Merger Agreement

9 Months Ended

Sep. 28, 2013

Merger Agreement

Note B – Merger Agreement

On February 20, 2013, the Company entered into a merger agreement with OfficeMax Incorporated (“OfficeMax”), pursuant to which the Company and OfficeMax would combine in an all-stock merger transaction (the “Merger Agreement”). At the effective time of the merger, the Company would issue 2.69 shares of common stock for each outstanding share of OfficeMax common stock. A selection committee has been formed with equal representation from the Board of Directors of the Company and OfficeMax to select a successor Chief Executive Officer for the combined company upon the completion of the merger. If no successor CEO has been selected by the time of closing of the merger the then-current CEOs of both the Company and OfficeMax will be appointed as co-CEOs and co-Chairmen and the Board of Directors will be made up of an additional five independent directors appointed by the Company and five independent directors appointed by OfficeMax. If a successor CEO has been selected by the time of closing, and that successor CEO is neither the current CEO of the Company nor OfficeMax, the full Board of Directors will have 11 members, including the successor CEO and five independent directors appointed by the Company and five independent directors appointed by OfficeMax. In the event the successor CEO selected by the time of closing is either the current CEO of the Company or OfficeMax, the full Board of Directors will have 12 members with an additional independent director appointed by the company whose CEO was not selected as the successor CEO.

Based on the facts continuing since the date of the Merger Agreement, the Company is considered to be the accounting acquirer. This determination will be finalized at the time of closing. With the Company as the accounting acquirer, the closing date purchase consideration will be allocated to the fair value of OfficeMax assets and liabilities. Pro forma information and the allocation of merger consideration will be provided following completion of the transaction.

On July 10, 2013, shareholders of the Company and shareholders of OfficeMax approved the transactions contemplated by the Merger Agreement. The merger will not be final until the receipt of certain regulatory approvals and completion of other customary closing conditions. The Merger Agreement includes certain termination rights for both the Company and OfficeMax, including termination in the event certain antitrust approvals are not received. Additionally, a change in recommendation from the Company’s or OfficeMax’s Board of Directors may require that such recommending party pay a termination fee of $30 million to the other party.

Transaction costs associated with the merger are being expensed as incurred and are presented in the Condensed Consolidated Statement of Operations as Merger and certain shareholder-related expenses. The merger expenses include investment banking, legal, accounting, and other third party costs associated with the transaction, including regulatory filings and shareholder approvals. Certain fees are contingent on the transaction closing and are, therefore, not yet recognized. Merger expenses also include direct incremental travel and dedicated personnel costs, as well as accruals for retention of key employees. The amounts for certain shareholder-related expenses include third party costs incurred to provide shareholders with information regarding the composition of the Board of Directors. These costs include $0.8 million of legal fees the Company agreed to pay to Starboard Value LP (together with its affiliates and related parties, “Starboard”). The current Board of Directors was elected at the Annual Stockholders Meeting held on August 21, 2013 and includes three members nominated by Starboard.