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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 22, 2000
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
OFFICEMAX, INC.
(Exact name of registrant as specified in its charter)
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OHIO 34-1573735
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
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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:
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Title of each class Name of each exchange on which registered
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COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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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 April 10, 2000 was approximately $675,761,892.
The number of Common Shares, without par value, of the registrant outstanding as
of April 10, 2000 was 112,626,982.
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TABLE OF CONTENTS
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Item No. Page No.
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Part I
1. Business 3
2. Properties 14
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
Part II
5. Market for Registrant's Common Shares and Related Shareholder Matters 16
6. Selected Financial Data 17
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
7A. Quantitative and Qualitative Disclosures About Market Risk 24
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants on Accounting and 24
Financial Disclosures
Part III
10. Directors and Executive Officers of the Registrant 25
11. Executive Compensation 27
12. Security Ownership of Certain Beneficial Owners and Management 30
13. Certain Relationships and Related Transactions 31
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32
Signatures 33
Exhibit Index 34
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Annual Report on Form 10-K (including information
incorporated by reference) include "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "anticipate," "project," "plan," "intend," "forecast," and
similar expressions, among others, identify "forward-looking statements," which
speak only as of the date the statement was made. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to materially differ from those made, projected or implied
in such statements. The most significant of such risks, uncertainties and other
factors are described in this report and Exhibit 99.1 to this Form 10-K. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
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PART I
ITEM 1. BUSINESS
GENERAL
OfficeMax, Inc. ("OfficeMax" or the "Company") is the largest operator
of high-volume, deep-discount office products superstores in the United States
in terms of the number of stores and breadth of geographic coverage. As of
January 22, 2000, OfficeMax operated 946 superstores in over 370 markets in 49
states, Puerto Rico and the U.S. Virgin Islands. OfficeMax also operates smaller
format OfficeMax PDQ(SM) stores. Additionally, the Company operates
OfficeMax.com(SM), its eCommerce business, primarily a business-to-business
Internet site, (at http://www.officemax.com) which offers a broad selection of
office products and business services via the Internet. Through joint venture
partnerships, OfficeMax operates international locations in Brazil, Japan and
Mexico. The Company has two national call centers and 19 delivery centers
throughout the United States and Puerto Rico to serve OfficeMax.com and the
Company's catalog and direct marketing business.
The typical full-size OfficeMax superstore is approximately 23,500
square feet and offers over 8,000 office products and related items. The layout
of the Company's eighth superstore iteration since inception, known within the
Company as "Millennium 8.0", focuses on the higher profit margin items of the
Company's office supply business. Within each superstore, prominent signage
highlights the Company's marketing concepts: Supplies (office supplies),
TechMax(R) (electronics, business machines, computers and related items),
CopyMax(SM) (print-for-pay services), and FurnitureMax(R) (office furniture).
OfficeMax.com, offers over 20,000 office products and an expanding
selection of business services. OfficeMax.com targets small business and home
office customers and offers many features to add to the site's convenience and
functionality such as express orders for frequently purchased products, usage
reporting, online order tracking, convenient order-by-number features and an
informational resource center. Additionally, OfficeMax.com visitors can take
advantage of @MaxSolutions, a small business resource center offering customers
an array of communications, eBusiness services, marketing and financial
services.
The Company markets its merchandise primarily to tiny, small and
medium-size businesses, home office customers and individual consumers. By
extending its marketing channels to include direct catalog and a commercial
sales force, OfficeMax also serves the larger corporate customer.
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The following table summarizes the Company's domestic superstore
opening activity by fiscal year, including Puerto Rico and the U.S. Virgin
Islands:
FISCAL STORES STORES STORES
YEAR OPENED CLOSED ACQUIRED TOTAL
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1988 3 - - 3
1989 8 - - 11
1990 23 - 12 46
1991 33 - - 79
1992 61 2 41 179
1993 53 9 105 328
1994 70 10 - 388
1995 80 - - 468
1996 96 - - 564
1997 150 1 - 713
1998 120 1 - 832
1999 115 1 - 946
Through its joint venture partnerships, the company has expanded
internationally by opening two superstores in fiscal year 1996, eight
superstores in fiscal year 1997, seven superstores in fiscal year 1998 and
seven superstores in fiscal year 1999.
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INDUSTRY OVERVIEW
Over the past approximately 12 years, the office products industry has
experienced rapid growth which the Company believes is attributable primarily to
a shift in the United States economy to become more service oriented and the
increasing utilization of technology, such as fax machines, cellular phones,
computers and the Internet. The Company believes that these trends will continue
to expand the office products industry and will create opportunities for
continued growth for operators of high-volume office products superstores such
as OfficeMax and for eCommerce sites offering office products and business
services such as OfficeMax.com.
Tiny, Small and Medium-Size Businesses and Consumer Markets. The
Company's target customers are tiny (one to four employees), small (five to 99
employees) and medium (100 to 300 employees) size businesses, along with home
office customers and individual consumers. Prior to the advent of the office
products superstore concept in the mid to late 1980's, these markets were 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' suggested retail 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 300 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. 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 at a "contracted" rate.
BUSINESS SEGMENTS
The Company has three business segments: the Core Business Segment, the
Computer Business Segment and the OfficeMax.com Segment. The operations of the
Company's retail stores, call centers and outside sales force are included in
either the Core Business Segment or the Computer Business Segment. The Core
Business Segment includes office supplies, business machines, peripherals,
print-for-pay services and office furniture. The Computer Business Segment
includes desktop and laptop personal computers and computer monitors. The
OfficeMax.com Segment represents the operations of the Company's Internet site.
CORE AND COMPUTER BUSINESS SEGMENTS
Business Strategy
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Core Business Segment. The Company's strategy for its Core Business Segment is
to enhance market share, be a leading provider of office products, supplies and
services in each of the markets in which it competes and continue expanding into
new markets, including international expansion. The key elements of this
strategy are as follows:
- Extensive Selection of Merchandise in an Easy-to-Shop
Presentation. Each OfficeMax superstore offers over 8,000 stock keeping
units ("SKUs") of quality, name-brand and private-label merchandise.
This offering represents a breadth and depth of in-stock items that are
not available from traditional office products retailers, mass
merchandisers or wholesale clubs. The Company's merchandise
presentation is highlighted by wide aisles with open ceilings, bright
lighting, colorful signage and bold graphics. This easy-to-shop
presentation is designed
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to enhance customer convenience, create an enjoyable shopping
experience 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 between a lower
advertised price and the price paid at OfficeMax within seven days of
the original purchase. 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, Inc.
("Office Depot"). The 155% Low Price Guarantee does not apply to a
variety of electronic and digital products such as printers, digital
photography and computers.
- Customer Service. To develop and maintain customer loyalty,
OfficeMax emphasizes a customer-centric culture that focuses associates
on making customer service their number one priority. The Company views
the quality of its customers' interaction with its associates as
critical to its success. To 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 United States 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
superstores and relevant demographic information, such as the number of
businesses and the income and education levels in the area.
- Marketing Concepts. During the last five years, OfficeMax
has launched in-store marketing concepts that complement the Company's
supplies "module" by providing additional products and services to the
Company's customers and an opportunity for incremental store traffic.
These concepts include the departments or "in-store modules", TechMax,
CopyMax and FurnitureMax. TechMax features the latest in communication
and electronics products. CopyMax offers customers a wide range of
"print-for-pay" services, from self-service black and white copying to
full service digital printing and publishing. FurnitureMax provides an
expanded furniture selection and specialized services.
During fiscal year 1998, the Company opened and began testing
its first OfficeMax PDQ store. Three additional OfficeMax PDQ stores
were opened during fiscal year 1999. This unique "quick-shop" format
includes a reduced Supplies module of over 3,000 commodity-type office
products and a full-service CopyMax module. The OfficeMax PDQ format is
designed to allow the Company to more economically penetrate urban
locations in both domestic and international markets and is appropriate
for office park complexes, office buildings and on, or near, college
campuses. These concepts are discussed in greater detail under the
headings "Stores" and "Expansion."
- Non-Store Retailing. The Company's strategy for its catalog
business is to capitalize on the OfficeMax brand name awareness by
providing other channels giving the OfficeMax customer more purchasing
options. A full assortment catalog of all the items found in OfficeMax
superstores plus a variety of merchandise available from a third party
distributor allows customers the convenience of catalog ordering and
next business day delivery. The Company also provides special order
catalogs containing more than 20,000 items to meet our customers'
needs. As many of the OfficeMax small business customers grow, they
take advantage of these purchasing options. In conjunction with its
catalog business, OfficeMax has a commissioned sales force focusing on
the medium-size business customer.
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- International Opportunities. During fiscal year 1999, the
Company opened four OfficeMax superstores in Mexico through its
majority-owned joint venture with Grupo Oprimax, S.A. de C.V., a Mexico
corporation, ending the year with 16 superstores in Mexico. In fiscal
year 2000, this joint venture plans to open up to nine more superstores
and one OfficeMax PDQ store in Mexico. During fiscal year 1999, the
Company opened two superstores in Brazil through a joint venture with
Max Empreendimentos E Participacoes S/C Ltda., a Brazil company. The
Brazilian joint venture plans to open as many as six superstores during
fiscal year 2000. OfficeMax owns a 19% interest in the Brazilian joint
venture. OfficeMax superstores and OfficeMax PDQ stores operated by
these joint ventures are similar to those operated by the Company
domestically. The Company plans to begin the process of establishing
additional joint venture partnerships in Asia and South America during
fiscal year 2000. Ultimately, the Company's international expansion
will depend upon general economic and business conditions affecting
consumer spending in these markets, the availability of desirable store
locations, the negotiation of acceptable terms and the availability of
adequate capital.
The Company's joint venture with JUSCO Company Ltd., a Japan
corporation, operated six superstores and one OfficeMax PDQ store at
January 22, 2000. Because of very difficult economic conditions in
Japan, financial considerations and operational strategy changes by
JUSCO, the Company's Japanese joint venture partner presently does not
plan to open any new stores during fiscal year 2000 and the Company is
in discussions with JUSCO regarding the future of the existing stores.
The Company owns a 19% interest in the Japanese joint venture. During
fiscal year 1999, the Company wrote-off its investment of approximately
$1,700,000 in the joint venture.
Computer Business Segment. In response to dramatic declines in retail
prices of computers and reduced and limited gross margin resulting from the
promotional nature of the computer business, the Company is developing a new
operating model for its Computer Business Segment.
- Realigning the Computer Business Segment/the Gateway
Alliance. During fiscal year 1999, the Company reduced its number of
computer vendors to two sources and began a seven-market test with IBM,
in which the Company exclusively offered IBM personal computers,
laptops, monitors and servers. During the first quarter of fiscal year
2000, the Company terminated its relationship with IBM and announced
its plans to enter into a strategic alliance with Gateway Companies
Inc., ("Gateway"). Under the terms of a master license agreement,
Gateway will operate a licensed "store-within-a-store" computer
department inside all OfficeMax superstores in the United States, an
industry exclusive. The department will offer products consistent with
the Company's current Computer Business Segment, including computers,
monitors and related products and services. Accordingly, the Company
will phase out operations of its Company owned and operated computer
departments. The store-within-a-store rollout began in March 2000 and
is expected to be complete by the end of the first quarter of fiscal
year 2001. This alliance is described in greater detail in Note 15 of
the Notes to Consolidated Financial Statements.
Marketing, Promotions and Advertising
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The marketing efforts of the Company's Core and Computer Business
Segments are directed at tiny, 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, service and selection
message to existing customers. These campaigns include national television
commercials, newspaper ads, seasonal spot television and radio commercials,
direct mail promotions, circulars, and outdoor billboards, sports arena and
similar signage.
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-Business
period.
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OfficeMax also conducts extensive customer research to gauge the
appropriateness of the products and services the Company offers. This research
is utilized to develop innovative solutions for OfficeMax's tiny, small business
and home office customers while tailoring specific product messages to
communicate with each of its target customer groups.
Stores
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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 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, "Millennium 8.0", is characterized by a heightened merchandise focus
on the core Supplies module along with enhanced visual acuity throughout the
store. Within each superstore, prominent signage highlights the Company's
marketing concepts: Supplies (office supplies), TechMax (communication and
electronics products), CopyMax (print-for-pay services), and FurnitureMax
(office furniture). Management believes that attractive and up-to-date stores
contribute to customer satisfaction and loyalty, leading to increased sales. The
Company plans to remodel approximately twenty superstores during fiscal year
2000.
The Company's Supplies modules feature office products, including writing
instruments, paper, filing supplies, business forms and other supplies.
TechMax showcases the latest in communications and electronics products
and features specially trained associates to assist the customer.
Introduced in July 1995, the in-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 desktop 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 in-store modules averaging approximately 900 square feet.
Today, 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. The Company is currently piloting
a web-based solution for remote document submission that is expected to be
installed in all of the Company's locations by the end of fiscal year 2000.
Another in-store module, FurnitureMax, features an extensive selection of
office furniture ranging from ready-to-assemble products 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.
Expansion
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Tiny, Small and Medium-Size Business Market. The Company's expansion
strategy primarily focuses on new store growth and its marketing concepts. The
Company opened 115 superstores in fiscal year 1999 and intends to continue its
rapid growth by opening approximately 50 to 75 additional full-size superstores,
an additional distribution facility in the United States and will continue to
test the OfficeMax PDQ concept in fiscal year 2000. The Company's fiscal year
2000 international expansion plans may include opening up to 20 superstores in
Brazil and Mexico plus launching the process of establishing additional joint
ventures in Asia and South America.
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Large Business Market. OfficeMax has undertaken several initiatives to
better serve the needs of its larger customers, predominately through its
commercial sales group. 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 free next business day delivery on orders over $50. In
addition, the Company employs a commercial sales force to attract new customers
as well as maintain existing customer relationships. The Company continues to
develop a network of delivery centers in the major markets OfficeMax serves. In
contrast to the tiny, 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.
Customer Service
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The Company believes that a fundamental element of its success is its
customer-centric 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 strives
to attract and retain 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 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 training 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.
Management Information Systems
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During fiscal year 1998, OfficeMax began the implementation of SAP, a
leading Enterprise Resource Planning ("ERP") system being used by approximately
15,000 companies worldwide, including many Fortune 500 companies. As OfficeMax
has grown substantially and rapidly over the past 12 years, the legacy
information systems necessary to support such growth have become outmoded. SAP
will provide a flexible, consolidated, enterprise-wide system that will provide
real-time information necessary to make informed and strategic business
decisions and to react quickly to critical store-level information. The Company
believes an integrated system will enable the Company to grow and operate the
business more effectively.
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. With the availability and price performance advantage of
larger Sun Microsystems Servers, as well as the implementation of SAP, the
Company will consolidate its systems and simplify systems management with fewer,
larger systems. This technology also provides "scalability," the ability to
support growth within the same platform.
The Company converted to the SAP Human Resource and Finance modules
during fiscal year 1998 and fiscal year 1999, respectively. During fiscal year
2000, OfficeMax expects to convert to the SAP Retail and Merchandising System.
OfficeMax has made significant investments in the last several years to upgrade
systems and processes 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 specific product
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 records. This information
is transmitted on a daily basis to corporate headquarters, where it is evaluated
and used in merchandising and
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replenishment decisions. In addition, StoreMax is used to transmit data to each
store providing information that is key for day-to-day operations.
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 also utilizes its own intranet, known as @MaxSM, which
provides information on demand to all of the Company's Corporate and Field
Management associates.
OfficeMax is currently developing a program to network its entire chain
of superstores via the Internet. In addition to providing a medium through which
the organization may internally communicate, the test also calls for the
installation of in-store kiosks through which OfficeMax retail superstore
customers can conveniently access OfficeMax.com's more than 20,000 office
products and business services.
OFFICEMAX.COM SEGMENT
Launched in March 1995, OfficeMax.com, located on the Internet at
http://www.officemax.com, is the Company's electronic marketplace for office
products as well as services tailored specifically for businesses with fewer
than 100 employees and income-generating home offices.
Business Strategy
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The Company believes that the Internet is an increasingly important
medium for the sale of office products and the provision of business services.
OfficeMax.com offers over 20,000 office products coupled with free next
business day delivery on orders over $50 for most locations. OfficeMax.com also
offers an expanding range of integrated business services targeted at small
business and home office customers. OfficeMax.com visitors can also take
advantage of the SoftwareSupersite@OfficeMax, which offers over 17,000 Windows,
Macintosh and Palm Top software titles available for immediate purchase via
electronic downloading as well as regular delivery.
@MaxSolutions offers OfficeMax.com customers an array of Internet-enabled
services and solutions targeted at small businesses. This offering includes
communications, eBusiness utilities, marketing and financial services.
As part of the alliance between the Company and Gateway,
OfficeMax.com's web site will be featured through an icon and hot link on
personal computers sold by Gateway to small businesses and consumers in the
United States during the next five years. Gateway will also have the exclusive
right to market and sell computers and related products on OfficeMax.com.
Marketing, Promotion and Advertising
------------------------------------
OfficeMax.com utilizes marketing initiatives aimed at acquiring small
business customers, increasing traffic and site awareness. These initiatives
include traditional, offline advertising mediums including national broadcast
media, billboards, targeted print advertising and direct mail. Online marketing
efforts include MaxMail, a permission-marketing program distributed weekly via
the Internet, and Netcentives, a loyalty program offering "ClickMiles"
redeemable for airline frequent flier miles. OfficeMax.com is also marketed
through affiliate partnerships with numerous portals and small business portals
as well as through OfficeMax retail stores.
Web Site Design
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OfficeMax.com is available 24 hours a day, 7 days-a-week, from anywhere
with Internet access, enabling customers to shop at their convenience. The web
site is designed for easy navigation by product category, vendor serial number,
or customer's previous purchases. Furthermore, customers can track orders, check
product availability and receive e-mail confirmation of orders placed.
Within the first half of fiscal year 2000, the site will be converted to
Broadvision's One-to-One Enterprise Platform. This enhancement in technology
will allow OfficeMax.com to conduct more tailored, one-to-one marketing with its
online customers providing for a more personalized online shopping experience.
Customer Service
----------------
OfficeMax.com customers receive 24 hours a day, 7 days-a-week customer
service and support through its dedicated personnel at the Company's call
centers located in Cleveland, Ohio and Dallas, Texas. Customer service
representatives communicate with customers via e-mail and toll-free telephone
lines. In addition, OfficeMax.com customers can address their questions to the
Company's store associates or delivery personnel and can return merchandise to
any of the Company's retail stores.
Management Information Systems
------------------------------
OfficeMax.com employs a variety of scalable and reliable software and
hardware systems for transaction processing, administration, searching, customer
support, fulfillment and order tracking. The transaction processing systems are
integrated with the Company's order management, payment processing,
distribution, accounting and financial systems. Internal development efforts are
focused on creating, enhancing and integrating proprietary software and services
delivered through the web site.
OfficeMax.com's systems are based on industry standard architectures.
The backbone of the technology structure consists of Oracle database servers
with Sun Microsystem's hardware. OfficeMax.com's Internet systems are hosted at
an Exodus Communications facility, which provides high-speed, redundant
communications lines, emergency power backup and continuous systems monitoring.
Load balancing systems and redundant servers have been put in place to provide
for fault tolerance and fully redundant systems providing for no single point of
failure in the event of outages or catastrophic events.
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. The following table sets forth the approximate percentage
of net sales attributable to each merchandise group for the periods presented:
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FISCAL YEAR ENDED JANUARY 22, JANUARY 23, JANUARY 24,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office supplies, including "print-for-pay" services 38.1% 37.7% 37.4%
Electronics and business machines 22.6 23.2 23.3
Office furniture 12.8 12.6 11.8
Printers, software, peripherals and related consumable 20.6 18.7 15.9
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C> <C> <C>
products such as printer cartridges and ribbons
--------------- --------------- ---------------
Total Core Business and OfficeMax.com Segments 94.1 92.2 88.4
Desktop and laptop personal computers and computer
monitors (Computer Business Segment) 5.9 7.8 11.6
--------------- --------------- ---------------
Total Company 100.0% 100.0% 100.0%
=============== =============== ===============
</TABLE>
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 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 opportunities to maximize profits and to provide
customers with enhanced values. The Company also includes its toll-free
telephone number on the packaging of certain commodity and private label goods
to increase repeat sales as commodity goods are used and replenished.
In addition to the office products offered on the OfficeMax.com site,
OfficeMax.com offers an expanding range of business services targeted at small
businesses. OfficeMax.com is able to offer these services through alliances with
numerous strategic partners. In fiscal year 2000, OfficeMax.com expects to add
new services for its business customers through additional strategic alliances
and to integrate them with existing services to create value added solutions for
its customers.
PURCHASING AND DISTRIBUTION
OfficeMax maintains a centralized group of merchandise and category
managers who average approximately 20 years of retail buying and merchandising
experience. Using a detailed merchandise planning system, this group selects the
product mix for each store in conjunction with systematic, frequent input from
field management and store personnel.
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 OfficeMax'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. As the Company owned and
operated computer departments are converted to Gateway licensed
store-within-a-store departments, the Company will no longer maintain an
inventory of computers.
The Company has two national call centers and 19 delivery centers
throughout the United States and Puerto Rico to serve OfficeMax.com and its
catalog and direct marketing business. During fiscal year 1999, the Company
opened its PowerMax distribution facility in Hazelton, Pennsylvania. The
facility is the second in a planned national network of 600,000 to
750,000-square-feet, supply-chain distribution centers. The first PowerMax
facility, a smaller concept facility, was opened in Las Vegas, Nevada in fiscal
year 1998. The third facility in the network is scheduled to open in the second
quarter of fiscal year 2000 in Bessimer, Alabama.
COMPETITION
The office products industry, which includes national superstore
chains, "e-tailers" 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 superstore-type
competitors, Staples and Office Depot, which are similar to the Company in terms
of store format, pricing strategy and
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<PAGE> 13
product selection. Of the approximately 20 office products superstore chains
that were launched in the U.S. between 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 all three office product superstore chains
expand their operations in the same markets. The Company believes that its
stores compete favorably with Staples and Office Depot through consistent
execution of its business strategy, the components of which are designed to
differentiate OfficeMax from Staples and Office Depot.
OfficeMax.com competes with the eCommerce sites of its direct
competitors as well as other e-tailers, such as Office.com,
Onlineofficesupplies.com and Atyouroffice.com. The Company believes it competes
favorably with these sites due to its strong brand name and innovative product
and service offerings as well as economies of scale and other advantages it has
from the Company's existing stores and customer service infrastructure,
including 19 delivery centers and two national call centers.
OfficeMax's indirect competitors include traditional office product
retailers, electronics superstore retailers, mass merchandisers, wholesale
clubs, and direct mail operators in respect to various product categories. The
Company believes these non-superstore competitors do not provide all of the
customer benefits that an office products superstore has to offer such as
one-stop shopping convenience, discount prices and a full range of ancillary
business services.
OfficeMax's Computer Business Segment competes with electronic
superstore retailers, such as CompUSA, Circuit City and Best Buy, and
direct-to-customer manufacturers, such as Dell. During the first quarter of
fiscal year 2000, the Company announced a strategic alliance whereby Gateway
will operate a licensed "store-within-a-store" computer department in all
OfficeMax stores. The department will offer products consistent with the
Company's current Computer Business Segment, including computers, monitors and
related products and services. Accordingly, the Company will phase out
operations of its Computer Business Segment over the next approximately one year
as the Company's in-store computer departments are converted to Gateway
store-within-a-store modules.
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 April 10, 2000, the Company had approximately 41,000 employees,
including 22,000 full time and 19,000 part-time associates, 1,600 of whom were
employed at its Corporate headquarters, divisional offices and call centers and
39,400 of whom were employed at OfficeMax stores and distribution and delivery
centers. None of the Company's associates is subject to a collective bargaining
agreement. Management believes that its relationship with its associates is
satisfactory.
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<PAGE> 14
ITEM 2. PROPERTIES
OfficeMax superstores are relatively immature. As of April 10, 2000,
the Company's stores had been open an average of 4.3 years operating under the
OfficeMax name and format. Of the Company's 969 superstores, 409 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 almost 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 April 10, 2000, OfficeMax had 969 superstores in 49 states,
Puerto Rico and the U.S. Virgin Islands. The following table details OfficeMax
superstores by state and territory:
Alabama 13 Nebraska 7
Alaska 3 Nevada 12
Arkansas 4 New Hampshire 4
Arizona 25 New Jersey 18
California 94 New Mexico 10
Colorado 21 New York 47
Connecticut 10 North Carolina 27
Delaware 2 North Dakota 3
Florida 60 Ohio 55
Georgia 31 Oklahoma 6
Hawaii 4 Oregon 13
Idaho 6 Pennsylvania 36
Illinois 49 Rhode Island 3
Indiana 21 South Carolina 10
Iowa 10 South Dakota 3
Kansas 11 Tennessee 25
Kentucky 10 Texas 77
Louisiana 12 Utah 14
Maine 2 Washington 19
Maryland 2 Virginia 21
Massachusetts 17 West Virginia 6
Michigan 47 Wisconsin 27
Minnesota 29 Wyoming 2
Mississippi 7 Puerto Rico 7
Missouri 23 U.S. Virgin Islands 1
Montana 3
The Company operates 19 delivery centers in 18 states and Puerto Rico,
two national call centers in Texas and Ohio and two PowerMax distribution
facilities in Nevada and Pennsylvania. The Company expects to begin operations
at a third PowerMax facility in Alabama during fiscal year 2000. The Company
occupies all of these facilities under various long-term leases.
The Company's corporate offices are located in two buildings in
Cleveland, Ohio. The Company owns one of these facilities subject to a mortgage-
secured loan and leases the second under a long-term lease. The Company believes
that its facilities are adequate to meet its current needs.
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<PAGE> 15
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. ("Ryder") 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 continues 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.
On March 24, 2000, Charles Miller and Great Neck Capital Appreciation,
L.P. initiated two separate, but virtually identical, purported class actions
against the Company and its directors. The cases, both filed in the Court of
Common Pleas for Cuyahoga County, Ohio, allege claims for interference with
shareholders' franchise rights against the Company and its directors and breach
of fiduciary duty against the directors relating to the adoption of a
shareholder rights plan on March 17, 2000. The cases are at their earliest
stages and discovery has not yet commenced. The Company believes that the cases
are without merit and intends to vigorously defend against the allegations set
forth in both complaints.
On April 7, 2000, Crandon Capital Partners initiated a purported class
action against the Company and its directors. The case, filed in the Court of
Common Pleas for Cuyahoga County, Ohio, also alleges claims for interference
with shareholders' franchise rights against the Company and its directors and
breach of fiduciary duty against the directors relating to the adoption of the
shareholder rights plan. The case is at its earliest stages and discovery has
not yet commenced. The Company believes that the case is without merit and
intends to vigorously defend against the allegations set forth in the complaint.
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
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The high and low sales prices of the Company's Common Shares during
each quarter of fiscal year 1998 and fiscal year 1999, as reported on the New
York Stock Exchange Consolidated Transaction reporting system, are listed below:
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---------------- ---- ---
<S> <C> <C>
1st Quarter (ended April 25, 1998) $19.625 $14.063
2nd Quarter (ended July 25, 1998) 19.563 13.875
3rd Quarter (ended October 24, 1998) 15.438 6.625
4th Quarter (ended January 23, 1999) 12.500 8.875
Fiscal Year 1999 High Low
---------------- ---- ---
1st Quarter (ended April 24, 1999) $10.813 $ 7.563
2nd Quarter (ended July 24, 1999) 12.125 9.000
3rd Quarter (ended October 23, 1999) 10.875 4.500
4th Quarter (ended January 22, 2000) 7.375 4.438
</TABLE>
The Company has never paid cash 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 April 10, 2000, the Company had 4,037 shareholders of record. On
April 10, 2000, the closing price of the Company's Common Shares was $6.00.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data as of and for the fiscal years ended January
22, 2000, January 23, 1999, January 24, 1998, January 25, 1997 and January 27,
1996 is set forth below:
<TABLE>
<CAPTION>
(Dollars in millions, except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
1999 (1) 1998 (2) 1997 1996 1995 (3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Sales $4,842.7 $4,337.8 $3,765.4 $3,179.3 $2,542.5
Cost of merchandise sold, including
buying and occupancy costs 3,653.8 3,284.6 2,895.0 2,489.0 1,970.5
Inventory markdown charge for item 77.4 -- -- -- --
rationalization
Computer segment asset write-off -- 80.0 -- -- --
Gross profit 1,111.5 973.2 870.4 690.3 572.0
Operating income 32.3 86.7 145.9 105.5 86.3
Net income 10.0 48.6 89.6 68.8 125.8
Earnings per common share:
Basic 0.09 0.40 0.73 0.56 1.06
Diluted 0.09 0.39 0.72 0.55 1.04
OTHER FINANCIAL AND OPERATING DATA
Percentage increase in sales 11.6% 15.2% 18.4% 25.0% 38.1%
Comparable-store sales increase (decrease) (0.4%) 0.4% 1.1% 11.0% 16.7%
End of period superstores 946 832 713 564 468
FINANCIAL POSITION
Working capital $ 469.1 $ 501.1 $ 561.5 $ 473.4 $ 499.4
Total assets 2,275.0 2,231.9 1,960.2 1,867.3 1,587.9
Total long-term debt, including capital
lease obligations 16.4 17.7 19.0 20.0 __
Shareholders' equity 1,116.0 1,138.1 1,160.6 1,063.6 990.9
</TABLE>
(1) In order to effect the acceleration of its supply-chain management
initiative and the implementation of the Company's new warehouse
management system, the Company decided to eliminate select current
products on hand as part of its program of merchandise and vendor
rationalization. In connection with this decision, the Company recorded a
non-cash, pre-tax markdown charge of $77,372,000 during fiscal year 1999.
For the year, the charge reduced net income by $49,518,000 or $0.43 per
diluted share.
(2) In conjunction with its decision to realign the Computer Business
Segment, the Company recorded a, non-cash, pre-tax charge of $79,950,000
during fiscal year 1998. The charge reduced after-tax, net income by
$49,889,000 or $0.41 per diluted share.
(3) Net income and earnings per common share in fiscal year 1995 includes a
$69.1 million, or $0.57 per diluted share, after-tax gain from the sale
of the Company's interest in Corporate Express, Inc.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Results
Consolidated sales in fiscal year 1999 advanced 11.6% to $4,842,698,000
from $4,337,768,000 in fiscal year 1998. This followed a 15.2% increase in
fiscal year 1998 from $3,765,444,000 in fiscal year 1997. The fiscal year 1999
increase in consolidated sales was primarily due to the full year's sales from
the 120 superstores opened during fiscal year 1998 and the additional partial
year's sales from 115 superstores opened during fiscal year 1999. Consolidated
comparable store sales decreased 0.4% during fiscal year 1999, primarily due to
a 21.9% decrease in the average selling prices of fax machines, printers and
copiers and a 31.2% comparable store sales decline experienced by the Company's
Computer Business Segment. The comparable store sales decrease experienced by
the Computer Business Segment was primarily due to a 15.2% decline in average
selling prices and less aggressive promotions. Consolidated comparable store
sales in fiscal year 1998 increased 0.4% from fiscal year 1997. The Company
opened 150 new superstores during fiscal year 1997.
Cost of merchandise sold, including buying and occupancy costs and
excluding the inventory markdown charge for item rationalization recorded during
fiscal year 1999 and the computer segment asset write-off recorded during fiscal
year 1998, decreased as a percentage of sales to 75.4% in fiscal year 1999 from
75.7% in fiscal year 1998 and 76.9% in fiscal year 1997. Correspondingly, gross
profit, excluding inventory markdown charge for item rationalization, was 24.6%
in fiscal year 1999, 24.3% excluding the computer segment asset write-off in
fiscal year 1998, and 23.1% in fiscal year 1997. The gross profit increases in
fiscal years 1999 and 1998 were primarily due to enhanced marketing of higher
margin office supply items in the Company's Core Business Segment. Including the
inventory markdown charge for item rationalization and the computer segment
asset write-off, cost of merchandise sold, including buying and occupancy costs,
was $3,731,155,000 or 77.0% of sales and $3,364,532,000 or 77.6% of sales for
fiscal years 1999 and 1998, respectively. Gross profit, including inventory
markdown charge for item rationalization and the computer segment asset
write-off was 23.0% of sales and 22.4% of sales for fiscal years 1999 and 1998,
respectively.
Store operating and selling expenses, which consist primarily of store
payroll, operating and advertising expense, increased to 19.2% of sales in
fiscal year 1999 from 17.6% of sales in fiscal year 1998 and 16.5% of sales in
fiscal year 1997. The increase in fiscal year 1999 was primarily due to costs
associated with the Company's decision to accelerate its supply-chain management
initiative. These costs include reduced income from vendor support programs and
increased costs related to the opening of the Company's PowerMax supply-chain
distribution facility in Hazelton, Pennsylvania. The Company also made a
decision to make an additional investment in payroll in order to increase
training for associates and improve customer service. The increase in fiscal
year 1998 was primarily due to the increase in the number of stores opened for
less than one year. New stores typically begin to leverage various fixed cost
components during their second or third year of operations as sales increase.
The increase in fiscal year 1998 was also attributable to costs incurred to
upgrade the Company's fleet of self-service copiers throughout all of the
Company's stores with enhanced CopyMax features.
Pre-opening expenses were $10,974,000, $11,851,000 and $15,512,000 in
fiscal years 1999, 1998 and 1997, respectively, primarily reflecting 115, 120
and 150 new superstore openings and pre-opening expenses of $1,000,000 and
$980,000 during fiscal years 1999 and 1998, respectively to open the Company's
PowerMax distribution facilities in Pennsylvania and Nevada. Pre-opening
expenses, which consist primarily of store payroll, supplies and grand opening
advertising, averaged approximately $85,000 per OfficeMax superstore during each
fiscal year presented. Pre-opening expenses increase when certain enhanced
CopyMax or FurnitureMax features are included in a superstore. During fiscal
year 1999, nine superstores were opened with enhanced CopyMax or FurnitureMax
features versus 12 and 103 superstores opened with enhanced CopyMax or
FurnitureMax features during fiscal years 1998 and 1997, respectively.
Pre-opening expenses for these enhanced features averaged approximately $30,000
per unit in the fiscal years presented.
General and administrative expenses increased as a percentage of sales to
2.7% in fiscal year 1999 from 2.3% and 2.1% in fiscal years 1998 and 1997,
respectively. This increase reflects the Company's continuing efforts to enhance
its
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<PAGE> 19
infrastructure to support planned growth both in the United States and
internationally, as well as costs for consulting services supporting the
Company's supply-chain management and operating productivity improvement
initiatives. The infrastructure enhancements include efforts to strengthen the
Company's management team and the Company's information technology ("IT")
initiatives. The Company is in the process of implementing the SAP system, a
fully integrated Enterprise Resource Planning platform that will automate and
integrate many of the Company's business processes. The Company converted to the
SAP Human Resource and Finance modules during fiscal years 1998 and 1999,
respectively. During fiscal year 2000, OfficeMax expects to convert to the SAP
Retail and Merchandising System.
Goodwill amortization was $9,418,000 in fiscal year 1999 and $9,390,000 in
fiscal years 1998 and 1997. Goodwill is capitalized and amortized over 10 to 40
years using the straight-line method.
As a result of the foregoing factors, operating income for fiscal year
1999, excluding the inventory markdown charge for item rationalization, was
$109,758,000 or 2.3% of sales, as compared to operating income for fiscal year
1998, excluding the computer segment asset write-off, of $166,642,000 or 3.8% of
sales. Including the inventory markdown charge for item rationalization recorded
in fiscal year 1999 and the computer segment asset write-off recorded in fiscal
year 1998, operating income was $32,386,000 or 0.7% of sales and $86,692,000 or
2.0% of sales in fiscal year 1999 and fiscal year 1998, respectively. Operating
income was $145,917,000 or 3.9% of sales in fiscal year 1997.
Interest expense was $10,146,000 and $5,971,000 in fiscal years 1999 and
1998, respectively, as compared to interest income of $518,000 in fiscal year
1997. The increase in interest expense in fiscal years 1999 and 1998 was
primarily due to increased borrowings used to fund the Company's expansion
plans, seasonal inventory requirements and stock repurchase program. Interest
income in fiscal year 1997 was primarily due 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. on September 10, 1995.
Other income (net), which consists primarily of royalty and equity income
from the Company's joint venture partnerships was $59,000 in fiscal year 1999
and $290,000 in fiscal year 1998, as compared to other expense (net) of $4,000
in fiscal year 1997. Other income (net) in fiscal year 1999 includes expense of
$1,700,000 to write-down the Company's investment in its Japanese joint venture
to its net realizable value.
Income taxes were $12,258,000 in fiscal year 1999, $32,391,000 in fiscal
year 1998 and $56,811,000 in fiscal year 1997 with effective tax rates of 55.0%,
40.0% and 38.8%, respectively. The effective tax rates for all three fiscal
years were different from the statutory income tax rate as a result of tax
exempt interest, state and local income taxes, and non-deductible goodwill
amortization expense.
As a result of the foregoing factors, net income for fiscal year 1999,
excluding the inventory markdown charge for item rationalization, was
$59,559,000 or 1.2% or sales. Net income for fiscal year 1998, excluding the
computer segment asset write-off, was $98,509,000 or 2.3% of sales. The
inventory markdown charge for item rationalization recorded during fiscal year
1999 reduced net income by $49,518,000. The computer segment asset write-off
recorded in fiscal year 1998 reduced net income by $49,889,000. Net income was
$89,620,000 in fiscal year 1997.
BUSINESS SEGMENTS
Core Business Segment
Sales for the Core Business Segment increased 13.1% to $4,518,514,000 in
fiscal year 1999 from $3,994,500,000 in fiscal year 1998. Sales for this
business segment increased 20.0% in fiscal year 1998 from $3,327,972,000 in
fiscal year 1997. The increase in fiscal year 1999 was due to the additional
stores opened in fiscal years 1999 and 1998 and a comparable-store sales
increase of 1.3%. Declines in average selling prices for fax machines, printers
and copiers reduced the Core Business Segment's comparable sales increase by
2.1%.
Cost of merchandise sold, including buying and occupancy costs and
excluding the inventory markdown charge for item rationalization, recorded
during fiscal year 1999, was 73.9% of sales in fiscal years 1999 and 1998, as
compared to 74.0% of sales in fiscal year 1997. Gross profit for the Core
Business Segment, excluding the inventory markdown
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<PAGE> 20
charge for item rationalization, was $1,180,052,000 and $1,042,208,000 or 26.1%
of sales in fiscal years 1999 and 1998, respectively, as compared to
$864,467,000 or 26.0% of sales in fiscal year 1997. The gross profit increase in
fiscal year 1998 was primarily due to the Company's chain-wide space
reallocation program which provided for expanding the office supply merchandise
assortment by nearly 1,000 SKUs and moving these products to a more prominent
position within the store. The decline in average selling price of fax machines,
printers and copiers partially offset the gains from the space reallocation
program. Gross profit including the inventory markdown charge for item
rationalization was $1,102,680,000 or 24.4% of sales in fiscal year 1999.
Operating income for the Core Business Segment, excluding the inventory
markdown charge for item rationalization, was $154,361,000 in fiscal year 1999
compared to $183,456,000 in fiscal year 1998. The decrease in operating income
in fiscal year 1999 was primarily due to costs associated with the Company's
decision to accelerate its supply-chain management initiative. These costs
include reduced income from vendor support programs and increased costs related
to the opening of the Company's PowerMax distribution facility in Hazelton,
Pennsylvania. Operating income for the Core Business Segment, including the
inventory markdown charge was $76,989,000 in fiscal year 1999. Operating income
for this segment was $151,843,000 in fiscal year 1997.
Net income for the Core Business Segment, excluding the inventory markdown
charge for item rationalization, decreased to $88,782,000 in fiscal year 1999
from $111,684,000 in fiscal year 1998 and $95,986,000 in fiscal year 1997.
Including the inventory markdown charge for item rationalization, net income was
$39,264,000 in fiscal year 1999.
Prior to fiscal year 1999, the OfficeMax.com Segment was reported in the
Core Business Segment. All prior year Core Business Segment amounts have been
restated to reflect the separate presentation of the OfficeMax.com Segment.
Computer Business Segment
Sales for the Computer Business Segment decreased 15.7% to $284,013,000 in
fiscal year 1999 from $336,922,000 in fiscal year 1998. An average selling price
decline of 15.2% for the Computer Business Segment contributed to a 31.2%
comparable-store sales decrease in fiscal year 1999. The comparable-store sales
decrease was partially offset by the additional sales from stores opened during
fiscal years 1999 and 1998. Total sales for this business segment decreased
22.8% in fiscal year 1998 from $436,468,000 in fiscal year 1997.
Cost of merchandise sold, including buying and occupancy costs, was
$285,051,000 or 100.4% of sales in fiscal year 1999. Cost of merchandise sold,
including buying and occupancy costs and excluding the computer segment asset
write-off, was $327,590,000 or 97.2% of sales in fiscal year 1998.
Correspondingly, gross profit was a loss of $1,038,000 in fiscal year 1999, as
compared to gross profit, excluding the computer segment asset write-off of
$9,332,000 in fiscal year 1998. The decrease in gross profit in fiscal year 1999
was due to lost leverage on certain fixed components of cost of merchandise
sold. Cost of merchandise sold, including buying and occupancy costs was
$430,706,000 or 98.7% of sales in fiscal year 1997. Gross profit was $5,762,000
in fiscal year 1997. The gross profit improvement from fiscal year 1997 to
fiscal year 1998 was primarily due to the Company's decision to forgo low-margin
computer promotions compared to prior years.
In conjunction with its decision to realign the Computer Business Segment,
the Company recorded a non-cash, pre-tax charge of $79,950,000 during fiscal
year 1998. The charge accounted for the liquidation of existing, discontinued
computer inventory. In addition, the charge provided for the impairment of
prepaid expenses and other assets directly related to the Computer Business
Segment. Including the charge, cost of merchandise sold, including buying and
occupancy costs, was 121.0% of sales for fiscal year 1998.
Operating loss for the Computer Business Segment was $38,364,000 in fiscal
year 1999, as compared to an operating loss of $16,521,000 in fiscal year 1998,
excluding the computer segment asset write-off and an operating loss of
$6,161,000 in fiscal year 1997. Including the asset write-off, the operating
loss was $96,471,000 in fiscal year 1998.
Net loss for the Computer Business Segment was $25,317,000 in fiscal year
1999. Excluding the computer segment asset write-off, the net loss for this
segment was $12,987,000 in fiscal year 1998. The asset write-off increased the
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<PAGE> 21
Computer Business Segment net loss by $49,889,000 in fiscal year 1998. Net loss
for the Computer Business Segment was $6,510,000 in fiscal year 1997.
During the first quarter of fiscal year 2000, the Company announced its
plans to enter into a strategic alliance with Gateway Companies Inc.,
("Gateway"). Under the terms of a master license agreement, Gateway will operate
a licensed "store-within-a-store" computer department inside all OfficeMax
superstores in the United States. The department will offer products consistent
with the Company's current Computer Business Segment, including computers,
monitors and related products and services. Accordingly, the Company plans to
phase out operations of this segment. The store-within-a-store rollout began in
March 2000 and is expected to be complete by the end of the first quarter of
fiscal year 2001. This alliance is described in greater detail in Note 15 of the
Notes to Consolidated Financial Statements.
OfficeMax.com Segment
Sales for the OfficeMax.com Segment increased 533% to $40,171,000 in
fiscal year 1999 from $6,346,000 in fiscal year 1998. The increase in fiscal
year 1999 followed another increase of 532% in fiscal year 1998 from $1,004,000
in fiscal year 1997. The sales increases for this segment are due primarily to
the Company's aggressive marketing program aimed at capturing a larger share of
the online business market, new online partnerships launched during the years
presented and an overall national increase in online business-to-business
commerce. This segment's marketing program includes a multi-media campaign that
began in the fourth quarter of fiscal year 1999.
Cost of merchandise sold including buying costs for the OfficeMax.com
Segment was $30,270,000 or 75.4% of sales in fiscal year 1999, $4,700,000 or
74.1% of sales in fiscal year 1998 and $873,000 or 87.0% of sales in fiscal year
1997. Gross profit for the OfficeMax.com Segment was $9,901,000 or 24.6% of
sales in fiscal year 1999, $1,646,000 or 25.9% of sales in fiscal year 1998 and
$131,000 or 13.0% of sales in fiscal year 1997. The decrease in gross profit as
a percentage of sales for fiscal year 1999 was due primarily to a shift in sales
mix towards lower margin paper products. The increase in gross profit in fiscal
year 1998 was due primarily to improved leverage of certain costs and enhanced
marketing of the Company's higher margin office supply and furniture
merchandise.
Operating income for the OfficeMax.com Segment was a loss of $6,239,000 in
fiscal year 1999 and $293,000 in fiscal year 1998, as compared to operating
income of $235,000 in fiscal year 1997. The net operating losses in fiscal years
1999 and 1998 were primarily due to the segment's aggressive advertising and
marketing program focused on customer acquisition in the small business market
space.
Net income for the OfficeMax.com Segment was a loss of $3,906,000 in
fiscal year 1999 and $188,000 in fiscal year 1998 versus net income of $144,000
in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $267,946,000 of cash
during fiscal year 1999, which is an increase of $236,935,000 over the prior
fiscal year. A decrease in accounts receivable and improved leverage of
inventory and accounts payable were the primary source of the year-over-year
increase. Inventory increased only $838,000 during fiscal year 1999 despite
adding inventory for 114 net new superstores, three OfficeMax PDQ stores, two
delivery centers and the Company's second PowerMax distribution facility.
Same-store inventory levels decreased approximately 5% in fiscal year 1999,
excluding the effects of the inventory markdown for item rationalization.
Further, accounts payable leverage as a percentage of inventory increased to 55%
at January 22, 2000 from 50% at January 23, 1999. The decrease in
comparable-store inventory and the improvement in accounts payable leverage are
primarily due to the Company's supply-chain management initiatives. Net cash
used by operations was $93,635,000 in fiscal year 1997.
Net cash used for investing activities, primarily capital expenditures for
new and remodeled superstores, was $111,744,000 in fiscal year 1999 as compared
to $125,063,000 in fiscal year 1998 and $103,217,000 in fiscal year 1997.
Capital expenditures were $117,154,000, $120,760,000 and $125,804,000 in fiscal
years 1999, 1998 and 1997, respectively.
-21-
<PAGE> 22
Net cash used by financing was $150,597,000 in fiscal year 1999. Current
year financing activities primarily represent a decrease in outstanding
borrowings under the Company's revolving credit facility, a decrease in
overdraft balances and the payment of $34,841,000 for treasury stock purchases.
Additionally, the Company made advanced payments for leased facilities of
$21,237,000 during fiscal year 1999. Net cash provided by financing was
$94,733,000 and $5,542,000 during fiscal year 1998 and fiscal year 1997,
respectively. Fiscal year 1998 financing activities primarily represent
borrowing under the Company's revolving credit facility, partially offset by the
payment of $77,499,000 for treasury stock purchases.
In fiscal year 2000, the Company plans to open approximately 50 to 75 new
OfficeMax superstores and an additional distribution facility in the United
States and continue to test the OfficeMax PDQ concept. The Company also expects
to remodel approximately 20 existing superstores. Management estimates that the
Company's cash requirements for opening or remodeling a superstore, exclusive of
pre-opening expenses, will be approximately $1,075,000 and $210,000,
respectively. For an OfficeMax superstore, the requirements include an average
of approximately $425,000 for leasehold improvements, fixtures, point-of-sale
terminals and other equipment, and approximately $650,000 for the portion of
store inventory that is not financed by accounts payable to vendors. Pre-opening
expenses are expected to average approximately $90,000 for an OfficeMax
superstore. In select cases, that average is expected to increase by
approximately $30,000 when certain enhanced CopyMax or FurnitureMax features are
included.
On August 13, 1998, the Company's Board of Directors authorized the Company
to repurchase up to $200,000,000 of its common shares on the open market,
doubling its previous authorization. At the end of fiscal year 1999, the Company
had purchased a total of 12,702,100 shares at a cost of $113,619,000. This
included systematic purchases of shares to cover potential dilution from the
future issuance of shares under the Company's equity-based incentive plans.
Future purchases of common shares are limited, by financial covenants related to
the Company's revolving credit facility, to purchases to satisfy the Company's
obligation under its equity-based incentive plans.
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
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 continues 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.
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 retail operations and capital requirements. In
December 1999, the Company's Board of Directors authorized the Company to
explore alternative capital structures for its eCommerce business,
OfficeMax.com. The Company is evaluating various alternatives including a sale
of shares tracking its OfficeMax.com business. The Company's marketing and
expansion plans for OfficeMax.com could be limited if it is unable to obtain
additional equity.
-22-
<PAGE> 23
During the first quarter of fiscal year 2000, the Company amended its
revolving credit facility. The Company now has a $400,000,000 revolving credit
facility available through June 2002, under which $91,800,000 of borrowings were
outstanding as of January 22, 2000. In addition, the Company has uncommitted
bank lines of credit of up to $30,000,000. There were no borrowings outstanding
under these uncommitted bank lines as of January 22, 2000.
SEASONALITY AND INFLATION
The Company's business is 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 historically 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 for items such as fax machines, printers, copiers and
computers.
YEAR 2000 READINESS
The Company completed its company-wide project to prepare its business for
the change in date from 1999 to 2000. The Company has not experienced any
significant business interruptions related to the Year 2000 issue. In addition,
the Company is not aware of any significant Year 2000 business interruptions
experienced by key third parties, including product or service providers or
financial institutions. The total cost of the project was approximately
$5,000,000, including internal costs, third-party consultants involved in the
project and software costs. All costs and expenses incurred to address the Year
2000 issue were charged against income on a current basis. These costs did not
have a material adverse effect on the Company's operating results, financial
condition or cash flows.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("FAS
133") which is required to be adopted in fiscal years beginning after June 15,
2000. Due to the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a significant effect
on earnings or the financial position of the Company.
-23-
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, principally interest rate risk and
foreign exchange risk.
Interest earned on the Company's cash equivalents and short-term
investments, as well as interest paid on its debt and lease obligations, are
sensitive to changes in interest rates. The interest rate for the Company's
revolving credit facility is variable, while the Company's long-term debt and
the interest component of its operating leases is generally fixed. The Company
manages its interest rate risk by maintaining a combination of fixed and
variable rate debt. The Company believes its potential exposure to interest rate
risk is not material to the Company's financial position or the results of its
operations.
The Company is exposed to foreign currency exchange risk through its joint
venture partnerships in Brazil, Japan and Mexico. The Company has not entered
into any derivative financial instruments to hedge this exposure, and believes
its potential exposure is not material to the Company's financial position or
the results of its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1.
Supplementary quarterly financial information for the Company is included in
Note 13 of Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-24-
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The Company's Board of Directors (the "Board") currently consists of seven
members, divided into one class of three members and one class of four members.
Listed below is the name of each person currently serving as a Director of
the Company, each Director's age, his or her principal occupation, membership on
the board of directors of other public companies (which is shown
parenthetically), the year in which he or she first became a Director of the
Company and the year in which each Director's term as a Director will expire:
TERM EXPIRING IN 2000
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION (1) SINCE EXPIRES
- ---- --- ------------------------ ----- -------
<S> <C> <C> <C> <C>
Burnett W. Donoho 60 Chairman and Chief Executive Officer 1995 2000
of Wellbridge (fka Club Sports International),
a privately held group of upscale health clubs
and spas; former Vice Chairman, Chief Operating
Officer of Macy's East, a chain of 60 department
stores and a then division of
R.H. Macy & Co., Inc.; former Vice Chairman
and Chief Operating Officer of Montgomery
Ward & Co., Inc., a major retailer (Gtech Corporation)
James F. McCann 48 President of 1-800-FLOWERS.com, Inc., a national retail 1996 2000
florist (Gateway, Inc. and Petco Animal
Supplies, Inc.)
Sydell L. Miller 62 Private investor and consultant; former Chairman 1994 2000
of the Board and Chief Executive Officer of
Matrix Essentials, Inc., a subsidiary of Bristol-
Myers Squibb Company
Ivan J. Winfield 66 Retired Managing Partner of Coopers & Lybrand; 1998 2000
currently Associate Professor at Baldwin-Wallace
College, Cleveland, Ohio; and Business Consultant
(Boykin Lodging Co., HMI Industries, Inc., Rainbow
Rentals, Inc.)
</TABLE>
TERM EXPIRING IN 2001
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION (1) SINCE EXPIRES
- ---- --- ------------------------ ----- -------
<S> <C> <C> <C> <C>
Raymond L. Bank 46 President and Chief Operating Officer of 1994 2001
Merchant Development Corporation, a venture
capital and buy-out firm focusing on
consumer retail, direct marketing and
service companies (Regency Realty, Inc.)
Michael Feuer 55 Chairman and Chief Executive Officer of the Company 1988 2001
Carl D. Glickman 73 President, The Glickman Organization, private 1995 2001
investing (The Bear Stearns Companies, Inc.,
Alliance Tire & Rubber Company Ltd., Jerusalem
Economic Corporation Ltd., Lexington Corporate
Properties Trust)
</TABLE>
(1) Each of the foregoing, except Ms. Miller and Messrs. Bank, Donoho and
Winfield, either has had the positions shown or has had other executive
positions with the same employer for more than five years. Ms. Miller
has been a private investor and consultant since September 1995. Prior
to September 1995, Ms. Miller served as Chairman of the Board and Chief
Executive Officer of Matrix Essentials, Inc., a manufacturer of
professional hair care, skin
-25-
<PAGE> 26
care and cosmetic products and a subsidiary of Bristol-Myers Squibb
Company. Mr. Bank also served as a Director of the Company from May
1990 until the acquisition by Kmart Corporation of 92.7% of the Company
in November 1991. For approximately 11 months in 1997, Mr. Donoho
served as Vice Chairman and Chief Operating Officer of Montgomery Ward
& Co., Inc. Mr. Donoho was an independent retail consultant from
January 1995 to February 1997. Mr. Donoho served as Vice Chairman,
Chief Operating Officer of Macy's East, a chain of 60 department stores
and a then division of R.H. Macy & Co., Inc. from July 1992 until
December 1994. Mr. Winfield has held his current position since
September 1995. From 1970 until October 1994, Mr. Winfield was a
partner with the accounting firm of Coopers & Lybrand. Mr. Winfield
served as a Managing Partner of Coopers & Lybrand from July 1978 to
October 1994.
How often did the Board meet during fiscal year 1999?
During the fiscal year ended January 22, 2000, the Board held five
meetings. Each Director attended at least 75% of the meetings of the Board and
committees on which he or she served.
What committees has the Board established?
Audit Committee. Messrs. Bank (Chairman), Donoho, Glickman and Winfield
are the current members of the Board's Audit Committee, which is empowered to
exercise all powers and authority of the Board with respect to the Company's
annual audit, accounting policies, financial reporting and internal controls.
The Audit Committee met twice and consulted informally on other occasions during
the last fiscal year.
Compensation Committee. Messrs. Glickman (Chairman) and Bank and Ms.
Miller are the current members of the Board's Compensation Committee (the
"Compensation Committee"), which is empowered to exercise all powers and
authority of the Board with respect to compensation of the officers of the
Company. The Compensation Committee met three times and consulted informally on
other occasions during the last fiscal year.
The Board does not have a nominating committee.
How are Directors compensated?
Directors who are not officers or employees of the Company receive an
annual retainer fee of $25,000 payable in restricted common shares of the
Company, and a fee of $1,000 for each quarterly meeting of the Board attended
and a fee of $500 for each Committee meeting of the Board attended, each of
which is payable in common shares of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is or has been an
officer or employee of the Company.
EXECUTIVE OFFICERS
Listed below are the names, positions and ages of the executive
officers of the Company as of April 10, 2000. Each executive officer will serve
until his successor is elected by the Board of Directors or until his earlier
resignation or removal.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Michael Feuer Chairman of the Board and 55
Chief Executive Officer
Gary J. Peterson President, Chief Operating Officer 49
Jeffrey L. Rutherford Senior Executive Vice President, 39
Chief Financial Officer
Edward L. Cornell Executive Vice President, Non-Retail 51
Stores and International Development
Harold L. Mulet Executive Vice President, 48
Retail Sales and Store Productivity
Eugene O'Donnell Executive Vice President, 53
Merchandising and Marketing
Mark L. Race Executive Vice President, Store Planning, 51
Real Estate and Project Development
Ross H. Pollock Senior Vice President, General 44
Counsel and Secretary
</TABLE>
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 Jo-Ann Stores, Inc. (formerly 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 from
Fabri-Centers, Mr. Feuer served as Senior Vice President and a member of that
company's executive committee.
Mr. Peterson has served as the President, Chief Operating Officer of
the Company since March 2000. From July 1996 to February 2000, Mr. Peterson
served as an executive officer and COO of Blockbuster Entertainment, the world's
largest operator of video stores with over 4,000 locations worldwide. From
August 1993 to July 1996, Mr. Peterson served as Chief Operating Officer of
Southeast Frozen Foods L.P., a distributor to retail grocery stores. Mr.
Peterson has also held various management positions with Wal-Mart Stores, Inc.,
Carter Hawley Hale Department Stores and Thrifty Drug Stores.
Mr. Rutherford has been associated with the Company for three years,
currently serving as Senior Executive Vice President, Chief Financial Officer of
the Company since November 1999. From March 1998 to November 1999, Mr.
Rutherford served as Executive Vice President, Chief Financial Officer of the
Company. 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 associated
with Arthur Andersen LLP, a large public accounting firm.
Mr. Cornell has served as Executive Vice President, Non-Retail Stores
and International 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. Mulet has served as Executive Vice President, Retail Sales and
Store Productivity of the Company since May 1999. From August 1995 to May 1999,
Mr. Mulet served as Senior Vice President, Stores at Service Merchandise
Company. Prior to August 1995, Mr. Mulet served as Regional Vice President of
Target Corporation.
Mr. O'Donnell has served as Executive Vice President, Merchandising and
Marketing of the Company since September 1999. From July 1997 to June 1999, Mr.
O'Donnell served as an Executive Vice President at TruServ Corporation (a
hardware co-op formed by the merger of ServiStar and True Value). Prior to July
1997, Mr. O'Donnell served as an Executive Vice President of ServiStar.
Mr. Race has served as Executive Vice President, Store Planning, Real
Estate and Project Development of the Company since March 2000. From April 1996
to March 2000, Mr. Race served as Senior Vice President, Store Planning and
Project Development of the Company. From September 1992 to April 1996, Mr. Race
served as Vice President, Store Planning of the Company.
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.
-26-
<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- AWARDS
------- ALL
RESTRICTED SECURITIES OTHER
STOCK UNDERLYING COMPEN-
NAME AND FISCAL SALARY BONUS AWARDS OPTIONS SATION
PRINCIPAL POSITION YEAR(1) ($) ($) ($)(2) (#) ($)(3)
- ------------------ ------- --- --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Michael Feuer 1999 $950,000 $475,000 $(4,530) 400,000 $1,965
Chairman and 1998 $950,000 $712,500 $73,101 700,000 $5,000
Chief Executive Officer 1997 $851,923 $712,000 -- 300,000 $4,750
Jeffrey L. Rutherford 1999 $306,154 $78,542 $(4,034) 175,000 $23,602
Senior Executive Vice
President 1998 $253,462 $126,880 $41,143 275,000 --
Chief Financial Officer 1997 $158,173 $80,150 -- 75,000 --
Edward L. Cornell 1999 $300,445 -- $(855) 75,000 $1,600
Executive Vice President 1998 $274,785 $134,493 $11,222 125,000 $2,128
Non-Retail Stores and 1997 $259,998 $87,450 -- 50,000 $2,256
International Development
Robert S. Islinger (4) 1999 $275,000 $57,475 -- 150,000 --
Senior Vice President 1998 $31,731 -- -- -- --
Marketing and Advertising 1997 -- -- -- -- --
Harold L. Mulet (5) 1999 $249,039 $79,476 -- 200,000 --
Executive Vice President 1998 -- -- -- -- --
Retail Sales and Store
Productivity 1997 -- -- -- -- --
</TABLE>
(1) Includes compensation earned, awarded or paid for the fiscal years
ended January 22, 2000 (fiscal 1999), January 23, 1999 (fiscal 1998)
and January 24, 1998 (fiscal 1997), respectively.
(2) Amounts shown reflect the difference between the closing market price
for the common shares on the date of purchase and the purchase price
paid by each of the named executive officers for the purchase of
restricted shares under the Company's Management Share Purchase Plan.
Amounts for fiscal year 1999 were negative. The aggregate restricted
share holdings and values (net of consideration paid) at January 22,
2000 for the named executive officers are as follows: (i) Mr. Feuer--
44,323 shares, $(184,856); (ii) Mr. Rutherford-- 21,674 shares,
$(63,473); (iii) Mr. Cornell-- 5,201 shares, $(15,499); (iv) Mr.
Islinger -- no shares, $(0); and (v) Mr. Mulet -- no shares, $(0). With
respect to the restricted shares so purchased, if employment is
terminated by the executive (other than as a result of death,
disability or retirement after age 65) or if employment is terminated
by the Company for "cause" before the third anniversary of the purchase
date, the executive will receive unrestricted shares having a value
equal to the lesser of the current fair market value for the common
shares or the price paid initially for such restricted shares. If the
executive's employment is terminated by the Company without cause
before the third anniversary of the purchase date, the executive will
receive unrestricted shares, having a value equal to (i) the then
current fair market value of a percentage of the restricted shares
(based on the number of months of employment completed during the
restricted period), plus (ii) as to the balance of the restricted
shares the lesser in value of the restricted shares at their current
fair market value or the price paid initially for such restricted
shares. Dividends, if any, will be paid on restricted shares at the
same rate as common shares.
(3) The Company provides the named executive officers with certain group
life, health, medical and other non-cash benefits generally available
to all salaried employees and not included in this column pursuant to
SEC rules. The amounts shown in this column for fiscal year 1999
include the following: (a) matching contributions by the Company under
the OfficeMax 401(k) Savings Plan and the OfficeMax Executive Savings
Deferral Plan for Messrs. Feuer and Cornell, all of which are invested
in common shares of the Company (Messrs. Rutherford, Islinger and Mulet
did not participate in the plans); and (b) forgiveness of a portion of
the principal and accrued interest on a collateralized loan provided to
Mr. Rutherford.
(4) Mr. Islinger joined the Company in December 1998.
(5) Mr. Mulet joined the Company in May 1999.
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<PAGE> 28
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION -------------
NAME GRANTED(#) YEAR(3) ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
MICHAEL FEUER 400,000(1) 10.4% $7.5625 8/31/09 $1,902,406 $4,821,071
JEFFREY L. RUTHERFORD 175,000(1) 4.6% $7.5625 8/31/09 $832,303 $2,109,219
EDWARD L. CORNELL 75,000(1) 2.0% $7.5625 8/31/09 $356,701 $903,951
ROBERT S. ISLINGER 75,000(2) 3.9% $8.6875 3/3/09 $409,764 $1,038,423
75,000(1) $7.5625 8/31/09 $356,701 $903,951
HAROLD L. MULET 100,000(1) 5.2% $10.1875 5/10/09 $640,686 $1,623,625
100,000(1) $7.5625 8/31/09 $475,602 $1,205,268
</TABLE>
(1) These options vest 50% on the second anniversary of the date of grant,
plus an additional 25% on each of the third and fourth anniversary of
the date of grant. The options are transferable to members of the
executive's family, to a trust or trusts for the benefit of members of
the executive's family or to a partnership or partnerships of members
of the executive's family.
(2) These options vest 25% per year beginning on March 3, 2001.
(3) Based on approximately 3.85 million options granted to all employees
during the fiscal year ended January 22, 2000.
(4) The dollar amounts under these columns are the result of the
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
AGGREGATED OPTION EXERCISES DURING FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES JANUARY 22, 2000 JANUARY 22, 2000(1)
ACQUIRED ---------------- -------------------
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Michael Feuer -- -- 1,482,916/1,400,000 $0/$0
Jeffrey L. Rutherford -- -- 50,000/475,000 $0/$0
Edward L. Cornell -- -- 225,463/357,167 $313,460/$0
Robert S. Islinger -- -- 0/150,000 $0/$0
Harold L. Mulet -- -- 0/200,000 $0/$0
</TABLE>
(1) The value of unexercised in-the-money options is based on the
difference between the fair market value of the Company's common shares
on January 22, 2000 ($6.625) and the option exercise price.
-28-
<PAGE> 29
EMPLOYMENT AGREEMENT WITH MICHAEL FEUER
The Company and Mr. Feuer executed an Amended and Restated Employment
Agreement on January 3, 2000 (the "Employment Agreement"). The Employment
Agreement provides for the employment of Mr. Feuer on a rolling five-year
"evergreen" basis. Mr. Feuer's current salary is $950,000 per year and is
subject to increase at the discretion of the Compensation Committee.
If Mr. Feuer's employment is terminated for any reason (other than for
"cause" or death), Mr. Feuer is entitled to payment of his base salary and bonus
amounts equal to the highest bonus compensation paid or payable to him in
respect of the three fiscal years immediately preceding the fiscal year during
which such termination occurred, plus continuation of all other rights and
benefits, for the remainder of the term. The Employment Agreement also provides
for the payment of a "gross-up" payment with respect to excise taxes on the
foregoing payments. "Cause" is defined as fraud, commission of a felony or act
that results in material injury to the business reputation of the Company,
willful and repeated failure to perform duties under the Employment Agreement or
material breach of the agreement.
In the event of a material change in Mr. Feuer's position, duties or
reporting relationship or a "change in control" of the Company, Mr. Feuer is
entitled to terminate the agreement and to treat the termination as a
termination by the Company without cause. "Change in control," as defined in the
Employment Agreement, may occur when any person or group of commonly controlled
persons controls 30% or more of the Company or any transaction results in a
change in ownership of 30% or more of the outstanding common shares or a sale or
disposition of all, or substantially all, of the Company's assets.
The Employment Agreement also contains provisions prohibiting Mr. Feuer
from competing with the Company, soliciting or hiring officers of the Company or
disclosing confidential information of the Company during the term of the
agreement, including any periods during which he is not providing services but
is receiving salary and bonus payments under the agreement.
SEVERANCE AGREEMENTS WITH OTHER KEY EXECUTIVES
To ensure continuity and the continued dedication of key executives during
any period of uncertainty caused by the possible threat of a takeover, the
Company has entered into severance agreements with certain key executives,
including each of the executive officers named in the Summary Compensation Table
(other than Mr. Feuer). In the event there is a Change in Control (as that term
is defined in the agreements) of the Company and the employment of the executive
terminates under certain conditions described in the agreements at any time
during the 24 months following the Change in Control, the executive will
continue to receive the executive's monthly base pay for an agreed upon amount
of time. Each agreement also contains a covenant by the executive not to compete
with the Company for 12 months following termination of employment. If an
executive violates the covenant not to compete, the executive is no longer
entitled to receive the monthly severance payments described below.
For Messrs. Rutherford and Mulet, the severance agreements provide that
upon termination of employment by the Company (other than for Cause or
Disability (as such terms are defined in the agreements)) or by the executive
for Good Reason (as defined in the agreements), they will continue to receive
their monthly base salary as of such date for (i) 24 months if such termination
occurs within 24 months following a Change in Control or (ii) 12 months if such
termination does not occur within 24 months of a Change in Control.
For Messrs. Cornell and Islinger, the severance agreement provides that
upon termination of employment by the Company (other than for Cause or
Disability) or by the executive for Good Reason within 24 months following a
Change in Control, he will continue to receive his monthly base salary as of
such date for 12 months.
-29-
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Except as set forth below, the Company knows of no single person or
group that is the beneficial owner of more than 5% of the Company's common
shares.
NUMBER OF
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------- ----- --------
Orient Star Holdings LLC 9,400,000(1) 8.3%
1000 Louisiana Street
Suite 565
Houston, TX 77002
Mellon Financial Corporation
c/o Mellon Financial Corporation 6,482,004(2) 5.8%
One Mellon Center
Pittsburgh, PA 15258
(1) Based on information obtained from a Schedule 13G filed on January 18,
2000, by the following: Carlos Slim Helu, Carlos Slim Domit, Marco
Antonio Slim Domit, Patrick Slim Domit, Maria Soumaya Slim Domit,
Vanessa Paola Slim Domit, Johanna Monique Slim Domit, Inmobiliaria
Carso, S.A. do C.V., a Mexican corporation, and Orient Star Holdings
LLC, a Delaware limited liability company.
(2) Based on information obtained from a Schedule 13G filed on January 27,
2000, by Mellon Financial Corporation, Boston Group Holdings, Inc., and
The Boston Company, Inc.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as to each Director, each executive officer
named in the Summary Compensation Table and the Directors and executive officers
as a group, information regarding the amount and nature of common shares
beneficially owned (unless otherwise indicated) at April 10, 2000.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES ACQUIRABLE
BENEFICIALLY WITHIN 60 PERCENT OF SHARES
NAME OWNED (1)(2) DAYS (3) OUTSTANDING
- ---- ------------ -------- -----------
<S> <C> <C> <C>
Michael Feuer 2,419,220 1,682,916 3.6%
Carl D. Glickman 65,547 -- *
Sydell L. Miller 38,954 -- *
James F. McCann 33,404 -- *
Burnett W. Donoho 20,568 -- *
Raymond L. Bank 20,515 -- *
Ivan J. Winfield 10,523 -- *
Jeffrey L. Rutherford 21,924 90,625 *
Edward L. Cornell 58,988 254,630 *
Harold L. Mulet 19,000 -- *
Robert S. Islinger 46 -- *
All executive officers and directors
as a group (15 persons) 2,737,511 2,219,204 4.4%
* Less than 1%.
</TABLE>
-30-
<PAGE> 31
(1) The number of shares shown includes shares that are individually or
jointly owned, as well as shares over which the individual has either
sole or shared investment or voting authority. Certain of the Company's
executive officers disclaim beneficial ownership of some of the shares
included in the table as follows:
- Mr. Feuer - 3,225 shares owned by a trust for the
benefit of Mr. Feuer's son and 3,000 shares owned by
a trust for the benefit of Mr. Feuer's daughter, as
to each of which trust Mr. Feuer's wife is the
trustee, and 1,500 shares owned directly by his wife.
(2) For executive officers, includes interests in the Company's 401(k)
Plan: Mr. Feuer - 1,053 shares; Mr. Cornell - 642 shares; Mr. Islinger
- 46 shares; and all current executive officers as a group 2,834
shares.
(3) Reflects the number of shares that could be purchased by exercise of
options available at March 27, 2000 or within 60 days thereafter under
the Company's Equity-Based Award Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors to file reports of beneficial
ownership and changes in beneficial ownership with the SEC and the New York
Stock Exchange. The Company believes that during fiscal year 1999, its executive
officers and Directors complied with the applicable Section 16(a) reporting
requirements. This conclusion is based solely on a review of filing with the SEC
and certain written representations received by the Company from its executive
officers and Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1999, the Company provided a $100,000 collateralized loan
to Harold Mulet, Executive Vice President, Retail Stores and Store Productivity,
in connection with his acquisition of 19,000 common shares of the Company.
Interest is charged on the loan at the federal short-term interest rate
published by the Internal Revenue Service. As of April 10, 2000, the outstanding
principal amount of Mr. Mulet's loan was $100,000.
-31-
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
(a)(2) Financial Statement Schedules:
None
(a)(3) Exhibits:
See Exhibit Index on pages 34 and 35 of this report.
(b) Reports on Form 8-K:
None
-32-
<PAGE> 33
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, 2000 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, 2000
- ------------------ Executive Officer and Director
Michael Feuer (Principal Executive Officer)
/s/ Jeffrey L. Rutherford Senior Executive Vice President, April 21, 2000
- -------------------------- Chief Financial Officer (Principal
Jeffrey L. Rutherford Financial and Accounting Officer)
/s/ Raymond L. Bank Director April 21, 2000
- -------------------
Raymond L. Bank
/s/ Burnett W. Donoho Director April 21, 2000
- ----------------------
Burnett W. Donoho
/s/ Carl D. Glickman Director April 21, 2000
- ---------------------
Carl D. Glickman
/s/ James F. McCann Director April 21, 2000
- -------------------
James F. McCann
/s/ Sydell L. Miller Director April 21, 2000
- --------------------
Sydell L. Miller
/s/ Ivan J. Winfield Director April 21, 2000
- --------------------
Ivan J. Winfield
</TABLE>
-33-
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporation
Exhibit No. Description of Exhibit by Reference
- ----------- ---------------------- ------------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation of the Company, as amended (filed
herewith).
3.2 Code of Regulations of the Company. (3)
4.1 Specimen Certificate for the Common Shares. (1)
4.2 Rights Agreement dated as of March 17, 2000 between the Company and First Chicago Trust (7)
Company of New York, as Rights Agent.
10.1 Credit Agreement dated as of July 3, 1997 by and among the Company, the lenders party (5)
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 Amendment to the Credit Agreement (filed herewith).
10.3 Mortgage Loan Agreement dated November 6, 1996 by and between the Company and KeyBank (4)
National Association.
10.4 Amended and Restated Employment Agreement dated as of January 2, 2000 by and between
Michael Feuer and the Company (filed herewith).
* 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. (6)
* 10.9 OfficeMax Annual Incentive Bonus Plan. (6)
10.10 Year 2000 Equity Incentive Plan (filed herewith).
10.11 Lease Guaranty, Indemnification and Reimbursement Agreement dated November 9, 1994 (2)
between the Company and Kmart Corporation.
10.12 Forms of Severance Agreements (filed herewith).
10.13 Schedule of certain executive officers who are parties to the Severance Agreements in
the forms referred to in Exhibit 10.12 (filed herewith).
21.1 List of Subsidiaries (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27.1 Financial Data Schedule for fiscal year ended January 22, 2000 (filed herewith).
99.1 Statement Regarding Forward Looking Information (filed herewith).
</TABLE>
-34-
<PAGE> 35
(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 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 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 for the
fiscal year ended January 25, 1997, and incorporated herein by reference.
(5) Included as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 25, 1997, and incorporated herein by reference.
(6) Included as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended January 24, 1998, and incorporated herein by reference.
(7) Included as an exhibit to the Company's Form 8-A filed on March 20, 2000,
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.
-35-
<PAGE> 36
OFFICEMAX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Management F - 2
Report of Independent Accountants F - 2
Consolidated Statements of Income - Fiscal years ended January 22, 2000,
January 23, 1999 and January 24, 1998 F - 3
Consolidated Balance Sheets - January 22, 2000 and January 23, 1999 F - 4
Consolidated Statements of Cash Flows - Fiscal years ended January 22,
2000, January 23, 1999 and January 24, 1998 F - 5
Consolidated Statements of Changes in Shareholders' Equity - Fiscal
years ended January 22, 2000, January 23, 1999 and January 24, F - 6
1998
Notes to Consolidated Financial Statements F - 7
</TABLE>
<PAGE> 37
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial
information presented in this Annual Report on Form 10-K rests with OfficeMax
management. The financial statements of OfficeMax, Inc. and its subsidiaries
were prepared in conformity with accounting principles generally accepted in the
United States, applying certain estimates and judgements as required.
OfficeMax has established and maintains a system of internal controls
designed to provide reasonable assurance that the books and records reflect the
transactions of the Company and that its established policies and procedures are
carefully followed. This system is based on written procedures, policies and
guidelines, organizational structures that provide an appropriate division of
responsibility, a program of internal audit and the careful selection and
training of qualified personnel.
PricewaterhouseCoopers LLP, independent accountants, examined the
financial statements and their report is presented below. Their opinion is based
on an examination which provides an independent, objective review of the way
OfficeMax fulfills its responsibility to publish statements which present fairly
its financial position and operating results. They obtain and maintain an
understanding of the Company's accounting and reporting controls, test
transactions and perform related auditing procedures as they consider necessary
to arrive at an opinion on the fairness of the financial statements. While the
independent accountants make extensive reviews of procedures, it is neither
practicable nor necessary for them to test a large portion of the daily
transactions.
The Board of Directors pursues its oversight responsibility for the
financial statements through its Audit Committee, composed of Directors who are
not associates of the Company. The Committee meets periodically with the
independent accountants, representatives of management and internal auditors to
assure that all are carrying out their responsibilities. To assure independence,
PricewaterhouseCoopers and the internal auditors have full and free access to
the Audit Committee, without Company representatives present, to discuss the
results of their examinations and their opinions on the adequacy of internal
controls and the quality of financial reporting.
/s/Michael Feuer /s/Jeffrey L. Rutherford
------------- ---------------------
Michael Feuer Jeffrey L. Rutherford
Chairman of the Board & Senior Executive Vice President,
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of OfficeMax, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of OfficeMax, Inc. and its subsidiaries (the "Company") at January 22,
2000 and January 23, 1999, and the results of their operations and their cash
flows for each of the three years in the period ended January 22, 2000 in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
April 21, 2000
F-2
<PAGE> 38
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------
January 22, January 23, January 24,
Fiscal Year Ended 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 4,842,698 $ 4,337,768 $ 3,765,444
Cost of sales, including buying and
occupancy costs 3,653,783 3,284,582 2,895,084
Inventory markdown charge for
item rationalization 77,372 - -
Computer segment asset write-off - 79,950 -
--------------------------------------------------------------
3,731,155 3,364,532 2,895,084
Gross profit 1,111,543 973,236 870,360
Store operating and selling expenses 930,057 765,922 619,690
Pre-opening expenses 10,974 11,851 15,512
General and administrative expenses 128,708 99,381 79,851
Goodwill amortization 9,418 9,390 9,390
--------------------------------------------------------------
Total operating expenses 1,079,157 886,544 724,443
--------------------------------------------------------------
Operating income 32,386 86,692 145,917
Interest income (expense), net (10,146) (5,971) 518
Other, net 59 290 (4)
--------------------------------------------------------------
Income before income taxes 22,299 81,011 146,431
Income taxes 12,258 32,391 56,811
--------------------------------------------------------------
Net income $ 10,041 $ 48,620 $ 89,620
==============================================================
EARNINGS PER COMMON SHARE DATA:
Basic earnings per common share $ 0.09 $ 0.40 $ 0.73
==============================================================
Diluted earnings per common share $ 0.09 $ 0.39 $ 0.72
==============================================================
Weighted average number of common shares outstanding:
Basic number of common shares outstanding 113,578,000 122,240,000 123,213,000
==============================================================
Diluted number of common shares outstanding 114,248,000 123,751,000 125,196,000
==============================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 39
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
JANUARY 22, JANUARY 23,
2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 73,087 $ 67,482
Accounts receivable, net of allowances
of $687 and $824, respectively 111,734 141,800
Merchandise inventories 1,273,844 1,254,761
Other current assets 69,344 39,600
--------------------- ---------------------
Total current assets 1,528,009 1,503,643
Property and Equipment:
Buildings and land 19,292 19,223
Leasehold improvements 188,900 183,320
Furniture, fixtures and equipment 505,345 381,151
--------------------- ---------------------
Total property and equipment 713,537 583,694
Less: Accumulated depreciation and amortization
(311,069) (230,446)
--------------------- ---------------------
Property and equipment, net 402,468 353,248
Other assets and deferred charges 34,333 60,040
Goodwill, net of accumulated amortization
of $70,039 and $60,621, respectively 310,168 314,965
--------------------- ---------------------
$ 2,274,978 $ 2,231,896
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 702,416 $ 625,810
Accrued expenses and other liabilities 140,094 121,441
Accrued salaries and related expenses 50,313 50,704
Taxes other than income taxes 72,966 58,638
Credit facilities 91,800 144,700
Mortgage loan, current portion 1,300 1,300
--------------------- ---------------------
Total current liabilities 1,058,889 1,002,593
Mortgage loan 15,125 16,425
Other long-term liabilities 70,895 74,736
--------------------- ---------------------
Total liabilities 1,144,909 1,093,754
--------------------- ---------------------
Commitments and contingencies - -
Minority interest 14,072 -
Shareholders' Equity:
Common stock without par value;
200,000,000 shares authorized;
124,985,364 and 124,988,442 shares
issued and outstanding, respectively 867,866 868,321
Deferred stock compensation (304) (260)
Retained earnings 358,900 348,859
Less: Treasury stock, at cost (110,465) (78,778)
--------------------- ---------------------
Total shareholders' equity 1,115,997 1,138,142
--------------------- ---------------------
$ 2,274,978 $ 2,231,896
===================== =====================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 40
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
January 22, January 23, January 24,
Fiscal Year Ended 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net income $ 10,041 $ 48,620 $ 89,620
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 89,064 73,863 67,320
Deferred income taxes 15,023 (16,235) 3,804
Other - net 1,825 79 (3,090)
Changes in current assets and current liabilities,
excluding the effects of acquisitions:
(Increase) in inventories (838) (168,533) (191,821)
Increase in accounts payable 101,329 106,689 2,598
Decrease (increase) in accounts receivable 31,281 (49,350) (68,378)
Increase in accrued liabilities 29,829 21,799 8,007
Other - net (9,608) 14,079 (1,695)
-------------------- -------------------- --------------------
Net cash provided by (used for) operations 267,946 31,011 (93,635)
-------------------- -------------------- --------------------
INVESTING
Capital expenditures (117,154) (120,760) (125,804)
Proceeds from the sale of equipment - - 27,675
Consolidation of majority interest in
OfficeMax de Mexico 5,384 - -
Other - net 26 (4,303) (5,088)
-------------------- -------------------- --------------------
Net cash (used for) investing (111,744) (125,063) (103,217)
-------------------- -------------------- --------------------
FINANCING
(Decrease) increase in revolving credit facilities (52,900) 144,700 -
Payments of mortgage principal (1,300) (1,300) (975)
(Decrease) increase in overdraft balances (43,018) 22,502 3,604
Purchase of treasury stock (34,841) (77,499) (1,279)
Advance payment for leased facilities (21,237) - -
Proceeds from issuance of common stock, net 2,699 6,330 4,192
-------------------- -------------------- --------------------
Net cash provided by (used for) financing (150,597) 94,733 5,542
-------------------- -------------------- --------------------
Net increase (decrease) in cash and equivalents 5,605 681 (191,310)
Cash and equivalents, beginning of period 67,482 66,801 258,111
-------------------- -------------------- --------------------
Cash and equivalents, end of period $ 73,087 $ 67,482 $ 66,801
==================== ==================== ====================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 41
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Common Shares
----------------------------- Deferred Stock Retained Treasury
Shares Amount Compensation Earnings Stock Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common shares under
director plan 14,114 175 (141) - - 34
Exercise of stock options
(including tax benefit) 472,988 4,550 - - - 4,550
Sale of shares under management
share purchase plan (including
tax benefit) 45,572 652 (113) - - 539
Sale of shares under employee
share purchase plan (including
tax benefit) 85,559 953 - - - 953
Amortization of deferred
compensation - - 300 - - 300
Treasury stock purchased
(8,135,000 Shares) - - - - (77,499) (77,499)
Net income - - - 48,620 - 48,620
-------------- -------------- ---------------- ------------- ------------ -------------
BALANCE AT JANUARY 23, 1999 124,988,442 868,321 (260) 348,859 (78,778) 1,138,142
Issuance of common shares under
director plan (12,778) (226) (150) - 403 27
Exercise of stock options
(including tax benefit) 9,700 122 - - 593 715
Sale of shares under management
share purchase plan (including
tax benefit) - 125 (153) - 751 723
Sale of shares under employee
share purchase plan (including
tax benefit) - (476) - - 1,407 931
Amortization of deferred
compensation - - 259 - - 259
Treasury stock purchased
(4,467,100 shares) - - - - (34,841) (34,841)
Net income - - - 10,041 - 10,041
-------------- -------------- ---------------- ------------- ------------ -------------
BALANCE AT JANUARY 22, 2000 124,985,364 $ 867,866 $ (304) $ 358,900 $ (110,465) $ 1,115,997
============== ============== ================ ============= ============ =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 42
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 22, 2000, the
Company owned and operated 946 superstores in 49 states, Puerto Rico and the
U.S. Virgin Islands. In addition to offering office products, business machines,
computers and related items, OfficeMax also features CopyMax and FurnitureMax,
in-store modules devoted exclusively to print-for-pay services and office
furniture. The Company also operates four smaller format OfficeMax PDQ stores.
Through joint venture partnerships, OfficeMax operates international locations
in Brazil, Japan and Mexico. Additionally, the Company operates two national
call centers and 19 delivery centers located throughout the United States to
serve its catalog and direct marketing business, including OfficeMax.com.
OfficeMax.com offers, via the Internet, over 20,000 items and certain services
to help small business and home office customers.
BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. As of January 22, 2000, the
consolidated balance sheet also includes the accounts of OfficeMax de Mexico,
the Company's majority owned joint venture (also see Note 4). Affiliates in
which the Company owns a controlling majority interest are included in the
Company's consolidated financial statements. Investments in affiliates
representing 50% or less of the ownership of such companies for which the
Company has the ability to exercise significant influence over operating and
financial policies are accounted for under the equity method. All other
investments in affiliates 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 or accounts receivable. Intercompany accounts and transactions have
been eliminated in consolidation.
The Company has three reportable business segments: the Core Business
Segment, the Computer Business Segment and the OfficeMax.com Segment. The
operations of the Company's retail stores, call centers and outside sales force
are included in either the Core Business Segment or the Computer Business
Segment. The Core Business Segment includes office supplies, business machines,
peripherals, print-for-pay services and office furniture. The Computer Business
Segment includes desktop and laptop personal computers and computer monitors.
The OfficeMax.com Segment represents the operations of the Company's Internet
site.
The Company's fiscal year ends on the Saturday prior to the last
Wednesday in January. Fiscal years 1999, 1998 and 1997 ended on January 22,
2000, January 23, 1999 and January 24, 1998, respectively.
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.
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
Issuer's cost of providing credit and collecting the receivables which are
non-recourse to the Company.
F-7
<PAGE> 43
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 $7,566,000 and $5,891,000 at January 22, 2000 and January 23, 1999,
respectively. These amounts relate to the Company's catalog and other direct
response advertising and are amortized over the six month period during which
the merchandise contents and pricing are valid. The Company and its vendors
participate in cooperative advertising programs in which the vendors reimburse
the Company for a portion of certain advertising costs. Advertising expense, net
of vendor reimbursements, was $123,250,000, $88,769,000 and $87,590,000 for
fiscal years 1999, 1998 and 1997, respectively.
INCOME TAXES
The Company uses the liability method whereby income taxes are
recognized during the fiscal 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.
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. All 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 13%-20% for store furniture, fixtures and equipment
and 14%-33% for other furniture, fixtures and equipment.
GOODWILL
Goodwill is amortized over 10-40 years using the straight-line method.
The Company evaluates the recoverability of goodwill and reviews the
amortization period on an annual basis. Based on its review, the Company does
not believe that an impairment of its goodwill has occurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of its long-lived assets,
including goodwill, by determining whether the amortization of the remaining
balance of an asset over its remaining useful life can be recovered through
undiscounted future operating cash flows. If impairment exists, the carrying
amount of the asset would be reduced.
CURRENT LIABILITIES
Under the Company's cash management system, checks issued pending
clearance that result in overdraft balances for accounting purposes are included
in the accounts payable balance. The amounts reclassified were $90,405,000 and
$133,423,000 for fiscal years 1999 and 1998, respectively.
FINANCIAL INSTRUMENTS
The recorded value of the Company's financial instruments, which
includes short term securities, accounts receivable, accounts payable, revolving
credit facilities 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.
REVENUE RECOGNITION
The Company recognizes revenue when the earnings process is complete,
generally at either the point-of-sale to a customer or upon delivery to a
customer or third party delivery service.
PRE-OPENING EXPENSES
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting Costs of Start-up Activities"
("SOP") 98-5, which requires that costs related to start-up activities be
expensed as incurred. Prior to fiscal year 1998, the Company expensed costs
associated with the opening of a new store during the first month of the store's
operations. The Company adopted the provisions of SOP 98-5 in its financial
statements for the fiscal year ended January 23, 1999. The effect of adoption
was not significant to the Company's results of operations.
F-8
<PAGE> 44
STOCK-BASED COMPENSATION
As provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("FAS 123"), the Company has
elected to continue to account for stock-based compensation under the provisions
of Accounting Principles Boards 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 11 of
Notes to Consolidated Financial Statements.
EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"). 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 potentially dilutive common stock equivalents.
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 YEAR 1999
Earnings per share of common stock - Basic $ 10,041 113,578 $ 0.09
Effect of dilutive securities:
Stock options 569
Restricted stock units 101
-------------- -------------- --------------
Earnings per share of common stock - Diluted $ 10,041 114,248 $ 0.09
============== ============== ==============
FISCAL YEAR 1998
Earnings per share of common stock - Basic $ 48,620 122,240 $ 0.40
Effect of dilutive securities:
Stock options 714
Restricted stock units 797
-------------- -------------- --------------
Earnings per share of common stock - Diluted $ 48,620 123,751 $ 0.39
============== ============== ==============
FISCAL YEAR 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 - Diluted $ 89,620 125,196 $ 0.72
============== ============== ==============
</TABLE>
Options to purchase 7,470,000, 4,794,000 and 3,218,000 common shares were
excluded from the calculation of diluted earnings per share in fiscal years
1999, 1998 and 1997, respectively, because the exercise prices of the options
were greater than the average market price. These shares had weighted average
exercise prices of $12.74, $14.89 and $14.47, respectively.
F-9
<PAGE> 45
NOTE 2. INVENTORY MARKDOWN CHARGE FOR ITEM RATIONALIZATION
In order to effect the acceleration of the Company's supply-chain
management initiative, which includes the development and opening of a
nationwide network of 600,000 to 750,000-square-feet, "PowerMax" supply-chain
distribution centers and the implementation of the Company's new SAP warehouse
management system, the Company decided to eliminate select current products on
hand as part of its program of merchandise and vendor rationalization. In
connection with this decision, the Company recorded a non-cash markdown charge
of $83,257,000 pre-tax during the third quarter of fiscal year 1999. The charge
provided for the liquidation of merchandise that is not expected to be part of
the Core Business Segment's ongoing product offering. The charge reduced third
quarter net income by $53,284,000 or $0.47 per diluted share. During the fourth
quarter of fiscal year 1999, the Company reversed $5,885,000 of the charge based
on the actual sell-through and merchandise margins of discontinued products,
which exceeded original expectations during the execution of the related
clearance event. The reversal increased fourth quarter net income $3,766,000 or
$0.03 per diluted share. For the fiscal year, the charge reduced net income by
$49,518,000 or $0.43 per diluted share.
NOTE 3. COMPUTER SEGMENT ASSET WRITE-OFF
In conjunction with its decision to realign its Computer Business
Segment, the Company recorded a non-cash, pre-tax charge of $79,950,000 during
January 1999. The non-cash charge accounted for the liquidation of existing,
discontinued computer inventory. In addition, the charge provided for the
impairment of prepaid expenses and other assets directly related to the Computer
Business Segment. The charge reduced net income by $49,889,000 or $0.41 per
diluted share in fiscal year 1998.
NOTE 4. ACQUISITION OF MAJORITY INTEREST IN OFFICEMAX DE MEXICO
Effective January 1, 2000, the Company purchased for $14 million an
additional 12% of OfficeMax de Mexico, its joint venture in Mexico that operates
OfficeMax superstores similar to those in the United States. As a result of the
purchase, the Company owns 51% of OfficeMax de Mexico and included the net
assets of the joint venture and related minority interest in its consolidated
balance sheet as of January 22, 2000. Beginning in fiscal year 2000, the Company
will also include OfficeMax de Mexico's results of operations and cash flows in
its consolidated financial statements. OfficeMax de Mexico's fiscal year ends on
December 31. Due to statutory audit requirements, OfficeMax de Mexico will
maintain its calendar year end and the Company will consolidate OfficeMax de
Mexico's calendar year results of operations with its fiscal year results. The
excess of the purchase price over the net assets of the joint venture is
approximately $4.7 million, which was allocated to goodwill and is being
amortized over 10 years. During the first quarter of fiscal year 2000, the
Company paid OfficeMax de Mexico $10,000,000 of the $14,000,000 purchase price.
The remainder of the purchase price is due in two equal installments in fiscal
years 2001 and 2002.
The following unaudited pro forma consolidated results of operations
are presented as if the purchase of a majority interest in OfficeMax de Mexico
had occurred at the beginning of the fiscal years presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23,
(In thousands except per share data) 2000 1999
- --------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Sales $ 4,916,149 $ 4,389,149
Net income $ 10,064 $ 48,027
Basic earnings per share $ 0.09 $ 0.39
Diluted earnings per share $ 0.09 $ 0.39
</TABLE>
The unaudited pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill and related income tax
effects. The unaudited pro forma information is not necessarily indicative of
the results of operations that would have occurred had the purchase occurred at
the beginning of the fiscal years presented or of future consolidated results.
F-10
<PAGE> 46
NOTE 5. RELATIONSHIP WITH KMART CORPORATION
Kmart Corporation ("Kmart"), which previously owned an equity interest
in the Company, continues to guarantee certain of the Company's leases. 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 6. DEBT
CREDIT FACILITIES
On July 3, 1997, the Company entered into a five year, $500,000,000
revolving credit facility (the "revolving credit facility") in which 19 banks
participate. The revolving credit facility provides for borrowings bearing
interest at the banks' prime or Eurodollar rate plus .1450% to .3125%. The
Company must also pay quarterly fees on the full amount of the revolving credit
facility varying between .08% and .1875% per annum. Standby letters of credit
issued in connection with the Company's self insurance program and a synthetic
lease are considered outstanding amounts under the revolving credit facility and
totaled $41,777,414 and $19,800,000 as of January 22, 2000 and January 23, 1999,
respectively. As of January 22, 2000 and January 23, 1999, the Company had
outstanding borrowings of $91,800,000 and $135,000,000 under the revolving
credit facility at weighted average interest rates of 5.98% and 5.21%,
respectively.
During the first quarter of fiscal year 2000, the Company amended the
revolving credit facility to provide for financial covenants more appropriate
for the Company as its expands the Internet segment of its business,
OfficeMax.com. For the remainder of the five-year term, outstanding borrowings
of up to $400,000,000, will bear interest at the bank's prime or Eurodollar rate
plus 0.7% to 1.25%. The Company must also pay quarterly fees of 0.3% to 0.5% of
the full amount of the revolving credit facility.
In addition to the revolving credit facility, the Company has
uncommitted bank lines which provide for unsecured borrowings of up to
$30,000,000. There were no outstanding borrowings under the uncommitted bank
lines as of January 22, 2000. As of January 23, 1999, $9,700,000 was outstanding
under these lines at a weighted average interest rate of 5.06%. There are no
commitment fees or compensating balances associated with these arrangements.
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 with a final payment of $7,000,000 due at maturity. The
mortgage bears interest at LIBOR plus .90%. As of January 22, 2000 and January
23, 1999, the interest rate for the Mortgage was 6.73% and 6.99%, respectively.
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 7. 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. ("Ryder") 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
F-11
<PAGE> 47
amount of approximately $75,000,000. The Company believes the counterclaim is
without merit and continues 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.
NOTE 8. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23, JANUARY 24,
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current federal $ (4,731) $ 44,574 $ 45,694
State and local 1,280 3,304 5,900
Foreign 686 748 1,413
Deferred 15,023 (16,235) 3,804
-------------- -------------- ---------------
Total income taxes $ 12,258 $ 32,391 $ 56,811
============== ============== ===============
</TABLE>
A reconciliation of the federal statutory rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
JANUARY 22, JANUARY 23, JANUARY 24,
FISCAL YEAR ENDED 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local taxes net of federal tax benefit 3.7% 2.7% 2.6%
Goodwill amortization 14.8% 4.1% 2.2%
Tax exempt interest - (0.1)% (0.2)%
Other 1.5% (1.7)% (0.8)%
-------------- -------------- ---------------
Total income taxes 55.0% 40.0% 38.8%
============== ============== ===============
</TABLE>
Deferred tax assets (liabilities) resulted from the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Inventory $ 6,973 $ 5,248
Property and equipment (12,764) (8,943)
Escalating rent 18,256 20,516
Accrued expenses not currently deductible 18,584 29,251
-------------- --------------
Total deferred tax assets $ 31,049 $ 46,072
============== ==============
</TABLE>
F-12
<PAGE> 48
NOTE 9. 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).
LEASE COMMITMENTS
Future minimum lease payments and future minimum rentals at January 22,
2000 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FISCAL YEAR OPERATING
(In thousands) LEASES
- -------------------------------------------------------------------------
<S> <C>
2000 $ 333,242
2001 321,091
2002 297,420
2003 269,097
2004 241,438
Thereafter 1,741,807
--------------
Total minimum lease payments $3,204,095
==============
</TABLE>
RENTAL EXPENSE
A summary of operating lease rental expense and short-term rentals
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23, JANUARY 24,
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 321,158 $ 264,858 $ 218,271
Percentage rentals 254 478 428
-------------- -------------- ---------------
Total $ 321,412 $ 265,336 $ 218,699
============== ============== ===============
</TABLE>
NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23, JANUARY 24,
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash transactions:
Cash paid for interest $ 11,013 $ 6,640 $ 2,269
Cash paid for income taxes $ 4,402 $ 9,117 $ 48,649
Non-cash transactions:
Liabilities accrued for property and
equipment acquired $ 20,066 $ - $ 18,148
Note receivable converted to equity investment $ - $ 4,000 $ -
Tax benefit related to stock options $ 282 $ 500 $ 3,705
Payable recorded for the acquisition of
majority interest in OfficeMax de Mexico $ 14,000 $ - $ -
</TABLE>
F-13
<PAGE> 49
NOTE 11. EMPLOYEE BENEFIT PLANS
STOCK PURCHASE PLANS
In connection with its initial public 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 at
least 20%, and may use up to 100%, of their annual incentive 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 $112,000, $160,000 and $623,000 for fiscal years 1999, 1998 and 1997,
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.
The Company matches 50% of the first 3% of the employee's contribution. 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 $1,050,000, $950,000 and $794,000 in fiscal years 1999,
1998 and 1997, respectively.
STOCK OPTION PLANS
The Company's Equity-Based Award Plan provides for the issuance of
share appreciation rights, restricted shares and up to 17,000,000 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 either
five or 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. There was no compensation expense related to Equity-Based Award Plan
grants during fiscal years 1999 and 1998. The Company recognized compensation
expense on grants under a previous plan of $233,000 in fiscal year 1997.
Exercisable options outstanding were 3,904,106 at January 22, 2000,
3,209,432 at January 23, 1999, and 2,318,018 at January 24, 1998.
F-14
<PAGE> 50
Option activity for each of the last three fiscal years was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------- ---- ---------------- ---- -----------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
- ---------------------------------------------------- ---- ---------------- ---- -----------------
<S> <C> <C> <C> <C>
OUTSTANDING AT JANUARY 25, 1997 6,811,292 $ 11.46
Granted 3,416,130 12.26
Exercised (491,802) 5.77
Forfeited (1,586,530) 13.22
---------------- -----------------
OUTSTANDING AT JANUARY 24, 1998 8,149,090 11.78
Granted 4,910,266 11.66
Exercised (472,989) 8.60
Forfeited (1,484,780) 13.98
---------------- -----------------
OUTSTANDING AT JANUARY 23, 1999 11,101,587 11.57
Granted 4,042,354 8.35
Exercised (73,292) 5.79
Forfeited (2,982,302) 11.52
---------------- -----------------
OUTSTANDING AT JANUARY 22, 2000 12,088,347 $ 10.56
================ =================
</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 years 1999, 1998 and 1997, respectively,
were expected volatility of 36.9%, 30.9% and 34.5% and risk-free interest rates
of 5.7%, 4.9% and 6.3%. A dividend yield of zero and an expected life of five
years were used in the model for all three fiscal years.
The following table summarizes information about options outstanding at
January 22, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Prices Options Exercise Price Remaining Life (Years) Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.01 to $4.63 420,533 $ 4.01 2.72 420,233 $ 4.01
$6.06 to $8.69 5,252,050 $ 7.57 8.67 649,330 $ 8.08
$10.19 to $11.75 2,864,770 $ 11.54 6.57 1,897,867 $ 11.63
$13.88 to $14.75 2,799,519 $ 14.54 7.10 749,838 $ 14.52
$15.29 to $18.13 751,475 $ 16.51 7.84 185,063 $ 16.49
</TABLE>
F-15
<PAGE> 51
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 years 1999, 1998 and 1997. 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 year 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 22, JANUARY 23, JANUARY 24,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average fair value $ 3.37 $ 4.28 $ 5.08
Pro forma net earnings $ 5,961,000 $ 44,200,000 $ 84,822,000
Pro forma earnings per share:
Basic earnings per share $ 0.05 $ 0.36 $ 0.69
Diluted earnings per share $ 0.05 $ 0.36 $ 0.68
</TABLE>
NOTE 12. BUSINESS SEGMENTS
The Company has three reportable business segments: the Core Business
Segment, the Computer Business Segment and the OfficeMax.com Segment. The
operations of the Company's retail stores, call centers and outside sales force
are included in either the Core Business Segment or the Computer Business
Segment. The Core Business Segment includes office supplies, business machines,
peripherals, print-for-pay services and office furniture. The Computer Business
Segment includes desktop and laptop personal computers and computer monitors.
The OfficeMax.com Segment represents the operations of the Company's Internet
site. Prior to fiscal year 1999, the OfficeMax.com Segment was reported in the
Core Business Segment. All prior year amounts have been restated to reflect the
separate presentation of the OfficeMax.com Segment. The Company evaluates
performance and allocates resources based on the operations of these segments.
The accounting policies of the reportable business segments are the same as
those described in the Summary of Significant Accounting Policies (Note 1).
There are no intersegment sales or expense allocations. The Company
does not allocate fixed assets or depreciation to the Computer Business Segment.
The total assets of the Computer Business Segment, primarily inventory and
accounts receivable, were approximately $65,850,000 and $60,280,000 as of
January 22, 2000 and January 23, 1999, respectively. This segment also had
accounts payable of $3,605,000 and $14,274,000 as of January 22, 2000 and
January 23, 1999, respectively. The total assets of the OfficeMax.com segment,
primarily fixed assets, were approximately $1,695,000 and $316,000 as of January
22, 2000 and January 23, 1999, respectively. This segment also had accrued
expenses of $5,645,000 and $360,000 as of January 22, 2000 and January 23, 1999,
respectively. Depreciation expense for the OfficeMax.com segment was $258,000,
$119,000 and $101,000 for fiscal years 1999, 1998 and 1997, respectively.
Goodwill and the related amortization are included in the Core Business Segment.
Included in the Company's consolidated balance sheet as of January 22,
2000 are the net assets and related minority interest in the Company's majority
owned joint venture, OfficeMax de Mexico. The net assets of OfficeMax de Mexico,
which are included in the Core Business Segment, include inventory of
$18,245,000, fixed assets of $14,084,000 and accounts payable of $18,295,000.
The Company also has investments in joint venture partnerships in Brazil and
Japan. Other than its investments in joint venture partnerships, the Company has
no international sales or assets.
F-16
<PAGE> 52
The following table summarizes the results of operations for the
Company's reportable business segments: (Dollars in thousands)
<TABLE>
<CAPTION>
TOTAL
FISCAL YEAR 1999 COMPANY COMPUTERS OFFICEMAX.COM CORE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 4,842,698 $ 284,013 $ 40,171 $ 4,518,514
Cost of merchandise sold, including
buying and occupancy costs 3,653,783 285,051 30,270 3,338,462
Inventory markdown charge for
item rationalization 77,372 -- -- 77,372
----------- ----------- ----------- -----------
3,731,155 285,051 30,270 3,415,834
Gross profit (loss) 1,111,543 (1,038) 9,901 1,102,680
Operating income (loss) 32,386 (38,364) (6,239) 76,989
Interest expense (10,146) (3,207) (175) (6,764)
Other, net 59 -- -- 59
Income tax expense (benefit) 12,258 (16,254) (2,508) 31,020
----------- ----------- ----------- -----------
Net income (loss) $ 10,041 $ (25,317) $ (3,906) $ 39,264
=========== =========== =========== ===========
FISCAL YEAR 1998
- ----------------------------------------------------------------------------------------------------
Sales $ 4,337,768 $ 336,922 $ 6,346 $ 3,994,500
Cost of merchandise sold, including
Buying and occupancy costs 3,284,582 327,590 4,700 2,952,292
Computer segment asset write-off
79,950 79,950 -- --
----------- ----------- ----------- -----------
3,364,532 407,540 4,700 2,952,292
Gross profit (loss) 973,236 (70,618) 1,646 1,042,208
Operating income (loss) 86,692 (96,471) (293) 183,456
Interest expense (5,971) (4,700) (14) (1,257)
Other, net 290 -- -- 290
Income tax expense (benefit) 32,391 (38,295) (119) 70,805
----------- ----------- ----------- -----------
Net income (loss) $ 48,620 $ (62,876) $ (188) $ 111,684
=========== =========== =========== ===========
FISCAL YEAR 1997
- ----------------------------------------------------------------------------------------------------
Sales $ 3,765,444 $ 436,468 $ 1,004 $ 3,327,972
Cost of merchandise sold, including
Buying and occupancy costs 2,895,084 430,706 873 2,463,505
----------- ----------- ----------- -----------
Gross profit 870,360 5,762 131 864,467
Operating income (loss) 145,917 (6,161) 235 151,843
Interest income (expense)
518 (4,476) -- 4,994
Other, net (4) -- -- (4)
Income tax expense (benefit) 56,811 (4,127) 91 60,847
----------- ----------- ----------- -----------
Net income (loss) $ 89,620 $ (6,510) $ 144 $ 95,986
=========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 53
NOTE 13. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS
Unaudited quarterly consolidated results of operations for the years
ended January 22, 2000 and January 23, 1999 are summarized as follows:
(Dollars in thousands, except per share data)
FISCAL YEAR 1999
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,179,410 $ 970,463 $1,301,774 $1,391,051
Cost of merchandise sold, including
buying and occupancy costs 900,958 732,713 990,711 1,029,401
Inventory markdown for
item rationalization - - 83,257 (5,885)
Gross profit 278,452 237,750 227,806 367,535
Net income (loss) $ 22,016 $ 2,427 $ (37,440) $ 23,038
Earnings per common share:
Basic $ 0.19 $ 0.02 $ (0.33) $ 0.20
Diluted $ 0.19 $ 0.02 $ (0.33) $ 0.20
</TABLE>
FISCAL YEAR 1998
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,061,074 $ 874,470 $1,152,359 $1,249,865
Cost of merchandise sold, including
Buying and occupancy costs 818,736 666,131 869,080 930,635
Computer segment asset write-off - - - 79,950
Gross profit 242,338 208,339 283,279 239,280
Net income (loss) $ 19,074 $ 2,625 $ 33,578 $ (6,657)
Earnings per common share:
Basic $ 0.15 $ 0.02 $ 0.27 $ (0.06)
Diluted $ 0.15 $ 0.02 $ 0.27 $ (0.06)
</TABLE>
NOTE 14. SHAREHOLDER RIGHTS PLAN
During the first quarter of fiscal year 2000, the Company adopted a
Shareholder Rights Plan designed to protect its shareholders against "abusive
takeover tactics", by providing certain rights to its shareholders if any group
or person acquires 15 percent or more of the Company's common stock. The plan
will be implemented by issuing one preferred share purchase right for each share
of common stock outstanding at the close of business on March 17, 2000, or
issued thereafter until the rights become exercisable. Each right will entitle
the holder to buy one one-thousandth of a participating preferred share at a $30
initial exercise price. Each fraction of a participating preferred share will be
equivalent to a share of the Company's common stock. The rights become
exercisable if any group acquires more than 15% of the outstanding OfficeMax
common stock or if a person or group begins a tender or exchange offer that
could result in such as acquisition.
F-18
<PAGE> 54
NOTE 15. STRATEGIC ALLIANCE WITH GATEWAY COMPANIES, INC.
In the first quarter of fiscal year 2000, the Company announced its
plans to enter into a multi-channel strategic alliance with Gateway Companies,
Inc. ("Gateway"). Under this alliance, Gateway plans to install and operate a
licensed "store-within-a-store" computer department inside all OfficeMax
superstores in the United States. The department will offer products consistent
with the Company's current Computer Business Segment, including computers,
monitors and related products and services. Accordingly, the Company plans to
phase out operations of that segment. The store-within-a-store rollout began in
March 2000 and is expected to be complete by the end of the first quarter of
fiscal year 2001.
Also, under this alliance, OfficeMax.com will be the exclusive office
supply partner on Gateway's Internet site, Gateway.com, and will have its icon
and hot link featured on the computer desktop of Gateway systems sold to small
businesses and consumers in the United States over the next five years. Gateway
will have the exclusive right to market and sell computers and related products
on OfficeMax.com.
This alliance also contemplates significant cross marketing and
promotional opportunities, as well as a $50 million investment by Gateway in
OfficeMax convertible preferred stock, of which $20 million is designated for
OfficeMax.com.
F-19
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OFFICEMAX, INC.
Michael Feuer, Chairman of the Board of Directors, and Ross H. Pollock,
Secretary, of OfficeMax, Inc., an Ohio corporation (the "Corporation"), do
hereby certify that at a meeting of the Board of Directors of the Corporation
held on March 17, 2000, the following resolutions to amend the Second Amended
and Restated Articles of Incorporation, as amended, of the Corporation were
adopted pursuant to the authority granted by Section 1701.70(B)(1) of the Ohio
Revised Code:
RESOLVED, that the Second Amended and Restated Articles of
Incorporation, as amended, of the Corporation be, and they hereby are, amended
by adding at the end of Division A of Article Fourth a new Section 7 that reads
as follows:
SECTION 7. SERIES A PARTICIPATING CUMULATIVE SERIAL PREFERRED SHARES.
---------------------------------------------------------
(a) DESIGNATION AND AMOUNT. Of the 100,000,000 authorized Serial
Preferred Shares, 1,500,000 are designated as a series designated as "Series A
Participating Cumulative Serial Preferred Shares" (the "Series A Preferred
Shares"). The Series A Preferred Shares have the express terms set forth in this
Division as being applicable to all Serial Preferred Shares as a class and, in
addition, the following express terms applicable to all Series A Preferred
Shares as a series of Serial Preferred Shares. The number of Series A Preferred
Shares may be increased (subject to paragraph (i) of this Section 7) or
decreased by resolution of the Board of Directors and by the filing of a
certificate of amendment pursuant to the provisions of the General Corporation
Law of the State of Ohio stating that such increase or reduction has been so
authorized; however, no decrease shall reduce the number of Series A Preferred
Shares then outstanding plus the number of Series A Preferred Shares issuable
upon exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
(b) DIVIDENDS OR DISTRIBUTIONS. (1) Subject to the rights of the
holders of shares of any other class of capital stock of the Corporation ranking
prior to the Series A Preferred Shares with respect to dividends, the holders of
the Series A Preferred Shares shall be entitled to receive, when, as and if
declared by the Board of Directors, out of the assets of the Corporation legally
available therefor, (A) quarterly dividends payable in cash on the last day of
each fiscal quarter in each year, or such other dates as the Board of Directors
of the Corporation shall approve (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series A Preferred Share or a
fraction of a Series A Preferred Share, in the amount of $0.05 per whole
<PAGE> 2
Series A Preferred Share (rounded to the nearest cent) less the amount of all
cash dividends declared on the Series A Preferred Shares pursuant to the
following clause (B) since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any Series A Preferred Share or fraction of a Series A
Preferred Share (the total of which shall not, in any event, be less than zero)
and (B) dividends payable in cash on the payment date for each cash dividend
declared on the Common Shares in an amount per Whole Series A Preferred Share
(rounded to the nearest cent) equal to the Formula Number (as hereinafter
defined) then in effect times the cash dividends then to be paid on each Common
Share. In addition, if the Corporation shall pay any dividend or make any
distribution on the Common Shares payable in assets, securities or other forms
of noncash consideration (other than dividends or distributions payable solely
in Common Shares), then, in each such case, the Corporation shall simultaneously
pay or make on each outstanding whole Series A Preferred Share a dividend or
distribution in like kind equal to the Formula Number then in effect times such
dividend or distribution on each Common Share. As used herein, the "Formula
Number" shall be 1,000; PROVIDED, HOWEVER, that, if at any time after March 17,
2000, the Corporation shall (i) declare or pay any dividend on the Common Shares
payable in Common Shares or make any distribution on the Common Shares in Common
Shares, (ii) subdivide (by a stock split or otherwise) the outstanding Common
Shares into a larger number of Common Shares or (iii) combine (by a reverse
stock split or otherwise) the outstanding Common Shares into a smaller number of
Common Shares, then in each such event the Formula Number shall be adjusted to a
number determined by multiplying the Formula Number in effect immediately prior
to such event by a fraction, the numerator of which is the number of Common
Shares that are outstanding immediately after such event and the denominator of
which is the number of Common Shares that are outstanding immediately prior to
such event (and rounding the result to the nearest whole number); and PROVIDED
FURTHER that, if at any time after March 17, 2000, the Corporation shall issue
any shares of its capital stock in a merger, reclassification, or change of the
outstanding Common Shares, then in each such event the Formula Number shall be
appropriately adjusted to reflect such merger, reclassification or change so
that each Series A Preferred Share continues to be the economic equivalent of a
Formula Number of Common Shares prior to such merger, reclassification or
change.
(2) The Corporation shall declare a dividend or distribution on the
Series A Preferred Shares as provided in subparagraph (b)(1) immediately prior
to or at the same time it declares a dividend or distribution on the Common
Shares (other than a dividend or distribution payable solely in Common Shares);
PROVIDED, HOWEVER, that, in the event no dividend or distribution (other than a
dividend or distribution payable solely in Common Shares) shall have been
declared on the Common Shares during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $0.05 per share on the Series A Preferred Shares shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of Series A
Preferred Shares entitled to receive a dividend or distribution declared
thereon,
Page 2
<PAGE> 3
which record date shall be the same as the record date for any corresponding
dividend or distribution on the Common Shares.
(3) Dividends shall begin to accrue and be cumulative on outstanding
Series A Preferred Shares from and after the Quarterly Dividend Payment Date
next preceding the date of original issue of such Series A Preferred Shares;
PROVIDED, HOWEVER, that dividends on such shares which are originally issued
after the record date for the determination of holders of Series A Preferred
Shares entitled to receive a quarterly dividend and on or prior to the next
succeeding Quarterly Dividend Payment Date shall begin to accrue and be
cumulative from and after such Quarterly Dividend Payment Date. Notwithstanding
the foregoing, dividends on Series A Preferred Shares which are originally
issued prior to the record date for the determination of holders of Series A
Preferred shares entitled to receive a quarterly dividend on the first Quarterly
Dividend Payment Date shall be calculated as if cumulative from and after the
last day of the fiscal quarter next preceding the date of original issuance of
such shares. Accrued but unpaid dividends shall not bear interest. Dividends
paid on Series A Preferred Shares in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding.
(4) So long as any Series A Preferred Shares are outstanding, no
dividends or other distributions shall be declared, paid or distributed, or set
aside for payment or distribution, on the Common Shares unless, in each case,
the dividend required by this paragraph (b) of this Section 7 to be declared on
the Series A Preferred Shares shall have been declared.
(5) The holders of the Series A Preferred Shares shall not be entitled
to receive any dividends or other distributions except as provided herein.
(c) VOTING RIGHTS. (1) The holders of Series A Preferred Shares shall
have the voting rights set forth in Article Fourth, Division A, Section 5 of
these Articles.
(2) Except as provided in Article Fourth, Division A, Section 5 of
these Articles, in paragraph (i) of this Section 7 or by applicable law, holders
of Series A Preferred Shares shall have no voting rights and their consent shall
not be required for authorizing or taking any corporate action.
(d) LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, no distribution shall be
made (1) to the holders of shares ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Shares unless,
prior thereto, the holders of Series A Preferred Shares shall have received an
amount equal to the accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount equal to
the greater of (x) $1,000 per whole share or (y) an aggregate amount per share
equal to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Shares
Page 3
<PAGE> 4
or (2) to the holders of shares ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred Shares,
except distributions made ratably on the Series A Preferred Shares and all other
such parity shares in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding up.
(e) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which Common
Shares are exchanged for or changed into other shares or securities, cash or any
other property, then in any such case the then outstanding Series A Preferred
Shares shall at the same time be similarly exchanged or changed into an amount
per share equal to the Formula Number then in effect times the aggregate amount
of shares, securities, cash or any other property (payable in kind), as the case
may be, into which or for which each Common Share is exchanged or changed. In
the event both this paragraph (e) of this Section 7 and paragraph (b) of this
Section 7 appear to apply to a transaction, this paragraph (e) of this Section 7
will control.
(f) NO REDEMPTION; NO SINKING FUND. (1) The Series A Preferred Shares
shall not be subject to redemption by the Corporation or at the option of any
holder of Series A Preferred Shares; PROVIDED, HOWEVER, that, subject to Article
Fourth, Division A the Corporation may purchase or otherwise acquire outstanding
Series A Preferred Shares in the open market or by offer to any holder or
holders of Series A Preferred Shares.
(2) The Series A Preferred Shares shall not be subject to or entitled
to the operation of a retirement or sinking fund.
(g) FRACTIONAL SHARES. The Series A Preferred Shares shall be issuable
in whole shares or in any fraction of a share that is one one-thousandth of a
share or any integral multiple of such fraction which shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Shares. In lieu of fractional shares,
the Corporation, prior to the first issuance of a Series A Preferred Share or a
fraction of a Series A Preferred Share, may elect (1) to make a cash payment for
fractions of a share other than one one-thousandths of a share or any integral
multiple thereof or (2) to issue depository receipts evidencing such authorized
fraction of a Series A Preferred Share pursuant to an appropriate agreement
between the Corporation and a depository selected by the Corporation; PROVIDED,
HOWEVER, that such agreement shall provide that the holders of such depository
receipts shall have all the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Shares.
(h) REACQUIRED SHARES. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued Serial Preferred Shares,
without
Page 4
<PAGE> 5
designation as to series until such shares are once more designated as part of a
particular series by the Board of Directors pursuant to the provisions of these
Articles.
(i) ADDITIONAL SERIAL PREFERRED SHARES. If any Series A Preferred
Shares are outstanding, the Corporation shall not, with the purpose or effect of
diluting the voting power of the outstanding Series A Preferred Shares, increase
the number of authorized Series A Preferred Shares (except as may be required by
the Rights Agreement dated as of March 17, 2000 between the Corporation and
First Chicago Trust Company of New York, as Rights Agent) or issue shares of any
other series of the Serial Preferred Shares without the affirmative vote of the
holders of at least two-thirds of the outstanding Series A Preferred Shares.
(j) SEVERABILITY. If any term or other provisions of this Section 7 is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Section 7 shall nevertheless
remain in full force and effect.
RESOLVED FURTHER, that, any officer of the Corporation is hereby
authorized to sign and file with the Secretary of State of the State of Ohio one
or more certificates in the form required by Section 1701.73(A) of the General
Corporation Law of the State of Ohio setting forth a copy of these resolutions.
IN WITNESS WHEREOF, the undersigned have duly executed this Certificate
of Amendment on this 17th day of March, 2000.
MICHAEL FEUER,
/s/ Michael Feuer
------------------------------------------
Title: Chairman of the Board of Directors
ROSS H. POLLOCK,
/s/ Ross H. Pollock
------------------------------------------
Title: Secretary
Page 5
<PAGE> 6
CERTIFICATE
OF
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
OFFICEMAX, INC.
The undersigned, Edward Cornell and Todd M. DuChene, the duly elected
and acting Executive Vice President and Assistant Secretary, respectively, of
OfficeMax, Inc., an Ohio corporation (the "Company"), hereby certify that the
following resolution was adopted by the unanimous written consent of
shareholders of the Company on October 31, 1994:
RESOLVED, that the Second Amended and Restated
Articles of Incorporation set forth on the attached Exhibit A
be, and they hereby are, approved and adopted as the amended
articles of the Company pursuant to Section 1701.72 of the
Ohio Revised Code, superseding in all respects the Amended and
Restated Articles of Incorporation of the Company.
IN WITNESS WHEREOF, Edward Cornell, Executive Vice President, and Todd
M. DuChene, Assistant Secretary, of the Company, have hereunto subscribed their
names this 31st day of October, 1994.
/s/ Edward Cornell
-----------------------------------------
Edward Cornell, Executive Vice President
/s/ Todd M. DuChene
-----------------------------------------
Todd M. DuChene, Assistant Secretary
<PAGE> 7
Exhibit A
SECOND AMENDED AND RESTATED
---------------------------
ARTICLES OF INCORPORATION
-------------------------
OF
OFFICEMAX. INC.
---------------
FIRST: The name of the Corporation shall be "OfficeMax, Inc."
SECOND: The place in the State of Ohio where the principal
office of the Corporation is to be located is in the city of Shaker Heights,
Cuyahoga County.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code and any amendments
heretofore or hereafter made thereto.
FOURTH: The authorized number of shares of the Corporation is
310,000,000 consisting of 200,000,000 Common Shares, without par value
(hereinafter referred to as "Common Shares"), 100,000,000 Serial Preferred
Shares, without par value (hereinafter referred to as "Serial Preferred
Shares"), and 10,000,000 Voting Preference Shares, without par value
(hereinafter refered to as "Voting Preference Shares").
DIVISION A
The Serial Preferred Shares shall have the following express terms:
SECTION 1. SERIES. The Serial Preferred Shares may be issued from time
to time in one or more series. All Serial Preferred Shares shall be of equal
rank and shall be identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each share of a series
shall be identical with all other shares of such series, except as to the dates
from which dividends shall accrue and be cumulative. All Serial Preferred Shares
shall rank on a parity with and be identical to all Voting Preference Shares
except in respect of (i) the matters that may be fixed by the Board of Directors
as provided in clauses (a) through (i), both inclusive, of this Section and (ii)
the voting rights and provisions for consents relating to Serial Preferred
Shares as fixed and determined by Section 5 of this Division. Subject to the
provisions of Sections 2 through 6, both inclusive, of this Division, which
provisions shall apply to all Serial Preferred Shares, the Board of Directors
hereby is authorized to cause such shares to be issued in one or more series and
with respect to each such series to determine and fix prior to the issuance
thereof (and thereafter, to the extent provided in clause (b) of this Section)
the following:
(a) The designation of the series, which may be by
distinguishing number letter or title;
-2-
<PAGE> 8
(b) The authorized number of shares of the series, which
number the Board of Directors may (except where otherwise provided in
the creation of the series) increase or decrease from time to time
before or after the issuance thereof (but not below the number of
shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the
means by which any such rate may be established;
(d) The date or dates from which dividends shall accrue and be
cumulative and the dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which
any such date or period may be established;
(e) The redemption rights and redemption price or prices, if
any, for shares of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion
rate or rates or price or prices, any adjustments thereof and all other
terms and conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection
5(c) of this Division) on the issuance of shares of the same series or
of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Second Amended and Restated Articles of Incorporation fixing,
with respect to each such series, the matters described in clauses (a) through
(i), both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.
SECTION 2. DIVIDENDS.
(a) The holders of Serial Preferred Shares of each series, in
preference to the holders of Common Shares and of any other class of
shares ranking junior to the Serial Preferred Shares, shall be entitled
to receive out of any funds legally available for the payment of
dividends on Serial Preferred Shares and Voting Preference Shares, when
and as declared by the Board of Directors, dividends in cash at the
rate or rates for such series fixed in accordance with the provisions
of Section 1 of this Division and no more, payable on the dates fixed
for such series. Such dividends shall accrue and be cumulative, in the
case of shares of each particular series, from and after the date or
dates fixed with respect to such series.
-3-
<PAGE> 9
No dividends shall be paid upon or declared or set apart for any series
of Serial Preferred Shares for any dividend period unless at the same
time (1) a like proportionate dividend payable for the dividend periods
terminating on the same or any earlier date, ratably in proportion to
the respective annual dividend rates fixed therefor, shall have been
paid upon or declared or set apart for all Serial Preferred Shares of
all series then issued and outstanding and entitled to receive such
dividend and (2) a like proportionate dividend payable for the dividend
periods terminating on the same or any earlier date, ratably in
proportion to the respective dividend rates fixed therefor, shall have
been paid upon or declared or set apart for all Voting Preference
Shares of all series then issued and outstanding and entitled to
receive such dividend.
(b) So long as any Serial Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or
other shares ranking junior to Serial Preferred Shares, shall be paid
or declared or any distribution be made, except as aforesaid, in
respect of the Common Shares or any other shares ranking junior to
Serial Preferred Shares, nor shall any Common Shares or any other
shares ranking junior to Serial Preferred Shares be purchased, retired
or otherwise acquired by the Corporation, except out of the proceeds of
the sale of Common Shares or other shares of the Corporation ranking
junior to Serial Preferred Shares received by the Corporation
subsequent to the date of first issuance of Serial Preferred Shares of
any series, unless:
(1) All accrued and unpaid dividends on Serial
Preferred Shares, including the full dividends for all current
dividend periods, shall have been declared and paid or a sum
sufficient for payment thereof set apart; and
(2) There shall be no arrearage with respect to the
redemption of Serial Preferred Shares of any series from any
sinking fund provided for shares of such series in accordance
with the provisions of Section 1 of this Division.
SECTION 3. REDEMPTION.
(a) Subject to the express terms of each series and the
provisions of Subsection 5(c)(3) of this Division, the Corporation:
(1) May, from time to time at the option of the Board
of Directors, redeem all or any part of any redeemable series
of Serial Preferred Shares at the time outstanding at the
applicable redemption price for such series fixed in
accordance with the provisions of Section 1 of this Division;
and
(2) Shall, from time to time, make such redemptions
of each series of Serial Preferred Shares as may be required
to fulfill the requirements of any sinking fund provided for
shares of such series at the applicable sinking fund
redemption prices fixed in accordance with the provisions of
Section 1 of this Division;
-4-
<PAGE> 10
and shall in the case of any such redemption pay all accrued and unpaid
dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of Serial Preferred
Shares to be redeemed at their respective addresses then
appearing on the books of the Corporation, not less than 30
days nor more than 60 days prior to the date fixed for such
redemption, or such other time prior thereto as the Board of
Directors shall fix for any series pursuant to Section 1 of
this Division prior to the issuance thereof. At any time after
notice as provided above has been deposited in the mail, the
Corporation may deposit the aggregate redemption price of
Serial Preferred Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any
bank or trust company in Cleveland, Ohio, or New York, New
York, having capital and surplus of not less than
$100,000,000, named in such notice and direct that there be
paid to the respective holders of Serial Preferred Shares so
to be redeemed amounts equal to the redemption price of Serial
Preferred Shares so to be redeemed, together with such accrued
and unpaid dividends thereon, on surrender of the share
certificate or certificates held by such holders; and upon the
deposit of such notice in the mail and the making of such
deposit of money with such bank or trust company, such holders
shall cease to be shareholders with respect to such shares;
and from and after the time such notice shall have been so
deposited and such deposit of money shall have been so made,
such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right
to receive such money from such bank or trust company without
interest or to exercise before the redemption date any
unexpired privileges of conversion. If less than all of the
outstanding Serial Preferred Shares are to be redeemed, the
Corporation shall select by lot the shares so to be redeemed
in such manner as shall be prescribed by the Board of
Directors.
(2) If the holders of Serial Preferred Shares which
have been called for redemption shall not within five years
after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon
demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company and the Corporation shall
be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Serial Preferred Shares which are (1) redeemed by the
Corporation pursuant to the provisions of this Section, (2) purchased
and delivered in satisfaction of any sinking fund requirements provided
for shares of such series, (3) converted in accordance with the express
terms thereof, or (4) otherwise acquired by the Corporation, shall
resume the status of authorized but unissued Serial Preferred Shares
without serial designation.
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SECTION 4. LIQUIDATION.
(a) (1) If any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation,
the holders of Serial Preferred Shares of any series shall be
entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be
paid or distributed among the holders of Common Shares or any
other shares ranking junior to Serial Preferred Shares, the
amounts fixed with respect to shares of such series in
accordance with Section 1 of this Division, plus an amount
equal to all dividends accrued and unpaid thereon to the date
of payment of the amount due pursuant to such liquidation,
dissolution or winding up of the affairs of the Corporation.
If the net assets of the Corporation legally available
therefor are insufficient to permit the payment upon all
outstanding Serial Preferred Shares and Voting Preference
Shares of the full preferential amount to which they are
respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Serial Preferred
Shares and Voting Preference Shares in proportion to the full
preferential amount to which each such share is entitled.
(2) After payment to the holders of Serial Preferred
Shares of the full preferential amounts as aforesaid, the
holders of Serial Preferred Shares, as such, shall have no
right or claim to any of the remaining assets of the
Corporation.
(b) The merger or consolidation of the Corporation into or
with any other corporation or entity, the merger of any other
corporation or entity into the Corporation, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation,
shall not be deemed to be a dissolution, liquidation or winding up for
the purposes of this Section.
SECTION 5. VOTING.
(a) The holders of Serial Preferred Shares shall have no
voting rights, except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in
default in the payment of the equivalent of the full dividends
on any series of Serial Preferred Shares at the time
outstanding, whether or not earned or declared, for a number
of dividend payment periods (whether or not consecutive) which
in the aggregate contain at least 540 days, the holders of
Serial Preferred Shares of all series, voting together as one
separate class, shall be entitled to elect, as herein
provided, two members of the Board of Directors of the
Corporation; provided, however, that the holders of Serial
Preferred Shares shall not have or exercise such special class
voting rights except at meetings of such shareholders for the
election of directors at which the holders of not less than
50% of the outstanding Serial Preferred Shares of all series
then outstanding are present in person
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or by proxy; and provided further that the special class
voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all
accrued and unpaid dividends on Serial Preferred Shares of all
series then outstanding shall have been paid, whereupon the
holders of Serial Preferred Shares shall be divested of their
special class voting rights in respect of subsequent elections
of directors, subject to the revesting of such special class
voting rights on another default of the type specified in this
paragraph.
(2) In the event of default entitling the holders of
Serial Preferred Shares to elect two directors as specified in
paragraph (1) of this Subsection, a special meeting of such
holders for the purpose of electing such directors shall be
called by the Secretary of the Corporation upon written
request of, or may be called by, the holders of record of at
least 10% of Serial Preferred Shares of all series at the time
outstanding, and notice thereof shall be given in the same
manner as that required for the annual meeting of
shareholders; provided, however, that the Corporation shall
not be required to call such special meeting if the annual
meeting of shareholders shall be called to be held within 120
days after the date of receipt of the foregoing written
request from the holders of Serial Preferred Shares; provided
further, however, that if that annual meeting is not so held
within such 120 day period, a special meeting shall be called
as soon as is practicable after the Corporation becomes aware
that such annual meeting will not be so held. At any meeting
at which the holders of Serial Preferred Shares shall be
entitled to elect directors, the holders of 50% of Serial
Preferred Shares of all series at the time outstanding,
present in person or by proxy, shall be sufficient to
constitute a quorum, and the vote of the holders of a majority
of such shares so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect the
members of the Board of Directors which the holders of Serial
Preferred Shares are entitled to elect as herein provided.
Notwithstanding any provision of these Second Amended and
Restated Articles of Incorporation or the Code of Regulations
of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the
Corporation, the two directors who may be elected by the
holders of Serial Preferred Shares pursuant to this Subsection
shall serve in addition to any other directors then in office
or proposed to be elected otherwise than pursuant to this
Subsection. Nothing in this Subsection shall prevent any
change otherwise permitted in the total number of or
classifications of directors of the Corporation nor require
the resignation of any director elected otherwise than
pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the
two directors elected by the holders of Serial Preferred
Shares shall be elected annually for terms expiring at the
next succeeding annual meeting of shareholders.
(3) The terms of office of all directors then in
office elected by holders of Serial Preferred Shares as
provided in this Subsection shall terminate immediately upon
the expiration of the term of office during
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which occurs any divesting of the special class voting rights
of these holders. If the office of any director elected by
such holders becomes vacant by reason of death, resignation,
removal from office or otherwise, the holders of a majority of
Serial Preferred Shares of all series at the time outstanding,
present in person or by proxy at a special meeting of
shareholders called and held in accordance with Subsection (2)
above, shall elect a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds
of Serial Preferred Shares at the time outstanding, voting together as
one separate class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Preferred Shares are
concerned, such action may be effected with such vote):
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Second Amended and Restated Articles of Incorporation
or of the Code of Regulations of the Corporation which affects
adversely the preferences or voting or other rights of the
holders of Serial Preferred Shares; provided, however, neither
the amendment of the Second Amended and Restated Articles of
Incorporation so as to authorize, create or change the
authorized or outstanding number of Serial Preferred Shares or
of any shares ranking on a parity with or junior to Serial
Preferred Shares nor the amendment of the provisions of the
Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed
to affect adversely the preferences or voting or other rights
of the holders of Serial Preferred Shares; and provided
further, that if such amendment, alteration or repeal affects
adversely the preferences or voting or other rights of one or
more but not all series of Serial Preferred Shares at the time
outstanding, only the affirmative vote of the holders of at
least two-thirds of the number of shares at the time
outstanding of the series so affected shall be required;
(2) The authorization, creation or increase in the
authorized number of shares, or of any security convertible
into shares, in either case ranking prior to the Serial
Preferred Shares; or
(3) The purchase or redemption (for sinking fund
purposes or otherwise) of less than all Serial Preferred
Shares then outstanding except in accordance with a stock
purchase offer made to all holders of record of Serial
Preferred Shares, unless all dividends on all Serial Preferred
Shares and then outstanding for all previous dividend periods
shall have been declared and paid or funds therefor set apart
and all accrued sinking fund obligations applicable thereto
shall have been complied with.
SECTION 6. DEFINITIONS. For the purposes of this Division:
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<PAGE> 14
(a) Whenever reference is made to shares "ranking prior to
Serial Preferred Shares," such reference shall mean all shares of the
Corporation in respect of which the rights of the holders thereof as to
the payment of dividends or as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation are given preference over the rights of the
holders of Serial Preferred Shares;
(b) Whenever reference is made to shares "on a parity with
Serial Preferred Shares," such reference shall mean all Voting
Preference Shares and all other shares of the Corporation in respect of
which the rights of the holders thereof as to the payment of dividends
and as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation rank equally (except as to the amounts fixed therefor) with
the rights of the holders of Serial Preferred Shares; and
(c) Whenever reference is made to shares "ranking junior to
Serial Preferred Shares," such reference shall mean all shares of the
Corporation other than those defined under Subsections (a) and (b) of
this Section as shares "ranking prior to" or "on a parity with" Serial
Preferred Shares.
DIVISION B
The Voting Preference Shares shall have the following express terms:
SECTION 1. SERIES 1. The Voting Preference Shares may be issued from
time to time in one or more series. All Voting Preference Shares shall be of
equal rank and shall be identical, except in respect of the matters that may be
fixed by the Board of Directors as hereinafter provided, and each share of a
series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Voting Preference
Shares shall rank on a parity with and be identical to all Serial Preferred
Shares except in respect of (i) the matters that may be fixed by the Board of
Directors as provided in clauses (a) through (i), both inclusive, of this
Section and (ii) the voting rights and provisions for consents relating to
Voting Preference Shares as fixed and determined by Section 5 of this Division.
Subject to the provisions of Sections 2 through 6, both inclusive, of this
Division, which provisions shall apply to all Voting Preference Shares, the
Board of Directors hereby is authorized to cause such shares to be issued in one
or more series and with respect to each such series to determine and fix prior
to the issuance thereof (and thereafter, to the extent provided in clause (b) of
this Section) the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except where otherwise provided in
the creation of the series) increase or decrease from time to time
before or after the issuance thereof (but not below the number of
shares thereof then outstanding);
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<PAGE> 15
(c) The dividend rate or rates of the series, including the
means by which any such rate may be established;
(d) The date or dates from which dividends shall accrue and be
cumulative and the dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which
any such date or period may be established;
(e) The redemption rights and redemption price or prices, if
any, for shares of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion
rate or rates or price or prices, any adjustments thereof and all other
terms and conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection
5(c) of this Division) on the issuance of shares of the same series or
of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Second Amended and Restated Articles of Incorporation fixing,
with respect to each such series, the matters described in clauses (a) through
(i), both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.
SECTION 2. DIVIDENDS.
(a) The holders of Voting Preference Shares of each series, in
preference to the holders of Common Shares and of any other class of
shares ranking junior to Voting Preference Shares, shall be entitled to
receive out of any funds legally available for the payment of dividends
on Voting Preference Shares and Serial Preferred Shares, when and as
declared by the Board of Directors, dividends in cash at the rate or
rates for such series fixed in accordance with the provisions of
Section 1 of this Division and no more, payable on the dates fixed for
such series. Such dividends shall accrue and be cumulative, in the case
of shares of each particular series, from and after the date or dates
fixed with respect to such series. No dividends shall be paid upon or
declared or set apart for any series of Voting Preference Shares for
any dividend period unless at the same time (1) a like proportionate
dividend payable for the dividend periods terminating on the same or
any earlier date, ratably in proportion to the respective dividend
rates fixed therefor, shall have been paid upon or declared or set
apart
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<PAGE> 16
for all Voting Preference Shares of all series then issued and
outstanding and entitled to receive such dividend and (2) a like
proportionate dividend payable for the dividend periods terminating on
the same or any earlier date, ratably in proportion to the respective
dividend rates fixed therefor, shall have been paid upon or declared or
set apart for all Serial Preferred Shares of all series then issued and
outstanding and entitled to receive such dividend.
(b) So long as any Voting Preference Shares shall be
outstanding no dividend, except a dividend payable in Common Shares or
other shares ranking junior to Voting Preference Shares, shall be paid
or declared or any distribution be made, except as aforesaid, in
respect of the Common Shares or any other shares ranking junior to
Voting Preference Shares, nor shall any Common Shares or any other
shares ranking junior to Voting Preference Shares be purchased, retired
or otherwise acquired by the Corporation, except out of the proceeds of
the sale of Common Shares or other shares of the Corporation ranking
junior to Voting Preference Shares received by the Corporation
subsequent to the date of first issuance of Voting Preference Shares of
any series, unless:
(1) All accrued and unpaid dividends on Voting
Preference Shares, including the full dividends for all
current dividend periods, shall have been declared and paid or
a sum sufficient for payment thereof set apart; and
(2) There shall be no arrearage with respect to the
redemption of Voting Preference Shares of any series from any
sinking fund provided for shares of such series in accordance
with the provisions of Section 1 of this Division.
SECTION 3. REDEMPTION.
(a) Subject to the express terms of each series and to the
provisions of Subsection 5(c)(6) of this Division, the Corporation:
(1) May, from time to time at the option of the Board
of Directors, redeem all or any part of any redeemable series
of Voting Preference Shares at the time outstanding at the
applicable redemption price for such series fixed in
accordance with the provisions of Section 1 of this Division;
and
(2) Shall, from time to time, make such redemptions
of each series of Voting Preference Shares as may be required
to fulfill the requirements of any sinking fund provided for
shares of such series at the applicable sinking fund
redemption prices fixed in accordance with the provisions of
Section 1 of this Division;
and shall in the case of any such redemption pay all accrued and unpaid
dividends to the redemption date.
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<PAGE> 17
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of Voting Preference Shares
to be redeemed at their respective addresses then appearing on the
books of the Corporation, not less than 30 days nor more than 60 days
prior to the date fixed for such redemption, or such other time prior
thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Division prior to the issuance thereof. At any time
after notice as provided above has been deposited in the mail, the
Corporation may deposit the aggregate redemption price of Voting
Preference Shares to be redeemed, together with accrued and unpaid
dividends thereon to the redemption date, with any bank or trust
company in Cleveland, Ohio, or New York, New York, having capital and
surplus of not less than $100,000,000, named in such notice and direct
that there be paid to the respective holders of Voting Preference
Shares so to be redeemed amounts equal to the redemption price of
Voting Preference Shares so to be redeemed, together with such accrued
and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice
in the mail and the making of such deposit of money with such bank or
trust company, such holders shall cease to be shareholders with respect
to such shares; and from and after the time such notice shall have been
so deposited and such deposit of money shall have been so made, such
holders shall have no rights or claim against the Corporation with
respect to such shares, except only the right to receive such money
from such bank or trust company without interest or to exercise before
the redemption date any unexpired privileges of conversion. If less
than all of the outstanding Voting Preference Shares are to be
redeemed, the Corporation shall select by lot the shares so to be
redeemed in such manner as shall be prescribed by the Board of
Directors.
(2) If the holders of Voting Preference Shares which
have been called for redemption shall not within five years
after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon
demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company and the Corporation shall
be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Voting Preference Shares which are (1) redeemed by the
Corporation pursuant to the provisions of this Section, (2) purchased
and delivered in satisfaction of any sinking fund requirements provided
for shares of such series, (3) converted in accordance with the express
terms thereof, or (4) otherwise acquired by the Corporation, shall
resume the status of authorized but unissued Voting Preference Shares
without serial designation.
SECTION 4. LIQUIDATION.
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of Voting Preference Shares of any
series shall be entitled to receive in full out of the assets
of the Corporation, including its capital, before any amount
shall be paid or distributed among the holders of the Common
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<PAGE> 18
Shares or any other shares ranking junior to Voting Preference
Shares, the amounts fixed with respect to shares of such
series in accordance with Section 1 of this Division, plus an
amount equal to all dividends accrued and unpaid thereon to
the date of payment of the amount due pursuant to such
liquidation, dissolution or winding up of the affairs of the
Corporation. If the net assets of the Corporation legally
available therefor are insufficient to permit the payment upon
all outstanding Voting Preference Shares and Serial Preferred
Shares of the full preferential amount to which they are
respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Voting Preference
Shares and Serial Preferred Shares in proportion to the full
preferential amount to which each such share is entitled.
(2) After payment to the holders of Voting Preference
Shares of the full preferential amounts as aforesaid, the
holders of Voting Preference Shares, as such, shall have no
right or claim to any of the remaining assets of the
Corporation.
(b) The merger or consolidation of the Corporation into or
with any other corporation or entity, the merger of any other
corporation or entity into the Corporation, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation,
shall not be deemed to he a dissolution, liquidation or winding up for
the purposes of this Section.
SECTION 5. VOTING.
(a) The holders of Voting Preference Shares shall be entitled
at all times to one vote for each share and, except as otherwise
provided in this Section or required by law, the holders of Voting
Preference Shares and the holders of Common Shares shall vote together
as a class on all matters presented, subject, however, to the special
voting rights of the holders of Serial Preferred Shares as provided in
Section 5 of Division A hereof.
(b) (1) If, and so often as, the Corporation shall be in
default in the payment of the equivalent of the full dividends
on any series of Voting Preference Shares at the time
outstanding, whether or not earned or declared, for a number
of dividend payment periods (whether or not consecutive) which
in the aggregate contain at least 540 days, the holders of
Voting Preference Shares of all series, voting together as one
separate class, shall be entitled to elect, as herein
provided, two members of the Board of Directors of the
Corporation; provided, however, that the holders of Voting
Preference Shares shall not have or exercise such special
class voting rights except at meetings of such shareholders
for the election of directors at which the holders of not less
than 50% of the Voting Preference Shares of all series then
outstanding are present in person or by proxy; and provided
further that the special class voting rights provided for in
this paragraph when the same shall have become vested shall
remain so vested until all accrued and unpaid dividends on
Voting Preference
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<PAGE> 19
Shares of all series then outstanding shall have been paid,
whereupon the holders of Voting Preference Shares shall be
divested of their special class voting rights in respect of
subsequent elections of directors, subject to the revesting of
such special class voting rights on another default of the
type specified in this paragraph.
(2) In the event of default entitling the holders of
Voting Preference Shares to elect two directors as specified
in paragraph (1) of this Subsection, a special meeting of such
holders for the purpose of electing such directors shall be
called by the Secretary of the Corporation upon written
request of, or may be called by, the holders of record of at
least 10% of Voting Preference Shares of all series at the
time outstanding, and notice thereof shall be given in the
same manner as that required for the annual meeting of
shareholders; provided, however, that the Corporation shall
not be required to call such special meeting if the annual
meeting of shareholders shall be called to be held within 120
days after the date of receipt of the foregoing written
request from the holders of Voting Preference Shares; provided
further, however, that if that annual meeting is not so held
within such 120 day period, a special meeting shall be called
as soon as is practicable after the Corporation becomes aware
that such annual meeting will not be so held. At any meeting
at which the holders of Voting Preference Shares shall be
entitled to elect directors, the holders of 50% of Voting
Preference Shares of all series at the time outstanding,
present in person or by proxy, shall be sufficient to
constitute a quorum, and the vote of the holders of a majority
of such shares so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect the
members of the Board of Directors which the holders of Voting
Preference Shares are entitled to elect as herein provided.
Notwithstanding any provision of these Second Amended and
Restated Articles of Incorporation or the Code of Regulations
of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the
Corporation, the two directors who may be elected by the
holders of Voting Preference Shares pursuant to this
Subsection shall serve in addition to any other directors then
in office or proposed to be elected otherwise than pursuant to
this Subsection. Nothing in this Subsection shall prevent any
change otherwise permitted in the total number or
classifications of directors of the Corporation nor require
the resignation of any director elected otherwise than
pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the
two directors elected by the holders of Voting Preference
Shares shall be elected annually for terms expiring at the
next succeeding annual meeting of shareholders.
(3) The terms of office of all directors then in
office elected by holders of Voting Preference Shares as
provided in this Subsection shall terminate immediately upon
the expiration of the term of office during which occurs any
divesting of the special class voting rights of these holders.
If the office of any director elected by such holders becomes
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vacant by reason of death, resignation, removal from office or
otherwise, the holders of a majority of Voting Preference
Shares of all series at the time outstanding, present in
person or by proxy at a special meeting of shareholders called
and held in accordance with Subsection (2) above, shall elect
a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred.
(c) The affirmative vote of the holders of at least two-thirds
of Voting Preference Shares at the time outstanding, voting together as
one separate class, shall be necessary to effect any one or more of the
following (but so far as the holders of Voting Preference Shares are
concerned, such action may be effected with such vote or consent):
(1) The sale, lease or conveyance by the Corporation
of all or substantially all of its assets;
(2) The merger or consolidation of the Corporation
into or with any other corporation or the merger of any other
corporation into it;
(3) The voluntary liquidation, dissolution or winding
up of the affairs of the Corporation:
(4) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Second Amended and Restated Articles of Incorporation
or of the Code of Regulations of the Corporation which affects
adversely the preferences or voting or other rights of the
holders of Voting Preference Shares; provided, however, that
for the purpose of this paragraph only, neither the amendment
of the Second Amended and Restated Articles of Incorporation
so as to authorize, create or change the authorized or
outstanding number of Voting Preference Shares or of any
shares ranking on a parity with or junior to Voting Preference
Shares nor the amendment of the provisions of the Code of
Regulations so as to change the number or classification of
directors of the Corporation shall be deemed to affect
adversely the preferences or voting or other rights of the
holders of Voting Preference Shares; and provided further,
that if such amendment, alteration or repeal affects adversely
the preferences or voting or other rights of one or more but
not all series of Voting Preference Shares at the time
outstanding, only the affirmative vote of the holders of at
least two-thirds of the number of the shares at the time
outstanding of the series so affected shall be required;
(5) The authorization, creation or increase in the
authorized number of any shares, or of any security
convertible into shares, in either case ranking prior to
Voting Preference Shares; or
(6) The purchase or redemption (for sinking fund
purposes or otherwise) of less than all Voting Preference
Shares then outstanding except in accordance with a stock
purchase offer made to all holders of
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record of Voting Preference Shares, unless all dividends on
all Voting Preference Shares then outstanding for all previous
dividend periods shall have been declared and paid or funds
therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
SECTION 6. DEFINITIONS. For the purposes of this Division:
(a) Whenever reference is made to shares "ranking prior to
Voting Preference Shares," such reference shall mean all shares of the
Corporation in respect of which the rights of the holders thereof as to
the payment of dividends or as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation are given preference over the rights of the
holders of Voting Preference Shares;
(b) Whenever reference is made to shares "on a parity with
Voting Preference Shares," such reference shall mean all Serial
Preferred Shares and all other shares of the Corporation in respect of
which the rights of the holders thereof as to the payment of dividends
and as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation rank equally (except as to the amounts fixed therefor) with
the rights of the holders of Voting Preference Shares; and
(c) Whenever reference is made to shares "ranking junior to
Voting Preference Shares," such reference shall mean all shares of the
Corporation other than those defined under Subsections (a) and (b) of
this Section as shares "ranking prior to" or "on a parity with" Voting
Preference Shares.
DIVISION C
The Common Shares shall have the following express terms:
The Common Shares shall be subject to the express terms of
Voting Preference Shares and any series thereof and to the express
terms of Serial Preferred Shares and any series thereof. Each Common
Share shall be equal to each other Common Share and the holders thereof
shall be entitled to one vote for each Common Share on all matters
presented to the shareholders of the Corporation.
Each Common Share issued and outstanding immediately prior to
the filing of these Second Amended and Restated Articles of
Incorporation shall be changed into 62.6766 Common Shares with any
fractional Common Share to which a holder would otherwise be entitled
being rounded up to the next whole share.
FIFTH: No holder of shares of the Corporation of any class
shall be entitled as such, as a matter of right, to subscribe for or purchase
shares of the Corporation of any class, now or hereafter authorized, or to
subscribe for or purchase securities convertible into or exchangeable for shares
of the Corporation of any class or to which shall be attached or appertain any
warrants or rights entitling the holder thereof to
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<PAGE> 22
subscribe for or purchase shares of the Corporation of any class, except such
rights of subscription or purchase, if any, for such considerations and upon
such terms and conditions as its Board of Directors from time to time may
determine.
SIXTH: To the extent permitted by law, the Corporation, by
action of its Board of Directors and without action by its shareholders, may
purchase or otherwise acquire shares of any class issued by it at such times,
for such consideration and upon such terms and conditions as its Board of
Directors may determine.
SEVENTH: Except as otherwise provided in these Second Amended
and Restated Articles of Incorporation or the Code of Regulations of the
Corporation, notwithstanding any provision of Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code and any amendments heretofore or hereafter
made thereto, requiring for any purpose the vote, consent, waiver, or release of
the holders of shares entitling them to exercise two-thirds or any other
proportion of the voting power of the Corporation or of any class or classes of
shares thereof, any action may be taken by the vote of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation, or
of such class or classes, unless the proportion designated by such statute
cannot be altered by these Second Amended and Restated Articles of
Incorporation.
EIGHTH: No shareholder may cumulate such shareholder's voting
power in the election of directors.
NINTH: Section 1701.831 of the Ohio Revised Code shall not
apply to control share acquisitions of the shares of the Corporation. Chapter
1704 of the Ohio Revised Code shall not apply to the Corporation.
TENTH: These Second Amended and Restated Articles of
Incorporation shall supersede and take the place of the heretofore existing
Amended and Restated Articles of Incorporation and all amendments thereto.
-17-
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 1
---------------
AMENDMENT NO. 1, dated as of April 7, 2000 (this "AMENDMENT"), to and
under the Credit Agreement (the "CREDIT AGREEMENT"), dated as of July 3, 1997,
by and among OFFICEMAX, INC., an Ohio corporation (the "BORROWER"), the lenders
party 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.
RECITALS
--------
I. Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
II. The Borrower has requested that the Administrative Agent agree to
amend the Credit Agreement upon the terms and conditions contained in this
Amendment, and the Administrative Agent is willing so to agree.
Accordingly, in consideration of the Recitals and the terms and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Borrower and the
Administrative Agent hereby agree as follows:
1. Notwithstanding the notice provisions contained in Section 2.7(a) of
the Credit Agreement, effective upon the Amendment Effective Date (as
hereinafter defined) the Aggregate Revolving Credit Commitment Amount is
permanently reduced from $500,000,000 to $400,000,000.
2. The definition of "Applicable Fee Percentage" contained in Section
1.1 of the Credit Agreement is amended in its entirety to read as follows:
"APPLICABLE FEE PERCENTAGE": at all times during the
applicable period set forth below, with respect to (i) the
Facility Fee, the percentage set forth in the following table
under the heading "Facility Fee" and opposite such period, and
(ii) Letter of Credit Commissions, the percentage set forth in
the following table under the heading "Letter of Credit
Commissions" and opposite such period:
<PAGE> 2
======================================================================
WHEN THE FIXED CHARGE
COVERAGE RATIO IS
----------------------------------------------------------------------
LESS THAN OR AND GREATER LETTER OF CREDIT
EQUAL TO THAN FACILITY FEE COMMISSIONS
----------------------------------------------------------------------
1.35:1.00 0.500% 1.250%
----------------------------------------------------------------------
1.50:1.00 1.35:1.00 0.375% 1.125%
----------------------------------------------------------------------
1.65:1.00 1.50:1.00 0.375% 1.000%
----------------------------------------------------------------------
1.85:1.00 1.65:1.00 0.300% 0.825%
----------------------------------------------------------------------
1.85:1.00 0.300% 0.700%
======================================================================
Changes in the Applicable Fee Percentage resulting
from a change in the Fixed Charge Coverage Ratio shall be
based upon the Compliance Certificate most recently delivered
under Section 7.1(c) and shall become effective on the date
such Compliance Certificate is delivered to the Administrative
Agent and the Lenders. Notwithstanding anything to the
contrary contained in this definition, (i) if the Borrower
shall fail to deliver to the Administrative Agent and the
Lenders a Compliance Certificate on or prior to any date
required hereby, the Fixed Charge Coverage Ratio for purposes
of this definition only shall be deemed to be less than
1.35:1.00 from and including such date to the date of delivery
to the Administrative Agent and the Lenders of such Compliance
Certificate, and (ii) during the period commencing on the
Amendment Effective Date and ending on the date of delivery of
the Compliance Certificate for the fiscal quarter ended July
22, 2000, the Fixed Charge Coverage Ratio for purposes of this
definition only shall be deemed to be less than or equal to
1.50:1.00 and greater than 1.35:1.00 if the Fixed Charge
Coverage Ratio as reported in such Compliance Certificate is
greater than 1.35:100, but if such Ratio reported in such
Certificate is less than 1.35:100, the Ratio as so reported
shall prevail.
3. The definition of "Applicable Margin" contained in Section 1.1 of
the Credit Agreement is amended in its entirety to read as follows:
"APPLICABLE MARGIN": at all times during the
applicable period set forth below, with respect to the unpaid
principal balance of Eurodollar Advances, the percentage set
forth in the following table under the heading "Applicable
Margin" and opposite such period:
2
<PAGE> 3
==============================================================
WHEN THE FIXED CHARGE
COVERAGE RATIO IS
--------------------------------------------------------------
LESS THAN OR AND GREATER APPLICABLE
EQUAL TO THAN MARGIN
--------------------------------------------------------------
1.35:1.00 1.250%
--------------------------------------------------------------
1.50:1.00 1.35:1.00 1.125%
--------------------------------------------------------------
1.65:1.00 1.50:1.00 1.000%
--------------------------------------------------------------
1.85:1.00 1.65:1.00 0.825%
--------------------------------------------------------------
1.85:1.00 0.700%
==============================================================
Changes in the Applicable Margin resulting from a
change in the Fixed Charge Coverage Ratio shall be based upon
the Compliance Certificate most recently delivered under
Section 7.1(c) and shall become effective on the date such
Compliance certificate is delivered to the Administrative
Agent and the Lenders. Notwithstanding anything to the
contrary contained in this definition, (i) if the Borrower
shall fail to deliver to the Administrative Agent and the
Lenders a Compliance Certificate on or prior to any date
required hereby, the Fixed Charge Coverage Ratio for purposes
of this definition only shall be deemed to be less than
1.35:1.00 from and including such date to the date of delivery
to the Administrative Agent and the Lenders of such Compliance
Certificate, and (ii) during the period commencing on the
Amendment Effective Date and ending on the date of delivery of
the Compliance Certificate for the fiscal quarter ended July
22, 2000, the Fixed Charge Coverage Ratio for purposes of this
definition only shall be deemed to be less than or equal to
1.50:1.00 and greater than 1.35:1.00 if the Fixed Charge
Coverage Ratio as reported in such Compliance Certificate is
greater than 1.35:100, but if such Ratio reported in such
Certificate is less than 1.35:100, the Ratio as so reported
shall prevail.
4. The definition of "Indebtedness for Borrowed Money" contained in
Section 1.1 of the Credit Agreement is amended in its entirety to read as
follows:
"INDEBTEDNESS FOR BORROWED MONEY": as to any Person,
at a particular time, all items which constitute, without
duplication, (i) indebtedness for borrowed money, (ii)
indebtedness in respect of the deferred purchase price of
Property (other than trade payables incurred in the ordinary
course of business), (iii) indebtedness evidenced by notes,
bonds, debentures or similar instruments, (iv)
3
<PAGE> 4
Capital Lease Obligations, (v) all obligations of such Person
in respect of Capital Stock subject to mandatory redemption or
redemption at the option of the holder thereof, in whole or in
part, (vi) all Contingent Obligations of such Person in
respect of any of the foregoing, and (vii) the principal and
interest portions of all rental obligations of such Person
under any Synthetic Lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing
product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP.
5. The definition of "Leverage Ratio" contained in Section 1.1 of the
Credit Agreement is amended in its entirety to read as follows:
"LEVERAGE RATIO": as of the last day of any fiscal
quarter, the ratio of (i) Indebtedness for Borrowed Money of
the Borrower and its Subsidiaries determined on a Consolidated
basis in accordance with GAAP to (ii) the sum of (x)
Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on such day PLUS (y) the principal and
interest portions of all rental obligations of such Person for
such period under any Synthetic Lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered
borrowed money indebtedness for tax purposes but is classified
as an operating lease in accordance with GAAP.
6. The definition of "Material Subsidiary Group" contained in Section
1.1 of the Credit Agreement is hereby deleted.
7. The definitions of "Pricing Level", "Pricing Level I", "Pricing
Level II", "Pricing Level III", "Pricing Level IV" and "Pricing Level V"
contained in Section 1.1 of the Credit Agreement are hereby deleted.
8. The definition of "Loan Documents" contained in Section 1.1 of the
Credit Agreement is amended by adding the term "Guaranty" immediately after the
term "Reimbursement Agreements" therein.
9. The definition of "Special Counsel" contained in Section 1.1 of the
Credit Agreement is amended by substituting "Bryan Cave LLP" for "Emmet, Marvin
& Martin, LLP" therein.
10. The definition of "Swing Line Commitment Amount" contained in
Section 1.1 of the Credit Agreement is amended by substituting "$35,000,000" for
"$15,000,000" therein.
4
<PAGE> 5
11. The following definitions are added to Section 1.1 of the Credit
Agreement in their appropriate alphabetical order:
"AMENDMENT EFFECTIVE DATE": the date on which
Amendment No. 1 to this Agreement becomes effective.
"CONSOLIDATED TANGIBLE NET WORTH": as of any date,
Consolidated Net Worth as of such date MINUS all intangible
assets of the Borrower and its Subsidiaries on a Consolidated
basis as of such date.
"GATEWAY CAPITAL STOCK": the Capital Stock of the
Borrower purchased by Gateway Companies, Inc. or any Affiliate
thereof, including any Capital Stock into which the Capital
Stock originally purchased may be converted.
"GUARANTOR": any Person (other than the Borrower)
that executes and delivers the Guaranty, in each case in
accordance with Section 7.12.
"GUARANTY": the Guaranty, substantially in the form
of Exhibit N.
"INTERNET BUSINESS": the internet business currently
conducted by the Borrower as a division under the name
"officemax.com" or any successors or assigns thereof.
"LOAN PARTIES": the Borrower and the Guarantors.
"MATERIAL ENTITY": any Person described in clause (a)
or (b) below:
(a) any Subsidiary of the Borrower as to
which any of the following tests is met: (i) the Borrower and
its other Subsidiaries' investments in and advances to such
Subsidiary exceed 10% of the total assets of the Borrower and
its Subsidiaries on a Consolidated basis as of the last day of
the most recently completed fiscal quarter, (ii) such
Subsidiary's proportionate share of the total assets (after
intercompany eliminations) of the Borrower and its
Subsidiaries on a Consolidated basis exceeds 10% of the total
assets of the Borrower and its Subsidiaries on a Consolidated
basis as of the last day of the most recently completed fiscal
quarter, or (iii) the equity in the income from continuing
operations before income taxes, extraordinary items and the
cumulative effect of a
5
<PAGE> 6
change in accounting principles of such Subsidiary exceeds 10%
of such income of the Borrower and its Subsidiaries on a
Consolidated basis as of the last day of the most recently
completed fiscal quarter; or
(b) any Person in which the Borrower or any
of its Subsidiaries has an ownership interest (including,
without limitation, any Subsidiary of the Borrower or any
joint venture) and to whom the Borrower or any of its
Subsidiaries, directly or indirectly, transfers all or a
portion of the Internet Business.
"SYNTHETIC LEASE": any lease or other agreement for
the use or possession of Property creating obligations which
do not appear as Indebtedness on the balance sheet of the
lessee thereunder but which, upon the insolvency or bankruptcy
of such person, may be characterized as the Indebtedness of
such lessee without regard to the accounting treatment.
12. Section 1.2(b) of the Credit Agreement is amended by substituting
the phrase "(including for purposes of determining the Applicable Fee Percentage
and the Applicable Margin)" for the phrase "(including for purposes of
determining the applicable Pricing Level)" in the second sentence thereof.
13. Section 7.1(a) of the Credit Agreement is amended and restated in
its entirety to read as follows:
(a) FORM 10K. As soon as available, but in any event
within 95 days after the end of each fiscal year of the
Borrower, a copy of the annual audited financial statements of
the Borrower and its Subsidiaries, prepared on a Consolidated
basis in accordance with GAAP, and on a combined basis with
the Internet Business, as filed with the SEC. Such financial
statements shall be certified without qualification as to
going concern by the Accountants, which certification shall
(i) state that the examination by such Accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary in
the circumstances, and (ii) include the opinion of such
Accountants that such financial statements have been prepared
in accordance with GAAP in a manner consistent with prior
fiscal periods, except as otherwise specified in such opinion.
6
<PAGE> 7
14. Section 7.1 of the Credit Agreement is amended by adding a new
subsection (e) to the end thereof to read as follows:
(e) Within 50 days after the end of each fiscal
quarter (except the last fiscal quarter) of each fiscal year
of the Borrower, copies of unaudited financial statements with
respect to the Internet Business, prepared in accordance with
GAAP.
15. Section 7.11(a) of the Credit Agreement is amended in its entirety
to read as follows:
(a) FIXED CHARGE COVERAGE RATIO. Maintain a Fixed
Charge Coverage Ratio as of the end of each fiscal quarter
during the applicable period set forth below equal to or
greater than the ratio set forth below with respect to such
period:
=========================================================================
PERIOD RATIO
-------------------------------------------------------------------------
Amendment Effective Date through April 28, 2001 1.25:1.00
-------------------------------------------------------------------------
April 29, 2001 through January 26, 2002 1.35:1.00
-------------------------------------------------------------------------
January 27, 2002 and thereafter 1.45:1.00
=========================================================================
16. Section 7.11 of the Credit Agreement is further amended by adding a
new subsection (c) at the end thereof to read as follows:
(c) MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Maintain
as of the last day of each fiscal quarter, Consolidated
Tangible Net Worth in an amount not less than the sum of (i)
$682,559,000, PLUS (ii) 50% of the Borrower's Consolidated net
income (if positive) for each full fiscal quarter ending after
January 22, 2000 to such date of determination PLUS (iii) any
increase to Consolidated Tangible Net Worth resulting from any
equity issuance by the Borrower after the Amendment Effective
Date MINUS (iv) any decrease to Consolidated Tangible Net
Worth resulting from repurchase or redemption of shares of
Capital Stock pursuant to the terms of the repurchased or
redeemed shares of Capital Stock.
17. The Credit Agreement is amended by adding a new Section 7.12 to
read as follows:
7.12 GUARANTY.
7
<PAGE> 8
Within 15 Business Days thereof, notify the
Administrative Agent in writing if any Person shall have
become a Material Entity and within 15 days thereof cause each
such Material Entity to execute and deliver to the
Administrative Agent a completed Guaranty (or, if the Guaranty
is then in effect, a Guaranty Supplement (as defined in the
Guaranty)) and to deliver or cause each such Material Entity
to deliver to the Administrative Agent such other agreements
certificates, instruments and opinions of counsel with respect
thereto as the Administrative Agent may request.
18. Section 8.1 of the Credit Agreement is amended in its entirety to
read as follows:
Permit any Subsidiary to create, incur, assume or
suffer to exist any liability for Indebtedness, except (i)
Intercompany Indebtedness to the extent permitted by Section
8.6(c), (ii) in the case of Domestic Subsidiaries, (A)
Indebtedness existing on the Effective Date as set forth on
Schedule 8.1, including refinancings but not increases
thereof, (B) any Indebtedness of a Person or business acquired
by a Domestic Subsidiary in a Permitted Acquisition, provided
that such Indebtedness existed at the time of such Permitted
Acquisition and was not incurred in contemplation thereof, and
(C) other Indebtedness in an aggregate outstanding principal
amount not exceeding $5,000,000, (iii) in the case of Foreign
Subsidiaries, Indebtedness (on a combined basis) at any one
time outstanding not in excess of 15% of Consolidated Net
Worth, (iv) Contingent Obligations not exceeding $5,000,000 in
the aggregate in respect of real Property leases that have
been assigned (which term shall also include new leases
entered into between a landlord and a third party in respect
of real Property being vacated by a Subsidiary) by a
Subsidiary, the terms of which assignment, or the landlord's
consent therefor or any such Contingent Obligation, require
the Subsidiary to remain liable for rent and other performance
in respect of the assigned lease and (v) obligations under
Synthetic Leases, if after giving effect thereto no Default
would exist.
19. Section 8.7 of the Credit Agreement is amended in its entirety to
read as follows:
Declare or pay any Restricted Payments payable in
cash or otherwise or apply any of its Property thereto or set
apart any sum
8
<PAGE> 9
therefor, or permit any of its Subsidiaries so to do, except
that: (i) a wholly owned Subsidiary may declare and pay
Restricted Payments to the Borrower, (ii) provided that no
Default would exist before or after giving effect thereto, the
Borrower may (A) declare and pay cash dividends on its common
Capital Stock, (B) repurchase shares of its common Capital
Stock solely from officers and employees in connection with
the ordinary operation of its compensation plans and (C)
repurchase or redeem shares of Gateway Capital Stock pursuant
to the terms thereof.
20. Section 9.1(c) the Credit Agreement is amended in its entirety to
read as follows:
(c) The failure of the Borrower to observe or perform
any covenant or agreement contained in Sections 2.9, 7.3,
7.11, 7.12 or Section 8 or the failure of any Guarantor to
perform any covenant or agreement contained in the Guaranty;
or
21. Section 9.1(d) of the Credit Agreement is amended by adding the
phrase "or any Guarantor" immediately following the word "Borrower" on the first
line thereof.
22. Sections 9.1(h) and (i) of the Credit Agreement are amended by
replacing the term "Material Subsidiary Group" in each place it appears in such
Sections with the term "Material Entity".
23. Section 9.1 the Credit Agreement is further amended by substituting
"; or" for the period at the end of subsection (k) and by adding a new
subsection (l) to read as follows:
(l) Any Loan Document shall cease, for any reason, to
be in full force and effect, or any Loan Party shall so assert
in writing or shall disavow any of its obligations thereunder.
24. Section 11.1(a) the Credit Agreement is amended by adding the
following clause immediately before the semicolon at the end thereof to read as
follows:
or (xiii) release any Material Entity from its
obligations under the Guaranty (except as expressly provided
in the Guaranty or as a result of the sale or other
disposition of the interest of the Borrower or any of its
Subsidiaries in such Material Entity in a transaction
permitted by this Agreement), or limit its liability in
respect of such Guaranty, provided that release of the
Internet Business shall require only the consent of the
Required Lenders
9
<PAGE> 10
25. Exhibit E in the form annexed hereto is substituted for Exhibit E
to the Credit Agreement.
26. Exhibit N in the form annexed hereto is added to the Credit
Agreement.
27. Paragraphs 1 - 26 of this Amendment shall not be effective until
the prior or simultaneous fulfillment of the following conditions:
(a) The Administrative Agent (or Special Counsel) shall have
received from the Borrower and Required Lenders either (i) a counterpart of this
Amendment signed on behalf of such party or (ii) written evidence satisfactory
to the Administrative Agent (which may include telecopy transmission of a signed
signature page of this Amendment) that such party has signed a counterpart of
this Amendment.
(b) The Administrative Agent shall have received a replacement
Swing Line Note in the principal amount of the Swing Line Commitment Amount as
amended by paragraph 9 of this Amendment.
(c) The Administrative Agent shall have received a certificate
of the Secretary or Assistant Secretary of the Borrower: (i) attaching a true
and complete copy of the resolutions of its Board of Directors authorizing this
Amendment in form and substance satisfactory to the Administrative Agent, (ii)
certifying that its certificate of incorporation and by-laws have not been
amended since July 3, 1997, or, if so, setting forth the same and (iii) setting
forth the incumbency of its officer or officers who may sign this Amendment,
including therein a signature specimen of such officer or officers.
(d) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent, the Issuing Bank, the
Swing Line Lender and the Lenders and dated the Amendment Effective Date) from
Baker & Hostetler, LLP on behalf of the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(e) The representations and warranties contained in the Loan
Documents shall be true and correct in all material respects (except to the
extent such representations and warranties specifically relate to an earlier
date) and no Default or Event of Default shall exist, and the Administrative
Agent shall have received a certificate of an officer of the Borrower, dated the
Amendment Effective Date, certifying to such effect.
(f) The Administrative Agent shall have received, for the
account of each Lender which approves this Amendment on or before the Amendment
Effective Date, an amendment fee equal to 0.125% of such Lender's Revolving
Credit Commitment Amount as reduced pursuant to Paragraph 1 of this Amendment.
10
<PAGE> 11
(g) All fees and expenses payable on the Amendment Effective
Date, including the reasonable fees and disbursements of Special Counsel
incurred to date, shall have been paid.
(h) The Administrative Agent shall have received such other
documents as it shall reasonably request.
28. The Borrower hereby (a) represents and warrants that all of the
representations and warranties contained in the Loan Documents true and correct
in all material respects with the same effect as though such representations and
warranties had been made on the date hereof, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties are true and correct on and as of such
earlier date, and (b) reaffirms and admits the validity and enforceability of
each Loan Document and all of the obligations of each Loan Party under such Loan
Document.
29. The Borrower hereby further represents and warrants that as of the
Amendment Effective Date, all of the Material Entities are listed on Schedule I
hereto.
30. In all other respects, the Loan Documents shall remain in full
force and effect, and no amendment in respect of any term or condition of any
Loan Document shall be deemed to be an amendment in respect of any other term or
condition contained in any Loan Document.
31. This Amendment may be executed in any number of counterparts all of
which, when taken together, shall constitute one agreement. In making proof of
this Amendment, it shall only be necessary to produce the counterpart executed
and delivered by the party to be charged.
32. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCEABLE
IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS, BUT INCLUDING SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW.
11
<PAGE> 12
AS EVIDENCE of the agreement by the parties hereto to the
terms and conditions herein contained, each such party has caused this Amendment
No. 1 to be executed on its behalf.
OFFICEMAX, INC.
By:/s/Jeffrey L. Rutherford
------------------------------
Name: Jeffrey L. Rutherford
----------------------------
Title: Executive Vice President,
Chief Financial Officer
---------------------------
<PAGE> 13
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
THE BANK OF NEW YORK, as Administrative
Agent
By: /s/William M. Barnum
------------------------------
Name: William M. Barnum
----------------------------
Title: Vice President
---------------------------
CONSENTED TO AND AGREED:
THE BANK OF NEW YORK,
individually
By: /s/William M. Barnum
------------------------------
Name: William M. Barnum
----------------------------
Title: Vice President
---------------------------
<PAGE> 14
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
KEYBANK, N.A.
By: /s/Frank J. Jancar
------------------------------
Name: Frank J. Jancar
----------------------------
Title: Vice President
---------------------------
<PAGE> 15
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
FIRST UNION NATIONAL BANK
By: /s/Joan L. Anderson
------------------------------
Name: Joan L. Anderson
----------------------------
Title: Vice President
---------------------------
<PAGE> 16
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
BANK OF AMERICA, N.A.
By: /s/Bridget Garavalia
------------------------------
Name: Bridget Garavalia
----------------------------
Title: Managing Director
---------------------------
<PAGE> 17
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
BANK ONE, N.A.
By: /s/Debora K. Oberling
------------------------------
Name: Debora K. Oberling
----------------------------
Title: Vice President
---------------------------
<PAGE> 18
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
FIRST AMERICAN NATIONAL BANK
By: /s/ Jerry J. Watterworth
------------------------------
Name: Jerry J. Watterworth
----------------------------
Title: Senior Vice President
---------------------------
<PAGE> 19
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
MERCANTILE BANK, N.A.
By: /s/Stephen M. Reese
------------------------------
Name: Stephen M. Reese
----------------------------
Title: Vice Presient
---------------------------
<PAGE> 20
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
FLEET NATIONAL BANK
By: /s/Kathleen A. Dimock
------------------------------
Name: Kathleen A. Dimock
----------------------------
Title: Vice President
---------------------------
<PAGE> 21
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 22
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
THE BANK OF TOKYO-MITSUBISHI, CHICAGO BRANCH
By: /s/Hisashi Miyashiro
------------------------------
Name: Hisashi Miyashiro
----------------------------
Title: Deputy General Manager
---------------------------
<PAGE> 23
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
WELLS FARGO BANK, NA
By: /s/Razia Damji
------------------------------
Name: Razia Damji
----------------------------
Title: Vice President
---------------------------
<PAGE> 24
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
NATIONAL CITY BANK
By: /s/Janice E. Focke
------------------------------
Name: Janice E. Focke
----------------------------
Title: Vice President & Senior Lending Officer
---------------------------
<PAGE> 25
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
BANK OF HAWAII
By: /s/Donna R. Parker
------------------------------
Name: Donna R. Parker
----------------------------
Title: Vice President
---------------------------
<PAGE> 26
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
COMERICA BANK
By: /s/Jeffrey J. Judge
------------------------------
Name: Jeffrey J. Judge
----------------------------
Title: Vice President
---------------------------
<PAGE> 27
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
HUNTINGTON NATIONAL BANK
By: /s/Laura Conway
------------------------------
Name: Laura Conway
----------------------------
Title: Vice President
---------------------------
<PAGE> 28
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/Stephen L. Leister
------------------------------
Name: Stephen L. Leister
----------------------------
Title: Vice President
---------------------------
<PAGE> 29
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
THE DAI-ICHI KANGYO BANK, CHICAGO BRANCH
By: /s/John S. Sneed
------------------------------
Name: John S. Sneed
----------------------------
Title: Senior Vice President
---------------------------
<PAGE> 30
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
THE NORTHERN TRUST COMPANY
By: /s/Tracy J. Toulouse
------------------------------
Name: Tracy J. Toulouse
----------------------------
Title: Vice President
---------------------------
<PAGE> 31
OFFICEMAX, INC.
AMENDMENT NO. 1
---------------
CONSENTED TO AND AGREED:
FIFTH THIRD BANK
By: /s/Roy C. Lanctot
------------------------------
Name: Roy C. Lanctot
----------------------------
Title: Vice President
---------------------------
<PAGE> 32
SCHEDULE I
LIST OF MATERIAL ENTITIES
-------------------------
None
<PAGE> 1
Exhibit 10.4
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
OFFICEMAX, INC.
AND
MICHAEL FEUER
<PAGE> 2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is entered into as of the 3rd day of January, 2000, 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 October 13, 1998 (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 that the term of this Agreement shall be a rolling five (5)
year "ever green" period and for severance payments and continuation of certain
benefits for no less than five (5) years in the event of the termination of
Executive's employment with the Company for any reason other than death or
"Cause" (as hereinafter defined) on the terms and conditions set forth in this
Agreement; 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 Compensation Committee approved the execution and
delivery of this Agreement by the Company by written action dated January 3,
2000,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby agree as follows:
<PAGE> 3
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 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 (3) year term as a member of the Advisory Committee of
the New York Stock Exchange Board of Directors and a four (4) year
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<PAGE> 4
term as a member of the Case Western Reserve University Weatherhead School of
Management Visiting Committee.
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 five (5) years thereafter. Such term shall automatically
be extended for one additional day as of the end of the first day of the term
hereof and as of the end of each succeeding day thereafter, unless the Agreement
is terminated as provided in Paragraph 8.
(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 shall take any action which will or could have the effect of, or
appear to have the
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<PAGE> 5
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 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). Executive may exercise that right at any time
within ninety (90) days after the date on which the applicable event
has occurred (the event, for purposes of clause (iii), above,
consisting of the lapsing of the last day of the cure period referred
to therein).
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<PAGE> 6
(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 ninety (90) 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 ninety (90) 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 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
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<PAGE> 7
on the date hereof and ending on January 23, 1999 to the total number
of days in the current Fiscal Year (as hereinafter defined);
(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.
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). The term
"Fiscal Year" means 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) 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).
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<PAGE> 8
4. SALARY AND BONUS; PAYMENT IN THE EVENT OF DEATH. In the event of
Executive's death 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 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 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 and the denominator of which is
three hundred sixty-five (365).
(b) The pro rata portion of the bonus described in Paragraph
4(a) shall be paid when and as provided in Paragraph 3(b).
(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.
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
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<PAGE> 9
the date of this Agreement (the "Plan", the terms in this 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 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 or (B)
Executive's death, in
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<PAGE> 10
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, 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 MULTIPLIED BY the Partial Year Fraction
in respect of the Fiscal Year in which such death 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 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.
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(d) If all or any portion of the amounts payable to Executive
under this Agreement, including without limitation the amounts payable under
this Paragraph 5(d), the issuance of Shares and the amounts payable under
Paragraph 8(d), constitute "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), 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.
6. RETIREMENT BENEFITS. Executive shall participate in all retirement
and other benefit plans of the Company (both qualified and nonqualified)
generally available to
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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
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.
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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 (as hereinafter
defined) 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;
(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
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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), 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 death or Cause, 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
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benefits accrued and earned by him hereunder up to and including the effective
date of such termination.
(d) In the event of the termination by the Company of
Executive's employment with the Company for any reason other than on death or
for Cause, in addition to any other rights or remedies Executive may have
against the Company as a result of such termination, (i) 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 payment period
shall be equal to the highest bonus compensation paid or payable to Executive in
respect of any of the three (3) Fiscal Years immediately preceding the Fiscal
Year during which such termination occurs; and (ii) the Company shall until the
fifth anniversary of that termination provide to Executive office space,
secretarial support and continuing use of private telephone numbers, facsimile
numbers and e-mail addresses. The Company shall provide the items called for in
clause (ii) of the immediately preceding sentence at a place and on terms and
conditions that Executive, in his sole and reasonable discretion, determines are
commensurate with those available to Executive immediately prior to that
termination.
(e) 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 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
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<PAGE> 16
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.
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.
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
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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;
(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
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provision of this Paragraph 10, the Company shall be entitled to immediate
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 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.
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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 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
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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 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.
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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 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 H. POLLOCK
----------------------------------
Ross H. Pollock
Secretary
/s/ MICHAEL FEUER
----------------------------------
Michael Feuer
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ANNEX A
Benefits Summary for Mr. Feuer
MEDICAL INSURANCE
OfficeMax offers a Section 125, self-insured medical plan to all full-time
Associates after three months of service. The Plan maximum lifetime benefit is
$1,000,000. The Plan is designed to pay in-network charges at 80%. Expenses for
prescription drugs and preventive services are not subject to a deductible.
DENTAL INSURANCE
OfficeMax offers a Section 125, self-insured dental plan to all full-time
Associates after six months of service. The annual maximum Plan benefit is
$1,000. There is a schedule that is followed for preventive and restorative
care.
LIFE INSURANCE
Through an insurance company, OfficeMax provides each full-time Associate with 1
1/2 times his or her salary in group, term-life insurance. Mr. Feuer holds the
plan maximum limit of $500,000. The group life insurance policy has an
Accidental Death and Dismemberment (AD&D) clause. An additional benefit (not to
exceed $500,000) would be payable in the event of accidental loss of life/limb
based on the policy's defined schedule. This policy remains in effect until age
70, then follows a benefit reduction schedule. In addition, OfficeMax carries a
$500,000 term life insurance policy with Prudential Insurance on Mr. Feuer's
life, the benefits of which are payable to his estate in the event of his death.
SHORT-TERM DISABILITY
OfficeMax offers a Section 125, Short-Term Disability Plan to all full-time
Associates after six months of service. The benefit (up to $1,000 per week) is
payable for short-term disability leaves lasting up to 13 weeks. There is a
seven-day waiting period before benefits are payable.
LONG-TERM DISABILITY
Through an insurance company, OfficeMax provides each full-time Associate with
Long-Term disability benefits after three months of service. The benefits are
payable after 90 days of disability at 60% of salary up to a monthly maximum of
$10,000. Any such Long-Term disability benefits received by Mr. Feuer following
the termination of his employment as a result of his Permanent Disability (as
such term is defined in the Employment Agreement to which this Annex A is
attached) will be credited against the Company's obligations to continue Mr.
Feuer's salary and bonus compensation as a result of his Permanent Disability.
401(k) PLAN
OfficeMax offers a Section 401(k) Plan to all Associates after one year of
service. Mr. Feuer is fully vested in his payroll deferrals to the Plan. The
Plan offers a company match of 50% of the first 3% of compensation contributed
by the Associate. The Plan is subject to non-discrimination rules which
currently limit Mr. Feuer's maximum annual contribution below the annual maximum
allowed under the IRC. The Company does not offer any other retirement plans.
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Exhibit 10.10
OFFICEMAX, INC.
YEAR 2000 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the OfficeMax, Inc. Year 2000 Equity Incentive
Plan (the "Plan") is to enable OfficeMax, Inc. (the "Company") to attract,
retain and reward members of the Board of Directors of the Company and key
employees of the Company and its Affiliates and to strengthen the mutuality of
interests among those directors and key employees and the Company's shareholders
by offering designated directors and employees equity or equity-based
incentives. 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.
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(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-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option.
(n) "Plan" means the OfficeMax, Inc. Equity-Based Award Plan,
as amended from time to time.
(o) "Potential Change in Control" has the meaning set forth in
Section 8(c).
(p) "Restricted Shares" means an award of shares that is
granted pursuant to Section 7 and is subject to restrictions.
(q) "Section 16 Participant" means a participant under the
Plan who is subject to Section 16 of the Exchange Act.
(r) "Share Appreciation Right" means an award of a right to
receive an amount from the Company that is granted pursuant to
Section 6.
(s) "Shares" means Common Shares, without par value, of the
Company and any other class of shares or series of a class of
shares of the Company now or hereafter authorized.
(t) "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.
(u) "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. 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
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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
9,000,000. Any Shares issued hereunder shall consist solely of
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 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
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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 1,000,000 Shares (subject to adjustment
as provided in Section 3(c) hereof) during any calendar year.
SECTION 4. ELIGIBILITY.
Members of the Board of Directors of the Company and 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; provided,
however, that no Incentive Stock Options shall be granted
under this Plan unless and until the Plan has been approved by
the Company's shareholders in a manner that complies with the
shareholder approval requirements of the Code relating to
Incentive 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
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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 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)
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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 service as a director with the Company or
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 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 service as a
director with the Company or 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 service or employment (or such other period as
the Committee may specify at or after 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 service or employment.
(8) Other Termination. Unless otherwise determined by
the Committee at or after the time of granting any Stock
Option, if a participant's service as a director with the
Company or 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 that
are then exercisable shall terminate 90 days after the date
service or employment terminates and all Stock Options that
are not then exercisable shall terminate on the date the
service or 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
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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
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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
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).
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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 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
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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 service as a director with the
Company or 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 service as a director with the
Company or 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 service as a director with the Company or
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
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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
(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.
(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
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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.
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 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.
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.
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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 in
service 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 local taxes or other items of any kind
required by law to be withheld with
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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 APPROVAL.
The Plan was adopted by the Board on March 2, 2000.
SECTION 13. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after
March 2, 2010, but Awards granted prior to that date may extend beyond that
date.
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EXHIBIT 10.12
FORM A
RECITALS:
A. OfficeMax, Inc. (the "Company") is entering into this severance
arrangement in order to induce [___________] ("Executive") to become employed by
the Company.
B. The Company and Executive desire to establish certain arrangements
between the Company and Executive relating to severance payments under various
circumstances on the terms and conditions set forth below.
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 hereunder, 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, (A) if such termination occurs
prior to the first anniversary of Executive's
employment, twelve (12) monthly severance payments,
(B) if such termination occurs during Executive's
second year of employment, twenty-four (24) monthly
severance payments, and (C) if such termination
occurs following the third anniversary of Executive's
employment, thirty-six (36) monthly severance
payments. Monthly severance payments will be in an
amount equal to Executive's monthly base salary as of
the date of termination and will 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, in any material way,
any provision of Section 2 below, then the Company's
obligation to make severance payments to Executive
will terminate.
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(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, in any material way,
any provision of Section 2 below, 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 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, but the
Company shall pay all unpaid amounts, if any, to which Executive is
entitled as of the date of termination.
(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) intentional material damage to assets of the Company;
(iv) wrongful disclosure of confidential information (as
described in paragraph 2(d) hereof) of the Company;
(v) wrongful engagement in any competitive activity which
would constitute a breach of the duty of loyalty;
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(vi) continued failure or refusal to perform Executive's
duties and responsibilities after thirty (30) days
written notice from the Company of such failure or
refusal to perform;
(vii) failure to devote substantially all his working time
and efforts to the business and affairs of the
Company; or
(viii)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 in a uniform manner
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 hereunder or failure by the Company to
remain liable to Executive hereunder after an
assignment by the Company (provided, however, that
the Company may only assign this Agreement to a
successor of the Company by reorganization, merger,
consolidation or liquidation or a transfer of all or
substantially all of the business or assets of the
Company);
(iv) a transfer of Executive's principal business office
to a location outside of the Company's corporate
headquarters;
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(v) any material breach by the Company of its obligations
under this Agreement, which breach is not cured
within thirty (30) days of written notice from
Executive; or
(iv) the failure of the Company to perform its obligations
under the OfficeMax Annual Incentive Bonus Plan or
the Company's Management Share Purchase Plan, which
failure is not cured within thirty (30) days of
written notice from Executive.
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 one
hundred twenty (120) days following his knowledge of the circumstances
constituting Good Reason.
(g) "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 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 50% or more of the voting power
of the Company's outstanding securities; or
(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.
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Notwithstanding the foregoing, the consummation of a going
private transaction or a buy-out of the Company which includes any
current executive officers of the Company will not be deemed a "Change
in Control."
(h) The severance payments provided hereunder 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 hereunder is conditioned on the execution and delivery by
Executive to the Company of a release, in form and substance reasonably
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 and/or claims in respect of severance payments
hereunder).
(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 date of such termination, 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 rendered service to Staples, Office
Depot (or any combination of Staples and Office
Depot), or any other office products superstore
retail chain; 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;
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(b) Employ, assist in employing, or otherwise associate in
business with any person who was during the immediately
preceding twelve (12) months an associate, employee or officer
of the Company or any of its Affiliates (as hereinafter
defined) in a business that competes with the Company; or
(c) Induce any person who is an associate, employee, officer or
agent of the Company or any of its Affiliates to terminate
said relationship.
(d) Except to the extent required by law, Executive agrees that
from and after the date hereof, 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, but excluding information which (i) is
generally available to or known by the public, (ii) is or
becomes known on a non-confidential basis from a source other
than Executive, or (iii) is or becomes known to Executive
without an obligation of confidentiality.
As used herein, the term "Affiliate" shall mean any person or
entity, directly or indirectly, controlling, controlled by, or under
common control with, the Company. As used in such definition,
"controlling" (including, within its correlative meanings, "controlled
by" and "under common control with") means possession, directly or
indirectly, of power to direct or cause the direction of management or
policies.
(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.
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(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. SEVERABLE PROVISIONS. The provisions hereof 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.
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EXHIBIT 10.12
FORM B
[**Executive**]
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of the _____ day of
__________, 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> 9
(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
B-2
<PAGE> 10
(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:
B-3
<PAGE> 11
(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).
(j) All payments to Executive shall be subject to withholding
on account of
B-4
<PAGE> 12
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 acknowledged that
on adequate proof of his violation of any legally enforceable provision
of
B-5
<PAGE> 13
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 Company, or to such other address as any party may have furnished
to the other in writing, except
B-6
<PAGE> 14
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.
B-7
<PAGE> 15
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]
B-8
<PAGE> 16
EXHIBIT 10.12
FORM C
[Executive]
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of the ____ day of
_________, 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, [ ] 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.
(b) If Executive's employment with the Company is terminated
because of
<PAGE> 17
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 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
C-2
<PAGE> 18
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 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
C-3
<PAGE> 19
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 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
C-4
<PAGE> 20
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 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
C-5
<PAGE> 21
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 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.
C-6
<PAGE> 22
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]
C-7
<PAGE> 1
EXHIBIT 10.13
A. Executive Officers party to Severance Agreement (Form A)
Gary Peterson
B. Executive Officers party to Severance Agreement (Form B)
Jeffrey Rutherford
Harold Mulet
Eugene O'Donnell
Mark Race
C. Executive Officers party to Severance Agreement (Form C)
Edward Cornell
Robert Islinger
Ross Pollock
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
<S> <C>
OfficeMax Corp. OH
OMX, Inc. NV
BizMart, Inc. DE
BizMart (Texas), Inc. DE
OfficeMax de Mexico, S. de R.L. de C.V. Mexico
</TABLE>
<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. 333-93949) of OfficeMax, Inc. of our report dated
April 21, 2000, relating to the financial statements, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP
Cleveland, Ohio
April 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENETS OF OPERATIONS FOR THE YEAR ENDED
JANUARY 22, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-22-2000
<PERIOD-START> JAN-24-1999
<PERIOD-END> JAN-22-2000
<CASH> 73,087
<SECURITIES> 0
<RECEIVABLES> 112,421
<ALLOWANCES> 687
<INVENTORY> 1,273,844
<CURRENT-ASSETS> 1,528,009
<PP&E> 713,537
<DEPRECIATION> 311,069
<TOTAL-ASSETS> 2,274,978
<CURRENT-LIABILITIES> 1,058,889
<BONDS> 0
0
0
<COMMON> 867,866
<OTHER-SE> 248,131
<TOTAL-LIABILITY-AND-EQUITY> 2,274,978
<SALES> 4,842,698
<TOTAL-REVENUES> 4,842,698
<CGS> 3,731,155
<TOTAL-COSTS> 3,731,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,146
<INCOME-PRETAX> 22,299
<INCOME-TAX> 12,258
<INCOME-CONTINUING> 10,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,041
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
<PAGE> 1
Exhibit 99.1
OFFICEMAX, INC.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the
"Act") provides a "safe harbor" for "forward-looking statements" (as defined in
the Act). The Form 10-K to which this exhibit is attached, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company, or any
other written or oral statements made by or on behalf of the Company may include
or incorporate by reference forward-looking statements which reflect the
Company's current view (as of the date such forward-looking statement is made)
with respect to future events, prospects, projections or financial performance.
The words "believe," "expect," "anticipate," "project," "plan," "intend," and
similar expressions, among others, identify "forward-looking statements." The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements are subject to certain
uncertainties and other factors that could cause actual results to differ
materially from those made, implied or projected in such
<PAGE> 2
statements. These uncertainties and other factors include, but are not limited
to the following:
- the Company faces intense competition from a variety of
retailers, dealers and distributors, including, other
high-volume office product chains that are similar in concept
to the Company in terms of store format, pricing strategy and
product selection; in particular, the Company faces intense
price competition in its sales of computers and related
products;
- the Company has announced its plan to expand its Internet
business through OfficeMax.com; the Company expects to incur
significant operating and capital expenditures in connection
with this expansion; if sales grow more slowly than
anticipated or if operating expenses exceed expectations, the
OfficeMax.com business, results of operations, financial
condition and prospects would be materially and adversely
affected;
- both the Company stores and OfficeMax.com face increasing
competition from Internet-based merchandisers which have
minimal barriers to entry; these competitors include
traditional retailers that sell through the Internet, Internet
sites that target the small business market with a full line
of business products or service offerings and Internet sites
that sell or resell office products and business services
- the Company relies heavily on its information systems for both
its traditional stores and OfficeMax.com; there could be
malfunctions or failures of the Company's information systems
that could disrupt business operations;
- historically, an integral part of the Company's business plan
has been an aggressive store growth strategy; although the
Company has reduced the number of stores it plans to open in
2000, it still must continue to open new stores successfully;
there can be no assurance, however, that the Company will be
able to find favorable store locations, negotiate favorable
leases, hire and train employees and store managers and
integrate the new stores in a manner that will allow it to
meet its expansion strategy;
<PAGE> 3
- as the Company expands the number of its stores in existing
markets, sales at existing stores may be impacted;
- new stores typically take time to reach the levels of sales
and profitability of the Company's existing stores, and there
can be no assurance that new stores will be as profitable as
existing stores;
- there can be no assurance that (1) the Company will not
require additional sources of financing as a result of
unanticipated cash needs, acquisitions or other opportunities
or disappointing operating results or (2) any additional funds
required by the Company will be available to the Company on
satisfactory terms;
- there is potential for rapid and significant changes in
technology and which could affect the Company's operations;
- while 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;
- there are operating and financial risks related to managing
rapid growth and integrating acquired businesses including
demands on management and the Company's operational systems;
- fluctuations in the Company's quarterly operating results have
occurred in the past and may occur in the future based on a
variety of factors such as new store openings with their
concurrent pre-opening expenses, the extent to which new
stores are less profitable as they commence operations, the
effect new stores have on the sale of existing stores in more
mature markets, the pricing activity of competitors in the
Company's markets, changes in the Company's product mix,
increases and decreases in advertising and promotional
expenses, the effects of seasonality, acquisition of contract
stationers and stores of competitors;
<PAGE> 4
- the Company plans to continue to expand its operations
internationally and there are risks associated with
international operations, including lack of local business
experience, foreign currency fluctuations, language and other
cultural barriers, political and economic instability and,
since the Company's foreign operations are joint ventures not
wholly-owned by the Company, a lack of operating control;
- the Company is largely dependent on the services of Michael
Feuer, the Company's 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;
- strikes or other labor disruptions could adversely affect the
Company's operations; and
- the Company faces uncertainties relating to general economic
conditions.
