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<SEC-DOCUMENT>0000950144-01-004002.txt : 20010328
<SEC-HEADER>0000950144-01-004002.hdr.sgml : 20010328
ACCESSION NUMBER: 0000950144-01-004002
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20001230
FILED AS OF DATE: 20010327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: OFFICE DEPOT INC
CENTRAL INDEX KEY: 0000800240
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940]
IRS NUMBER: 592663954
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1226
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-10948
FILM NUMBER: 1580017
BUSINESS ADDRESS:
STREET 1: 2200 OLD GERMANTOWN RD
CITY: DELRAY BEACH
STATE: FL
ZIP: 33445
BUSINESS PHONE: 5612664800
MAIL ADDRESS:
STREET 1: 2200 OLD GERMANTOWN ROAD
STREET 2: 2200 OLD GERMANTOWN ROAD
CITY: DELRAY BEACH
STATE: FL
ZIP: 33445
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>g67815ke10-k.txt
<DESCRIPTION>OFFICE DEPOT, INC. FORM 10-K 12-30-2000
<TEXT>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 30, 2000
Or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the transition period from ____ to _____
Commission file number 1-10948
OFFICE DEPOT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2663954
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2200 Old Germantown Road, Delray Beach, Florida 33445
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 438-4800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
<S> <C>
Common Stock, par value $0.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Liquid Yield Option Notes due 2007 convertible into Common Stock New York Stock Exchange
Liquid Yield Option Notes due 2008 convertible into Common Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 9, 2001 was approximately $2,639,101,773.
As of March 9, 2001, the Registrant had 297,017,184 shares of Common
Stock outstanding.
Documents Incorporated by Reference:
Portions of our Annual Report to Stockholders for the fiscal year ended December
30, 2000 are incorporated by reference in Parts I and II, and the Proxy
Statement, to be mailed to stockholders on or about March 29, 2001 for the
Annual Meeting to be held on April 26, 2001, is incorporated by reference in
Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Office Depot Inc., together with our subsidiaries, is the largest supplier of
office products and services in the world. We sell to consumers and businesses
of all sizes through our three business segments: North American Retail
Division, Business Services Group ("BSG"), and International Division.
OFFICE PRODUCTS BUSINESS
Businesses in our industry primarily sell three broad categories of merchandise:
general office supplies, technology products and office furniture. Office
products distributors include contract stationers (selling at significant
discounts from list prices to their contract customers), mail order companies
(selling through catalogs) and retailers (including office superstores such as
the ones we operate). Most recently, Internet-based companies have emerged as a
new channel in this industry.
Although the office products business has changed in recent years, a significant
portion of the market is still served by small dealers. These dealers purchase a
significant portion of their merchandise from national or regional office supply
distributors who, in turn, purchase merchandise from manufacturers. Dealers
often employ a commissioned sales force that use the distributor's catalog,
showing products at retail list prices, for selection and price negotiation with
the customer. We believe that these dealers generally sell their products at
prices higher than those we offer to our customers.
Since the mid-1980s, high-volume office supply superstores have emerged
throughout the United States. These stores offer a wide selection of products, a
high level of customer service and low prices. High-volume office products
retailers typically offer substantial price savings to individuals and small- to
medium-sized businesses, which traditionally have had limited opportunities to
buy at significant discounts from retail list prices. Recently, other retailers,
including mass merchandisers and warehouse clubs, have begun offering a wide
variety of similar products at low prices and have become increasingly
competitive with office supply superstores. Direct mail and Internet-based
companies have also established a growing presence in the office products
industry.
Larger customers have been, and continue to be, served primarily by full service
contract stationers, which offer contract bids at discounts equivalent to or
greater than those offered by our retail stores and catalogs. These stationers,
including our own contract stationer business, traditionally serve their
customers through a commissioned sales force, purchase in large quantities
primarily from manufacturers, and offer competitive pricing and customized
services to their customers.
COMPETITION
We operate in a highly competitive environment. Historically, our markets have
been served by traditional office products dealers and contract stationers. We
believe that we compete favorably against dealers on the basis of price and
selection. We compete with other full service contract stationers on the basis
of service and value-added technology. We also compete with other office supply
superstores, wholesale clubs selling general merchandise, discount stores, mass
merchandisers, conventional retail stores, catalog showrooms, Internet-based
companies and direct mail companies. These companies, in varying degrees,
compete with us on both price and selection. Currently, we are the largest
seller of office products and services in the world in terms of dollar volume of
products and services sold, and we believe that our ability to buy in large
quantities directly from the manufacturers affords us a competitive advantage
over our smaller competitors.
We compete with several high-volume office supply chains that are similar to us
in terms of store format, pricing strategy and product selection and
availability in markets where we operate, primarily those in the United States
and Canada. We differentiate ourselves from these other superstore chains in
terms of the convenience of our store locations, our customer service, the
extent of our product selection, and our "in stock" position (i.e., having the
products we carry on the shelves for our customers). We anticipate that in the
future we will face increased competition from these chains as each of us
expands our operations.
In the delivery and contract stationer portions of the industry, our principal
competitors are national and regional full service contract stationers, national
and regional office furniture dealers, independent office products distributors,
discount superstores and, to a lesser extent, direct mail businesses, stationery
retail outlets and Internet-based merchandisers. Other office supply superstore
chains are also developing a presence in the contract stationer and Internet
1
<PAGE> 3
channels of the business. We compete with these businesses in substantially all
of our current markets. In the future, we may face increased competition from
Internet-based merchandisers who dedicate all of their resources to electronic
commerce.
Some of the entities we compete against may have greater financial resources
than we do. We cannot assure you that increased competition will not have an
adverse effect on us. However, we believe that we compete effectively based on
price, selection, availability, location and customer service.
MERCHANDISING AND PRODUCT STRATEGY
Our merchandising strategy is to offer a broad selection of office products,
under both our Office Depot(R) and Viking Office Products(R) brands, and to
provide our customers with a compelling combination of quality, assortment,
price and service. Our selection of office products includes general office
supplies, computers, software and computer supplies, business machines and
related supplies, and office furniture. In late 2000, we adopted a plan to
reduce the number of SKUs in our stores and warehouses in order to improve
customer service and efficiencies by having better "in stock" positions for
products our customers purchase most frequently. Once the reduction is complete,
our office supply superstores will stock approximately 7,000 SKUs, including
variations in color and size, and our Customer Service Centers ("CSCs") will
stock approximately 11,000 SKUs. We expect to complete this project by June,
2001.
We buy substantially all of our merchandise directly from manufacturers and
other primary suppliers. In some cases, we also have begun to source our own
merchandise from offshore locations under private label brands that are
exclusive to Office Depot and Viking. In most cases, our suppliers deliver the
merchandise directly to our stores or CSCs or to our ten cross-dock facilities.
Our supply chain operations, including the cross-docks, use a customized system
to manage the inbound flow of merchandise with the goal of minimizing our landed
cost. This system enables us to maintain optimal in-stock positions by
permitting a shorter lead time for reordering at the stores and CSCs, while
still meeting the minimum ordering requirements of our vendors. The use of
cross-docks also reduces our freight costs by centralizing the receiving
function.
Our BSG is party to multi-year contracts with many of its customers and
anticipates entering into similar contracts in the future as we grow our
contract business. Nonetheless, we have not entered into any material long-term
contracts or commitments with any vendor or customer, the loss of any one of
which would materially adversely affect our financial position or the results of
our operations. We have not experienced any material difficulty in obtaining
desired quantities of merchandise for sale, and we do not foresee having any
significant difficulties in the future.
Buyers located at our corporate headquarters are responsible for selecting and
purchasing merchandise. For merchandise offered to our retail store, direct mail
and Internet customers, our operating management determines pricing based upon
buyer recommendations. Our contract sales force in our BSG determines the price
of products sold to our contract customers. Replenishment buyers monitor
inventory levels and initiate product reorders with the assistance of our
customized replenishment system. This system allows buyers to devote more time
to selecting products, developing new product lines, analyzing competitive
developments and negotiating with vendors to obtain more favorable prices and
product availability. We transmit purchase orders by EDI to a significant number
of our vendors, and we electronically receive Advance Shipment Notices and
invoices back from them. This method of electronic ordering expedites orders and
promotes accuracy and efficiency. We plan to continue to expand this program to
the remainder of our vendors.
We buy substantially all of our inventory directly from manufacturers in large
quantities without using a central warehouse. We maintain substantially all of
our inventory on the sales floors of our stores, at our cross-docks and at our
CSCs.
STORE STRATEGY
Our retail stores conform to a model designed to achieve cost efficiency by
minimizing rent and eliminating the need for a central warehouse. Each store
displays virtually all its inventory on the sales floor using low-profile
fixtures, pallets, bins and industrial steel shelving, permitting the bulk
stacking of inventory and quick and efficient restocking. Shelving is positioned
to form aisles large enough to comfortably accommodate customer traffic and
merchandise movement. During 2001, we plan to further enhance the shopping
experience with the installation of new lighting, signage, and broadband
Internet capabilities across our entire chain.
Our stores sell primarily to small offices/home offices and individual
consumers. We carry a wide selection of merchandise, including brand name office
supplies, business machines and computers, computer software, office furniture
and other business-related products. Each store also contains a multipurpose
copy and print center offering printing, reproduction, mailing, shipping, and
2
<PAGE> 4
other services. In 2000, through our partnership with UPS, we have initiated the
roll-out of UPS shipping centers within our stores. This enables us to offer our
customers a full selection of packaging and shipping supplies, as well as the
complete portfolio of U.S. domestic and international UPS shipping services at
regular UPS Customer Counter rates. In 2001, we plan to experiment with several
other store-within-store concepts.
CATALOG PRODUCTION AND CIRCULATION
We use our catalogs to market directly to both existing and prospective
customers throughout the world. Separate catalog assortments promote our dual
brand (Office Depot(R) and Viking Office Products(R)) mail order strategy. We
currently circulate both Viking Office Products(R) and Office Depot(R) brand
catalogs through our BSG and International Division. Each catalog is printed in
full color with pictures and narrative descriptions that emphasize key product
benefits and features. We have developed a distinctive style for our catalogs,
most of which are produced in-house by our designers, writers and production
artists, using a computer-based catalog creation system.
Our Viking Office Products(R) brand catalog mailings include monthly sale
catalogs, which are mailed to all active Viking customers and present our most
popular items. A complete "Buyers Guide," containing all of our products at the
regular discount prices, is delivered to our Office Depot(R) and Viking Office
Products(R) brand catalog customers every six months. The Buyers Guide, which is
mailed to all of our active customers, varies in size between countries.
Prospecting catalogs with special offers designed to attract new customers are
mailed frequently. In addition, Office Depot(R) and Viking Office Products(R)
specialty catalogs are delivered to selected customers monthly.
During 2000, we mailed approximately 305 million copies of over 180 different
Office Depot(R) and Viking(R) brand catalogs. During 1999 and 1998, we mailed
approximately 296 million and 248 million copies, respectively, of over 100
different catalogs to existing and prospective customers.
SELLING AND MARKETING
We are able to maintain our competitive pricing policy primarily as a result of
the significant cost efficiencies we achieve through our operating format and
purchasing power. Our marketing programs are designed to attract new customers
and to persuade existing customers to make additional purchases. We advertise in
the major newspapers in most of our local markets. These advertisements are
supplemented with local and national radio and network and cable television
advertising campaigns and direct marketing efforts. We continuously acquire new
customers by selectively mailing specially designed catalogs to prospective
customers. Sometimes we obtain the names of prospective customers in new and
existing markets through the use of selected mailing lists from outside
marketing information services and other sources. We use a proprietary mailing
list system for our Viking Office Products(R) brand catalogs and other
promotional mailings. We plan to use this same technology to increase the
effectiveness of our Office Depot(R) brand catalogs in the future. Catalogs are
also distributed through our contract sales force and are available in each of
our stores.
We have a low price guarantee policy for our Office Depot(R) brand. Under this
policy, we will match any competitor's comparable lower price. This program
assures customers that they can always receive low prices from us even during
periodic sales promotions by our competitors. Monthly competitive pricing
analyses are performed to monitor each market, and prices are adjusted as
necessary to adhere to this pricing philosophy and ensure competitive
positioning.
Our customers nationwide can place orders over the Internet, by telephone or by
fax using toll-free telephone numbers that route the calls through call centers
located in Florida, Georgia, Texas, Ohio, Connecticut, Kansas and California. We
electronically transmit any orders received at the call centers or via the
Internet to the store or CSC closest to our customer for pick-up or delivery at
a nominal delivery fee (free with a minimal order size). Orders are packaged,
invoiced and shipped for next-day delivery or same-day delivery in the case of
Viking orders in selected markets.
Through our BSG, we provide our contract customers with specialized services
designed to aid them in achieving efficiencies and eliminating waste in their
overall office products and office furniture costs. These services include
electronic ordering, stockless office procurement, desktop delivery, business
forms management services, and comprehensive product usage reports. Desktop
delivery entails delivering the merchandise to individual departments within our
3
<PAGE> 5
customers' facilities, rather than delivering the packages to one central
receiving point. We also develop customized Intranet sites in tandem with our
customers, allowing them to set rules and limitations on their employees'
electronic ordering abilities. Customer orders from these Intranet sites are
transmitted to us via the Internet.
In addition to the normal payment options available to all of our customers, we
offer our contract and qualified commercial customers the option of purchasing
on credit through open accounts. We also offer revolving credit terms to Office
Depot(R) brand customers through the use of private label credit cards. These
credit cards are issued without charge to credit-qualified customers. Sales
transactions using the private label credit cards are transmitted electronically
to financial services companies, which credit our bank account with the net
proceeds within two days. We offer our contract customers a store purchasing
card which allows them to purchase office supplies at one of our retail stores,
while still taking advantage of their contract pricing. No single customer in
any of our segments accounts for more than 1% percent of our total sales. All of
our credit card operations are conducted by third parties with whom we contract
to perform this service.
INFORMATION SYSTEMS
In operating our business, we use IBM ES9000 mainframes, IBM AS/400 computers
and client/server technologies. Our information systems include advanced
software packages that have been customized for our specific business
operations. By maximizing our application of these technologies, we have
improved our ability to manage our inventories, order processing, replenishment
and marketing efforts.
Inventory data is updated instantaneously in our systems when the merchandise is
scanned for receiving or transfer, and sales and certain inventory data is
updated in our systems each night by downloading information from our
point-of-sale and our telemarketing order entry systems. Our point-of-sale
systems permit the entry of sales data through the use of bar code laser
scanning. The systems also have a price "look-up" capability that permits
immediate price checking and the efficient movement of customers through the
check-out process. Data from all of our locations and order sources is
transmitted to our headquarters at the end of each day, permitting a perpetual
daily inventory and the calculation of average unit cost by SKU for each of our
stores and CSCs. Daily compilation of sales and gross margin data allows us to
analyze profitability and inventory by item and product line, as well as monitor
the success of our sales promotions. For all SKUs, we have immediate access to
on-hand daily unit inventory, units on order, current and past rates of sale and
other information pertinent to the management of our inventory.
All of our computer operations are managed internally in state-of-the-art
facilities that capitalize on advanced technologies. Our help desk is manned 24
hours per day, 7 days per week. We utilize off-site disaster recovery facilities
and redundancies. These operations result in industry leading system
availability and reliability.
We have invested in a new data warehouse system that now allows us to perform
trend and market basket analyses, manage our customer relationships, and produce
more effective advertising campaigns. We strive for superior customer
satisfaction, and our information systems initiatives are designed with that
goal in mind. Our new data warehouse solution is designed to use sales
transaction and customer interaction information to market on a more personal
basis with each of our customers. Our international initiatives include
launching several electronic commerce sites throughout the world and building a
world-class network and computing infrastructure.
Our Office Depot public Web site--WWW.OFFICEDEPOT.COM--has won a number of
awards from information technology industry and customer groups. Our
business-to-business electronic commerce sites have sophisticated work-flow
components that help our customers electronically manage their ordering process
for office supplies, with thousands of customer orders processed each day.
Internet-enabled applications allow our suppliers to directly interact with our
systems, improving order flow and supply chain management. We use our corporate
Intranet to improve employee productivity and responsiveness and reduce our
administrative costs.
EMPLOYEES
As of March 9, 2001, we had approximately 48,000 employees worldwide. Virtually
all of these are full time employees. Our labor relations generally are good,
and the overwhelming majority of our facilities are not organized by any labor
union. In the most recent labor organizing activity in a large facility in
California, our employees rejected the efforts of the labor union to organize
that workforce.
4
<PAGE> 6
INFORMATION INCORPORATED BY REFERENCE
The following information is included in Exhibit 13 at the page location(s)
specified. Such information is set forth in Office Depot's 2000 Annual Report to
Stockholders and is incorporated herein by reference:
General description of our business segments - Pages 14-15
Restructuring activities and other one-time charges - Pages 16-18
Financial information about segments - Pages 18-22 and 46-47
Revenues by product group - Page 18
Seasonality of the business - Page 25
Financial information about geographic areas - Page 47
5
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
JERRY COLLEY AGE: 48
Mr. Colley joined Office Depot in February 2001 as our President, North American
Retail Stores. Prior to joining Office Depot, he was Senior Vice President,
Stores and Customer Satisfaction for AutoZone, Inc., from 1997 to 2001. Prior to
his tenure at AutoZone, Mr. Colley was Executive Vice President of Tire Kingdom
from January 1996 to July 1996, and President of Rose Auto Parts, a regional
retail chain, from February 1995 to December 1995, and Vice President,
Stores/Regional Manager for AutoZone/AutoShack from 1987 to 1995.
ROBERT J. KELLER AGE: 47
Mr. Keller has been President, Business Services Group since August 2000.
Previously, he served as Executive Vice President, Business Services Division
from June 1999 to August 2000 and Senior Vice President, Contract Sales from
February 1998 to June 1999. Before joining Office Depot, Mr. Keller was
Executive Vice President (1993 to 1998) and Senior Vice President (1988 to 1993)
of Dun & Bradstreet Corporation.
ROLF Van KALDEKERKEN AGE: 57
Mr. Van Kaldekerken has been President, European Operations since August 2000.
Prior to that appointment, he served as Executive Vice President, European
Operations from January 2000 to August 2000. Previously, he was President &
Country Manager for Germany from 1998 to January 2000 for Office Depot
International and Managing Director and Vice President, Germany, Benelux and
Austria for Viking Office Products from November 1994 until August 1998, when
Viking was merged into our Company. Prior to joining Viking, Mr. Van Kaldekerken
was European Operations Manager and European Purchasing Manager for INMAC
Corporation.
DAVID C. FANNIN AGE: 55
Mr. Fannin has been our Executive Vice President, General Counsel and Secretary
since August 2000. Previously, he was Senior Vice President and General Counsel
since he joined our Company in November 1998, and our Corporate Secretary since
January 1999. Mr. Fannin was Executive Vice President, General Counsel and
Corporate Secretary of Sunbeam Corporation, a manufacturer and wholesaler of
durable household and outdoor consumer products, from January 1994 until August
1998. From October 1979 until December 1993, Mr. Fannin was a partner in the law
firm Wyatt, Tarrant & Combs, in Louisville, Kentucky.
THOMAS KROEGER AGE: 52
Mr. Kroeger has been Executive Vice President, Organization and People since he
joined us in July 1997. Before joining Office Depot, he was employed by The
Sherwin-Williams Company where he served as Corporate Vice President of Human
Resources from October 1987 to July 1997.
WILLIAM P. SELTZER AGE: 62
Mr. Seltzer has been our Executive Vice President, Information Systems since
August 1992. He was Senior Vice President--Distribution and Systems of Revco
Drug Stores, Inc. from November 1987 to July 1992. Mr. Seltzer was Vice
President of Systems for the H.E. Butt Grocery Company from 1977 to 1987, and
was Corporate Manager of Information Processing from 1972 to 1977 with SCM
Corporation.
CHARLES E. BROWN AGE: 48
Mr. Brown has been our Senior Vice President, Finance and Controller since he
joined our Company in May 1998. He was Senior Vice President and Chief Financial
Officer of Denny's, Inc. from January 1996 until May 1998; from August 1994
until December 1995, he was Vice President and Chief Financial Officer of
ARAMARK International; and from September 1989 until July 1994, he was Vice
President and Controller of Pizza Hut International, a Division of PepsiCo, Inc.
JEFFREY AIKEN AGE: 42
Mr. Aiken has been our Senior Vice President of Tax since November 1999.
Previously he was our Vice President of Tax from July 1997 to November 1999 and
Director of Taxes from November 1994 until July 1997. Prior to joining our
Company, Mr. Aiken was Director of Taxes for Berol Corporation from 1993 to
1994; Director of International Taxes for Toys "R" Us from 1992 to 1993 and
Senior International Tax Manager for Price Waterhouse from 1990 to 1992.
Information with respect to our directors, including our executive officers who
are also directors is incorporated herein by reference to the information under
the caption "Election of Directors/Biographical Information of the Candidates"
in the Proxy Statement for our 2001 Annual Meeting of Stockholders.
6
<PAGE> 8
ITEM 2. PROPERTIES.
As of March 9, 2001, we operate 787 office supply stores in 45 states and the
District of Columbia, 34 office supply stores in five Canadian provinces and 132
office supply stores (including those operated under licensing and joint venture
agreements) in seven countries outside of the United States and Canada. We also
operate 25 CSCs in 18 U.S. states and 18 CSCs in 11 countries outside of the
United States. The following table sets forth the locations of these facilities.
<TABLE>
<CAPTION>
STORES
- ----------------------------------------------------------------------------------------------------------------
STATE/COUNTRY # STATE/COUNTRY # STATE/COUNTRY #
- ------------- --- ------------- --- ------------- ---
<S> <C> <C> <C> <C> <C>
UNITED STATES:
Alabama 14 Kansas 9 North Dakota 3
Alaska 2 Kentucky 12 Ohio 11
Arizona 3 Louisiana 25 Oklahoma 12
Arkansas 9 Maryland 13 Oregon 15
California 128 Michigan 19 Pennsylvania 9
Colorado 25 Minnesota 10 South Carolina 13
Delaware 1 Mississippi 11 South Dakota 1
District of Columbia 2 Missouri 17 Tennessee 19
Florida 83 Montana 1 Texas 99
Georgia 35 Nebraska 5 Utah 4
Hawaii 3 Nevada 9 Virginia 18
Idaho 6 New Jersey 6 Washington 28
Illinois 33 New Mexico 4 West Virginia 3
Indiana 16 New York 13 Wisconsin 11
Iowa 3 North Carolina 23 Wyoming 1
-----------------
Total United States 787
CANADA: FRANCE 28
Alberta 8 HUNGARY 3
British Columbia 8 ISRAEL 23
Manitoba 3 JAPAN 7
Ontario 13 MEXICO 53
Saskatchewan 2 POLAND 16
------------- THAILAND 2
Total Canada 34 -----------------
Total Outside the 132
United States
</TABLE>
<TABLE>
<CAPTION>
CSCs
- ----------------------------------------------------------------------------------------------------------------
STATE/COUNTRY # STATE/COUNTRY # STATE/COUNTRY #
- ------------- --- ------------- --- ------------- ---
<S> <C> <C> <C> <C> <C>
UNITED STATES:
Arizona 1 Massachusetts 1 AUSTRALIA 2
California 3 Michigan 1 BELGIUM 1
Colorado 2 Minnesota 1 FRANCE 2
Connecticut 1 New Jersey 1 ISRAEL 1
Florida 2 North Carolina 1 GERMANY 2
Georgia 1 Ohio 1 THE NETHERLANDS 1
Illinois 1 Texas 3 IRELAND 1
Louisiana 1 Utah 1 ITALY 1
Maryland 2 Washington 1 JAPAN 2
MEXICO 2
UNITED KINGDOM 3
----------
-----------------
Total United States 25 Total Outside the 18
United States
</TABLE>
Most of our facilities are leased or subleased, with lease terms (excluding
renewal options) expiring in various years through 2021, except for the 69
facilities and our corporate offices and systems data center, which we own. Our
owned facilities are located in 16 states, primarily in Florida, Texas and
California; three Canadian provinces; the United Kingdom; the Netherlands;
Australia; Mexico and France.
We operate our retail stores under the Office Depot(R), Office Depot Express(R)
and Office Place(R) (in Ontario, Canada) names. Our contract and catalog
businesses operate under the names Office Depot(R) and Viking Office
Products(R).
Our corporate offices in Delray Beach, Florida consist of approximately 575,000
square feet in three adjacent buildings--two of which are owned and one is
leased. We also own a corporate office building in Torrance, California which is
7
<PAGE> 9
approximately 180,000 square feet in size, and a systems data center in
Charlotte, North Carolina which is approximately 53,000 square feet in size.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in litigation arising in the normal course of our business.
While from time to time claims are asserted that make demands for large sums of
money (including from time to time, actions which are asserted to be
maintainable as class action suits), we do not believe that any of these
matters, either individually or in the aggregate, will materially affect our
financial position or the results of our operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Our common stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "ODP." As of March 9, 2001, there were 4,062 holders of record of our
common stock. The last reported sale price of the common stock on the NYSE on
March 9, 2001 was $9.24.
The following table sets forth, for the periods indicated, the high and low sale
prices of our common stock, as quoted on the NYSE Composite Tape. These prices
do not include retail mark-ups, mark-downs or commission.
HIGH LOW
---- ---
2000
----
First Quarter $14.8750 $9.8750
Second Quarter 14.7500 6.0000
Third Quarter 8.3125 5.8750
Fourth Quarter 8.7500 6.0000
1999
----
First Quarter (1) $26.0000 $20.3333
Second Quarter 25.8333 18.2500
Third Quarter 23.0000 9.8125
Fourth Quarter 13.1875 9.0000
- --------------
(1) Prices have been adjusted to reflect the three-for-two stock split which
occurred on April 1, 1999.
We have never declared or paid cash dividends on our common stock, and we do not
currently intend to pay cash dividends in the foreseeable future. Earnings and
other cash resources will continue to be used in the expansion of our business.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in Exhibit 13.1 under the
heading "Financial Highlights" as of and for the fiscal years ended December 30,
2000, December 25, 1999, December 26, 1998, December 27, 1997 and December 28,
1996. This information is set forth in our Annual Report to Stockholders for the
fiscal year ended December 30, 2000 (on page 13) and is incorporated herein by
this reference and made a part hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is set forth in Exhibit 13.1 under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Cautionary Statements for Purposes of the `Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995."
This information is set forth in our Annual Report to Stockholders for the
fiscal year ended December 30, 2000 (on pages 14-28) and is incorporated herein
by reference and made a part hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is set forth in Exhibit 13.1 under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations". This information is set forth in our Annual Report to
Stockholders for the fiscal year ended December 30, 2000 (on page 25) and is
incorporated herein by reference and made a part hereof.
ITEM 8. FINANCIAL STATEMENTS
The information required by this Item is set forth in Exhibit 13.1 under the
headings "Independent Auditors' Report of Deloitte & Touche LLP on Consolidated
Financial Statements," "Consolidated Balance Sheets," "Consolidated Statements
of Earnings," "Consolidated Statements of Stockholders' Equity," "Consolidated
Statements of Cash Flows" and "Notes to Consolidated Financial Statements" as of
December 30, 2000 and December 25, 1999 and for the fiscal years ended December
30, 2000, December 25, 1999 and December 26, 1998. This information is set forth
in our Annual Report to Stockholders for the fiscal year ended December 30, 2000
(on pages 29-47) and is incorporated herein by this reference and made a part
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning our executive officers is set forth in Item 1 of this
Form 10-K under the caption "Executive Officers of the Registrant."
Information with respect to our directors is incorporated herein by reference to
the information "Election of Directors/Biographical Information on the
Candidates" in the Proxy Statement for our 2001 Annual Meeting of Stockholders.
Information required by Item 405 of Regulation S-K is incorporated herein by
reference to "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement for our 2001 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is incorporated herein by
reference to the information under the caption "Executive Compensation" in the
Proxy Statement for our 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners and
management is incorporated herein by reference to the information under the
caption "Stock Ownership Information" in the Proxy Statement for our 2001 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions is
incorporated herein by reference to the information under the captions "Matters
to be Considered by our Shareholders - Election of Directors - Item I -
Biographical Information on the Candidates" and "Executive Compensation -
Contractual Agreements with David Fuente" in the Proxy Statement for our 2001
Annual Meeting of Stockholders.
10
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. The financial statements listed in Item 8.
2. The financial statement schedule listed in "Index to
Financial Statement Schedule."
3. The exhibits listed in the "Index to Exhibits."
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the year ended
December 30, 2000 except those disclosed in our 2000 Quarterly
Reports on Form 10-Q, except that the following reports on
Form 8-K were filed in the fourth quarter ended December 30,
2000.
1. The Company filed a report dated October 12, 2000 which
reported under Items 7 and 9 regarding a press release
with respect to results for the third quarter of 2000.
2. The Company filed a report dated November 6, 2000, which
reported under Items 7 and 9 regarding press releases with
respect to certain business developments described
therein.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 26th day of
March, 2001.
OFFICE DEPOT, INC.
By /s/ M. BRUCE NELSON
------------------------------
M. Bruce Nelson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 26, 2001.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ M. BRUCE NELSON Chief Executive Officer (Principal Executive Officer)
- ----------------------------------
M. Bruce Nelson
/s/ DAVID I. FUENTE Chairman of the Board
- ----------------------------------
David I. Fuente
/s/ IRWIN HELFORD Vice Chairman and Director
- ----------------------------------
Irwin Helford
/s/ CHARLES E. BROWN Senior Vice President, Finance and Controller
- ---------------------------------- (Principal Financial and Accounting Officer)
Charles E. Brown
/s/ LEE A. AULT, III Director
- ----------------------------------
Lee A. Ault, III
/s/ NEIL R. AUSTRIAN Director
- ----------------------------------
Neil R. Austrian
/s/ CYNTHIA R. COHEN Director
- ----------------------------------
Cynthia R. Cohen
/s/ W. SCOTT HEDRICK Director
- ----------------------------------
W. Scott Hedrick
/s/ JAMES L. HESKETT Director
- ----------------------------------
James L. Heskett
/s/ MICHAEL J. MYERS Director
- ----------------------------------
Michael J. Myers
/s/ FRANK P. SCRUGGS, JR. Director
- ----------------------------------
Frank P. Scruggs, Jr.
/s/ PETER J. SOLOMON Director
- ----------------------------------
Peter J. Solomon
</TABLE>
12
<PAGE> 14
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report of Deloitte & Touche LLP on Consolidated Financial Statements... *
Consolidated Balance Sheets ................................................................. *
Consolidated Statements of Earnings ......................................................... *
Consolidated Statements of Stockholders' Equity ............................................. *
Consolidated Statements of Cash Flows ....................................................... *
Notes to Consolidated Financial Statements .................................................. *
Independent Auditors' Report of Deloitte & Touche LLP on Financial Statement Schedule ....... F-2
- -------------------------
* Incorporated herein by reference to the respective information in our
Annual Report to Stockholders for the fiscal year ended December 30, 2000.
</TABLE>
F-1
<PAGE> 15
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Office Depot, Inc.:
We have audited the consolidated financial statements of Office Depot, Inc. and
Subsidiaries as of December 30, 2000 and December 25, 1999 and for each of the
three years in the period ended December 30, 2000, and have issued our report
thereon dated February 15, 2001; such consolidated financial statements and
report are included in the Company's Annual Report to Stockholders for the
fiscal year ended December 30, 2000 and are incorporated herein by reference.
Our audits also included the financial statement schedule of Office Depot, Inc.
and Subsidiaries listed in the Index to Financial Statement Schedule. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 15, 2001
F-2
<PAGE> 16
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Schedule II - Valuation and Qualifying Accounts and Reserves........... S-1
All other schedules have been omitted because they are inapplicable, not
required or the information is included elsewhere herein.
F-3
<PAGE> 17
SCHEDULE II
OFFICE DEPOT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
DEDUCTIONS--
BALANCE AT WRITE-OFFS,
BEGINNING OF ADDITIONS-- PAYMENTS AND OTHER BALANCE AT
DESCRIPTION PERIOD CHARGED TO EXPENSE ADJUSTMENTS END OF PERIOD
- ----------- ------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
2000 $27,736 $30,448 $23,723 $34,461
1999 25,927 22,940 21,131 27,736
1998 25,587 23,702 23,362 25,927
Accrued Merger Costs:
2000 $21,268 $6,146 $23,494 $3,920
1999 40,832 26,035 45,599 21,268
1998 1,416 73,329 33,913 40,832
</TABLE>
S-1
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE +
- ------- ------- -------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended to date (1)
3.2 Bylaws (2)
4.1 Form of Certificate representing shares of Common Stock (3)
4.2 Form of Indenture (including form of LYON(R)) between the Company (4)
and The Bank of New York, as Trustee
4.3 Form of Indenture (including form of LYON(R)) between the Company (5)
and Bankers Trust Company, as Trustee
4.4 Rights Agreement dated as of September 4, 1996 between Office Depot, (6)
Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent,
including the form of Certificate of Designation, Preferences and
Rights of Junior Participating Preferred Stock, Series A attached
thereto as Exhibit A, the form of Rights Certificate attached
thereto as Exhibit B and the Summary of Rights attached thereto as
Exhibit C.
10.01 Revolving Credit and Line of Credit Agreement dated as of February (7)
20, 1998 by and among the Company and SunTrust Bank, Central
Florida, National Association, individually and as Administrative
Agent; Bank of America National Trust and Savings Association,
individually and as Syndication Agent; NationsBank, National
Association, individually and as Documentation Agent; Royal Bank of
Canada, individually and as Co-Agent; Citibank, N.A., individually
and as Co-Agent; The First National Bank of Chicago, individually
and as Co-Agent; CoreStates Bank, N.A.; PNC Bank, National
Association; Fifth Third Bank; and Hibernia National Bank. (Exhibits
to the Revolving Credit and Line of Credit Agreement have been
omitted)
10.02 Office Depot, Inc. Long-Term Equity Incentive Plan* (8)
10.03 1997-2001 Office Depot, Inc. Designated Executive Incentive Plan* (7)
10.04 Form of Change of Control Agreement, dated as of September 4, 1996, (9)
by and between Office Depot, Inc. and each of Thomas Kroeger and
William P. Seltzer.
10.05 Form of Indemnification Agreement, dated as of September 4, 1996, by (9)
and between Office Depot, Inc. and each of David I. Fuente, Cynthia
R. Cohen, W. Scott Hedrick, James L. Heskett, Michael J. Myers,
Peter J. Solomon, William P. Seltzer, and Thomas Kroeger
10.06 Form of Executive Employment Agreement, dated as of October 21, (7)
1997, by and between Office Depot, Inc. and each of Thomas Kroeger
and William P. Seltzer
10.07 Executive Part-time Employment Agreement, dated as of September 30, (10)
1999, by and between Office Depot, Inc. and Irwin Helford
10.08 Executive Employment Agreement, dated as of January 1, 2000, by and (11)
between Office Depot, Inc. and Bruce Nelson
10.09 Revolving Credit Agreement dated as of June 2, 2000 by and among (11)
Office Depot, Inc. and Suntrust Bank, individually and as
Administrative Agent; Bank of America, N.A., individually and as
Syndication Agent; Bank One, NA, individually and as Documentation
Agent; and Citibank, N.A., individually and as Managing Agent.
(Exhibits to the Revolving Credit Agreement have been omitted)
10.10 Executive Severance Agreement, including Release and Non-competition (12)
Agreement, dated September 19, 2000 by and between the Company and
David I. Fuente (schedules and exhibits omitted).
</TABLE>
II-1
<PAGE> 19
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE +
------- -------------
<S> <C> <C>
10.11 Non-executive Chairman Agreement dated September 19, 2000 by and (12)
between the Company and David I. Fuente.
10.12 Executive Retirement Agreement dated July 17, 2000 by and between (12)
the Company and Barry J. Goldstein (Attachment A omitted)
10.13 Executive Employment Agreement dated January 30, 2001 by and between
the Company and Jerry Colley
10.14 Change of Control Agreement, dated as of January 30, 2001, by and
between the Company and Jerry Colley
10.15 Executive Employment Agreement dated May 29, 1998 by and between the
Company and Charles E. Brown
10.16 Change of Control Agreement, dated as of May 28, 1998, by and
between the Company and Charles E. Brown
10.17 Executive Employment Agreement dated July 25, 2000 by and between
the Company and Robert J. Keller
10.18 Change of Control Agreement, dated as of July 25, 2000, by and
between the Company and Robert J. Keller
10.19 First Amendment dated December 21, 2000 to the Revolving Credit
Agreement dated as of June 2, 2000
10.20 Second Amendment dated December 21, 2000 to the Revolving Credit and
Line of Credit Agreement dated as of February 20, 1998
13.1 Certain portions of the Company's Annual Report to Stockholders
21.1 List of subsidiaries
23.1 Consent of Deloitte & Touche LLP
- ----------------
+ This information appears only in the manually signed original copies of
this report.
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the respective exhibit to the Proxy Statement
for the Company's 1995 Annual Meeting of Stockholders.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on August 12, 1996.
(3) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-39473.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-54574.
(5) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-70378.
(6) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on September 6, 1996.
(7) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the year ended December 27, 1997.
(8) Incorporated by reference to the respective exhibit to the Proxy Statement
for the Company's 1997 Annual Meeting of Stockholders.
(9) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996.
(10) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the year ended December 30, 1999.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on August 4, 2000.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on October 31, 2000.
Upon request, the Company will furnish a copy of any exhibit to this
report upon the payment of reasonable copying and mailing expenses.
</TABLE>
II-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>2
<FILENAME>g67815kex10-13.txt
<DESCRIPTION>EXECUTIVE EMPLOYMENT AGREEMENT 1/30/01
<TEXT>
<PAGE> 1
Exhibit 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
(For Executive Officers Who Also Have a Change of Control Employment Agreement)
THIS AGREEMENT is made as of January 30, 2001 between Office Depot,
Inc., a Delaware corporation (the "Company"), and Jerry Colley ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment.
(a) The Company shall employ Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 4 hereof (the "Employment Term").
(b) The parties hereto have entered into an Employment Agreement
dated as January 30, 2001 by and between the Company and the Executive (the
"Change of Control Employment Agreement") which, by its terms, takes effect
during the "Employment Period" as defined in such agreement. During any such
Employment Period under the Change of Control Employment Agreement, the terms
and provisions of the Change of Control Employment Agreement shall control to
the extent such terms and provisions are in conflict with the terms and
provisions of this Agreement. In addition, during such Employment Period, the
Employment Term hereunder shall be tolled and upon expiration of the Employment
Period under the Change of Control Employment Agreement the Employment Term
hereunder shall recommence.
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as
President - North American Stores of the Company and shall have the normal
duties, responsibilities and authority attendant to such position, subject to
the power of the Company's [chief executive officer ("CEO") or] Board of
Directors (the "Board") to expand or limit such duties, responsibilities and
authority.
(b) Executive shall report to the CEO, and Executive shall devote
Executive's best efforts and Executive's full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company and its
Subsidiaries; provided that Executive shall, with the prior written approval of
the CEO, be allowed to serve as (i) a director or officer of any non-profit
organization including trade, civic, educational or charitable organizations, or
(ii) a director of any corporation which is not competing with the Company or
any of its Subsidiaries in the office product and office supply industry so long
as such duties do not materially interfere with the performance of Executive's
duties or
<PAGE> 2
responsibilities under this Agreement. Executive shall perform Executive's
duties and responsibilities under this Agreement to the best of Executive's
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) Executive shall be based at or in the vicinity of the
Company's headquarters but may be required to travel as necessary to perform
Executive's duties and responsibilities under this Agreement.
(d) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one of more Subsidiaries.
3. Base Salary and Benefits.
(a) Initially, Executive's base salary shall be $500,000.00 per
annum (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. Executive's Base Salary shall be reviewed at least
annually by the Compensation Committee of the Board and shall be subject to
adjustment, but not reduction, as they shall determine based on among other
things, market practice and performance. In addition, during the Employment
Term, Executive shall be entitled to participate in the Company's Long Term
Incentive Plan.
(b) In addition to the Base Salary, Executive shall be entitled to
participate in the Company's Management Incentive Plan (the "Bonus Plan") as
administered by [the Board or] the Compensation Committee. If the Board or the
Compensation Committee modifies such Bonus Plan during the Employment Term,
Executive shall continue to participate at a level no lower than the highest
level established for any officer of the Company then at Executive's level. At
the discretion of the Board or the Compensation Committee, Executive may be
offered from time to time the opportunity to participate in other bonus plans of
the Company in lieu of the Bonus Plan and, if Executive chooses to participate
in such plan or plans, the provisions of this paragraph 3(b) shall be tolled
during the period of such participation.
(c) Executive shall be entitled to paid vacation in accordance
with the Company's general payroll practices for officers of the Company then at
Executive's level.
(d) The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in the course of performing Executive's duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
-2-
<PAGE> 3
(e) Executive will be entitled to all benefits as are, from time
to time, maintained for officers of the Company then at Executive's level,
including without limitation: medical, prescription, dental, disability,
employee life, group life, split-dollar life, accidental death and travel
accident insurance plans (collectively, "Insurance Benefits"), profit sharing
and retirement benefits.
4. Term.
(a) The Employment Term shall end on the twenty-fourth month (or
two year) anniversary of the date of this Agreement; provided that (i) the
Employment Term shall be extended for successive periods of one (1) year each
(each of which is referred to as an "extension term" of the Employment Term) in
the event that written notice of termination hereof is not given by one party
hereof to the other at least six months prior to the end of the Employment Term
or the then applicable extension term, as the case may be; provided further that
(ii) the Employment Term shall terminate prior to such date (A) upon Executive's
death or permanent disability or incapacity (as determined by the Board in its
good faith judgment), (B) upon the mutual agreement of the Company and
Executive, (C) by the Company's termination of this Agreement for Cause (as
defined below) or without Cause or (D) by Executive's termination of this
Agreement for Good Reason (as defined below) or without Good Reason.
(b) If the Employment Term is terminated by the Company without
Cause or is terminated by the Executive for Good Reason, Executive (and
Executive's family with respect to clause (iii) below) shall be entitled to
receive (i) Executive's Base Salary through the eighteenth month anniversary of
such termination and Executive's Pro Rata Bonus (as defined in paragraph (h)
below), if and only if Executive has not breached the provisions of paragraphs
5, 6 and 7 hereof, (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under incentive plans, deferred
compensation plans, and other employer programs of the Company in which
Executive is then participating (other than the Pro Rata Bonus), and (iii)
insurance Benefits through the eighteenth month anniversary of such termination
pursuant to the Company's insurance programs, as in effect from time to time, to
the extent Executive participated immediately prior to the date of such
termination; provided that any health insurance benefits which Executive becomes
entitled to receive as a result of any subsequent employment shall serve as
primary coverage for Executive and Executive's family. The amounts payable
pursuant to paragraph 4(b)(i) and (ii) shall be payable, at the Company's
discretion, in one lump sum payment within 30 days following termination of the
Employment Term or in any other manner consistent with the Company's normal
payment policies.
(c) If the Employment Term is terminated by the Company for Cause
or by the Executive without Good Reason, Executive shall be entitled to receive
(i) Executive's Base Salary through the date of such termination and (ii) vested
and earned (in accordance with the Company's applicable plan or program) but
unpaid amounts under incentive plans, health and welfare plans,
-3-
<PAGE> 4
deferred compensation plans, and other employer programs of the Company which
Executive participates; provided, however, that Executive shall not be entitled
to payment of a Pro Rata Bonus.
(d) If the Employment Term is terminated upon Executive's death or
permanent disability or incapacity (as determined by the Board in its good faith
judgment), Executive, or Executive's estate if applicable, shall be entitled to
receive the sum of (i) Executive's Base Salary through the date of such
termination and Executive's Pro Rata Bonus (as defined in paragraph (h) below)
and (ii) vested and earned (in accordance with the Company's applicable plan or
program) but unpaid amounts under incentive plans, health and welfare plans,
deferred compensation plans, and other employer programs of the Company which
Executive participates. The amounts payable pursuant to this paragraph 4(d)
shall be payable, at the Company's discretion, in one lump sum payment within 30
days following termination of the Employment Term or in any other manner
consistent with the Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and
bonuses (if any) which accrue or become payable after the termination of the
Employment Term shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the CEO which
specifically identifies the manner in which the CEO believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct [which is materially and demonstrably
injurious to the Company].
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together
-4-
<PAGE> 5
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(g) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by paragraph 2 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of paragraph 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any location other than as provided in paragraph 2(c) hereof; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement.
(h) For purposes of this Agreement, "Pro Rata Bonus" shall mean
the sum of (i) the pro rata portion (calculated as if the "target" amount under
such plan has been reached) under any current annual incentive plan from the
beginning of the year of termination through the date of termination and (ii) if
and to the extent Executive is vested, the pro rata portion (calculated as if
the "target" amount under such plan has been reached) under any long-term
incentive plan or performance plan from the beginning of the period of
determination through the date of termination.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by Executive while employed by the
Company and its Subsidiaries concerning the business or affairs of the Company
or any other Subsidiary ("Confidential Information") are the property of the
Company or such Subsidiary. Therefore, Executive agrees that Executive shall not
disclose to any unauthorized person or use for Executive's own purposes any
Confidential Information without the prior written consent of the CEO, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions. Executive shall deliver to the Company at the termination of the
Employment Term, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
-5-
<PAGE> 6
documents and data (and copies thereof) in any form or medium relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any Subsidiary that Executive may then possess or have under
Executive's control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) that relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and that are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the CEO
and perform all actions reasonably requested by the CEO (whether during or after
the Employment Term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of Executive's
employment with the Company Executive shall become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term and for one year thereafter (the
"Noncompete Period"), Executive shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render services for,
or in any manner engage in any business competing with the businesses of the
Company or its Subsidiaries, as such businesses exist or are in process on the
date of the termination of Executive's employment, within any geographical area
in which the Company or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment Term
or (iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee, licensor,
franchisee, or business relation and the Company or any Subsidiary (including,
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<PAGE> 7
without limitation, making any negative statements or communications about the
Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive
of any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
paragraph 7, the Noncompete Period shall be tolled until such breach or
violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which Executive is bound, (ii)
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that
Executive has had an opportunity to consult with independent legal counsel
regarding Executive's rights and obligations under this Agreement and that
Executive fully understands the terms and conditions contained herein.
9. Survival. Paragraphs 5, 6 and 7 and paragraphs 9 through 16
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Term.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
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<PAGE> 8
Notices to Executive:
Name:
---------------------
Address:
------------------
------------------
------------------
Notices to the Company:
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Chief Financial Officer
and
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Executive Vice President - Human Resources
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement and those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way (provided, however that during the "Employment Period," as defined in
the Change of Control Employment Agreement, the terms and provision of the
Change of Control Employment Agreement shall be effective and shall control to
the extent there is any conflict between such agreement and this Agreement).
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<PAGE> 9
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
Executive's rights or delegate Executive's obligations hereunder without the
prior written consent of the Company.
16. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Florida, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Florida or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Florida.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * * *
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
OFFICE DEPOT, INC.
By: /s/ Thomas Kroeger
------------------------------------
Name: THOMAS KROEGER
Its: Executive Vice President,
Organization & People
EXECUTIVE
/s/ Jerry Colley
---------------------------------------
Name:
1-30-01
---------------------------------------
Date:
-10-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>3
<FILENAME>g67815kex10-14.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT DATED 1/30/01
<TEXT>
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of January 30, 2001 by and between
Office Depot, Inc., a Delaware corporation (the "Company"), and Jerry Colley
(the "Executive").
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 2
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were 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 other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination, or the
combined voting power
- 2 -
<PAGE> 3
of the then-outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the first anniversary of
such date (the "Employment Period"). Such period may be extended in writing by
the mutual agreement of the Company and Executive at any time prior to such
first anniversary.
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary, including any applicable car
allowance ("Annual Base Salary"), which shall be paid at a monthly rate, at
least equal to twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the
- 3 -
<PAGE> 4
Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual incentive bonus plans, including,
without limitation, its Designated Executive Incentive Plan and Management
Incentive Plan, or any comparable bonus under any predecessor or successor plan
or plans, for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company for
the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer Executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, split-dollar life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day
- 4 -
<PAGE> 5
period immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this
- 5 -
<PAGE> 6
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
days as a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated,
- 6 -
<PAGE> 7
insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11 (c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately preceding the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
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<PAGE> 8
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause, death
or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365 and (3)
any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) two
and (2) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; and
C. an amount equal to the excess of (1) the
actuarial equivalent of the benefit under the Company's
qualified defined benefit retirement plan (the "Retirement
Plan") (utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date), and
any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment
continued for two years after the Date of Termination assuming
for this purpose that all accrued benefits are fully vested,
and, assuming that the Executive's compensation in each of the
two years is that required by Section 4(b)(i) and Section
4(b)(ii), over (2) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
- 8 -
<PAGE> 9
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies
and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility.
Notwithstanding the foregoing, the Company shall continue to
make all scheduled premium payments under any split-dollar
life insurance policy in effect on the Date of Termination on
behalf of the Executive for so long as such payments are
scheduled (without giving effect to Executive's termination).
For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services
the scope and provider of which shall be selected by the
Executive in his sole discretion; and
(iv) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other
amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of the amounts set forth in Section
6(i) and the timely payment or provision of Other Benefits. The amounts set
forth in Section 6(i) shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding
- 9 -
<PAGE> 10
the Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of the amounts set forth in Section 6(i) and the timely payment
or provision of Other Benefits. The amounts set forth in Section 6(i) shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term "Other
Benefits" as utilized in this Section 6(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than for Accrued Obligations and for the timely payment or provision of Other
Benefits, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In each such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may
- 10 -
<PAGE> 11
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the fullest
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding and except as set forth below, in
the event 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, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche or such other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
- 11 -
<PAGE> 12
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the
- 12 -
<PAGE> 13
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or to contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
- 13 -
<PAGE> 14
11. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will 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 to assume
expressly 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. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Jerry Colley
c/o Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
If to the Company:
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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<PAGE> 15
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitations the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
* * * * *
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<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Jerry Colley
--------------------------------------
Executive:
1-30-01
-------
OFFICE DEPOT, INC.
By: /s/ Thomas Kroeger
----------------------------------
Its: Executive Vice President,
Organization and People
-16-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>4
<FILENAME>g67815kex10-15.txt
<DESCRIPTION>EXECUTIVE EMPLOYMENT AGREEMENT DATED 05/29/98
<TEXT>
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
(For Executive Officers Who Also Have a Change of Control Employment Agreement)
THIS AGREEMENT is made as of May 29, 1998 between Office Depot, Inc., a
Delaware corporation (the "Company"), and Charles E. Brown ("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment.
(a) The Company shall employ Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 4 hereof (the "Employment Term").
(b) The parties hereto have entered into an Employment Agreement
dated as May 28, 1998 by and between the Company and the Executive (the "Change
of Control Employment Agreement") which, by its terms, takes effect during the
"Employment Period" as defined in such agreement. During any such Employment
Period under the Change of Control Employment Agreement, the terms and
provisions of the Change of Control Employment Agreement shall control to the
extent such terms and provisions are in conflict with the terms and provisions
of this Agreement. In addition, during such Employment Period, the Employment
Term hereunder shall be tolled and upon expiration of the Employment Period
under the Change of Control Employment Agreement the Employment Term hereunder
shall recommence.
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as Senior
Vice President of the Company and shall have the normal duties, responsibilities
and authority attendant to such position, subject to the power of the Company's
chief executive officer ("CEO") to expand or limit such duties, responsibilities
and authority.
(b) Executive shall report to the CFO, and Executive shall devote
Executive's best efforts and Executive's full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company and its
Subsidiaries; provided that Executive shall, with the prior written approval of
the CEO, be allowed to serve as (i) a director or officer of any non-profit
organization including trade, civic, educational or charitable organizations, or
(ii) a director of any corporation which is not competing with the Company or
any of its Subsidiaries in the office product and office supply industry so long
as such duties do not materially interfere with the performance of Executive's
duties or
<PAGE> 2
responsibilities under this Agreement. Executive shall perform Executive's
duties and responsibilities under this Agreement to the best of Executive's
abilities in a diligent, trustworthy, businesslike and efficient manner.
(c) Executive shall be based at or in the vicinity of the
Company's headquarters but may be required to travel as necessary to perform
Executive's duties and responsibilities under this Agreement.
(d) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one of more Subsidiaries.
3. Base Salary and Benefits.
(a) Initially, Executive's base salary shall be $250,000.00 per
annum (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. Executive's Base Salary shall be reviewed at least
annually by the Compensation Committee of the Board and shall be subject to
adjustment, but not reduction, as they shall determine based on among other
things, market practice and performance. In addition, during the Employment
Term, Executive shall be entitled to participate in certain of the Company's
long term incentive programs established currently or in the future by the
Company for which officers of the Company then at Executive's level are
generally eligible (including, but not limited to, stock option, restricted
stock, performance unit/share plans or long-term cash plans).
(b) In addition to the Base Salary, Executive shall be entitled to
participate in the Company's Management Incentive Plan (the "Bonus Plan") as
administered by [the Board or] the Compensation Committee. If the Board or the
Compensation Committee modifies such Bonus Plan during the Employment Term,
Executive shall continue to participate at a level no lower than the highest
level established for any officer of the Company then at Executive's level. At
the discretion of the Board or the Compensation Committee, Executive may be
offered from time to time the opportunity to participate in other bonus plans of
the Company in lieu of the Bonus Plan and, if Executive chooses to participate
in such plan or plans, the provisions of this paragraph 3(b) shall be tolled
during the period of such participation.
(c) Executive shall be entitled to paid vacation in accordance
with the Company's general payroll practices for officers of the Company then at
Executive's level.
(d) The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in the course of performing Executive's duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel,
-2-
<PAGE> 3
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(e) Executive will be entitled to all benefits as are, from time
to time, maintained for officers of the Company then at Executive's level,
including without limitation: medical, prescription, dental, disability,
employee life, group life, split-dollar life, accidental death and travel
accident insurance plans (collectively, "Insurance Benefits"), profit sharing
and retirement benefits.
4. Term.
(a) The Employment Term shall end on the first anniversary of the
date of this Agreement; provided that (i) the Employment Term shall be extended
for one year in the event that written notice of the termination of this
Agreement is not given by one party hereof to the other at least six months
prior to the end of the Employment Term; provided further that (ii) the
Employment Term shall terminate prior to such date (A) upon Executive's death
or permanent disability or incapacity (as determined by the Board in its good
faith judgment), (B) upon the mutual agreement of the Company and Executive, (C)
by the Company's termination of this Agreement for Cause (as defined below) or
without Cause or (D) by Executive's termination of this Agreement for Good
Reason (as defined below) or without Good Reason.
(b) If the Employment Term is terminated by the Company without
Cause or is terminated by the Executive for Good Reason, Executive (and
Executive's family with respect to clause (iii) below) shall be entitled to
receive (i) Executive's Base Salary through the first anniversary of such
termination and Executive's Pro Rata Bonus (as defined in paragraph (h) below),
if and only if Executive has not breached the provisions of paragraphs 5, 6 and
7 hereof, (ii) vested and earned (in accordance with the Company's applicable
plan or program) but unpaid amounts under incentive plans, deferred compensation
plans, and other employer programs of the Company in which Executive is then
participating (other than the Pro Rata Bonus), and (iii) Insurance Benefits
through the first anniversary of such termination pursuant to the Company's
insurance programs, as in effect from time to time, to the extent Executive
participated immediately prior to the date of such termination; provided that
any health insurance benefits which Executive becomes entitled to receive as a
result of any subsequent employment shall serve as primary coverage for
Executive and Executive's family. The amounts payable pursuant to paragraph
4(b)(i) and (ii) shall be payable, at the Company's discretion, in one lump sum
payment within 30 days following termination of the Employment Term or in any
other manner consistent with the Company's normal payment policies.
(c) If the Employment Term is terminated by the Company for Cause
or by the Executive without Good Reason, Executive shall be entitled to receive
(i) Executive's Base Salary through the date of such termination and (ii) vested
and earned (in accordance with the Company's applicable plan or program) but
unpaid amounts under incentive plans, health and welfare plans, deferred
compensation plans, and other employer programs of the Company which Executive
participates; provided, however, that Executive shall not be entitled to payment
of a Pro Rata Bonus.
-3-
<PAGE> 4
(d) If the Employment Term is terminated upon Executive's death or
permanent disability or incapacity (as determined by the Board in its good faith
judgment), Executive, or Executive's estate if applicable, shall be entitled to
receive the sum of (i) Executive's Base Salary through the date of such
termination and Executive's Pro Rata Bonus (as defined in paragraph (h) below)
and (ii) vested and earned (in accordance with the Company's applicable plan or
program) but unpaid amounts under incentive plans, health and welfare plans,
deferred compensation plans, and other employer programs of the Company which
Executive participates. The amounts payable pursuant to this paragraph 4(d)
shall be payable, at the Company's discretion, in one lump sum payment within 30
days following termination of the Employment Term or in any other manner
consistent with the Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and
bonuses (if any) which accrue or become payable after the termination of the
Employment Term shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the CEO which
specifically identifies the manner in which the CEO believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct [which is materially and demonstrably
injurious to the Company].
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
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<PAGE> 5
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(g) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by paragraph 2 of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of paragraph 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any location other than as provided in paragraph 2(c) hereof; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement.
(h) For purposes of this Agreement, "Pro Rata Bonus" shall mean
the sum of (i) the pro rata portion (calculated as if the "target" amount under
such plan has been reached) under any current annual incentive plan from the
beginning of the year of termination through the date of termination and (ii) if
and to the extent Executive is vested, the pro rata portion (calculated as if
the "target" amount under such plan has been reached) under any long-term
incentive plan or performance plan from the beginning of the period of
determination through the date of termination.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by Executive while employed by the
Company and its Subsidiaries concerning the business or affairs of the Company
or any other Subsidiary ("Confidential Information") are the property of the
Company or such Subsidiary. Therefore, Executive agrees that Executive shall not
disclose to any unauthorized person or use for Executive's own purposes any
Confidential Information without the prior written consent of the CEO, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions. Executive shall deliver to the Company at the termination of the
Employment Term, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) in any form or medium relating to the
Confidential
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<PAGE> 6
Information, Work Product (as defined below) or the business of the Company or
any Subsidiary that Executive may then possess or have under Executive's
control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) that relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and that are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the CEO
and perform all actions reasonably requested by the CEO (whether during or after
the Employment Term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of Executive's
employment with the Company Executive shall become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term and for one year thereafter (the
"Noncompete Period"), Executive shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render services for,
or in any manner engage in any business competing with the businesses of the
Company or its Subsidiaries, as such businesses exist or are in process on the
date of the termination of Executive's employment, within any geographical area
in which the Company or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment Term
or (iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee, licensor,
franchisee, or business relation and the Company or any Subsidiary (including,
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<PAGE> 7
without limitation, making any negative statements or communications about the
Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive
of any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
paragraph 7, the Noncompete Period shall be tolled until such breach or
violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (1) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which Executive is bound, (ii)
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that
Executive has had an opportunity to consult with independent legal counsel
regarding Executive's rights and obligations under this Agreement and that
Executive fully understands the terms and conditions contained herein.
9. Survival. Paragraphs 5, 6 and 7 and paragraphs 9 through 16
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Term.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
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<PAGE> 8
Notices to Executive:
Name: Charles E. Brown
Address: c/o Office Depot
2200 Old Germantown Road
Delray Beach, FL 33445
Notices to the Company:
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Chief Financial Officer
and
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Executive Vice President - Human Resources
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement and those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way (provided, however that during the "Employment Period," as defined in
the Change of Control Employment Agreement, the terms and provision of the
Change of Control Employment Agreement shall be effective and shall control to
the extent there is any conflict between such agreement and this Agreement).
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<PAGE> 9
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
Executive's rights or delegate Executive's obligations hereunder without the
prior written consent of the Company.
16. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Florida, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Florida or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Florida.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * *
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
OFFICE DEPOT, INC.
By: /s/ Thomas Kroeger
--------------------------------
Name: Thomas Kroeger
Its: Executive Vice President -
Human Resources
EXECUTIVE
/s/ Charles Brown
-----------------------------------
Name:
May 29, 1998
-----------------------------------
Date:
-10-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>5
<FILENAME>g67815kex10-16.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT DATED 5/28/98
<TEXT>
<PAGE> 1
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of May 28, 1998 by and
between Office Depot, Inc., a Delaware corporation (the "Company"), and Charles
E. Brown (the "Executive").
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall
mean the first date during the Change of Control Period (as defined in Section 1
(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably demonstrated
by the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 2
2. Change of Control. For the purpose of this Agreement,
a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were 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 other than the
Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination, or the combined voting power
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<PAGE> 3
of the then-outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby agrees to remain
in the employ of the Company subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
first anniversary of such date (the "Employment Period"). Such period may be
extended in writing by the mutual agreement of the Company and Executive at any
time prior to such first anniversary.
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or location less
than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary, including any
applicable car allowance ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the
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<PAGE> 4
Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's annual incentive bonus plans,
including, without limitation, its Designated Executive Incentive Plan and
Management Incentive Plan, or any comparable bonus under any predecessor or
successor plan or plans, for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer Executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, split-dollar life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day
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<PAGE> 5
period immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith that
the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this
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<PAGE> 6
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
days as a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the
Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 4(a)
of this Agreement, or any other action by the Company which results in
a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated,
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<PAGE> 7
insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately preceding the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by
the Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination"
means (i) if the Executive's employment is terminated by the Company for Cause,
or by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the
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<PAGE> 8
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, death or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to the
extent not theretofore paid, (2) the product of (x) the higher
of (I) the Recent Annual Bonus and (II) the Annual Bonus paid
or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for
the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of
(1) two and (2) the sum of (x) the Executive's Annual Base
Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of
(1) the actuarial equivalent of the benefit under the
Company's qualified defined benefit retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the
Company's Retirement Plan immediately prior to the Effective
Date), and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment
continued for two years after the Date of Termination assuming
for this purpose that all accrued benefits are fully vested,
and, assuming that the Executive's compensation in each of the
two years is that required by Section 4(b)(i) and Section
4(b)(ii), over (2) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
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<PAGE> 9
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment had
not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility. Notwithstanding the foregoing, the Company shall continue
to make all scheduled premium payments under any split-dollar life
insurance policy in effect on the Date of Termination on behalf of the
Executive for so long as such payments are scheduled (without giving
effect to Executive's termination). For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services the scope
and provider of which shall be selected by the Executive in his sole
discretion; and
(iv) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of the amounts set
forth in Section 6(i) and the timely payment or provision of Other Benefits. The
amounts set forth in Section 6(i) shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding
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<PAGE> 10
the Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment Period,
this Agreement shall terminate without further obligations to the Executive,
other than for payment of the amounts set forth in Section 6(i) and the timely
payment or provision of Other Benefits. The amounts set forth in Section 6(i)
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. With respect to the provision of Other Benefits, the term "Other
Benefits" as utilized in this Section 6(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than for Accrued Obligations and for the timely payment or provision of Other
Benefits, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In each such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Nonexclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
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<PAGE> 11
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the fullest
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a)
Anything in this Agreement to the contrary notwithstanding and except as set
forth below, in the event 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, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 9(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint
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<PAGE> 12
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the
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<PAGE> 13
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or to contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the Executive in writing
of its intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
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<PAGE> 14
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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 to assume
expressly 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. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Charles E. Brown
c/o Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
If to the Company:
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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<PAGE> 15
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including,
without limitations the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company is
"at will" and, subject to Section 1 (a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof
* * * * *
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<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Charles Brown
----------------------------------
Executive
May 29, 1998
----------------------------------
Date
OFFICE DEPOT, INC.
By: /s/ Thomas Kroeger
-------------------------------
Its: Executive Vice President
------------------------------
Human Resources
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>6
<FILENAME>g67815kex10-17.txt
<DESCRIPTION>EXECUTIVE EMPLOYMENT AGREEMENT DATED 7/25/00
<TEXT>
<PAGE> 1
Exhibit 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
(For Executive Officers Who Also Have a Change of Control Employment Agreement)
THIS EMPLOYMENT AGREEMENT is made as of 07-25, 2000 between Office
Depot, Inc., a Delaware corporation (the "Company"), and Robert J. Keller
("Executive").
The Company and Executive are parties to one or more prior employment
agreements and/or amendments thereto, or extensions thereof (collectively "Prior
Agreements");
The parties desire to replace all such Prior Agreements with this
Employment Agreement, and each of them hereby agrees that this Employment
Agreement, upon execution by each of the Company and Executive, supersedes and
replaces any and all Prior Agreements and, together with the Change of Control
Employment Agreement dated contemporaneously herewith, constitutes the entire
understanding of the Company and Executive with regard to the employment of
Executive by the Company;
Now Therefore, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment.
(a) The Company shall employ Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 4 hereof (the "Employment Term").
(b) The parties hereto also have entered into an Employment
Agreement dated as 07-25, 2000 by and between the Company and the Executive (the
"Change of Control Employment Agreement") which, by its terms, takes effect
during the "Employment Period" as defined in such agreement. During any such
Employment Period under the Change of Control Employment Agreement, the terms
and provisions of the Change of Control Employment Agreement shall control to
the extent such terms and provisions are in conflict with the terms and
provisions of this Agreement. In addition, during such Employment Period, the
Employment Term hereunder shall be tolled and upon expiration of the Employment
Period under the Change of Control Employment Agreement the Employment Term
hereunder shall recommence.
<PAGE> 2
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as
Executive Vice President Sales of the Company and shall have the normal duties,
responsibilities and authority attendant to such position, subject to the power
of the Company's chief executive officer ("CEO") to expand or limit such duties,
responsibilities and authority.
(b) Executive shall report to the CEO, and Executive shall devote
Executive's best efforts and Executive's full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company and its
Subsidiaries; provided that Executive shall, with the prior written approval of
the CEO, be allowed to serve as (i) a director or officer of any non-profit
organization including trade, civic, educational or charitable organizations, or
(ii) a director of any corporation which is not competing with the Company or
any of its Subsidiaries in the office product and office supply industry so long
as such duties do not materially interfere with the performance of Executive's
duties or responsibilities under this Agreement. Executive shall perform
Executive's duties and responsibilities under this Agreement to the best of
Executive's abilities in a diligent, trustworthy, businesslike and efficient
manner.
(c) Executive shall be based at or in the vicinity of the
Company's headquarters but may be required to travel as necessary to perform
Executive's duties and responsibilities under this Agreement.
(d) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one of more Subsidiaries.
3. Base Salary and Benefits.
(a) Initially, Executive's base salary shall be $450,000.00 per
annum (the "Base Salary"), which salary shall be payable in regular
installments in accordance with the Company's general payroll practices and
shall be subject to customary withholding. Executive's Base Salary shall be
reviewed at least annually by the Compensation Committee of the Board and shall
be subject to adjustment, but not reduction, as they shall determine based on
among other things, market practice and performance. In addition, during the
Employment Term, Executive shall be entitled to participate in the Company's
Long Term Equity Incentive Plan.
(b) In addition to the Base Salary, Executive shall be entitled to
participate in the Company's Management Incentive Plan (the "Bonus Plan") as
administered by [the Board or] the Compensation Committee. If the Board or the
Compensation Committee modifies such Bonus Plan during the Employment Term,
Executive shall continue to participate at a level no lower than the highest
level established for any officer of the Company then at Executive's level. At
the discretion of the Board or the Compensation Committee, Executive may be
offered from time to time the opportunity to participate in other bonus plans of
the Company in lieu of the Bonus Plan and, if Executive chooses to participate
in such plan or plans, the provisions of this paragraph 3(b) shall be tolled
during the period of such participation.
<PAGE> 3
(c) Executive shall be entitled to paid vacation in accordance
with the Company's general payroll practices for officers of the Company then at
Executive's level.
(d) The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in the course of performing Executive's duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(e) Executive will be entitled to all benefits as are, from time
to time, maintained for officers of the Company then at Executive's level,
including without limitation: medical, prescription, dental, disability,
employee life, group life, split-dollar life, accidental death and travel
accident insurance plans (collectively, "Insurance Benefits"), profit sharing
and retirement benefits.
4. Term.
(a) The Employment Term shall end on the second anniversary of
the date of this Agreement; provided that (i) the Employment Term shall be
extended for one year in the event that written notice of the termination of
this Agreement is not given by one party hereof to the other at least six months
prior to the end of the Employment Term, and it shall continue thereafter from
year to year in like fashion ("evergreen") unless and until either party
provides written notice as provided in the first clause of this sentence;
provided further that (ii) the Employment Term shall terminate prior to such
date (A) upon Executive's death or permanent disability or incapacity (as
determined by the Board in its good faith judgment), (B) upon the mutual
agreement of the Company and Executive, (C) by the Company's termination of this
Agreement for Cause (as defined below) or without Cause or (D) by Executive's
termination of this Agreement for Good Reason (as defined below) or without Good
Reason.
(b) If the Employment Term is terminated by the Company without
Cause or is terminated by the Executive for Good Reason, Executive (and
Executive's family with respect to clause (iii) below) shall be entitled to
receive (i) Executive's Base Salary through the eighteenth month anniversary of
such termination and Executive's Pro Rata Bonus (as defined in paragraph (h)
below), if and only if Executive has not breached the provisions of paragraphs
5, 6 and 7 hereof, (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under incentive plans, deferred
compensation plans, and other employer programs of the Company in which
Executive is then participating (other than the Pro Rata Bonus), and (iii)
Insurance Benefits through the eighteenth month anniversary of such termination
pursuant to the Company's insurance programs, as in effect from time to time, to
the extent Executive participated immediately prior to the date of such
termination; provided that any health insurance benefits which Executive becomes
entitled to receive as a result of any subsequent employment shall serve as
primary coverage for Executive and Executive's family.
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<PAGE> 4
The amounts payable pursuant to paragraph 4(b)(i) and (ii) shall be payable, at
the Company's discretion, in one lump sum payment within 30 days following
termination of the Employment Term or in any other manner consistent with the
Company's normal payment policies.
(c) If the Employment Term is terminated by the Company for Cause
or by the Executive without Good Reason, Executive shall be entitled to receive
(i) Executive's Base Salary through the date of such termination and (ii) vested
and earned (in accordance with the Company's applicable plan or program) but
unpaid amounts under incentive plans, health and welfare plans, deferred
compensation plans, and other employer programs of the Company which Executive
participates; provided, however, that Executive shall not be entitled to payment
of a Pro Rata Bonus.
(d) If the Employment Term is terminated upon Executive's death or
permanent disability or incapacity (as determined by the Board in its good faith
judgment), Executive, or Executive's estate if applicable, shall be entitled to
receive the sum of (i) Executive's Base Salary through the date of such
termination and Executive's Pro Rata Bonus (as defined in paragraph (h) below)
and (ii) vested and earned (in accordance with the Company's applicable plan or
program) but unpaid amounts under incentive plans, health and welfare plans,
deferred compensation plans, and other employer programs of the Company which
Executive participates. The amounts payable pursuant to this paragraph 4(d)
shall be payable, at the Company's discretion, in one lump sum payment within 30
days following termination of the Employment Term or in any other manner
consistent with the Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and
bonuses (if any) which accrue or become payable after the termination of the
Employment Term shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the CEO which
specifically identifies the manner in which the CEO believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct [which is materially and demonstrably
injurious to the Company].
- 4 -
<PAGE> 5
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(g) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by paragraph 2 of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of paragraph 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any location other than as provided in paragraph 2(c) hereof; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement.
(h) For purposes of this Agreement, "Pro Rata Bonus" shall mean
the sum of (i) the pro rata portion (calculated as if the "target" amount under
such plan has been reached) under any current annual incentive plan from the
beginning of the year of termination through the date of termination and (ii) if
and to the extent Executive is vested, the pro rata portion (calculated as if
the "target" amount under such plan has been reached) under any long-term
- 5 -
<PAGE> 6
incentive plan or performance plan from the beginning of the period of
determination through the date of termination.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by Executive while employed by the
Company and its Subsidiaries concerning the business or affairs of the Company
or any other Subsidiary ("Confidential Information") are the property of the
Company or such Subsidiary. Therefore, Executive agrees that Executive shall not
disclose to any unauthorized person or use for Executive's own purposes any
Confidential Information without the prior written consent of the CEO, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions. Executive shall deliver to the Company at the termination of the
Employment Term, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) in any form or medium relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any Subsidiary that Executive may then possess or have under
Executive's control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) that relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and that are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the CEO
and perform all actions reasonably requested by the CEO (whether during or after
the Employment Term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
- 6 -
<PAGE> 7
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of Executive's
employment with the Company Executive shall become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term and for one year thereafter (the
"Noncompete Period"), Executive shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render services for,
or in any manner engage in any business competing with the businesses of the
Company or its Subsidiaries, as such businesses exist or are in process on the
date of the termination of Executive's employment, within any geographical area
in which the Company or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment Term
or (iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee, licensor,
franchisee, or business relation and the Company or any Subsidiary (including,
without limitation, making any negative statements or communications about the
Company or its Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive
of any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or
- 7 -
<PAGE> 8
prevent any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 7, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which Executive is bound, (ii)
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that
Executive has had an opportunity to consult with independent legal counsel
regarding Executive's rights and obligations under this Agreement and that
Executive fully understands the terms and conditions contained herein.
9. Survival. Paragraphs 5, 6 and 7 and paragraphs 9 through 18
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Term.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Name: Robert J. Keller
Address: 7418 Floranda Way
Delray Beach, FL 33446
Notices to the Company:
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Chief Financial Officer
and
- 8 -
<PAGE> 9
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Executive Vice President - Human Resources
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement and those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way (provided, however that during the "Employment Period," as defined in
the Change of Control Employment Agreement, the terms and provision of the
Change of Control Employment Agreement shall be effective and shall control to
the extent there is any conflict between such agreement and this Agreement).
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
Executive's rights or delegate Executive's obligations hereunder without the
prior written consent of the Company.
16. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Florida, without
- 9 -
<PAGE> 10
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Arbitration. Except as to the right of the Company to resort
to any court of competent jurisdiction to obtain injunctive relief or specific
enforcement of the Executive's obligations of confidentiality and
non-competition under this Employment Agreement (or otherwise), any dispute or
controversy between the Company and Executive arising out of or relating to this
Agreement or the breach of this Agreement shall be settled by arbitration
administered by the American Arbitration Association ("AAA") in accordance with
its Commercial Arbitration Rules then in effect, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Any arbitration shall be held before a single arbitrator who shall be
selected by the mutual agreement of the Company and Executive, unless the
parties are unable to agree to an arbitrator, in which case the arbitrator will
be selected under the procedures of the AAA. The arbitrator shall have the
authority to award any remedy or relief that a court of competent jurisdiction
could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court otherwise having jurisdiction over
such dispute or controversy and seek interim provisional, injunctive or other
equitable relief until the arbitration award is rendered or the controversy is
otherwise resolved. Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief, or as may otherwise be required by law, neither a party nor an
arbitrator may disclose the existence, content or results of any arbitration
hereunder without the prior written consent of the Company and Executive. The
Company and Executive acknowledge that this Agreement evidences a transaction
involving interstate commerce. Notwithstanding any choice of law provision
included in this Agreement, the United States Federal Arbitration Act shall
govern the interpretation and enforcement of this arbitration provision. The
arbitration proceeding shall be conducted in Palm Beach County, Florida unless
the parties mutually agree to another location. The Company shall pay the costs
of any arbitrator(s) appointed hereunder.
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
OFFICE DEPOT, INC.
By: /s/ Thomas Kroeger
---------------------------------------------
Name: Thomas Kroeger
Its: Executive Vice President,
Human Resources
EXECUTIVE
/s/ Robert J. Keller
------------------------------------------------
Name: Robert J. Keller
7/25/00
------------------------------------------------
Date:
- 11 -
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>7
<FILENAME>g67815kex10-18.txt
<DESCRIPTION>CHANGE OF CONTROL AGREEMENT DATED 7/25/00
<TEXT>
<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of 07-25, 2000 by and between
Office Depot, Inc., a Delaware corporation (the "Company"), and Robert J. Keller
(the "Executive").
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1 (b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 2
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were 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 other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination, or the
combined voting power
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<PAGE> 3
of the then-outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the first anniversary of
such date (the "Employment Period"). Such period may be extended in writing by
the mutual agreement of the Company and Executive at any time prior to such
first anniversary.
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to performing faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary, including any applicable car
allowance ("Annual Base Salary"), which shall be paid at a monthly rate, at
least equal to twelve times the highest monthly base salary paid or payable,
including any base salary which has been earned but deferred, to the
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<PAGE> 4
Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual incentive bonus plans, including,
without limitation, its Designated Executive Incentive Plan and Management
Incentive Plan, or any comparable bonus under any predecessor or successor plan
or plans, for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company for
the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer Executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, split-dollar life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day
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<PAGE> 5
period immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this
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<PAGE> 6
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
days as a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duty
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated,
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<PAGE> 7
in substantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately preceding the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
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<PAGE> 8
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (111) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause, death
or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting
of less than twelve full months or during which the Executive
was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365 and (3)
any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) two
and (2) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; and
C. an amount equal to the excess of (1) the
actuarial equivalent of the benefit under the Company's
qualified defined benefit retirement plan (the "Retirement
Plan") (utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date), and
any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment
continued for two years after the Date of Termination assuming
for this purpose that all accrued benefits are fully vested,
and, assuming that the Executive's compensation in each of the
two years is that required by Section 4(b)(i) and Section
4(b)(ii), over (2) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
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<PAGE> 9
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) of this Agreement if the Executive's employment had
not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility. Notwithstanding the foregoing, the Company shall continue
to make all scheduled premium payments under any split-dollar life
insurance policy in effect on the Date of Termination on behalf of the
Executive for so long as such payments are scheduled (without giving
effect to Executive's termination). For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services the scope
and provider of which shall be selected by the Executive in his sole
discretion; and
(iv) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of the amounts set
forth in Section 6(i) and the timely payment or provision of Other Benefits. The
amounts set forth in Section 6(i) shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and
the Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during the 120-day
period immediately preceding
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<PAGE> 10
the Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of the amounts set forth in Section 6(i) and the timely payment
or provision of Other Benefits. The amounts set forth in Section 6(i) shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term "Other
Benefits" as utilized in this Section 6(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than for Accrued Obligations and for the timely payment or provision of Other
Benefits, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In each such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may
-10-
<PAGE> 11
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the fullest
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding and except as set forth below, in
the event 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, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche or such other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
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<PAGE> 12
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Finn hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Finn shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration such period that it desires to contest such claim the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the
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<PAGE> 13
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or to contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
-13-
<PAGE> 14
11. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will 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 to assume
expressly 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. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested postage prepaid, addressed as
follows:
If to the Executive:
Robert J. Keller
7418 Floranda Way
Delray Beach, FL 33446
If to the Company:
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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<PAGE> 15
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitations the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section l(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
* * * * *
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<PAGE> 16
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Robert J. Keller
-------------------------------------------
Executive
Date: 7/25/00
--------------------------------------
Office Depot, Inc.
By: /s/ Thomas Kroeger
----------------------------------------
Thomas Kroeger
Its:
Executive Vice President Human Resources
-16-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>8
<FILENAME>g67815kex10-19.txt
<DESCRIPTION>FIRST AMENDMENT DATED 12/21/00
<TEXT>
<PAGE> 1
Exhibit 10.19
FIRST AMENDMENT
TO
364 DAY REVOLVING CREDIT AGREEMENT
This First Amendment (the "Amendment") to 364 Day Revolving Credit
Agreement, dated as of December 21, 2000, is entered into by and between Office
Depot, Inc., a Delaware corporation ("Borrower") and the various financial
institutions party to the Credit Agreement (hereinafter defined) which execute
one or more counterparts of this Amendment and which collectively constitute the
Required Lenders (as defined in the Credit Agreement.)
WITNESSETH:
WHEREAS, the Borrower has heretofore entered into a 364 Day Revolving
Credit Agreement, dated as of June 2, 2000, with SunTrust Bank, a national
banking association ("SunTrust"), Bank of America, N.A., a national banking
association ("Bank of America"), Citibank, N.A., a national banking association
("Citibank") and Bank One, a national banking association ("Bank One"), and the
other financial institutions from time to time party thereto (collectively, the
"Lenders" and, individually, a "Lender"), SunTrust as Administrative Agent, Bank
of America as Syndication Agent, Bank One as Documentation Agent and Citibank as
Managing Agent for the Lenders (as heretofore amended, modified or supplemented,
the "Credit Agreement"; capitalized terms used herein and not otherwise defined
herein having the meanings assigned thereto in the Credit Agreement);
WHEREAS, the Borrower has requested that the Lenders agree to certain
amendments to the Credit Agreement;
WHEREAS, subject to the terms and conditions set forth herein, the
Lenders executing this Amendment are willing to undertake an amendment to the
Credit Agreement.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Borrower and the undersigned Lenders hereby agree as
follows:
SECTION 1. AMENDMENT. Upon the satisfaction by the Borrower of the
conditions precedent set forth in Section 2 below, and in reliance on the
warranties of the Borrower set forth in Section 3 below, the term "Fixed Charge
Coverage Ratio" contained in Section 1.1 of the Credit Agreement is hereby
amended in its entirety to read as follows:
" "Fixed Charge Coverage Ratio" shall mean, as at the
end of any fiscal period of Borrower, the ratio of (A)
Consolidated EBITR for such fiscal period to (B) the sum of
(i) Consolidated Interest Expense plus (ii) Consolidated
Rental Expense plus (iii) any interest and other continuing
program fees (excluding initial closing fees) related to an
accounts receivable securitization program (including any such
interest or fees for which the Borrower or any Subsidiary is
liable arising in connection with any private label credit
card program), each for such fiscal period; provided that for
purposes of any relevant period there shall be
<PAGE> 2
added to Consolidated EBITR for purposes of the determination
of the Fixed Charge Coverage Ratio an amount, not to exceed
$350,000,000, equal to the Borrower's restructuring charges
announced on January 3, 2001 (the "Restructuring Charges")."
SECTION 2. CONDITIONS. As conditions precedent to the effectiveness of
this Amendment, (i) the Borrower shall have delivered to the Administrative
Agent this Amendment, duly executed and delivered, and such other documents as
the Required Lenders or the Administrative Agent may reasonably request, (ii)
the Borrower shall have paid to Bank of America such fees with respect hereto as
separately agreed to between such parties, (iii) the Borrower shall have paid to
the Administrative Agent for the account of each Lender executing this Amendment
on or prior to the date hereof a consent fee equal to .10% of such Lender's
Commitment and (iv) the Administrative Agent shall have received executed
counterparts of this Amendment from the Required Lenders.
SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce the Lenders to
enter into this Amendment, the Borrower hereby represents and warrants to the
Lenders as of the date hereof that:
3.1 The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct
in all material respects on and as of the date hereof except
for representations and warranties that speak as of a
particular date, in which case such representations and
warranties are true as of such date.
3.2 After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
SECTION 4. GENERAL.
4.1 Waiver of Certain Defaults. The Required Lenders hereby waive,
subject to the effectiveness of this Amendment, any Event of
Default which may exist under Section 8.6 of the Credit
Agreement solely as a result of the Restructuring Charges
causing a breach of the "Fixed Charge Coverage Ratio" covenant
set forth in any agreement of one or more of the Consolidated
Companies regarding Indebtedness, including without limitation
the guaranties under the Existing Japanese Loan Agreements;
provided that the foregoing waiver shall be immediately
effective but shall be subject to the conditions subsequent
that (i) effective waivers and/or amendments similar to those
contained herein are in place and effective under such
agreements by no later than the close of business on January
31, 2001 and (ii) no such other Indebtedness shall be
accelerated (and this waiver shall terminate if condition (i)
is not satisfied in a timely manner or if such other
Indebtedness shall be accelerated). The foregoing waiver is
given in this instance only, shall not be construed as a
consent to, or waiver or approval of, any violation of, or
deviation from, any other term or condition of the Credit
Agreement or any other Credit Document and shall not be
construed to evidence
-2-
<PAGE> 3
the willingness of the Required Lenders to give any other or
additional consent, waiver or approval, whether in similar or
different circumstances.
4.2 Reservation of Rights. The Borrower acknowledges and agrees
that the execution and delivery of this Amendment shall not be
deemed (i) to create a course of dealing or otherwise obligate
the Lenders to forbear or execute similar amendments under the
same or similar circumstances in the future, or (ii) as a
waiver by the Lenders of any covenant, condition, term or
provision of the Credit Agreement or any of the other Credit
Documents except as expressly provided herein, and the failure
of the Lenders to require strict performance by the Borrower
or any other Credit Party of any provision thereof shall not
waive, affect or diminish any right of the Lenders to
thereafter demand strict compliance therewith. The Lenders
hereby reserve all rights granted under the Credit Agreement,
the other Credit Documents and this Amendment.
4.3 Full Force and Effect. As hereby modified, the Credit
Agreement and each of the other Credit Documents shall remain
in full force and effect and each is hereby ratified, approved
and confirmed in all respects.
4.4 Affirmation. The Borrower hereby agrees to pay on demand all
reasonable costs and expenses of the Lenders in connection
with the preparation, execution and delivery of this Amendment
and all instruments and documents delivered in connection
herewith.
4.5 Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of the Borrower, the Lenders
and the respective successors and assigns of the Borrower and
the Lenders.
4.6 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be
an original, but all such counterparts shall together
constitute but one and the same Amendment.
4.7 Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE INTERNAL LAWS (WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF
ILLINOIS.
* * * * *
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Borrower and the Lenders have executed this
Amendment as of the 21st day of December, 2000.
BORROWER:
OFFICE DEPOT, INC.
By: /s/ JEFFREY H. AIKEN
----------------------------
Name: JEFFREY H. AIKEN
--------------------------
Title: SENIOR VICE PRESIDENT
-------------------------
S-1
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 5
LENDERS:
SUNTRUST BANK, individually and as
Administrative Agent
By: /s/ W. DAVID WISDOM
--------------------------------
Name: W. DAVID WISDOM
-----------------------------
Title: Vice President
----------------------------
S-2
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 6
BANK OF AMERICA, N.A.
By: /s/ TIMOTHY H. SPANOS
--------------------------------
Name: TIMOTHY H. SPANOS
-----------------------------
Title: Managing Director
----------------------------
S-3
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 7
CITIBANK, N.A.
By: /s/ JOHN F. HEUSS
--------------------------------
Name: JOHN F. HEUSS
-----------------------------
Title: VICE PRESIDENT
----------------------------
S-4
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 8
Bank One, NA
By: /s/ VINCENT R. HENCHEK
--------------------------------
Name: VINCENT R. HENCHEK
-----------------------------
Title: VICE PRESIDENT
----------------------------
S-5
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 9
FIRST UNION NATIONAL BANK
By: /s/ JOAN ANDERSON
--------------------------------
Name: JOAN ANDERSON
-----------------------------
Title: VICE PRESIDENT
----------------------------
S-6
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 10
CIBC INC.
By: /s/ DOMINIC SORRESSO
-------------------------------------------
Name: DOMINIC SORRESSO
-----------------------------------------
Title: EXECUTIVE DIRECTOR
----------------------------------------
CIBC WORLD MARKETS CORP., AS AGENT
S-7
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 11
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ BERNARDO E. CORREA-HENSCHKE
----------------------------------------
Name: BERNARDO E. CORREA-HENSCHKE
--------------------------------------
Title: VICE PRESIDENT
-------------------------------------
S-8
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 12
WELLS FARGO BANK
By: /s/ WILLIAM J. DARBY
----------------------------------------
Name: WILLIAM J. DARBY
--------------------------------------
Title: VICE PRESIDENT
-------------------------------------
S-9
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 13
BNP PARIBAS
By: /s/ MIKE SHRYOCK
----------------------------------------
Name: MIKE SHRYOCK
--------------------------------------
Title: VICE PRESIDENT
-------------------------------------
By: /s/ JOHN STACY
----------------------------------------
Name: JOHN STACY
--------------------------------------
Title: MANAGING DIRECTOR
-------------------------------------
S-10
FIRST AMENDMENT TO 364 DAY REVOLVING CREDIT AGREEMENT
<PAGE> 14
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
AFFIDAVIT OF OUT-OF-STATE EXECUTION
The undersigned affiant, being first duly sworn upon my oath, depose and say:
1. That on the 27TH day of December, 2000, I executed that
certain Amendment Agreement (the "Amendment") on behalf of OFFICE DEPOT, INC.
2. That the execution of the Amendment took place in the County
of New York, in City of New York, in the State of New York.
FURTHER AFFIANT SAYETH NOT.
AFFIANT: /s/ Jeffrey H. Aiken
----------------------------------------
Jeffrey H. Aiken, Senior Vice President
Office Depot, Inc.
Sworn to and subscribed before me this 27th day of December, 2000 by Jeffrey
H. Aiken, Senior Vice-President of Office Depot, Inc. Who personally appeared
before me in the above referenced location, and is personally known to me or
produced driver's license as identification.
Notary:/s/ Kathleen B. Patton
------------------------------------
[NOTARIAL SEAL] Print Name:Kathleen B. Patton
--------------------------------
Notary Public, State of New York
My Commission expires:
---------------------
KATHLEEN BENDER PATTON
Notary Public, State of New York
No. 02BE5026754
Qualified in New York County
Commission Expires April 25, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>9
<FILENAME>g67815kex10-20.txt
<DESCRIPTION>SECOND AMENDMENT DATED 12/21/00
<TEXT>
<PAGE> 1
Exhibit 10.20
SECOND AMENDMENT
TO
REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
This Second Amendment (the "Second Amendment") to Revolving Credit and
Line of Credit Agreement, dated as of December 21, 2000, is entered into by and
between Office Depot, Inc., a Delaware corporation ("Borrower") and the various
financial institutions party to the Credit Agreement (hereinafter defined) which
execute one or more counterparts of this Second Amendment and which collectively
constitute the Required Lenders (as defined in the Credit Agreement.)
WITNESSETH:
WHEREAS, the Borrower has heretofore entered into a Revolving Credit
and Line of Credit Agreement, dated as of February 20, 1998, with SunTrust Bank
(f/k/a SunTrust Bank, Central Florida, National Association), a national banking
association ("SunTrust"), Bank of America, N.A. (f/k/a Bank of America National
Trust and Savings Association), a national banking association ("Bank of
America"), Citibank, N.A., a national banking association ("Citibank"), Bank
One, NA (f/k/a The First National Bank of Chicago), a national banking
association ("Bank One"), Royal Bank of Canada, a Canadian chartered bank
("Royal Bank"), Hibernia National Bank, a national banking association, Fifth
Third Bank, a national banking association, Banca di Roma, a bank organized
under the laws of Italy operating through its New York branch, and First Union
National Bank (as successor in interest to Corestates Bank, N.A.), a national
banking association (collectively, the "Lenders" and, individually, a "Lender"),
SunTrust as Administrative Agent, Bank of America as Syndication Agent and as
Documentation Agent and Bank One, Citibank and Royal Bank as Co-Agents for the
Lenders (as heretofore amended, modified or supplemented, the "Credit
Agreement"; capitalized terms used herein and not otherwise defined herein
having the meanings assigned thereto in the Credit Agreement);
WHEREAS, the Borrower has requested that the Lenders agree to certain
amendments to the Credit Agreement;
WHEREAS, subject to the terms and conditions set forth herein, the
Lenders executing this Second Amendment are willing to undertake certain
amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound hereby, the Borrower and the undersigned Lenders hereby agree as
follows:
SECTION 1. AMENDMENTS. Upon the satisfaction by the Borrower of the
conditions precedent set forth in Section 2 below, and in reliance on the
warranties of the Borrower set forth in Section 3 below, the Credit Agreement is
hereby amended as follows:
1.1. The term "Applicable Margin" contained in Section 1.1 is
amended in its entirety to read as follows:
<PAGE> 2
" "Applicable Margin" shall mean the number of basis points
designated below based on the rating of the Borrower's senior unsecured
long-term debt by either or both of Moody's and S&P in effect on the
date of determination (the "Rating"):
<TABLE>
<CAPTION>
Eurodollar
Margin/
Rating: Letter of
Level S&P/Moody's Facility Fee Credit Fee
----- ----------- ------------ ----------
<S> <C> <C> <C>
I >A-/A3 10.0 bp 27.5 bp
-
II BBB+/Baal 12.5 bp 37.5 bp
III BBB/Baa2 15.0 bp 47.5 bp
IV BBB-/Baa3 17.5 bp 70.0 bp
V <BBB-/Baa3 22.5 bp 102.5 bp
</TABLE>
provided, however, that:
(a) if the Ratings established by S&P and Moody's shall
fall within different Levels, the Applicable Margin shall be based upon
the higher Level (i.e., higher Rating), provided the Ratings are not
more than one Level apart and, if they are more than one Level apart,
the Applicable Margin shall be based on the Rating one Level below the
higher of the two Levels;
(b) if any Rating established by S&P or Moody's shall be
changed, such change shall be effective as of the date on which such
change is first announced publicly by the agency making such change;
(c) if S&P or Moody's shall change the basis on which
ratings are established, each reference to the Rating announced by S&P
or Moody's, as the case may be, shall refer to the then equivalent
Rating by S&P or Moody's, as the case may be;
(d) if only one of S&P or Moody's shall have in effect a
Rating, the Applicable Margin shall be determined by reference to the
available Rating; and
(e) if neither S&P nor Moody's shall have in effect a
Rating, and no comparable rating shall be issued by a rating agency
proposed by Borrower and approved by the Required Lenders, which
approval shall not unreasonably be withheld, the Applicable Margin
shall be determined by reference to the lowest Level (i.e. lowest
Rating)."
1.2 The term "Fixed Charge Coverage Ratio" contained in Section 1.1
is amended in its entirety to read as follows:
-2-
<PAGE> 3
" "Fixed Charge Coverage Ratio" shall mean, as at the end of
any fiscal period of Borrower, the ratio of (A) Consolidated EBITR for
such fiscal period to (B) the sum of (i) Consolidated Interest Expense
plus (ii) Consolidated Rental Expense plus (iii) any interest and other
continuing program fees (excluding initial closing fees) related to an
accounts receivable securitization program (including any such interest
or fees for which the Borrower or any Subsidiary is liable arising in
connection with any private label credit card program), each for such
fiscal period; provided that for purposes of any relevant period there
shall be added to Consolidated EBITR for purposes of the determination
of the Fixed Charge Coverage Ratio an amount, not to exceed
$350,000,000, equal to the Borrower's restructuring charges announced
on January 3, 2001 (the "Restructuring Charges")."
1.3 The following term is hereby added to Section 1.1 in its
appropriate alphabetical order:
" "Utilization Fee" shall mean the quarterly fee payable by the
Borrower to the Administrative Agent for the account of and
distribution to the Lenders pursuant to Section 4.5(g)."
1.4 Section 4.5 is amended to add the following subsection in its
appropriate alphabetical order:
" (g) Utilization Fee. To the extent and for so long as the
average daily aggregate outstanding principal amount of the Loans at
any time is equal to or exceeds one-half of the aggregate Commitments
at such time, the Borrower shall pay to the Administrative Agent, for
the account of and distribution to the Lenders which made such Loans, a
Utilization Fee equal to 0.125% times such aggregate outstanding
principal amount, such fee being payable quarterly in arrears on the
last calendar day of each fiscal quarter of Borrower and on the
Termination Date."
1.5 Section 4.14 is amended by inserting the phrase ", utilization
fees" after the phrase "facility fees" in the first sentence thereof.
1.6 Section 9.13 is amended by inserting the phrase "and
Utilization Fee" after the phrase "Facility Fee" in subsection (i) thereof.
SECTION 2. CONDITIONS. As conditions precedent to the effectiveness of
this Second Amendment, (i) the Borrower shall have delivered to the
Administrative Agent this Second Amendment, duly executed and delivered, and
such other documents as the Required Lenders or the Administrative Agent may
reasonably request, (ii) the Borrower shall have paid to Bank of America such
fees with respect hereto as separately agreed to between such parties, (iii) the
Borrower shall have paid to the Administrative Agent for the account of each
Lender executing this Second Amendment on or prior to the date hereof a consent
fee equal to. 10% of such Lender's Commitment and (iv) the Administrative Agent
shall have received executed counterparts of this Second Amendment from the
Required Lenders.
-3-
<PAGE> 4
SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce the Lenders to
enter into this Second Amendment, the Borrower hereby represents and warrants to
the Lenders as of the date hereof that:
3.1 The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct
in all material respects on and as of the date hereof except
for representations and warranties that speak as of a
particular date, in which case such representations and
warranties are true as of such date.
3.2 After giving effect to this Second Amendment, no Default or
Event of Default has occurred and is continuing.
SECTION 4. GENERAL.
4.1 Waiver of Certain Defaults. The Required Lenders hereby waive,
subject to the effectiveness of this Second Amendment, any
Event of Default which may exist under Section 9.6 of the
Credit Agreement solely as a result of the Restructuring
Charges causing a breach of the "Fixed Charge Coverage Ratio"
covenant set forth in any agreement of one or more of the
Consolidated Companies regarding Indebtedness, including
without limitation the guaranties under the Existing Japanese
Loan Agreements; provided that the foregoing waiver shall be
immediately effective but shall be subject to the conditions
subsequent that (i) effective waivers and/or amendments
similar to those contained herein are in place and effective
under such agreements by no later than the close of business
on January 31, 2001 and (ii) no such other Indebtedness shall
be accelerated (and this waiver shall terminate if condition
(i) is not satisfied in a timely manner or if such other
Indebtedness shall be accelerated). The foregoing waiver is
given in this instance only, shall not be construed as a
consent to, or waiver or approval of, any violation of, or
deviation from, any other term or condition of the Credit
Agreement or any other Credit Document and shall not be
construed to evidence the willingness of the Required Lenders
to give any other or additional consent, waiver or approval,
whether in similar or different circumstances.
4.2 Reservation of Rights. The Borrower acknowledges and agrees
that the execution and delivery of this Second Amendment shall
not be deemed (i) to create a course of dealing or otherwise
obligate the Lenders to forbear or execute similar amendments
under the same or similar circumstances in the future, or (ii)
as a waiver by the Lenders of any covenant, condition, term or
provision of the Credit Agreement or any of the other Credit
Documents except as expressly provided herein, and the failure
of the Lenders to require strict performance by the Borrower
or any other Credit Party of any provision thereof shall not
waive, affect or diminish any right of the Lenders to
thereafter demand strict compliance therewith. The Lenders
hereby reserve all rights granted under the Credit Agreement,
the other Credit Documents and this Second Amendment.
-4-
<PAGE> 5
4.3 Full Force and Effect. As hereby modified, the Credit
Agreement and each of the other Credit Documents shall remain
in full force and effect and each is hereby ratified, approved
and confirmed in all respects.
4.4 Affirmation. The Borrower hereby agrees to pay on demand all
reasonable costs and expenses of the Lenders in connection
with the preparation, execution and delivery of this Second
Amendment and all instruments and documents delivered in
connection herewith.
4.5 Successors and Assigns. This Second Amendment shall be binding
upon and shall inure to the benefit of the Borrower, the
Lenders and the respective successors and assigns of the
Borrower and the Lenders.
4.6 Counterparts. This Second Amendment may be executed in any
number of counterparts and by the different parties on
separate counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts shall
together constitute but one and the same Second Amendment.
4.7 Governing Law. THIS SECOND AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE
OF FLORIDA.
* * * * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Borrower and the Lenders have executed this
Second Amendment as of the 21st day of December, 2000.
BORROWER:
OFFICE DEPOT, INC.
By: /s/ Jeffrey H. Aiken
---------------------------------------
Name: Jeffrey H. Aiken
-------------------------------------
Title: Senior Vice President
------------------------------------
S-1
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 7
LENDERS:
SUNTRUST BANK, individually and as
Administrative Agent
By: /s/ Gregory L. Cannon
----------------------------------------
Name: Gregory L. Cannon
--------------------------------------
Title: Director
-------------------------------------
S-2
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 8
BANK OF AMERICA, N.A.
By: /s/ Timothy H. Spanos
----------------------------------------
Name: TIMOTHY H. SPANOS
--------------------------------------
Title: MANAGING DIRECTOR
-------------------------------------
S-3
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 9
CITIBANK, N.A
By: /s/ John F. Heuss
----------------------------------------
Name: JOHN F. HEUSS
--------------------------------------
Title: Vice President
-------------------------------------
S-4
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 10
BANK ONE, NA
By: /s/ Vincent R. Henchek
----------------------------------------
Name: VINCENT R. HENCHEK
--------------------------------------
Title: VICE PRESIDENT
-------------------------------------
S-5
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 11
ROYAL BANK OF CANADA
By: /s/ Lori A. Ross
----------------------------------------
Name: Lori Ross
--------------------------------------
Title: Manager
-------------------------------------
S-6
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 12
HIBERNIA NATIONAL BANK By:
By: /s/ Connie Disbrow
----------------------------------------
Name: Connie Disbrow
--------------------------------------
Title: Relationship Manager
-------------------------------------
S-7
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
<PAGE> 13
FIRST UNION NATIONAL BANK
By: /s/ Joan Anderson
----------------------------------------
Name: Joan Anderson
--------------------------------------
Title: Vice President
-------------------------------------
S-10
SECOND AMENDMENT TO REVOLVING CREDIT AND LINE OF CREDIT AGREEMENT
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>10
<FILENAME>g67815kex13-1.txt
<DESCRIPTION>CERTAIN PORTIONS OF COMPANIES ANNUAL REPORT
<TEXT>
<PAGE> 1
EXHIBIT 13.1
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS DATA:
(In thousands, except per share amounts and
statistical data) 2000 1999 1998 1997 1996
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Sales(1) $ 11,569,696 $ 10,272,060 $ 9,007,051 $ 8,108,714 $ 7,259,206
Cost of goods sold and occupancy costs 8,479,698 7,450,310 6,484,464 5,963,521 5,395,223
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 3,089,998 2,821,750 2,522,587 2,145,193 1,863,983
Store and warehouse operating and selling expenses(1) 2,361,301 1,969,817 1,651,355 1,451,587 1,288,382
Pre-opening expenses 13,465 23,628 17,150 6,609 9,827
General and administrative expenses 501,700 381,611 330,194 272,022 222,714
Merger and restructuring costs (6,732) (7,104) 119,129 16,094 --
Facility closure and relocation costs 110,038 40,425 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit 110,226 413,373 404,759 398,881 343,060
Interest income 11,502 30,176 25,309 7,570 3,726
Interest expense (33,901) (26,148) (22,356) (21,680) (26,378)
Miscellaneous income (expense), net 4,632 (3,514) (18,985) (13,180) (8,325)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 92,459 413,887 388,727 371,591 312,083
Income taxes 43,127 156,249 155,531 136,730 115,865
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 49,332 $ 257,638 $ 233,196 $ 234,861 $ 196,218
============================================================================================================================
Earnings per share(2):
Basic $ .16 $ .71 $ .64 $ .65 $ .55
Diluted .16 .69 .61 .62 .53
STATISTICAL DATA:
============================================================================================================================
Facilities open at end of period:
United States and Canada:
Office supply stores 888 825 702 602 561
Customer service centers 25 30 30 33 32
Call centers 7 7 8 8 6
International(3):
Office supply stores 132 118 87 39 21
Customer service centers 17 17 17 16 12
Call centers 14 14 13 12 8
BALANCE SHEET DATA:
============================================================================================================================
Working capital $ 790,752 $ 687,007 $ 1,293,370 $ 1,093,463 $ 860,280
Total assets 4,196,334 4,276,183 4,025,283 3,498,891 3,186,630
Long-term debt, excluding current maturities 598,499 321,099 470,711 447,020 416,757
Common stockholders' equity 1,601,251 1,907,720 2,028,879 1,717,638 1,469,110
(1) We have reclassified certain amounts in our prior year financial statements
to conform to our current year presentation.
(2) Earnings per share previously reported for 1996 through 1998 have been
restated to reflect the three-for-two stock split declared on February 24,
1999.
(3) Includes facilities in our International Division that we wholly own or
lease, as well as those that we operate through licensing and joint venture
agreements.
</TABLE>
OFFICE DEPOT 13
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Office Depot, Inc., together with our subsidiaries, is the largest supplier of
office products and services in the world. We sell to consumers and businesses
of all sizes through our three business segments: North American Retail
Division, Business Services Group, and International Division. These segments
include multiple sales channels consisting of office supply stores, a contract
sales force, Internet sites, and catalog and delivery operations. Each of these
segments is described in more detail below. In 2000, we refined our segment
definitions to better reflect our current management responsibilities. Segment
information for 1999 and 1998 has been restated to reflect these changes. Also,
in accordance with the consensus reached in Emerging Issues Task Force ("EITF")
00-10, we reclassified delivery income from store and warehouse operating and
selling expenses to sales for all periods presented in this Annual Report. We
operate on a 52- or 53-week fiscal year ending on the last Saturday in December.
Our results for the fiscal year 2000 contained 53 weeks, all other years
contained 52 weeks.
This Management's Discussion and Analysis ("MD&A") is intended to provide
information to assist you in better understanding and evaluating our financial
condition and results of operations. We recommend that you read this MD&A in
conjunction with our Consolidated Financial Statements and the Notes to those
statements. This MD&A section contains significant amounts of forward-looking
information, and is qualified by our Cautionary Statements regarding
forward-looking information. You will find Cautionary Statements throughout this
MD&A; however, most of them can be found in a separate section immediately
following this MD&A. Without limitation, when we use the words "believe,"
"estimate," "plan," "expect," "intend," "anticipate," "continue," "project,"
"should," and similar expressions in this Annual Report, we are identifying
forward-looking statements, and our Cautionary Statements apply to these terms
and expressions.
NORTH AMERICAN RETAIL DIVISION
Our North American Retail Division sells office products, copy and print
services and other business-related services under the Office Depot(R) and the
Office Place(R) brands through our chain of high-volume office supply stores in
the United States and Canada. We opened our first office supply store in Florida
in October 1986. From our inception, we have been a leader in the retail office
supplies industry, concentrating on expanding our store base and increasing our
sales in markets with high concentrations of small- and medium-sized businesses.
As of the end of 2000, our North American Retail Division operated 888 office
supply stores in 47 states, the District of Columbia and Canada. Store activity
for the last five years has been as follows:
<TABLE>
<CAPTION>
Open at Open at
Beginning Stores End
of Period Opened Closed of Period Relocated
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 501 60 - 561 3
1997 561 42 1 602 2
1998 602 101 1 702 5
1999 702 130 7 825 14
2000 825 70 7 888 4
=============================================================
</TABLE>
The decline in the number of stores opened in 1997 was the result of our
proposed merger with Staples, Inc. ("Staples"). In September 1996, we entered
into an agreement and plan of merger with Staples. The proposed merger was
blocked by a preliminary injunction granted by the Federal District Court at the
request of the Federal Trade Commission, and in July 1997 we announced that the
merger agreement had been terminated. During this period of uncertainty, several
of our key employees in the real estate area left the Company. After the merger
discussions with Staples were terminated, we re-staffed our real estate
department and re-launched our store expansion program. Many of the locations
opened during this period of aggressive expansion have not performed to our
expectations. In 2000, we scaled down our expansion plans and announced the
closing of 70 locations in the first quarter of 2001 (SEE ONE-TIME CHARGES AND
CREDITS).
In 2001, we plan to add approximately 50 new retail stores, most of which will
be located in areas in which we currently enjoy strong market positions, with
the balance in under-served markets. In future years, we expect to continue this
approach to retail store expansion, with an emphasis on market density in order
to leverage advertising dollars and cross-channel opportunities to create a
seamless customer experience across all channels. All new stores will
incorporate a more efficient platform of approximately 20,000 square feet and
will feature a more interactive customer experience.
BUSINESS SERVICES GROUP ("BSG")
In 1993 and 1994, we expanded into the contract office supply business by
acquiring eight contract stationers with 18 domestic customer service centers
and a professional sales force. These acquisitions allowed us to enter the
contract business and broaden our commercial (primarily catalog) and retail
delivery businesses. In 1998, we expanded our direct mail business through our
merger with Viking Office Products ("Viking"). Today, BSG sells office products
and services to contract and commercial customers through our Office Depot(R)
brand and Viking Office Products(R) brand direct mail catalogs and Internet
sites, and by means of our dedicated sales force. Customer
14 OFFICE DEPOT
<PAGE> 3
service centers ("CSCs") are warehouse and delivery facilities, some of which
also house sales offices, call centers and administrative offices. Our CSCs
perform warehousing and delivery services on behalf of all segments of our
business.
At the end of the third quarter of 1998, we operated 20 Office Depot and 10
Viking warehouses. At that time we initiated, and later modified, plans to
integrate certain of our Viking and Office Depot warehouses, which we expect to
complete during 2001. At the end of 2000, we operated 25 CSCs in the United
States, five of which we added as a result of the Viking merger. Once our
integration is complete, we will operate 23 CSCs, consisting of nine combined
facilities, 11 Office Depot facilities, and three Viking facilities. We have
included the estimated costs of our integration plans in merger and
restructuring costs and facility closure costs (SEE NOTES B AND C OF THE NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS).
In January 1998, we introduced our Office Depot public Web site
(www.officedepot.com), offering our customers the convenience of shopping
on-line. The addition of this site expanded our domestic electronic commerce
("e-commerce") capabilities beyond the Viking public Web site (www.vikingop.com)
and the Office Depot business-to-business contract Web sites. During 2000, we
launched a new, completely re-tooled Viking Web site, offering improved
functionality, greater selection, and easier direct order services. Our domestic
Internet sales were $849.5 million in 2000, compared to $349.7 million in 1999,
an increase of 143%. Although this business channel is still in its infancy, we
believe our Internet business will provide significant future growth
opportunities for our BSG segment and our business as a whole based on the
growth rates we have experienced over the last three years.
INTERNATIONAL DIVISION
Our International Division sells office products and services in 16 countries
outside the United States and Canada through Office Depot retail stores, Office
Depot(R) brand and Viking Office Products(R) brand direct mail catalogs and
Internet sites, and an Office Depot contract sales force. We launched our
international direct marketing business in 1990 under the Viking Office
Products(R) brand with the establishment of our British operations. In December
1993, we initiated our international retail operations by opening our first
store in Colombia through a licensing agreement. We have expanded
internationally primarily through licensing and joint venture agreements,
acquisitions and the merger with Viking. Prior to 1998, our international
business was operated entirely through licensing and joint venture agreements.
In 1998, we merged with Viking, whose international operations were
wholly-owned, and we increased our ownership in our retail operations in France
to 100%. In 1999, we increased our ownership in our retail operations in Japan
to 100%.
In March 1999, we introduced our first international public Web site
(www.viking-direct.co.uk) for individuals and businesses in the United Kingdom.
In 2000, we introduced eight new public Web sites: Germany (www.viking.de), the
Netherlands (www.vikingdirect.nl), Italy (www.vikingop.it), Australia
(www.vikingop.com.au), Japan (www.vikingop.co.jp and www.officedepot.co.jp) and
France (www.vikingdirect.fr and www.officedepot.fr). In September 2000, we
launched our Office Depot contract business with operations in the United
Kingdom.
At the end of 2000, our International Division had operations, either owned
directly or operated through joint ventures or licensing agreements, in
Australia, Austria, Belgium, France, Germany, Hungary, Ireland, Israel, Italy,
Japan, Luxembourg, Mexico, the Netherlands, Poland, Thailand, and the United
Kingdom. Seven of these countries have retail operations with a total of 132
office supply stores; 35 stores were wholly-owned. This compares to 118 stores
in eight countries, 32 of which were wholly-owned, at the end of 1999. We also
had catalog and delivery operations in 14 of these countries, operating under
the Viking Office Products(R) and Office Depot(R) brands in 11 and five of these
countries, respectively. International Division store and CSC operations,
including facilities operated through licensing and joint venture agreements,
for the last five years are detailed below. All years prior to 1998 have been
restated to include facilities operated by Viking prior to our merger.
<TABLE>
<CAPTION>
Office Supply Stores
---------------------------------------------
Open at Open at
Beginning End
of Period Opened Closed of Period
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1996 9 12 - 21
1997 21 18 - 39
1998 39 48 - 87
1999 87 36 5 118
2000 118 19 5 132
</TABLE>
<TABLE>
<CAPTION>
Customer Service Centers
--------------------------------------------
Open at Open at
Beginning End
of Period Opened Closed of Period
- ------------------------------------------------------
<S> <C> <C> <C> <C>
1996 8 4 - 12
1997 12 4 - 16
1998 16 2 1 17
1999 17 1 1 17
2000 17 0 0 17
</TABLE>
In 2001, we plan to expand our International Division by entering a new country
in Europe with our Viking catalog operations, growing our existing operations
with the addition of several new Internet sites and new store locations and
developing our contract business in three more countries in Europe. We will also
close one inefficient CSC as discussed below in ONE-TIME CHARGES AND CREDITS.
OFFICE DEPOT 15
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
RESULTS OF OPERATIONS
As discussed earlier in this MD&A, we operate in three reportable segments-North
American Retail Division, BSG, and International Division. Each of these
segments is managed separately, primarily because it serves different customer
groups. Our senior management evaluates the performance of each business segment
based on operating income, which is defined as income before income taxes,
interest income and expense, goodwill amortization, merger and restructuring
costs, facility closure costs, general and administrative expenses, and
pre-opening expenses. In 2000, we refined our segment definitions to better
reflect our current management responsibilities. All segment amounts presented
throughout this MD&A for prior years have been restated to reflect this
refinement in segment definitions.
ONE-TIME CHARGES AND CREDITS
Our financial results were significantly impacted by one-time charges and
credits. The effects of these one-time charges and credits on earnings before
income tax benefits are summarized as follows and discussed in detail below:
<TABLE>
<CAPTION>
(In millions) 2000 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before taxes, excluding
non-recurring items $353.0 $519.1 $507.8
One-time charges and credits
Gross profit:
SKU rationalization 25.6 -- --
Establish sales returns and
allowance provision 10.5 -- --
Write-down of inventory in
closing stores 12.8 -- --
Change in extended warranty
sales accounting -- 15.8 --
Establish inventory provision -- 56.1 --
Operating and selling expenses:
SFAS 121 write-down of
impaired assets 56.6 -- --
Other fixed asset write-offs 6.4 -- --
Severance 1.7 -- --
General and administrative expenses:
Severance 33.9 -- --
Other fixed asset write-offs 11.2 -- --
Merger and restructuring (6.8) (7.1) 119.1
Facility closure costs 110.0 40.4 --
Miscellaneous (income) expense, net:
Net gain on Internet investments (12.4) -- --
Write-down of impaired goodwill 11.1 -- --
- ----------------------------------------------------------------------------
Total charges, net 260.6 105.2 119.1
- ----------------------------------------------------------------------------
Earnings before taxes as reported $ 92.4 $413.9 $388.7
============================================================================
</TABLE>
Comprehensive Business Review
During the latter half of 2000, we conducted a comprehensive business review of
all aspects of our business. Making Office Depot a more compelling place to shop
for our customers, a more compelling place to work for our employees, and a more
compelling place to invest for our shareholders was the objective of this
review. We adopted this plan late in the fourth quarter of 2000.
One conclusion of our review involved our decision to close under-performing
stores and inefficient warehouses. After an extensive review of all of our North
American retail stores, we are in the process of closing 67 under-performing
retail stores in the U.S. and three in Canada. In connection with these
closings, we will exit four markets completely-Cleveland and Columbus, Ohio,
Phoenix, Arizona, and Boston, Massachusetts. We will also close six small Office
Depot Express(R) stores in France. In order to address capacity constraints and
improve warehouse efficiency, we will close and relocate our Office Depot
warehouses in Atlanta, Georgia and Pantin, France. We will also close both our
Office Depot and Viking warehouses in Baltimore, Maryland and consolidate them
into a relocated facility. In addition, we will invest in new warehouse
technologies to improve the quality and efficiency of all of our U.S. warehouse
operations. In connection with these store and warehouse closures, we have
recorded facility closure charges of $110.0 million. These charges are comprised
of net lease obligations ($75.2 million), asset write-offs ($21.7 million),
severance ($2.8 million) and various other exit costs, such as leased equipment,
labor, and facility clean-up ($10.3 million). We also entered into an agreement
with an unrelated third party to assist in the liquidation of the inventory in
the closing stores. As a result, we recorded a charge of $12.8 million to write
down the inventory in those stores to net realizable value.
In connection with this review, we plan to return the focus in our retail stores
to the core business customer and reduce complexity in both our store and
warehouse operations. In order to emphasize the products that business customers
want, and to increase linear facings and shelf space for key, high demand items,
we will reduce the inventory assortment in our retail stores by approximately
20%. As a result, we will be able to stock larger quantities of high velocity
products in our stores, which will require less frequent deliveries, and thus
decrease our distribution costs. We will also reduce the stocked SKUs in our
North American warehouses by approximately 30%. The SKUs that we are eliminating
from our warehouses were identified as items that our customers do not need on a
daily basis, and which can be easily sourced through wholesalers without
impacting customer service levels. In fact, service levels on certain items such
as furniture are expected to improve. All of our customers should benefit from
better service levels as a
16 OFFICE DEPOT
<PAGE> 5
result of our having better "in stock" positions on products that customers buy
most often. As a result of this decision, we incurred an inventory
rationalization charge of $25.6 million associated with these inventory
assortment reductions in our retail stores and warehouses.
Our review also involved an extensive evaluation of all company assets. This
evaluation resulted in a total charge of $130.8 million, which consists of $56.6
million primarily related to impaired long-lived assets in our closing stores,
$17.6 million in other fixed asset write-offs (mainly outdated
technology-related assets and old signage), $11.1 million in impairment charges
for goodwill and a $45.5 million write down of certain Internet investments. The
review of our investment portfolio revealed that certain Internet investments
had experienced other than temporary declines in value. These holdings are
primarily in businesses that are privately held and involved in marketing
partnership arrangements with Office Depot. Because quoted market prices for
these privately held businesses are not available, we determined the current
value of our investments in these businesses by analyzing their current
financial position and plans, industry valuation indices, current economic
conditions, and the current capital markets for Internet companies. Based on
our analysis, we recorded an impairment charge of $45.5 million to reduce our
investments to their fair value.
We also concluded that goodwill resulting from the acquisition of our Office
Depot Japan retail operations was impaired. The retail stores in Japan have not
performed to expectations, and a new store operating model with significant
additional investment will be necessary to enable the current stores to achieve
profitability. Because profitability may never occur, even with the model
changes and capital infusion, we wrote off 100% of the goodwill related to our
Japanese retail operations ($11.1 million). This write-off does not include the
goodwill allocated to our Viking Japan catalog operations, which was not deemed
to be impaired.
Other One-time Items
We allow our customers to return or exchange merchandise within certain time
constraints. In the past, we have not accrued our assessment of the costs that
are expected in connection with returns because the annual impact of these costs
was insignificant. However, during 2000, additional authoritative guidance
addressing revenue recognition resulted in our decision to record a net charge
of $10.5 million, consisting of a $42.8 million reduction of sales partially
offset by a related reduction in cost of goods sold of $32.3 million. We did not
restate prior periods because the effects of such an adjustment was not
significant to prior year financial results or current year beginning retained
earnings.
In August 1998, we completed our merger with Viking. Transactional and other
direct expenses of this merger, primarily legal and investment banking fees,
were accrued as merger and restructuring costs in 1998 ($119.1 million).
Subsequent to the merger, we adopted an integration plan, which we expected to
complete by the end of 2000. This plan consisted of closing, relocating, and/or
combining certain CSCs, and the costs related to exiting closing facilities
(e.g., future lease obligations, personnel retention and other termination
costs) were also recorded as merger and restructuring costs in 1998. In both
2000 and 1999, we made revisions to our integration plan that required us to
reduce our original merger and restructuring accrual in each of those years.
Furthermore, the merger and restructuring accrual was increased because of our
decision to close our Furniture at Work and Images stores and costs associated
with the acquisition of our joint venture interests in France and Japan. In
total, we reduced the merger and restructuring accrual by $6.7 million in 2000
and $7.1 million in 1999. For a detailed explanation of our merger and
restructuring activity, see NOTE B of the NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
Other one-time transactions reflected in our 2000 results include a $35.6
million charge primarily for severance costs associated with changes in our
executive management team and a realized gain of $57.9 million that resulted
from the sale of certain investments.
In late 1999, we changed our method of accounting for revenue generated from
sales of extended service warranty contracts. Under the laws of certain states,
we are obligated to assume the risk of loss associated with such contracts. In
these states, we modified our accounting to recognize revenue for warranty
service contract sales over the service period, which typically extends over a
period of one to four years. In those states where we are not the legal obligor,
we modified our accounting to recognize warranty revenues after deducting the
related direct costs. This change resulted in a reduction in our 1999 gross
profit of $15.8 million.
Also in 1999, we recorded a charge of $56.1 million to establish a provision for
slow-moving and obsolete inventories. The need for the provision resulted
primarily from: 1) slow-moving technology related products whose market values
were adversely affected by rapidly changing technology, and 2) a rationalization
of our warehouse inventory assortments in connection with the Viking warehouse
consolidation.
In 1999, we recorded facility closure charges of $40.4 million to reflect our
decision to accelerate our store closure program for under-performing stores and
our relocation program for older stores in our North American Retail Division.
These charges consisted of asset write-offs ($29.2 million), residual lease
obligations ($8.3 million) and other exit costs ($2.9 million).
OFFICE DEPOT 17
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The following is a breakdown of these charges by segment.
<TABLE>
<CAPTION>
(In millions, before income taxes) 2000 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
North American Retail Division $201.1 $ 88.3 $ --
BSG 8.6 (12.2) 119.1
International Division 18.7 29.1 --
Other 32.2 -- --
- -------------------------------------------------------------------------------
Total $260.6 $105.2 $119.1
===============================================================================
</TABLE>
After considering the effect of income taxes, the impact of these one-time
charges and credits on our net earnings was $172.9 million, $69.3 million and
$86.8 million for 2000, 1999, and 1998, respectively. The remaining RESULTS OF
OPERATIONS discussion excludes the one-time charges and credits discussed above
because the effects of these charges are not comparable on a year-over-year
basis.
Overall
<TABLE>
<CAPTION>
PERCENTAGE Percentage Percentage
(Dollars in thousands) 2000 OF SALES 1999 of Sales 1998 of Sales
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $11,612,496 100.0% $10,306,341 100.0% $9,007,051 100.0%
Cost of goods sold and occupancy costs 8,473,598 73.0% 7,412,729 71.9% 6,484,464 72.0%
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 3,138,898 27.0% 2,893,612 28.1% 2,522,587 28.0%
Store and warehouse operating and selling expenses 2,296,601 19.8% 1,969,817 19.1% 1,651,355 18.3%
- -----------------------------------------------------------------------------------------------------------------------------
Store and warehouse operating profit $ 842,297 7.2% $ 923,795 9.0% $ 871,232 9.7%
=============================================================================================================================
</TABLE>
Our overall sales increased by 13% in 2000 and 14% in 1999. Our largest
percentage sales increases in 2000 were realized in our BSG segment, driven most
significantly by the growth in our contract and Internet businesses. Our
domestic Internet sales increased $499.8 million over 1999. Also contributing
significantly to our sales growth in 2000 was the continued expansion of our
store base. In 1999, our store expansion program accounted for our largest
percentage sales increases over 1998. We increased our domestic and
international store base by 63 and 14 stores, respectively, in 2000 and by 123
and 31 stores, respectively, in 1999. In our stores and warehouses worldwide, we
achieved comparable sales growth of 7% in 2000 and 6% in 1999. Sales in 2000
contain an additional week in December in accordance with our 52-53 week
accounting convention. This week accounted for approximately $224 million of
additional sales reported in 2000. Without this additional sales week, our total
sales increase would have been 11% for 2000 compared to 1999.
Our worldwide sales by product group were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
- ---------------------------------------------------------
<S> <C> <C> <C>
General office supplies 41.7% 41.0% 42.9%
Technology products 47.5% 47.5% 46.0%
Office furniture 10.8% 11.5% 11.1%
- ---------------------------------------------------------
100.0% 100.0% 100.0%
=========================================================
</TABLE>
In 2000, our sales mix shifted back towards our core business items, which are
mainly in the general office supplies category. Within the technology products
category, the mix shifted from technology hardware and software towards machine
supplies. In general, the market demand for technology hardware and software has
declined from a year ago. Also, we did not offer a rebate from an Internet
service provider for a portion of 2000, whereas our major competitors did have a
rebate offering. These factors, along with our more competitive pricing strategy
on many popular items in the machine supply category, caused the shift from
technology hardware and software towards machine supplies. Office furniture was
affected primarily by decreases in the average selling prices on these items
during 2000. In 1999, low priced computers and aggressive promotional programs
offering discounts on certain hardware and software when customers signed up for
Internet service drove the increase in our sales of technology products over
1998.
Our overall gross profit percentages fluctuate as a result of numerous factors,
including competitive pricing pressures; changes in product, catalog and
customer mix; emergence of new technology; suppliers' pricing changes; as well
as our ability to improve our net product costs through growth in total
merchandise purchases. Additionally, our occupancy costs may vary as we add
stores and CSCs in new markets with different rental and other occupancy costs,
and as we relocate and/or close existing stores in current markets.
In mid-2000, we reduced prices for paper and machine supplies across all of our
domestic sales channels in response to competitive pressures from discount
clubs and other non-traditional sellers of those supply items. These price
reductions, along with increased product costs, primarily for paper and machine
supplies, had the most significant effect on our decreased gross profit
percentage in 2000 compared to 1999. These two product groups accounted for
approximately 34% of our total sales mix in 2000. Decreased net product costs
derived from merger-related synergies during 1999 drove our slight improvement
in margins compared to 1998. However, offsetting these savings were increased
occupancy costs in our North American Retail Division and lower margins in our
International Division, both of which are discussed in more detail later.
18 OFFICE DEPOT
<PAGE> 7
Store and warehouse operating and selling expenses consist of personnel costs;
maintenance and other facility costs; advertising expenses; delivery and
transportation costs; credit card and bank charges and certain other operating
and selling costs. The increase in our operating and selling expenses in 2000
are primarily the result of higher personnel and warehouse costs compared to
1999. We have experienced higher delivery- and personnel-related costs in our
warehouse operations as third-party carriers have increased their rates, and our
integration efforts have taken longer to complete than originally planned. We
also had a significant increase during 2000 in personnel expenses in our
domestic stores, largely related to wage pressures stemming from a tight labor
market. Increased costs associated with our aggressive store expansion were also
the main driver of our increased operating and selling costs in 1999 compared to
1998. Also contributing to the increase in 1999 over 1998 was the re-launch of
our "Taking Care of Business" advertising campaign.
NORTH AMERICAN RETAIL DIVISION
<TABLE>
<CAPTION>
PERCENTAGE Percentage Percentage
(Dollars in thousands) 2000 OF SALES 1999 of Sales 1998 of Sales
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $6,517,022 100.0% $5,927,666 100.0% $5,150,854 100.0%
Cost of goods sold and occupancy costs 5,054,757 77.6% 4,535,622 76.5% 3,921,420 76.1%
- ----------------------------------------------------------------------------------------------------------------
Gross profit 1,462,265 22.4% 1,392,044 23.5% 1,229,434 23.9%
Operating and selling expenses 1,009,670 15.5% 883,589 14.9% 692,673 13.5%
- ----------------------------------------------------------------------------------------------------------------
Operating profit $ 452,595 6.9% $ 508,455 8.6% $ 536,761 10.4%
================================================================================================================
</TABLE>
Sales in our North American Retail Division increased 10% in 2000 and 15% in
1999. These increases were primarily achieved through our store expansion
program. For 2000, comparable sales in the 818 stores that had been open for
more than one year were flat. In 1999 comparable sales increased by 2% over
1998.
Sales of business machine supplies, with increases of 14% in 2000 and 17% in
1999, contributed considerably to the sales increases in our North American
Retail Division. Sales of computer products (e.g., computers, printers,
peripherals, software, and related supplies) in our stores, which contributed
most significantly to our sales increase in 1999 with an increase of 23% over
1998, only increased by 3% in 2000. During 1999, we offered low priced units and
more aggressive promotional programs on computer products, including an instant
rebate program with the sign up for Internet service, which drove the increase
in sales over 1998. For a portion of 2000, we did not offer an Internet service
provider instant rebate program. Also in 2000, we saw a decline in the overall
market demand for these computer products in comparison to 1999.
Lower margins realized on paper and machine supplies contributed most notably to
the decrease in gross profit in 2000 compared to 1999. As discussed in the
Overall section above, increased costs of these core products and decreased
prices in response to competitive pressures negatively impacted gross profit.
Also in 2000, sales increases in the North American Retail Division were not
sufficient to leverage the additional fixed expenses incurred with the addition
of new stores. Gross Profit includes fixed costs such as occupancy and rental
costs for equipment in our print and copy centers. Increased occupancy costs
also had significant impact on our gross profit percentage in 1999 in comparison
with 1998. Furthermore, the increase in technology sales during 1999, which
yield lower gross profit percentages than other product groups, also contributed
to the decrease in our gross profit percentage compared to the prior year.
In our North American Retail Division, the largest components of operating and
selling expenses are personnel, facility, advertising and credit card
expenses. In our North American Retail Division, we added 63 stores in 2000 and
123 stores in 1999. Because newer stores typically generate lower average sales
than more mature stores, operating and selling expenses as a percentage of sales
have increased. Additionally, we believe that opening new stores in existing
markets has cannibalized, to some extent, the sales of other Office Depot stores
in those markets (i.e., had the effect of reducing sales at existing stores),
also causing our expenses to increase relative to sales.
The increase in expenses during 2000 and 1999 was driven largely by
personnel-related costs, primarily because of competitive wage pressure and
the need to attract more highly skilled associates in certain positions. Over
50% of our stores' operating expenses are personnel related and have a
relatively large fixed component. In 2000, we saw an increase in delivery orders
as a percentage of total store sales. These orders are delivered by the
warehousing operations in our BSG, which allocates a portion of their cost to
cover the delivery expense. As explained in the BSG section below, warehouse
expenses increased in 2000, which also negatively impacted operating and selling
expenses. In 1999, increased advertising expenses, primarily from the re-launch
of our "Taking Care of Business" campaign, also contributed significantly to the
increase in operating and selling expenses over 1998.
OFFICE DEPOT 19
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
BSG
<TABLE>
<CAPTION>
PERCENTAGE Percentage Percentage
(Dollars in thousands) 2000 OF SALES 1999 of Sales 1998 of Sales
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $3,632,068 100.0% $3,057,187 100.0% $2,807,573 100.0%
Cost of goods sold and occupancy costs 2,530,760 69.7% 2,092,410 68.4% 1,948,167 69.4%
- ----------------------------------------------------------------------------------------------------------------
Gross profit 1,101,308 30.3% 964,777 31.6% 859,406 30.6%
Operating and selling expenses 895,517 24.7% 714,135 23.4% 671,591 23.9%
- ----------------------------------------------------------------------------------------------------------------
Operating profit $ 205,791 5.6% $ 250,642 8.2% $ 187,815 6.7%
================================================================================================================
</TABLE>
In our BSG segment, we grew sales by 19% in 2000 and by 9% in 1999 primarily
through an overall increase in our large business customer base and through
significant growth in our Internet business. Our domestic Internet sales
increased to $849.5 million in 2000, compared with sales of $349.7 million in
1999 and $66.5 million in 1998. We expect continued growth in our Internet sales
during 2001 as we allocate additional resources to that sales channel. We also
experienced growth in our Viking Office Products(R) brand catalog sales in both
years, driven by a more targeted approach to catalog promotions. We achieved
increases in our Office Depot(R) brand catalog sales through increased
circulation and greater assortment in our direct mail catalogs in both years.
Sales of business machine supplies, which are significant to our BSG product
mix, increased 27% in 2000 and 26% in 1999.
We earn higher gross profit percentages in our BSG than in our retail operations
principally as the result of lower occupancy costs and a mix of higher margin
products. Paper, machine supplies and other general office supplies, which yield
higher margins than our other product groups, account for a much larger
percentage of total sales in our BSG than in our stores. However, BSG's gross
profit percentages are lower than in our International Division as a result of
the lower relative pricing we negotiate with our contract customers.
Contributing to the decrease in our BSG's gross profit from 1999 to 2000 was an
increase in paper costs, coupled with reduced prices for paper products, ink,
and toner necessitated by competitive pressures.
Further, these products increased in our product mix, which compounded the
negative impact on gross profit. During 1999, we were able to lower our product
costs by realizing certain synergies from our merger with Viking, which
increased our gross profit over 1998.
Personnel, facility and delivery expenses are the largest components of our
BSG operating expenses. Operating and selling expenses as a percentage of sales
are significantly higher in our BSG than in our North American Retail Division,
principally because of the need for a more experienced and highly compensated
sales force that directly calls on our BSG customers. In 2000, these expenses
increased over 1999 primarily as a result of higher delivery costs arising from
increased rates charged by third-party carriers, and from personnel-related
expenses associated with our warehouse staff. Furthermore, a larger workforce
was required to handle the execution of our warehouse integration plans. During
the transition into integrated facilities, we incurred certain incremental
expenses related to preparing for the increased volume of deliveries and the
dual-brand fulfillment in the newly integrated facilities. Operating and
selling expenses as a percentage of sales decreased in 1999 as compared to 1998,
primarily because of the costs associated with consolidating and integrating
five of our Office Depot CSCs into two larger facilities during 1998.
INTERNATIONAL DIVISION
<TABLE>
<CAPTION>
PERCENTAGE Percentage Percentage
(Dollars in thousands) 2000 OF SALES 1999 of Sales 1998 of Sales
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,467,357 100.0% $1,325,372 100.0% $1,052,543 100.0%
Cost of goods sold and occupancy costs 890,311 60.7% 786,916 59.4% 617,299 58.6%
- ----------------------------------------------------------------------------------------------------------------
Gross profit 577,046 39.3% 538,456 40.6% 435,244 41.4%
Operating and selling expenses 392,878 26.8% 373,575 28.2% 288,173 27.4%
- ----------------------------------------------------------------------------------------------------------------
Operating profit $ 184,168 12.5% $ 164,881 12.4% $ 147,071 14.0%
================================================================================================================
</TABLE>
20 OFFICE DEPOT
<PAGE> 9
Sales in our International Division grew by 11% in 2000 and by 26% in 1999 as we
continued to penetrate new and existing markets with our Office Depot(R) and
Viking Office Products(R) brands. However in both 2000 and 1999, sales in our
International Division, which are translated into and reported in U.S.
dollars, were negatively impacted by unfavorable exchange rate changes. In local
currencies, sales in our International Division grew 23% in 2000 and 30% in
1999. The larger increase in 1999 results primarily from including the sales
from our French and Japanese operations, which were consolidated from the fourth
quarter of 1998 and the second quarter of 1999, respectively, following our
purchase of the remaining 50% interest in each of these operations from our
joint venture partners. These Office Depot retail operations continued to show
strong local currency sales growth in 2000, with comparable store sales above
30%. Although the Office Depot(R) brand continues to grow as a percentage of the
total sales in this segment, our Viking Office Products(R) brand still accounts
for the vast majority of our international business representing approximately
88% of all international sales in 2000. These Viking catalog operations had
local currency comparable sales increases of 16% in 2000 and 17% in 1999.
Competitive, political and economic conditions in international markets in which
we operate may impact our sales in the future.
As discussed above, the growth rates of our Office Depot(R) brand sales exceeded
those of our Viking Office Products(R) brand in both 2000 and 1999, which
contributed to the decline in gross profit for both years. Gross profit
percentages earned in our stores are lower than the percentages earned in our
catalog business because of pricing and product mix differences and higher
occupancy costs in our stores. Also, in both 2000 and 1999, there has been an
unfavorable shift in our sales mix towards machine supplies, primarily ink and
toner cartridges, which yield lower gross profit margins than other office
products. As with our other segments, our International Division was impacted by
the higher costs for paper and machine supplies in 2000. However, unlike our
domestic segments, the effect of these cost increases was lessened with
increased pricing in our catalogs during the latter half of the year.
Similar to our BSG, personnel and delivery expenses are significant components
of our International Division's operating and selling expenses. Furthermore,
because direct mail is our largest international sales channel, advertising
expense, including the cost of catalog preparation and mailing, is a significant
expense for us. Operating and selling expenses as a percentage of sales are
higher in our International Division than in our other segments primarily
because of the use of an extensive marketing program to drive sales in new and
existing markets. Additionally, certain of our operations are in their start-up
phase, which also increases our international operating expenses as a percentage
of sales when compared to other segments.
In 2000, strong local currency sales growth was able to better leverage many of
our fixed operating and selling expenses. Also in 2000, our advertising expenses
were significantly less than in 1999 because we were able to significantly
reduce our prospect catalog mailings in Japan, following its initial year of
operation during 1999, and we were able to implement more effective advertising
campaigns with the help of our improved data warehouses in certain European
markets. In 1999, increasing competition in many of our established markets,
coupled with our efforts to gain market share in certain newer markets, drove up
our advertising costs. Also in 1999, the consolidation of our French and
Japanese retail operations increased operating and selling expenses, because the
majority of these locations were in the first few years of operations and
operating leverage had not been achieved.
As our operations in a particular market grow, certain fixed operating expenses
decline relative to sales. For example, advertising costs in the form of
prospecting and delivery costs, which are affected by the density of the
delivery areas, decline as a percentage of sales as the market grows. We expect
to leverage certain fixed operating expenses, and our cost to attract new
customers should decline as a percentage of sales as we continue to establish
our brands and grow our international business. We believe that these
improvements will be offset by the incremental costs incurred to continue
developing new markets.
CORPORATE AND OTHER
<TABLE>
<CAPTION>
Pre-opening Expenses
(Dollars in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-opening expenses $13,465 $23,628 $17,150
Office supply stores opened(*) 78 159 106
=================================================================================
</TABLE>
(*) Includes domestic and wholly-owned international openings and relocations.
Our pre-opening expenses consist principally of personnel, property and
advertising expenses incurred in opening or relocating stores in our North
American Retail Division. Our pre-opening expenses also include, to a lesser
extent, expenses incurred to open or relocate facilities in our BSG and
International Division. We typically incur pre-opening expenses during a
six-week period prior to a store opening. Because we expense these items as they
are incurred, the amount of pre-opening expenses each year is generally
proportional to the number of new stores opened during the period. This has been
the primary contribution to the fluctuation in pre-opening expenses over the
three years presented. For 2000, our pre-opening expenses approximated $162,000
per domestic office supply store and $116,000 per international office supply
store. Our cost to open a new CSC varies significantly with the size and
location of the facility. Historically, we have incurred up to $1.8 million to
open a domestic or international CSC.
OFFICE DEPOT 21
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
<TABLE>
<CAPTION>
General and Administrative Expenses
(Dollars in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
General and
administrative expenses $456,556 $381,611 $330,194
Percentage of sales 3.9% 3.7% 3.7%
=================================================================================
</TABLE>
Our general and administrative expenses consist primarily of personnel-related
costs associated with support functions. Because these functions, for the most
part, support all segments of our business, we do not consider these costs in
determining our segment profitability. Throughout 2000 and 1999, we developed
our infrastructure, particularly in the areas of Supply Chain Management, MIS,
and International. These areas were significant contributors to the increases in
our general and administrative expenses in the last two years. The primary
benefits derived from this increased spending were the expansion and improvement
of our e-commerce services, a new data center, improvements in our inventory
in-stock positions and support for our rapidly growing International Division.
Also contributing to the growth, particularly in 1999, was spending to support
our Year 2000 ("Y2K") efforts and CSC consolidation and integration initiatives.
<TABLE>
<CAPTION>
Other Income and Expense
(Dollars in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 11,502 $ 30,176 $ 25,309
Interest expense (33,901) (26,148) (22,356)
Miscellaneous income
(expense), net 3,332 (3,514) (18,985)
=============================================================================
</TABLE>
We do not consider interest income and expense arising from our financing
activities at the corporate level in determining segment profitability.
Pursuant to our Board of Directors authorizing stock repurchases in the latter
half of 1999 and 2000, we have purchased approximately 82 million shares of our
stock at a total cost of $800 million plus commissions. As a result, our cash
balances have declined, and our interest income has decreased in 2000. The
increases in interest income in 1999 and 1998 resulted from improved supply
chain initiatives in 1998, which yielded higher average cash balances throughout
1998 and most of 1999.
During the fourth quarter of 2000, we began borrowing against our domestic
credit facility (see LIQUIDITY AND CAPITAL RESOURCES), which led to increased
interest expense over 1999. Also, as we set up reserves for future lease
obligations related to our facility closures and merger activities, we recorded
those reserves at the net present value of the obligation. In 2000, as we have
been paying these obligations, we have been recording the imputed interest cost
on the discounted obligations as interest expense. This has also caused interest
expense to increase and should be expected to continue in future years. During
1999, we entered into a number of capital leases, primarily related to new
point-of-sale equipment in our stores, which also drove the increase in interest
expense over 1998.
Our net miscellaneous income (expense) consists of equity in the earnings
(losses) of our joint venture investments, royalty and franchise income that we
generate from licensing and franchise agreements and the amortization of
goodwill. All of our equity investments involve operations outside of the United
States and Canada, and our equity in the earnings (losses) of these operations
is included in determining the profitability of our International Division. Our
net miscellaneous income in 2000 is attributable to our profitable joint venture
operations in Mexico and Israel. The decrease in net miscellaneous expense in
1999 from 1998 is primarily attributable to the consolidation of our French and
Japanese retail operations beginning in the fourth quarter of 1998 and second
quarter of 1999, respectively, when we purchased the remaining 50% interest from
our joint venture partners. Prior to that consolidation, we recorded equity
losses related to the start-up of those operations.
<TABLE>
<CAPTION>
Income Taxes
(Dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes $ 43,127 $156,249 $155,531
Effective income tax rate(*) 46.6% 37.8% 40.0%
Effective income tax rate(*),
excluding merger and
restructuring costs and
other one-time charges
and credits 37.0% 37.0% 37.0%
============================================================================
</TABLE>
(*) Income taxes as a percentage of earnings before income taxes.
In 2000, 1999 and 1998, certain non-deductible merger-related and other one-time
charges caused our overall effective income tax rates to rise. Our overall
effective income tax rate, excluding these charges, may fluctuate in the future
as a result of the mix of pre-tax income and tax rates between countries.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used in) our operating, investing and financing activities
is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities $ 316,482 $ 369,449 $ 678,615
Investing activities (239,365) (447,841) (271,317)
Financing activities (134,093) (405,849) 61,747
========================================================================
</TABLE>
Operating and Investing Activities
We historically have relied on cash flow generated from operations as our
primary source of funds because the majority of our store sales are generated on
a cash and carry basis. Furthermore, we use private label credit card programs,
administered and financed by financial services companies, to expand our sales
without the burden of carrying additional receivables. Our cash requirements are
also reduced by vendor credit terms that allow
OFFICE DEPOT 22
<PAGE> 11
us to finance a portion of our inventory. We generally offer credit terms, under
which we carry our own receivables, to our contract and certain of our direct
mail customers. As we expand our contract and direct mail businesses, we
anticipate that our accounts receivable portfolio will continue to grow. Amounts
due for rebate, cooperative advertising and marketing programs with our vendors
comprise a significant percentage of our total receivables. These receivables
tend to fluctuate seasonally (growing during the second half of the year and
declining during the first half), because certain collections do not happen
until after an entire program year has been completed.
The decline in operating cash flows in 2000 is primarily attributable to lower
gross profit and higher store and warehouse operating and selling expenses and
general and administrative expenses, which is more fully explained in RESULTS OF
OPERATIONS. In 1999, the decrease in operating cash flows from 1998 was due
mainly to our aggressive store opening program. On a worldwide basis in 1999,
excluding joint venture operations and licensing arrangements, we opened 159
stores, including relocations of older stores, as compared to 106 openings
during 1998. Opening a new domestic store requires that we outlay approximately
$0.5 million in cash for the portion of our inventories that is not financed by
our vendors, as well as approximately $0.2 million for pre-opening expenses (see
PRE-OPENING EXPENSES). Our focus on supply chain management helped boost our
1998 operating cash flows by reducing inventories by $139 million. This focus
continued to reduce the average inventory balances held in stores and CSCs in
1999 and 2000; however, this benefit was offset by increases resulting from
stocking our new stores with inventories. Incremental Y2K-related purchases
further impacted our inventory levels in 1999.
Our primary investing activity is the acquisition of capital assets. The number
of stores and CSCs we open or remodel each year generally drives the volume of
our capital investments. Over the past three years, we opened 78, 159 and 106
stores during 2000, 1999 and 1998, respectively. This accounts for the majority
of the variation in our investing activities over the years. During 2000, we
also had significant expenditures related to our Viking integration plans. In
1999, computer and other equipment purchases at our corporate offices and at
our facilities, necessary to complete Y2K remediation, relocation of our
corporate data center, and support for our store expansion, also contributed to
our increased cash investing needs.
We currently plan to open approximately 50 stores in our North American Retail
Division and numerous stores in our International Division during 2001. We also
plan to relocate several existing warehouses, and open two additional warehouses
in our International Division. We estimate that our cash investing requirements
will be approximately $1.1 million for each new domestic office supply store.
The $1.1 million includes approximately $0.6 million for leasehold improvements,
fixtures, point-of-sale terminals and other equipment, and approximately $0.5
million for the portion of our inventories that will not be financed by our
vendors. In addition, our average new office supply store requires pre-opening
expenses of approximately $0.2 million. The investment required for a new CSC is
significantly more than the amounts required for a new store. Each new domestic
and international CSC requires between $6 to $16 million for capital assets and
inventory, and pre-opening expenses of up to $1.8 million, depending on the
size, type and location of the facility. Also in 2001, we plan on spending
approximately $40 million in capital investments related to re-merchandising and
remodeling our store locations and consolidating and upgrading our call centers.
We have expanded our presence in the electronic commerce marketplace by entering
into strategic business relationships with several Web-based providers of
business-to-business electronic commerce solutions. We made equity investments
in these companies during 2000 and 1999 of $30.1 and $50.7 million,
respectively. During 2000, we sold certain of these investments for $57.9
million. Also, because of the recent decline in the market for Internet related
companies, we performed an extensive valuation of each of our remaining
investments at the end of 2000. This resulted in a write down of $45.5 million,
reducing the current book value of the investments at December 30, 2000 to $29.9
million. We continue to believe the Internet represents an exciting opportunity
for our products and services, and we will continue to look for opportunities to
invest in companies that provide business-to-business e-commerce solutions for
small- and medium-sized businesses.
Financing Activities
Our domestic credit facilities provide us with a maximum of $600.0 million in
funds. These facilities consist of two separate credit agreements, a five-year
loan providing us with a working capital line and letters of credit capacity
totaling $300.0 million, and a 364-day loan for working capital also totaling
$300.0 million. As of December 30, 2000, we had outstanding borrowings of
$389.6 million under these lines of credit, as well as letters of credit
totaling $49.5 million. Our five-year agreement was entered into in February
1998 and has various borrowing rate options, including a rate based on our
credit rating that currently would result in an interest rate of 0.475% over the
London Interbank Offered Rate ("LIBOR"). In June 2000, we entered into a second
credit agreement with a 364-day term, which also has various borrowing rate
options, including a current borrowing rate of 0.500% over LIBOR. At December
30, 2000, the average effective interest rates were 7.001% and 7.996% for the
five-year and 364-day facilities, respectively. Both agreements contain similar
restrictive covenants relating to various financial statement ratios.
OFFICE DEPOT 23
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In July 1999, we entered into term loan and revolving credit agreements with
several Japanese banks (the "yen facilities") to provide financing for our
operating and expansion activities in Japan. The yen facilities provide for
maximum aggregate borrowings of (Y)9.76 billion (the equivalent of $85.3 million
at December 30, 2000) at an interest rate of 0.875% over the Tokyo Interbank
Offered Rate ("TIBOR"). These facilities are available to us until July 2002.
The yen facilities loan agreements are tied to the covenants in our domestic
facilities described earlier. As of December 30, 2000, we had outstanding yen
borrowings equivalent to $64.0 million under these yen facilities, with an
average effective interest rate of 1.252%. Effective October 28, 1999, we
entered into a yen interest rate swap with a financial institution for a
principal amount equivalent to $21 million at December 30, 2000 in order to
hedge against the volatility of the interest payments on a portion of our yen
borrowings. The terms of the swap specify that we pay an interest rate of 0.700%
and receive TIBOR. The swap will mature in July 2002.
In addition to bank borrowings, we have historically used equity capital,
convertible debt and capital equipment leases as supplemental sources of funds.
In August 1999, our Board approved a $500 million stock repurchase program
reflecting its belief that our common stock represented a significant value at
its then-current trading price. We purchased 46.7 million shares of our stock at
a total cost of $500 million plus commissions during the third and fourth
quarters of 1999. During the first half of 2000, our Board approved additional
stock repurchases of up to $300 million, bringing our total authorization to
$800 million. We completed these programs during 2000, purchasing an additional
35.4 million shares of our stock at a total cost of $300 million plus
commissions.
In 1992 and 1993, we issued Liquid Yield Option Notes ("LYONs(R)") which are
zero coupon, convertible subordinated notes maturing in 2007 and 2008,
respectively. Each LYON(R) is convertible at the option of the holder at any
time on or prior to its maturity into Office Depot common stock at conversion
rates of 43.895 and 31.851 shares per 1992 and 1993 LYON(R), respectively. On
November 1, 2000, the majority of the holders of our 1993 LYONs(R) required us
to purchase the LYONs(R) from them at the issue price plus accrued original
issue discount. We paid the holders $249.2 million in connection with this
repurchase, and reclassified the remaining 1993 LYONs(R) obligation to long-term
on our balance sheet. Our 1992 LYONs(R) has a similar provision whereby the
holders may require us to purchase these notes at the issue price plus accrued
original issue discount on December 11, 2002. If the holder decides to exercise
their put option, we have the choice of paying the holder in cash, common stock
or a combination of the two.
Our stock repurchase and the repurchase of our 1993 LYONs(R) make up the
majority of cash used in financing activities for 2000. We began borrowing from
our domestic credit facilities during the fourth quarter of 2000, primarily to
fund the LYONs(R) repurchase. The decline in cash from our financing activities
in 1999, as compared to 1998, was driven by our stock repurchases.
We continually review our financing options. Although we currently anticipate
that we will finance all of our 2001 expansion, integration and other activities
through cash on hand, funds generated from operations, equipment leases and
funds available under our credit facilities, we will consider alternative
financing as appropriate for market conditions.
SIGNIFICANT TRENDS, DEVELOPMENTS, AND UNCERTAINTIES
Over the years, we have seen continued development and growth of competitors in
all segments of our business. In particular, mass merchandisers and warehouse
clubs have increased their assortment of home office merchandise, attracting
additional back-to-school customers and year-round casual shoppers. We also face
competition from other office supply superstores that compete directly with us
in numerous markets. These other office supply superstores compete with us in
geographical locations where we have traditionally been the market leader, just
as we have begun penetrating markets where they have historically held the
dominant market share. This competition is likely to result in increased
competitive pressures on pricing, product selection and services provided.
We have also seen growth in new and innovative competitors that offer office
products over the Internet, featuring special purchase incentives and one-time
deals (such as close-outs). Through our own successful Internet and
business-to-business Web sites, we believe that we have positioned ourselves
competitively in the electronic commerce arena. We have invested in strategic
partnerships with several business-to-business Internet companies offering
innovative solutions to small businesses, a target customer group. We are
committed to supporting our Internet channel to meet the needs of our customers,
including investing in new and innovative electronic commerce business
enterprises.
24 OFFICE DEPOT
<PAGE> 13
EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Economic and Monetary Union ("EMU") established fixed conversion rates between
their existing currencies and the EMU's common currency (the "euro"). The euro
is presently trading on currency exchanges and may be used in business
transactions. The ultimate conversion to the euro will eliminate currency
exchange rate risk among the member countries. The former currencies of the
participating countries are scheduled to remain the sole legal tender as
denominations of the euro and the euro will not exist as a physical means of
exchange until January 1, 2002. On January 1, 2002, the euro will be in
circulation and parties may settle transactions using either the euro or a
participating country's former currency. On July 1, 2002, new euro-denominated
bills and coins will become the sole legal currency, and all former currencies
will be withdrawn from circulation.
We generate significant sales in Europe and are currently evaluating the
business implications of the conversion to the euro. We have determined that we
need to make multiple changes and modifications to our current systems to
prepare them for July 1, 2002. Also, the use of a single currency in the
participating countries may affect our ability to price our products differently
in various European markets because of price transparency. We realize that we
may be faced with price harmonization at lower average prices for items we sell
in some markets. Nevertheless, other market factors such as local taxes,
customer preferences and product assortment may reduce the likelihood or impact
of price equalization. Based on these evaluations, we do not expect the
conversion to the euro to have a material effect on our financial position or
the results of our operations.
INTEREST RATE AND FOREIGN EXCHANGE MARKET RISKS
INTEREST RATE RISKS
We have some investments subject to interest rate risk. These consist primarily
of cash equivalents and short-term marketable securities. A 10% change in
interest rates would change our interest income by approximately $0.5 million.
Our zero coupon, convertible subordinated notes offer stated yields to maturity
which are not subject to interest rate risks. Borrowings under our domestic and
Japanese credit facilities are both subject to variable interest rates. The
interest rate risk on our Japanese bank borrowings has been partially mitigated
by an interest rate swap that fixes the interest rate on a portion of our yen
borrowings for the remaining life of the loan. With interest rates currently
approximating 1% in Japan, a 10% change in interest rates would not materially
change our total interest expense. However, a 10% change in the domestic
interest rates would have changed our net interest expense by $2.3 million in
2000.
FOREIGN EXCHANGE RATE RISKS
We conduct business in various countries outside the United States where the
functional currency of the country is not the U.S. dollar. This results in
foreign exchange translation exposure when these foreign currency earnings are
translated into U.S. dollars in our consolidated financial statements. As of
December 30, 2000, a 10% change in the applicable foreign exchange rates would
have resulted in an increase or decrease in our annual operating profit of
approximately $9.8 million on an annual basis.
We are also subject to foreign exchange transaction exposure when our
subsidiaries transact business in a currency other than their own functional
currency. This exposure arises primarily from inventory purchases in a foreign
currency. The introduction of the euro and our decision to consolidate our
European purchases has greatly reduced these exposures. During 2000, we entered
into foreign exchange forward contracts to hedge certain inventory exposures.
The maximum contract amount outstanding during the year was $14.6 million.
INFLATION AND SEASONALITY
Although we cannot determine the precise effects of inflation on our business,
we do not believe inflation has a material impact on our sales or the results of
our operations. We consider our business to generally be somewhat seasonal, with
sales in our North American Retail Division and Business Services Group slightly
higher during the first and fourth quarters of each year, and sales in our
International Division slightly higher in the third quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires that we
record all derivatives as assets or liabilities measured at their fair value.
Gains or losses resulting from changes in the values of those derivatives would
be accounted for according to the intended use of the derivative and whether it
qualifies for hedge accounting.
In July 1999, the FASB issued SFAS No. 137, which deferred the effective date of
SFAS No. 133 until the start of fiscal years beginning after June 15, 2000. We
will adopt SFAS No. 133 for our fiscal year 2001. Assuming our current level of
involvement in derivative instruments and hedging activities does not change
before we adopt this Statement, we do not expect the adoption of SFAS No. 133 to
have a material impact on our financial position or the results of our
operations.
OFFICE DEPOT 25
<PAGE> 14
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
CAUTIONARY STATEMENTS
In December 1995, the Private Securities Litigation Reform Act of 1995 (the
"Act") was enacted by the United States Congress. The Act, as amended, contains
certain amendments to the Securities Act of 1933 and the Securities Exchange Act
of 1934. These amendments provide protection from liability in private lawsuits
for "forward-looking" statements made by public companies. We want to take
advantage of the "safe harbor" provisions of the Act. In doing so, we have
disclosed these forward-looking statements by informing you in specific
cautionary statements of the circumstances which may cause the information in
these statements not to transpire as expected.
This Annual Report contains both historical information and other information
that you can use to infer future performance. Examples of historical information
include our annual financial statements and the commentary on past performance
contained in our MD&A. While we have specifically identified certain information
as being forward-looking in the context of its presentation, we caution you
that, with the exception of information that is clearly historical, all the
information contained in this Annual Report should be considered to be
"forward-looking statements" as referred to in the Act. Without limiting the
generality of the preceding sentence, any time we use the words "estimate,"
"project," "intend," "expect," "believe," "anticipate," "continue," and similar
expressions, we intend to clearly express that the information deals with
possible future events and is forward-looking in nature.
Forward-looking information involves risks and uncertainties, including certain
matters that we discuss in more detail below and in our report on Form 10-K,
filed with the Securities & Exchange Commission. This information is based on
various factors and important assumptions about future events that may or may
not actually come true. As a result, our operations and financial results in the
future could differ materially and substantially from those we have discussed in
the forward-looking statements in this Annual Report. In particular, the factors
we discuss below and in our Form 10-K could affect our actual results and could
cause our actual results in 2001 and in future years to differ materially from
those expressed in any forward-looking statement made by us or on our behalf in
this Annual Report.
COMPETITION: We compete with a variety of retailers, dealers and distributors in
a highly competitive marketplace that includes high-volume office supply chains,
warehouse clubs, computer stores, contract stationers, and well-established mass
merchant retailers. Well-established mass merchant retailers have the financial
and distribution ability to compete very effectively with us should they choose
to enter the office superstore retail category, Internet office supply or
contract stationer business or substantially expand their offering in their
existing retail outlets. This could have a material adverse effect on our
business and results of our operations.
INTERNET: Internet-based merchandisers also compete with us. This competition is
expected to increase in the future as these companies proliferate and continue
to expand their operations. Many start-up operations that are heavily focused on
Internet sales may be able to compete with us in the areas of price and
selection. While most of these companies cannot offer the levels of service and
stability of supply that we provide, they nevertheless may be formidable
competitors, particularly for customers who are willing to look for the absolute
lowest price without regard to the other attributes of our business model. In
addition, certain manufacturers of computer hardware, software and peripherals,
including certain of our suppliers, have expanded their own direct marketing of
products, particularly over the Internet. Even as we expand our own Internet
efforts, our ability to anticipate and adapt to the developing Internet
marketplace and the capabilities of our network infrastructure to efficiently
handle our rapidly expanding operations are of critical importance. Furthermore,
our profitability goals may also serve to inhibit the expansion of our presence
on the Internet, because dedicated Internet concerns are currently evaluated
differently in the financial markets than more established concerns such as
ours. Failure to execute well in any of these key areas could have a material
adverse effect on our future sales growth and profitability.
EXECUTION OF EXPANSION PLANS: We plan to open approximately 50 stores in the
United States and Canada and numerous stores in our International Division
during 2001, and we consider our expansion program to be an integral part of our
plan to achieve anticipated operating results in future years. Circumstances
outside our control, such as adverse weather conditions affecting construction
schedules, unavailability of acceptable sites or materials, labor disputes and
similar issues could impact anticipated store openings. The failure to expand by
opening new stores as planned and the failure to generate the anticipated sales
growth in markets where new stores are opened could have a material adverse
effect on our future sales growth and profitability.
CANNIBALIZATION OF SALES IN EXISTING OFFICE DEPOT STORES: As we expand the
number of our stores in existing markets, sales of existing stores may suffer
from cannibalization (customers of our existing stores begin shopping at our new
stores). Our new stores typically require an extended period of time to reach
the sales and profitability levels of our existing stores. Moreover, the opening
of new stores does not ensure that those stores will ever be as profitable as
existing stores, particularly when new stores are opened in highly competitive
markets or markets in which other office supply superstores may have achieved
"first mover" advantage. Our comparable sales are affected by a number of
factors, including the opening of additional Office Depot stores; the expansion
of our contract stationer business in new and existing markets; competition from
other office supply chains, mass merchandisers, warehouse clubs, computer
26 OFFICE DEPOT
<PAGE> 15
stores, other contract stationers and Internet-based businesses; and regional,
national and international economic conditions. In addition, our profitability
would be adversely affected if our competitors were to attempt to capture market
share by reducing prices.
COSTS OF REMODELING AND RE-MERCHANDISING STORES: The remodeling and
re-merchandising of our stores has contributed to increased store expenses, and
these costs are expected to continue impacting store expenses throughout 2001
and beyond. While a necessary aspect of maintaining a fresh and appealing image
to our customers, the expenses associated with such activities could result in a
significant impact on our net income in the future. In addition, there is no
guarantee that these changes will generate any of the benefits that we have
anticipated. Furthermore, our growth, through both store openings and
acquisitions, will continue to require the expansion and upgrading of our
informational, operational and financial systems, as well as necessitate the
hiring of new managers at the store and supervisory level.
HISTORICAL FLUCTUATIONS IN PERFORMANCE: Fluctuations in our quarterly operating
results have occurred in the past and may occur in the future. A variety of
factors could contribute to this quarter-to-quarter variability, including new
store openings which require an outlay of pre-opening expenses, generate lower
initial profit margins and cannibalize existing stores; timing of warehouse
integration; competitors' pricing; changes in our product mix; fluctuations in
advertising and promotional expenses; the effects of seasonality; acquisitions
of contract stationers; competitive store openings or other events.
VIKING MERGER AND INTEGRATION: On August 26, 1998, we merged with Viking. Costs
related to the integration of Viking's warehouse facilities with our delivery
network will increase our warehouse expenses in 2001 and beyond. Moreover,
integrating the operations and management of Office Depot and Viking has been,
and continues to be, a complex process. There can be no assurance that this
integration process will be completed as rapidly as we anticipate or that, even
if achieved as anticipated, it will result in all of the anticipated synergies
and other benefits we expect to realize. The integration of the two companies
continues to require significant management attention, which may temporarily
distract us from other matters. Our inability to successfully complete the
integration of the operations of Office Depot and Viking could have a material
adverse effect on our future sales growth and profitability.
INTERNATIONAL ACTIVITY: We have operations in a number of international markets.
We intend to enter additional international markets as attractive opportunities
arise. Each entry could take the form of a start-up, acquisition of stock or
assets or a joint venture or licensing arrangement. In addition to the risks
described above (in our domestic operations), internationally we face such risks
as foreign currency fluctuations, unstable political and economic conditions,
and, because some of our foreign operations are not wholly-owned, compromised
operating control in certain countries. Recent world events have served to
underscore even further the risks and uncertainties of operating in other parts
of the world. Risks of civil unrest, war and economic crisis in portions of the
world outside North America in which we operate represent a more significant
factor than may have been the case in the past. Also, we have experienced
significant fluctuations in foreign currency exchange rates in 2000, which have
resulted in lower than anticipated sales and earnings in our International
Division. Our results may continue to be adversely affected by these
fluctuations in the future. In addition, we do not have a large group of
managers experienced in international operations and will need to recruit
additional management resources to successfully compete in many foreign markets.
All of these risks could have a material adverse effect on our financial
position or our results from operations. Moreover, as we increase the relative
percentage of our business that is operated globally, we also increase the
impact these factors have on our future operating results. Our start-up
operation in Japan, in particular, has proven to be unprofitable to date and, in
fact, has generated losses that have materially affected our financial results
in the past and are expected to do so for some time in the future. Because of
differing commercial practices, laws and other factors, our ability to use the
Internet and electronic commerce to substantially increase sales in
international locations may not progress at the same rate as in North America.
EURO: On January 1, 1999, 11 of the 15 member countries of the European Economic
and Monetary Union established fixed conversion rates between their existing
currencies and their new common currency (the "euro"). On July 1, 2002, new
euro-denominated bills and coins will become the sole legal currency in those
countries, and all former currencies will be withdrawn from circulation. Since
the introduction of the euro, we have been evaluating the business implications
of modifying our systems to properly recognize and handle conversion to the
euro. Based on that evaluation, we need to make multiple changes and
modifications to our current systems before July 1, 2002. We expect to complete
our system modifications in advance of the deadline, and we do not expect our
conversion to the euro to have a material effect on our financial position or
the results of our operations. However, we may not complete the system changes
by the targeted date, preventing us from accepting orders or collecting
receivables from our customers or from paying our vendors. This could have an
adverse impact on our business and our future operating results.
CONTRACT AND COMMERCIAL: We compete with a number of contract stationers, mail
order and Internet operators, and retailers who supply office products and
services to large and small businesses, both nationally and internationally. In
order to achieve and maintain expected profitability levels, we must continue to
grow this segment of the business while maintaining
OFFICE DEPOT 27
<PAGE> 16
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (CONTINUED)
the service levels and aggressive pricing necessary to retain existing
customers. There can be no assurance we will be able to continue to expand our
contract and commercial business while retaining our base of existing customers,
and any failure to do so could have a material adverse effect on our
profitability. We are also working on various initiatives to improve margin
levels in this business segment, but there is no assurance that these
initiatives will prove successful. Some of our competitors operate only in the
contract and/or commercial channels and therefore may be able to focus more
attention on the business services segment, thereby providing formidable
competition. Our failure to adequately address this segment of our business
could put us at a competitive disadvantage relative to these competitors.
SOURCES AND USES OF CASH: We believe that our current level of cash and cash
equivalents, future operating cash flows, lease financing arrangements and funds
available under our credit facilities and term loan should be sufficient to fund
our planned expansion, integration and other operating cash needs for at least
the next year. However, there can be no assurance that additional sources of
financing will not be required during the next twelve months as a result of
unanticipated cash demands, opportunities for expansion, acquisition or
investment, changes in growth strategy, changes in our warehouse integration
plans or adverse operating results. We could attempt to meet our financial needs
through the capital markets in the form of either equity or debt financing.
Alternative financing will be considered if market conditions make it
financially attractive. There can be no assurance that any additional funds
required by us, whether within the next twelve months or thereafter, will be
available to us on satisfactory terms. Our inability to access needed financial
resources could have a material adverse effect on our financial position or
operating results.
EFFECTS OF CERTAIN ONE-TIME CHARGES: During the fourth quarter of 2000, we
conducted a review of all aspects of our business, with particular attention on
our North American Retail Division and on our distribution and supply chain
activities (see the Business Review section of our MD&A for further details). We
expect that these decisions will result in increasing our Company's
profitability and efficiency in the future. However, this analysis involves many
variables and uncertainties; and, as a result, we may not achieve any of the
expected benefits. In 1999, we announced one-time charges against earnings for
slow-moving inventories in our warehouses and stores and for accelerated store
closings and relocations. Additionally, each quarter since our August 1998
merger with Viking, we have incurred merger and restructuring charges and
credits. There can be no assurance that additional charges of this nature will
not be required in the future as well. Such charges, if any, could have a
materially adverse impact on our financial position or operating results in the
future.
ECONOMIC DOWNTURN: In the past decade, the favorable United States economy has
contributed to the expansion and growth of retailers. Our country has
experienced low inflation, low interest rates, low unemployment and an
escalation of new businesses. The economy has recently begun to show signs of a
downturn. The Federal Reserve has recently reduced interest rates, and the stock
market has shown signs that it may no longer be a "bull" market. The retail
industry, in particular, is displaying signs of a slowdown, with several
specialty retailers, both in and outside our industry segment, reporting
earnings warnings in the last few months. This general economic slowdown may
adversely impact our business and the results of our operations.
EXECUTIVE MANAGEMENT: Since the appointment of our new Chief Executive Officer,
we have evolved our management organization to better address the future goals
of our Company. This new organization has vacancies in several key positions,
including the Chief Financial Officer. A search is underway to identify the best
individuals to fill these positions; however, the process may be a protracted
one. Furthermore, the new management structure may not be ideal for our Company
and may not result in the benefits expected; and, as a result, may materially
and adversely affect our future operating results.
DISCLAIMER OF OBLIGATION TO UPDATE
We assume no obligation (and specifically disclaim any obligation) to update
these Cautionary Statements or any other forward-looking statements contained
in this Annual Report to reflect actual results, changes in assumptions or other
factors affecting such forward-looking statements.
28 OFFICE DEPOT
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Office Depot, Inc.
We have audited the consolidated balance sheets of Office Depot, Inc. and
Subsidiaries as of December 30, 2000 and December 25, 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Office Depot, Inc.
and Subsidiaries as of December 30, 2000 and December 25, 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended December 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 15, 2001
OFFICE DEPOT 29
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 151,482 $ 218,784
Receivables, net of allowances of $34,461 in 2000 and $27,736 in 1999 896,333 849,478
Merchandise inventories, net 1,420,825 1,436,879
Deferred income taxes 157,779 68,279
Prepaid expenses 72,670 57,632
- ------------------------------------------------------------------------------------------------------------
Total current assets 2,699,089 2,631,052
Property and equipment, net 1,119,306 1,145,628
Goodwill, net 219,971 240,166
Other assets 157,968 259,337
- ------------------------------------------------------------------------------------------------------------
$ 4,196,334 $ 4,276,183
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,136,994 $ 1,239,301
Accrued expenses and other liabilities 580,966 414,690
Income taxes payable 37,118 39,588
Current maturities of long-term debt 153,259 250,466
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,908,337 1,944,045
Deferred income taxes and other credits 88,247 103,319
Long-term debt, net of current maturities 374,061 109,653
Zero coupon, convertible subordinated notes 224,438 211,446
Commitments and contingencies
Stockholders' equity:
Common stock--authorized 800,000,000 shares of $.01 par value;
issued 378,688,359 in 2000 and 376,212,439 in 1999 3,787 3,762
Additional paid-in capital 939,214 926,295
Unamortized value of long-term incentive stock grant (2,793) (4,065)
Accumulated other comprehensive income (loss) (53,490) 15,730
Retained earnings 1,516,691 1,467,359
Treasury stock, at cost--82,190,548 shares in 2000
and 46,770,272 shares in 1999 (802,158) (501,361)
- ------------------------------------------------------------------------------------------------------------
1,601,251 1,907,720
- ------------------------------------------------------------------------------------------------------------
$ 4,196,334 $ 4,276,183
============================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
30 OFFICE DEPOT
<PAGE> 19
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 11,569,696 $ 10,272,060 $ 9,007,051
Cost of goods sold and occupancy costs 8,479,698 7,450,310 6,484,464
- ----------------------------------------------------------------------------------------------------------
Gross profit 3,089,998 2,821,750 2,522,587
Store and warehouse operating and selling expenses 2,361,301 1,969,817 1,651,355
Pre-opening expenses 13,465 23,628 17,150
General and administrative expenses 501,700 381,611 330,194
Merger and restructuring costs (6,732) (7,104) 119,129
Facility closure costs 110,038 40,425 --
- ----------------------------------------------------------------------------------------------------------
Operating profit 110,226 413,373 404,759
Other income (expense):
Interest income 11,502 30,176 25,309
Interest expense (33,901) (26,148) (22,356)
Miscellaneous income (expense), net 4,632 (3,514) (18,985)
- ----------------------------------------------------------------------------------------------------------
Earnings before income taxes 92,459 413,887 388,727
Income taxes 43,127 156,249 155,531
- ----------------------------------------------------------------------------------------------------------
Net earnings $ 49,332 $ 257,638 $ 233,196
==========================================================================================================
Earnings per share:
Basic $ .16 $ .71 $ .64
Diluted .16 .69 .61
==========================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
OFFICE DEPOT 31
<PAGE> 20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Unamortized Accumulated
Common Common Additional value of long- other compre-
stock stock paid-in term incentive hensive
shares amount capital stock grant income (loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 27, 1997 367,663,995 $ 3,677 $ 761,685 $ (3,210) $ (19,289)
Comprehensive income:
Net earnings
Foreign currency translation adjustment 1,211
Comprehensive income
Exercise of stock options (including
income tax benefits) 5,399,946 54 63,456
Issuance of stock under employee
stock purchase plans 467,394 4 7,896
Matching contributions under 401(k)
and deferred compensation plans 203,055 2 3,882
Conversion of LYONs(R) to common stock 83,314 1 1,203
Amortization of long-term incentive
stock grant 336
- --------------------------------------------------------------------------------------------------------
Balance at December 26, 1998 373,817,704 $ 3,738 $ 838,122 $ (2,874) $ (18,078)
Comprehensive income:
Net earnings
Foreign currency translation adjustment (28,319)
Unrealized gain on investment
securities, net of tax 62,127
Comprehensive income
Acquisition of treasury stock
Retirement of treasury stock (3,245,170) (32) (1,718)
Grant of long-term incentive stock 130,000 1 2,127 (2,127)
Exercise of stock options (including
income tax benefits) 4,457,024 45 72,865
Issuance of stock under employee
stock purchase plans 712,431 7 9,240
Matching contributions under 401(k)
and deferred compensation plans 320,906 3 5,423
Conversion of LYONs(R) to common stock 23,710 329
Payment for fractional shares in
connection with 3-for-2 stock split (4,166) (93)
Amortization of long-term incentive
stock grant 936
- --------------------------------------------------------------------------------------------------------
Balance at December 25, 1999 376,212,439 $ 3,762 $ 926,295 $ (4,065) $ 15,730
Comprehensive income:
Net earnings
Foreign currency translation adjustment (7,093)
Realized gain on investment
securities, net of tax (62,127)
Comprehensive income (loss)
Acquisition of treasury stock
Grant of long-term incentive stock 25,000 199 (199)
Cancellation of long-term incentive stock (50,000) (819) 600
Exercise of stock options (including
income tax benefits) 424,809 4 (1,984)
Issuance of stock under employee
stock purchase plans 1,372,566 14 9,713
Matching contributions under 401(k)
and deferred compensation plans 703,545 7 5,810
Amortization of long-term incentive
stock grant 871
- --------------------------------------------------------------------------------------------------------
Balance at December 30, 2000 378,688,359 $ 3,787 $ 939,214 $ (2,793) $ (53,490)
========================================================================================================
<CAPTION>
Compre-
hensive Retained Treasury
income (loss) earnings stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 27, 1997 $ 976,525 $ (1,750)
Comprehensive income:
Net earnings $ 233,196 233,196
Foreign currency translation adjustment 1,211
---------
Comprehensive income $ 234,407
=========
Exercise of stock options (including
income tax benefits)
Issuance of stock under employee
stock purchase plans
Matching contributions under 401(k)
and deferred compensation plans
Conversion of LYONs(R) to common stock
Amortization of long-term incentive
stock grant
- --------------------------------------------------------------------------------
Balance at December 26, 1998 $ 1,209,721 $ (1,750)
Comprehensive income:
Net earnings $ 257,638 257,638
Foreign currency translation adjustment (28,319)
Unrealized gain on investment
securities, net of tax 62,127
---------
Comprehensive income $ 291,446
=========
Acquisition of treasury stock (501,361)
Retirement of treasury stock 1,750
Grant of long-term incentive stock
Exercise of stock options (including
income tax benefits)
Issuance of stock under employee
stock purchase plans
Matching contributions under 401(k)
and deferred compensation plans
Conversion of LYONs(R) to common stock
Payment for fractional shares in
connection with 3-for-2 stock split
Amortization of long-term incentive
stock grant
- --------------------------------------------------------------------------------
Balance at December 25, 1999 $ 1,467,359 $ (501,361)
Comprehensive income:
Net earnings $ 49,332 49,332
Foreign currency translation adjustment (7,093)
Realized gain on investment
securities, net of tax (62,127)
---------
Comprehensive income (loss) $ (19,888)
=========
Acquisition of treasury stock (300,797)
Grant of long-term incentive stock
Cancellation of long-term incentive stock
Exercise of stock options (including
income tax benefits)
Issuance of stock under employee
stock purchase plans
Matching contributions under 401(k)
and deferred compensation plans
Amortization of long-term incentive
stock grant
- --------------------------------------------------------------------------------
Balance at December 30, 2000 $ 1,516,691 $ (802,158)
================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
32 OFFICE DEPOT
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 49,332 $ 257,638 $ 233,196
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 205,710 171,083 140,604
Provision for losses on inventories and receivables 121,226 145,996 100,375
Net (earnings) losses on equity method investments (9,436) (2,041) 15,254
Accreted interest on zero coupon, convertible subordinated notes 19,203 19,534 18,812
Contributions of common stock to employee benefit and stock purchase plans 5,817 5,426 4,501
Compensation expense for long-term incentive stock grants 652 479 336
Deferred income tax benefit (81,814) (430) (38,244)
Net gain on investment securities (12,414) -- --
Loss on disposal of property and equipment 10,585 9,882 1,640
Write-down of impaired assets 114,343 13,965 46,227
Changes in assets and liabilities:
Increase in receivables (85,327) (152,523) (88,595)
(Increase) decrease in merchandise inventories (66,348) (284,489) 87,084
Net increase in prepaid expenses and other assets (21,561) (24,862) (16,792)
Net increase in accounts payable, accrued expenses and deferred credits 66,514 209,791 174,217
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 267,150 111,811 445,419
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 316,482 369,449 678,615
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (30,112) (154,364) (36,697)
Proceeds from maturities or sales of investment securities 54,006 114,141 44,260
Investments in unconsolidated joint ventures -- (1,606) (40,475)
Purchase of remaining ownership interest in joint ventures -- (21,629) (27,680)
Capital expenditures (267,728) (392,305) (233,089)
Proceeds from sale of property and equipment 4,469 7,922 22,364
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (239,365) (447,841) (271,317)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and sale of stock under
employee stock purchase plans 12,388 59,082 64,237
Repurchase of common stock for treasury (300,797) (501,006) --
Proceeds from issuance of long-term debt 430,522 42,841 --
Payments on long- and short-term borrowings (27,015) (6,766) (2,490)
Repurchase of LYONs(R) (249,191) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (134,093) (405,849) 61,747
- ---------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (10,326) (1,516) (4,381)
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (67,302) (485,757) 464,664
Cash and cash equivalents at beginning of period 218,784 704,541 239,877
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 151,482 $ 218,784 $ 704,541
===========================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
OFFICE DEPOT 33
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts are in thousands except share and per share amounts)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Office Depot, Inc., together with our subsidiaries, is the world's largest
supplier of office products and services, operating in 18 countries throughout
the world and doing business primarily under two brands--Office Depot(R) and
Viking Office Products(R). We serve our customers, including those in countries
operated under licensing and joint venture agreements, through multiple sales
channels. They include an international chain of high-volume office supply
stores located in nine countries; a contract sales network; 11 Internet sites,
serving both our domestic and international customers; and catalog, mail order
and delivery operations in 16 countries. After merging with Viking Office
Products, Inc. ("Viking") in August 1998, we now have operations, either owned
directly or operated through joint ventures or licensing arrangements, in
Australia, Austria, Belgium, Canada, France, Germany, Hungary, Ireland, Israel,
Italy, Japan, Luxembourg, Mexico, the Netherlands, Poland, Thailand, the United
Kingdom, and the United States.
BASIS OF PRESENTATION: We operate on a 52- or 53-week fiscal year ending on the
last Saturday in December. Our fiscal 2000 financial statements consisted of 53
weeks; all other periods presented in our consolidated financial statements
consisted of 52 weeks. We have included account balances from our wholly-owned
and majority-owned subsidiaries in our consolidated financial statements. We
eliminate any significant intercompany transactions when consolidating the
account balances of our subsidiaries. We have reclassified certain amounts in
our prior year statements to conform them to the presentation used in the
current year.
We currently maintain licensing agreements for the operation of Office Depot
stores in Hungary, Poland, and Thailand; and we have entered into joint venture
agreements for the operation of our stores in Israel and Mexico, which are
accounted for using the equity method. Our portion of the income or loss from
the operations of those two joint ventures is included in miscellaneous income
(expense) on our Consolidated Statements of Earnings. The financial position,
results of operations and cash flows from our French and Japanese retail
operations have been included in our consolidated financial statements since
November 1998 and April 1999, respectively, as a result of increasing our
ownership share to 100% in each of those operations. Similarly, our share of the
Thai joint venture's financial position, results of operations and cash flows
have been included in our consolidated financial statements from April 1998 to
October 1999, when our ownership interest was 80%. In November 1999, we sold our
interest in our Thai operations to our joint venture partner and entered into a
licensing arrangement. In the fourth quarter of 2000, we closed our two store
locations in Colombia, which had been operating under a licensing agreement,
ending all of our operations in that country.
USE OF ESTIMATES: When we prepare our financial statements, accounting
guidelines require us to make estimates and assumptions that affect amounts
reported in our financial statements and disclosure of contingent assets and
liabilities at the date of our financial statements. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION: Our subsidiaries outside of the United States
record transactions using their local currency as their functional currency. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation," the assets and liabilities of our foreign
subsidiaries are translated into U.S. dollars using either the exchange rates in
effect at the balance sheet dates or historical exchange rates, depending upon
the account translated. Income and expenses are translated at average daily
exchange rates each month. The translation adjustments that result from
translating the balance sheets at different rates than the income statements are
included in accumulated other comprehensive income, which is a separate
component of our stockholders' equity.
CASH AND CASH EQUIVALENTS: We consider all highly liquid investments with
original maturities of three months or less to be cash equivalents.
RECEIVABLES: Included in our receivables are our trade receivables not sold
through outside credit card programs and our other non-trade receivables. Our
trade receivables totaled $547.4 million and $506.7 million at December 30, 2000
and December 25, 1999, respectively. We record an allowance for doubtful
accounts, reducing our receivables balance to an amount we estimate is
collectible from our customers. We encounter limited credit risk associated with
our trade receivables because we have a large customer base that extends across
many different industries and geographic regions.
Other receivables, totaling $348.9 million and $342.8 million as of December 30,
2000 and December 25, 1999, respectively, consist primarily of amounts due from
our vendors under purchase rebate, cooperative advertising and various other
marketing programs. Amounts we expect to receive from our vendors that relate to
our purchase of merchandise inventories are capitalized and recognized as a
reduction of our cost of goods sold as the merchandise is sold. Amounts relating
to cooperative advertising and marketing programs are recognized as a reduction
of our advertising expense in the period that the related expenses are incurred.
34 OFFICE DEPOT
<PAGE> 23
MERCHANDISE INVENTORIES: Our inventories are stated at the lower of cost or
market value. We use the weighted average method for determining the cost of
over 90% of our inventories and the first-in-first-out (FIFO) method for the
remainder of our inventories, primarily in our International Division.
INCOME TAXES: We use the provisions of SFAS No. 109, "Accounting for Income
Taxes," to calculate our current Federal and state income tax liability, as well
as any deferred tax assets or liabilities. Under this standard, deferred tax
assets and liabilities represent the tax effects, based on current law, of any
temporary differences in the timing of when revenues and expenses are recognized
for tax purposes and when they are recognized for financial statement purposes.
We have not recognized income taxes on the undistributed earnings of certain of
our foreign subsidiaries. Our intention is to reinvest such earnings permanently
to fund further overseas expansion. Cumulative undistributed earnings of our
foreign subsidiaries for which no Federal income taxes have been provided
approximated $440.5 million and $354.5 million as of December 30, 2000 and
December 25, 1999, respectively.
PROPERTY AND EQUIPMENT: We record our purchases of property and equipment at
cost. We record depreciation and amortization in a manner that recognizes the
cost of our depreciable assets in operations over their estimated useful lives
using straight-line or accelerated methods. We estimate the useful lives of our
depreciable assets to be 10-30 years for buildings and 3-10 years for furniture,
fixtures and equipment. We amortize our leasehold improvements over the shorter
of the terms of the underlying leases, including probable renewal periods, or
the estimated useful lives of the improvements.
INVESTMENTS: All of our investments, except those which are consolidated or
accounted for under the equity method, are classified as "available for sale"
under the provisions of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Accordingly, we report our investments at fair
value if fair value can be determined; otherwise, the investment is recorded at
cost. Under SFAS No. 115, fluctuations in fair value of investments classified
as "available for sale" are included as a separate component of stockholders'
equity, net of applicable taxes. Permanent declines in the value of these
investments are recognized in earnings in the period the impairment is
determined. At December 30, 2000, we held investments in ten unrelated
Internet-based companies and in a venture capital fund. The carrying amount of
these investments was $29.9 million at December 30, 2000, compared to $152.0
million at December 25, 1999. The decline in value resulted from investment
sales and impairments recorded in 2000 (see NOTE D). All of these investments,
which are included in other assets, are classified as long-term on our 2000
Consolidated Balance Sheet.
GOODWILL: Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible and identifiable intangible assets
of businesses we have acquired under the purchase method of accounting. We
amortize our goodwill on a straight-line basis, generally over 40 years, which
is the maximum period allowed. The accumulated amortization of our goodwill was
$52.1 million and $44.5 million as of December 30, 2000 and December 25, 1999,
respectively. We continually evaluate whether recent events or circumstances
have occurred that would indicate that the remaining useful life of the goodwill
has changed or that the remaining balance of goodwill may not be recoverable. In
2000, we determined that a portion of the goodwill balance related to the
acquisition of our Japanese operations was impaired (see NOTE D).
IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," we review our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. We evaluate for impairment at the location level and use the
estimated undiscounted cash flows over the remaining life in determining if
impairment exists. In 2000, we recorded impairment charges related to certain
fixed assets (see NOTE D). We have also recognized impairment losses in
association with merger and restructuring (see NOTE B) and store closure and
relocation activities (see NOTE C). Measurement of an impairment loss for such
long-lived assets is based on the fair value of the asset less any costs to sell
that asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosure about Fair Value
of Financial Instruments," requires that we disclose the fair value of our
financial instruments when it is practical to estimate. We have determined the
estimated fair values of our financial instruments, which are either recognized
in our Consolidated Balance Sheets or disclosed within these Notes to our
Consolidated Financial Statements, using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop estimates of fair value. Accordingly, the
estimates we have presented are not necessarily indicative of the amounts we
could realize in a current market exchange.
Short-term assets and liabilities: The fair values of our cash and cash
equivalents, receivables and accounts payable approximate their carrying values
because of their short-term nature.
Investments: We use quoted market prices, if available, to determine the fair
value of our long-term investments. Most of our long-term investments are in
closely held corporations, and quoted market prices are not available. However,
during 2000, we determined that significant events occurred, which required us
to perform an evaluation of these non-public companies.
OFFICE DEPOT 35
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular amounts are in thousands except share and per share amounts)
Based on these evaluations, we reduced the carrying value of the investments to
$29.9 million, which is our best estimate of the current fair value of these
investments (see NOTE D).
Notes Payable: The fair values of our zero coupon, convertible subordinated
notes are determined based on quoted market prices.
Other Debt: We estimate the fair value of our short- and long-term debt by
discounting the cash flows using current interest rates for financial
instruments with similar characteristics and maturities.
Interest Rate Swaps and Foreign Currency Contracts: The fair values of our
interest rate swap and foreign currency contracts are the amounts we would
receive or have to pay to terminate the agreements at the reporting date, taking
into account current interest and exchange rates. These amounts are provided to
us by a financial institution. For more information on these financial
instruments, see the DERIVATIVE FINANCIAL INSTRUMENTS section of this note.
There were no significant differences as of December 30, 2000 and December 25,
1999 between the carrying value and fair value of our financial instruments
except as disclosed below:
<TABLE>
<CAPTION>
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zero coupon, convertible subordinated notes $224,438 $ 195,453 $454,426 $ 433,031
Long-term investments for which it is practicable
to estimate fair value--warrants(1) -- 14,913 -- 98,250
Interest rate swaps -- (90) -- (60)
Foreign currency contracts -- 470 -- (273)
- ------------------------------------------------------------------------------------------------------------
(1) We own 944,446 warrants to purchase shares of PurchasePro.com. Because
the warrants have not been registered under the rules of the Securities
Act of 1933, they are not publicly traded on a market exchange. We
determined the fair value of these warrants using an option model with
the assistance of our investment banker.
</TABLE>
REVENUE RECOGNITION: We record revenue at the time of shipment for delivery and
catalog sales, and at the point of sale for all retail store sales except for
sales of extended warranty service plans. In 1999, we changed the way we account
for the revenue generated from the sale of these contracts (see NOTE D). These
service plans are sold to our customers and administered by an unrelated third
party. All performance obligations and risk of loss associated with such
contracts are economically transferred to the administrator at the time the
contracts are sold to the customer. Our service plans typically extend over a
period of one to four years. We recognize the gross margin on the sale of these
contracts as revenue at the time of sale when we are not the legal obligor. In
those states where we are the legal obligor, we defer any revenues and direct
expenses associated with the sale of these warranty plans and recognize them
over the service period of the contract. As a result of changes made to these
contracts during 2000, we are no longer the legal obligor in the majority of
states in which we sell these contracts. Also in 2000, we began recording an
allowance for sales returns (see NOTE D).
SHIPPING AND HANDLING FEES AND COSTS: In September 2000, the Emerging Issues
Task Force ("EITF") reached a consensus in EITF 00-10, "Accounting for Shipping
and Handling Fees and Costs," agreeing that shipping and handling fees must be
classified as revenues. As a result, we have reclassified our income generated
from shipping and handling fees from store and warehouse operating and selling
expenses to revenues for all periods presented. There was no consensus reached
on the classification of shipping and handling costs. We classify the costs
related to shipping and handling as store and warehouse operating and selling
expenses. These costs were $756.6 million in 2000, $594.2 million in 1999 and
$535.0 million in 1998.
ADVERTISING: Advertising costs are either charged to expense when incurred or,
in the case of direct marketing advertising, capitalized and amortized in
proportion to the related revenues. We participate in cooperative advertising
programs with our vendors in which they reimburse us for a portion of our
advertising costs. Advertising expense, net of cooperative advertising
allowances, amounted to $295.8 million in 2000, $285.3 million in 1999 and
$230.8 million in 1998.
PRE-OPENING EXPENSES: Pre-opening expenses related to opening new stores and
warehouses or relocating existing stores and warehouses are expensed as
incurred.
SELF-INSURANCE: We are primarily self-insured for workers' compensation, auto
and general liability and our employee medical insurance programs.
Self-insurance liabilities are based on claims filed and estimates of claims
incurred but not reported. These liabilities are not discounted.
COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) represents the change
in stockholders' equity from transactions and other events and circumstances
arising from non-stockholder sources. Our comprehensive income (loss) for 2000
and 1999 consists of net income, foreign currency translation adjustments and
realized and unrealized gains on investment securities that are available for
sale, net of applicable income taxes. Our comprehensive income for 1998 consists
of net income and foreign currency translation adjustments.
36 OFFICE DEPOT
<PAGE> 25
DERIVATIVE FINANCIAL INSTRUMENTS: We use a variety of derivative financial
instruments, including foreign currency contracts and interest rate swaps, to
hedge our exposure to foreign currency exchange and interest rate risks. We have
established policies and procedures for assessing the risk and approving the use
of derivative financial instrument activities. We do not enter into these types
of financial instruments for trading or speculative purposes.
Interest rate swaps involve the periodic exchange of payments without the
exchange of the underlying principal amounts. New payments are recognized as an
adjustment to interest expense. In 1999, we entered into a yen interest rate
swap for a principal amount equivalent to $21.0 million, the full amount of
which was outstanding on December 30, 2000, in order to hedge against the
volatility of the interest payments on a portion of our yen borrowings. The swap
will mature in July 2002.
Foreign currency contracts involve the future exchange of currencies at an
agreed-upon exchange rate. We often enter into contracts to hedge certain of our
inventory purchases when we pay our suppliers in a different currency than we
sell to our customers. At December 30, 2000, we had approximately $470,000 of
foreign currency contracts outstanding which will mature at varying dates
through June 2001. At December 25, 1999, we had approximately $300,000 of
foreign currency contracts outstanding. Since the introduction of the euro on
January 1, 1999, the exchange rates between the European member countries have
been effectively fixed. Because the United Kingdom is not one of the member
countries, we currently use these foreign currency contracts to hedge our
exposure to fluctuations in the exchange rate between the British pound and the
euro. Gains and losses from these transactions are included in the cost of the
underlying inventory purchases, which are not recognized in earnings until the
inventory is sold.
NEW ACCOUNTING PRONOUNCEMENT: In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires that we record all derivatives as assets or
liabilities measured at their fair value. Gains or losses resulting from changes
in the values of those derivatives should be accounted for according to the
intended use of the derivative and whether it qualifies for hedge accounting. In
July 1999, the FASB issued SFAS No. 137, which deferred the effective date of
SFAS No. 133 until the start of fiscal years beginning after June 15, 2000. We
will adopt SFAS No. 133 for our fiscal year 2001. Assuming our current level of
involvement in derivative instruments and hedging activities does not change
before we adopt this statement, we do not expect the adoption of SFAS No. 133 to
have a material impact on our financial position or the results of our
operations.
NOTE B--MERGER AND RESTRUCTURING
VIKING MERGER: In August 1998, we completed our merger with Viking.
Transactional and other direct expenses of this merger, primarily legal and
investment banking fees, were recorded as merger and restructuring costs in
1998. Subsequent to the merger, we immediately began the process of integrating
our Office Depot and Viking businesses. Our plans initially included the closing
of 15 domestic Customer Service Centers ("CSCs") and the opening of five new
domestic CSCs, as well as installing complex new systems in each surviving
facility. During the fourth quarter of 1999, after evaluating the results of
integrating two test facilities, we modified our CSC integration plans to
incorporate a more simplified approach requiring less capital. At that time, our
modified plan required the closing of 11 existing CSCs and the opening of two
new CSCs, which were opened as test facilities in late 1999. In 2000, under the
direction of our new management team, we reevaluated our integration plans and
decided to integrate only those CSCs that would not have an adverse impact on
customer service. Accordingly, we reduced the number of Viking CSCs that we had
planned to integrate as part of the merger and restructuring to six, and we
reduced the number of planned CSC closures as part of the merger and
restructuring to eight. By the end of 2000, we had integrated five and closed
seven of these CSCs, and we plan to complete the remaining integration and CSC
closure relating to merger and restructuring in 2001. In conjunction with these
CSC integrations and related closures, we have written off certain assets, such
as leasehold improvements and redundant software and conveyor systems, in these
CSCs. In addition, we have accrued certain costs of exiting these facilities
that will provide no future economic benefit, such as future lease obligations,
personnel retention and other termination costs. As a result of modifying our
integration plans, we recorded a net reduction in previously accrued merger and
restructuring charges for the Viking merger of $11.1 million in 2000 and $29.1
million in 1999.
CLOSURE OF FURNITURE AT WORK(TM) AND IMAGES(TM) STORES: As a result of our
decision to focus on the continued growth of our core businesses and on
expanding our international operations, we closed nine of our Furniture at
Work(TM) and Images(TM) stores in 1999 and one in the fourth quarter of 1998. We
recorded the exit costs related to closing these facilities in merger and
restructuring costs.
ACQUISITION OF JOINT VENTURE INTERESTS IN FRANCE AND JAPAN: In November 1998, we
purchased our joint venture partner's interest in our French Office Depot retail
operations. Following this purchase, we decided to restructure and integrate the
separate Office Depot and Viking operations in France. During 1999, we merged
the Office Depot and Viking headquarters into a new office that is more
conveniently located for our business needs. In April 1999, we purchased our
joint venture partner's interest in our Japanese Office Depot retail operations
and announced
OFFICE DEPOT 37
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular amounts are in thousands except share and per share amounts)
plans to restructure and integrate our operations in Japan. We recorded merger
and restructuring costs in 1999 associated with those activities.
Merger and restructuring costs in 2000, 1999 and 1998 consist of the following
charges (credits):
<TABLE>
<CAPTION>
2000 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Viking Merger:
Costs directly attributable
to the merger transactions $ -- $ 236 $ 31,555
Asset write-offs associated with
closing identified facilities and
the write-off of software
applications to be abandoned (6,226) (19,065) 41,962
Other facility exit costs,
principally estimated lease
costs subsequent to the
expected closing of
each facility (4,857) (10,051) 20,079
Personnel retention and
termination costs 4,798 295 14,553
- -------------------------------------------------------------------------------------
$(6,285) $(28,585) $108,149
- -------------------------------------------------------------------------------------
Closure of Furniture at Work(TM)
and Images(TM) Stores:
Asset write-offs associated
with the closing of stores $ -- $ 2,813 $ 3,882
Other facility exit costs,
principally estimated lease
costs subsequent to
closing the stores 234 (4,832) 7,098
- -------------------------------------------------------------------------------------
$ 234 $ (2,019) $ 10,980
- -------------------------------------------------------------------------------------
Acquisition of Joint Venture
Interests in France and Japan:
Costs directly attributable to
the acquisitions $ -- $ 1,317 $ --
Asset write-offs associated
with closing identified facilities (470) 3,023 --
Other facility exit costs, principally
estimated lease costs
subsequent to the expected
closing of each facility -- 5,311 --
Personnel retention and
termination costs (211) 13,849 --
- -------------------------------------------------------------------------------------
$ (681) $ 23,500 $ --
- -------------------------------------------------------------------------------------
Total $(6,732) $ (7,104) $119,129
- -------------------------------------------------------------------------------------
</TABLE>
As of the years ended 2000 and 1999, we had remaining accruals of approximately
$3.9 million and $21.3 million, respectively, for merger and restructuring
costs. Amounts expensed for asset write-offs are recorded as a reduction of our
fixed assets; all other amounts are recorded as accrued expenses. The activity
in the liability accounts by cost category is as follows:
<TABLE>
<CAPTION>
Beginning New Cash Other Ending
Balance Charges Payments Adjustments
Balance
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Accrued direct
merger costs $ 1,639 $ -- $ (86) $ (1,553) $ --
Accrued other
facility exit costs 7,764 1,348 (2,835) (5,090) 1,187
Accrued personnel
retention and
termination costs 11,865 4,798 (11,450) (2,480) 2,733
- ------------------------------------------------------------------------------------------
Total accrued costs $21,268 $ 6,146 $(14,371) $ (9,123) $ 3,920
- ------------------------------------------------------------------------------------------
1999
Accrued direct
merger costs $ 1,626 $ 1,684 $ (1,540) $ (131) $ 1,639
Accrued other
facility exit costs 26,080 4,344 (8,744) (13,916) 7,764
Accrued personnel
retention and
termination costs 13,126 20,007 (15,405) (5,863) 11,865
- ------------------------------------------------------------------------------------------
Total accrued costs $40,832 $26,035 $(25,689) $(19,910) $21,268
- ------------------------------------------------------------------------------------------
</TABLE>
The other adjustments column represents adjustments of original estimates and
other adjustments pursuant to plan modifications made during the fourth quarters
of 2000 and 1999. Although we do not expect to incur additional merger and
restructuring costs, there can be no assurance that this will be the case.
NOTE C--FACILITY CLOSURE COSTS
Following a change in senior management, we performed a comprehensive review of
our business during the latter half of 2000. As a result of this business
review, we decided to close 76 under-performing stores and four inefficient
warehouses. Accordingly, we recorded a charge of $110.0 million, which was
comprised of net lease obligations ($75.2 million), asset write-offs ($21.7
million), severance ($2.8 million), and various other exit costs such as leased
equipment, labor, and facility clean-up ($10.3 million).
Also, as a result of our store closure program, we entered into an agreement
with an unrelated third party to assist in the liquidation of the inventory in
the closing stores. Accordingly, we recorded a charge of $12.8 million to write
down the inventory in those stores to net realizable value. This charge is
included in cost of goods sold.
38 OFFICE DEPOT
<PAGE> 27
In 1999, we recorded facility closure charges of $40.4 million to reflect our
decision to accelerate our store closure program for under-performing stores and
our relocations program for older stores in our North American Retail Division.
These charges consisted of asset write-offs ($29.2 million), residual lease
obligations ($8.3 million) and other exit costs ($2.9 million).
NOTE D--OTHER ONE-TIME CHARGES AND ADJUSTMENTS
The comprehensive review discussed in NOTE C above had the following additional
financial impacts:
- - Inventory--$25.6 million (included in cost of goods sold), representing
a write-down to net realizable value of inventory in stores and CSCs
that is being eliminated from our merchandise assortment. This will
allow us to focus on our core business customer, reduce complexity, and
provide better customer service by having better "in stock" positions
on products that customers buy most often.
- - Property and equipment--$74.2 million ($63.0 million included in store
and warehouse operating and selling expenses and $11.2 million included
in general and administrative expenses), representing impairment of
assets in our closing stores and the write-off of old signage and
obsolete technology-related assets.
- - Investments--$45.5 million (included in miscellaneous income
(expense)), representing a reduction in the value of certain Internet
investments. These holdings are primarily businesses that are privately
held and are involved in marketing partnership agreements with Office
Depot. Because quoted market prices for these privately held businesses
are not available, we determined the current value of our investments
in these businesses by analyzing their financial position and plans,
industry valuation indices, current economic conditions including
liquidity, and the current market for Internet companies.
- - Goodwill--$11.1 million (included in miscellaneous income (expense)),
representing impairment of goodwill associated with the acquisition of
our Japanese operations. The Office Depot Japan retail operations have
not performed to expectations. A new operating model and significant
additional investments will be necessary to enable the current stores
to achieve profitability, which may never occur even with the model
changes and capital infusion.
- - Sales returns and allowances--$10.5 million, net (comprised of a
reduction of sales of $42.8 million partially offset by a reduction of
cost of goods sold of $32.3 million), to establish a reserve for sales
returns and allowances (prior periods were not restated because of the
insignificance to prior years' financial results and retained
earnings).
- - Severance--$35.6 million ($33.9 million included in general and
administrative expenses and $1.7 million included in store and
warehouse operating and selling expenses), representing severance
relating to changes in executive management and a reduction in our
contract sales force.
Also included in the results of operations for 2000 is a gain on the sale of
certain investments of approximately $57.9 million. This gain is included in
miscellaneous income (expense) on our Consolidated Statements of Earnings.
In 1999, we increased our provision for slow-moving and obsolete inventories in
our warehouses and stores by $56.1 million. This charge was primarily related to
slow-moving technology-related products whose market values were adversely
affected by accelerated rates of change in technology; and a rationalization of
the warehouse inventory assortments in conjunction with the Viking warehouse
consolidation.
Also in 1999, we changed our method of accounting for revenue generated from
sales of extended warranty service plans. Under the laws of certain states, we
are obligated to assume the risk of loss associated with such plans. In these
states, we modified our accounting to recognize revenue for warranty service
contract sales over the service period, which typically extends over a period of
one to four years. In those states where we are not the legal obligor, we
modified our accounting to recognize warranty revenues net of the related direct
costs. This change resulted in a reduction in our 1999 gross profit of $15.8
million.
NOTE E--PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 89,458 $ 88,312
Buildings 248,297 183,596
Leasehold improvements 609,701 561,455
Furniture, fixtures and equipment 937,050 889,650
- -------------------------------------------------------------------------
1,884,506 1,723,013
Less accumulated depreciation (765,200) (577,385)
- -------------------------------------------------------------------------
$ 1,119,306 $ 1,145,628
- -------------------------------------------------------------------------
</TABLE>
The above table of property and equipment includes assets held under capital
leases as follows:
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 53,397 $ 48,326
Furniture, fixtures and equipment 41,909 34,359
- -------------------------------------------------------------------------
95,306 82,685
Less accumulated depreciation (26,193) (16,817)
- -------------------------------------------------------------------------
$ 69,113 $ 65,868
- -------------------------------------------------------------------------
</TABLE>
OFFICE DEPOT 39
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular amounts are in thousands except share and per share amounts)
NOTE F--LONG-TERM DEBT
Debt that will mature within one year consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Capital lease obligations $ 7,259 $ 7,486
Domestic 364-day credit
facility borrowings 146,000 --
Zero coupon, convertible
subordinated notes -- 242,980
- -------------------------------------------------------------------------
$ 153,259 $ 250,466
- -------------------------------------------------------------------------
</TABLE>
In June 2000, we entered into a domestic credit agreement with a 364-day term
and current borrowing rate of 0.500% over the London Interbank Offered Rate
("LIBOR"). This agreement provides us with a working capital line totaling
$300.0 million and contains restrictive covenants that are similar to our
five-year domestic facility described below. As of December 30, 2000, we had
outstanding borrowings of $146.0 million under this facility, which had an
average effective interest rate of 7.996%.
Our 1993 Liquid Yield Option Notes ("LYONs(R)") (described in more detail in
NOTE G) had an option feature that allowed each holder of a note to require us,
on November 1, 2000, to purchase the LYONs(R) from them at the issue price plus
accrued original issue discount. The majority of the bondholders exercised this
option, and 342.1 million out of 345.0 million in outstanding bonds were
tendered. We paid the holders $249.2 million in cash, funded through our
domestic credit facility. We have classified the remaining bonds as long-term on
our December 30, 2000 balance sheet.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Domestic five-year credit
facility borrowings $ 243,587 $ --
Yen facility borrowings 63,981 47,435
Capital lease obligations
collateralized by certain
buildings and equipment 73,752 69,439
Other -- 265
Less current portion (7,259) (7,486)
- -------------------------------------------------------------------------
$ 374,061 $ 109,653
- -------------------------------------------------------------------------
</TABLE>
Our five-year domestic credit facility provides us with a working capital line
and letters of credit capacity totaling $300.0 million. As of December 30, 2000,
we had outstanding borrowings of $243.6 million under this line of credit, as
well as letters of credit totaling $49.5 million. Our five-year agreement was
entered into in February 1998 and currently has a borrowing rate of 0.475% over
LIBOR. At December 30, 2000, the average effective interest rate on borrowings
under this facility was 7.001%.
This credit facility expires in February 2003 and contains certain restrictive
covenants relating to various financial statement ratios.
In July 1999, we entered into term loan and revolving credit agreements with
several Japanese banks (the "yen facilities") to provide financing for our
operating and expansion activities in Japan. The yen facilities provide for
maximum aggregate borrowings of (Y)9.76 billion (the equivalent of $85.3 million
at December 30, 2000) at an interest rate of 0.875% over the Tokyo Interbank
Offered Rate ("TIBOR"). These facilities are available to us until July 2002.
The yen facilities loan agreements are tied to the covenants in our domestic
facilities described earlier. As of December 30, 2000, we had outstanding yen
borrowings equivalent to $64.0 million under these yen facilities, which had an
average effective interest rate of 1.252%. Effective as of October 28, 1999, we
entered into a yen interest rate swap with a financial institution for a
principal amount equivalent to $21.0 million at December 30, 2000 in order to
hedge against the volatility of the interest payments on a portion of our yen
borrowings. The terms of the swap specify that we pay an interest rate of 0.700%
and receive TIBOR. The swap will mature in July 2002.
Under our capital lease agreements, we are required to make certain monthly,
quarterly or annual lease payments through 2020. Our aggregate minimum capital
lease payments for the next five years and beyond, with their present value as
of December 30, 2000, are as follows:
<TABLE>
<CAPTION>
DECEMBER 30,
2000
- ---------------------------------------------------------------
<S> <C>
2001 $ 12,784
2002 12,757
2003 12,792
2004 7,760
2005 5,854
Thereafter 68,888
- ---------------------------------------------------------------
Total minimum lease payments 120,835
Less amount representing
interest at 5.35% to 9.19% 47,083
- ---------------------------------------------------------------
Present value of net minimum
lease payments 73,752
Less current portion 7,259
- ---------------------------------------------------------------
Long-term portion $ 66,493
- ---------------------------------------------------------------
</TABLE>
NOTE G--ZERO COUPON, CONVERTIBLE SUBORDINATED NOTES
On December 11, 1992, we issued to the public LYONs(R) with principal amounts
totaling $316.3 million and proceeds of $150.8 million (the "1992 LYONs(R)"). We
issued each 1992 LYON(R) for a price of $476.74, and we are not required to make
periodic interest payments on the notes. Our 1992 LYONs(R) will mature on
December 11, 2007 at $1,000 per LYON(R), representing
40 OFFICE DEPOT
<PAGE> 29
a yield to maturity, computed on a semi-annual bond equivalent basis, of 5%.
On November 1, 1993, we issued to the public LYONs(R) with principal amounts
totaling $345.0 million and proceeds of $190.5 million (the "1993 LYONs(R)"). We
issued each 1993 LYON(R) for a price of $552.07, and we are not required to make
periodic interest payments on the notes. Our 1993 LYONs(R) will mature on
November 1, 2008 at $1,000 per LYON(R), representing a yield to maturity,
computed on a semi-annual bond equivalent basis, of 4%.
All LYONs(R) are subordinated to all of our existing and future senior
indebtedness.
Each LYON(R) is convertible at the option of the holder at any time on or prior
to maturity into our common stock at a conversion rate of 43.895 shares per 1992
LYON(R) and 31.851 shares per 1993 LYON(R). On November 1, 2000, the majority of
the holders of our 1993 LYONs(R) required us to purchase the LYONs(R) from them
at the issue price plus accrued original issue discount. We paid the holders
$249.2 million in connection with this repurchase, and reclassified the
remaining 1993 LYONs(R) obligation to long-term on our balance sheet. Our 1992
LYONs(R) have a similar provision, where our holders may require us to purchase
these notes at the issue price plus accrued original issue discount, on December
11, 2002. If the holders decide to exercise their put option, we have the choice
of paying the holders in cash, common stock or a combination of the two. The
total outstanding amounts of the 1992 and 1993 LYONs(R) as of December 30, 2000,
including accrued interest, approximated $222.3 million and $2.1 million,
respectively.
Beginning on December 11, 1996 for the 1992 LYONs(R) and on November 1, 2000 for
the 1993 LYONs(R), we can redeem all or part of these notes at any time from the
holders for cash equal to the issue price plus accrued original issue discount
through the date of redemption. As of December 30, 2000, we have reserved
13,844,869 shares of unissued common stock for conversion of the zero coupon,
convertible subordinated notes.
NOTE H--INCOME TAXES
Our income tax provision consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ 71,407 $ 114,800 $ 147,031
State 22,616 15,561 23,975
Foreign 30,918 26,318 22,769
Deferred tax benefit (81,814) (430) (38,244)
- ----------------------------------------------------------------------------
Total provision for
income taxes $ 43,127 $ 156,249 $ 155,531
- ----------------------------------------------------------------------------
</TABLE>
The tax-effected components of deferred income tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, December 25,
2000 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Self insurance accruals $ 23,702 $ 18,366
Inventory 17,790 16,650
Vacation pay and other
accrued compensation 27,762 14,997
Reserve for bad debts 7,493 6,589
Reserve for facility closings 67,563 16,537
Merger costs 6,117 9,011
Unrealized loss on investments 17,499 --
Foreign and state net operating
loss carryforwards 91,037 74,645
Other items, net 27,343 21,958
- --------------------------------------------------------------------------
Gross deferred tax assets 286,306 178,753
Valuation allowance (91,037) (74,645)
- --------------------------------------------------------------------------
Deferred tax assets 195,269 104,108
Basis difference in fixed assets 51,797 42,806
Unrealized gain on
investment securities -- 39,222
Capitalized leases 5,757 5,275
Excess of tax over book amortization 1,214 1,172
Other items, net 16,294 16,460
- --------------------------------------------------------------------------
Deferred tax liabilities 75,062 104,935
- --------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 120,207 $ (827)
- --------------------------------------------------------------------------
</TABLE>
As of December 30, 2000, we had approximately $143 million of foreign and $419
million of state net operating loss carryforwards. Of these carryforwards, $38
million will expire in 2001 and the balance will expire between 2002 and 2020.
The valuation allowance has been developed to reduce our deferred tax asset to
an amount that is more likely than not to be realized, and is based upon the
uncertainty of the realization of certain foreign and state deferred tax assets
relating to net operating loss carryforwards.
The following is a reconciliation of income taxes at the Federal statutory rate
of 35% to our provision for income taxes:
<TABLE>
<CAPTION>
2000 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax computed at
the statutory rate $ 32,361 $ 144,862 $ 136,054
State taxes, net of
Federal benefit 6,899 12,383 14,978
Nondeductible
goodwill amortization 1,744 1,964 1,990
Merger costs 969 2,920 11,044
Foreign income taxed at
rates other than Federal (667) (6,508) (10,061)
Other items, net 1,821 628 1,526
- ----------------------------------------------------------------------------
Provision for income taxes $ 43,127 $ 156,249 $ 155,531
- ----------------------------------------------------------------------------
</TABLE>
OFFICE DEPOT 41
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular amounts are in thousands except share and per share amounts)
NOTE I--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: We lease facilities and equipment under agreements that expire
in various years through 2021. Substantially all such leases contain provisions
for multiple renewal options. In addition to minimum rentals, we are required to
pay certain executory costs, such as real estate taxes, insurance and common
area maintenance, on most of our facility leases. We are also required to pay
additional rent on certain of our facility leases if sales exceed a specified
amount. The table below shows you our future minimum lease payments due under
non-cancelable leases as of December 30, 2000. These minimum lease payments do
not include facility leases that were accrued as merger and restructuring costs
or store closure and relocation costs (See NOTES B and C).
<TABLE>
<S> <C>
2001 $ 352,328
2002 322,181
2003 271,476
2004 221,206
2005 188,692
Thereafter 929,490
- -------------------------------------------------------------
2,285,373
Less sublease income 21,585
- -------------------------------------------------------------
$2,263,788
- -------------------------------------------------------------
</TABLE>
We are in the process of opening new stores and CSCs in the ordinary course of
business, and leases signed subsequent to December 30, 2000 are not included in
the above described commitment amounts. Rent expense, including equipment
rental, was approximately $393.5 million, $321.5 million and $249.2 million in
2000, 1999 and 1998, respectively. Included in this rent expense was
approximately $1.1 million, $0.8 million, and $1.1 million of contingent rent,
otherwise known as percentage rent, in 2000, 1999, and 1998, respectively. Rent
expense was reduced in 2000, 1999, and 1998 by sublease income of approximately
$3.0 million, $3.2 million, and $4.0 million, respectively.
GUARANTEE OF PRIVATE LABEL CREDIT CARD RECEIVABLES: We have private label credit
card programs that are managed by two financial services companies. We are the
guarantor of all loans between our customers and the financial services
companies. Our maximum exposure to off-balance sheet credit risk is represented
by the outstanding balance of private label credit card receivables, less
reserves held by the financial services companies which are funded by us. At
December 30, 2000, this exposure totaled approximately $239.2 million.
OTHER: We are involved in litigation arising in the normal course of our
business. In our opinion, these matters will not materially affect our financial
position or results of our operations.
NOTE J--EMPLOYEE BENEFIT PLANS
LONG-TERM EQUITY INCENTIVE PLAN
Our Long-Term Equity Incentive Plan, which was approved effective October 1,
1997, provides for the grants of stock options and other incentive awards,
including restricted stock, to our directors, officers and key employees. When
we merged with Viking, their employee and director stock option plans were
terminated. When outstanding options issued under Viking's prior plans are
exercised, Office Depot common stock is issued.
As of December 30, 2000, we had 55,807,052 shares of common stock reserved for
issuance to directors, officers and key employees under our Long-Term Equity
Incentive Plan. Under this plan, stock options must be granted at an option
price that is greater than or equal to the market price of the stock on the date
of the grant. If an employee owns at least 10% of our outstanding common stock,
the option price must be at least 110% of the market price on the date of the
grant.
Options granted under this plan and options granted in July 1998 under Viking's
prior plans become exercisable from one to five years after the date of grant,
provided that the individual is continuously employed with us. The vesting
periods for all other options granted under Viking's prior plans were
accelerated, and the options became exercisable, as of the date of our merger
with Viking in August 1998. All options granted expire no more than ten years
from the date of grant.
Under this plan, we have also issued 236,193 shares of restricted stock at no
cost to the employees, 63,565 of which have been canceled. The fair market value
of these awards approximated $3.0 million at the date of the grants. Common
stock issued under this plan is restricted, with vesting periods of up to four
years from the date of grant. We recognize compensation expense over the vesting
period.
We record an estimate of the tax benefit that we anticipate we will receive
based on the stock options exercised. Each year, we adjust the prior year's
estimated tax benefit based on the actual stock sold during the year. In 2000,
this adjustment resulted in a reduction of our estimated 1999 tax benefit and
completely offset our 2000 estimated tax benefit (see NOTE M).
LONG-TERM INCENTIVE STOCK PLAN
Viking had a Long-Term Incentive Stock Plan that, prior to the merger, allowed
Viking's management to award up to 2,400,000 restricted shares of common stock
to key Viking employees. Under this plan, 1,845,000 shares were issued at no
cost to employees, 1,200,000 of which have been canceled. Pursuant to the merger
agreement, shares issued under t