-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ACC4dU36rLGL4076LUCN2XOYAkRbavEfcDaP7RhyL/MgdDheFEuV+k9D2vT/Dx7A tAvRfMBukP4/ELZr4gNuuA== 0000950152-03-007919.txt : 20030826 0000950152-03-007919.hdr.sgml : 20030826 20030826165335 ACCESSION NUMBER: 0000950152-03-007919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030726 FILED AS OF DATE: 20030826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICEMAX INC /OH/ CENTRAL INDEX KEY: 0000929428 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 341573735 STATE OF INCORPORATION: OH FISCAL YEAR END: 0125 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13380 FILM NUMBER: 03867008 BUSINESS ADDRESS: STREET 1: 3605 WARRENSVILLE CENTER RD CITY: SHAKER HEIGHTS STATE: OH ZIP: 44122 BUSINESS PHONE: 2169216900 MAIL ADDRESS: STREET 1: 3605 WARRENSVILLE CENTER RD CITY: SHAKE HEIGHTS STATE: OH ZIP: 44122 10-Q 1 l02783ae10vq.txt OFFICEMAX, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 26, 2003 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) OHIO 34-1573735 ---- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3605 WARRENSVILLE CENTER ROAD, SHAKER HEIGHTS, OHIO 44122 --------------------------------------------------------- (Address of principal executive offices) (zip code) (216) 471-6900 -------------- (Registrant's telephone number, including area code) 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. Yes [X] No [ ]. Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Shares outstanding as of Title of each class August 22, 2003 ------------------- --------------- Common Shares, without par value 127,821,264 OFFICEMAX, INC. INDEX
Page ---- Part I - Financial Information Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 Item 4. Controls and Procedures 27 Part II - Other Information Item 1. Legal Proceedings 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 6. Exhibits and Reports on Form 8-K 29 Signatures 30 Exhibit Index 31
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OFFICEMAX, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
JULY 26, JANUARY 25, 2003 2003 ----------- ----------- (Unaudited) ASSETS Current Assets: Cash and equivalents $ 53,747 $ 137,143 Accounts receivable, net of allowances of $1,030 and $1,073, respectively 95,167 90,339 Merchandise inventories 943,417 927,679 Other current assets 31,095 27,585 ----------- ----------- Total current assets 1,123,426 1,182,746 Property and Equipment: Buildings and land 36,259 36,133 Leasehold improvements 199,068 183,547 Furniture, fixtures and equipment 660,153 645,466 ----------- ----------- Total property and equipment 895,480 865,146 Less: Accumulated depreciation (608,591) (567,709) ----------- ----------- Property and equipment, net 286,889 297,437 Other assets and deferred charges 15,686 14,763 Goodwill, net of accumulated amortization of $89,757 290,495 290,495 ----------- ----------- $ 1,716,496 $ 1,785,441 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable - trade $ 415,306 $ 437,884 Accrued expenses and other liabilities 200,478 227,022 Accrued salaries and related expenses 43,994 60,190 Taxes other than income taxes 80,565 79,781 Credit facilities 34,000 -- Redeemable preferred shares - Series B -- 21,750 Mortgage loan, current portion 132 128 ----------- ----------- Total current liabilities 774,475 826,755 Mortgage loan 1,318 1,390 Other long-term liabilities 154,806 157,587 ----------- ----------- Total liabilities 930,599 985,732 ----------- ----------- Commitments and contingencies -- -- Minority interest 20,089 19,264 Shareholders' Equity: Common stock, without par value; 200,000,000 shares authorized; 135,019,074 and 134,801,656 shares issued and outstanding, respectively 885,662 887,556 Deferred stock compensation (245) (153) Cumulative translation adjustment (2,550) (2,457) Retained deficit (30,788) (13,865) Less: Treasury stock, at cost (86,271) (90,636) ----------- ----------- Total shareholders' equity 765,808 780,445 ----------- ----------- $ 1,716,496 $ 1,785,441 =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 3 OFFICEMAX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
13 WEEKS ENDED 26 WEEKS ENDED ----------------------------------- ----------------------------------- JULY 26, JULY 27, JULY 26, JULY 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Sales $ 1,046,056 $ 1,006,271 $ 2,272,516 $ 2,184,423 Cost of merchandise sold, including buying and occupancy costs 785,620 759,288 1,703,625 1,638,112 ------------- ------------- ------------- ------------- Gross profit 260,436 246,983 568,891 546,311 Store operating and selling expenses 253,947 243,087 518,350 500,300 General and administrative expenses 31,945 35,169 65,148 69,182 ------------- ------------- ------------- ------------- Total operating expenses 285,892 278,256 583,498 569,482 Operating loss (25,456) (31,273) (14,607) (23,171) Interest expense, net 946 2,125 1,415 3,466 ------------- ------------- ------------- ------------- Loss before income taxes (26,402) (33,398) (16,022) (26,637) Income tax benefit -- -- -- (57,500) Minority interest 304 (36) 901 707 ------------- ------------- ------------- ------------- Net income (loss) $ (26,706) $ (33,362) $ (16,923) $ 30,156 ============= ============= ============= ============= INCOME (LOSS) PER COMMON SHARE: Basic $ (0.21) $ (0.27) $ (0.14) $ 0.24 ============= ============= ============= ============= Diluted $ (0.21) $ (0.27) $ (0.14) $ 0.24 ============= ============= ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 124,313,000 123,920,000 124,274,000 123,578,000 ============= ============= ============= ============= Diluted 124,313,000 123,920,000 124,274,000 124,885,000 ============= ============= ============= =============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 OFFICEMAX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
26 WEEKS ENDED --------------------------- JULY 26, JULY 27, 2003 2002 --------- --------- CASH PROVIDED BY (USED FOR): OPERATIONS Net income (loss) $ (16,923) $ 30,156 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 44,858 44,278 Other, net 1,688 3,157 Changes in current assets and current liabilities: Increase in inventories (15,718) (63,931) Increase (decrease) in accounts payable 15,147 (80,861) (Increase) decrease in accounts receivable (2,963) 11,058 Decrease in accrued liabilities (30,628) (9,022) Decrease in store closing reserve (11,662) (14,152) Other, net (6,995) (15,280) --------- --------- Net cash used for operations (23,196) (94,597) --------- --------- INVESTING Capital expenditures (38,300) (24,395) Other, net (921) (3,240) --------- --------- Net cash used for investing (39,221) (27,635) --------- --------- FINANCING Increase in revolving credit facilities 34,000 110,000 Payments of mortgage principal (69) (66) Decrease in overdraft balances (36,603) (5,330) Proceeds from the issuance of common stock, net 2,471 3,378 Redemption of preferred share purchase rights (21,750) -- Other, net 968 (784) --------- --------- Net cash (used for) provided by financing (20,983) 107,198 --------- --------- Effect of exchange rate changes on cash and equivalents 4 (995) --------- --------- Net decrease in cash and equivalents (83,396) (16,029) Cash and equivalents, beginning of the period 137,143 76,751 --------- --------- Cash and equivalents, end of the period $ 53,747 $ 60,722 ========= ========= SUPPLEMENTAL INFORMATION Interest paid on debt $ 330 $ 1,619 ========= ========= Taxes paid on income (excluding tax refunds) $ 262 $ 120 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 OFFICEMAX, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands) (Unaudited)
Deferred Cumulative Common Stock Translation Retained Treasury Shares Compensation Adjustment Deficit Stock Total ------ ------------ ---------- ------- ----- ----- BALANCE AT JANUARY 25, 2003 $ 887,556 $(153) $(2,457) $(13,865) $(90,636) $ 780,445 Comprehensive income (loss): Net loss -- -- -- (16,923) -- (16,923) Cumulative translation adjustment -- -- (93) -- -- (93) --------- Total comprehensive loss (17,016) Issuance of common shares under director plan (47) -- -- -- 150 103 Exercise of stock options (780) -- -- -- 1,927 1,147 Sale of shares under management share purchase plan (847) (191) -- -- 1,802 764 Sale of shares under employee share purchase plan (220) -- -- -- 486 266 Amortization of deferred compensation -- 99 -- -- -- 99 --------- ----- ------- -------- -------- --------- BALANCE AT JULY 26, 2003 $ 885,662 $(245) $(2,550) $(30,788) $(86,271) $ 765,808 ========= ===== ======= ======== ======== =========
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 6 OFFICEMAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE 13 AND 26 WEEKS ENDED JULY 26, 2003 AND JULY 27, 2002 Significant Accounting and Reporting Policies 1. The accompanying unaudited consolidated financial statements have been prepared from the financial records of OfficeMax, Inc. and its subsidiaries (the "Company" or "OfficeMax") and reflect all adjustments which are, in the opinion of management, necessary to fairly present the results of the interim periods covered in this report. The results for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. 2. The Company's consolidated financial statements for the 13 and 26 weeks ended July 26, 2003 and July 27, 2002 included in this Quarterly Report on Form 10-Q have been prepared in accordance with the accounting policies described in the Notes to Consolidated Financial Statements for the fiscal year ended January 25, 2003 which were included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (File No. 1-13380) on April 8, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K referred to above. Certain reclassifications have been made to prior year amounts to conform to the current presentation. 3. The Company's fiscal year ends on the Saturday prior to the last Wednesday in January. Fiscal year 2003 ends on January 24, 2004 and includes 52 weeks. Fiscal year 2002 ended on January 25, 2003 and included 52 weeks. 4. OfficeMax serves its customers through nearly 1,000 superstores, e-Commerce Web sites and direct-mail catalogs. The Company has operations in the United States, Canada, Puerto Rico, the U.S. Virgin Islands and Mexico. In addition to offering office products, business machines and related items, OfficeMax superstores also feature CopyMax and FurnitureMax, store-within-a-store modules devoted exclusively to print-for-pay services and office furniture. The Company also reaches customers in the United States with an offering of over 40,000 items through its e-Commerce site, OfficeMax.com, its direct-mail catalogs and its outside sales force, all of which are serviced by its three PowerMax inventory distribution facilities, 17 delivery centers and two national customer call and contact centers. 7 5. The Company accounts for stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and provides pro forma disclosures of compensation expense determined under the fair value provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." The following pro forma disclosures of compensation expense are based on the fair value provisions of FAS 123 using the Black-Scholes option pricing model to estimate the fair value of options at the date of grant. (In thousands, except per share information)
13 WEEKS ENDED 26 WEEKS ENDED ------------------------ ----------------------- JULY 26, JULY 27, JULY 26, JULY 27, 2003 2002 2003 2002 -------- -------- -------- -------- Net income (loss), as reported $(26,706) $(33,362) $(16,923) $30,156 Stock-based compensation excluded from reported net income (loss) 1,632 1,270 3,346 2,321 -------- -------- -------- ------- Pro forma net income (loss) $(28,338) $(34,632) $(20,269) $27,835 ======== ======== ======== ======= Pro forma basic earnings (loss) per common share $ (0.23) $ (0.28) $ (0.16) $ 0.23 ======== ======== ======== ======= Pro forma diluted earnings (loss) per common share $ (0.23) $ (0.28) $ (0.16) $ 0.22 ======== ======== ======== =======
6. The components of the Company's comprehensive income (loss) are as follows: (In thousands)
13 WEEKS ENDED 26 WEEKS ENDED ------------------------ ----------------------- JULY 26, JULY 27, JULY 26, JULY 27, 2003 2002 2003 2002 -------- -------- -------- -------- Net income (loss) $(26,706) $(33,362) $(16,923) $ 30,156 Other comprehensive income (loss): Cumulative translation adjustment 279 1,044 (93) (117) -------- -------- -------- -------- Comprehensive income (loss) $(26,427) $(32,318) $(17,016) $ 30,039 ======== ======== ======== ========
8 7. Basic earnings per common share is based on the weighted average number of common shares outstanding. Diluted earnings per common share 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: (Dollars in thousands, except per share data)
13 WEEKS ENDED 26 WEEKS ENDED ----------------------------------- ----------------------------------- JULY 26, JULY 27, JULY 26, JULY 27, 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net income (loss) available to common shareholders $ (26,706) $ (33,362) $ (16,923) $ 30,156 ============ ============ ============ ============ Weighted average number of common shares outstanding 124,313,176 123,920,449 124,273,853 123,578,173 Effect of dilutive securities: Stock options -- -- -- 1,255,341 Restricted stock -- -- -- 51,207 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding and assumed conversions 124,313,176 123,920,449 124,273,853 124,884,721 ============ ============ ============ ============ Basic earnings per common share $ (0.21) $ (0.27) $ (0.14) $ 0.24 ============ ============ ============ ============ Diluted earnings per common share $ (0.21)(1) $ (0.27)(2) $ (0.14)(1) $ 0.24(3) ============ ============ ============ ============
(1) Options to purchase 18,039,643 common shares were excluded from the calculation of diluted earnings per common share for the 13 and 26 weeks ended July 26, 2003, because their effect would have been anti-dilutive due to the net loss recognized in those periods. The weighted average exercise price of these options was $7.14. (2) Options to purchase 15,802,829 common shares were excluded from the calculation of diluted earnings per common share for the 13 weeks ended July 27, 2002 because their effect would have been anti-dilutive due to the net loss recognized in that period. The weighted average exercise price of these options was $7.74. (3) Options to purchase 12,888,847 common shares were excluded from the calculation of diluted earnings per common share for the 26 weeks ended July 27, 2002 because the exercise prices of these options were greater than the average market price. The weighted average exercise price of these options was $8.75. 9 8. The Company has two business segments: Domestic and International. The Company's operations in the United States, Puerto Rico and the U.S. Virgin Islands, comprised of its retail stores, e-Commerce operations, catalog business and outside sales groups, are included in the Domestic segment. The operations of the Company's majority-owned subsidiary in Mexico, OfficeMax de Mexico, are included in the International segment. The following table summarizes the results of operations for the Company's business segments for the 13 weeks ended July 26, 2003 and July 27, 2002: (In thousands)
TOTAL 13 WEEKS ENDED JULY 26, 2003 COMPANY DOMESTIC INTERNATIONAL - ------------------------------------------------------------------------------------------ Sales $ 1,046,056 $ 1,015,635 $ 30,421 Cost of merchandise sold, including buying and occupancy costs 785,620 763,623 21,997 ----------- ----------- -------- Gross profit 260,436 252,012 8,424 Operating income (loss) (25,456) (25,852) 396 Interest expense (income), net 946 1,171 (225) Minority interest 304 -- 304 ----------- ----------- -------- Net income (loss) $ (26,706) $ (27,023) $ 317 =========== =========== ========
13 WEEKS ENDED JULY 27, 2002 - ------------------------------------------------------------------------------------------ Sales $ 1,006,271 $ 970,303 $ 35,968 Cost of merchandise sold, including buying and occupancy costs 759,288 730,924 28,364 ----------- --------- -------- Gross profit 246,983 239,379 7,604 Operating loss (31,273) (31,063) (210) Interest expense (income), net 2,125 2,260 (135) Minority interest (36) -- (36) ----------- --------- -------- Net loss $ (33,362) $ (33,323) $ (39) =========== ========= ========
10 The following table summarizes the results of operations for the Company's business segments for the 26 weeks ended July 26, 2003 and July 27, 2002: (In thousands)
TOTAL 26 WEEKS ENDED JULY 26, 2003 COMPANY DOMESTIC INTERNATIONAL - ----------------------------------------------------------------------------------- Sales $2,272,516 $2,207,759 $64,757 Cost of merchandise sold, including buying and occupancy costs 1,703,625 1,655,757 47,868 ---------- ---------- ------- Gross profit 568,891 552,002 16,889 Operating income (loss) (14,607) (15,877) 1,270 Interest expense (income), net 1,415 1,985 (570) Minority interest 901 -- 901 ---------- ---------- ------- Net income (loss) $ (16,923) $ (17,862) $ 939 ========== ========== ======= 26 WEEKS ENDED JULY 27, 2002 - -------------------------------------------------------------------------------- Sales $2,184,423 $2,110,191 $74,232 Cost of merchandise sold, including buying and occupancy costs 1,638,112 1,580,606 57,506 ---------- ---------- ------- Gross profit 546,311 529,585 16,726 Operating income (loss) (23,171) (24,305) 1,134 Interest expense (income), net 3,466 3,774 (308) Income tax benefit (57,500) (57,500) -- Minority interest 707 -- 707 ---------- ---------- ------- Net income $ 30,156 $ 29,421 $ 735 ========== ========== =======
The total assets of the International segment were approximately $78,115,000 and $69,728,000 as of July 26, 2003 and January 25, 2003, respectively. The total assets of the International segment included long-lived assets, primarily property and equipment, of approximately $23,256,000 and $23,676,000 as of July 26, 2003 and January 25, 2003, respectively. Depreciation expense for the International segment was approximately $828,000 and $1,620,000 for the 13 and 26 weeks ended July 26, 2003, respectively, and $861,000 and $1,699,000 for the 13 and 26 weeks ended July 27, 2002, respectively. Included in the total assets of the International segment was goodwill, net of accumulated amortization, of $3,699,000 as of July 26, 2003 and January 25, 2003. 11 9. During the fourth quarter of fiscal year 2002, the Company conducted a review of its domestic real estate portfolio and committed to close eight underperforming superstores and one delivery center. In conjunction with these closings, the Company recorded a pre-tax charge for store closing and asset impairment of $11,915,000 during the fourth quarter of fiscal year 2002. Also during the fourth quarter of fiscal year 2002, the Company reversed certain portions of the store closing reserves established in fiscal year 2001 and fiscal year 2000 when those portions of the reserves were deemed no longer necessary. The reversals reduced the fiscal year 2002 charge by approximately $11,203,000. During the first quarter of fiscal year 2003, the Company closed the delivery center and two of the superstores included in the charge for store closing and asset impairment recorded during the fourth quarter of fiscal year 2002. The remaining superstores are expected to close during fiscal year 2003. A reconciliation of the major components of the Company's store closing reserve is as follows: (In thousands)
BALANCE BALANCE JANUARY 25, PAYMENT JULY 26, 2003 / USAGE 2003 -------------------------------------------------------------------------------------- Lease disposition costs, net of sublease income $101,304 $ 9,588 $ 91,716 Other closing costs 2,926 2,074 852 -------- -------- -------- Total $104,230 $ 11,662 $ 92,568 ======== ======== ========
As of July 26, 2003 and January 25, 2003, $71,765,000 and $81,330,000 of the store closing reserve, respectively, was included in other long-term liabilities. Lease disposition cost included in the reserve for store closing costs includes the aggregate rent expense for the closed stores net of expected future sublease income of $108,069,000 and $109,139,000 as of July 26, 2003 and January 25, 2003, respectively. Of the total expected future sublease income included in the reserve for store closing costs, the Company had obtained sublease or assignment agreements for certain of its closed stores totaling $48,180,000 as of July 26, 2003. 10. In the fourth quarter of fiscal year 2001, the Company recorded a $170,616,000 charge to establish a valuation allowance for its net deferred tax assets, including amounts related to its net operating loss carryforwards. The valuation allowance was calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), which places primary importance on the Company's operating results in the most recent three-year period when assessing the need for a valuation allowance. Although management believes the Company's results for those periods were heavily affected by deliberate and planned infrastructure improvements, including its PowerMax distribution network and state-of-the-art SAP computer system, as well as an aggressive store closing program, the Company's cumulative loss in the most recent three-year period represented negative evidence sufficient to require a full valuation allowance under the provisions of FAS 109. As of July 26, 2003, the valuation allowance was approximately $115,570,000, which represents a full valuation allowance of the Company's net deferred tax assets, including amounts related to its net operating loss carryforwards. The Company intends to maintain a full valuation allowance for its net deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support reversal of some portion or the remainder of the allowance. Until such time, except for minor state, local and foreign tax provisions, the Company will have no reported tax provision, net of valuation allowance adjustments. 12 On March 9, 2002, President Bush signed into law the "Job Creation and Worker Assistance Act" (H.R. 3090). This new tax law temporarily extended the carryback period, to five years from two years, for net operating losses incurred during the Company's taxable years ended in 2001 and 2000. During the first quarter of fiscal year 2002, the Company reversed a portion of the valuation allowance recorded during the fourth quarter of fiscal year 2001 and recognized an income tax benefit of $57,500,000 due to the extension of the carryback period. As of July 27, 2002, a receivable for the $57,500,000 income tax refund was included in other current assets. The Company received refunds for the additional net operating loss carryback resulting from the extension of the carryback period during fiscal year 2002. 11. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies consolidation requirements for variable interest entities ("VIEs") which establishes additional factors beyond ownership of a majority voting interest to indicate that a company has a controlling financial interest in an entity (or a relationship sufficiently similar to a controlling financial interest that it requires consolidation). Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns, if they occur. This interpretation applies immediately to variable interest entities created or obtained after January 31, 2003 and must be retroactively applied to holdings in variable interest entities acquired before February 1, 2003 in interim and annual financial statements issued for periods beginning after June 15, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. The Company leases two of its PowerMax distribution facilities from VIEs (previously referred to as special purpose entities or SPEs) that have been established by nationally prominent, creditworthy commercial lessors to facilitate the financing of the inventory distribution facilities. The VIEs finance the cost of the property through the issuance of commercial paper. The Company has provided standby letters of credit of approximately $81,000,000 in support of the commercial paper. In the event that the Company defaults on its obligations under the leases, the VIEs could draw on the letters of credit in order to redeem the commercial paper. These letters of credit utilize a portion of the Company's available borrowing capacity under its revolving credit facility. Upon expiration of the synthetic operating leases, the Company can elect to purchase the related assets of both facilities at a total cost specified in the lease agreements of approximately $80,000,000. If the Company does not elect to purchase the related assets, the Company is required to honor certain fair value guarantees. These guarantees require the Company to reimburse the lessor for any shortfall from a fair value specified in the lease agreements. Currently, the Company expects to purchase the related assets upon expiration of the synthetic operating leases, or otherwise enter into an arrangement to maintain the continued use of these facilities. Based on the provisions of FIN 46, as of the beginning of its third quarter of fiscal year 2003, the Company is required to consolidate in its financial statements the assets and related depreciation, liabilities and non-controlling interests of the VIEs involved in the leasing of its PowerMax inventory distribution facilities. The Company's third quarter consolidated financial statements will reflect the outstanding debt of the VIEs of approximately $80,000,000 in other long-term liabilities. Also as a result of consolidating the VIEs, the Company's consolidated financial statements will reflect the net fixed assets of the VIEs of approximately $60,000,000 which is net of accumulated depreciation of approximately $20,000,000. The Company has elected to adopt the provisions of FIN 46 prospectively with a cumulative-effect adjustment as of the beginning of the third quarter of fiscal year 2003. Accordingly, the Company will record a non-cash extraordinary loss of approximately $20,000,000 in its fiscal third quarter which represents the excess of the carrying value of the newly consolidated liabilities and non-controlling interests over the carrying value of the newly consolidated assets. As a result of consolidating the VIEs, the Company will incur additional depreciation expense of approximately $1,000,000 per quarter beginning in the third quarter of fiscal year 2003. Consolidation of the VIEs will have no impact on the Company's cash flows. 13 12. In November 2002, the FASB Emerging Issues Task Force ("Task Force") issued EITF Issue 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 addressed the following two issues: (i) the classification in a reseller's financial statements of cash consideration received from a vendor ("Issue 1"); and (ii) the timing of recognition by a reseller of a rebate or refund from a vendor that is contingent upon achieving a specific cumulative level of purchases or remaining a customer for a specified time period ("Issue 2"). Issue 1 stipulates that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendors' products and should, therefore, be recognized as a reduction of cost of merchandise sold when recognized in the reseller's financial statements. However, that presumption is overcome when the consideration is either (a) a payment for assets or services delivered to the vendor, in which case the cash consideration should be recognized as revenue (or other income, as appropriate) when recognized in the reseller's income statement, or (b) a reimbursement of a specific, incremental, identifiable cost incurred by the reseller in selling the vendor's products, in which case the cash consideration should be characterized as a reduction of that cost when recognized in the reseller's income statement. Issue 2 states that vendor rebates should be recognized on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions that results in progress by the reseller toward earning the rebate, provided the amounts are probable and reasonably estimable. Issue 1 was effective for all new arrangements, including modifications of existing arrangements, entered into after December 31, 2002. Issue 2 was effective for all new arrangements initiated after November 21, 2002. The Company and its vendors participate in cooperative advertising programs and other vendor marketing programs in which vendors reimburse the Company for a portion of its advertising expenses and other costs. In accordance with the transition provisions of EITF 02-16, the Company is required to adopt the new guidance prospectively as it negotiates agreements with new vendors or modifies existing agreements. The Company's vendor agreements typically do not have expiration dates and remain in effect until replaced, and therefore, it is expected to take up to 18 months to cycle through all vendor program negotiations in the normal course of business. As a result of the more restrictive standards defined in Issue 1 of EITF 02-16, the Company is required to record certain consideration received from its vendors as a reduction of cost of merchandise sold, which previously would have been recognized as a reduction of a related advertising expense. This change in accounting may impact the timing of recognition of cash consideration received from the Company's vendors and increase its gross profit and net advertising expenses. These changes do not affect the total amount of vendor income the Company receives from its vendors. The application of the new guidance reduced earnings by approximately $0.01 per diluted share during each of the first and second quarters of fiscal year 2003. The estimated effect of the prospective adoption of EITF 02-16 for the remainder of fiscal year 2003 is a reduction of earnings of $0.01 to $0.02 per diluted share per quarter. 14 13. On July 13, 2003, the Company entered into an agreement and plan of merger (the "Merger Agreement"), among the Company, Boise Cascade Corporation, a corporation organized under the laws of Delaware ("Boise Cascade"), and Challis Corporation, a corporation organized under the laws of Ohio ("Challis"). Under the terms of the Merger Agreement: (1) Challis will merge into the Company (the "Merger"), with the Company surviving the Merger as a direct wholly owned subsidiary of Boise Cascade; and (2) holders of the Company's common shares ("OfficeMax Common Shares") will receive in the Merger approximately $9.00 per OfficeMax Common Share in a combination of shares of common stock of Boise Cascade ("Boise Common Shares") and cash. The Merger is a taxable transaction for the Company's shareholders. The consideration to be received by the holders of OfficeMax Common Shares in the Merger (the "Merger Consideration") shall consist of 70% Boise Common Shares and 30% cash, subject to Boise Cascade's right to elect for the Merger Consideration to consist of 65% Boise Common Shares and 35% cash, 60% Boise Common Shares and 40% cash or 55% Boise Common Shares and 45% cash (the "Additional Cash Election"). Boise Cascade is required to make the Additional Cash Election not less than ten trading days prior to the date of the Company's shareholder meeting to be held to consider the approval of the Merger and adoption of the Merger Agreement. The exchange ratio ("Exchange Ratio") pursuant to which OfficeMax Common Shares will be converted into Boise Common Shares will depend on the average closing price of the Boise Common Shares during the ten trading day period ending two trading days prior to the closing date of the Merger (the "Boise Common Share Value"). The Exchange Ratio is subject to a customary price collar of plus or minus 10 percent from the closing price of the Boise Common Shares on July 11, 2003 of $23.43 per share. If the Boise Common Share Value is at or below $21.09, the Exchange Ratio will be 0.4268 Boise Common Shares for each OfficeMax Common Share. If the Boise Common Share Value is between $21.09 and $25.77, the Exchange Ratio will be adjusted to provide a number of Boise Common Shares having a Boise Common Share Value equal to $9.00 in exchange for each OfficeMax Common Share. If the Boise Common Share Value is at or above $25.77, the Exchange Ratio will be 0.3492 Boise Common Shares for each OfficeMax Common Share. If Boise Cascade makes the Additional Cash Election and the Boise Common Share Value is more than $25.77, the cash consideration of $9.00 per OfficeMax Common Share will be adjusted upward pursuant to the terms of the Merger Agreement so that the aggregate amount of the Merger Consideration received by OfficeMax's shareholders will equal the same amount of aggregate Merger Consideration as would have been received if Boise Cascade had not made the Additional Cash Election. Similarly, if Boise Cascade makes the Additional Cash Election and the Boise Common Share Value is less than $21.09, the cash consideration of $9.00 per OfficeMax Common Share will be adjusted downward so that the aggregate amount of Merger Consideration remains unchanged. The consummation of the Merger is subject to several significant conditions, including (a) the approval of the Merger by the holders of a majority of the outstanding OfficeMax Common Shares; (b) the approval of the Merger by the holders of a majority of the Boise Common Shares and shares of Series D preferred stock of Boise Cascade, voting at the meeting, together as one class; and (c) customary regulatory approvals and other customary closing conditions. Michael Feuer, the Chairman and CEO of the Company, has entered into a shareholder's agreement pursuant to which he has agreed to vote the OfficeMax Common Shares owned by him in favor of the Merger. Pursuant to a registration rights agreement, Boise Cascade Corporation has agreed to file a shelf registration statement with respect to any Boise Common Shares to be received by Mr. Feuer in the Merger. The Merger is expected to be completed in the fourth quarter of 2003, although no assurance can be given as to whether or when the Merger will actually be consummated. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated sales for the 13 and 26 weeks ended July 26, 2003 increased to $1,046,056,000 and $2,272,516,000, respectively, from $1,006,271,000 and $2,184,423,000 for the comparable prior year periods. The increases in sales were primarily as a result of comparable-store sales increases of approximately 5% experienced by the Company's Domestic segment during both the 13 and 26 weeks ended July 26, 2003. The current year comparable-store sales increases are in addition to comparable-store sales increases of 3% and 1% realized by the Domestic segment in the comparable prior year periods. The Domestic segment's comparable-store sales gains were driven by both increased customer transactions and higher average amount per customer transaction primarily as a result of the Company's new merchandising and marketing initiatives, improved inventory in-stock position and better in-store execution. Cost of merchandise sold, including buying and occupancy costs, was $785,620,000 and $1,703,625,000 for the 13 and 26 weeks ended July 26, 2003, respectively, and $759,288,000 and $1,638,112,000 for the 13 and 26 weeks ended July 27, 2002, respectively. Cost of merchandise sold, including buying and occupancy costs, decreased as a percentage of sales to 75.1% for the 13 weeks ended July 26, 2003 from 75.5% for the comparable period last year. Correspondingly, gross margin rate increased approximately 0.4% of sales from the comparable prior year period to 24.9% of sales for the 13 weeks ended July 26, 2003. The increase in gross margin was primarily due to the Company's adoption of EITF 02-16 which resulted in a shift in the classification of vendor funding from a reduction, or offset, in advertising expense to a reduction in merchandise cost reflected through lower cost of merchandise sold. Cost of merchandise sold, including buying and occupancy costs was 75.0% of sales for the 26 weeks ended July 26, 2003 and for the comparable period last year. Correspondingly, gross margin was 25.0% of sales for the 26 weeks ended July 26, 2003 and for the comparable period last year. Store operating and selling expenses, which consist primarily of store payroll and operating and advertising expenses, were $253,947,000, or 24.3% of sales, and $518,350,000, or 22.8% of sales, for the 13 and 26 weeks ended July 26, 2003, respectively, and $243,087,000, or 24.2% of sales, and $500,300,000, or 22.9% of sales, for the 13 and 26 weeks ended July 27, 2002, respectively. The increase in store operating and selling expenses as a percentage of sales for the 13 weeks ended July 26, 2003 was a result of additional costs incurred related to remerchandising efforts and store remodels, and over a 0.3% of sales shift in the classification of vendor funding to gross margin, which costs were mitigated by improved leverage of store-level payroll. The Company typically utilizes the second quarter summer months, which are traditionally the slowest of the year, to complete projects, such as store remodels, and prepare the stores for the upcoming back-to-school, holiday and January back-to-business selling seasons. General and administrative expenses decreased to $31,945,000, or 3.1% of sales, and $65,148,000, or 2.9% of sales, for the 13 and 26 weeks ended July 26, 2003, respectively, from $35,169,000, or 3.5% of sales, and $69,182,000, or 3.2% of sales, for the 13 and 26 weeks ended July 27, 2002, respectively. The decrease in general and administrative expenses was primarily a benefit of the Company's continued expense control programs and efficiency gains from the Company's information technology initiatives. As a result of the foregoing factors, the Company incurred operating losses of $25,456,000 and $14,607,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to operating losses of $31,273,000 and $23,171,000 for the comparable periods last year. Interest expense, net, was $946,000 and $1,415,000 for the 13 and 26 weeks ended July 26, 2003, respectively, as compared to $2,125,000 and $3,466,000 for the comparable periods last year. The decrease in interest expense was primarily a result of lower average outstanding borrowings during the current fiscal year as compared to the same periods last year and lower interest rates on the Company's outstanding borrowings. 16 The Company had pre-tax losses, net of minority interest, of $26,706,000 and $16,923,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to pre-tax losses, net of minority interest, of $33,362,000 and $27,344,000 for the comparable periods last year. In accordance with the provisions of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" ("FAS 109"), the Company recorded a charge to establish a valuation allowance for its net deferred tax assets including amounts related to its net operating loss carryforwards in the fourth quarter of fiscal year 2001. The Company intends to maintain a full valuation allowance for its net deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support reversal of some portion or the remainder of the allowance. Until such time, except for minor state, local and foreign tax provisions, the Company will have no reported tax provision, net of valuation adjustments. On March 9, 2002, President Bush signed into law the "Job Creation and Worker Assistance Act" (H.R. 3090). This new tax law temporarily extended the carryback period for net operating losses incurred during the Company's taxable years ended in 2001 and 2000 to five years from two years. In the first quarter of fiscal year 2002, the Company reversed a portion of the valuation allowance for its net deferred tax assets and net operating loss carryforwards recorded during the fourth quarter of fiscal year 2001 and recognized an income tax benefit of $57,500,000 due to the extension of the carryback period. Other than the benefit for additional net operating loss carryback recognized during the first quarter of fiscal year 2002, the Company had no reported tax provision, net of valuation allowance adjustments during the 13 and 26 weeks ended July 26, 2003 and July 27, 2002. See "Note 10 of Notes to Consolidated Financial Statements" above. As a result of the foregoing factors, the Company incurred net losses of $26,706,000 and $16,923,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to a net loss of $33,362,000 and net income of $30,156,000 for the comparable periods last year. On July 13, 2003, the Company entered into an agreement and plan of merger (the "Merger Agreement"), among the Company, Boise Cascade Corporation, and its wholly-owned subsidiary Challis Corporation. See "Note 13 of Notes to Consolidated Financial Statements" above. The net expenses incurred by the Company during the second quarter related to the merger were not material. BUSINESS SEGMENTS Domestic Segment Sales for the Domestic segment increased approximately 5% to $1,015,635,000 and $2,207,759,000 for the 13 and 26 weeks ended July 26, 2003, respectively, from $970,303,000 and $2,110,191,000 for the like periods last year. The increases in sales for the Domestic segment during the 13 and 26 weeks ended July 26, 2003 were primarily a result of a 5% increase in comparable-store sales. The increase in comparable-store sales was driven by increased customer transactions and higher average amount per customer transaction primarily as a result of the Company's new merchandising and marketing initiatives, improved inventory in-stock position and better in-store execution. Gross profit for the Domestic segment was $252,012,000, or 24.8% of sales, and $552,002,000, or 25.0% of sales, for the 13 and 26 weeks ended July 26, 2003, respectively, compared to $239,379,000, or 24.7% of sales, and $529,585,000, or 25.1% of sales, for the 13 and 26 weeks ended July 27, 2002, respectively. The increase in gross margin for the 13-week period was primarily due to the Company's adoption of EITF 02-16 which resulted in an over 0.3% of sales shift in the classification of vendor funding from a reduction, or offset, in advertising expense to a reduction in merchandise cost reflected through lower cost of merchandise sold. The Domestic segment incurred operating losses of $25,852,000 and $15,877,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to operating losses of $31,063,000 and $24,305,000 for the comparable periods last year. The year-over-year improvement in the Domestic segment's operating results for the 13 and 26 weeks ended July 26, 2003 was primarily due to better leverage of store-level payroll and general and administrative expenses which were partially offset by additional costs incurred related to remerchandising efforts and remodels, as well as the adoption of EITF 02-16. 17 As a result of the foregoing factors, the Domestic segment recognized pre-tax losses of $27,023,000 and $17,862,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to pre-tax losses of $33,323,000 and $28,079,000 for the comparable periods last year. As described above, during the first quarter of fiscal year 2002, the Company reversed a portion of the valuation allowance for its net deferred tax assets and net operating loss carryforwards recorded during the fourth quarter of fiscal year 2001 and recognized an income tax benefit of $57,500,000 due to the extension of the carryback period. Other than the benefit for additional net operating loss carryback recognized during the first quarter of fiscal year 2002, the Domestic segment had no reported tax provision, net of valuation allowance adjustments during the 13 and 26 weeks ended July 26, 2003 and July 27, 2002. As a result of the foregoing factors, the Domestic segment incurred net losses of $27,023,000 and $17,862,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to a net loss of $33,323,000 and net income of $29,421,000 for the comparable periods last year. International Segment Sales for the International segment decreased to $30,421,000 and $64,757,000 for the 13 and 26 weeks ended July 26, 2003, respectively, from $35,968,000 and $74,232,000 for the comparable periods last year. Comparable-store sales, which were significantly impacted by an unfavorable currency translation from the weakening of the Mexican Peso against the U.S. Dollar and reduced sales of larger ticket items, such as computers, declined approximately 20% and 18% for the 13 and 26 weeks ended July 26, 2003, respectively. In local currency, comparable-store sales declined approximately 12% and 6% for the 13 and 26 weeks ended July 26, 2003, respectively. Gross profit for the International segment was $8,424,000, or 27.7% of sales, and $16,889,000, or 26.1% of sales for the 13 and 26 weeks ended July 26, 2003, respectively, compared to $7,604,000, or 21.1% of sales, and $16,726,000, or 22.5% of sales, for the comparable prior year periods. The increase in gross profit as a percentage of sales was primarily due to a sales mix shift towards higher margin supply merchandise from lower margin computer merchandise. The International segment recognized operating income of $396,000, or 1.3% of sales, and $1,270,000, or 2.0% of sales, for the 13 and 26 weeks ended July 26, 2003, respectively, compared to an operating loss of $210,000 and operating income of $1,134,000, or 1.5% of sales, for the comparable periods last year. The increase in operating profit as a percentage of sales during the second quarter of fiscal year 2003 was due to the increased gross margin rate, which was partially offset by de-leveraging of the International segment's store operating and selling expenses and general and administrative expenses, all of which are consistent with the sales mix shift towards supply merchandise from lower margin computer merchandise. Minority interest in the net income (loss) of the International segment was $304,000 and $901,000 for the 13 and 26 weeks ended July 26, 2003, respectively, compared to ($36,000) and $707,000 for the 13 and 26 weeks ended July 27, 2002, respectively. As a result of the foregoing factors, the International segment recognized net income of $317,000, or 1.0% of sales, for the 13 weeks ended July 26, 2003, compared to a net loss of $39,000 for the comparable prior year period. The International segment had net income of $939,000, or 1.5% of sales, and $735,000, or 1.0% of sales, for the 26 weeks ended July 26, 2003 and July 27, 2002, respectively. 18 LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $23,196,000 of cash during the 26 weeks ended July 26, 2003. The net loss of $16,923,000 and cash usage as a result of net working capital changes of $52,819,000, primarily due to a decrease in accrued expenses and increases in inventory and accounts payable, were offset by non-cash depreciation expense of $44,858,000. Since the end of fiscal year 2002, accrued expenses decreased $30,628,000 primarily because of seasonal fluctuations in advertising expenses and bonus payments under the Company's Annual Incentive Bonus Plan. During the first half of fiscal year 2003, inventory and accounts payable increased $15,718,000 and $15,147,000, respectively. The increase in inventory since the end of the prior fiscal year was due to the seasonal build-up of inventory prior to the back-to-school selling season. Year-over-year, inventory decreased $5,341,000 and annualized inventory turns improved to 3.8 times from 3.7 times for the comparable prior year period. Accounts payable-to-inventory leverage increased 1.1% to 44.0% as of July 26, 2003 from 42.9% as of July 27, 2002. The Company's operating activities used $94,597,000 of cash during the 26 weeks ended July 27, 2002, primarily for the purchase of inventory which increased $63,931,000, and the payment of accounts payable, which decreased $80,861,000 since the end of the prior fiscal year. Net cash used for investing activities was $39,221,000 for the 26 weeks ended July 26, 2003 versus $27,635,000 for the comparable prior year period. Capital expenditures, primarily for new and remodeled superstores, were $38,300,000 for the 26 weeks ended July 26, 2003 and $24,395,000 for the 26 weeks ended July 27, 2002. Net cash used for financing activities was $20,983,000 for the 26 weeks ended July 26, 2003. Current year financing activities primarily represent a decrease in overdraft balances (checks issued pending clearance that result in overdraft balances for accounting purposes) of $36,603,000 and the redemption of outstanding preferred shares. See "Settlement of Dispute with Gateway" below. The overdraft balances are included as a component of accounts payable in the Company's consolidated balance sheets. The change in overdraft balances since the end of fiscal year 2002 is reflected in the consolidated statements of cash flows as a financing activity. Net cash provided by financing activities was $107,198,000 in the comparable prior year period primarily because of an increase in borrowings under the Company's revolving credit facility and a decrease in overdraft balances. On March 9, 2002, President Bush signed into law the "Job Creation and Worker Assistance Act" (H.R. 3090). This new tax law temporarily extended the carryback period, to five years from two years, for net operating losses incurred during the Company's taxable years ended in 2001 and 2000. During the first quarter of fiscal year 2002, the Company reversed a portion of the valuation allowance for its net deferred tax assets and net operating loss carryforwards recorded during the fourth quarter of fiscal year 2001 and recognized an income tax benefit of $57,500,000 due to the extension of the carryback period. During fiscal year 2002, the Company received refunds for the additional net operating loss carryback resulting from the extension of the carryback period. As of July 27, 2002, a receivable for the $57,500,000 income tax refund was included in other current assets. Also during fiscal year 2002, the Company received refunds of amounts on deposit with the Internal Revenue Service of approximately $30,000,000 related to prior year tax returns. See "Note 10 of Notes to Consolidated Financial Statements" above for additional information regarding the valuation allowance and the refund received as a result of the extension of the carryback period. In accordance with an amended and restated joint venture agreement, the minority owner in the Company's subsidiary in Mexico can elect to put its remaining 49% interest in OfficeMax de Mexico to the Company, if certain earnings targets are achieved. These earnings targets are calculated quarterly on a rolling four quarter basis. If the earnings targets are achieved and the minority owner elects to put its ownership interest to the Company, the purchase price would be equal to fair value calculated based on the subsidiary's earnings for the last four quarters before interest, taxes, depreciation and amortization and current market multiples of similar companies. The fair value purchase price is currently estimated to be $25,000,000 to $30,000,000. During the fourth quarter of fiscal year 2000, the Company entered into a $700,000,000 senior secured revolving credit facility. In May 2003, the Company extended the revolving credit facility until February 28, 2007 and reduced the available borrowing capacity under the revolving credit facility to $550,000,000. The decision to reduce the available borrowing capacity of this credit facility was another benefit of the Company's enhanced supply-chain management programs and processes and the Company's forecasts through fiscal year 2006 which reflect a significant reduction in the need for larger credit availability based on improving positive cash flow. This reduction also served to minimize fees paid on the unused portion of the facility. The revolving credit facility is secured by a first priority perfected security interest in the Company's inventory and certain accounts receivable and provides for 19 borrowings at the bank's base rate or Eurodollar Rate plus 1.75% to 2.50% depending on the level of borrowing. The Company had $115,123,000 of standby letters of credit outstanding as of July 26, 2003, which utilize a portion of the Company's available borrowing capacity under this facility. These letters of credit are issued in connection with the Company's insurance programs and two synthetic operating leases related to its PowerMax inventory distribution facilities. The Company pays quarterly usage fees of between 1.62% and 1.87% per annum on the outstanding standby letters of credit. The Company pays quarterly fees of 0.25% per annum on the unused portion of the revolving credit facility. Available borrowing capacity under the revolving credit facility is calculated as a percentage of the Company's inventory and certain accounts receivable. As of July 26, 2003, the Company had unused and available borrowings under the revolving credit facility of more than $365,000,000. As of July 26, 2003, the Company had outstanding borrowings of $34,000,000 under the revolving credit facility at a weighted average interest rate of 3.02%. As of January 25, 2003, the Company had no outstanding borrowings under this facility. The Company expects its funds generated from operations, as well as its current cash reserves, and, when necessary, seasonal short-term borrowings, will be sufficient to finance its operations and capital requirements in the foreseeable future. The Company's business is seasonal, with sales and operating income higher in the third and fourth fiscal 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 fiscal quarter's summer months are the slowest of the year primarily because of lower office supplies consumption during the summer vacation period. The Company occupies two of its PowerMax inventory distribution facilities under synthetic operating leases with initial lease terms expiring in fiscal year 2004. One of the synthetic operating leases has been extended at the Company's option until fiscal year 2005. The Company leases the PowerMax facilities from VIEs (previously referred to as special purpose entities or SPEs) that have been established by nationally prominent, creditworthy commercial lessors that are not affiliated with OfficeMax to facilitate the financing of those assets for the Company. No officers, directors or employees of the Company hold any direct or indirect equity interest in such VIEs. The VIEs finance the cost of the property through the issuance of commercial paper. The Company has provided standby letters of credit of approximately $81,000,000 in support of the commercial paper. In the event that the Company defaults on its obligations under the leases, the VIEs could draw on the letters of credit in order to redeem the commercial paper. These letters of credit utilize a portion of the Company's available borrowing capacity under its revolving credit facility. Upon expiration of the synthetic operating leases, the Company can elect to purchase the related assets of both facilities at a total cost specified in the lease agreements of approximately $80,000,000. If the Company does not elect to purchase the related assets, the Company is required to honor certain fair value guarantees. These guarantees require the Company to reimburse the lessor any shortfall to a fair value specified in the lease agreements. Currently, the Company expects to purchase the related assets upon expiration of the synthetic operating leases, or otherwise enter into an arrangement to maintain the continued use of these facilities, and is unable to estimate its obligation, if any, under the fair value provisions of these leases. See "Note 11 of Notes to Consolidated Financial Statements" above and "Recently Issued Accounting Pronouncements" below for additional information regarding the Company's synthetic operating leases. 20 LEGAL PROCEEDINGS There are various claims, lawsuits and pending actions against the Company incidental to the Company's operations. Although litigation is inherently subject to many uncertainties, it is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company's liquidity and financial position. However, in the event of an unanticipated adverse final determination, the Company's consolidated net income for the period in which such determination occurs could be materially affected. SETTLEMENT OF DISPUTE WITH GATEWAY In fiscal year 2000, Gateway Companies, Inc. ("Gateway") committed to operate licensed store-within-a-store computer departments within all OfficeMax superstores in the United States pursuant to a strategic alliance. In connection with the investment requirements of the strategic alliance, during the second quarter of fiscal year 2000, Gateway invested $20,000,000 in Series B Serial Preferred Shares (the "Series B Shares"). The Series B Shares, which had a purchase price of $10 per share and a coupon rate of 7% per annum, had no voting rights. In fiscal 2001, a dispute arose between Gateway and OfficeMax as to their respective rights and entitlements under the agreements related to the implementation of the strategic alliance. Litigation and arbitration proceedings were commenced with each party asserting claims of non-performance against the other. During the second quarter of fiscal year 2003, the Company and Gateway mutually and satisfactorily resolved all outstanding issues in dispute. In accordance with the settlement, OfficeMax redeemed the outstanding Series B Shares owned by Gateway, Gateway reimbursed the Company for certain expenses it had incurred in conjunction with the strategic alliance, and all litigation and arbitration proceedings have been dismissed. The settlement had no impact on the Company's results of operations. 21 SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of 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 periods presented. Actual amounts could differ from these estimates and different amounts could be reported using different assumptions and estimates. The Company's significant accounting policies are described in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 25, 2003. Management believes that of its significant accounting policies, its policies concerning inventories, income taxes, impairment of long-lived assets, goodwill, vendor income recognition and facility closure costs involve high degrees of judgments, estimates and complexity. The estimates and judgments made by management in regards to these policies have the most significant impact on the Company's reported financial position and operating results. Additional information regarding these policies is set forth below. Inventories Inventories are valued at weighted average cost or market. Throughout the year, the Company performs annual physical inventories at all of its locations. For periods subsequent to the date of each location's last physical inventory, an allowance for estimated shrinkage is provided based on various factors including sales volume, the location's historical shrinkage results and current trends. If actual losses as a result of inventory shrinkage are different than management's estimates, adjustments to the Company's allowance for inventory shrinkage may be required and the Company's gross margin could be adversely impacted. The Company records cost markdowns for inventory not expected to be part of its ongoing merchandise offering. These markdowns amounted to $7,000,000 and $6,250,000 as of July 26, 2003 and January 25, 2003, respectively. Management estimates the required allowance for future inventory cost markdowns based on historical information regarding product sell through and gross margin rates for similar products. If actual sell through or gross margin rates for discontinued inventory are different than management's estimates, additional inventory markdowns may be required and the Company's gross margin could be adversely impacted. 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 bases of assets and liabilities. The Company assesses the recoverability of its deferred tax assets in accordance with the provisions of FAS 109. In accordance with that standard, the Company recorded a charge to establish a valuation allowance for its net deferred tax assets and net operating loss carryforwards of $170,616,000 in the fourth quarter of fiscal year 2001. As of July 26, 2003, the valuation allowance was approximately $115,570,000, which represents a full valuation allowance of the Company's net deferred tax assets, including amounts related to its net operating loss carryforwards. The Company intends to maintain a full valuation allowance for its net deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support the reversal of some portion or the remainder of the allowance. Until such time, except for minor state, local and foreign tax provisions, the Company will have no reported tax provision, net of valuation allowance adjustments. Any future decision to reverse a portion or all of the remaining valuation allowance will be based on consideration of several factors including, but not limited to, the Company's expectations regarding future taxable income and the Company's cumulative income or loss in the then most recent three-year period. In the event the Company was to determine, based on the existence of sufficient positive evidence, that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. 22 Impairment of Long-Lived Assets The Company reviews its long-lived assets for possible impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable by the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If impairment exists, the carrying amount of the asset is reduced to fair value or fair value less the cost to sell depending upon whether the asset is held for use or disposal, respectively. The Company evaluates possible impairment of long-lived assets for each of its retail stores individually based on management's estimate of the store's future earnings before interest, taxes, depreciation and amortization. Long-lived assets for which the Company cannot specifically identify cash flows that are largely independent of the cash flows of other long-lived assets, such as its corporate and distribution facilities, are evaluated based on management's estimate of the Company's future consolidated operating cash flows. During the second quarter of fiscal years 2003 and 2002, the Company recorded impairment losses of $593,000 and $1,777,000, respectively. If actual future operating results or cash flows are different than management's estimates, additional impairment losses may be required to be recorded. Goodwill Goodwill represents the excess of cost over the fair value of the net identifiable assets acquired in a business combination accounted for under the purchase method. As a result of the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles" ("FAS 142"), that was effective for the Company as of the beginning of fiscal year 2002, goodwill and intangible assets with an indefinite useful life are no longer amortized, but are tested for impairment at least annually. The Company completed the initial impairment test during the second quarter of fiscal year 2002 and concluded that the fair value of both of the Company's reporting units (Domestic and International) exceeded their carrying values as of January 27, 2002 and, therefore, no impairment existed at that date. In addition to the initial impairment test completed during the second quarter of fiscal year 2002, the Company elected to perform the first of its annual tests during the fourth quarter of fiscal year 2002 and concluded that the fair value of both of the Company's reporting units exceeded their respective carrying values and no impairment charge was required. The Company engaged a financial advisory firm to assist management in completing the impairment tests and to prepare certain analyses regarding the fair value of the Company's reporting units. In developing its analyses, the financial advisory firm reviewed plans prepared by management, interviewed senior managers of the Company and performed independent research. Calculations regarding the fair value of the Company's reporting units, including the analyses prepared by the financial advisory firm, rely primarily on forecasts and projections regarding future operating results and cash flows, which require management to make estimates and assumptions. If actual operating results or cash flows are different than management's estimates and assumptions, the Company could be required to record impairment charges in future periods. The Company will be required to complete an annual impairment test during its fourth fiscal quarter each year. Vendor Income Recognition The Company participates in various cooperative advertising and other vendor marketing programs with its vendors. Consideration received from vendors for cooperative advertising programs and other vendor marketing programs is recognized as a reduction of cost of merchandise sold, unless the consideration represents a reimbursement of a specific cost incurred by the Company, in which case the consideration is recognized as a reduction of the related expense. The Company also participates in various volume purchase rebate programs with its vendors. These programs typically include annual purchase targets and offer increasing tiered rebates based on the Company achieving certain purchase levels. The Company recognizes consideration received from vendors for volume purchase rebate programs as a reduction of cost of merchandise sold as the related inventory is sold. For tiered volume purchase rebate programs, the Company estimates the rebates to be earned based on expected purchases during the rebate program period. The Company calculates expected purchases during the rebate program period based on its replenishment model which utilizes a product and store specific algorithm that incorporates recent sales trends, upcoming promotional events and other relevant data to project sales and the related replenishment requirements. The Company revises its purchase expectations at least quarterly throughout the rebate program period. If actual purchases are different than management's expectations, adjustments to the results of operations may be necessary. 23 In November 2002, the FASB Emerging Issues Task Force ("Task Force") issued EITF Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 addressed the following two issues: (i) the classification in a reseller's financial statements of cash consideration received from a vendor ("Issue 1"); and (ii) the timing of recognition by a reseller of a rebate or refund from a vendor that is contingent upon achieving a specific cumulative level of purchases or remaining a customer for a specified time period ("Issue 2"). Issue 1 stipulates that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendors' products and should, therefore, be recognized as a reduction of cost of merchandise sold when recognized in the reseller's financial statements. However, that presumption is overcome when the consideration is either (a) a payment for assets or services delivered to the vendor, in which case the cash consideration should be recognized as revenue (or other income, as appropriate) when recognized in the reseller's income statement, or (b) a reimbursement of a specific, incremental, identifiable cost incurred by the reseller in selling the vendor's products, in which case the cash consideration should be characterized as a reduction of that cost when recognized in the reseller's income statement. Issue 2 states that vendor rebates should be recognized on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions that results in progress by the reseller toward earning the rebate, provided the amounts are probable and reasonably estimable. Issue 1 was effective for all new arrangements, including modifications of existing arrangements, entered into after December 31, 2002. Issue 2 was effective for all new arrangements initiated after November 21, 2002. As noted above, the Company and its vendors participate in cooperative advertising programs and other vendor marketing programs in which vendors reimburse the Company for a portion of its advertising expenses and other costs. In accordance with the transition provisions of EITF 02-16, the Company is required to adopt the new guidance prospectively as it negotiates agreements with new vendors or modifies existing agreements. The Company's vendor agreements typically do not have expiration dates and remain in effect until replaced, and therefore, it is expected to take up to 18 months to cycle through all vendor program negotiations in the normal course of business. As a result of the more restrictive standards defined in Issue 1 of EITF 02-16, the Company is required to record certain consideration received from its vendors as a reduction of cost of merchandise sold, which previously would have been recognized as a reduction of a related advertising expense. This change in accounting may impact the timing of recognition of cash consideration received from the Company's vendors and increase its gross profit and net advertising expenses. These changes do not affect the total amount of vendor income the Company receives from its vendors. The application of the new guidance reduced earnings by approximately $0.01 per diluted share during each of the first and second quarters of fiscal year 2003. The estimated effect of the prospective adoption of EITF 02-16 for the remainder of fiscal year 2003 is a reduction of earnings of $0.01 to $0.02 per diluted share per quarter. Facility Closure Costs The Company continuously reviews its real estate portfolio to identify underperforming facilities and closes those facilities that are no longer strategically or economically viable. Prior to the adoption of FASB Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146"), which was effective for exit or disposal activities that are initiated after December 31, 2002, the Company accrued estimated closure costs in the period in which management approved a plan to close a facility. The accrual for estimated closure costs is net of expected future sublease income, which is estimated by management based on real estate studies prepared by independent industry experts. If actual sublease income is different than management's estimate, adjustments to the Company's store closing reserves may be necessary. During January 2003, the Company adopted the provisions of FAS 146. The adoption of FAS 146 had no immediate impact on the Company's financial position, or results of operations, but will affect the timing and recognition of future facility closure costs that may be reported by the Company. 24 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies consolidation requirements for variable interest entities ("VIEs") which establishes additional factors beyond ownership of a majority voting interest to indicate that a company has a controlling financial interest in an entity (or a relationship sufficiently similar to a controlling financial interest that it requires consolidation). Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns, if they occur. This interpretation applies immediately to variable interest entities created or obtained after January 31, 2003 and must be retroactively applied to holdings in variable interest entities acquired before February 1, 2003 in interim and annual financial statements issued for periods beginning after June 15, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. The Company leases two of its PowerMax distribution facilities from VIEs (previously referred to as special purpose entities or SPEs) that have been established by nationally prominent, creditworthy commercial lessors to facilitate the financing of the inventory distribution facilities. The VIEs finance the cost of the property through the issuance of commercial paper. The Company has provided standby letters of credit of approximately $81,000,000 in support of the commercial paper. In the event that the Company defaults on its obligations under the leases, the VIEs could draw on the letters of credit in order to redeem the commercial paper. These letters of credit utilize a portion of the Company's available borrowing capacity under its revolving credit facility. Upon expiration of the synthetic operating leases, the Company can elect to purchase the related assets of both facilities at a total cost specified in the lease agreements of approximately $80,000,000. If the Company does not elect to purchase the related assets, the Company is required to honor certain fair value guarantees. These guarantees require the Company to reimburse the lessor for any shortfall from a fair value specified in the lease agreements. Currently, the Company expects to purchase the related assets upon expiration of the synthetic operating leases or otherwise enter into an arrangement to maintain the continued use of these facilities. Based on the provisions of FIN 46, as of the beginning of its third quarter of fiscal year 2003, the Company is required to consolidate in its financial statements the assets and related depreciation, liabilities and non-controlling interests of the VIEs involved in the leasing of its PowerMax inventory distribution facilities. The Company's third quarter consolidated financial statements will reflect the outstanding debt of the VIEs of approximately $80,000,000 in other long-term liabilities. Also as a result of consolidating the VIEs, the Company's consolidated financial statements will reflect the net fixed assets of the VIEs of approximately $60,000,000 which is net of accumulated depreciation of approximately $20,000,000. The Company has elected to adopt the provisions of FIN 46 prospectively with a cumulative-effect adjustment as of the beginning of the third quarter of fiscal year 2003. Accordingly, the Company will record a non-cash extraordinary loss of approximately $20,000,000 in its fiscal third quarter which represents the excess of the carrying value of the newly consolidated liabilities and non-controlling interests over the carrying value of the newly consolidated assets. As a result of consolidating the VIEs, the Company will incur additional depreciation expense of approximately $1,000,000 per quarter beginning in the third quarter of fiscal year 2003. Consolidation of the VIEs will have no impact on the Company's cash flows. In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("FAS 149"). FAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The provisions of FAS 149 are required to be applied prospectively. The adoption of FAS 149 had no impact on the Company's financial position or results of operations. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("FAS 150"). FAS 150 requires that three classes of freestanding financial instruments that embody obligations for entities be classified as liabilities. Generally, FAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of FAS 150 had no impact on the Company's financial position or results of operations. 25 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q (including information incorporated by reference), contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any information in this report that is not historical information is a forward-looking statement which may be identified by the use of language such as "may," "will," "should," "expects," "plans," "anticipates," "estimates," "believes," "thinks," "continues," "indicates," "outlook," "looks," "goals," "initiatives," "projects," or similar expressions. These statements are likely to address the Company's growth strategy, future financial performance (including sales, gross margin and earnings), strategic initiatives (including the Company's proposed combination with Boise Cascade Corporation), marketing and expansion plans, and the impact of operating initiatives. The forward-looking statements, which speak only as of the date of this report, are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those stated, projected or implied in the forward-looking statements. These risks and uncertainties include those described in Exhibit 99.1 of the Company's Annual Report on Form 10-K for the fiscal year ended January 25, 2003, and in other reports and exhibits to those reports filed with the Securities and Exchange Commission. You are strongly urged to review such filings for a more detailed discussion of such risks and uncertainties. The Company's filings with the Securities and Exchange Commission are available at no charge at www.sec.gov and www.freeEDGAR.com, as well as on a number of other web sites, including OfficeMax.com, under the investor information section. These risks and uncertainties also include the following: risks associated with general economic conditions (including the effects of continuing hostilities in Iraq and Afghanistan, additional terrorist attacks and hostilities, decline in the stock market, currency devaluation, slower than anticipated economic recovery and declining employment rate or other changes in our customers' business environments, including an increase in bankruptcy filings); increasing competition that includes office supply superstores, wholesale clubs, contract stationers, computer and electronics superstore retailers, Internet merchandisers and mass merchandisers, as well as grocery and drug store chains; the result of continuing FAS 142 assessments; the impact of the adoption of EITF 02-16 and FIN 46 along with other new accounting pronouncements; and the risk that the Company's proposed combination with Boise Cascade Corporation is not consummated. The foregoing list of important factors is not exclusive. 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. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, principally interest rate risk and foreign exchange rate risk. Market risk can be measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over time. None of the market risk sensitive instruments entered into by the Company are for trading purposes. 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 exchange rate risk through its subsidiary in 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. As of July 26, 2003, there had not been a material change in any of the market risk information disclosed by the Company in its Annual Report on Form 10-K for the year ended January 25, 2003. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" on page 36 of the Company's Annual Report on Form 10-K for the year ended January 25, 2003, filed with the Securities and Exchange Commission on April 8, 2003, for more detailed information regarding market risk. ITEM 4. CONTROLS AND PROCEDURES The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Within the 90 day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective. Subsequent to the date of their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 6, 2003, a lawsuit was filed against the Company and certain of its directors in the Court of Common Pleas, Cuyahoga County, Ohio. The lawsuit purports to be brought as a class action on behalf of the Company's shareholders. The lawsuit alleges that the Company and its board of directors breached their fiduciary duties by approving the terms of the proposed merger with Boise Cascade Corporation. The lawsuit seeks an order preventing the Company from proceeding with the merger, along with other injunctive relief. The Company believes the lawsuit is without merit and intends to vigorously contest the action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A. The 2003 Annual Meeting of Shareholders of OfficeMax was held on June 5, 2003. Shareholders of record at the close of business on April 9, 2003, were entitled to vote at the Annual Meeting of Shareholders. B. The following persons were nominated to serve, and were elected, as directors of the Company to serve a term of two years or until their successors are elected: Michael Feuer, Lee Fisher, Edwin Holman and Jerry Sue Thornton. The voting results for each nominee were as follows:
Name For Withheld ---- --- -------- Michael Feuer 107,558,605 11,357,097 Lee Fisher 111,745,079 7,170,623 Edwin Holman 114,453,945 4,461,757 Jerry Sue Thornton 111,747,572 7,168,130
C. The proposal regarding approval of the Company's Annual Incentive Bonus Plan received the following votes:
For Against Abstain --- ------- ------- 110,366,608 8,134,599 414,961
28 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit Index on page 31 of this report. (b) Reports on Form 8-K: A Current Report on Form 8-K reporting under Item 9, pursuant to Item 12, Disclosure of Results of Operations and Financial Condition, was filed on May 13, 2003, regarding the results for the Company's fiscal first quarter ended April 26, 2003. A Current Report on Form 8-K reporting under Item 9, pursuant to Item 12, Disclosure of Results of Operations and Financial Condition, was filed on June 5, 2003, providing an update for the Company's fiscal second quarter ended July 26, 2003, and regarding the results of the voting on two items at its annual meeting of shareholders. A Current Report on Form 8-K reporting under Item 5, Other Events, was filed on July 14, 2003, regarding an agreement and plan of merger among the Company, Boise Cascade Corporation and Challis Corporation. A Current Report on Form 8-K reporting under Item 9, pursuant to Item 12, Disclosure of Results of Operations and Financial Condition, was filed on August 12, 2003, regarding the results for the Company's fiscal second quarter ended July 26, 2003. 29 SIGNATURES Pursuant to the requirements 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: August 26, 2003 By: /s/ Michael F. Killeen ------------------------------------ Michael F. Killeen Senior Executive Vice President, Chief Financial Officer 30 EXHIBIT INDEX
Exhibit No. Description of Exhibit *10.1 Amended and Restated Employment Agreement dated June 19, 2003, by and between Michael Feuer and the Company. *10.2 Executive Severance Agreement dated June 24, 2003, between the Company and Gary Peterson. *10.3 Executive Severance Agreement dated June 24, 2003, between the Company and Michael Killeen. *10.4 Executive Severance Agreement dated June 24, 2003, between the Company and Harold Mulet. *10.5 Executive Severance Agreement dated June 24, 2003, between the Company and Ryan Vero. *10.6 Executive Severance Agreement dated June 24, 2003, between the Company and Phillip DePaul. *10.7 OfficeMax Retention Bonus Program for Senior Management date as of July 25, 2003. 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit. 31 EX-10.1 3 l02783aexv10w1.txt EX-10.1 AMENDED & RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN OFFICEMAX, INC. AND MICHAEL FEUER AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 19th day of June, 2003, 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 January 3, 2000 (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 as hereinafter set forth; and WHEREAS, the Compensation Committee approved the execution and delivery of this Agreement by the Company at a meeting on June 19, 2003, NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereby agree as follows: 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. 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 -2- 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 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 -3- (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). (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: -4- (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) consummation of a merger or consolidation of the Company or a direct or indirect wholly owned subsidiary thereof 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 approval by the Company's shareholders of 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 approval by the Company's shareholders 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 24, 2004, salary equal to an annual salary of One Million Dollars ($1,000,000) multiplied by the ratio of the number of days in the period beginning on the date hereof and ending on January 24, 2004 to the total number of days in the current Fiscal Year (as hereinafter defined); (ii) for the Fiscal Year beginning on January 25, 2004, 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 -5- 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). 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 -6- 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 ("Shares"), under the OfficeMax, Inc. Equity-Based Award Plan as in effect on 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). -7- (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) 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. (ii) 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 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 (whether or not vested). 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. -8- (iii) In the event of and in connection with any Change in Control, all of the Options (whether or not vested) shall be fully and immediately exercisable by Executive, notwithstanding the terms of Paragraph 5(b)(i). (iv) 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. (d) If all or any portion of the amounts payable to Executive under this Agreement or otherwise, 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 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 -9- Agreement or any other payment that Executive may receive from the Company or its affiliates. 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. All calculations required under this Section 5(d) shall be made by the independent accounting firm that served as the Company's independent accountants immediately prior to the Change in Control or by such other independent accountants selected by Executive, the expense of which shall be borne by the Company. 6. Retirement Benefits. Executive shall participate in all retirement and other benefit plans of the Company (both qualified and nonqualified) generally available to classifications of employees of the Company of which Executive is a member and for which Executive qualifies under the terms thereof (and nothing in this Agreement shall or shall be deemed to in any way adversely affect Executive's right and benefits thereunder). -10- 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 ten thousand dollars ($10,000), adjusted annually to reflect inflation as measured by changes in the Consumer Price Index or other comparable index. -11- 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 -12- 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 -13- other benefits under this Agreement, except as to that portion of any unpaid salary and other benefits accrued and earned by him hereunder up to and including the effective date of such termination. (d) In the event of (x) the termination of Executive's employment with the Company by Executive within ninety (90) days after the occurrence of a Change in Control or (y) the termination of Executive's employment with the Company within two (2) years after the occurrence of a Change in Control either (I) by the Company for any reason other than death, Permanent Disability or for Cause or (II) by Executive pursuant to Paragraph 2(c)(i), (ii) or (iii), then the Term shall immediately terminate and Executive shall be entitled to the following benefits: (i) a lump-sum payment in cash within five (5) days following Executive's date of termination in an amount equal to five (5) times the sum of (A) the greater of (I) Executive's base salary in effect at the time of the Change in Control and (II) Executive's base salary in effect on Executive's date of termination of employment and (B) the greater of (I) 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) Executive's plan/target level bonus for the Fiscal Year in which Executive's date of termination occurs (without giving effect to any reductions in plan/target level bonus after the Change in Control); (ii) a lump-sum payment in cash within five (5) days following Executive's date of termination in an amount equal to Executive's plan/target level bonus for the Fiscal Year in which Executive's date of termination occurs (without giving effect to any reductions in plan/target level bonus after the Change in Control) multiplied by the Partial Year -14- Fraction; provided that, if Executive is entitled to receive a retention/stay bonus in connection with a Change in Control that is payable with respect to the fiscal year in which Executive's date of termination occurs, Executive shall receive the greater of the applicable retention/stay bonus or the pro rata plan/target bonus provided herein, but Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; and (iv) a lump-sum payment in cash within five days following Executive's date of termination in an amount equal to the product of five (5) and the annual amount of tax and financial advisory and tax return preparation services made available to Executive under Paragraph 7(e) for the Fiscal Year in which Executive's date of termination occurs; (iv) for a period of five (5) years after Executive's date of termination, the Company shall (A) continue all benefits set forth on Annex A of this Agreement (other than the right to payroll deferrals under the Company's 401(k) Plan) on terms and with coverage levels no less favorable to Executive than those in effect immediately prior to the Change in Control; provided, however, that in lieu of the Company match that Executive would have been entitled to receive with respect to his contributions to any tax-qualified or non-qualified deferred compensation plan sponsored by the Company (collectively, the "Company's 401(k) Plan") and the auto allowance the Executive would have been entitled to receive during the five year period following his date of termination, Executive shall be entitled to receive a lump-sum payment in cash within five (5) days following the date of Executive's termination equal to the sum of (I) the total amount that Executive would have received under the Company's 401(k) Plan as a Company match if Executive was eligible to participate in the Company's 401(k) Plan for the five (5) year period after his date of termination, based on the -15- assumption that Executive would have contributed the maximum amount eligible for a Company match under the Company's 401(k) Plan during such period and (II) the product of 60 and the monthly auto allowance made available to Executive by the Company immediately prior to the Change in Control and (B) 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 (B) 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 such termination; and (v) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. (e) In the event of the termination by the Company of Executive's employment with the Company for any reason other than for Cause or as a result of Executive's death or Permanent Disability, 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 -16- 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. Notwithstanding the foregoing, Executive shall not receive any of the payments or benefits described in this Paragraph 8(e) with respect to any termination of employment in connection with which Executive actually receives the payments and benefits described in Paragraph 8(d). (f) For purposes of this Agreement, Executive's "Permanent Disability" shall be deemed to have occurred if Executive, by reason of his physical or mental disability or illness, shall have been unable to discharge his duties under this Agreement for one hundred eighty (180) consecutive days or for two hundred seventy (270) days in any consecutive twenty-four (24) month period. The date of Permanent Disability shall be such one hundred eightieth (180th) or two hundred seventieth (270th) day, as the case may be. In the event either the Company or Executive, after receipt of notice of Executive's Permanent Disability from the other, disputes Executive's Permanent Disability, Executive promptly shall submit to a physical examination by the chief of medicine of any major accredited hospital in the Cleveland, Ohio, area and, unless such physician shall issue his written statement to the effect that in his opinion, based on his diagnosis, Executive is capable of resuming his employment and devoting his full time and energy to discharging his duties within thirty (30) days after the date of such statement, such Permanent Disability shall be deemed to have occurred. 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 -17- 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 or benefits hereunder (including the benefits provided under Paragraph 8(d), but not including payments under Paragraphs 5, 6 or 7), Executive shall not, directly or indirectly, do or suffer any of the following: (i) Own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity, or otherwise engage in any business, which is in competition with the Company (as described in Paragraph 10(b)); provided, however, that the ownership of not more than one percent (1%) of any class of publicly traded securities of any entity shall not be deemed a violation of this covenant; (ii) Employ, assist in employing, or otherwise associate in business with any senior executive of the Company who was so employed or retained at any time during the one (1) year period preceding the date on which Executive's employment with the Company ceases; (iii) Induce any person who is a senior executive or officer of the Company to terminate said relationship; and -18- (iv) Disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company any confidential information or trade secrets of the Company, it being acknowledged by Executive that all such information regarding the business of the Company compiled or obtained by, or furnished to, Executive while Executive shall have been employed by or associated with the Company is confidential information and the Company's exclusive property. (b) For purposes of this Agreement, an entity shall be deemed to be in competition with the Company if and only if more than twenty-five per cent (25%) of the gross revenues of such entity are derived from the business of selling office supplies, office furniture, computers, and such other products of the type as are sold at or from a majority of OfficeMax stores on the date of the termination of Executive's employment hereunder. (c) Executive expressly agrees and understands that the remedy at law for any breach by him of this Paragraph 10 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of Executive's violation of any legally enforceable provision of this Paragraph 10, the Company shall be entitled to immediate 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 -19- 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. 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) -20- 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 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 -21- 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. 18. Governing Law. This Agreement shall be governed by and construed according to the laws of the State of Ohio. -22- 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 -23- 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 on Mr. Feuer's life, the benefits of which are payable to his estate. 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. AUTO ALLOWANCE $1,000 per month EX-10.2 4 l02783aexv10w2.txt EX-10.2 EXECUTIVE SEVERANCE AGREEMENT EXHIBIT 10.2 EXECUTIVE SEVERANCE AGREEMENT, made this day of June 24, 2003, between OFFICEMAX, INC., an Ohio corporation (the "Company") and Gary Peterson (the "Executive") WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the Company's shareholders to have the continuous employment of key management personnel. The Board recognizes that the possibility of a change in control of the Company exists and the uncertainty it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. WHEREAS, the Board has determined that the Company should reinforce and encourage the continued attention and dedication of key members of the Company's management to their assigned duties without distraction by circumstances arising from the possibility of a change in control of the Company. NOW, THEREFORE, to induce the Executive to remain employed by the Company and in consideration for the Executive's agreement to remain so employed in certain circumstances, the Company agrees that the Executive shall receive the benefits set forth in this Agreement under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006, and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless the Company gives notice not later than September 30 of the preceding year that it does not wish to extend this Agreement; and provided, further, that regardless of any such notice by the Company, this Agreement shall continue in effect for a period of 24 months beyond the term provided herein if a Change in Control of the Company occurs during such term. Notwithstanding anything to the contrary stated herein, this Agreement shall terminate prior to the dates set forth above without further acts by either party upon (a) termination of the Executive's employment before a Change in Control, (b) termination of the Executive's employment by the Company after a Change in Control for Cause or for Disability (each as respectively defined in Section 3 hereof), (c) termination of the Executive's employment after a Change in Control due to the Executive's death or by the Executive for other than Good Reason (as defined in Section 3 hereof), or (d) completion by the Company of all of its obligations in the event benefits shall become payable hereunder. 2 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company during the term of this Agreement. For purposes of this Agreement, a "Change in Control" occurs if: (a) a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction that complies with subsection (c) of this Section 2; (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; (c) there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; (d) the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or 3 (e) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the consummation of a going private transaction or a buy-out of the Company led by a Group that includes the Company's Chief Executive Officer or President/Chief Operating Officer, in each case, as of the date hereof will not be deemed a "Change in Control". "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided under Section 4 upon the Executive's "Qualifying Termination" (as defined herein) during the 24-month period beginning on the date of a Change in Control (the "Protection Period"). For purposes hereof, a "Qualifying Termination" shall mean (i) a termination of the Executive's employment by the Company for any reason other than for Cause or Disability or due to the Executive's death, or (ii) the Executive's termination of employment for "Good Reason" (as defined in this Section 3). (a) Disability. If the Executive is absent from duties with the Company on a full-time basis for eighteen consecutive months due to a physical or mental incapacity, and the Executive has not returned to the full-time performance of the Executive's duties within thirty (30) days after written Notice of Termination (as defined below) is given to the Executive by the Company, such termination shall be considered to be termination by the Company for "Disability" for purposes of this Agreement. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment hereunder only on the basis of (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 that interferes with Executive's ability to perform Executive's duties and responsibilities for the Company; (iii) intentional damage to material assets of the Company; (iv) wrongful disclosure of confidential information of the Company; (v) wrongful engagement in any competitive activity that would constitute a breach of the duty of loyalty to the Company; (vi) wrongful failure or refusal to perform, or gross negligence in the performance of, 4 Executive's duties and responsibilities for the Company; or (vii) making unauthorized comments to the media regarding the Company. (c) Good Reason. The Executive shall be entitled to terminate the Executive's employment for Good Reason in the event a Good Reason occurs during the Protection Period. For purposes of this Agreement, "Good Reason" shall exist in the event of the occurrence of any of the following without the Executive's express prior 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. The Executive will be deemed to have waived his rights relating to circumstances constituting Good Reason if he has not provided to the Company a written Notice of Termination within ninety (90) days following his knowledge of circumstances constituting Good Reason. By executing this Agreement, the Executive acknowledges and agrees that, effective as of the date hereof, the definition of "Good Reason" set forth above shall replace and supercede in its entirety the definition of "Good Reason" set forth in Section 1(f) of Exhibit A to the Letter Agreement dated February 16, 2000 by and between the Company and the Executive (the "Prior Agreement"). (d) Notice of Termination. Any purported termination of the Executive by the Company or by the Executive shall be communicated by written Notice of Termination to the other party in accordance with Section 7 hereof. For purposes of this 5 Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and the facts, if any, supporting application of such provision. (e) Date of Termination; Dispute Concerning Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive has not returned to the performance of the Executive's duties on a full-time basis during such thirty (30) day period) or (ii) if the Executive's employment is terminated by the Company for any reason other than Disability or by the Executive for any reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, respectively, from the date such Notice of Termination is given); or (iii) if the Executive dies, his date of death (without any requirement that a Notice of Termination be provided); provided, however, that if the party receiving the Notice of Termination notifies the other party within thirty (30) days after the date such Notice of Termination is given that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a binding arbitration award referred to in Section 12; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice shall pursue the resolution of such dispute with reasonable diligence. The Company shall continue to pay the Executive the Executive's full compensation in effect when the notice giving rise to the dispute was given and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive participated when the Notice of Termination was given (ignoring any reductions that gave rise to Good Reason) until the dispute is finally resolved in accordance with this Section. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. In addition, for purposes of determining whether any Qualifying Termination has occurred during the Protection Period, the date a Notice of Termination is given pursuant to this Section shall be deemed the date of the Executive's Qualifying Termination. 4. Compensation Upon Termination. (a) Salary and Other Compensation or Benefits. If the Executive's employment is terminated during the Protection Period, the Company shall pay the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company or its affiliates during such period (ignoring, if applicable, any reduction that gave rise to Good Reason). 6 (b) Disability. During any period that the Executive fails to perform the Executive's duties hereunder as a result of mental or physical incapacity, the Executive shall continue to receive the Executive's base salary at the rate then in effect and continue to participate in all benefit plans and incentive plans until the Executive's employment is terminated pursuant to Section 3(a) hereof. Thereafter, the Executive's benefits shall be determined in accordance with the insurance and other benefit programs then applicable to the Executive. (c) Cause; Voluntary Termination of Employment Without Good Reason. If the Executive's employment is terminated for Cause or the Executive voluntarily terminates employment without Good Reason, the Company shall pay the Executive only the Executive's base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, together with other compensation and benefits to which the Executive is entitled under the terms of any benefit plan, program or arrangement maintained by the Company and applicable to the Executive, and the Company shall have no further obligations to the Executive under this Agreement. (d) Qualifying Termination. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, then the Executive shall be entitled to the following benefits: (i) a pro rata portion (based on the number of calendar days that have elapsed before the Executive's Date of Termination) of the Executive's plan/target annual incentive award in effect for the fiscal year in which the Date of Termination occurs; provided that, if the Executive is entitled to receive a retention/stay bonus in connection with the Change in Control that is payable with respect to the fiscal year in which the Executive's Qualifying Termination occurs, the Executive shall receive the greater of the applicable stay or retention bonus or the pro rata plan/target bonus provided herein, but the Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and other severance benefits, the Company shall pay to the Executive a lump sum severance payment in an amount equal to three (3) times the sum of (A) the higher of (I) the Executive's annual base salary in effect immediately before the event or circumstance upon which the Notice of Termination is based or (II) the Executive's annual base salary in effect immediately before the Change in Control and (B) the higher of (x) the highest award paid or payable to the Executive pursuant to the Company's annual incentive plan for each of the two measuring periods completed immediately before the event or circumstance upon which the Notice of Termination is based (determined without reference to any guaranteed annual bonus under any retention/stay bonus program of the Company but taking into account the amount of any such annual bonus that would have been paid to the Executive based on actual performance but for any such guarantee) or (y) the Executive's plan/target bonus opportunity for the fiscal year in which Executive's Qualifying Termination occurs, 7 without giving effect to any reduction in the Executive's plan/target annual incentive bonus opportunity on or after a Change in Control; (iii) $10,000 for two years of tax and financial planning services; (iv) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. To be eligible to receive benefits under this Section 4(d), the Executive shall be required to execute and deliver a valid, binding and irrevocable general release in substantially the form attached hereto as Exhibit A (which the Company shall deliver to the Executive promptly after the date of his Qualifying Termination). The payments provided for in this Section 4(d) shall be made not later than the date the release described above becomes binding and irrevocable under applicable law; provided, however, that, if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. If the estimated payments exceed the amount subsequently determined to be due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). When payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such written opinions or advice shall be attached to the statement). (e) Insurance Benefits. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, the Company shall maintain in full force and effect for the 24 months following such termination all life insurance, disability insurance, accidental death and dismemberment insurance, dental coverage, and medical coverage, in which the Executive and the Executive's dependents participated immediately before the Date of Termination, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event such participation (or a particular type of coverage) under any such plan or arrangement shall be barred, the Company shall provide the Executive with benefits, at the same after-tax cost to the Executive, that are substantially similar to those the Executive and the Executive's dependents would have otherwise received under this Section. If the Executive, as the result of the Qualifying Termination during the Protection Period, elects 8 to convert his Long Term Disability Insurance, if any, to a personal policy maintained by the carrier used by the Company (not greater than the coverage in effect immediately prior to the Qualifying Termination), the Company shall reimburse the Executive for any premiums paid during the applicable period following the Qualifying Termination. (f) Death. In the event of the Executive's death, the Company shall have no further obligations to the Executive under this Agreement, but the Executive's estate shall be entitled to receive death benefits under the Company's benefit plans and arrangements as may be applicable to the Executive. (g) Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in Sections 4(c), (d) and (e) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in Sections 4(c) or (d) be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Benefits otherwise receivable by the Executive pursuant to Section 4(e) shall be reduced to the extent comparable benefits are actually received by the Executive during the period Section 4(e) shall be applicable, and any such benefits actually received by the Executive shall be reported to the Company. 5. Excise Taxes. The following provisions shall apply to any excise tax imposed under Section 4999 of the Code (or its successor) (the "Excise Tax"): (a) The provisions of this Section 5 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, the Company shall pay the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to the Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to the Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay the Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe Harbor Amount" means the maximum dollar amount of parachute payments that may be paid to the Executive under Section 280G of the Code without imposition of an excise tax under Section 4999 of the Code. 9 (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay the Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay the Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth below (a "Parachute Cap") as follows: The aggregate present value of the Payments under Section 4(d) of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code. For purposes of this Section 5, "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. (d) If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax or a federal, state or local income or employment tax deduction). If the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (e) Except as set forth in the next sentence, all determinations to be made under this Section 5 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Executive within ten days of the Executive's Date of Termination. The value of any non-competition covenant applicable to the Executive shall be determined by independent appraisal by a nationally-recognized business valuation firm acceptable to both the Executive and the Company, and a portion of the Payments shall, to the extent of that appraised value, be specifically allocated as reasonable compensation for such non-competition covenant and shall not be treated as a parachute payment. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 10 (f) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 5 shall be borne solely by the Company. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive had terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive dies while any amount is still payable, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee, or if there shall be no such designee, to the Executive's estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If, to the Executive, to: Gary Peterson Last home address shown on Company records If, to the Company, to: OfficeMax, Inc. 3605 Warrensville Center Road Shaker Heights, OH 44122-5203 Attn: Office of the General Counsel 11 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. By accepting, and as a condition to accepting, benefits payable under Section 4(d), the Executive agrees to waive, and will be deemed to have waived, for the two-year period commencing upon a Change in Control any right or entitlement to severance or termination benefits related to the Executive's termination of employment under any other severance or termination plan, program or arrangement including, without limitation, the Prior Agreement. For the avoidance of doubt, the waiver described in the preceding sentence shall apply only during the two-year period following a Change in Control and only to severance or termination benefits payable to the Executive under any such plan, program or arrangement (including the Prior Agreement). In addition, by executing this Agreement, the Executive hereby amends the Prior Agreement by deleting Section 1(b) and Section 1(g) of Exhibit A to the Prior Agreement in their entirety. Except as set forth herein, the provisions of the Prior Agreement (including any non-competition or confidentiality covenants contained therein) shall continue to apply to the Executive (even during the two-year period referenced above). In no event shall the Executive be entitled to duplicative payments or benefits under this Agreement and any other severance or termination plan, policy or arrangement of the Company or its subsidiaries. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio (regardless of the law which may be applicable under principles of conflicts of law). 9. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information shall not otherwise be publicly disclosed. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12 12. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of (but not necessarily appointed by) the American Arbitration Association then in effect except as provided herein. Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. No such arbitration proceedings shall be commenced or conducted until at least 60 days after the parties, in good faith, shall have attempted to resolve such dispute by mutual agreement; and the parties hereby agree to endeavor in good faith to resolve any dispute by mutual agreement. If mutual agreement cannot be attained, any disputing party, by written notice to the other ("Arbitration Notice") may commence arbitration proceedings. Such arbitration shall be conducted before a panel of three arbitrators, one appointed by each party within 30 days after the date of the Arbitration Notice, and one chosen within 60 days after the date of the Arbitration Notice by the two arbitrators appointed by the disputing parties. Any Cleveland, Ohio court of competent jurisdiction shall appoint any arbitrator that has not been appointed within such time periods. Judgment may include costs and attorneys fees and may be entered in any court of competent jurisdiction. 13. No Guaranty of Employment. Neither this contract nor any action taken hereunder shall be construed as giving the Executive a right to be retained as an employee of the Company. The Company shall be entitled to terminate the Executive's employment at any time, subject to providing the severance benefits herein specified in accordance with the terms hereof. The Executive is free to resign from employment at any time and the Company is free, subject to the terms of this Agreement, to terminate the Executive's employment at any time and for any reason. 14. Waiver. As additional consideration for the Company's agreement to enter into this Agreement, the Executive agrees to irrevocably waive any rights the Executive may have to benefits payable under Section 6(e) of the Company's Annual Incentive Plan (the "AIP"), as in effect on the date hereof with respect to any Change of Control (as defined in the AIP) occurring in the fiscal year of the Company ending in January 2004. 13 IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first written above. OFFICEMAX, INC. /s/ Michael Feuer --------------------------- By: Michael Feuer Title: Chairman and CEO /s/ Gary Peterson --------------------------- Gary Peterson 14 EXHIBIT A FORM OF AGREEMENT AND RELEASE This Settlement Agreement and Release ("Release") is made and entered into by and between ___________________ ("Executive") and OfficeMax, Inc. [or other Participating Employer] ("Employer") in connection with Executive's separation of employment with Employer, effective __________________ ("Separation Date"). In consideration of the mutual promises and releases contained herein and other good and valuable consideration as set forth herein, it is hereby agreed as follows: (1) In full and final settlement of any claims and demands for relief which may be asserted by Executive against Employer, its predecessors, successors and assigns, and the employees, current and former directors, officers, agents, attorneys and representatives of same, Employer will pay Executive a cash lump sum equal to ________________, subject to applicable taxes and withholdings, which amount equals the cash severance benefits payable under the Executive Severance Agreement dated ______ __, 2003 by and between Executive and Employer (the "Severance Agreement"). Executive shall receive such payment as soon as practicable after this Release becomes irrevocable. (2) Notwithstanding anything the contrary contained herein, Executive and Employer agree and acknowledge that Executive is not waiving his rights to payment of: (a) Executive's salary, wage payments, sales bonuses or commissions and/or reimbursable business expenses due as of the Separation Date, subject to applicable taxes and withholdings. (b) Executive's accrued but unused vacation as of the Separation Date, subject to applicable taxes and withholdings. (c) Benefits accrued as of the Separation Date under any "employee benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. (3) Executive hereby expressly agrees and acknowledges that any and all claims and demands for relief, of whatever nature or kind, including attorneys fees and costs, which Executive ever had or now has against Employer, its predecessors, successors, current and former employees, directors, officers, assigns, agents, attorneys and representatives or affiliates, which arose out of or relate in any way to Executive's employment with or separation from employment with Employer and/or its predecessors, shall be forever waived, released or discharged, including but not limited to (i) any claims 15 under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.; the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.; the Civil Rights Act of 1991, 42 U.S.C. Sections 1981 and 1981a; the Americans with Disabilities Act, 42 U.S.C. Section 12100 et seq.; [add references to applicable state or local laws]; and any other federal, state or local laws prohibiting employment discrimination; (ii) claims relating to harassment, breach of contract or wrongful discharge, or breach of express or implied covenants; and (iii) claims arising from any legal restrictions on Employer's right to terminate its employees. (4) Executive represents and agrees that he has not relied on any statements by Employer regarding his rights under the various federal and state laws prohibiting discrimination in the workplace and that he is hereby advised, cautioned, warned, recommended, encouraged, and provided the opportunity to, discuss all aspects of the Release with counsel of his own choosing, and that he has carefully read the Release, and that he understands and has full knowledge of all of the provisions of the Release, and that he is voluntarily and of his own free will and without any duress of any kind or nature entering into the Release. (5) Executive acknowledges the receipt and sufficiency of consideration adequate to support this Release in general and, in particular, the Executive's release of rights set forth in paragraphs two (2) and three (3) hereto, since the Executive is receiving benefits under paragraph (1) that the Executive otherwise would not have been entitled to receive. (6) Executive and Employer further expressly agree and understand that the Severance Agreement and Release constitute the complete and entire agreement of the parties with respect to the subject matter hereof, and that any other promises, inducements, representations, warranties, or agreements with respect to the subject matter hereof have been superseded hereby and are not intended to survive the Release, provided that any confidentiality or nondisclosure agreements binding on Executive shall continue to be binding on him in accordance with their terms. No amendment or modification of the Release shall be effective unless set forth in writing and signed by both the Executive and a duly authorized officer of Employer. (7) Executive and Employer agree that all matters relative to the construction and interpretation of this Release shall be construed and interpreted in accordance with the laws of the State of Ohio. [(8) Executive represents and agrees that he has been provided a period of twenty-one (21) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] 16 [Alternate paragraph (8), as appropriate: (8) Executive represents and agrees that he or she has been provided a period of forty-five (45) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] (9) This Release shall not become effective or enforceable until the eighth (8th) day after delivery of an executed copy by the Executive to the Employer, at which point it shall be effective and enforceable. ____________________________________ ___________________________ WITNESS Name of Executive: Date:___________________ [OfficeMax, Inc. or Other Employer] Date:___________________ By: _______________________ Title: ____________________ EX-10.3 5 l02783aexv10w3.txt EX-10.3 EXECUTIVE SEVERANCE AGREEMENT EXHIBIT 10.3 EXECUTIVE SEVERANCE AGREEMENT, made this day of June 24, 2003, between OFFICEMAX, INC., an Ohio corporation (the "Company") and Michael Killeen (the "Executive") WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the Company's shareholders to have the continuous employment of key management personnel. The Board recognizes that the possibility of a change in control of the Company exists and the uncertainty it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. WHEREAS, the Board has determined that the Company should reinforce and encourage the continued attention and dedication of key members of the Company's management to their assigned duties without distraction by circumstances arising from the possibility of a change in control of the Company. NOW, THEREFORE, to induce the Executive to remain employed by the Company and in consideration for the Executive's agreement to remain so employed in certain circumstances, the Company agrees that the Executive shall receive the benefits set forth in this Agreement under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006, and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless the Company gives notice not later than September 30 of the preceding year that it does not wish to extend this Agreement; and provided, further, that regardless of any such notice by the Company, this Agreement shall continue in effect for a period of 24 months beyond the term provided herein if a Change in Control of the Company occurs during such term. Notwithstanding anything to the contrary stated herein, this Agreement shall terminate prior to the dates set forth above without further acts by either party upon (a) termination of the Executive's employment before a Change in Control, (b) termination of the Executive's employment by the Company after a Change in Control for Cause or for Disability (each as respectively defined in Section 3 hereof), (c) termination of the Executive's employment after a Change in Control due to the Executive's death or by the Executive for other than Good Reason (as defined in Section 3 hereof), or (d) completion by the Company of all of its obligations in the event benefits shall become payable hereunder. 2 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company during the term of this Agreement. For purposes of this Agreement, a "Change in Control" occurs if: (a) a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction that complies with subsection (c) of this Section 2; (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; (c) there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; (d) the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or 3 (e) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the consummation of a going private transaction or a buy-out of the Company led by a Group that includes the Company's Chief Executive Officer or President/Chief Operating Officer, in each case, as of the date hereof will not be deemed a "Change in Control". "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided under Section 4 upon the Executive's "Qualifying Termination" (as defined herein) during the 24-month period beginning on the date of a Change in Control (the "Protection Period"). For purposes hereof, a "Qualifying Termination" shall mean (i) a termination of the Executive's employment by the Company for any reason other than for Cause or Disability or due to the Executive's death, or (ii) the Executive's termination of employment for "Good Reason" (as defined in this Section 3). (a) Disability. If the Executive is absent from duties with the Company on a full-time basis for eighteen consecutive months due to a physical or mental incapacity, and the Executive has not returned to the full-time performance of the Executive's duties within thirty (30) days after written Notice of Termination (as defined below) is given to the Executive by the Company, such termination shall be considered to be termination by the Company for "Disability" for purposes of this Agreement. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment hereunder only on the basis of (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 that interferes with Executive's ability to perform Executive's duties and responsibilities for the Company; (iii) intentional damage to material assets of the Company; (iv) wrongful disclosure of confidential information of the Company; (v) wrongful engagement in any competitive activity that would constitute a breach of the duty of loyalty to the Company; (vi) wrongful failure or refusal to perform, or gross negligence in the performance of, 4 Executive's duties and responsibilities for the Company; or (vii) making unauthorized comments to the media regarding the Company. (c) Good Reason. The Executive shall be entitled to terminate the Executive's employment for Good Reason in the event a Good Reason occurs during the Protection Period. For purposes of this Agreement, "Good Reason" shall exist in the event of the occurrence of any of the following without the Executive's express prior 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. The Executive will be deemed to have waived his rights relating to circumstances constituting Good Reason if he has not provided to the Company a written Notice of Termination within ninety (90) days following his knowledge of circumstances constituting Good Reason. By executing this Agreement, the Executive acknowledges and agrees that, effective as of the date hereof, the definition of "Good Reason" set forth above shall replace and supercede in its entirety the definition of "Good Reason" set forth in Section 1(f) of the Severance Agreement dated December 10, 2001 by and between the Company and the Executive (the "Prior Agreement"). (d) Notice of Termination. Any purported termination of the Executive by the Company or by the Executive shall be communicated by written Notice of 5 Termination to the other party in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and the facts, if any, supporting application of such provision. (e) Date of Termination; Dispute Concerning Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive has not returned to the performance of the Executive's duties on a full-time basis during such thirty (30) day period) or (ii) if the Executive's employment is terminated by the Company for any reason other than Disability or by the Executive for any reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, respectively, from the date such Notice of Termination is given); or (iii) if the Executive dies, his date of death (without any requirement that a Notice of Termination be provided); provided, however, that if the party receiving the Notice of Termination notifies the other party within thirty (30) days after the date such Notice of Termination is given that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a binding arbitration award referred to in Section 12; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice shall pursue the resolution of such dispute with reasonable diligence. The Company shall continue to pay the Executive the Executive's full compensation in effect when the notice giving rise to the dispute was given and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive participated when the Notice of Termination was given (ignoring any reductions that gave rise to Good Reason) until the dispute is finally resolved in accordance with this Section. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. In addition, for purposes of determining whether any Qualifying Termination has occurred during the Protection Period, the date a Notice of Termination is given pursuant to this Section shall be deemed the date of the Executive's Qualifying Termination. 4. Compensation Upon Termination. (a) Salary and Other Compensation or Benefits. If the Executive's employment is terminated during the Protection Period, the Company shall pay the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company or its 6 affiliates during such period (ignoring, if applicable, any reduction that gave rise to Good Reason). (b) Disability. During any period that the Executive fails to perform the Executive's duties hereunder as a result of mental or physical incapacity, the Executive shall continue to receive the Executive's base salary at the rate then in effect and continue to participate in all benefit plans and incentive plans until the Executive's employment is terminated pursuant to Section 3(a) hereof. Thereafter, the Executive's benefits shall be determined in accordance with the insurance and other benefit programs then applicable to the Executive. (c) Cause; Voluntary Termination of Employment Without Good Reason. If the Executive's employment is terminated for Cause or the Executive voluntarily terminates employment without Good Reason, the Company shall pay the Executive only the Executive's base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, together with other compensation and benefits to which the Executive is entitled under the terms of any benefit plan, program or arrangement maintained by the Company and applicable to the Executive, and the Company shall have no further obligations to the Executive under this Agreement. (d) Qualifying Termination. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, then the Executive shall be entitled to the following benefits: (i) a pro rata portion (based on the number of calendar days that have elapsed before the Executive's Date of Termination) of the Executive's plan/target annual incentive award in effect for the fiscal year in which the Date of Termination occurs; provided that, if the Executive is entitled to receive a retention/stay bonus in connection with the Change in Control that is payable with respect to the fiscal year in which the Executive's Qualifying Termination occurs, the Executive shall receive the greater of the applicable stay or retention bonus or the pro rata plan/target bonus provided herein, but the Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and other severance benefits, the Company shall pay to the Executive a lump sum severance payment in an amount equal to two (2) times the sum of (A) the higher of (I) the Executive's annual base salary in effect immediately before the event or circumstance upon which the Notice of Termination is based or (II) the Executive's annual base salary in effect immediately before the Change in Control and (B) the higher of (x) the highest award paid or payable to the Executive pursuant to the Company's annual incentive plan for each of the two measuring periods completed immediately before the event or circumstance upon which the Notice of Termination is based (determined without reference to any guaranteed annual bonus under any retention/stay bonus program of the Company but taking into account the amount of any 7 such annual bonus that would have been paid to the Executive based on actual performance but for any such guarantee) or (y) the Executive's plan/target bonus opportunity for the fiscal year in which Executive's Qualifying Termination occurs, without giving effect to any reduction in the Executive's plan/target annual incentive bonus opportunity on or after a Change in Control; (iii) $10,000 for two years of tax and financial planning services; (iv) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. To be eligible to receive benefits under this Section 4(d), the Executive shall be required to execute and deliver a valid, binding and irrevocable general release in substantially the form attached hereto as Exhibit A (which the Company shall deliver to the Executive promptly after the date of his Qualifying Termination). The payments provided for in this Section 4(d) shall be made not later than the date the release described above becomes binding and irrevocable under applicable law; provided, however, that, if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. If the estimated payments exceed the amount subsequently determined to be due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). When payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such written opinions or advice shall be attached to the statement). (e) Insurance Benefits. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, the Company shall maintain in full force and effect for the 24 months following such termination all life insurance, disability insurance, accidental death and dismemberment insurance, dental coverage, and medical coverage, in which the Executive and the Executive's dependents participated immediately before the Date of Termination, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event such participation (or a particular type of coverage) under any such plan or arrangement 8 shall be barred, the Company shall provide the Executive with benefits, at the same after-tax cost to the Executive, that are substantially similar to those the Executive and the Executive's dependents would have otherwise received under this Section. If the Executive, as the result of the Qualifying Termination during the Protection Period, elects to convert his Long Term Disability Insurance, if any, to a personal policy maintained by the carrier used by the Company (not greater than the coverage in effect immediately prior to the Qualifying Termination), the Company shall reimburse the Executive for any premiums paid during the applicable period following the Qualifying Termination. (f) Death. In the event of the Executive's death, the Company shall have no further obligations to the Executive under this Agreement, but the Executive's estate shall be entitled to receive death benefits under the Company's benefit plans and arrangements as may be applicable to the Executive. (g) Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in Sections 4(c), (d) and (e) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in Sections 4(c) or (d) be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Benefits otherwise receivable by the Executive pursuant to Section 4(e) shall be reduced to the extent comparable benefits are actually received by the Executive during the period Section 4(e) shall be applicable, and any such benefits actually received by the Executive shall be reported to the Company. 5. Excise Taxes. The following provisions shall apply to any excise tax imposed under Section 4999 of the Code (or its successor) (the "Excise Tax"): (a) The provisions of this Section 5 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, the Company shall pay the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to the Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to the Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay the Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe 9 Harbor Amount" means the maximum dollar amount of parachute payments that may be paid to the Executive under Section 280G of the Code without imposition of an excise tax under Section 4999 of the Code. (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay the Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay the Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth below (a "Parachute Cap") as follows: The aggregate present value of the Payments under Section 4(d) of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code. For purposes of this Section 5, "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. (d) If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax or a federal, state or local income or employment tax deduction). If the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (e) Except as set forth in the next sentence, all determinations to be made under this Section 5 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Executive within ten days of the Executive's Date of Termination. The value of any non-competition covenant applicable to the Executive shall be determined by independent appraisal by a nationally-recognized business valuation firm acceptable to both the Executive and the Company, and a portion of the Payments shall, to the extent of that appraised value, be specifically allocated as reasonable compensation for such non-competition covenant and shall not be treated as a 10 parachute payment. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. (f) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 5 shall be borne solely by the Company. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive had terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive dies while any amount is still payable, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee, or if there shall be no such designee, to the Executive's estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If, to the Executive, to: Michael Killeen Last home address shown on Company records 11 If, to the Company, to: OfficeMax, Inc. 3605 Warrensville Center Road Shaker Heights, OH 44122-5203 Attn: Office of the General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. By accepting, and as a condition to accepting, benefits payable under Section 4(d), the Executive agrees to waive, and will be deemed to have waived, for the two-year period commencing upon a Change in Control any right or entitlement to severance or termination benefits related to the Executive's termination of employment under any other severance or termination plan, program or arrangement including, without limitation, the Prior Agreement. For the avoidance of doubt, the waiver described in the preceding sentence shall apply only during the two-year period following a Change in Control and only to severance or termination benefits payable to the Executive under any such plan, program or arrangement (including the Prior Agreement). In addition, by executing this Agreement, the Executive hereby amends the Prior Agreement by deleting Section 1(b) and Section 1(g) in their entirety. Except as set forth herein, the provisions of the Prior Agreement (including any non-competition or confidentiality covenants contained therein) shall continue to apply to the Executive (even during the two-year period referenced above). In no event shall the Executive be entitled to duplicative payments or benefits under this Agreement and any other severance or termination plan, policy or arrangement of the Company or its subsidiaries. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio (regardless of the law which may be applicable under principles of conflicts of law). 9. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information shall not otherwise be publicly disclosed. 12 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of (but not necessarily appointed by) the American Arbitration Association then in effect except as provided herein. Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. No such arbitration proceedings shall be commenced or conducted until at least 60 days after the parties, in good faith, shall have attempted to resolve such dispute by mutual agreement; and the parties hereby agree to endeavor in good faith to resolve any dispute by mutual agreement. If mutual agreement cannot be attained, any disputing party, by written notice to the other ("Arbitration Notice") may commence arbitration proceedings. Such arbitration shall be conducted before a panel of three arbitrators, one appointed by each party within 30 days after the date of the Arbitration Notice, and one chosen within 60 days after the date of the Arbitration Notice by the two arbitrators appointed by the disputing parties. Any Cleveland, Ohio court of competent jurisdiction shall appoint any arbitrator that has not been appointed within such time periods. Judgment may include costs and attorneys fees and may be entered in any court of competent jurisdiction. 13. No Guaranty of Employment. Neither this contract nor any action taken hereunder shall be construed as giving the Executive a right to be retained as an employee of the Company. The Company shall be entitled to terminate the Executive's employment at any time, subject to providing the severance benefits herein specified in accordance with the terms hereof. The Executive is free to resign from employment at any time and the Company is free, subject to the terms of this Agreement, to terminate the Executive's employment at any time and for any reason. 14. Waiver. As additional consideration for the Company's agreement to enter into this Agreement, the Executive agrees to irrevocably waive any rights the Executive may have to benefits payable under Section 6(e) of the Company's Annual Incentive Plan (the "AIP"), as in effect on the date hereof with respect to any Change of Control (as defined in the AIP) occurring in the fiscal year of the Company ending in January 2004. 13 IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first written above. OFFICEMAX, INC. /s/ Michael Feuer --------------------------- By: Michael Feuer Title: Chairman and CEO /s/ Michael Killeen --------------------------- Michael Killeen 14 EXHIBIT A FORM OF AGREEMENT AND RELEASE This Settlement Agreement and Release ("Release") is made and entered into by and between ___________________ ("Executive") and OfficeMax, Inc. [or other Participating Employer] ("Employer") in connection with Executive's separation of employment with Employer, effective __________________ ("Separation Date"). In consideration of the mutual promises and releases contained herein and other good and valuable consideration as set forth herein, it is hereby agreed as follows: (1) In full and final settlement of any claims and demands for relief which may be asserted by Executive against Employer, its predecessors, successors and assigns, and the employees, current and former directors, officers, agents, attorneys and representatives of same, Employer will pay Executive a cash lump sum equal to ________________, subject to applicable taxes and withholdings, which amount equals the cash severance benefits payable under the Executive Severance Agreement dated ______ __, 2003 by and between Executive and Employer (the "Severance Agreement"). Executive shall receive such payment as soon as practicable after this Release becomes irrevocable. (2) Notwithstanding anything the contrary contained herein, Executive and Employer agree and acknowledge that Executive is not waiving his rights to payment of: (a) Executive's salary, wage payments, sales bonuses or commissions and/or reimbursable business expenses due as of the Separation Date, subject to applicable taxes and withholdings. (b) Executive's accrued but unused vacation as of the Separation Date, subject to applicable taxes and withholdings. (c) Benefits accrued as of the Separation Date under any "employee benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. (3) Executive hereby expressly agrees and acknowledges that any and all claims and demands for relief, of whatever nature or kind, including attorneys fees and costs, which Executive ever had or now has against Employer, its predecessors, successors, current and former employees, directors, officers, assigns, agents, attorneys and representatives or affiliates, which arose out of or relate in any way to Executive's employment with or separation from employment with Employer and/or its predecessors, 15 shall be forever waived, released or discharged, including but not limited to (i) any claims under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.; the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.; the Civil Rights Act of 1991, 42 U.S.C. Sections 1981 and 1981a; the Americans with Disabilities Act, 42 U.S.C. Section 12100 et seq.; [add references to applicable state or local laws]; and any other federal, state or local laws prohibiting employment discrimination; (ii) claims relating to harassment, breach of contract or wrongful discharge, or breach of express or implied covenants; and (iii) claims arising from any legal restrictions on Employer's right to terminate its employees. (4) Executive represents and agrees that he has not relied on any statements by Employer regarding his rights under the various federal and state laws prohibiting discrimination in the workplace and that he is hereby advised, cautioned, warned, recommended, encouraged, and provided the opportunity to, discuss all aspects of the Release with counsel of his own choosing, and that he has carefully read the Release, and that he understands and has full knowledge of all of the provisions of the Release, and that he is voluntarily and of his own free will and without any duress of any kind or nature entering into the Release. (5) Executive acknowledges the receipt and sufficiency of consideration adequate to support this Release in general and, in particular, the Executive's release of rights set forth in paragraphs two (2) and three (3) hereto, since the Executive is receiving benefits under paragraph (1) that the Executive otherwise would not have been entitled to receive. (6) Executive and Employer further expressly agree and understand that the Severance Agreement and Release constitute the complete and entire agreement of the parties with respect to the subject matter hereof, and that any other promises, inducements, representations, warranties, or agreements with respect to the subject matter hereof have been superseded hereby and are not intended to survive the Release, provided that any confidentiality or nondisclosure agreements binding on Executive shall continue to be binding on him in accordance with their terms. No amendment or modification of the Release shall be effective unless set forth in writing and signed by both the Executive and a duly authorized officer of Employer. (7) Executive and Employer agree that all matters relative to the construction and interpretation of this Release shall be construed and interpreted in accordance with the laws of the State of Ohio. [(8) Executive represents and agrees that he has been provided a period of twenty-one (21) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] 16 [Alternate paragraph (8), as appropriate: (8) Executive represents and agrees that he or she has been provided a period of forty-five (45) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] (9) This Release shall not become effective or enforceable until the eighth (8th) day after delivery of an executed copy by the Executive to the Employer, at which point it shall be effective and enforceable. __________________________________ ___________________________________ WITNESS Name of Executive: Date:___________________ [OfficeMax, Inc. or Other Employer] Date:___________________ By: _______________________________ Title: ____________________________ EX-10.4 6 l02783aexv10w4.txt EX-10.4 EXECUTIVE SEVERANCE AGREEMENT EXHIBIT 10.4 EXECUTIVE SEVERANCE AGREEMENT, made this day of June 24, 2003, between OFFICEMAX, INC., an Ohio corporation (the "Company") and Harold Mulet (the "Executive") WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the Company's shareholders to have the continuous employment of key management personnel. The Board recognizes that the possibility of a change in control of the Company exists and the uncertainty it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. WHEREAS, the Board has determined that the Company should reinforce and encourage the continued attention and dedication of key members of the Company's management to their assigned duties without distraction by circumstances arising from the possibility of a change in control of the Company. NOW, THEREFORE, to induce the Executive to remain employed by the Company and in consideration for the Executive's agreement to remain so employed in certain circumstances, the Company agrees that the Executive shall receive the benefits set forth in this Agreement under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006, and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless the Company gives notice not later than September 30 of the preceding year that it does not wish to extend this Agreement; and provided, further, that regardless of any such notice by the Company, this Agreement shall continue in effect for a period of 24 months beyond the term provided herein if a Change in Control of the Company occurs during such term. Notwithstanding anything to the contrary stated herein, this Agreement shall terminate prior to the dates set forth above without further acts by either party upon (a) termination of the Executive's employment before a Change in Control, (b) termination of the Executive's employment by the Company after a Change in Control for Cause or for Disability (each as respectively defined in Section 3 hereof), (c) termination of the Executive's employment after a Change in Control due to the Executive's death or by the Executive for other than Good Reason (as defined in Section 3 hereof), or (d) completion by the Company of all of its obligations in the event benefits shall become payable hereunder. 2 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company during the term of this Agreement. For purposes of this Agreement, a "Change in Control" occurs if: (a) a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction that complies with subsection (c) of this Section 2; (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; (c) there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; (d) the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or 3 (e) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the consummation of a going private transaction or a buy-out of the Company led by a Group that includes the Company's Chief Executive Officer or President/Chief Operating Officer, in each case, as of the date hereof will not be deemed a "Change in Control". "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided under Section 4 upon the Executive's "Qualifying Termination" (as defined herein) during the 24-month period beginning on the date of a Change in Control (the "Protection Period"). For purposes hereof, a "Qualifying Termination" shall mean (i) a termination of the Executive's employment by the Company for any reason other than for Cause or Disability or due to the Executive's death, or (ii) the Executive's termination of employment for "Good Reason" (as defined in this Section 3). (a) Disability. If the Executive is absent from duties with the Company on a full-time basis for eighteen consecutive months due to a physical or mental incapacity, and the Executive has not returned to the full-time performance of the Executive's duties within thirty (30) days after written Notice of Termination (as defined below) is given to the Executive by the Company, such termination shall be considered to be termination by the Company for "Disability" for purposes of this Agreement. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment hereunder only on the basis of (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 that interferes with Executive's ability to perform Executive's duties and responsibilities for the Company; (iii) intentional damage to material assets of the Company; (iv) wrongful disclosure of confidential information of the Company; (v) wrongful engagement in any competitive activity that would constitute a breach of the duty of loyalty to the Company; (vi) wrongful failure or refusal to perform, or gross negligence in the performance of, 4 Executive's duties and responsibilities for the Company; or (vii) making unauthorized comments to the media regarding the Company. (c) Good Reason. The Executive shall be entitled to terminate the Executive's employment for Good Reason in the event a Good Reason occurs during the Protection Period. For purposes of this Agreement, "Good Reason" shall exist in the event of the occurrence of any of the following without the Executive's express prior 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. The Executive will be deemed to have waived his rights relating to circumstances constituting Good Reason if he has not provided to the Company a written Notice of Termination within ninety (90) days following his knowledge of circumstances constituting Good Reason. By executing this Agreement, the Executive acknowledges and agrees that, effective as of the date hereof, the definition of "Good Reason" set forth above shall replace and supercede in its entirety the definition of "Good Reason" set forth in Section 1(f) of the Severance Agreement dated May 10, 1999 by and between the Company and the Executive (the "Prior Agreement"). (d) Notice of Termination. Any purported termination of the Executive by the Company or by the Executive shall be communicated by written Notice of Termination to the other party in accordance with Section 7 hereof. For purposes of this 5 Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and the facts, if any, supporting application of such provision. (e) Date of Termination; Dispute Concerning Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive has not returned to the performance of the Executive's duties on a full-time basis during such thirty (30) day period) or (ii) if the Executive's employment is terminated by the Company for any reason other than Disability or by the Executive for any reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, respectively, from the date such Notice of Termination is given); or (iii) if the Executive dies, his date of death (without any requirement that a Notice of Termination be provided); provided, however, that if the party receiving the Notice of Termination notifies the other party within thirty (30) days after the date such Notice of Termination is given that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a binding arbitration award referred to in Section 12; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice shall pursue the resolution of such dispute with reasonable diligence. The Company shall continue to pay the Executive the Executive's full compensation in effect when the notice giving rise to the dispute was given and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive participated when the Notice of Termination was given (ignoring any reductions that gave rise to Good Reason) until the dispute is finally resolved in accordance with this Section. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. In addition, for purposes of determining whether any Qualifying Termination has occurred during the Protection Period, the date a Notice of Termination is given pursuant to this Section shall be deemed the date of the Executive's Qualifying Termination. 4. Compensation Upon Termination. (a) Salary and Other Compensation or Benefits. If the Executive's employment is terminated during the Protection Period, the Company shall pay the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company or its affiliates during such period (ignoring, if applicable, any reduction that gave rise to Good Reason). 6 (b) Disability. During any period that the Executive fails to perform the Executive's duties hereunder as a result of mental or physical incapacity, the Executive shall continue to receive the Executive's base salary at the rate then in effect and continue to participate in all benefit plans and incentive plans until the Executive's employment is terminated pursuant to Section 3(a) hereof. Thereafter, the Executive's benefits shall be determined in accordance with the insurance and other benefit programs then applicable to the Executive. (c) Cause; Voluntary Termination of Employment Without Good Reason. If the Executive's employment is terminated for Cause or the Executive voluntarily terminates employment without Good Reason, the Company shall pay the Executive only the Executive's base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, together with other compensation and benefits to which the Executive is entitled under the terms of any benefit plan, program or arrangement maintained by the Company and applicable to the Executive, and the Company shall have no further obligations to the Executive under this Agreement. (d) Qualifying Termination. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, then the Executive shall be entitled to the following benefits: (i) a pro rata portion (based on the number of calendar days that have elapsed before the Executive's Date of Termination) of the Executive's plan/target annual incentive award in effect for the fiscal year in which the Date of Termination occurs; provided that, if the Executive is entitled to receive a retention/stay bonus in connection with the Change in Control that is payable with respect to the fiscal year in which the Executive's Qualifying Termination occurs, the Executive shall receive the greater of the applicable stay or retention bonus or the pro rata plan/target bonus provided herein, but the Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and other severance benefits, the Company shall pay to the Executive a lump sum severance payment in an amount equal to two (2) times the sum of (A) the higher of (I) the Executive's annual base salary in effect immediately before the event or circumstance upon which the Notice of Termination is based or (II) the Executive's annual base salary in effect immediately before the Change in Control and (B) the higher of (x) the highest award paid or payable to the Executive pursuant to the Company's annual incentive plan for each of the two measuring periods completed immediately before the event or circumstance upon which the Notice of Termination is based (determined without reference to any guaranteed annual bonus under any retention/stay bonus program of the Company but taking into account the amount of any such annual bonus that would have been paid to the Executive based on actual performance but for any such guarantee) or (y) the Executive's plan/target bonus opportunity for the fiscal year in which Executive's Qualifying Termination occurs, 7 without giving effect to any reduction in the Executive's plan/target annual incentive bonus opportunity on or after a Change in Control; (iii) $10,000 for two years of tax and financial planning services; (iv) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. To be eligible to receive benefits under this Section 4(d), the Executive shall be required to execute and deliver a valid, binding and irrevocable general release in substantially the form attached hereto as Exhibit A (which the Company shall deliver to the Executive promptly after the date of his Qualifying Termination). The payments provided for in this Section 4(d) shall be made not later than the date the release described above becomes binding and irrevocable under applicable law; provided, however, that, if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. If the estimated payments exceed the amount subsequently determined to be due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). When payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such written opinions or advice shall be attached to the statement). (e) Insurance Benefits. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, the Company shall maintain in full force and effect for the 24 months following such termination all life insurance, disability insurance, accidental death and dismemberment insurance, dental coverage, and medical coverage, in which the Executive and the Executive's dependents participated immediately before the Date of Termination, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event such participation (or a particular type of coverage) under any such plan or arrangement shall be barred, the Company shall provide the Executive with benefits, at the same after-tax cost to the Executive, that are substantially similar to those the Executive and the Executive's dependents would have otherwise received under this Section. If the Executive, as the result of the Qualifying Termination during the Protection Period, elects 8 to convert his Long Term Disability Insurance, if any, to a personal policy maintained by the carrier used by the Company (not greater than the coverage in effect immediately prior to the Qualifying Termination), the Company shall reimburse the Executive for any premiums paid during the applicable period following the Qualifying Termination. (f) Death. In the event of the Executive's death, the Company shall have no further obligations to the Executive under this Agreement, but the Executive's estate shall be entitled to receive death benefits under the Company's benefit plans and arrangements as may be applicable to the Executive. (g) Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in Sections 4(c), (d) and (e) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in Sections 4(c) or (d) be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Benefits otherwise receivable by the Executive pursuant to Section 4(e) shall be reduced to the extent comparable benefits are actually received by the Executive during the period Section 4(e) shall be applicable, and any such benefits actually received by the Executive shall be reported to the Company. 5. Excise Taxes. The following provisions shall apply to any excise tax imposed under Section 4999 of the Code (or its successor) (the "Excise Tax"): (a) The provisions of this Section 5 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, the Company shall pay the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to the Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to the Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay the Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe Harbor Amount" means the maximum dollar amount of parachute payments that may be paid to the Executive under Section 280G of the Code without imposition of an excise tax under Section 4999 of the Code. 9 (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay the Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay the Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth below (a "Parachute Cap") as follows: The aggregate present value of the Payments under Section 4(d) of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code. For purposes of this Section 5, "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. (d) If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax or a federal, state or local income or employment tax deduction). If the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (e) Except as set forth in the next sentence, all determinations to be made under this Section 5 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Executive within ten days of the Executive's Date of Termination. The value of any non-competition covenant applicable to the Executive shall be determined by independent appraisal by a nationally-recognized business valuation firm acceptable to both the Executive and the Company, and a portion of the Payments shall, to the extent of that appraised value, be specifically allocated as reasonable compensation for such non-competition covenant and shall not be treated as a parachute payment. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 10 (f) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 5 shall be borne solely by the Company. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive had terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive dies while any amount is still payable, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee, or if there shall be no such designee, to the Executive's estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If, to the Executive, to: Harold Mulet Last home address shown on Company records If, to the Company, to: OfficeMax, Inc. 3605 Warrensville Center Road Shaker Heights, OH 44122-5203 Attn: Office of the General Counsel 11 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. By accepting, and as a condition to accepting, benefits payable under Section 4(d), the Executive agrees to waive, and will be deemed to have waived, for the two-year period commencing upon a Change in Control any right or entitlement to severance or termination benefits related to the Executive's termination of employment under any other severance or termination plan, program or arrangement including, without limitation, the Prior Agreement. For the avoidance of doubt, the waiver described in the preceding sentence shall apply only during the two-year period following a Change in Control and only to severance or termination benefits payable to the Executive under any such plan, program or arrangement (including the Prior Agreement). In addition, by executing this Agreement, the Executive hereby amends the Prior Agreement by deleting Section 1(b) and Section 1(g) in their entirety. Except as set forth herein, the provisions of the Prior Agreement (including any non-competition or confidentiality covenants contained therein) shall continue to apply to the Executive (even during the two-year period referenced above). In no event shall the Executive be entitled to duplicative payments or benefits under this Agreement and any other severance or termination plan, policy or arrangement of the Company or its subsidiaries. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio (regardless of the law which may be applicable under principles of conflicts of law). 9. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information shall not otherwise be publicly disclosed. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12 12. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of (but not necessarily appointed by) the American Arbitration Association then in effect except as provided herein. Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. No such arbitration proceedings shall be commenced or conducted until at least 60 days after the parties, in good faith, shall have attempted to resolve such dispute by mutual agreement; and the parties hereby agree to endeavor in good faith to resolve any dispute by mutual agreement. If mutual agreement cannot be attained, any disputing party, by written notice to the other ("Arbitration Notice") may commence arbitration proceedings. Such arbitration shall be conducted before a panel of three arbitrators, one appointed by each party within 30 days after the date of the Arbitration Notice, and one chosen within 60 days after the date of the Arbitration Notice by the two arbitrators appointed by the disputing parties. Any Cleveland, Ohio court of competent jurisdiction shall appoint any arbitrator that has not been appointed within such time periods. Judgment may include costs and attorneys fees and may be entered in any court of competent jurisdiction. 13. No Guaranty of Employment. Neither this contract nor any action taken hereunder shall be construed as giving the Executive a right to be retained as an employee of the Company. The Company shall be entitled to terminate the Executive's employment at any time, subject to providing the severance benefits herein specified in accordance with the terms hereof. The Executive is free to resign from employment at any time and the Company is free, subject to the terms of this Agreement, to terminate the Executive's employment at any time and for any reason. 14. Waiver. As additional consideration for the Company's agreement to enter into this Agreement, the Executive agrees to irrevocably waive any rights the Executive may have to benefits payable under Section 6(e) of the Company's Annual Incentive Plan (the "AIP"), as in effect on the date hereof with respect to any Change of Control (as defined in the AIP) occurring in the fiscal year of the Company ending in January 2004. 13 IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first written above. OFFICEMAX, INC. /s/ Michael Feuer -------------------------- By: Michael Feuer Title: Chairman and CEO /s/ Harold Mulet -------------------------- Harold Mulet 14 EXHIBIT A FORM OF AGREEMENT AND RELEASE This Settlement Agreement and Release ("Release") is made and entered into by and between ___________________ ("Executive") and OfficeMax, Inc. [or other Participating Employer] ("Employer") in connection with Executive's separation of employment with Employer, effective __________________ ("Separation Date"). In consideration of the mutual promises and releases contained herein and other good and valuable consideration as set forth herein, it is hereby agreed as follows: (1) In full and final settlement of any claims and demands for relief which may be asserted by Executive against Employer, its predecessors, successors and assigns, and the employees, current and former directors, officers, agents, attorneys and representatives of same, Employer will pay Executive a cash lump sum equal to ________________, subject to applicable taxes and withholdings, which amount equals the cash severance benefits payable under the Executive Severance Agreement dated ______ __, 2003 by and between Executive and Employer (the "Severance Agreement"). Executive shall receive such payment as soon as practicable after this Release becomes irrevocable. (2) Notwithstanding anything the contrary contained herein, Executive and Employer agree and acknowledge that Executive is not waiving his rights to payment of: (a) Executive's salary, wage payments, sales bonuses or commissions and/or reimbursable business expenses due as of the Separation Date, subject to applicable taxes and withholdings. (b) Executive's accrued but unused vacation as of the Separation Date, subject to applicable taxes and withholdings. (c) Benefits accrued as of the Separation Date under any "employee benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. (3) Executive hereby expressly agrees and acknowledges that any and all claims and demands for relief, of whatever nature or kind, including attorneys fees and costs, which Executive ever had or now has against Employer, its predecessors, successors, current and former employees, directors, officers, assigns, agents, attorneys and representatives or affiliates, which arose out of or relate in any way to Executive's employment with or separation from employment with Employer and/or its predecessors, shall be forever waived, released or discharged, including but not limited to (i) any claims 15 under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.; the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.; the Civil Rights Act of 1991, 42 U.S.C. Sections 1981 and 1981a; the Americans with Disabilities Act, 42 U.S.C. Section 12100 et seq.; [add references to applicable state or local laws]; and any other federal, state or local laws prohibiting employment discrimination; (ii) claims relating to harassment, breach of contract or wrongful discharge, or breach of express or implied covenants; and (iii) claims arising from any legal restrictions on Employer's right to terminate its employees. (4) Executive represents and agrees that he has not relied on any statements by Employer regarding his rights under the various federal and state laws prohibiting discrimination in the workplace and that he is hereby advised, cautioned, warned, recommended, encouraged, and provided the opportunity to, discuss all aspects of the Release with counsel of his own choosing, and that he has carefully read the Release, and that he understands and has full knowledge of all of the provisions of the Release, and that he is voluntarily and of his own free will and without any duress of any kind or nature entering into the Release. (5) Executive acknowledges the receipt and sufficiency of consideration adequate to support this Release in general and, in particular, the Executive's release of rights set forth in paragraphs two (2) and three (3) hereto, since the Executive is receiving benefits under paragraph (1) that the Executive otherwise would not have been entitled to receive. (6) Executive and Employer further expressly agree and understand that the Severance Agreement and Release constitute the complete and entire agreement of the parties with respect to the subject matter hereof, and that any other promises, inducements, representations, warranties, or agreements with respect to the subject matter hereof have been superseded hereby and are not intended to survive the Release, provided that any confidentiality or nondisclosure agreements binding on Executive shall continue to be binding on him in accordance with their terms. No amendment or modification of the Release shall be effective unless set forth in writing and signed by both the Executive and a duly authorized officer of Employer. (7) Executive and Employer agree that all matters relative to the construction and interpretation of this Release shall be construed and interpreted in accordance with the laws of the State of Ohio. [(8) Executive represents and agrees that he has been provided a period of twenty-one (21) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] 16 [Alternate paragraph (8), as appropriate: (8) Executive represents and agrees that he or she has been provided a period of forty-five (45) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] (9) This Release shall not become effective or enforceable until the eighth (8th) day after delivery of an executed copy by the Executive to the Employer, at which point it shall be effective and enforceable. ____________________________________ ______________________________ WITNESS Name of Executive: Date:___________________ [OfficeMax, Inc. or Other Employer] Date:___________________ By: __________________________ Title: _______________________ EX-10.5 7 l02783aexv10w5.txt EX-10.5 EXECUTIVE SEVERANCE AGREEMENT EXHIBIT 10.5 EXECUTIVE SEVERANCE AGREEMENT, made this day of June 24, 2003, between OFFICEMAX, INC., an Ohio corporation (the "Company") and Ryan Vero (the "Executive") WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the Company's shareholders to have the continuous employment of key management personnel. The Board recognizes that the possibility of a change in control of the Company exists and the uncertainty it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. WHEREAS, the Board has determined that the Company should reinforce and encourage the continued attention and dedication of key members of the Company's management to their assigned duties without distraction by circumstances arising from the possibility of a change in control of the Company. NOW, THEREFORE, to induce the Executive to remain employed by the Company and in consideration for the Executive's agreement to remain so employed in certain circumstances, the Company agrees that the Executive shall receive the benefits set forth in this Agreement under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006, and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless the Company gives notice not later than September 30 of the preceding year that it does not wish to extend this Agreement; and provided, further, that regardless of any such notice by the Company, this Agreement shall continue in effect for a period of 24 months beyond the term provided herein if a Change in Control of the Company occurs during such term. Notwithstanding anything to the contrary stated herein, this Agreement shall terminate prior to the dates set forth above without further acts by either party upon (a) termination of the Executive's employment before a Change in Control, (b) termination of the Executive's employment by the Company after a Change in Control for Cause or for Disability (each as respectively defined in Section 3 hereof), (c) termination of the Executive's employment after a Change in Control due to the Executive's death or by the Executive for other than Good Reason (as defined in Section 3 hereof), or (d) completion by the Company of all of its obligations in the event benefits shall become payable hereunder. 2 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company during the term of this Agreement. For purposes of this Agreement, a "Change in Control" occurs if: (a) a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction that complies with subsection (c) of this Section 2; (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; (c) there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; (d) the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or 3 (e) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the consummation of a going private transaction or a buy-out of the Company led by a Group that includes the Company's Chief Executive Officer or President/Chief Operating Officer, in each case, as of the date hereof will not be deemed a "Change in Control". "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided under Section 4 upon the Executive's "Qualifying Termination" (as defined herein) during the 24-month period beginning on the date of a Change in Control (the "Protection Period"). For purposes hereof, a "Qualifying Termination" shall mean (i) a termination of the Executive's employment by the Company for any reason other than for Cause or Disability or due to the Executive's death, or (ii) the Executive's termination of employment for "Good Reason" (as defined in this Section 3). (a) Disability. If the Executive is absent from duties with the Company on a full-time basis for eighteen consecutive months due to a physical or mental incapacity, and the Executive has not returned to the full-time performance of the Executive's duties within thirty (30) days after written Notice of Termination (as defined below) is given to the Executive by the Company, such termination shall be considered to be termination by the Company for "Disability" for purposes of this Agreement. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment hereunder only on the basis of (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 that interferes with Executive's ability to perform Executive's duties and responsibilities for the Company; (iii) intentional damage to material assets of the Company; (iv) wrongful disclosure of confidential information of the Company; (v) wrongful engagement in any competitive activity that would constitute a breach of the duty of loyalty to the Company; (vi) wrongful failure or refusal to perform, or gross negligence in the performance of, 4 Executive's duties and responsibilities for the Company; or (vii) making unauthorized comments to the media regarding the Company. (c) Good Reason. The Executive shall be entitled to terminate the Executive's employment for Good Reason in the event a Good Reason occurs during the Protection Period. For purposes of this Agreement, "Good Reason" shall exist in the event of the occurrence of any of the following without the Executive's express prior 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. The Executive will be deemed to have waived his rights relating to circumstances constituting Good Reason if he has not provided to the Company a written Notice of Termination within ninety (90) days following his knowledge of circumstances constituting Good Reason. By executing this Agreement, the Executive acknowledges and agrees that, effective as of the date hereof, the definition of "Good Reason" set forth above shall replace and supercede in its entirety the definition of "Good Reason" set forth in Section 1(f) of the Amended and Restated Severance Agreement dated April 9, 2002 by and between the Company and the Executive (the "Prior Agreement"). (d) Notice of Termination. Any purported termination of the Executive by the Company or by the Executive shall be communicated by written Notice of Termination to the other party in accordance with Section 7 hereof. For purposes of this 5 Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and the facts, if any, supporting application of such provision. (e) Date of Termination; Dispute Concerning Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive has not returned to the performance of the Executive's duties on a full-time basis during such thirty (30) day period) or (ii) if the Executive's employment is terminated by the Company for any reason other than Disability or by the Executive for any reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, respectively, from the date such Notice of Termination is given); or (iii) if the Executive dies, his date of death (without any requirement that a Notice of Termination be provided); provided, however, that if the party receiving the Notice of Termination notifies the other party within thirty (30) days after the date such Notice of Termination is given that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a binding arbitration award referred to in Section 12; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice shall pursue the resolution of such dispute with reasonable diligence. The Company shall continue to pay the Executive the Executive's full compensation in effect when the notice giving rise to the dispute was given and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive participated when the Notice of Termination was given (ignoring any reductions that gave rise to Good Reason) until the dispute is finally resolved in accordance with this Section. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. In addition, for purposes of determining whether any Qualifying Termination has occurred during the Protection Period, the date a Notice of Termination is given pursuant to this Section shall be deemed the date of the Executive's Qualifying Termination. 4. Compensation Upon Termination. (a) Salary and Other Compensation or Benefits. If the Executive's employment is terminated during the Protection Period, the Company shall pay the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company or its affiliates during such period (ignoring, if applicable, any reduction that gave rise to Good Reason). 6 (b) Disability. During any period that the Executive fails to perform the Executive's duties hereunder as a result of mental or physical incapacity, the Executive shall continue to receive the Executive's base salary at the rate then in effect and continue to participate in all benefit plans and incentive plans until the Executive's employment is terminated pursuant to Section 3(a) hereof. Thereafter, the Executive's benefits shall be determined in accordance with the insurance and other benefit programs then applicable to the Executive. (c) Cause; Voluntary Termination of Employment Without Good Reason. If the Executive's employment is terminated for Cause or the Executive voluntarily terminates employment without Good Reason, the Company shall pay the Executive only the Executive's base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, together with other compensation and benefits to which the Executive is entitled under the terms of any benefit plan, program or arrangement maintained by the Company and applicable to the Executive, and the Company shall have no further obligations to the Executive under this Agreement. (d) Qualifying Termination. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, then the Executive shall be entitled to the following benefits: (i) a pro rata portion (based on the number of calendar days that have elapsed before the Executive's Date of Termination) of the Executive's plan/target annual incentive award in effect for the fiscal year in which the Date of Termination occurs; provided that, if the Executive is entitled to receive a retention/stay bonus in connection with the Change in Control that is payable with respect to the fiscal year in which the Executive's Qualifying Termination occurs, the Executive shall receive the greater of the applicable stay or retention bonus or the pro rata plan/target bonus provided herein, but the Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and other severance benefits, the Company shall pay to the Executive a lump sum severance payment in an amount equal to two (2) times the sum of (A) the higher of (I) the Executive's annual base salary in effect immediately before the event or circumstance upon which the Notice of Termination is based or (II) the Executive's annual base salary in effect immediately before the Change in Control and (B) the higher of (x) the highest award paid or payable to the Executive pursuant to the Company's annual incentive plan for each of the two measuring periods completed immediately before the event or circumstance upon which the Notice of Termination is based (determined without reference to any guaranteed annual bonus under any retention/stay bonus program of the Company but taking into account the amount of any such annual bonus that would have been paid to the Executive based on actual performance but for any such guarantee) or (y) the Executive's plan/target bonus opportunity for the fiscal year in which Executive's Qualifying Termination occurs, 7 without giving effect to any reduction in the Executive's plan/target annual incentive bonus opportunity on or after a Change in Control; (iii) $10,000 for two years of tax and financial planning services; (iv) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. To be eligible to receive benefits under this Section 4(d), the Executive shall be required to execute and deliver a valid, binding and irrevocable general release in substantially the form attached hereto as Exhibit A (which the Company shall deliver to the Executive promptly after the date of his Qualifying Termination). The payments provided for in this Section 4(d) shall be made not later than the date the release described above becomes binding and irrevocable under applicable law; provided, however, that, if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. If the estimated payments exceed the amount subsequently determined to be due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). When payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such written opinions or advice shall be attached to the statement). (e) Insurance Benefits. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, the Company shall maintain in full force and effect for the 24 months following such termination all life insurance, disability insurance, accidental death and dismemberment insurance, dental coverage, and medical coverage, in which the Executive and the Executive's dependents participated immediately before the Date of Termination, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event such participation (or a particular type of coverage) under any such plan or arrangement shall be barred, the Company shall provide the Executive with benefits, at the same after-tax cost to the Executive, that are substantially similar to those the Executive and the Executive's dependents would have otherwise received under this Section. If the Executive, as the result of the Qualifying Termination during the Protection Period, elects 8 to convert his Long Term Disability Insurance, if any, to a personal policy maintained by the carrier used by the Company (not greater than the coverage in effect immediately prior to the Qualifying Termination), the Company shall reimburse the Executive for any premiums paid during the applicable period following the Qualifying Termination. (f) Death. In the event of the Executive's death, the Company shall have no further obligations to the Executive under this Agreement, but the Executive's estate shall be entitled to receive death benefits under the Company's benefit plans and arrangements as may be applicable to the Executive. (g) Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in Sections 4(c), (d) and (e) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in Sections 4(c) or (d) be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Benefits otherwise receivable by the Executive pursuant to Section 4(e) shall be reduced to the extent comparable benefits are actually received by the Executive during the period Section 4(e) shall be applicable, and any such benefits actually received by the Executive shall be reported to the Company. 5. Excise Taxes. The following provisions shall apply to any excise tax imposed under Section 4999 of the Code (or its successor) (the "Excise Tax"): (a) The provisions of this Section 5 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, the Company shall pay the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to the Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to the Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay the Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe Harbor Amount" means the maximum dollar amount of parachute payments that may be paid to the Executive under Section 280G of the Code without imposition of an excise tax under Section 4999 of the Code. 9 (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay the Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay the Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth below (a "Parachute Cap") as follows: The aggregate present value of the Payments under Section 4(d) of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code. For purposes of this Section 5, "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. (d) If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax or a federal, state or local income or employment tax deduction). If the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (e) Except as set forth in the next sentence, all determinations to be made under this Section 5 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Executive within ten days of the Executive's Date of Termination. The value of any non-competition covenant applicable to the Executive shall be determined by independent appraisal by a nationally-recognized business valuation firm acceptable to both the Executive and the Company, and a portion of the Payments shall, to the extent of that appraised value, be specifically allocated as reasonable compensation for such non-competition covenant and shall not be treated as a parachute payment. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 10 (f) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 5 shall be borne solely by the Company. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive had terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive dies while any amount is still payable, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee, or if there shall be no such designee, to the Executive's estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If, to the Executive, to: Ryan Vero Last home address shown on Company records If, to the Company, to: OfficeMax, Inc. 3605 Warrensville Center Road Shaker Heights, OH 44122-5203 Attn: Office of the General Counsel 11 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. By accepting, and as a condition to accepting, benefits payable under Section 4(d), the Executive agrees to waive, and will be deemed to have waived, for the two-year period commencing upon a Change in Control any right or entitlement to severance or termination benefits related to the Executive's termination of employment under any other severance or termination plan, program or arrangement including, without limitation, the Prior Agreement. For the avoidance of doubt, the waiver described in the preceding sentence shall apply only during the two-year period following a Change in Control and only to severance or termination benefits payable to the Executive under any such plan, program or arrangement (including the Prior Agreement). In addition, by executing this Agreement, the Executive hereby amends the Prior Agreement by deleting Section 1(b) and Section 1(g) in their entirety. Except as set forth herein, the provisions of the Prior Agreement (including any non-competition or confidentiality covenants contained therein) shall continue to apply to the Executive (even during the two-year period referenced above). In no event shall the Executive be entitled to duplicative payments or benefits under this Agreement and any other severance or termination plan, policy or arrangement of the Company or its subsidiaries. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio (regardless of the law which may be applicable under principles of conflicts of law). 9. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information shall not otherwise be publicly disclosed. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12 12. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of (but not necessarily appointed by) the American Arbitration Association then in effect except as provided herein. Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. No such arbitration proceedings shall be commenced or conducted until at least 60 days after the parties, in good faith, shall have attempted to resolve such dispute by mutual agreement; and the parties hereby agree to endeavor in good faith to resolve any dispute by mutual agreement. If mutual agreement cannot be attained, any disputing party, by written notice to the other ("Arbitration Notice") may commence arbitration proceedings. Such arbitration shall be conducted before a panel of three arbitrators, one appointed by each party within 30 days after the date of the Arbitration Notice, and one chosen within 60 days after the date of the Arbitration Notice by the two arbitrators appointed by the disputing parties. Any Cleveland, Ohio court of competent jurisdiction shall appoint any arbitrator that has not been appointed within such time periods. Judgment may include costs and attorneys fees and may be entered in any court of competent jurisdiction. 13. No Guaranty of Employment. Neither this contract nor any action taken hereunder shall be construed as giving the Executive a right to be retained as an employee of the Company. The Company shall be entitled to terminate the Executive's employment at any time, subject to providing the severance benefits herein specified in accordance with the terms hereof. The Executive is free to resign from employment at any time and the Company is free, subject to the terms of this Agreement, to terminate the Executive's employment at any time and for any reason. 14. Waiver. As additional consideration for the Company's agreement to enter into this Agreement, the Executive agrees to irrevocably waive any rights the Executive may have to benefits payable under Section 6(e) of the Company's Annual Incentive Plan (the "AIP"), as in effect on the date hereof with respect to any Change of Control (as defined in the AIP) occurring in the fiscal year of the Company ending in January 2004. 13 IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first written above. OFFICEMAX, INC. /s/ Michael Feuer ----------------------- By: Michael Feuer Title: Chairman and CEO /s/ Ryan Vero ----------------------- Ryan Vero 14 EXHIBIT A FORM OF AGREEMENT AND RELEASE This Settlement Agreement and Release ("Release") is made and entered into by and between ___________________ ("Executive") and OfficeMax, Inc. [or other Participating Employer] ("Employer") in connection with Executive's separation of employment with Employer, effective __________________ ("Separation Date"). In consideration of the mutual promises and releases contained herein and other good and valuable consideration as set forth herein, it is hereby agreed as follows: (1) In full and final settlement of any claims and demands for relief which may be asserted by Executive against Employer, its predecessors, successors and assigns, and the employees, current and former directors, officers, agents, attorneys and representatives of same, Employer will pay Executive a cash lump sum equal to ________________, subject to applicable taxes and withholdings, which amount equals the cash severance benefits payable under the Executive Severance Agreement dated ______ __, 2003 by and between Executive and Employer (the "Severance Agreement"). Executive shall receive such payment as soon as practicable after this Release becomes irrevocable. (2) Notwithstanding anything the contrary contained herein, Executive and Employer agree and acknowledge that Executive is not waiving his rights to payment of: (a) Executive's salary, wage payments, sales bonuses or commissions and/or reimbursable business expenses due as of the Separation Date, subject to applicable taxes and withholdings. (b) Executive's accrued but unused vacation as of the Separation Date, subject to applicable taxes and withholdings. (c) Benefits accrued as of the Separation Date under any "employee benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. (3) Executive hereby expressly agrees and acknowledges that any and all claims and demands for relief, of whatever nature or kind, including attorneys fees and costs, which Executive ever had or now has against Employer, its predecessors, successors, current and former employees, directors, officers, assigns, agents, attorneys and representatives or affiliates, which arose out of or relate in any way to Executive's employment with or separation from employment with Employer and/or its predecessors, shall be forever waived, released or discharged, including but not limited to (i) any claims 15 under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.; the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.; the Civil Rights Act of 1991, 42 U.S.C. Sections 1981 and 1981a; the Americans with Disabilities Act, 42 U.S.C. Section 12100 et seq.; [add references to applicable state or local laws]; and any other federal, state or local laws prohibiting employment discrimination; (ii) claims relating to harassment, breach of contract or wrongful discharge, or breach of express or implied covenants; and (iii) claims arising from any legal restrictions on Employer's right to terminate its employees. (4) Executive represents and agrees that he has not relied on any statements by Employer regarding his rights under the various federal and state laws prohibiting discrimination in the workplace and that he is hereby advised, cautioned, warned, recommended, encouraged, and provided the opportunity to, discuss all aspects of the Release with counsel of his own choosing, and that he has carefully read the Release, and that he understands and has full knowledge of all of the provisions of the Release, and that he is voluntarily and of his own free will and without any duress of any kind or nature entering into the Release. (5) Executive acknowledges the receipt and sufficiency of consideration adequate to support this Release in general and, in particular, the Executive's release of rights set forth in paragraphs two (2) and three (3) hereto, since the Executive is receiving benefits under paragraph (1) that the Executive otherwise would not have been entitled to receive. (6) Executive and Employer further expressly agree and understand that the Severance Agreement and Release constitute the complete and entire agreement of the parties with respect to the subject matter hereof, and that any other promises, inducements, representations, warranties, or agreements with respect to the subject matter hereof have been superseded hereby and are not intended to survive the Release, provided that any confidentiality or nondisclosure agreements binding on Executive shall continue to be binding on him in accordance with their terms. No amendment or modification of the Release shall be effective unless set forth in writing and signed by both the Executive and a duly authorized officer of Employer. (7) Executive and Employer agree that all matters relative to the construction and interpretation of this Release shall be construed and interpreted in accordance with the laws of the State of Ohio. [(8) Executive represents and agrees that he has been provided a period of twenty-one (21) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] 16 [Alternate paragraph (8), as appropriate: (8) Executive represents and agrees that he or she has been provided a period of forty-five (45) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] (9) This Release shall not become effective or enforceable until the eighth (8th) day after delivery of an executed copy by the Executive to the Employer, at which point it shall be effective and enforceable. - --------------------------- ------------------------------ WITNESS Name of Executive: Date:___________________ [OfficeMax, Inc. or Other Employer] Date:___________________ By:___________________________ Title:________________________ EX-10.6 8 l02783aexv10w6.txt EX-10.6 EXECUTIVE SEVERANCE AGREEMENT EXHIBIT 10.6 EXECUTIVE SEVERANCE AGREEMENT, made this day of June 24, 2003, between OFFICEMAX, INC., an Ohio corporation (the "Company") and Phillip P. DePaul (the "Executive") WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the Company's shareholders to have the continuous employment of key management personnel. The Board recognizes that the possibility of a change in control of the Company exists and the uncertainty it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. WHEREAS, the Board has determined that the Company should reinforce and encourage the continued attention and dedication of key members of the Company's management to their assigned duties without distraction by circumstances arising from the possibility of a change in control of the Company. NOW, THEREFORE, to induce the Executive to remain employed by the Company and in consideration for the Executive's agreement to remain so employed in certain circumstances, the Company agrees that the Executive shall receive the benefits set forth in this Agreement under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2005; provided, however, that commencing on January 1, 2006, and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless the Company gives notice not later than September 30 of the preceding year that it does not wish to extend this Agreement; and provided, further, that regardless of any such notice by the Company, this Agreement shall continue in effect for a period of 24 months beyond the term provided herein if a Change in Control of the Company occurs during such term. Notwithstanding anything to the contrary stated herein, this Agreement shall terminate prior to the dates set forth above without further acts by either party upon (a) termination of the Executive's employment before a Change in Control, (b) termination of the Executive's employment by the Company after a Change in Control for Cause or for Disability (each as respectively defined in Section 3 hereof), (c) termination of the Executive's employment after a Change in Control due to the Executive's death or by the Executive for other than Good Reason (as defined in Section 3 hereof), or (d) completion by the Company of all of its obligations in the event benefits shall become payable hereunder. 2 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the Company during the term of this Agreement. For purposes of this Agreement, a "Change in Control" occurs if: (a) a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction that complies with subsection (c) of this Section 2; (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; (c) there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; (d) the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or 3 (e) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, the consummation of a going private transaction or a buy-out of the Company led by a Group that includes the Company's Chief Executive Officer or President/Chief Operating Officer, in each case, as of the date hereof will not be deemed a "Change in Control". "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. 3. Termination Following Change in Control. The Executive shall be entitled to the benefits provided under Section 4 upon the Executive's "Qualifying Termination" (as defined herein) during the 24-month period beginning on the date of a Change in Control (the "Protection Period"). For purposes hereof, a "Qualifying Termination" shall mean (i) a termination of the Executive's employment by the Company for any reason other than for Cause or Disability or due to the Executive's death, or (ii) the Executive's termination of employment for "Good Reason" (as defined in this Section 3). (a) Disability. If the Executive is absent from duties with the Company on a full-time basis for eighteen consecutive months due to a physical or mental incapacity, and the Executive has not returned to the full-time performance of the Executive's duties within thirty (30) days after written Notice of Termination (as defined below) is given to the Executive by the Company, such termination shall be considered to be termination by the Company for "Disability" for purposes of this Agreement. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment hereunder only on the basis of (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 that interferes with Executive's ability to perform Executive's duties and responsibilities for the Company; (iii) intentional damage to material assets of the Company; (iv) wrongful disclosure of confidential information of the Company; (v) wrongful engagement in any competitive activity that would constitute a breach of the duty of loyalty to the Company; (vi) wrongful failure or refusal to perform, or gross negligence in the performance of, 4 Executive's duties and responsibilities for the Company; or (vii) making unauthorized comments to the media regarding the Company. (c) Good Reason. The Executive shall be entitled to terminate the Executive's employment for Good Reason in the event a Good Reason occurs during the Protection Period. For purposes of this Agreement, "Good Reason" shall exist in the event of the occurrence of any of the following without the Executive's express prior 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. The Executive will be deemed to have waived his rights relating to circumstances constituting Good Reason if he has not provided to the Company a written Notice of Termination within ninety (90) days following his knowledge of circumstances constituting Good Reason. By executing this Agreement, the Executive acknowledges and agrees that, effective as of the date hereof, the definition of "Good Reason" set forth above shall replace and supercede in its entirety the definition of "Good Reason" set forth in Section 1(e) of the Severance Agreement dated April 7, 2003 by and between the Company and the Executive (the "Prior Agreement"). (d) Notice of Termination. Any purported termination of the Executive by the Company or by the Executive shall be communicated by written Notice of 5 Termination to the other party in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice that indicates the specific termination provision in this Agreement relied upon and the facts, if any, supporting application of such provision. (e) Date of Termination; Dispute Concerning Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive has not returned to the performance of the Executive's duties on a full-time basis during such thirty (30) day period) or (ii) if the Executive's employment is terminated by the Company for any reason other than Disability or by the Executive for any reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company shall not be less than thirty (30) days, and in the case of a termination by the Executive shall not be more than sixty (60) days, respectively, from the date such Notice of Termination is given); or (iii) if the Executive dies, his date of death (without any requirement that a Notice of Termination be provided); provided, however, that if the party receiving the Notice of Termination notifies the other party within thirty (30) days after the date such Notice of Termination is given that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a binding arbitration award referred to in Section 12; and provided, further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice shall pursue the resolution of such dispute with reasonable diligence. The Company shall continue to pay the Executive the Executive's full compensation in effect when the notice giving rise to the dispute was given and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive participated when the Notice of Termination was given (ignoring any reductions that gave rise to Good Reason) until the dispute is finally resolved in accordance with this Section. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. In addition, for purposes of determining whether any Qualifying Termination has occurred during the Protection Period, the date a Notice of Termination is given pursuant to this Section shall be deemed the date of the Executive's Qualifying Termination. 4. Compensation Upon Termination. (a) Salary and Other Compensation or Benefits. If the Executive's employment is terminated during the Protection Period, the Company shall pay the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits to which the Executive is entitled through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company or its 6 affiliates during such period (ignoring, if applicable, any reduction that gave rise to Good Reason). (b) Disability. During any period that the Executive fails to perform the Executive's duties hereunder as a result of mental or physical incapacity, the Executive shall continue to receive the Executive's base salary at the rate then in effect and continue to participate in all benefit plans and incentive plans until the Executive's employment is terminated pursuant to Section 3(a) hereof. Thereafter, the Executive's benefits shall be determined in accordance with the insurance and other benefit programs then applicable to the Executive. (c) Cause; Voluntary Termination of Employment Without Good Reason. If the Executive's employment is terminated for Cause or the Executive voluntarily terminates employment without Good Reason, the Company shall pay the Executive only the Executive's base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, together with other compensation and benefits to which the Executive is entitled under the terms of any benefit plan, program or arrangement maintained by the Company and applicable to the Executive, and the Company shall have no further obligations to the Executive under this Agreement. (d) Qualifying Termination. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, then the Executive shall be entitled to the following benefits: (i) a pro rata portion (based on the number of calendar days that have elapsed before the Executive's Date of Termination) of the Executive's plan/target annual incentive award in effect for the fiscal year in which the Date of Termination occurs; provided that, if the Executive is entitled to receive a retention/stay bonus in connection with the Change in Control that is payable with respect to the fiscal year in which the Executive's Qualifying Termination occurs, the Executive shall receive the greater of the applicable stay or retention bonus or the pro rata plan/target bonus provided herein, but the Executive shall not be entitled to both the retention/stay bonus and the pro rata plan/target bonus provided herein; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and other severance benefits, the Company shall pay to the Executive a lump sum severance payment in an amount equal to two (2) times the sum of (A) the higher of (I) the Executive's annual base salary in effect immediately before the event or circumstance upon which the Notice of Termination is based or (II) the Executive's annual base salary in effect immediately before the Change in Control and (B) the higher of (x) the highest award paid or payable to the Executive pursuant to the Company's annual incentive plan for each of the two measuring periods completed immediately before the event or circumstance upon which the Notice of Termination is based (determined without reference to any guaranteed annual bonus under any retention/stay bonus program of the Company but taking into account the amount of any 7 such annual bonus that would have been paid to the Executive based on actual performance but for any such guarantee) or (y) the Executive's threshold bonus opportunity for the fiscal year in which Executive's Qualifying Termination occurs, without giving effect to any reduction in the Executive's threshold annual incentive bonus opportunity on or after a Change in Control; (iii) $10,000 for two years of tax and financial planning services; (iv) full and immediate vesting of all options, awards of restricted stock and any other equity or equity-based awards held by the Executive. All options held by the Executive will be exercisable for the applicable period specified in the relevant option agreement. To be eligible to receive benefits under this Section 4(d), the Executive shall be required to execute and deliver a valid, binding and irrevocable general release in substantially the form attached hereto as Exhibit A (which the Company shall deliver to the Executive promptly after the date of his Qualifying Termination). The payments provided for in this Section 4(d) shall be made not later than the date the release described above becomes binding and irrevocable under applicable law; provided, however, that, if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. If the estimated payments exceed the amount subsequently determined to be due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). When payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such written opinions or advice shall be attached to the statement). (e) Insurance Benefits. If the Executive's employment is terminated in a Qualifying Termination during the Protection Period, the Company shall maintain in full force and effect for the 24 months following such termination all life insurance, disability insurance, accidental death and dismemberment insurance, dental coverage, and medical coverage, in which the Executive and the Executive's dependents participated immediately before the Date of Termination, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event such participation (or a particular type of coverage) under any such plan or arrangement 8 shall be barred, the Company shall provide the Executive with benefits, at the same after-tax cost to the Executive, that are substantially similar to those the Executive and the Executive's dependents would have otherwise received under this Section. If the Executive, as the result of the Qualifying Termination during the Protection Period, elects to convert his Long Term Disability Insurance, if any, to a personal policy maintained by the carrier used by the Company (not greater than the coverage in effect immediately prior to the Qualifying Termination), the Company shall reimburse the Executive for any premiums paid during the applicable period following the Qualifying Termination. (f) Death. In the event of the Executive's death, the Company shall have no further obligations to the Executive under this Agreement, but the Executive's estate shall be entitled to receive death benefits under the Company's benefit plans and arrangements as may be applicable to the Executive. (g) Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in Sections 4(c), (d) and (e) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in Sections 4(c) or (d) be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. Benefits otherwise receivable by the Executive pursuant to Section 4(e) shall be reduced to the extent comparable benefits are actually received by the Executive during the period Section 4(e) shall be applicable, and any such benefits actually received by the Executive shall be reported to the Company. 5. Excise Taxes. The following provisions shall apply to any excise tax imposed under Section 4999 of the Code (or its successor) (the "Excise Tax"): (a) The provisions of this Section 5 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, the Company shall pay the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to the Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to the Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay the Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe 9 Harbor Amount" means the maximum dollar amount of parachute payments that may be paid to the Executive under Section 280G of the Code without imposition of an excise tax under Section 4999 of the Code. (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay the Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay the Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth below (a "Parachute Cap") as follows: The aggregate present value of the Payments under Section 4(d) of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code. For purposes of this Section 5, "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. (d) If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax or a federal, state or local income or employment tax deduction). If the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (e) Except as set forth in the next sentence, all determinations to be made under this Section 5 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Executive within ten days of the Executive's Date of Termination. The value of any non-competition covenant applicable to the Executive shall be determined by independent appraisal by a nationally-recognized business valuation firm acceptable to both the Executive and the Company, and a portion of the Payments shall, to the extent of that appraised value, be specifically allocated as reasonable compensation for such non-competition covenant and shall not be treated as a 10 parachute payment. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. (f) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 5 shall be borne solely by the Company. 6. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive had terminated the Executive's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive dies while any amount is still payable, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee, or if there shall be no such designee, to the Executive's estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If, to the Executive, to: Phillip P. DePaul Last home address shown on Company records 11 If, to the Company, to: OfficeMax, Inc. 3605 Warrensville Center Road Shaker Heights, OH 44122-5203 Attn: Office of the General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. By accepting, and as a condition to accepting, benefits payable under Section 4(d), the Executive agrees to waive, and will be deemed to have waived, for the two-year period commencing upon a Change in Control any right or entitlement to severance or termination benefits related to the Executive's termination of employment under any other severance or termination plan, program or arrangement including, without limitation, the Prior Agreement. For the avoidance of doubt, the waiver described in the preceding sentence shall apply only during the two-year period following a Change in Control and only to severance or termination benefits payable to the Executive under any such plan, program or arrangement (including the Prior Agreement). In addition, by executing this Agreement, the Executive hereby amends the Prior Agreement by deleting Section 1(a) and Section 1(f) in their entirety. Except as set forth herein, the provisions of the Prior Agreement (including any non-competition or confidentiality covenants contained therein) shall continue to apply to the Executive (even during the two-year period referenced above). In no event shall the Executive be entitled to duplicative payments or benefits under this Agreement and any other severance or termination plan, policy or arrangement of the Company or its subsidiaries. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio (regardless of the law which may be applicable under principles of conflicts of law). 9. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information shall not otherwise be publicly disclosed. 12 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of (but not necessarily appointed by) the American Arbitration Association then in effect except as provided herein. Judgment may be entered on the arbitrator's award in any court having jurisdiction, provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. No such arbitration proceedings shall be commenced or conducted until at least 60 days after the parties, in good faith, shall have attempted to resolve such dispute by mutual agreement; and the parties hereby agree to endeavor in good faith to resolve any dispute by mutual agreement. If mutual agreement cannot be attained, any disputing party, by written notice to the other ("Arbitration Notice") may commence arbitration proceedings. Such arbitration shall be conducted before a panel of three arbitrators, one appointed by each party within 30 days after the date of the Arbitration Notice, and one chosen within 60 days after the date of the Arbitration Notice by the two arbitrators appointed by the disputing parties. Any Cleveland, Ohio court of competent jurisdiction shall appoint any arbitrator that has not been appointed within such time periods. Judgment may include costs and attorneys fees and may be entered in any court of competent jurisdiction. 13. No Guaranty of Employment. Neither this contract nor any action taken hereunder shall be construed as giving the Executive a right to be retained as an employee of the Company. The Company shall be entitled to terminate the Executive's employment at any time, subject to providing the severance benefits herein specified in accordance with the terms hereof. The Executive is free to resign from employment at any time and the Company is free, subject to the terms of this Agreement, to terminate the Executive's employment at any time and for any reason. 14. Waiver. As additional consideration for the Company's agreement to enter into this Agreement, the Executive agrees to irrevocably waive any rights the Executive may have to benefits payable under Section 6(e) of the Company's Annual Incentive Plan (the "AIP"), as in effect on the date hereof with respect to any Change of Control (as defined in the AIP) occurring in the fiscal year of the Company ending in January 2004. IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first written above. 13 OFFICEMAX, INC. /s/ Michael Feuer ---------------------- By: Michael Feuer Title: Chairman and CEO /s/ Phillip P. DePaul ----------------------- Phillip P. DePaul 14 EXHIBIT A FORM OF AGREEMENT AND RELEASE This Settlement Agreement and Release ("Release") is made and entered into by and between ___________________ ("Executive") and OfficeMax, Inc. [or other Participating Employer] ("Employer") in connection with Executive's separation of employment with Employer, effective __________________ ("Separation Date"). In consideration of the mutual promises and releases contained herein and other good and valuable consideration as set forth herein, it is hereby agreed as follows: (1) In full and final settlement of any claims and demands for relief which may be asserted by Executive against Employer, its predecessors, successors and assigns, and the employees, current and former directors, officers, agents, attorneys and representatives of same, Employer will pay Executive a cash lump sum equal to ________________, subject to applicable taxes and withholdings, which amount equals the cash severance benefits payable under the Executive Severance Agreement dated ______ __, 2003 by and between Executive and Employer (the "Severance Agreement"). Executive shall receive such payment as soon as practicable after this Release becomes irrevocable. (2) Notwithstanding anything the contrary contained herein, Executive and Employer agree and acknowledge that Executive is not waiving his rights to payment of: (a) Executive's salary, wage payments, sales bonuses or commissions and/or reimbursable business expenses due as of the Separation Date, subject to applicable taxes and withholdings. (b) Executive's accrued but unused vacation as of the Separation Date, subject to applicable taxes and withholdings. (c) Benefits accrued as of the Separation Date under any "employee benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. (3) Executive hereby expressly agrees and acknowledges that any and all claims and demands for relief, of whatever nature or kind, including attorneys fees and costs, which Executive ever had or now has against Employer, its predecessors, successors, current and former employees, directors, officers, assigns, agents, attorneys and representatives or affiliates, which arose out of or relate in any way to Executive's employment with or separation from employment with Employer and/or its predecessors, 15 shall be forever waived, released or discharged, including but not limited to (i) any claims under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.; the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq.; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.; the Civil Rights Act of 1991, 42 U.S.C. Sections 1981 and 1981a; the Americans with Disabilities Act, 42 U.S.C. Section 12100 et seq.; [add references to applicable state or local laws]; and any other federal, state or local laws prohibiting employment discrimination; (ii) claims relating to harassment, breach of contract or wrongful discharge, or breach of express or implied covenants; and (iii) claims arising from any legal restrictions on Employer's right to terminate its employees. (4) Executive represents and agrees that he has not relied on any statements by Employer regarding his rights under the various federal and state laws prohibiting discrimination in the workplace and that he is hereby advised, cautioned, warned, recommended, encouraged, and provided the opportunity to, discuss all aspects of the Release with counsel of his own choosing, and that he has carefully read the Release, and that he understands and has full knowledge of all of the provisions of the Release, and that he is voluntarily and of his own free will and without any duress of any kind or nature entering into the Release. (5) Executive acknowledges the receipt and sufficiency of consideration adequate to support this Release in general and, in particular, the Executive's release of rights set forth in paragraphs two (2) and three (3) hereto, since the Executive is receiving benefits under paragraph (1) that the Executive otherwise would not have been entitled to receive. (6) Executive and Employer further expressly agree and understand that the Severance Agreement and Release constitute the complete and entire agreement of the parties with respect to the subject matter hereof, and that any other promises, inducements, representations, warranties, or agreements with respect to the subject matter hereof have been superseded hereby and are not intended to survive the Release, provided that any confidentiality or nondisclosure agreements binding on Executive shall continue to be binding on him in accordance with their terms. No amendment or modification of the Release shall be effective unless set forth in writing and signed by both the Executive and a duly authorized officer of Employer. (7) Executive and Employer agree that all matters relative to the construction and interpretation of this Release shall be construed and interpreted in accordance with the laws of the State of Ohio. [(8) Executive represents and agrees that he has been provided a period of twenty-one (21) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] 16 [Alternate paragraph (8), as appropriate: (8) Executive represents and agrees that he or she has been provided a period of forty-five (45) days to consider the terms of this Release and has been advised that, once executed, this Release may be revoked by Executive within seven (7) days of execution.] (9) This Release shall not become effective or enforceable until the eighth (8th) day after delivery of an executed copy by the Executive to the Employer, at which point it shall be effective and enforceable. ___________________________ ______________________________ WITNESS Name of Executive: Date:___________________ [OfficeMax, Inc. or Other Employer] Date:___________________ By:___________________________ Title:________________________ EX-10.7 9 l02783aexv10w7.txt EX-10.7 RETENTION BONUS PROGRAM FOR SENIOR MGMT EXHIBIT 10.7 OFFICEMAX, INC. RETENTION BONUS PROGRAM FOR SENIOR MANAGEMENT 1. Purpose. It is natural for persons to be concerned about their careers and consider changes during times of uncertainty. To provide assurance to employees of OfficeMax, Inc. (the "Company") regarding a potential Change in Control of the Company (as defined below) and to ensure that the Company is managed and operated efficiently and effectively in the event of a Change in Control, the Company has implemented the OfficeMax, Inc. Retention Bonus Program For Senior Management (the "Program"). 2. Effective Date. The Program shall be effective immediately and shall expire on the date the Company's obligations hereunder are fully satisfied. 3. Definitions. The following terms as used herein have the meanings set forth below: (a) "2003 Bonus" means a Participant's full annual bonus at the maximum performance level for such Participant's position/title as determined under the Annual Incentive Plan as in effect on the date hereof for the Company's fiscal year ending January 24, 2004. (b) "2003 Bonus Payment Date" means the date on which bonuses for the Company's fiscal year ending January 24, 2004 are otherwise paid to similarly situated employees, which shall be on or about April 15, 2004. (c) "2004 Bonus" means a Participant's full annual bonus at the plan/target performance level for such Participant's position/title as determined under the Annual Incentive Plan for the Company's fiscal year ending January 22, 2005. (d) "2004 Bonus Payment Date" means the date on which bonuses for the Company's fiscal year ending January 22, 2005 are otherwise paid to similarly situated employees. (e) "Annual Incentive Plan" means the annual incentive plan or program of the Company in which the Participant participates. (f) "Board" means the Board of Directors of the Company. (g) "Cause" means (i) the Participant's commission of a felony, (ii) the Participant's malfeasance or misconduct in relation to the performance of his/her duties to the Company, (iii) the Participant's willful refusal to perform his/her duties to the 2 Company or (iv) the Participant's material violation of any applicable material policy or procedure of the Company. (h) "Change in Control" means any event described in Exhibit 1 hereto. (i) "Corporate Annual Incentive Plan" means the OfficeMax, Inc. Annual Incentive Bonus Plan filed as an exhibit to the Company's Form 10-K filings with the Securities and Exchange Commission. (j) "Disability" means a mental or physical disability that entitles a Participant to long-term disability benefits under a long-term disability program sponsored by the Company. (k) "Participant" means each Participant set forth on Exhibit A hereto who has waived any right or entitlement such Participant may have under (i) the Annual Incentive Plan with respect to any bonus thereunder for the fiscal year of the Company ending January 24, 2004 and (ii) Section 6(e) of the Company's Corporate Annual Incentive Plan with respect to any "Change of Control" (as defined in the Corporate Annual Incentive Plan) occurring on or before the 2003 Bonus Payment Date. (l) "Qualifying Termination" means a termination of a Participant's employment with the Company and its affiliates (i) by the Company for any reason other than Cause or Disability or due to the Participant's death or (ii) by a Participant for "Good Reason," as defined in any employment or severance agreement between the Participant and the Company, it being understood that a Participant who is not party to an employment or severance agreement that permits such Participant to terminate for Good Reason may not incur a Qualifying Termination under subsection (ii) of this Section 3(l). Notwithstanding anything to the contrary contained herein, a termination of employment with the Company at the election of a Participant that entitles such Participant to severance or termination benefits under the terms of an employment or severance agreement with the Company shall be considered a termination for "Good Reason" hereunder, regardless of the characterization of such termination under the applicable employment or severance agreement. 4. 2003 Bonuses. Each Participant who (i) is employed by the Company or its affiliates on the 2003 Bonus Payment Date or (ii) incurs a Qualifying Termination after the Effective Date hereof and prior to the 2003 Bonus Payment Date shall be paid the Participant's full 2003 Bonus in a cash lump sum promptly after the 2003 Bonus Payment Date. Any payment made under this Section 4 shall be in lieu of any other payment made under the Annual Incentive Plan for the Company's fiscal year ending January 24, 2004 and a Participant receiving any payment under this Section 4 shall not be eligible for, and shall be deemed to have waived any right to, any additional payment under the Annual Incentive Plan for such year. 3 5. 2004 Bonuses. If a Change in Control does not occur prior to the 2004 Bonus Payment Date, each Participant who (i) is employed by the Company or its affiliates on the 2004 Bonus Payment Date or (ii) incurs a Qualifying Termination after the 2003 Bonus Payment Date and prior to the 2004 Bonus Payment Date shall be paid the Participant's full 2004 Bonus in a cash lump sum promptly after the 2004 Bonus Payment Date. In no event shall any payment be made under this Section 5 to any Participant if a Change in Control occurs prior to the 2004 Bonus Payment Date. Any payment made under this Section 5 shall reduce, on a dollar-for-dollar basis, any other payment earned by the Participant under the Annual Incentive Plan for the Company's fiscal year ending January 22, 2005. 6. Rights of Employees. The Program is for the benefit of each Participant and his or her heirs and representatives and shall be enforceable by them in accordance with its terms. The Program is not a contract of employment between the Company and the Participant and shall not be construed to create a right of a Participant to continued employment with the Company. A Participant is free to resign from employment at any time and the Company is free, subject to the terms of this Program, to terminate the Participant's employment at any time and for any reason. 7. Amendment and Termination. The Company, through action of its Board, may amend, modify or terminate the Program for any or no reason up until the occurrence of a Change in Control. After a Change in Control, the Program may not be amended, modified or terminated. 8. Taxes. All payments hereunder shall be reduced by any applicable taxes required by applicable law to be paid or withheld by the Company. 9. No Assignment. Benefits payment under this Program may not be assigned, transferred, pledged as security for indebtedness or otherwise encumbered, or subjected to any legal process for the payment of any claim against a Participant. If a Participant shall die while any benefits are still payable to the Participant hereunder, such benefits shall be paid to the executors or personal representatives or the administrators of the Participant's estate. 10. Governing Law. This Program shall be governed by, and construed under, the laws of the State of Ohio without regard to its principles of conflicts of law. 11. Binding upon Successors. The terms of the Program shall be binding upon the successors and assigns of the Company, including, without limitation, any transferee (by merger, acquisition or otherwise) of the assets and liabilities of the Company. 4 IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute this Program as of the 25th day of July, 2003. OFFICEMAX, INC. Michael Feuer --------------------------- By: Michael Feuer Title: Chairman & Chief Executive Officer EXHIBIT 1 "Change in Control" shall mean i. a Person or Group (I) purchases any shares of capital stock of the Company (or securities convertible to capital stock of the Company) pursuant to a tender or exchange offer without prior consent of the Board or (II) becomes a Beneficial Owner, directly or indirectly, of stock of the Company representing 50% or more of the total voting power of the Company's then outstanding stock and securities; provided, however, that for purposes of this subsection (a), the following acquisitions of voting power shall not constitute a Change of Control: (X) any acquisition by the Company, (Y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (Z) any acquisition by any corporation pursuant to a transaction that complies with subsection (iii) below; ii. individuals who, as of the date hereof, constitute the Board (the "Incumbent Board"), cease for any reason to constitute a majority thereof; provided, however, that any individual becoming a director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person or Group other than the Board; iii. there is consummated a merger, consolidation or other corporate transaction involving the Company or any wholly owned subsidiary thereof, other than a merger, consolidation or transaction that would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the ultimate parent thereof) at least 50% of the combined voting power of the stock and securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or transaction; iv. the sale or disposition by the Company of all or substantially all of the Company's assets other than a sale or disposition by the Company of all or substantially all of its assets to an entity at least 50% of the combined voting power of the stock and securities of which is owned by 2 shareholders of the Company in substantially the same proportions as their ownership of the Company's voting stock immediately prior to such sale; or v. the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company. For purposes of this definition of Change in Control, "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act), other than (i) any trustee or fiduciary of an employee plan established by the Company or any of its subsidiaries, (ii) any subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company. "Group" shall mean any group as defined in Section 14(d)(2) of the Exchange Act. "Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3 under the Exchange Act. EX-31.1 10 l02783aexv31w1.txt EX-31.1 302 CERT FOR CEO EXHIBIT 31.1 I, Michael Feuer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of OfficeMax, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report and our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 26, 2003 /s/ Michael Feuer ----------------- Michael Feuer Chairman and Chief Executive Officer EX-31.2 11 l02783aexv31w2.txt EX-31.2 302 CERT FOR CFO EXHIBIT 31.2 I, Michael F. Killeen, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of OfficeMax, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report and our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 26, 2003 /s/ Michael F. Killeen ---------------------- Michael F. Killeen Chief Financial Officer EX-32.1 12 l02783aexv32w1.txt EX-32.1 906 CERT FOR CEO AND CFO EXHIBIT 32.1 [LETTERHEAD OF OFFICEMAX] August 26, 2003 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ladies and Gentlemen: Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-Q of OfficeMax, Inc. (the "Company") for the quarter ended July 26, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ Michael Feuer - -------------------------------- Name: Michael Feuer Title: Chief Executive Officer /s/ Michael F. Killeen - -------------------------------- Name: Michael F. Killeen Title: Senior Executive Vice President, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----