CHANGE IN CONTROL AGREEMENT As Amended and Restated Effective February 25, 2008
Exhibit 10.3
As Amended and Restated Effective February 25, 2008
THIS CHANGE IN CONTROL AGREEMENT is made as of February 25, 2008 (the “Effective Date”), by
and between Office Depot, Inc., a Delaware corporation (the “Company”), and Xxxx Xxxxx (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.
As a result, the Company and the Executive entered into a change in control agreement (the
“Original Agreement”) dated March 1, 2004. The Company and the Executive hereby amend and restate
the Original Agreement in its entirety in the form of this Agreement in order to evidence formal
compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance
thereunder (collectively “Section 409A”) and to otherwise update and clarify the Original
Agreement.
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:
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(b) The “Change of Control Period” shall mean the period commencing on the date hereof and
ending on February 29, 2008; provided that on February 29, 2008, 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.
(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”) (such 20% ownership shall be referred to as the “Threshold
Amount”); provided, however, that for purposes of this subsection (a), if the Threshold Amount is
reached by reason of the following events, a Change in Control will not be triggered: (i) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company of the Company’s outstanding common stock, or (ii) any
acquisition by any person pursuant to a transaction which complies with each and all of clauses
(i), (ii) and (iii) of subsection (c) of this Section 2. For the sake of clarity, if the Threshold
Amount is reached by reason of the Company repurchasing its own outstanding common stock, a Change
in Control will be triggered; 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 80% 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
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(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 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.
(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.
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(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.
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(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, 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 12(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.
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(i) the Company shall pay to the Executive 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 which shall be paid in accordance
with the Company’s standard payroll practices for salary, (2) in lieu of any bonus
that might otherwise have been payable to the Executive under the Company’s annual
bonus plan(s) for the corresponding bonus period(s) that contain the Date of
Termination, 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
which shall be paid in a lump sum in cash within 30 days following the date of the
Executive’s Termination of Employment and (3) any accrued vacation pay due under the
terms of the Company’s vacation policy to the extent not theretofore paid which
shall be paid at the time specified in the
Company’s vacation policy (the sum of the amounts described in clauses (1),
(2), and (3) shall be hereinafter referred to as the “Accrued Obligations”); and
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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 which shall be paid
in a lump sum in cash within 30 days following the date of the Executive’s
Termination of Employment;
(ii) the Company shall pay to the Executive a lump sum in cash within 30 days following
the date of the Executive’s Termination of Employment equal to the product of (I) the
Company’s monthly COBRA premium in effect on the Date of Termination under the Company’s
group health plan for the type of coverage in effect under such plan (e.g., family coverage)
for the Executive on the Date of Termination, and (II) 24;
(iii) within 30 days following the date of the Executive’s Termination of Employment,
the Company shall purchase a 24 month executive outplacement services package for the
Executive from the provider generally used by the Company for such purposes on the Date of
Termination; and
(iv) to the extent not theretofore paid or provided, the Company shall 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, practice, contract or
agreement of the Company and its affiliated companies in accordance with the terms of the
applicable plan, program, policy, practice, contract or agreement, except as expressly
provided otherwise by this Agreement (such other amounts and benefits shall be hereinafter
referred to as the “Other Benefits”).
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(i) the payments described in Section 6(a)(i)(A)(2), Section 6(a)(i)(B) and Section
6(a)(ii) to be made to the Executive on account of his Termination of Employment initiated
by the Company other than for Cause, death or Disability or by the Executive for Good
Reason; and
(ii) the payment described in Section 6(a)(i)(A)(2) to be made to the Executive on
account of his Termination of Employment initiated by the Company by reason of the
Executive’s Disability.
For purposes of this Agreement, “specified employee” shall be defined as provided in Section
409A(a)(2)(B)(i) of the Code and “specified employee identification date” shall be defined as
provided in Treasury Regulation §1.409A-1(i).
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
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
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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”). To the extent that
any such reimbursement does not qualify for exclusion from Federal income taxation, the Company
will make the reimbursement only if the Executive incurs the corresponding expense during the term
of this Agreement or the period of two years thereafter and submits the request for reimbursement
no later than two months prior to the last day of the calendar year following the calendar year in
which the expense was incurred so that the Company can make the reimbursement on or before the last
day of the calendar year following the calendar year in which the expense was incurred; the amount
of expenses eligible for such reimbursement during a calendar year will not affect the amount of
expenses eligible for such reimbursement in another calendar year, and the right to such
reimbursement is not subject to liquidation or exchange for another benefit from the Company.
However, in the event the Executive is a “specified employee” on the Executive’s Date of
Termination (as determined by the Company in accordance with rules established by the Company in
writing in advance of the “specified employee identification date” that relates to the date of the
Executive’s “separation from service”), and to the extent that any portion of such reimbursements
relate to expenses that were triggered by the Executive’s “separation from service,” such
reimbursements shall be paid no earlier than the date that is six months after the date of such
“separation from service” (if the Executive dies after the Executive’s Date of Termination but
before such reimbursements have been made, such reimbursements will be paid to the Executive’s
estate in a lump sum without regard to any six-month delay that otherwise applies to specified
employees).
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(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 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
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(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
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 xxx 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 xxx 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.
(e) Notwithstanding the foregoing, (i) each Gross-Up Payment required to be made by the
Company to the Executive hereunder and each repayment of a Gross-Up Payment required to be made by
the Executive to the Company hereunder shall be paid no later than the end of the calendar year
next following the calendar year in which the Executive remits the corresponding taxes to the
Internal Revenue Service, (ii) each reimbursement of expenses related to a tax contest addressing
the existence or amount of a tax liability required to be made by the
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Company to the Executive hereunder and each repayment of such a reimbursement required to be
made by the Executive to the Company hereunder shall be paid no later than the end of the calendar
year next following the calendar year in which the Executive remits to the Internal Revenue Service
the taxes that are the subject of the contest or, where as a result of the contest no taxes are due
or are remitted but other reimbursable costs and/or expenses have been incurred, the end of the
calendar year following the calendar year in which the contest is completed or there is a final and
nonappealable settlement or other resolution of the contest; and (iii) in the event the Executive
is a “specified employee” on the Executive’s Date of Termination (as determined by the Company in
accordance with rules established by the Company in writing in advance of the “specified employee
identification date” that relates to the date of the Executive’s “separation from service”), and to
the extent that any portion of such Gross-Up Payments relates to compensation that was triggered by
the Executive’s “separation from service” and/or any portion of such reimbursements related to
expenses that were triggered by the Executive’s “separation from service,” such portion of the
Gross-Up Payments and/or such portion of the reimbursements, as applicable, shall be paid no
earlier than the date that is six months after the date of such “separation from service” (if the
Executive dies after the Executive’s Date of Termination but before any such payments are made, the
payments will be paid to the Executive’s estate without regard to any six-month delay that
otherwise applies to specified employees).
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(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.
13. 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:
Xxxx
Xxxxx
IF TO THE COMPANY:
Office Depot, Inc.
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
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.
(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.
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(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.
****
/s/ Xxxx Xxxxx | ||||
Executive, Xxxx Xxxxx | ||||
Date: February 25, 2008 | ||||
OFFICE DEPOT, INC. |
||||
By: | /s/ Xxxxx Xxxxxx | |||
Its: Chief Executive Officer | ||||
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