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and conditions of
that Award.
(1) The purchase price (if any) for Restricted Shares shall be
determined by the Committee at the time of grant.
(2) Awards of Restricted Shares must be accepted by executing a
Restricted Share Award agreement and paying the price (if any) that is
required under Section 7(b)(1).
(3) Each participant receiving a Restricted Share Award shall be
issued a stock certificate in respect of those Restricted Shares. The
certificate shall be registered in the name of the participant, and shall
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to the Award.
(4) The Committee shall require that the stock certificates evidencing
the Restricted Shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Shares Award, the participant shall have delivered to the
Company a stock power, endorsed in blank, relating to the Shares covered by
that Award.
(5) Subject to the provisions of this Plan and the Restricted Share
Award agreement, during a period set by the Committee commencing with the
date of any Award (the "Restriction Period"), the participant
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shall not be permitted to sell, transfer, pledge, assign or otherwise
encumber the Restricted Shares covered by that Award. The Restriction
Period shall not be less than six months and one day in duration ("Minimum
Restriction Period"). Subject to these limitations and the Minimum
Restriction Period requirement, the Committee, in its sole discretion, may
provide for the lapse of restrictions in installments and may accelerate or
waive restrictions, in whole or in part, based on service, performance or
such other factors and criteria as the Committee may determine in its sole
discretion.
(6) Except as provided in this Section 7(b)(6), Section 7(b)(5) and
Section 7(b)(7), the participant shall have, with respect to the Restricted
Shares awarded, all of the rights of a shareholder of the Company,
including the right to vote the Shares, and the right to receive any
dividends. The Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends to be
deferred and subject to forfeiture and, if the Committee so determines,
reinvested, subject to Section 11(f), in additional Restricted Shares to
the extent Shares are available under Section 3, or otherwise reinvested.
Unless the Committee or Board determines otherwise, share dividends issued
with respect to Restricted Shares shall be treated as additional Restricted
Shares that are subject to the same restrictions and other terms and
conditions that apply to the Shares with respect to which such dividends
are issued.
(7) No Restricted Shares shall be transferable by a participant other
than by will or by the laws of descent and distribution.
(8) If a participant's employment with the Company or any Subsidiary
or Affiliate terminates by reason of death, any Restricted Shares held by
that participant shall thereafter vest and any restriction shall lapse.
(9) If a participant's employment with the Company or any Subsidiary
or Affiliate terminates by reason of Disability, any Restricted Shares held
by that participant shall thereafter vest and any restriction shall lapse.
(10) Unless otherwise determined by the Committee at or after the time
of granting any Restricted Shares, if a participant's employment with the
Company or any Subsidiary or Affiliate terminates for any reason other than
death or Disability, the Restricted Shares held by that participant that
are unvested or subject to restriction at the time of termination shall
thereupon be forfeited.
(c) Minimum Value. In order to better ensure that award payments actually
reflect the performance of the Company and service of the participant, the
Committee may provide, in its sole discretion, for a tandem performance-based or
other award designed to guarantee a minimum value, payable in cash or Shares, to
the recipient of a Restricted Share Award, subject to such performance, future
service, deferral and other terms and conditions as may be specified by the
Committee.
SECTION 8. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. At any time during the 365 days commencing with the
date of either (1) a "Change in Control" as defined in Section 8(b) or (2) a
"Potential Change in Control" as defined in Section 8(c), a majority of the
"Continuing Directors" as defined in Section 8(e) (or one of the two Continuing
Directors if only two Continuing Directors are then serving on the Board of
Directors or the sole Continuing Director if only one Continuing Director is
then serving on the Board of Directors) may cause the following provisions to
take effect as stated and as of the date set forth in a Written Action (the
"Written Action") adopted to that effect (that date, the "Accelerated Vesting
Date") and if there are no Continuing Directors, the following provisions will
automatically take effect:
(1) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(2) Any Share Appreciation Rights shall become immediately
exercisable;
(3) The restrictions applicable to any Restricted Shares Awards shall
lapse and such shares and awards shall be deemed fully vested; and
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(4) The value of all outstanding Awards, in each case to the extent
vested, shall, unless otherwise determined by the Committee in its sole
discretion at or after grant but prior to any Change in Control or
Potential Change in Control, be paid to the participant in cash in exchange
for the surrender of those Awards on the basis of the "Change in Control
Price" as defined in Section 8(d) as of the Accelerated Vesting Date;
but the provisions of Sections 8(a)(1) through (3) shall not apply with respect
to Awards granted to any Section 16 Participant which have been held by such
participant for less than six months and one day as of the Accelerated Vesting
Date.
(b) Definition of Change in Control. For purposes of Section 8(a), a
"Change in Control" means the occurrence of any of the following: (i) the Board
or shareholders of the Company approve a consolidation or merger that results in
the shareholders of the Company immediately prior to the transaction giving rise
to the consolidation or merger owning less than 50% of the total combined voting
power of all classes of stock entitled to vote of the surviving entity
immediately after the consummation of the transaction giving rise to the merger
or consolidation; (ii) the Board or shareholders of the Company approve the sale
of substantially all of the assets of the Company or the liquidation or
dissolution of the Company; (iii) any person or other entity (other than the
Company or a Subsidiary or any Company employee benefit plan (including any
trustee of any such plan acting in its capacity as trustee)) purchases any
Shares (or securities convertible into Shares) pursuant to a tender or exchange
offer without the prior consent of the Board of Directors, or becomes the
beneficial owner of securities of the Company representing 25% or more of the
voting power of the Company's outstanding securities; or (iv) during any
two-year period, individuals who at the beginning of such period constitute the
entire Board of Directors cease to constitute a majority of the Board of
Directors, unless the election or the nomination for election of each new
director is approved by at least two-thirds of the directors then still in
office who were directors at the beginning of that period.
(c) Definition of Potential Change in Control. For purposes of Section
8(a), a "Potential Change in Control" means the happening of any one of the
following:
(1) The approval by the shareholders of the Company of an agreement by
the Company, the consummation of which would result in a Change in Control
of the Company as defined in Section 8(b); or
(2) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan (including any trustee of any such plan
acting in its capacity as trustee)) of securities of the Company
representing 25% or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of a resolution to the
effect that a Potential Change in Control of the Company has occurred for
purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 8, "Change in
Control Price", means the greater of: (a) the highest price per share paid in
any transaction reported on the New York Stock Exchange Composite Index (or, if
the Shares are not then traded on the New York Stock Exchange, the highest price
paid as reported for any national exchange on which the Shares are then traded)
or paid or offered in any bona fide transaction related to a Change in Control
or Potential Change in Control of the Company, at any time during the 60-day
period immediately preceding the occurrence of the Change in Control (or, when
applicable, the occurrence of the Potential Change in Control event), and (b)
the highest price per share paid in any transaction reported on the New York
Stock Exchange Composite Index (or, if the Shares are not then traded on the New
York Stock Exchange, the highest price paid as reported for any national
exchange on which the Shares are then traded), at any time during the 60-day
period immediately preceding the date on which the Continuing Directors execute
a Written Action relating to that Change in Control or Potential Change in
Control, in each case as determined by the Committee.
(e) Definition of Continuing Director. For purposes of this Section 8, a
"Continuing Director" means an individual who was a member of the Board of
Directors immediately prior to the date of a Change in Control or a Potential
Change in Control and is a member of the Board of Directors at the time a
Written Action relating to that Change in Control or Potential Change in Control
is taken.
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SECTION 9. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend, alter or
discontinue the Plan, but no such amendment, alteration or discontinuation shall
be made that would impair the rights of a participant under an Award theretofore
granted, without the participant's consent. Notwithstanding the foregoing, any
amendment to Section 8 hereof requires the affirmative vote of a majority of the
Continuing Directors (or one of the two Continuing Directors if only two
Continuing Directors are then serving on the Board of Directors or the sole
Continuing Director if only one Continuing Director is then serving on the Board
of Directors). The Company shall submit to the shareholders of the Company for
their approval any amendment to the Plan which is required by Section 16 of the
Exchange Act or the rules and regulations thereunder, or Section 162(m) of the
Code, to be approved by the shareholders.
The Committee may at any time, in its sole discretion, amend the terms of
any Award, but no such amendment shall be made that would impair the rights of a
participant under an Award theretofore granted, without the participant's
consent; nor shall any such amendment be made that would make the applicable
exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any
Section 16 Participant holding the Award without the participant's consent.
Subject to the above provisions, the Board shall have all necessary
authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 10. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payment not yet made to a participant by the
Company, nothing contained herein shall give that participant any rights that
are greater than those of a general creditor of the Company.
SECTION 11. GENERAL PROVISIONS.
(a) The Committee may require each participant acquiring Shares pursuant to
an Award under the Plan to represent to and agree with the Company in writing
that the participant is acquiring the Shares without a view to distribution
thereof. The certificates for any such Shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be subject to
such stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Shares are then
listed, and any applicable federal or state securities laws, and the Committee
may cause a legend or legends to be put on any certificate for any such Shares
to make appropriate reference to those restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required, and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor any document
describing, implementing or referring to the Plan, or any part thereof, shall
confer upon any participant under the Plan any right to continue in the employ,
or as a director, of the Company or any Subsidiary or Affiliate, or shall in any
way affect the right and power of the Company or any Subsidiary or Affiliate to
terminate the employment, or service as a director, of any participant under the
Plan at any time with or without assigning a reason therefor, to the same extent
as the Company or any Subsidiary or Affiliate might have done if the Plan had
not been adopted.
(d) For purposes of this Plan, except as otherwise required with respect to
Incentive Stock Options, a transfer of a participant between the Company and any
Subsidiary or Affiliate shall not be deemed a termination of employment.
(e) No later than the date as of which an amount first becomes includable
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
federal, state or
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local taxes or other items of any kind required by law to be withheld with
respect to that amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled with Shares,
including unrestricted Shares previously owned by the participant or Shares that
are part of the Award that gives rise to the withholding requirement.
Notwithstanding the foregoing, any election by a Section 16 Participant to
settle any tax withholding obligation with Shares that are part of an Award
shall be subject to approval by the Committee, in its sole discretion. The
obligations of the Company under the Plan shall be conditional on those payments
or arrangements and the Company and its Subsidiaries and Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise payable to the participant.
(f) The actual or deemed reinvestment of dividends or dividend equivalents
in additional Restricted Shares at the time of any dividend payment shall only
be permissible if sufficient Shares are available under Section 3 for
reinvestment (taking into account then outstanding Stock Options).
(g) The Plan, all Awards made and actions taken thereunder and any
agreements relating thereto shall be governed by and construed in accordance
with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to the Plan
shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect to each
participant.
SECTION 12. BOARD AND SHAREHOLDER APPROVAL.
The Plan was adopted by the Board on March 5, 1998 and is subject to
approval by the holders of the Company's outstanding Shares, in accordance with
applicable law.
SECTION 13. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after March 5, 2008,
but Awards granted prior to that date may extend beyond that date.
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EXHIBIT 10.9
OFFICEMAX, INC.
ANNUAL INCENTIVE BONUS PLAN
1. PURPOSES.
The purposes of the OfficeMax, Inc. Annual Incentive Bonus Plan (the
"Plan") are to attract and retain highly-qualified executives by providing
appropriate performance-based short-term incentive awards, to align executive
and shareholder long-term interests by creating a direct link between executive
compensation and shareholder return, and to enable executives, through the
mandatory and optional share purchase features of the Management Share Purchase
Plan, to develop and maintain a substantial share ownership position in the
Company's Shares. An additional purpose of the Plan is to serve as a qualified
performance-based compensation program under Section 162(m) of the Internal
Revenue Code of 1986, as amended, in order to preserve the Company's tax
deduction for compensation paid under the Plan to Covered Employees.
2. DEFINITIONS.
The following terms, as used herein, shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Bonus" shall mean any annual incentive bonus award granted
pursuant to the Plan; the payment of any such award shall be contingent
upon the attainment of Performance Goals with respect to a Plan Year.
(c) "Change in Control" shall mean the occurrence of an event
described in Section 6(e) hereof.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" shall mean the Compensation Committee of the Board or
such other committee as may be designated by the Board to administer the
Plan, or if it elects to administer the Plan, the Board.
(f) "Company" shall mean OfficeMax, Inc., a corporation organized
under the laws of the State of Ohio, or any successor corporation.
(g) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code (or any successor provision).
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(i) "Management Share Purchase Plan" shall mean the OfficeMax, Inc.
Management Share Purchase Plan, as amended from time to time.
(j) "Participant" shall mean an officer or other employee of the
Company or one of its Subsidiaries who is eligible to participate herein
pursuant to Section 3 of the Plan and for whom a target Bonus is
established with respect to the relevant Plan Year.
(k) "Performance Goal(s)" shall mean the criteria and objectives which
must be met during the Plan Year as a condition of the Participant's
receipt of payment with respect to a Bonus, as described in Section 5
hereof.
(l) "Plan" shall mean the OfficeMax, Inc. Annual Incentive Bonus Plan,
as amended from time to time.
(m) "Plan Year" shall mean the Company's fiscal year.
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(n) "Restricted Shares" shall mean the Shares in which a Bonus is
partially or wholly payable pursuant to Section 6(d) hereof; such
Restricted Shares are issuable pursuant to the Management Share Purchase
Plan.
(o) "Shares" shall mean common shares, without par value, of the
Company.
(p) "Subsidiary" shall mean any subsidiary of the Company which is
designated by the Board or the Committee to have any one or more of its
employees participate in the Plan.
3. ELIGIBILITY.
All Company officers and such key employees of the Company and its
Subsidiaries as are designated by the Committee shall participate in the Plan.
In determining the persons to whom Bonuses shall be granted, the Committee shall
take into account such factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
4. NO SHARES SUBJECT TO THE PLAN.
No Shares of the Company shall be reserved for, or issued under, the Plan.
To the extent that annual bonuses are paid in Restricted Shares, such Restricted
Shares shall be issued under, and subject to the terms and conditions of, the
Management Share Purchase Plan.
5. PERFORMANCE GOALS.
Performance Goals may be expressed in terms of (i) the Company's return on
equity, assets, capital or investment, (ii) pre-tax or after-tax profit levels
of the Company or the Subsidiaries or any combination thereof, (iii) expense
reduction levels, (iv) implementation of critical projects or processes, (v)
level of sales and/or (vi) changes in market price of the Shares. To the extent
applicable, any such Performance Goal shall be determined in accordance with
generally accepted accounting principles and reported upon by the Company's
independent accountants. Performance Goals shall include a threshold level of
performance below which no Bonus payment shall be made, levels of performance at
which specified percentages of the target Bonus shall be paid, and a maximum
level of performance above which no additional Bonus shall be paid. The
Performance Goals established by the Committee may be (but need not be)
different each Plan Year and different goals may be applicable to different
Participants.
6. BONUSES.
(a) In General. For each Plan Year, the Committee shall specify the
Performance Goals applicable to such Plan Year and the amount of the target
Bonus for each Participant with respect to such Plan Year. A Participant's
target Bonus for each Plan Year shall be expressed as either a dollar amount or
as a percentage of the Participant's salary for the Plan Year. Unless otherwise
provided by the Committee in its discretion in connection with terminations of
employment, or except as set forth in Section 6(e) hereof, payment of a Bonus
for a particular Plan Year shall be made only if and to the extent the
Performance Goals with respect to such Plan Year are attained and only if the
Participant is employed by the Company or one of its Subsidiaries on the last
day of the Plan Year. The actual amount of a Bonus payable under the Plan shall
be determined as a percentage of the Participant's target Bonus, which
percentage shall vary depending upon the extent to which the Performance Goals
have been attained. The Committee may, in its discretion, reduce or eliminate
the amount payable to any Participant (including a Covered Employee), in each
case based upon such factors as the Committee may deem relevant, but shall not
increase the amount payable to any Covered Employee. No Participant will receive
compensation under this Plan for any taxable year in excess of $6,000,000.
(b) Special Limitation on Certain Bonuses. Notwithstanding anything to the
contrary contained in this Section 6, the actual Bonus paid to the Company's
Chief Executive Officer under the Plan for any Plan Year may not exceed three
times the salary of the Chief Executive Officer for such Plan Year; and the
Bonus for each other Covered Employee under the Plan may not exceed two times
the salary of such Covered Employee for such Plan Year.
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(c) Time of Payment. Unless otherwise determined by the Committee, or
except as provided in Section 6(e) hereof, all payments in respect of Bonuses
granted under this Section 6 shall be made within a reasonable period after the
end of the Plan Year. In the case of Participants who are Covered Employees,
except as provided in Section 6(e) hereof, such payments shall be made only
after achievement of the Performance Goals has been certified by the Committee.
(d) Form of Payment. Except as provided in Section 6(e) hereof, payment of
at least 20 percent of each Participant's Bonus for any Plan Year (less
applicable payroll deductions) shall be made in Restricted Shares pursuant to,
and subject to the terms and conditions of, the Management Share Purchase Plan.
At the election of each Participant (made in accordance with the terms and
conditions of the Management Share Purchase Plan), up to 100 percent of the
Participant's Bonus for any Plan Year (less applicable payroll deductions) shall
be paid in Restricted Shares pursuant to, and subject to the terms and
conditions of, the Management Share Purchase Plan. The number of Restricted
Shares to be paid shall be calculated in accordance with the Management Share
Purchase Plan. Payment of the balance of the Participant's Bonus for any Plan
Year shall be made in cash. Payments of portions of any Bonuses made in
Restricted Shares pursuant to the Management Share Purchase Plan may be referred
to therein as "purchases" of such Shares.
(e) Change in Control. Notwithstanding any other provision of the Plan to
the contrary, (i) if a "Change in Control" of the Company (as defined in this
Section 6(e)) shall occur following a Plan Year as to which the Committee has
determined the actual Bonuses to be paid (but such Bonuses have not yet been
paid), such Bonuses shall be paid immediately in cash, (ii) if a Change in
Control shall occur following a Plan Year as to which the Committee has not yet
determined the actual Bonuses to be paid, such Bonuses shall be immediately
determined and paid in cash, and (iii) if a Change in Control shall occur during
a Plan Year as to which target Bonuses have been established (but the actual
Bonuses to be paid have not yet been determined), such Plan Year shall be deemed
to have been completed, the target levels of performance set forth under the
respective Performance Goals shall be deemed to have been attained, and a pro
rata portion of the Bonus so determined for each Participant for such partial
Plan Year (based on the number of full and partial months which have elapsed
with respect to such Plan Year) shall be paid immediately in cash to each
Participant for whom a target Bonus for such Plan Year was established.
For purposes of this Section 6, a Change in Control of the Company shall
occur upon the first to occur of the following:
(i) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing more than 33% of the combined
voting power of the Company is acquired by any "person," as defined in
sections 13(d) and 14(d) of the Exchange Act (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any corporation owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as
their ownership of Shares of the Company), or
(ii) the shareholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to
sell or otherwise dispose of all or substantially all of its assets, or
adopt a plan of liquidation, or
(iii) during any period of three consecutive years beginning after the
completion of the initial public offering of the Shares, individuals who at
the beginning of such period were members of the Board cease for any reason
to constitute at least a majority thereof (unless the election, or the
nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least a majority of the directors then still
in office who were directors at the beginning of such period or whose
election or nomination was previously so approved).
7. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in
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the administration of the Plan, including, without limitation, the authority to
grant Bonuses; to determine the persons to whom and the time or times at which
Bonuses shall be granted; to determine the terms, conditions, restrictions and
performance criteria relating to any Bonus; to make adjustments in the
Performance Goals in response to changes in applicable laws, regulations, or
accounting principles; except as otherwise provided in Section 6(a) hereof, to
adjust compensation payable upon attainment of Performance Goals; to construe
and interpret the Plan and any Bonus; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee shall consist of two or more persons each of whom is an
"outside director" within the meaning of Section 162(m) of the Code. The
Committee may appoint a chairperson and a secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings. All determinations of the Committee shall be
made by a majority of its members either present in person or participating by
conference telephone at a meeting or by unanimous written consent. The Committee
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Committee or any person
to whom it has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all persons, including the Company,
the Participant (or any person claiming any rights under the Plan from or
through any Participant) and any shareholder.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Bonus
granted hereunder.
8. GENERAL PROVISIONS.
(a) Compliance with Legal Requirements. The Plan and the granting of
Bonuses, and the other obligations of the Company under the Plan shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required.
(b) No Right To Continued Employment. Nothing in the Plan or in any Bonus
granted shall confer upon any Participant the right to continue in the employ of
the Company or any of its Subsidiaries or to be entitled to any remuneration or
benefits not set forth in the Plan or to interfere with or limit in any way the
right of the Company to terminate such Participant's employment.
(c) Withholding Taxes. The Company or Subsidiary employing any Participant
shall deduct from all payments and distributions under the Plan any taxes
required to be withheld by federal, state or local governments.
(d) Amendment and Termination of the Plan. The Board may at any time and
from time to time alter, amend, suspend, or terminate the Plan in whole or in
part; provided, however, that no amendment which requires stockholder approval
in order for the Plan to continue to comply with Code Section 162(m) shall be
effective unless the same shall be approved by the requisite vote of the
shareholders of the Company. Additionally, the Committee may make such
amendments as it deems necessary to comply with other applicable laws, rules and
regulations. Notwithstanding the foregoing, no amendment shall affect adversely
any of the rights of any Participant, without such Participant's consent, under
any Bonus theretofore granted under the Plan.
(e) Participant Rights. No Participant shall have any claim to be granted
any Bonus under the Plan, and there is no obligation for uniformity of treatment
for Participants.
(f) Unfunded Status of Bonuses. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments which
at any time are not yet made to a Participant pursuant to a Bonus, nothing
contained in the Plan or any Bonus shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
(g) Governing Law. The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Ohio without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by federal law.
4
<PAGE> 5
(h) Effective Date. The Plan shall take effect upon its adoption by the
Board, but the Plan (and any grants of Bonuses made prior to the shareholder
approval mentioned herein) shall be subject to the requisite approval of the
shareholders of the Company. In the absence of such approval, such Bonuses shall
be null and void.
(i) Interpretation. The Plan is designed and intended to comply with
Section 162(m) of the Code, to the extent applicable, and all provisions hereof
shall be construed in a manner to so comply.
(j) Term. No Bonus may be granted under the Plan with respect to any Plan
Year after fiscal 2008. Bonuses made with respect to fiscal 2008 or prior years,
however, may extend beyond fiscal 2008 and the provisions of the Plan shall
continue to apply thereto.
5
<PAGE> 1
EXHIBIT 10.11
FORMS
OF
SEVERANCE AGREEMENTS
<PAGE> 2
SEVERANCE AGREEMENT
FORM A
<PAGE> 3
[**Executive**]
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of the _____ day of
_______, 199___, between [FirstName] [LastName], an individual ("Executive"),
and OfficeMax, Inc., an Ohio corporation (the "Company").
RECITALS:
A. The Company and Executive desire to enter into this Agreement to
establish certain severance and change in control arrangements between the
Company and Executive on the terms and conditions set forth in this Agreement.
B. The Company and Executive are entering into this Agreement as an
additional benefit to be provided to Executive as part of the enhancements made
to Executive's overall compensation package in connection with Executive's
annual performance review.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises, the covenants and
promises made herein to be kept and performed, and the benefits to be derived by
Executive under this Agreement, the parties agree as follows:
1. SEVERANCE PAYMENTS.
(a) Subject to the terms and conditions set forth below, if
Executive's employment with the Company is terminated by the Company
(other than for "Cause" or "Disability" (each as described below)), or
if Executive terminates his employment with the Company for "Good
Reason" (as described below), then the Company shall pay to Executive
the following:
(i) Executive's monthly base salary through the end of
the month during which termination occurred, plus all
other unpaid amounts, if any, to which Executive is
entitled as of the date of termination; and
(ii) commencing in the month following the month in which
termination occurs, twelve (12) monthly severance
payments in an amount equal to Executive's monthly
base salary as of the date of termination (such
monthly payments to be made on or about the 15th day
of each month); provided, however, if, following
termination of Executive's employment with the
Company, Executive violates any provision of Section
2 of this Agreement, then the Company's obligation to
make severance payments to Executive will terminate.
<PAGE> 4
[**Executive**]
(b) Notwithstanding the provisions of Section 1(a) above,
subject to the terms and conditions set forth below, if Executive's
employment with the Company is terminated by the Company (other than
for Cause or Disability), or if Executive terminates his employment
with the Company for Good Reason and if, in either case, such
termination occurs within twenty-four (24) months of the date of a
"Change in Control" (as described below), then the Company shall pay to
Executive the following:
(i) Executive's monthly base salary through the end of
the month during which termination occurred, plus all
other unpaid amounts, if any, to which Executive is
entitled as of the date of termination; and
(ii) Commencing in the month following the month in which
termination occurs, twenty-four (24) monthly
severance payments in an amount equal to Executive's
monthly base salary as of the date of termination
(such monthly payments to be made on or about the
15th day of each month); provided, however, if,
following termination of Executive's employment with
the Company, Executive violates and provision of
Section 2 of this Agreement, then the Company's
obligation to make severance payments to Executive
will terminate.
(c) If Executive's employment with the Company is terminated
because of Executive's retirement or death or is terminated by the
Company for Cause or Disability, or if the Executive terminates his
employment for other than Good Reason, then Executive shall not be
entitled to, and the Company shall not be required to make, any
severance payments.
(d) Termination by the Company for "Cause" means termination by
the Company based on any of the following acts or omissions by
Executive, whether directly or indirectly:
(i) a violation of any policy of the Company that causes
material injury to the Company;
(ii) an act of fraud, embezzlement, theft or any other
material violation of law which interferes with
Executive's ability to perform Executive's duties and
responsibilities;
(iii) wrongful damage to material assets of the Company;
(iv) wrongful disclosure of confidential information of
the Company; (v) wrongful engagement in any
competitive activity which would constitute a breach
of the duty of loyalty;
(vi) failure or refusal to perform, or gross negligence in
the performance of, Executive's duties and
responsibilities; or
2
<PAGE> 5
[**Executive**]
(vii) making unauthorized comments to the media regarding
the Company.
(e) Termination by the Company for "Disability" means
termination by the Company based on the inability of Executive to
perform his duties and responsibilities as a result of the Executive's
illness (either physical or mental) or other incapacity for a total of
one hundred twenty (120) days during any twelve (12) month period.
(f) Termination by Executive for "Good Reason" means termination
by Executive based on the occurrence of any of the following
circumstances without Executive's express written consent:
(i) a reduction in either Executive's annual rate of base
salary or level of participation in any bonus or
incentive plan for which he is eligible (other than
as part of a salary reduction or changes in bonus or
incentive plans generally imposed on all executive
officers of the Company);
(ii) an elimination or reduction of Executive's
participation in any benefit plan generally available
to executive officers of the Company, unless the
Company continues to offer Executive benefits
substantially similar to those made available by such
plan; provided, however, that a change to a plan in
which executive officers of the Company generally
participate, including termination of any such plan,
if it does not result in a proportionately greater
reduction in the rights of or benefits to Executive
as compared with the other executive officers of the
Company or is required by law or a technical change,
will not be deemed to be Good Reason;
(iii) failure of any successor (whether direct or indirect,
by purchase of stock or assets, merger, consolidation
or otherwise) to the Company to assume the Company's
obligations under this Agreement or failure by the
Company to remain liable to Executive under this
Agreement after an assignment by the Company of this
Agreement; or
(iv) a transfer of Executive's principal business office
to a location outside of the area where the function
for which Executive is responsible is performed.
Executive's right to terminate his employment pursuant to this
paragraph (f) will not be affected by Executive's incapacity due to
physical or mental illness. Executive's continued employment will not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason; provided, however, that
Executive will be deemed to have waived his rights pursuant to
circumstances constituting Good Reason if he has not provided to the
Company a written notice of termination to the Company within ninety
(90) days following his knowledge of the circumstances constituting
Good Reason.
(g) For purposes of this Agreement, "Change in Control" means
the occurrence of any of the following:
3
<PAGE> 6
[**Executive**]
(i) the Board of Directors or shareholders of the Company
approve a consolidation or merger that results in the
shareholders of the Company immediately prior to the
transaction giving rise to the consolidation or
merger owning less than 50% of the total combined
voting power of all classes of stock entitled to vote
of the surviving entity immediately after the
consummation of the transaction giving rise to the
merger or consolidation;
(ii) the Board of Directors or shareholders of the Company
approve the sale of substantially all of the assets
of the Company or the liquidation or dissolution of
the Company;
(iii) any person or other entity (other than the Company or
a subsidiary or any Company employee benefit plan
(including any trustee of any such plan acting in its
capacity as trustee)) purchases any shares of capital
stock of the Company (or securities convertible to
capital stock) pursuant to a tender or exchange offer
without the prior consent of the Board of Directors,
or becomes the beneficial owner of securities of the
Company representing thirty percent (30%) or more of
the voting power of the Company's outstanding
securities;
(iv) during any two-year period, individuals who are at
the beginning of such a period constitute the entire
Board of Directors cease to constitute a majority of
the Board of Directors, unless the election or the
nomination for election of each new director is
approved by at least two-thirds of the directors then
still in office who were directors at the beginning
of that period; or
(v) the individual serving as the Chief Executive Officer
of the Company on the date of this Agreement ceases
to serve (other than as a result of death or
disability) as the Chief Executive Officer, Co-Chief
Executive Officer, Chairman or Co-Chairman of the
Company or any surviving entity.
(h) The severance payments provided under this Agreement shall
constitute the exclusive payments due to Executive from, and the
exclusive obligation of, the Company if Executive's employment with the
Company is terminated, except for any benefits which may be payable to
Executive in normal course under any employee benefit plan of the
Company which provides benefits after the termination of employment.
(i) The obligation of the Company to make the severance
payments under this Agreement is conditioned on the execution and
delivery by Executive to the Company of a release, in form and
substance satisfactory to the Company, of any and all claims Executive
may have arising out of Executive's employment relationship with the
Company under federal, state or local law (other than any claim for
benefits which may be due to Executive in normal course under any
employee benefit plan of the Company which provides benefits after
termination of employment).
4
<PAGE> 7
[**Executive**]
(j) All payments to Executive shall be subject to withholding
on account of federal, state and local taxes as required by law.
2. COVENANT NOT TO COMPETE AND CONFIDENTIALITY.
(a) Executive acknowledges that as a key management
employee, Executive will be involved on a high level, in the
development, implementation and management of the Company's business
strategies and plans and that by virtue of Executive's unique and
sensitive position and special background, employment of Executive by a
competitor of the Company represents a serious competitive danger to
the Company, and the use of Executive's talent and knowledge and
information about the Company's business, strategies and plans can and
would constitute a valuable competitive advantage over the Company. In
view of the foregoing, Executive agrees that beginning on the date of
termination of Executive's employment with the Company and continuing
for a period of twelve (12) months following the month during which
termination occurred, Executive will not, directly or indirectly, do,
or cause to be done, any of the following:
(i) Own, manage, control or participate in the ownership,
management or control of, or be employed or engaged
by or otherwise affiliated with, any other person,
corporation, firm, or other business entity (such as
Staples or Office Depot) that competes with the
businesses of the Company or any of its subsidiaries
or affiliates as such businesses are conducted at
anytime and anywhere during Executive's employment
with the Company (the "Business"); provided, however,
that the ownership of not more than one percent (1%)
of the equity of any publicly-traded business entity
will not be deemed a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future
associate, employee, officer or agent of the Company
or any of its subsidiaries or affiliates in a
business that competes with the Business; or
(iii) Induce any person who is an associate, employee,
officer or agent of the Company or any of its
subsidiaries to terminate said relationship
(b) Executive agrees that from and after the date of this
Agreement, he will not disclose, divulge, discuss, disseminate, copy or
otherwise use or cause to be used any of the confidential, proprietary
or trade secret information (including, but not limited to, customer
lists, pricing lists or information, purchasing information, service
distribution methods, formulae, marketing research or other trade
secrets) of the Company or any of its subsidiaries or affiliates,
except in connection with his duties and responsibilities as an
executive of the Company.
(c) Executive expressly agrees and understands that the remedy
at law for any breach by him of this Section 2 will be inadequate and
that the damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, it is
5
<PAGE> 8
[**Executive**]
acknowledged that on adequate proof of his violation of any legally
enforceable provision of this Section 2, the Company will be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this Section 2
will be deemed to limit the Company's remedies at law or in equity for
any breach by Executive of any of the provisions of this Section 2.
(d) If Executive violates any legally enforceable provision of
this Section 2 as to which there is a specific time period during which
Executive is prohibited from taking certain actions or from engaging in
certain activities, as set forth in such provision, then, in such
event, such violation will toll the running of such time period from
the date of such violation until such violation ceases.
(e) If Executive violates any provision of this Section 2,
then the obligation of the Company to make the severance payments to
Executive will terminate and Executive will not be entitled to any
further severance payments.
(F) EXECUTIVE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT
OF THE RESTRICTIONS ON HIM AND THE RIGHTS AND REMEDIES CONFERRED ON THE
COMPANY UNDER THIS SECTION 2 AND HEREBY ACKNOWLEDGES AND AGREES THAT
THE SAME ARE REASONABLE IN TIME AND TERRITORY, ARE DESIGNED TO
ELIMINATE COMPETITION WHICH OTHERWISE WOULD BE UNFAIR TO THE COMPANY
AND ITS SUBSIDIARIES, DO NOT STIFLE HIS INHERENT SKILL AND EXPERIENCE,
WOULD NOT OPERATE AS A BAR TO HIS SOLE MEANS OF SUPPORT, ARE FULLY
REQUIRED TO PROTECT THE LEGITIMATE INTERESTS OF THE COMPANY AND ITS
SUBSIDIARIES AND DO NOT CONFER A BENEFIT ON THE COMPANY
DISPROPORTIONATE TO THE DETRIMENT TO HIM.
3. EMPLOYMENT AT WILL. Executive understands and agrees that this
Agreement does not constitute a contract of employment for a fixed term.
Executive acknowledges that he is free to resign from employment, and the
Company is free to terminate his employment, at any time for any reason.
4. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association then
pertaining in the City of Cleveland, Ohio, and judgment upon the award rendered
by the arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 4 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
Executive of any of his covenants contained in Section 2 above.
5. NOTICE. Notices, demands and all other communications provided for
in this Agreement shall be in writing and will be deemed to have been duly given
when delivered, if delivered personally, or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, and when received if
delivered otherwise, and if mailed to the Company, shall be addressed to its
principal place of business, attention: General Counsel, and if mailed to
Executive, shall be addressed to Executive at his home address last shown on the
records of the
6
<PAGE> 9
[**Executive**]
Company, or to such other address as any party may have furnished to the other
in writing, except that notices of change of address will be effective only on
receipt.
6. SEVERABLE PROVISIONS. The provisions of this Agreement are severable
and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction shall,
nevertheless, be binding and enforceable.
7. GENERAL PROVISIONS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the parties hereto. No waiver by either party to this
Agreement at any time of any breach by the other party of, or compliance with,
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement will be governed by the laws of
the State of Ohio without regard to its conflicts of law principles.
8. NUMBER; GENDER. Whenever the context so requires, the singular
pronoun shall include the plural and the plural shall include the singular, and
the gender of any pronoun shall include the other genders.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
10. HEADINGS. The headings of paragraphs are included solely for
convenience of reference only and are not part of this Agreement and will not be
used in construing it.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties in respect of the subject matter contained in this Agreement and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party; and any prior agreement of the
parties in respect of the subject matter contained in this Agreement is
terminated and canceled.
7
<PAGE> 10
[**Executive**]
IN WITNESS WHEREOF, the parties have executed this Severance Agreement
as of the date first above written.
OFFICEMAX, INC.
By:
---------------------------------------
Michael Feuer
Chairman and Chief Executive Officer
"EXECUTIVE"
------------------------------------
[FirstName] [LastName]
8
<PAGE> 11
SEVERANCE AGREEMENT
FORM B
<PAGE> 12
[Executive]
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of the ____ day of
_________, 199___, between [FirstName] [LastName], an individual ("Executive"),
and OfficeMax, Inc., an Ohio corporation (the "Company").
RECITALS:
A. The Company and Executive desire to enter into this Agreement to
establish certain severance and change in control arrangements between the
Company and Executive on the terms and conditions set forth in this Agreement.
B. The Company and Executive are entering into this Agreement as an
additional benefit to be provided to Executive as part of the enhancements made
to Executive's overall compensation package in connection with Executive's
annual performance review.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises, the covenants and
promises made herein to be kept and performed, and the benefits to be derived by
Executive under this Agreement, the parties agree as follows:
1. SEVERANCE PAYMENTS.
(a) Subject to the terms and conditions set forth below, if
Executive's employment with the Company is terminated by the Company
(other than for "Cause" or "Disability" (each as described below)), or
if Executive terminates his employment with the Company for Good Reason
and if, in either case, such termination occurs within twenty-four (24)
months of the date of a "Change in Control" (as described below), then
the Company shall pay to Executive the following:
(i) Executive's monthly base salary through the end of
the month during which termination occurred, plus all
other unpaid amounts, if any, to which Executive is
entitled as of the date of termination; and
(ii) Commencing in the month following the month in which
termination occurs, twelve (12) monthly severance
payments in an amount equal to Executive's monthly
base salary as of the date of termination (such
monthly payments to be made on or about the 15th day
of each month); provided, however, if, following
termination of Executive's employment with the
Company, Executive violates and provision of Section
2 of this Agreement, then the Company's obligation to
make severance payments to Executive will terminate.
<PAGE> 13
[Executive]
(b) If Executive's employment with the Company is terminated
because of Executive's retirement or death or is terminated by the
Company for Cause or Disability, or if the Executive terminates his
employment for other than Good Reason, then Executive shall not be
entitled to, and the Company shall not be required to make, any
severance payments.
(c) Termination by the Company for "Cause" means termination by
the Company based on any of the following acts or omissions by
Executive, whether directly or indirectly:
(i) a violation of any policy of the Company that causes
material injury to the Company;
(ii) an act of fraud, embezzlement, theft or any other
material violation of law which interferes with
Executive's ability to perform Executive's duties
and responsibilities;
(iii) wrongful damage to material assets of the Company;
(iv) wrongful disclosure of confidential information of
the Company;
(v) wrongful engagement in any competitive activity
which would constitute a breach of the duty of
loyalty;
(vi) failure or refusal to perform, or gross negligence
in the performance of, Executive's duties and
responsibilities; or
(vii) making unauthorized comments to the media regarding
the Company.
(d) Termination by the Company for "Disability" means
termination by the Company based on the inability of Executive to
perform his duties and responsibilities as a result of the Executive's
illness (either physical or mental) or other incapacity for a total of
one hundred twenty (120) days during any twelve (12) month period.
(e)Termination by Executive for "Good Reason" means termination
by Executive based on the occurrence of any of the following
circumstances without Executive's express written consent:
(i) a reduction in either Executive's annual rate of
base salary or level of participation in any bonus
or incentive plan for which he is eligible (other
than as part of a salary reduction or changes in
bonus or incentive plans generally imposed on all
executive officers of the Company);
(ii) an elimination or reduction of Executive's
participation in any benefit plan generally
available to executive officers of the Company,
unless the Company
2
<PAGE> 14
[Executive]
continues to offer Executive benefits substantially
similar to those made available by such plan;
provided, however, that a change to a plan in which
executive officers of the Company generally
participate, including termination of any such plan,
if it does not result in a proportionately greater
reduction in the rights of or benefits to Executive
as compared with the other executive officers of the
Company or is required by law or a technical change,
will not be deemed to be Good Reason;
(iii) failure of any successor (whether direct or indirect,
by purchase of stock or assets, merger, consolidation
or otherwise) to the Company to assume the Company's
obligations under this Agreement or failure by the
Company to remain liable to Executive under this
Agreement after an assignment by the Company of this
Agreement; or
(iv) a transfer of Executive's principal business office
to a location outside of the area where the function
for which Executive is responsible is performed.
Executive's right to terminate his employment pursuant to this
paragraph (e) will not be affected by Executive's incapacity due to
physical or mental illness. Executive's continued employment will not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason; provided, however, that
Executive will be deemed to have waived his rights pursuant to
circumstances constituting Good Reason if he has not provided to the
Company a written notice of termination to the Company within ninety
(90) days following his knowledge of the circumstances constituting
Good Reason.
(f) For purposes of this Agreement, "Change in Control" means
the occurrence of any of the following:
(i) the Board of Directors or shareholders of the
Company approve a consolidation or merger that
results in the shareholders of the Company
immediately prior to the transaction giving rise to
the consolidation or merger owning less than 50% of
the total combined voting power of all classes of
stock entitled to vote of the surviving entity
immediately after the consummation of the
transaction giving rise to the merger or
consolidation;
(ii) the Board of Directors or shareholders of the
Company approve the sale of substantially all of the
assets of the Company or the liquidation or
dissolution of the Company;
(iii) any person or other entity (other than the Company
or a subsidiary or any Company Executive benefit
plan (including any trustee of any such plan acting
in its capacity as trustee)) purchases any shares of
capital stock of the Company (or securities
convertible to capital stock) pursuant to a tender
or exchange offer without the prior consent of the
Board of Directors, or becomes the beneficial owner
of securities of the Company representing thirty
percent (30%) or more of the voting power of the
Company's
3
<PAGE> 15
[Executive]
outstanding securities;
(iv) during any two-year period, individuals who are at
the beginning of such a period constitute the entire
Board of Directors cease to constitute a majority of
the Board of Directors, unless the election or the
nomination for election of each new director is
approved by at least two-thirds of the directors
then still in office who were directors at the
beginning of that period; or
(v) the individual serving as the Chief Executive
Officer of the Company on the date of this Agreement
ceases to serve (other than as a result of death or
disability) as the Chief Executive Officer, Co-Chief
Executive Officer, Chairman or Co-Chairman of the
Company or any surviving entity.
(g) The severance payments provided under this Agreement shall
constitute the exclusive payments due to Executive from, and the
exclusive obligation of, the Company if Executive's employment with the
Company is terminated, except for any benefits which may be payable to
Executive in normal course under any Executive benefit plan of the
Company which provides benefits after the termination of employment.
(h) The obligation of the Company to make the severance
payments under this Agreement is conditioned on the execution and
delivery by Executive to the Company of a release, in form and
substance satisfactory to the Company, of any and all claims Executive
may have arising out of Executive's employment relationship with the
Company under federal, state or local law (other than any claim for
benefits which may be due to Executive in normal course under any
Executive benefit plan of the Company which provides benefits after
termination of employment).
(i) All payments to Executive shall be subject to withholding
on account of federal, state and local taxes as required by law.
2. COVENANT NOT TO COMPETE AND CONFIDENTIALITY.
(a) Executive acknowledges that as a management employee,
Executive will be involved on a high level, in the development,
implementation and management of the Company's business strategies and
plans and that by virtue of Executive's unique and sensitive position
and special background, employment of Executive by a competitor of the
Company represents a serious competitive danger to the Company, and the
use of Executive's talent and knowledge and information about the
Company's business, strategies and plans can and would constitute a
valuable competitive advantage over the Company. In view of the
foregoing, Executive agrees that beginning on the date of termination
of Executive's employment with the Company and continuing for a period
of twelve (12) months following the month during which termination
occurred, Executive will not, directly or indirectly, do, or cause to
be done, any of the following:
(i) Own, manage, control or participate in the
ownership, management or control of, or be employed
or engaged by or otherwise affiliated with, any
other
4
<PAGE> 16
[Executive]
person, corporation, firm, or other business
entity (such as Staples or Office Depot) that
competes with the business of the Company or any of
its subsidiaries or affiliates as such businesses
are conducted at anytime and anywhere during
Executive's employment with the Company (the
"Business"); provided, however, that the ownership
of not more than one percent (1%) of the equity of
any publicly-traded business entity will not be
deemed a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future
associate, employee, officer or agent of the Company
or any of its subsidiaries or affiliates in a
business that competes with the Business; or
(iii) Induce any person who is an associate, employee,
officer or agent of the Company or any of its
subsidiaries to terminate said relationship
(b) Executive agrees that from and after the date of this
Agreement, he will not disclose, divulge, discuss, disseminate, copy or
otherwise use or cause to be used any of the confidential, proprietary
or trade secret information (including, but not limited to, customer
lists, pricing lists or information, purchasing information, service
distribution methods, formulae, marketing research or other trade
secrets) of the Company or any of its subsidiaries or affiliates,
except in connection with his duties and responsibilities as an
executive of the Company.
(c) Executive expressly agrees and understands that the remedy
at law for any breach by him of this Section 2 will be inadequate and
that the damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, it is acknowledged
that on adequate proof of his violation of any legally enforceable
provision of this Section 2, the Company will be entitled to immediate
injunctive relief and may obtain a temporary order restraining any
threatened or further breach. Nothing in this Section 2 will be deemed
to limit the Company's remedies at law or in equity for any breach by
Executive of any of the provisions of this Section 2.
(d) If Executive violates any legally enforceable provision of
this Section 2 as to which there is a specific time period during which
Executive is prohibited from taking certain actions or from engaging in
certain activities, as set forth in such provision, then, in such
event, such violation will toll the running of such time period from
the date of such violation until such violation ceases.
(e) If Executive violates any provision of this Section 2,
then the obligation of the Company to make the severance payments to
Executive will terminate and Executive will not be entitled to any
further severance payments.
(F) EXECUTIVE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT
OF THE RESTRICTIONS ON HIM AND THE RIGHTS AND REMEDIES CONFERRED ON THE
COMPANY UNDER THIS SECTION 2 AND HEREBY ACKNOWLEDGES AND AGREES THAT
THE SAME ARE REASONABLE IN TIME
5
<PAGE> 17
[Executive]
AND TERRITORY, ARE DESIGNED TO ELIMINATE COMPETITION WHICH OTHERWISE
WOULD BE UNFAIR TO THE COMPANY AND ITS SUBSIDIARIES, DO NOT STIFLE HIS
INHERENT SKILL AND EXPERIENCE, WOULD NOT OPERATE AS A BAR TO HIS SOLE
MEANS OF SUPPORT, ARE FULLY REQUIRED TO PROTECT THE LEGITIMATE
INTERESTS OF THE COMPANY AND ITS SUBSIDIARIES AND DO NOT CONFER A
BENEFIT ON THE COMPANY DISPROPORTIONATE TO THE DETRIMENT TO HIM.
3. EMPLOYMENT AT WILL. Executive understands and agrees that this
Agreement does not constitute a contract of employment for a fixed term.
Executive acknowledges that he is free to resign from employment, and the
Company is free to terminate his employment, at any time for any reason.
4. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association then
pertaining in the City of Cleveland, Ohio, and judgment upon the award rendered
by the arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 4 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
Executive of any of his covenants contained in Section 2 above.
5. NOTICE. Notices, demands and all other communications provided for
in this Agreement shall be in writing and will be deemed to have been duly given
when delivered, if delivered personally, or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, and when received if
delivered otherwise, and if mailed to the Company, shall be addressed to its
principal place of business, attention: General Counsel, and if mailed to
Executive, shall be addressed to Executive at his home address last shown on the
records of the Company, or to such other address as any party may have furnished
to the other in writing, except that notices of change of address will be
effective only on receipt.
6. SEVERABLE PROVISIONS. The provisions of this Agreement are severable
and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction shall,
nevertheless, be binding and enforceable.
7. GENERAL PROVISIONS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the parties hereto. No waiver by either party to this
Agreement at any time of any breach by the other party of, or compliance with,
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement will be governed by the laws of
the State of Ohio without regard to its conflicts of law principles.
8. NUMBER; GENDER. Whenever the context so requires, the singular
pronoun shall include the plural and the plural shall include the singular, and
the gender of any pronoun shall
6
<PAGE> 18
[Executive]
include the other genders.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
10. HEADINGS. The headings of paragraphs are included solely for
convenience of reference only and are not part of this Agreement and will not be
used in construing it.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties in respect of the subject matter contained in this Agreement and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, Executive or representative of any party; and any prior agreement of
the parties in respect of the subject matter contained in this Agreement is
terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Severance Agreement
as of the date first above written.
OFFICEMAX, INC.
By:
-----------------------------------------
Michael Feuer
Chairman and Chief Executive Officer
"EXECUTIVE"
---------------------------------------------
[FirstName] [LastName]
7
<PAGE> 1
EXHIBIT 10.12
I. Executive Officers party to Severance Agreement (Form A):
John C. Martin
James P. Mastrian
Mark L. Keschl
II. Executive Officers party to Severance Agreement (Form B):
Edward L. Cornell
Jeffrey L. Rutherford
Ross H. Pollock
Douglas J. Schwinn
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-85994) of OfficeMax, Inc. of our report dated
March 3, 1998 appearing on page 20 of the Annual Report on Form 10-K for the
year ended January 24, 1998.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
April 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
JANUARY 24, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000929428
<NAME> OFFICEMAX, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-24-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JAN-24-1998
<CASH> 66,801
<SECURITIES> 0
<RECEIVABLES> 39,058
<ALLOWANCES> 837
<INVENTORY> 1,086,228
<CURRENT-ASSETS> 1,228,505
<PP&E> 479,818
<DEPRECIATION> 167,965
<TOTAL-ASSETS> 1,905,993
<CURRENT-LIABILITIES> 666,986
<BONDS> 0
0
0
<COMMON> 861,991
<OTHER-SE> 298,654
<TOTAL-LIABILITY-AND-EQUITY> 1,905,993
<SALES> 3,765,444
<TOTAL-REVENUES> 3,765,444
<CGS> 2,895,084
<TOTAL-COSTS> 2,895,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 146,431
<INCOME-TAX> 56,811
<INCOME-CONTINUING> 89,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,620
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORMS 10-Q
FOR THE PERIODS ENDED APRIL 26, 1997, JULY 26, 1997, AND OCTOBER 25, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS IS
A RESTATED FINANCIAL DATA SCHEDULE.
</LEGEND>
<RESTATED>
<CIK> 0000929428
<NAME> OFFICEMAX, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JAN-24-1998 JAN-24-1998 JAN-24-1998
<PERIOD-START> JAN-26-1997 JAN-26-1997 JAN-26-1997
<PERIOD-END> APR-26-1997 JUL-26-1997 OCT-26-1997
<CASH> 133,203 48,353 80,585
<SECURITIES> 0 0 0
<RECEIVABLES> 59,244 68,302 82,278
<ALLOWANCES> 762 749 845
<INVENTORY> 891,568 949,116 1,097,583
<CURRENT-ASSETS> 1,114,757 1,093,736 1,286,080
<PP&E> 289,024 298,969 304,755
<DEPRECIATION> 128,932 142,480 157,480
<TOTAL-ASSETS> 1,756,749 1,763,277 1,960,698
<CURRENT-LIABILITIES> 603,304 604,751 771,235
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 855,237 856,207 856,730
<OTHER-SE> 225,478 228,116 259,784
<TOTAL-LIABILITY-AND-EQUITY> 1,756,749 1,763,277 1,960,698
<SALES> 888,640 1,664,784 2,657,149
<TOTAL-REVENUES> 888,640 1,664,784 2,657,149
<CGS> 688,869 1,293,254 2,050,206
<TOTAL-COSTS> 688,869 1,293,254 2,050,206
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 25,702 29,705 81,068
<INCOME-TAX> 9,972 11,525 31,453
<INCOME-CONTINUING> 15,730 18,180 49,615
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,730 18,180 49,615
<EPS-PRIMARY> .13 .15 .40
<EPS-DILUTED> .13 .15 .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED OCTOBER 26, 1996, AND FROM FORM 10-K FOR THE YEAR ENDED
JANUARY 25, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. THIS IS A RESTATED FINANCIAL DATA SCHEDULE.
</LEGEND>
<RESTATED>
<CIK> 0000929428
<NAME> OFFICEMAX, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JAN-25-1997 JAN-25-1997
<PERIOD-START> JAN-28-1996 JAN-28-1996
<PERIOD-END> OCT-26-1996 JAN-25-1997
<CASH> 197,266 258,111
<SECURITIES> 0 0
<RECEIVABLES> 64,924 24,933
<ALLOWANCES> 766 861
<INVENTORY> 855,193 894,407
<CURRENT-ASSETS> 1,142,207 1,205,281
<PP&E> 309,772 408,952
<DEPRECIATION> 105,540 116,084
<TOTAL-ASSETS> 1,701,753 1,867,270
<CURRENT-LIABILITIES> 619,702 731,901
<BONDS> 0 0
0 0
0 0
<COMMON> 853,299 854,094
<OTHER-SE> 180,445 209,470
<TOTAL-LIABILITY-AND-EQUITY> 1,701,753 1,867,270
<SALES> 2,212,508 3,179,274
<TOTAL-REVENUES> 2,212,508 3,179,274
<CGS> 1,727,046 2,489,016
<TOTAL-COSTS> 1,727,046 2,489,016
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 63,434 112,941
<INCOME-TAX> 24,803 44,136
<INCOME-CONTINUING> 38,631 68,805
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 38,631 68,805
<EPS-PRIMARY> .31 .56
<EPS-DILUTED> .31 .55
</TABLE>
