LINENS N THINGS INC, 424B4, 1997-05-30

LINENS N THINGS INC
424B4, 1997-05-30
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-27239

5,517,758 Shares

[LINEN N THINGS LOGO]

Common Stock
(par value $.01 per share)

All of the shares of Common Stock (the "Common Stock") of Linens 'n Things, Inc.
("Linens 'n Things" or the "Company") offered hereby (the "Offering") are
being sold by the Selling Shareholder named herein under "Principal
and Selling Shareholder and Management." The Company will not
receive any proceeds from the sale of shares by the
Selling Shareholder.

The Common Stock is listed on the New York Stock Exchange under the symbol
"LIN". The last reported sale price of the Common Stock on the New
York Stock Exchange on May 29, 1997 was $24.50 per share.
See "Price Range of Common Stock."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 7 HEREIN.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS SHAREHOLDER(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................... $24.50 $0.98 $23.52
Total(2)..................................... $135,185,071 $5,407,402.84 $129,777,668.16
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $200,000
and by the Selling Shareholder estimated at $400,000.

(2) The Selling Shareholder has granted the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase a maximum of
749,900 additional shares to cover over-allotments of shares. If the option
is exercised in full, the total Price to Public will be $153,557,621,
Underwriting Discounts and Commissions will be $6,142,304.84 and Proceeds to
Selling Shareholder will be $147,415,316.16.

The shares will be offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares will be ready
for delivery on or about June 4, 1997, against payment in immediately available
funds.

CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

Prospectus dated May 29, 1997.
<PAGE> 2

MAP OF LOCATIONS
<TABLE>
<S> <C> <C> <C> <C>
ARIZONA -- 2 CONNECTICUT -- CONT'D ILLINOIS -- 12 MICHIGAN -- 2 NEW JERSEY -- CONT'D
Peoria Farmington Bloomingdale Rochester Hills Toms River
Scottsdale Fiesta Manchester Clark Street Sterling Heights Totowa
ARKANSAS -- 1 Merritt Downers Grove MINNESOTA -- 6 NEW YORK -- 8
Little Rock Milford Michigan Ave. Burnsville Amherst
CALIFORNIA -- 17 Newington Naperville Mall of America Carle Place
Carmel Mt. Norwalk Northbrook Minnetonka Niagara
Costa Mesa FLORIDA -- 16 Oakbrook Plymouth Patchogue
Encinitas Altamonte Springs Orland Park Roseville Rochester
Fresno Aventura Palatine Woodbury Southtown
La Jolla Boca Raton Skokie (2) MISSOURI -- 2 Staten Island
Milipitas Clearwater Woodfield Clayton Stony Brook
Mission Viejo Coral Springs INDIANA -- 1 Manchester NORTH CAROLINA -- 9
Montclair Fort Meyers Indianapolis NEBRASKA -- 1 Asheville
Pleasanton Ft. Lauderdale LOUISIANA -- 1 Omaha Burlington
Roseville (2) Highland Lakes Harahan NEVADA -- 2 Cary
Sacramento Kendall MAINE -- 1 Henderson Charlotte
Stevens Creek Mall of Americas Kittery Las Vegas Durham
Thousand Oaks Naples MARYLAND -- 3 NEW JERSEY -- 11 Matthews Corner
Torrance Orlando Rockville Bridgewater Pineville
Valencia Plantation Silver Springs East Hanover Raleigh
West Covina Sarasota Towson Freehold Winston-Salem
COLORADO -- 3 Tampa MASSACHUSETTS -- 6 Menlo Park OHIO -- 3
Belleview Shores Venetian Braintree Mount Laurel Cassinelli Square
Park Meadows GEORGIA -- 7 Burlington Paramus Columbus
Westminster Alpharetta Danvers Princeton Kenwood
CONNECTICUT -- 8 Buckhead Framington Shrewsbury OKLAHOMA -- 1
Danbury Duluth Franklin Springfield Tulsa
Fairfield Kennesaw N. Attleboro
Lawrenceville
Perimeter
Stone Mountain Sq.

<CAPTION>
ARIZONA -- 2 OREGON -- 1 UTAH -- 1
Scottsdale Fiesta PENNSYLVANIA -- 4 VERMONT -- 1
ARKANSAS -- 1 Lancaster Chittenden
Little Rock Langhorne VIRGINIA -- 12
CALIFORNIA -- 17 Montgomeryville Dale City
Carmel Mt. Willow Grove Fairfax
Costa Mesa RHODE ISLAND -- 1 Falls Church
Encinitas Cranston Greenbriar
Fresno TENNESSEE -- 5 Lightfoot
La Jolla Goodlettsville Manassas
Milipitas Hickory Ridge Midlothian
Mission Viejo Memphis (2) Springfield
Montclair Murfreesboro Sterling
Pleasanton TEXAS -- 14 Tysons
Roseville (2) Arlington Virginia Beach
Sacramento Austin Westpark
Stevens Creek Baybrook WASHINGTON -- 1
Thousand Oaks Dallas (2) Tukwila
Torrance Fort Worth WASHINGTON DC -- 1
Valencia Grapevine Pentagon Centre
West Covina Houston (2) WISCONSIN -- 1
COLORADO -- 3 Lewisville Brookfield
Belleview Shores Preston Park
Park Meadows San Antonio
Westminster Sugarland
CONNECTICUT -- 8 Woodlands
Danbury
Fairfield

<CAPTION>
Peoria Portland Sandy
</TABLE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised.

THE COMPANY

Linens 'n Things, Inc. (with its subsidiaries and its predecessors, "Linens
'n Things" or the "Company") is one of the leading, national large format
retailers of home textiles, housewares and home accessories operating in 34
states. According to Home Textiles Today, Linens 'n Things was the largest
specialty retailer (as measured by sales) in the home linens category in 1995,
the most recent year for which such information was published. As of March 29,
1997, the Company operated 132 superstores averaging approximately 33,000 gross
square feet in size and 33 smaller traditional stores averaging approximately
10,000 gross square feet in size. The Company's newest superstores range between
35,000 and 40,000 gross square feet in size and are located in strip malls or
power center locations. The Company's business strategy is to offer a broad
assortment of high quality, brand name merchandise at everyday low prices,
provide efficient customer service and maintain low operating costs.

Linens 'n Things' extensive selection of over 25,000 stock keeping units
("SKUs") in its superstores is driven by the Company's commitment to offering a
broad and deep assortment of high quality, brand name "linens" (e.g., bedding,
towels and pillows) and "things" (e.g., housewares and home accessories). Brand
names sold by the Company include Wamsutta, Cannon, Laura Ashley, Martex,
Waverly, Royal Velvet, Braun, Krups, Calphalon and Henckels. The Company also
sells an increasing amount of merchandise under its own private label
(approximately 10% of 1996 sales) which is designed to supplement the Company's
offering of brand name products by offering high quality merchandise at value
prices. The Company's merchandise offering is coupled with a "won't be
undersold" everyday low pricing strategy with price points substantially below
regular department store prices and comparable with or below department store
sale prices.

From its founding in 1975 through the late 1980s, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17%, from 141 to 165 stores during this
period. Over this same period, the Company's net sales increased from $202.1
million for the year ended December 31, 1990 to $737.9 million for the 12 months
ended March 29, 1997. In addition, as part of its strategic initiative to
capitalize on customer demand for one-stop shopping destinations, the Company
has balanced its merchandise mix from being driven primarily by the "linens"
side of its business to a fuller assortment of "linens" and "things." The
Company estimates that the "things" side of its business has increased from less
than 10% of net sales in 1991 to 35% in 1996.

Key components of the Company's strategy to increase sales and
profitability are: (i) new superstore expansion and (ii) increasing productivity
of the existing store base. Principal elements of the Company's growth strategy
are highlighted as follows:

3
<PAGE> 4

as well as backfill in existing markets. In 1997, the Company plans to open 20
to 25 new superstores, of which four were opened as of May 15, 1997, and close
12 to 17 stores (primarily traditional stores), of which seven were closed as of
May 15, 1997. In 1998, the Company plans to open 25 to 30 new superstores and
close 10 to 15 stores (primarily traditional stores). As of March 29, 1997, the
Company operated 132 superstores, representing 80% of its total stores, and 33
traditional stores. The Company's long-term plans include closing most of the
remaining traditional stores as opportunities arise.

INCREASE PRODUCTIVITY OF EXISTING STORE BASE. The Company is committed to
increasing its sales per square foot, inventory turnover ratio and return on
invested capital. The Company believes the following initiatives will allow it
to achieve this goal:

Enhance Merchandise Mix and Presentation. The Company continues to explore
opportunities to increase sales of "things" merchandise while maintaining
the strength of its "linens" side of the business. The Company's long-term
goal is to increase the sales of "things" merchandise to approximately 50%
of net sales as part of its strategic initiative to capitalize on customer
demand for one-stop shopping destinations. The Company expects this shift
to positively impact net sales per square foot and inventory turnover since
"things" merchandise tends to be more impulse driven merchandise as
compared to the "linens" portion of the business and therefore increases
the average sale per customer. In addition, sales of "things" merchandise
typically result in higher margins than "linens" products. The Company
intends to continue improving its merchandising presentation and
techniques, space planning and store layout to further improve the
productivity of its existing and future superstore locations.

Increase Operating Efficiencies. As part of its strategy to increase
operating efficiencies, the Company has invested significant capital in
building a centralized infrastructure, including a distribution center and
a management information system, which it believes will allow it to
maintain low operating costs as it pursues its superstore expansion
strategy. In July 1995, the Company began full operations of its 275,000
square foot distribution center in Greensboro, North Carolina. By the end
of 1996, approximately 80% of merchandise was received at the Company's
distribution center, as compared to approximately 20% at the end of 1995.
The utilization of the distribution center has resulted in lower average
freight costs, more efficient scheduling of inventory shipments to the
stores, improved inventory turnover, better in-stock positions and improved
information flow. In addition, the Company believes that the transfer of
inventory receiving responsibilities from the stores to the distribution
center has allowed store sales associates to redirect their focus to the
sales floor, thereby increasing the level of customer service. The
Company's ability to effectively manage its inventory is also enhanced by a
centralized merchandising management team and its MIS system which allows
the Company to more accurately monitor and better balance inventory levels
and improve in-stock positions in its stores.
------------------------

The Company was founded in 1975 and was acquired in 1983 by CVS Corporation
(formerly known as Melville Corporation) (CVS Corporation together with its
subsidiaries, "CVS"). From its formation, the Company was operated as a wholly
owned indirect subsidiary of CVS until November 1996, when CVS sold 13,000,000
shares representing approximately 67.5% of the outstanding shares of the
Company, in an initial public offering (the "IPO"). Prior to consummation of the
sale of the shares offered hereby (the "Offering"), CVS owns approximately 32.5%
of the outstanding shares of the Company's Common Stock. Upon completion of the
Offering CVS will own approximately 3.9% (less than 0.01% if the Underwriters'
over-allotment option is exercised in full) of the Company's Common Stock.

The Company's corporate offices are located at 6 Brighton Road, Clifton,
New Jersey 07015, and its telephone number is (201) 778-1300.

4
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Selling
Shareholder................................ 5,517,758 shares(1)
Common Stock outstanding(2).................. 19,268,458 shares(2)
Dividend policy.............................. The Company intends to retain all its
earnings for the foreseeable future for use
in the operation and expansion of its
business and, accordingly, the Company
currently has no plans to pay cash dividends
on the Common Stock. See "Dividend Policy."
New York Stock Exchange symbol............... "LIN"
</TABLE>

- ---------------
(1) 6,267,658, if the Underwriters' over-allotment option is exercised in full.

(2) The number of outstanding shares will not change upon completion of the
Offering. The number shown excludes approximately 163,000 shares of deferred
stock grants and approximately 1,001,000 shares issuable upon the exercise
of outstanding stock options. See "Underwriting" and "Management -- 1996
Incentive Compensation Plan" and "Management -- Compensation of Directors."

5
<PAGE> 6

SUMMARY FINANCIAL AND OPERATING DATA

Net income (loss) per share.......... $(0.06) $0.61 $0.89 $(0.01) $0.78 $(0.09) $0.02
Weighted average number of shares
outstanding (in thousands)......... 19,268 19,268 19,268 19,268 19,286 19,268 19,706
SELECTED OPERATING DATA:
Number of stores:
At beginning of period............. 143 144 143 145 155 155 169
Opened during period............... 22 20 29 28 36 3 1
Closed during period............... 21 21 27 18 22 10 5
-------- -------- -------- -------- -------- -------- --------
At end of period:
Traditional stores............... 119 98 71 54 37 46 33
Superstores...................... 25 45 74 101 132 102 132
-------- -------- -------- -------- -------- -------- --------
Total stores................... 144 143 145 155 169 148 165
======== ======== ======== ======== ======== ======== ========
Total gross square feet of store
space (000's)(4)................... 1,633 2,078 2,865 3,691 4,727 3,680 4,696
Net sales per gross square
foot(4)(5)......................... $185 $187 $190 $178 $171 $175(6) $173(6)
Increase (decrease) in comparable
store net sales(7)................. 7.5% 5.0% 5.4% (1.5)% 1.1% 1.7% 5.7%
</TABLE>

<TABLE>
<CAPTION>
MARCH 29, 1997
--------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $113,701
Total assets.......................................................................... 396,879
Total debt(8)......................................................................... 19,220
Shareholders' equity.................................................................. 250,079
</TABLE>

- ---------------
(1) The operating results for the interim periods are not necessarily indicative
of the results that may be expected for a full year. The Company's quarters
end on the Saturday nearest to the end of the last month of such quarter,
except the fourth quarter which ends on December 31.
(2) Reflects certain one-time special charges related to the CVS Strategic
Program (as defined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). Gross profit and operating profit in
1995 excluding the effect of these charges would have been $218.1 million
and $31.5 million, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Reflects a $13.1 million realignment charge associated with the anticipated
costs of closing 66 traditional stores from 1993 to 1995. This charge
includes the write-down of fixed assets, lease settlement costs, severance
and inventory liquidation costs. Operating profit in 1992 excluding the
effect of this charge would have been $12.9 million.
(4) Store space includes the storage, receiving and office space that generally
occupies 10% to 15% of total store space. All numbers provided are for the
end of the respective periods.
(5) Net sales per square foot is the result of dividing net sales for the period
by the average gross square footage at the beginning of the year and at the
end of each interim quarterly and year period.
(6) Amounts for interim periods are calculated based on annual net sales for the
52 weeks ending at the end of such interim period.
(7) New store net sales become comparable in the first full month following 13
full months of operations. Stores that undergo major expansion or that are
relocated are not included in the comparable store base. Comparable store
net sales include traditional stores and superstores.
(8) Total debt consists of a $13.5 million subordinated note issued to CVS, the
balance of short-term debt outstanding of $0.7 million under the Revolving
Credit Facility (as defined herein), and $5.0 million of borrowings under
uncommitted lines of credit unrelated to the Revolving Credit Facility. See
"Relationship with CVS and Related Party Transactions -- Financing."

6
<PAGE> 7

RISK FACTORS

Prospective investors should carefully consider the factors set forth
below, as well as other information contained in this Prospectus, in evaluating
an investment in the Common Stock.

This Prospectus contains forward-looking statements within the meaning of
The Private Securities Litigation Reform Act of 1995. The statements are made a
number of times throughout the Prospectus and may be identified by use of
forward-looking terminology such as "expect," "believe," "may," "will" or
similar terms or variations of such terms. Such forward-looking statements
involve certain risks and uncertainties and, in each case, actual results may
differ materially from those reflected in the forward-looking statements.
Certain important factors that may cause actual results to differ materially
from those reflected in the forward-looking statements are set forth below in
this "Risk Factors" section of the Prospectus. You are urged to consider all
such factors. The Company assumes no obligation for updating any such
forward-looking statements.

RISKS OF GROWTH STRATEGY

The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its superstore expansion program and to increase
productivity of the existing store base. Pursuant to the expansion program the
Company plans to open 20 to 25 superstores in 1997, of which four were opened as
of May 15, 1997, and close 12 to 17 stores (primarily traditional stores), of
which seven were closed as of May 15, 1997. In 1998, the Company plans to open
25 to 30 new superstores and close 10 to 15 stores (primarily traditional
stores). See "Business -- Growth Strategy -- New Superstore Expansion." The
success of the Company's expansion program will be dependent upon, among other
things, the identification of suitable markets and sites for new superstores,
negotiation of leases on acceptable terms, construction or renovation of sites
and obtaining financing for those sites. In addition, the Company must be able
to hire, train and retain competent managers and personnel and manage the
systems and operational components of its growth. The failure of the Company to
open new superstores on a timely basis, obtain acceptance in markets in which it
currently has limited or no presence, attract qualified management and personnel
or appropriately adjust operational systems and procedures would adversely
affect the Company's future operating results. There can be no assurance that
the Company will be able to locate suitable store sites or enter into suitable
lease agreements. In addition, there can be no assurance that as the Company
opens new superstores in existing markets, that these new stores will not have
an adverse effect on comparable store net sales at existing stores in these
markets. In addition, the Company's continuing strategy is to increase
productivity at its existing store base in part by enhancing its merchandise and
presentation mix. There is no assurance that the Company will be able to
increase store profitability by enhancing its merchandise and presentation mix
or that the Company will be able to increase the "things" side of the business
to the Company's targeted goal of 50% of net sales. See "Business -- Growth
Strategy -- Increase Productivity of Existing Store Base." There can be no
assurance that the Company will be able to successfully implement its growth
strategies, continue to introduce the superstore format or maintain its current
growth levels.

COMPETITION

The market for home textiles, housewares and home accessories is fragmented
and highly competitive. The Company competes with many different types of
retailers that sell many or most of the items sold by the Company, including
department stores, mass merchandisers, specialty retail stores, mail order and
other retailers. Many of the Company's competitors have substantially greater
financial and other resources than the Company, including, in some cases, more
profitable store economics or better name recognition. See "Business --
Industry" and "Business -- Competition." In addition, there can be no assurance
that additional competitors will not enter the Company's existing or planned new
markets. Increased competition by existing or future competitors, resulting in
the Company reducing prices in an effort to gain or retain market share, could
result in reductions in the Company's sales and profitability which could have a
material adverse effect on the Company's business and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

7
<PAGE> 8

RELIANCE ON SYSTEMS AND DISTRIBUTION CENTER

The Company relies upon its existing management information systems in
operating and monitoring all major aspects of the Company's business, including
sales, warehousing, distribution, purchasing, inventory control, merchandise
planning and replenishment, as well as various financial systems. Any disruption
in the operation of the Company's management information systems, or the
Company's failure to continue to upgrade, integrate or expend capital on such
systems as its business expands, would have a material adverse effect upon the
Company. Like many computer systems, the Company's systems use two digit data
fields which recognize dates using the assumption that the first two digits are
"19" (i.e., the number 97 is recognized as the year 1997). Therefore, the
Company's date critical functions relating to the year 2000 and beyond, such as
sales, distribution, purchasing, inventory control, merchandise planning and
replenishment, and financial systems, may be severely affected unless changes
are made to these computer systems. The Company expects to resolve these issues
in a timely manner and is currently engaged in a review of all existing computer
systems in order to implement the required changes. However, no assurance can be
given that these issues can be resolved in a timely manner or that the Company
will not incur significant expense in resolving these issues. In addition, the
Company is committed to a centralized distribution strategy and, as a result,
began full operations of its new distribution center in July 1995. By the end of
1996, approximately 80% of merchandise was received at the Company's
distribution center, as compared to approximately 20% at the end of 1995.
Management believes the systems and controls related to the distribution center
are fully integrated and are adequate to support the Company's growth over the
next few years. However, a disruption in the operations of the distribution
center could have a material adverse effect on the Company's business. The
Company's expansion into the western United States could result in freight costs
higher than experienced to date. See "Business -- Growth Strategy -- Increase
Productivity of Existing Store Base" and "Business -- Management Information
Systems."

EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS

The success of the Company's operations depends upon a number of factors
relating to consumer spending, including future economic conditions affecting
disposable consumer income such as employment, business conditions, interest
rates and taxation. If existing economic conditions deteriorate, consumer
spending may decline, thereby adversely affecting the Company's business and
results of operations.

The success of the Company depends on its ability to anticipate and respond
to changing merchandise trends and consumer demands in a timely manner. If the
Company miscalculates either the market for its merchandise or its customers'
purchasing habits, it may be required to sell a significant amount of inventory
at reduced margins. These outcomes may have a material adverse effect on the
Company's operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RELIANCE ON KEY VENDORS

The Company purchases its inventory from over 1,000 suppliers and has no
long-term purchase commitments or exclusive contracts with any vendor or
supplier. Springs Industries, Inc., through its various operating companies,
supplied approximately 13% of the Company's total purchases in 1996. The Company
also purchases significant amounts of products from other key suppliers, none of
which supplied greater than 10% of the Company's purchases in 1996. The
Company's results of operations could be adversely affected by a disruption in
purchases from any of these key suppliers. In addition, many of the Company's
key suppliers currently provide the Company with certain incentives, such as
volume purchasing allowances, trade discounts, cooperative advertising and other
purchasing incentives. A reduction or discontinuance of these incentives could
have a material adverse effect on the Company. Although the Company believes
that its relationships with key vendors are good, the Company has no supply
contracts with any of its vendors, and any vendor could discontinue selling to
the Company at any time.

8
<PAGE> 9

DEPENDENCE UPON KEY EMPLOYEES

The Company's success is largely dependent on the efforts and abilities of
its executive officers, particularly, Norman Axelrod, Chairman of the Board,
Chief Executive Officer and President. The loss of the services of Mr. Axelrod
or other key employees could have a material adverse impact on the Company. The
Company has entered into an employment agreement with Mr. Axelrod. The Company's
success is also dependent upon its ability to continue to attract and retain
qualified employees to meet the Company's needs for its planned superstore
expansion. See "Business -- Business Strategy" and "Management."

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters, with a majority of net sales and net income for such quarters realized
in the fourth quarter. The Company's quarterly results of operations may also
fluctuate significantly as a result of a variety of other factors, including the
timing of new store openings. The Company believes this is the general pattern
associated with its segment of the retail industry and expects this pattern will
continue in the future. In anticipation of its peak selling season, the Company
substantially increases its inventory levels and hires a significant number of
part-time employees. If for any reason the Company's sales during the fourth
quarter were substantially below expectations, the Company's annual results
would be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

INFLUENCE BY CVS

Prior to consummation of the Offering CVS, the Company's former parent and
the Selling Shareholder, owns approximately 32.5% of the outstanding Common
Stock of the Company. As a result of the ownership by CVS of the outstanding
Common Stock, CVS is currently in a position to significantly influence the
outcome of all matters requiring a shareholder vote, including the election of
directors. Upon completion of the Offering, CVS will beneficially own
approximately 3.9% (less than 0.01% if the Underwriters' over-allotment option
is exercised in full) of the outstanding Common Stock of the Company. As a
result of the reduction in CVS's ownership of Common Stock of the Company upon
completion of the Offering, the ability of CVS to influence the Company will be
significantly reduced, but will not be eliminated. Pursuant to the Company's
Certificate of Incorporation and the Stockholder Agreement between CVS and the
Company dated as of December 2, 1996 (the "Stockholder Agreement"), CVS
currently has the right to designate two members of the Board of Directors of
the Company. Upon consummation of the Offering, CVS will have no further right
to designate members of the Board of Directors of the Company. The Company may
ask current CVS designee directors to continue to serve on the Company's Board
of Directors after they are no longer CVS designees.

In addition, pursuant to the Stockholder Agreement, no person or group may
become the beneficial owner of a majority of the Common Stock of the Company
("Majority Beneficial Ownership") unless: (i) CVS has received prior written
notice that such person or group proposes to acquire Majority Beneficial
Ownership; and (ii) prior to such acquisition such person or group provides to
CVS (unless waived by CVS in writing) a guarantee, in form and substance
satisfactory to CVS, of the obligations of the Company under the Stockholder
Agreement to indemnify CVS in respect of the CVS Lease Guarantees (as defined
herein). These provisions regarding acquisition of Majority Beneficial Ownership
could limit the ability or willingness of a third party to make an offer to
acquire the Company. See "Relationship with CVS and Related Party
Transactions -- The Stockholder Agreement."

The Company currently has subordinated aggregate indebtedness outstanding
of $13.5 million to CVS, of which $3.5 million will be converted into equity
upon consummation of this Offering. See "Relationship with CVS and Related Party
Transactions -- Financing." As a result of CVS's ownership of Common Stock and
its position as a creditor of the Company, various conflicts of interest may
arise. See "Principal and Selling Shareholder and Management," "Relationship
with CVS and Related Party Transactions" and "Description of Capital Stock."

9
<PAGE> 10

LIMITED OPERATING HISTORY AS A STAND-ALONE COMPANY

The Company began operating as a stand-alone public company on November 26,
1996, upon completion of the IPO. The historical financial data reflects periods
during which the Company did not operate as an independent company and,
accordingly, certain allocations were made in preparing such financial data. The
Company is subject to the risks and uncertainties associated with any newly
independent company. Prior to the date of the IPO, the Company had access to
financial and other support from CVS. Since the IPO, the Company no longer is
able to rely on CVS for financial support or benefit from its relationship with
CVS to obtain credit or receive favorable terms for the purchase of certain
limited goods and services. Prior to the IPO, CVS acted as the guarantor with
regard to substantially all of the Company's store leases. CVS will not enter
into any additional guarantees of leases on behalf of the Company. As a result,
there can be no assurance in the future that store leases will be available, or
that the Company will be able to secure leases, on similar terms or in as
desirable locations, as those that were available to the Company in the past.

SHARES ELIGIBLE FOR FUTURE SALE

The Company had 19,268,458 shares of Common Stock outstanding as of May 28,
1997. The 5,517,758 shares of Common Stock sold in the Offering (6,267,658
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except any such shares which may be acquired by
an "affiliate" of the Company. The remaining shares of Common Stock held by CVS
will be eligible for sale in the public market, either pursuant to a
Registration Statement or in compliance with the resale volume limitations and
other restrictions of Rule 144 under the Securities Act. Upon completion of this
Offering, CVS will have one remaining "demand" registration right pursuant to
the Stockholder Agreement. CVS has publicly announced its intention to reduce
its ownership of the Company's Common Stock below 10% of the outstanding shares
by the end of 1997. Future sales of the shares of Common Stock held by CVS or
other existing shareholders could have an adverse effect on the price of the
Common Stock and could impair the Company's ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale."

POSSIBLE VOLATILITY OF STOCK PRICE

The Common Stock is listed on the New York Stock Exchange. The market price
of the Common Stock may be subject to significant fluctuations in response to
operating results and other factors. In addition, the stock market in recent
years has experienced price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock."

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of shares of Common
Stock offered hereby.

10
<PAGE> 11

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
29, 1997. The table should be read in conjunction with the historical
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
MARCH 29, 1997
(UNAUDITED)
(IN THOUSANDS)
--------------
<S> <C>
Short-term debt:
Revolving credit facility............................................ $ 720
Other short-term debt................................................ 5,000
--------
Total short-term debt........................................ 5,720
--------
Long-term debt:
Subordinated note.................................................... 13,500(1)
--------
Total long-term debt......................................... 13,500
--------
Total debt................................................... 19,220
--------
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none
issued and outstanding............................................ --
Common Stock, $.01 par value; 60,000,000 shares authorized;
19,267,758 shares issued and outstanding.......................... 193
Additional paid-in capital........................................... 200,189
Retained earnings.................................................... 49,697
--------
Total shareholders' equity................................... 250,079
--------
Total capitalization......................................... $269,299
========
</TABLE>

- ---------------
(1) The Company currently has subordinated aggregate indebtedness outstanding of
$13.5 million to CVS, of which $3.5 million will be converted into equity
upon consummation of this Offering. See "Relationship with CVS and Related
Party Transactions -- Financing."

DIVIDEND POLICY

The Company has not paid any dividends since the IPO. The Company intends
to retain all its earnings for the foreseeable future for use in the operation
and expansion of its business. Accordingly, the Company currently has no plans
to pay cash dividends on the Common Stock. The payment of any future cash
dividends will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and
other factors. The Company's payment of cash dividends is prohibited under its
Revolving Credit Facility (as defined herein). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded on the New York Stock Exchange under
the symbol "LIN" since November 26, 1996. The following table sets forth the
high and low trading prices per share of Common Stock reported on the New York
Stock Exchange for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
Fourth Quarter (from November 26, 1996).................... $19.75 $15.50
1997
First Quarter.............................................. $26.00 $17.50
Second Quarter (through May 29, 1997)...................... $24.88 $18.25
</TABLE>

On May 29, 1997, the last reported sale price of the Common Stock was
$24.50. As of May 28, 1997, there were approximately 38 holders of record of the
Company's Common Stock.

11
<PAGE> 12

SELECTED FINANCIAL AND OPERATING DATA

The table below sets forth the selected historical consolidated financial
data for the Company. The historical financial data presented below reflect
periods during which the Company did not operate as an independent company and,
accordingly, certain allocations were made in preparing such financial data.
Therefore, such data may not reflect the results of operations or the financial
condition which would have resulted if the Company had operated as a separate,
independent company during such periods and are not necessarily indicative of
the Company's future results of operations or financial condition.

The selected financial data presented below under the captions "Income
Statement Data" and "Balance Sheet Data" have been derived from the Consolidated
Financial Statements of the Company which have been audited by KPMG Peat Marwick
LLP, whose report on the Consolidated Financial Statements as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 is
included elsewhere in this Prospectus. The selected financial data as of March
30, 1996 and March 29, 1997 and for the thirteen weeks ended March 30, 1996 and
March 29, 1997 have been derived from unaudited consolidated financial
statements of the Company which are included elsewhere in this Prospectus and
include all adjustments consisting only of normal recurring adjustments
necessary for a fair presentation of the operating results and financial
position as of and for the unaudited periods. The information presented below
under the caption "Selected Operating Data" is unaudited. The selected financial
data should be read in conjunction with the consolidated financial statements as
of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995
and 1996, the related notes and the audit report thereto. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Consolidated Financial Statements."

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED(1)
YEAR ENDED DECEMBER 31, -----------------------
-------------------------------------------------------- MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $270,889 $333,178 $440,118 $555,095 $696,107 $138,167 $179,911
Cost of sales, including buying and
warehousing costs...................... 162,095 199,307 265,721 345,162(2) 426,196 87,669 111,596
-------- -------- -------- -------- -------- --------- ---------
Gross profit............................. 108,794 133,871 174,397 209,933(2) 269,911 50,498 68,315
Selling, general and administrative
expenses............................... 95,904 112,135 142,155 190,826(2) 239,228 51,509 67,371
Restructuring and asset impairment
charge................................. 13,100(3) -- -- 10,974(2) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Operating profit (loss).................. (210)(3) 21,736 32,242 8,133(2) 30,683 (1,011) 944
Interest expense, net.................... 1,301 1,398 3,170 7,059 4,692 2,082 336
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before provision for income
taxes and cumulative effect of change
in accounting principle................ (1,511) 20,338 29,072 1,074 25,991 (3,093) 608
Provision for (benefit from) income
taxes.................................. (310) 8,619 11,874 1,108 10,952 (1,307) 256
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle......... (1,201) 11,719 17,198 (34) 15,039 (1,786) 352
Cumulative effect of change in accounting
principle, net......................... -- -- -- 178 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)........................ $ (1,201) $ 11,719 $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
======== ======== ======== ======== ======== ======== ========

Net income (loss) per share.............. $(0.06) $0.61 $0.89 $(0.01) $0.78 $(0.09) $0.02
Weighted average number of shares
outstanding............................ 19,268 19,268 19,268 19,268 19,286 19,268 19,706
SELECTED OPERATING DATA:
Number of stores:
At beginning of period................. 143 144 143 145 155 155 169
Opened during period................... 22 20 29 28 36 3 1
Closed during period................... 21 21 27 18 22 10 5
-------- -------- -------- -------- -------- --------- ---------
At end of period:
Traditional stores................... 119 98 71 54 37 46 33
Superstores.......................... 25 45 74 101 132 102 132
-------- -------- -------- -------- -------- --------- ---------
Total stores....................... 144 143 145 155 169 148 165
======== ======== ======== ======== ======== ======== ========
Total gross square feet of store space
(000's)(4)............................. 1,633 2,078 2,865 3,691 4,727 3,680 4,696
Net sales per gross square foot(4)(5).... $185 $187 $190 $178 $171 $175 (6) $173 (6)
Increase (decrease) in comparable store
net sales(7)........................... 7.5% 5.0% 5.4% (1.5)% 1.1% 1.7 % 5.7 %
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 29,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 34,606 $ 35,143 $ 42,315 $ 68,332 $111,056 $ 113,701
Total assets..................................... 157,639 196,517 273,167 343,522 423,957 396,879
Total debt(8).................................... 31,180 44,620 67,452 118,652 13,500 19,220
Shareholders' equity............................. 65,170 74,340 85,819 76,678 249,727 250,079
</TABLE>

12
<PAGE> 13

(2) Reflects certain one-time special charges related to the CVS Strategic
Program (as defined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). Gross profit and operating profit in
1995 excluding the effect of these charges would have been $218.1 million
and $31.5 million, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

(3) Reflects a $13.1 million realignment charge associated with the anticipated
costs of closing 66 traditional stores from 1993 to 1995. This charge
includes the write-down of fixed assets, lease settlement costs, severance
and inventory liquidation costs. Operating profit in 1992 excluding the
effect of this charge would have been $12.9 million.

(4) Store space includes the storage, receiving and office space that generally
occupies 10% to 15% of total store space. All numbers provided are for the
end of the respective periods.

(5) Net sales per square foot is the result of dividing net sales for the period
by the average gross square footage at the beginning of the year and at the
end of each interim quarterly and year period.

(6) Amounts for interim periods are calculated based on annual net sales for the
52 weeks ending at the end of such interim period.

(7) New store net sales become comparable in the first full month following 13
full months of operations. Stores that undergo major expansion or that are
relocated are not included in the comparable store base. Comparable store
net sales include traditional stores and superstores.

(8) As of March 29, 1997, total debt consists of a $13.5 million subordinated
note issued to CVS, the balance of short-term debt outstanding of $0.7
million under the Revolving Credit Facility (as defined herein), and $5.0
million of borrowings under uncommitted lines of credit unrelated to the
Revolving Credit Facility. See "Relationship with CVS and Related Party
Transactions -- Financing."

13
<PAGE> 14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Linens 'n Things, a leading specialty retailer of home textiles, housewares
and home accessories currently operating in 34 states, was founded in 1975 and
was operated as a private company until it was acquired by CVS in 1983. The
Company was wholly-owned by CVS from 1983 until November 26, 1996, the date of
the IPO. As of March 29, 1997, the Company operated 132 superstores averaging
approximately 33,000 gross square feet in size and 33 smaller traditional stores
averaging approximately 10,000 gross square feet in size. The Company's newest
superstores range between 35,000 and 40,000 gross square feet in size. The
Company's business strategy is to offer a broad assortment of high quality,
brand name merchandise at everyday low prices, provide efficient customer
service and maintain low operating costs.

From its founding in 1975 through the late 1980s, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17% from 141 to 165 stores. Over this
same period, the Company's net sales increased from $202.1 million for the year
ended December 31, 1990 to $737.9 million for the 12 months ended March 29,
1997. In addition, as part of the strategic initiative to capitalize on customer
demand for one-stop shopping destinations, the Company has balanced its
merchandise mix from being driven primarily by the "linens" side of its business
to a fuller assortment of "linens" and "things." The Company believes that this
shift will positively impact net sales per square foot and inventory turnover
since "things" merchandise tends to be more impulse driven as compared to the
"linens" portion of the business and therefore increases the average sale per
customer. In addition, sales of "things" merchandise typically result in higher
margins than "linens" products. The Company estimates that the "things" side of
its business has increased from less than 10% of net sales in 1991 to 35% in
1996.

Beginning in the second half of 1995 through the first half of 1996,
approximately 40% of the Company's superstores included in the comparable store
base which previously had limited competition from other superstores experienced
new competitive intrusions, resulting in a decrease in comparable store net
sales at these stores. Typically, store sales begin to recover after one full
year of competition. In the second half of 1996 and 1997 to date, these stores
impacted by competitive intrusions are trending positive as a group.

In July 1995, the Company began operations of its 275,000 square foot
state-of-the-art distribution center in Greensboro, North Carolina. After the
distribution center became fully operational in 1995, the Company's gross margin
was negatively affected initially by the following factors: (i) transitional
costs associated with the start-up of the distribution center and (ii) higher
freight and handling costs incurred given the less than full utilization of the
distribution center during its implementation phase. The utilization of the
distribution center has resulted in lower average freight costs, more timely
control of inventory shipments to the stores, improved inventory turnover,
better in-stock positions and improved information flow. In addition, the
Company believes that the transfer of inventory receiving responsibilities from
the stores to the distribution center has allowed store associates to redirect
their focus to the sales floor, thereby increasing the level of customer
service. At the end of 1996 approximately 80% of merchandise was being received
at the Company's distribution center, as compared to approximately 20% at the
end of 1995.

In 1992, the Company established a realignment reserve of $13.1 million for
the anticipated costs of closing 66 traditional stores between 1993 and 1995.

In 1994, CVS announced the initiation of a strategic review to increase its
sales and profits by examining the mix of its business. The review culminated in
the announcement, on October 24, 1995, of a comprehensive strategic program (the
"CVS Strategic Program"), which resulted, insofar as it relates to the Company,
in the

14
<PAGE> 15

Company recording a pre-tax charge of $23.4 million in the fourth quarter of
1995. The CVS Strategic Program and related pre-tax charge of $23.4 million,
insofar as they relate to the Company, consisted of: (i) restructuring charges
of $9.5 million including primarily estimated tenancy costs ($3.8 million) and
asset write-offs ($5.0 million) associated with the closing of six unprofitable
stores and asset write-offs related to management information systems
outsourcing ($0.7 million); (ii) a non-cash asset impairment charge of $1.4
million due to the early adoption of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") relating to store fixtures and
leasehold improvements; and (iii) asset write-offs and other non-cash charges
totaling $12.5 million consisting primarily of the write-off of certain
non-productive assets, as well as costs associated with the changeover to the
Company's new distribution network relating to the opening of the distribution
center.

In 1995, as part of a $9.5 million restructuring charge associated with the
CVS Strategic Program, the Company reserved $8.8 million for the anticipated
costs of closing six unprofitable stores. The $8.8 million cost, which consisted
of the write-off of fixed assets, lease acquisition costs and future lease
obligation costs associated with these stores, was higher than the usual such
closing costs because the Company elected to close these stores and terminate
these leases before their stated lease termination dates. The net sales and
operating losses in 1995 of the stores to be closed were approximately $14.3
million and $1.5 million, respectively. Accordingly, management believes that
such actions and costs associated with the CVS Strategic Program will not have a
significant impact on the Company's future earnings or cash flows. Cash outflows
relating to the lease obligation costs totaling in the aggregate of $3.8 million
will continue for the duration of the lease terms. Of the six stores included in
the reserve, five were closed in 1996 and one was closed in early 1997.

The SFAS No. 121 charge related entirely to assets to be held or used as
defined in SFAS No. 121. The charge resulted from the Company grouping assets at
a lower level than under its previous accounting policy regarding asset
impairment. Factors leading to impairment were a combination of historical
losses, anticipated future losses and inadequate cash flows.

All charges relating to asset write-offs were non-cash charges based on
recorded net book values and estimated tenancy costs were non-cash charges based
on future lease obligations. The reduction in depreciation expense and
amortization expense in the future relating to the write-off of fixed assets and
lease acquisition costs is not expected to be material to the Company's results
of operations.

Excluding these charges in connection with the CVS Strategic Program, gross
profit and operating profit would have been $218.1 million and $31.5 million in
1995, respectively, as compared to $209.9 million and $8.1 million,
respectively, reflected in the Company's consolidated statement of operations
for such year.

The Company's policy for costs associated with stores closed in the normal
course of business is to charge such costs to current operations, and,
accordingly, the Company has not provided for any costs relating to future store
closings. In 1997, the Company expects to close approximately 12 to 17 stores
(primarily traditional stores), seven of which have been closed as of May 15,
1997. Management anticipates that the aggregate cost to the Company of all store
closings during 1997 will be approximately $4.0 to $5.0 million. As a result,
these store closing costs will adversely affect the Company's results of
operations in the periods in which they are closed. In addition, the Company
expects that continuing competitive intrusions in markets where certain of its
traditional stores operate will result in lower operating profit for those
stores than that previously experienced. The Company's long-term plans are to
close most of the remaining traditional stores as opportunities arise.

Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The impact on
1995 as a result of this change exclusive of the cumulative effect of $0.3
million (before income tax effect) was to reduce net income by $0.2 million.

The historical financial information presented herein reflects certain
periods during which the Company did not operate as an independent company, and
accordingly, certain allocations were made in preparing such financial
information. Such information may not necessarily reflect the results of
operations and financial condition of the Company which would have resulted had
the Company been an independent public company during the reporting periods. In
addition, operating and financing costs may be higher in future reporting
periods for the Company than such costs as reported in the financial information
included herein and as a result the

15
<PAGE> 16

Company's results of operations and financial condition may be adversely
affected. See "Risk Factors -- Limited Operating History as a Stand-Alone
Company."

In connection with the IPO, a one-time charge of $1.5 million was recorded
in the fourth quarter of 1996 related to the termination of certain executive
compensation programs.

In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128") was issued. SFAS No. 128 simplifies the
standards for computing earnings per share and makes the United States standards
for computing earnings per share more comparable to international standards.
SFAS No. 128 requires the presentation of "basic" earnings per share (which
excludes dilution) and "diluted" earnings per share. The Company does not
believe the adoption of SFAS No. 128 in fiscal 1997 will have a significant
impact on the Company's reported earnings per share. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997 and
requires restatement of prior period earnings per share presented.

RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales and percentage
change of certain items included in the Company's statements of operations for
the periods indicated:

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN
YEAR ENDED WEEKS
YEAR ENDED DECEMBER 31, -------------------- DECEMBER 31, ENDED
------------------------- MARCH 30, MARCH 29, ----------------- MARCH 29,
1994 1995 1996 1996 1997 1995 1996 1997
----- ----- ----- --------- --------- ------ ------ ---------
PERCENTAGE CHANGE FROM PRIOR
PERCENTAGE OF NET SALES PERIOD INCREASE (DECREASE)
------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 26.1% 25.4% 30.2%
Cost of sales, including
buying and warehousing
costs.................. 60.4 62.2 61.2 63.4 62.0 29.9 23.5 27.3
----- ----- ----- ----- ----- ------ ------ -----
Gross profit............. 39.6 37.8 38.8 36.6 38.0 20.4 28.6 35.3
Selling, general and
administrative
expenses............... 32.3 34.3 34.4 37.3 37.5 34.2 25.4 30.8
Restructuring and asset
impairment charges..... -- 2.0 -- -- -- -- (100.0) --
----- ----- ----- ----- ----- ------ ------ -----
Operating profit
(loss)................. 7.3 1.5 4.4 (0.7) 0.5 (74.8) NM NM
Interest expense, net.... 0.7 1.3 0.7 1.5 0.2 122.7 (33.5) (83.9)
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 6.6 0.2 3.7 (2.2) 0.3 (96.3) NM 119.7
Provision for (benefit
from) income taxes..... 2.7 0.2 1.5 (0.9) 0.1 (90.7) NM 119.6
Income (loss) before
cumulative effect of
change in accounting
principle.............. 3.9 0.0 2.2 (1.3) 0.2 (101.2) NM 119.7
Cumulative effect of
change in accounting
principle, net......... -- 0.0 -- -- -- -- (100.0) --
----- ----- ----- ----- ----- ------ ------ -----
Net income (loss)........ 3.9% 0.0% 2.2% (1.3)% 0.2% (101.2)% NM 119.7%
===== ===== ===== ===== ===== ====== ====== =====
</TABLE>

NM -- Percentage change is not meaningful.

16
<PAGE> 17

THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30,
1996

During the thirteen weeks ended March 29, 1997, the Company opened one
superstore and closed five stores, as compared to opening three superstores and
closing ten stores in the thirteen weeks ended March 30, 1996. At March 29,
1997, the Company operated 165 stores, of which 132 were superstores, as
compared to 148 stores, of which 102 were superstores, at March 30, 1996. Store
square footage increased 28% to 4,696,000 at March 29, 1997 from 3,680,000 at
March 30, 1996.

Net sales increased 30.2% to $179.9 million for the thirteen weeks ended
March 29, 1997, compared to $138.2 million for the same period last year,
primarily as a result of new store openings since March 30, 1996. Comparable
store net sales for the thirteen weeks ended March 29, 1997 increased 7.7% at
the Company's superstore locations and 5.7% for the Company as a whole.
Traditional store net sales were less than 10% of total net sales during the
thirteen weeks ended March 29, 1997, and will continue to represent a declining
percentage of total net sales throughout the year as more superstores are opened
and traditional stores are closed. The Company's average net sales per
superstore were $5.6 million for the fifty-two weeks ended March 29, 1997, up
from $5.2 million for the same period in 1996. For the fifty-two weeks ended
March 29, 1997 average superstore net sales per square foot increased to $173
from $171 in the prior fifty-two week period. Comparable store net sales
increased in key product categories of the Company's business and across all
major markets. Net sales for the thirteen weeks ended March 29, 1997 reflect the
entire Easter selling season, and a milder winter as compared to the same period
in 1996. In 1996 the final week of the Easter selling season fell in the second
quarter.

For the thirteen weeks ended March 29, 1997, while both the "linens" and
"things" sides of the business experienced comparable store net sales gains,
"things" continued to grow at a faster pace than "linens." For the thirteen
weeks ended March 29, 1997, net sales of "things" merchandise increased
approximately 45% over the same period in the prior year, while net sales of
"linens" merchandise increased approximately 24% for the same period. The
increase in net sales of "things" merchandise primarily resulted from the growth
in the number of superstore locations which carry a larger line of "things"
products as well as the overall expansion of the product categories in existing
stores.

Gross profit for the thirteen weeks ended March 29, 1997 was $68.3 million,
or 38.0% of net sales, compared to $50.5 million, or 36.6% of net sales, in the
same period during 1996. The improvements in gross profit were due primarily to
lower clearance markdowns, improved margins due to the shift in merchandise mix
towards "things" and lower freight costs as a result of increased utilization of
the Company's distribution center during the thirteen weeks ended March 29, 1997
compared to the prior year period. Gross margin for both "linens" and "things"
merchandise increased consistent with the Company's consolidated results. The
gross margin for "things" merchandise was slightly higher than the gross margin
for "linens" merchandise for the first thirteen week periods in both 1997 and
1996.

Selling, general and administrative expenses ("SG&A") for the thirteen
weeks ended March 29, 1997 were $67.4 million, or 37.5% of net sales, compared
to $51.5 million, or 37.3% of net sales in the corresponding period during 1996.
During the thirteen weeks ended March 30, 1996, the Company recorded a $0.5
million insurance recovery gain associated with damages to one of its stores
caused by severe winter conditions. Excluding this gain, SG&A as a percentage of
net sales would have shown an improvement of 20 basis points (37.5% for the
thirteen weeks ended March 29, 1997 compared to 37.7% for the same period in the
prior year). This improvement is primarily attributable to the sales volume
increasing faster than increases in SG&A during the thirteen weeks ended March
29, 1997 compared to the prior year period (excluding the insurance recovery
gain).

Operating profit for the thirteen weeks ended March 29, 1997 increased to
$0.9 million, or 0.5% of net sales, compared to a loss of $1.0 million, or
(0.7%) of net sales, during the same period in 1996.

Net interest expense (including commitment fees in connection with the $125
million Revolving Credit Facility) for the thirteen weeks ended March 29, 1997
was $336,000 compared to $2.1 million for the thirteen weeks ended March 30,
1996. The reduction in net interest expense is due to a reduction in net average
borrowings, which were $7.9 million in the thirteen weeks ended March 29, 1997
as compared to $145.0 million in the same period in 1996. The reduction in net
average borrowings is a result of the capital contributions from CVS of $158.0
million in 1996 prior to the IPO and improved operating performance. See
"-- Liquidity and Capital Resources."

17
<PAGE> 18

The Company's income tax expense for the thirteen weeks ended March 29,
1997 was $256,000, as compared to a benefit of $1.3 million during the same
period in 1996.

Net income for the thirteen weeks ended March 29, 1997 increased to
$352,000, or $0.02 per share, compared to a net loss of $1.8 million, or ($0.09)
per share, during the same period in 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

During 1996, the Company opened 36 superstores and closed 22 stores, as
compared to opening 28 superstores and closing 18 stores in 1995. At December
31, 1996, the Company operated 169 stores, of which 132 were superstores, as
compared to 155 stores, of which 101 were superstores, at December 31, 1995. Net
sales for 1996 were $696.1 million, an increase of 25.4% over 1995 sales of
$555.1 million, primarily as a result of new store openings. Comparable store
net sales in 1996 increased 1.1% compared to a decrease of 1.5% in 1995. During
the first half of 1996, the Company's comparable store net sales decreased below
the same period in 1995 by 2.7% due primarily to increased competitive
intrusions at approximately 40% of the Company's superstores in existing
markets. These competitive intrusions commenced primarily in mid-1995. However,
for the second half of 1996, comparable store net sales increased 4.1% as a
result of a strong back-to-school and holiday selling season, as well as the
diminishing effect of the prior year's competitive intrusions.

In 1996, the Company's average net sales per superstore increased slightly
to $5.5 million from $5.4 million in 1995, while average net sales per
traditional store remained flat at $1.7 million. For 1996 average superstore net
sales per square foot decreased to $171 from $178 and average traditional store
net sales per square foot remained flat at $177 per square foot. The decrease in
average superstore net sales per square foot is due to the relative immaturity
of the 36 superstores opened in 1996, 18 of which were opened in the fourth
quarter. In 1996, net sales of "things" merchandise increased approximately 36%
over the prior year, while net sales of "linens" merchandise increased
approximately 20% for the same period. The increase in "things" merchandise
primarily resulted from the growth in the number of superstore locations which
carry a larger line of "things" products as well as the overall expansion of the
product categories in existing stores.

Gross profit for 1996 was $269.9 million, or 38.8% of net sales, as
compared to $209.9 million, or 37.8% of net sales, in 1995. Excluding charges
related to the CVS Strategic Program (discussed in the Notes to Consolidated
Financial Statements), gross profit in 1995 would have been $218.1 million or
39.3% of net sales. This decrease as a percentage of net sales resulted from
higher clearance markdowns during the spring associated with the closing of
traditional stores partially offset by reduced freight expenses as a percentage
of net sales. See Note 4 of Notes to Consolidated Financial Statements.

Excluding charges related to the CVS Strategic Program recorded in 1995,
the Company's average superstore gross margin in 1996 was 39.8% as compared to
39.7% in 1995 and average traditional store gross margin was 34.5% as compared
to 37.8% in the prior year. The gross margin for "things" merchandise was
slightly higher than the gross margin for "linens" merchandise for each period,
accounting for a higher gross margin in the superstores, which have a higher mix
of "things" versus "linens" as compared to the traditional stores. The decline
in gross margin in the traditional stores was due primarily to higher markdowns
associated with closing stores.

SG&A for 1996 were $239.2 million or 34.4% of net sales, as compared to
$190.8 million, or 34.3% of net sales in 1995. This increase as a percentage of
net sales resulted from a one-time charge of $1.5 million relating to certain
employee benefit costs associated with the IPO.

Operating profit for 1996 increased to $30.7 million or 4.4% of net sales,
from $8.1 million, or 1.5% of net sales, during 1995. Excluding one-time charges
relating to the CVS Strategic Program, the Company's operating profit in 1995
would have been $31.5 million or 5.7% of net sales.

Net interest expense in 1996 decreased 33.5% to $4.7 million, or 0.7% of
net sales, from $7.1 million, or 1.3% of net sales, during 1995. This decrease
was due primarily to $158.0 million in capital contributions from CVS in 1996
which were used to repay the Company's intercompany debt to CVS.

18
<PAGE> 19

The Company's income tax expense for 1996 was $11.0 million, as compared to
$1.1 million during 1995. The Company's effective tax rate in 1996 was 42.1%, as
compared to 103.2% in 1995, primarily due to the effect of the Company's
one-time charges incurred in 1995. Excluding these charges, the Company's
effective tax rate would have been 42.3% in 1995.

Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The impact in
1995, as a result of this change exclusive of the cumulative effect of $0.3
million (before income tax effect) was to reduce net income by $0.2 million.

Net income for 1996 was $15.0 million, or 2.2% of net sales, as compared to
a net loss of $212,000 in 1995. Excluding one-time charges relating to the CVS
Strategic Program, the Company's net income would have been $14.1 million, or
2.5% of net sales, in 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

During 1995, the Company opened 28 superstores and closed 18 stores, as
compared to opening 29 superstores and closing 27 stores in 1994. At the end of
1995, the Company operated 155 stores, of which 101 were superstores, as
compared to 145 stores, of which 74 were superstores, at the end of 1994. Net
sales increased 26.1% to $555.1 million in 1995, as compared to $440.1 million
in 1994, primarily as a result of new store openings. Comparable store net sales
in 1995 decreased 1.5% primarily due to new competitive intrusions in existing
markets at approximately 40% of the Company's superstores included in the
comparable store base which previously had limited competition from other
superstores, as well as to a general slowdown in the retail sector during 1995.

In 1995, the Company's average net sales per superstore increased slightly
to $5.4 million from $5.1 million and its average net sales per traditional
store decreased slightly to $1.7 million from $1.9 million, during the same
period in the prior year. In 1995, average superstore net sales per square foot
decreased to $178 from $187 and average traditional store net sales per square
foot decreased to $177 from $195 for the same period in the prior year due to
factors described in the preceding paragraph. In 1995, net sales of "things"
merchandise increased approximately 45% over the same period in the prior year,
while net sales of "linens" merchandise increased approximately 19% for the same
period. The increase in "things" merchandise resulted from the growth in the
number of superstore locations which carry a larger line of "things" products as
well as the overall expansion of the product categories in existing stores.

Gross profit in 1995 was $209.9 million, or 37.8% of net sales, as compared
to $174.4 million, or 39.6% of net sales, in 1994. This decrease as a percentage
of net sales was primarily due to transitional costs associated with the
start-up of the distribution center. Excluding these costs, the Company's gross
profit would have been $218.1 million or 39.3% of net sales. The remaining
decrease is primarily attributable to higher freight and handling costs incurred
given the less than full usage of the distribution center during its
implementation phase and the Company's expansion to the western United States.

In 1995, the Company's average superstore gross margin was 38.2% as
compared to 40.2% in 1994, and average traditional store gross margin was 36.3%
as compared to 38.7% during the same period in the prior year due to the factors
described above. Gross margins for both "linens" and "things" merchandise
declined consistent with the Company's consolidated results. The gross margin
for "things" merchandise was slightly higher than the gross margin for "linens"
merchandise for each such period.

SG&A in 1995 were $190.8 million, or 34.3% of net sales, as compared to
$142.2 million, or 32.3% of net sales, in 1994. This increase as a percentage of
net sales was primarily attributable to higher occupancy costs due to a higher
proportion of superstores located in prime real estate locations as compared to
the prior year and lower fixed expense leverage due to the decrease in
comparable store net sales.

In fourth quarter of 1995, the Company incurred a $11.0 million, or 2.0% of
net sales, pre-tax restructuring and asset impairment charge as a result of the
CVS Strategic Program. In connection with the CVS Strategic Program, six
underperforming stores were identified to be closed in 1996. The net sales and
operating losses in 1995 of these six stores aggregated approximately $14.3
million and $1.5 million, respectively.

19
<PAGE> 20

Operating profit in 1995 decreased to $8.1 million, or 1.5% of net sales,
from $32.2 million, or 7.3% of net sales, in 1994. Excluding charges related to
the CVS Strategic Program, operating profit in 1995 would have been $31.5
million, or 5.7% of net sales.

Net interest expense in 1995 increased 122.7% to $7.1 million, or 1.3% of
net sales, from $3.2 million, or 0.7% of net sales, in 1994. This increase is
attributable to a higher level of intercompany debt due to CVS in 1995 relating
to capital expenditures and working capital increases in support of the
Company's store expansion program and capital expenditures in connection with
the purchase of material handling equipment for the distribution center. In
addition, there was a higher weighted average interest rate of 6.5% in 1995 as
compared to 4.9% in 1994.

The Company's income tax expense in 1995 was $1.1 million, as compared to
$11.9 million in 1994. The Company's effective tax rate in 1995 was 103.2%, as
compared to 40.8% in 1994, primarily due to the effect of the Company's one-time
charges incurred in 1995. Excluding these charges, the Company's effective tax
rate would have been 42.3% in 1995. This increase was primarily attributable to
a decrease in earnings before taxes, while book to tax permanent differences
remained constant.

Effective October 1, 1995, the Company adopted SFAS No. 121. As a result of
this adoption, the Company incurred a charge of $1.4 million in 1995.

The Company incurred a net loss of $212,000 in 1995, as compared to net
income of $17.2 million, or 3.9% of net sales, in 1994. Excluding one-time
charges relating to the CVS Strategic Program, the Company's net income would
have been $14.1 million, or 2.5% of net sales, in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's capital requirements have been used primarily for capital
investment in new stores, new store inventory purchases and seasonal working
capital. The capital requirements and working capital needs have been funded
through a combination of internally generated cash from operations, credit
extended by suppliers and borrowings from CVS.

Net cash used in operating activities for the first quarter of 1997 was
$14.0 million compared to $21.0 million for the same period last year. The
decrease in cash used during the first quarter of 1997 was due to a $2.1 million
increase in profitability and only a slight increase in inventory due to an
improved inventory turnover rate compared to the first quarter of 1996. The
decrease was also due to a smaller reduction in current liabilities caused by
the timing of vendor payments.

Net cash provided from operating activities in 1996 was $20.2 million, as
compared to net cash used of $12.1 million in 1995. The operating cash provided
in 1996 was primarily due to improved inventory management which resulted in a
reduction of inventory on a per square foot basis. The improved management of
inventory was the result of efficiencies achieved from the Company's new
distribution center and more conservative inventory purchasing in 1996 as
compared to 1995. This was offset in part by a smaller increase in accounts
payable caused by the timing of vendor payments. The increase in accrued
expenses was due to the timing of advertising and salary and benefit payments.

Net cash used in investing activities during the first quarter of 1997 was
$3.9 million compared to $6.9 million in the same period last year. The decrease
from the first quarter of 1996 is associated with the timing of the Company's
new store openings. Net cash used in investing activities in 1996 was $46.4
million, as compared to $41.3 million in 1995. This increase was primarily due
to higher capital expenditures associated with the Company's store opening
program, which was partially offset by lower capital expenditures associated
with the distribution center in 1996 as compared to 1995.

Net cash used in financing activities during the first quarter of 1997 was
$6.0 million compared to net cash provided by financing activities of $27.9
million for the same period last year. Net cash used during the first

20
<PAGE> 21

quarter of 1997 was primarily the result of the timing of the settlement of
vendor payments offset by borrowings of $5.7 million. Net cash provided during
the first quarter of 1996 was primarily the result of CVS's funding of the
Company's increased working capital needs.

Net cash provided by financing activities in 1996 was $48.9 million, as
compared to $53.5 million in 1995. Net cash provided by financing activities in
1996 was primarily the result of capital contributions of $158.0 million from
CVS, which was used to repay the intercompany debt. In addition, in connection
with the IPO, CVS also provided the Company with a four-year $13.5 million
subordinated note of which $3.5 million will be converted into equity upon
consummation of this Offering. See "Relationship with CVS and Related Party
Transactions -- Financing." The decrease was attributable to the effect of the
timing of the settlement of vendor payments offset by the discontinuance of
dividend payments to CVS in 1996.

The Company has available a $125 million three-year senior revolving credit
facility (the "Revolving Credit Facility"). At March 29, 1997, the Company had
borrowings of $0.7 million under this facility. The Revolving Credit Facility
contains certain financial covenants, including those relating to the
maintenance of a minimum tangible net worth, a minimum fixed charge coverage
ratio, and a maximum leverage ratio, as defined in the Revolving Credit
Facility. Interest on all borrowings is determined based upon several
alternative rates as stipulated in the facility. The average borrowing rate for
the quarter ended March 29, 1997 was 5.78%. The facility allows for $10.0
million in borrowings from uncommitted lines unrelated to the Revolving Credit
Facility. As of March 29, 1997, the Company had $5.0 million in borrowings under
its uncommitted lines of credit. At May 14, 1997, the Company had total
borrowings of $10.3 million under the Revolving Credit Facility and $8.0 million
under its uncommitted lines of credit. Management believes that the Company's
cash flow from operations and the Revolving Credit Facility will be sufficient
to fund anticipated capital expenditures and working capital requirements for at
least the next three years. The Company is in compliance with all terms and
conditions of the credit facility.

INFLATION

The Company does not believe that its operating results have been
materially affected by inflation during the preceding three years. There can be
no assurance, however, that the Company's operating results will not be affected
by inflation in the future.

SEASONALITY AND QUARTERLY RESULTS

The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters, with a majority of net sales and net income for such quarters realized
in the fourth quarter. The Company's quarterly results of operations may also
fluctuate significantly as a result of a variety of other factors, including the
timing of new store openings. The Company believes this is the general pattern
associated with its segment of the retail industry and expects this pattern will
continue in the future. Consequently, comparisons between quarters are not
necessarily meaningful and the results for any quarter are not necessarily
indicative of future results.

21
<PAGE> 22

The following table sets forth certain unaudited financial information for
the Company in each quarter during 1995 and 1996 and the first quarter of 1997.
The unaudited quarterly information includes all normal recurring adjustments
which management considers necessary for a fair presentation of the information
shown. See "Risk Factors -- Seasonality and Quarterly Fluctuations."

QUARTERLY RESULTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $115,298 $124,290 $138,050 $177,457 $555,095
Gross profit............. 42,787 47,896 54,666 64,584(1) 209,933
Operating profit
(loss)................. 2,890 4,667 6,432 (5,856)(1) 8,133
Net income (loss)........ 682 1,644 2,599 (5,137)(1) (212)
Percentage increase
(decrease) in
comparable store net
sales.................. 1.4% 4.7% (6.6)%(2) (3.3)%(2) (1.5)%(2)
Total stores (end of
period)................ 139 142 146 155 155

<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $138,167(2) $147,649(2) $180,438 $229,853 $696,107
Gross profit............. 50,498 56,252 69,159 94,002 269,911
Operating profit
(loss)................. (1,011) 1,026 9,279 21,389 30,683
Net income (loss)........ (1,786) (411) 4,966 12,270 15,039
Percentage increase
(decrease) in
comparable store net
sales.................. 1.7%(2) (6.7)%(2) 2.9% 5.0% 1.1%
Total stores (end of
period)................ 148 155 156 169 169
<CAPTION>
FIRST
1997 QUARTER
- ------------------------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $179,911
Gross profit............. 68,315
Operating profit......... 944
Net income............... 352
Percentage increase in
comparable store net
sales.................. 5.7%
Total stores (end of
period)................ 165
</TABLE>

- ---------------

(1) Excluding the CVS Strategic Program, gross profit, operating profit and net
income in the fourth quarter of 1995 would have been $72.8 million, $17.5
million and $9.0 million, respectively.

(2) Comparable store net sales were negatively affected primarily due to new
competitive intrusions in existing markets at approximately 40% of the
Company's superstores included in the comparable store base which previously
had limited competition from other superstores. In addition, the fluctuation
between the first and second quarter in 1995 and 1996 is due in part to the
inclusion of a smaller portion of the Easter selling season in the first
quarter of 1996, as compared to in the first quarter of 1995.

22
<PAGE> 23

BUSINESS

GENERAL

Linens 'n Things is one of the leading, national large format retailers of
home textiles, housewares and home accessories operating in 34 states. According
to Home Textiles Today, Linens 'n Things was the largest specialty retailer (as
measured by sales) in the home linens category in 1995, the most recent year for
which such information was published. As of March 29, 1997, the Company operated
132 superstores averaging approximately 33,000 gross square feet in size and 33
smaller traditional stores averaging approximately 10,000 gross square feet in
size. The Company's newest stores range between 35,000 and 40,000 gross square
feet in size and are located in strip malls or power center locations. The
Company's business strategy is to offer a broad assortment of high quality,
brand name merchandise at everyday low prices, provide efficient customer
service and maintain low operating costs.

Linens 'n Things' extensive selection of over 25,000 SKUs in its
superstores is driven by the Company's commitment to offering a broad and deep
assortment of high quality, brand name "linens" (e.g., bedding, towels and
pillows) and "things" (e.g., housewares and home accessories) merchandise. Brand
names sold by the Company include Wamsutta, Cannon, Laura Ashley, Martex,
Waverly, Royal Velvet, Braun, Krups, Calphalon and Henckels. The Company also
sells an increasing amount of merchandise under its own private label
(approximately 10% of sales in 1996) which is designed to supplement the
Company's offering of brand name products by offering high quality merchandise
at value prices. The Company's merchandise offering is coupled with a "won't be
undersold" everyday low pricing strategy with price points substantially below
regular department store prices and comparable with or below department store
sale prices.

From its founding in 1975 through the late 1980's, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17% from 141 to 165 stores during this
period. The Company's net sales have increased from $202.1 million for the year
ended December 31, 1990 to $737.9 million for the 12 months ended March 29,
1997. As part of this strategy, the Company instituted centralized management
and operating programs and invested significant capital in its distribution and
management information systems infrastructure in order to control operating
expenses as the Company grows. In addition, as part of its strategic initiative
to capitalize on customer demand for one-stop shopping destinations, the Company
has balanced its merchandise mix from being driven primarily by the "linens"
side of its business to a fuller assortment of "linens" and "things." The
Company estimates that the "things" side of its business has increased from less
than 10% of net sales in 1991 to 35% in 1996.

BUSINESS STRATEGY

The Company's business strategy is to offer a broad assortment of high
quality, brand name products at everyday low prices, provide efficient customer
service and maintain low operating costs. Key elements of the Company's business
strategy are as follows:

Offer a Broad Assortment of Quality Name Brands at Everyday Low
Prices. Linens 'n Things' merchandising strategy is to offer the largest
breadth of selection in high quality, brand name fashion home textiles,
housewares and home accessories at everyday low prices. The Company offers over
25,000 SKUs in its superstores across six departments, including bath, home
accessories, housewares, storage, top of the bed and window treatments. The
Company continues to explore opportunities to increase sales in its "things"
merchandise while maintaining the strength of its "linens" portion of the
business. The Company's long-term goal is to increase the sales of the "things"
merchandise to approximately 50% of net sales. See "-- Growth
Strategy -- Increase Productivity of Existing Store Base." The Company is one of
the largest retailers of brand names, including Wamsutta, Laura

23
<PAGE> 24

Ashley, Martex, Waverly, Royal Velvet, Braun, Krups and Calphalon. The Company
also sells an increasing amount of merchandise under its own private label
(approximately 10% of sales in 1996) which is designed to supplement the
Company's offering of brand name products by offering high quality merchandise
at value prices. The Company believes its prices are typically well below the
non-sale prices offered by department stores and are comparable to or slightly
below the sale prices offered by such stores. In addition, the Company maintains
a "won't be undersold" approach which guarantees its customers prices as low as
those offered by any of its competitors.

Provide Efficient Customer Service and Shopping Convenience. To enhance
customer satisfaction and loyalty, Linens 'n Things strives to provide prompt,
knowledgeable sales assistance and enthusiastic customer service. Linens 'n
Things emphasizes competitive wages, training and personnel development in order
to attract and retain well-qualified, highly motivated employees committed to
providing efficient customer service. Linens 'n Things also endeavors to provide
more knowledgeable sales associates by providing training through various
programs which include management training, daily sales associate meetings and
vendor product support seminars. In addition, the Company has taken initiatives
to enhance the speed of its customer service, including installing satellite
transmission for credit card authorizations and upgrading its current
point-of-sale ("POS") system. The customer's experience is also enhanced by the
availability of sales associates who, since the transfer of inventory and
receiving responsibilities from the stores to the distribution center, have
redirected their focus from the backroom to the selling floor. The Company's
superstore format is designed to save the customer time by having inventory
visible and accessible on the selling floor for immediate purchase. A number of
the superstores have additional in-store customer services, such as same day
monogramming, and the Company is currently implementing a bridal registry
service in all of its stores, which it expects will be completed in 1997. The
Company believes its knowledgeable sales staff and efficient customer service,
together with the Company's liberal return policy, create a positive shopping
experience which engenders customer loyalty.

Maintain Low Operating Costs. A cornerstone of the Company's business
strategy is its commitment to maintaining low operating costs. In addition to
savings realized through sales volume efficiencies, operational efficiencies are
expected to be achieved through the streamlining of the Company's centralized
merchandising structure, the use of integrated management information systems
and the utilization of the distribution center. The Company believes that its
significant investment in the technology of its management information systems
and in its distribution center will allow the Company to grow without requiring
significant additional capital contributions to its infrastructure through 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company is able to limit its advertising expenses by relying
upon an everyday low price strategy which reduces the Company's need to
advertise sales.

GROWTH STRATEGY

NEW SUPERSTORE EXPANSION. The Company's expansion strategy is to increase
market share in existing markets and to penetrate new markets in which the
Company believes it can become a leading operator of home furnishings
superstores. Management believes that the new markets will be primarily located
in the western region of the United States. In addition, the Company may in the
future explore opportunities to expand abroad. The Company believes that it is
well-positioned to take advantage of the continued market share gain by the
superstore chains in the home furnishings sector. The Company believes there is
an opportunity to more than triple the number of its current prototype
superstores across the country, providing the Company with significant growth
opportunities to profitably enter new markets, as well as backfill in existing
markets. In 1997, the Company plans to open 20 to 25 new superstores, of which
four were opened as of May 15, 1997, and close approximately 12 to 17 stores
(primarily traditional stores), of which seven were closed as of May 15, 1997.
In 1998, the Company plans to open 25 to 30 new superstores and close 10 to 15
stores (primarily traditional stores). As of March 29, 1997, the Company
operated 132 superstores, representing 80% of its total stores, and 33
traditional stores. The Company's long-term plans include closing most of the
remaining traditional stores as opportunities arise.

24
<PAGE> 25

The following table sets forth information concerning the Company's
expansion program during the most recent five years and the first quarter of
1997:

<TABLE>
<CAPTION>
SQUARE FOOTAGE
(IN THOUSANDS) STORE COUNT
---------------- ----------------
BEGIN END BEGIN END
PERIOD OPENINGS CLOSINGS PERIOD PERIOD PERIOD PERIOD
- -------------------------------------------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1992........................................ 22 21 1,350 1,633 143 144
1993........................................ 20 21 1,633 2,078 144 143
1994........................................ 29 27 2,078 2,865 143 145
1995........................................ 28 18 2,865 3,691 145 155
1996........................................ 36 22 3,691 4,727 155 169
1997 (1st Quarter).......................... 1 5 4,727 4,696 169 165
</TABLE>

Linens 'n Things focuses on opening new superstores in metropolitan areas
where it believes it can become a leading retailer of home-related products. The
Company's goal is to enter two to three new markets a year through its expansion
efforts. Markets for new superstores are selected on the basis of demographic
factors, such as income, population and number of households. Linens 'n Things
focuses its site locations on prime locations within trading areas of 200,000
persons within a ten-mile radius and demographic characteristics that match the
Company's target profile. The Company's stores are located predominantly in
power strip centers and, to a lesser extent, in malls and as stand-alone stores.

The Company currently operates all of its superstores on an operating lease
basis. Based upon the Company's prior experience, the Company estimates that the
net cost of opening a superstore 35,000 to 40,000 gross square feet in size is
$2.0 to $2.4 million. This amount includes $0.9 to $1.1 million of inventory
(net of vendor payables), $0.9 to $1.1 million for leasehold improvements and
fixtures and $225,000 to $250,000 for pre-opening expenses, which are expensed
as incurred. Based on historical performance, new stores are typically
profitable within their first full year of operations. Management estimates that
the aggregate cost of its planned store closings will be approximately $4.0 to
$5.0 million in 1997, and approximately $3.0 to $4.0 million in 1998. The
Company believes that its current management infrastructure and management
information systems, together with its new distribution center, are capable of
supporting planned expansion through 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."

INCREASE PRODUCTIVITY OF EXISTING STORE BASE. The Company is committed to
increasing its net sales per square foot, inventory turnover ratio and return on
invested capital. The Company believes the following initiatives will allow it
to achieve these goals:

Enhance Merchandise Mix and Presentation. The Company continues to explore
opportunities to increase sales of "things" merchandise without sacrificing
market share or customer image in the "linens" side of the business. The
Company's long-term goal is to increase the sales of the "things" merchandise to
approximately 50% of net sales as part of its strategic initiative to capitalize
on customer demand for one-stop shopping destinations. The Company expects this
shift to positively impact net sales per square foot and inventory turnover
since "things" merchandise tends to be more impulse driven merchandise as
compared to the "linens" portion of the business and therefore increases the
average sale per customer. In addition, sales of "things" merchandise typically
result in higher margins than "linens" products. The Company plans on regularly
introducing new products which it expects will increase sales and generate
additional customer traffic.

In addition, the Company intends to continue improving its merchandising
presentation techniques, space planning and store layout to further improve the
productivity of its existing and future superstore locations. The Company
periodically restyles its stores to incorporate new offerings and realign its
store space with its growth segments. The Company expects that the addition of
in-store customer services, such as the bridal registry service, will further
improve its store productivity.

25
<PAGE> 26

superstore expansion strategy. In July 1995, the Company began full operations
of its 275,000 square foot distribution center in Greensboro, North Carolina. By
the end of 1996, approximately 80% of merchandise was being received at the
distribution center, as compared to approximately 20% at the end of 1995. The
utilization of the distribution center has resulted in lower average freight
costs, more efficient scheduling of inventory shipments to the stores, improved
inventory turnover, better in-stock positions and improved information flow. The
Company believes that the transfer of inventory receiving responsibilities from
the stores to the distribution center allows store sales associates to redirect
their focus to the sales floor, thereby increasing the level of customer
service. The warehouse portion of the distribution center provides the Company
flexibility to manage safety stock and take advantage of opportunistic
purchases. The Company's ability to effectively manage its inventory is also
enhanced by a centralized merchandising management team and its MIS system which
allows the Company to more accurately monitor and better balance inventory
levels and improve in-stock positions in its stores.

INDUSTRY

According to U.S. Department of Commerce data, total industry sales of
products sold in the Company's stores, which primarily includes home textiles,
housewares and decorative furnishings categories, were estimated to be over $60
billion in 1995 (the last year for which such information is currently
available). The market for home furnishings is fragmented and highly
competitive. Specialty superstores are the fastest growing channel of
distribution in this market. In 1995, the three largest specialty superstore
retailers of fashion home textiles (including the Company) had aggregate sales
of approximately $1.4 billion, representing less than 3% of the industry's total
unit sales.

The Company competes with many different types of retailers that sell many
or most of the items sold by the Company, including department stores, mass
merchandisers, specialty retail stores and other retailers. Linens 'n Things
generally classifies its competition within one of the following categories:

Department Stores. This category includes national and regional department
stores such as J.C. Penney Company Inc., Sears, Roebuck and Co., Dillard
Department Stores, Inc. and the department store chains operated by Federated
Department Stores, Inc. and The May Department Store Company. These retailers
offer branded merchandise as well as their own private label furnishings in a
high service environment. Department stores also offer certain designer
merchandise, such as Ralph Lauren, which is not generally distributed through
the specialty and mass merchandise distribution channels. In general, the
department stores offer a more limited selection of merchandise than the
Company. The prices offered by department stores during off-sale periods are
significantly higher than those of the Company and during on-sale periods are
comparable to or slightly higher than those of the Company.

Mass Merchandisers. This category includes companies such as Wal-Mart
Stores, Inc., the Target Stores division of Dayton Hudson Corporation and Kmart
Corporation. Fashion home furnishings represent only a small portion of the
total merchandise sales in these stores and reflect a significantly more limited
selection with fewer high quality name brands and lower quality merchandise at
lower price points than specialty stores or department stores. In addition,
these mass merchandisers typically have more limited customer services staffs
than the Company.

Specialty Stores/Retailers. This category includes large format home
furnishings retailers most similar to Linens 'n Things, including Bed Bath &
Beyond Inc., Home Place and Strouds, Inc. and smaller niche retailers such as
Crate & Barrel, Lechters, Inc. and Williams-Sonoma, Inc. The Company estimates
that large format stores range in size from approximately 30,000 to 50,000 gross
square feet and offer a home furnishings merchandise selection of approximately
20,000 to 30,000 SKUs. The Company believes that these retailers have similar
pricing on comparable brand name merchandise and that they compete by attempting
to develop loyal customers and increase customer traffic by providing a single
outlet to satisfy all the customer's household needs. The niche retailers are
typically smaller in size than the large format superstores and offer a highly
focused and broad assortment within a specific niche. The prices offered by
niche retailers are often higher than the large format superstores and most do
not maintain an everyday low price strategy.

26
<PAGE> 27

Other Retailers. This category includes mail order retailers, such as
Spiegel Inc. and Domestications, off-price retailers, such as the T.J. Maxx and
Marshall's divisions of the TJX Companies, Inc. and local "mom and pop" retail
stores. Both mail order retailers and smaller local retailers generally offer a
more limited selection of brand name merchandise at prices which tend to be
higher than those of the Company. Off-price retailers typically offer close-out
or out of season brand name merchandise at competitive prices.

MERCHANDISING

The Company offers quality home textiles, housewares and home accessories
at everyday low prices. The Company's strategy consists of a commitment to offer
a breadth and depth of selection and to create merchandise presentation that
makes it easy to shop in a visually pleasing environment. The stores feature a
"racetrack" layout, enabling the customer to visualize and purchase fully
coordinated and accessorized ensembles. Seasonal merchandise is featured at the
front of every store to create variety and excitement and to capitalize on key
selling seasons including back-to-school and holiday events.

The Company's extensive merchandise offering of over 25,000 SKUs enables
its customers to select from a wide assortment of styles, brands, colors and
designs within each of the Company's major product lines. The Company is
committed to maintaining a consistent in-stock inventory position. This
presentation of merchandise enhances the customer's impression of a dominant
assortment of merchandise in an easy to shop environment. The Company's broad
and deep merchandise offering is coupled with everyday low prices that are
substantially below regular department store prices and comparable with or
slightly below department store sale prices. The Company has adopted a "won't be
undersold" approach and believes that the uniform application of its everyday
low price policy is essential to maintaining the integrity of this policy. This
is an important factor in establishing its reputation as a price leader and in
helping to build customer loyalty. In addition, the Company offers on a regular
basis "special" purchases which it obtains primarily through opportunistic
purchasing to enhance its high value perception among its customers.

The Company also sells an increasing amount of merchandise under its own
private label (approximately 10% of net sales in 1996) which is designed to
supplement the Company's offering of brand name products by offering high
quality merchandise at value prices. The Company believes its private label
program will continue to enhance customer awareness of its superstores and
provides a distinct competitive advantage. Merchandise directly imported
represented approximately 5% of net sales in 1996.

Merchandise and sample brands offered in each major department are
highlighted below:

<TABLE>
<CAPTION>
DEPARTMENT ITEMS SOLD SAMPLE BRANDS
- -------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
Bath Towels, shower curtains, waste Fieldcrest, Martex, Royal Velvet and
baskets, hampers, bathroom rugs and Springmaid.
wall hardware.
Home Accessories Decorative pillows, napkins, Dakotah, Waverly and Laura Ashley.
tablecloths, placemats, lamps,
gifts, picture frames and framed
art.
Housewares Cookware, cutlery, kitchen gadgets, Braun, Krups, Calphalon, Henckels,
small electric appliances (such as Mikasa, Circulon, Farberware, Black
blenders and coffee grinders), & Decker, Kitchen Aid, Copco and
dinnerware, flatware and glassware. International Silver.
Storage Closet-related items (such as Rubbermaid and Closetmaid.
hangers, organizers and shoe racks).
Top of the Bed Sheets, comforters, comforter Wamsutta, Laura Ashley, Revman,
covers, bedspreads, bed pillows, Croscill, Fieldcrest, Springmaid,
blankets and mattress pads. Royal Sateen and Beautyrest.
Window Treatment Curtains, valances and window Croscill, Graber, Bali, Waverly and
hardware. Laura Ashley.
</TABLE>

27
<PAGE> 28

As part of a strategic effort to capitalize on consumer demand for one-stop
shopping destinations, the Company has balanced its merchandise mix from being
driven primarily by the "linens" side of its business to a fuller assortment of
"linens" and "things." The Company estimates that the "things" side of its
business has increased from less than 10% of its net sales in 1991 to 35% in
1996. The Company continues to explore opportunities to increase sales of
"things" merchandise while maintaining the strength of its "linens" side of the
business. The Company's long-term goal is to increase the sales of "things"
merchandise to approximately 50% of net sales. See "-- Growth
Strategy -- Increase Productivity of Existing Store Base."

The Company's "racetrack" layout allows customers to easily shop between
corresponding departments and stimulates impulse sales by encouraging the
customers to shop the entire store. The Company also believes its stores allow
customers to locate products easily and reinforce the customer's perception of
an extensive merchandise selection. In addition, the Company actively works with
vendors to improve the customers' in-store experience through designing
displays, unique packaging and product information signs that optimally showcase
its product offering and by training associates in product education in order to
maximize service to the customer.

CUSTOMER SERVICE

Linens 'n Things treats every customer as a guest. The Company's philosophy
supports enhancing the guest's entire shopping experience and believes that all
elements of service differentiate it from the competition. To facilitate the
ease of shopping, the assisted self service culture is complemented by trained
department specialists, zoned floor coverage, product information displays and
videos, self demonstrations and vendor supported training seminars. This
philosophy is designed to encourage guest loyalty as well as continually develop
knowledgeable Company associates. A number of the superstores have in-store
services, such as monogramming, and the Company is currently implementing a
bridal registry service in most of its stores. The entire store team is hired
and trained to be highly visible in order to assist guests with their
selections. The ability to assist guests has been enhanced by the transfer of
inventory receiving responsibilities from the stores, allowing sales associates
to focus on the sales floor. Enhanced management systems which provide efficient
customer service and liberal return procedures are geared toward making each
guest's final impression of visiting a store a convenient, efficient and
pleasant experience.

ADVERTISING

Advertising programs are focused on building and strengthening the Linens
'n Things superstore concept and image. Because of the Company's commitment to
everyday low prices, advertising vehicles are aggressively used in positioning
the Company among new and existing customers by communicating price, value and
breadth and depth of selection, with a "won't be undersold" approach. The
Company focuses its advertising programs during key selling seasons such as
back-to-school and holidays.

The Company primarily uses full color inserts in newspapers to reach its
customers. In addition, the Company periodically advertises on television and
radio during peak seasonal periods or promotional events. Grand opening
promotional events are used to support new stores, with more emphasis placed on
those located in new markets. The Company's marketing programs are targeted at
its primary customer base of women, age 35-55, with household income greater
than $50,000.

STORES

The Company's 165 stores are located in 34 states, principally in suburban
areas of medium and large sized cities. Store locations are targeted primarily
for power strip centers and mall-proximate sites in densely populated areas
within trading areas of 200,000 persons within a ten-mile radius.

The Company's superstores range in size from 19,000 to 50,000 gross square
feet, but are predominantly between 35,000 and 40,000 gross square feet in size.
The Company's traditional stores range in size from 7,500 to 10,000 gross square
feet. In both superstores and traditional stores, approximately 85% to 90% of
store space is used for selling areas and the balance for storage, receiving and
office space.

For a list of store locations as of March 29, 1997, see the inside front
cover of this Prospectus.

28
<PAGE> 29

PURCHASING AND SUPPLIERS

The Company maintains its own central buying staff, comprised of one Senior
Vice President, two Vice Presidents and twelve Buyers. The merchandising mix for
each store is selected by the central buying staff in consultation with district
store managers. The Company purchases its merchandise from over 1,000 suppliers.
Springs Industries, Inc., through its various operating companies, supplied
approximately 13% of the Company's total purchases in 1996. In 1996, the Company
purchased a significant number of products from other key suppliers. See "Risk
Factors -- Reliance on Key Vendors." Due to its breadth of selection, the
Company is often one of the largest customers for certain of its vendors. The
Company believes that this buying power and its ability to make centralized
purchases generally allows it to acquire products at favorable terms. In
addition, the Company has established programs with certain vendors that allow
merchandise to be shipped floor-ready and pre-ticketed with the Company's price
labels, increasing overall operating efficiency. In 1996, approximately 95% of
the Company's merchandise was purchased in the United States.

DISTRIBUTION

In 1995, the Company began full operations of its 275,000 square foot
state-of-the-art distribution center in Greensboro, North Carolina. The system
that supports this facility was designed to use the latest electronic data
interchange ("EDI") capabilities to optimize allocation of products to the
locations that achieve the highest sales and inventory productivity potential.
The utilization of the centralized distribution center has resulted in lower
average freight expense, more timely control of inventory shipment to stores,
improved inventory turnover, better in-stock positions and improved information
flow. In addition, the transfer of inventory receiving responsibilities from the
stores to the distribution center allows the sales associates to redirect their
focus to the sales floor, thereby increasing the level of customer service. The
Company believes strong distribution support for its stores is a critical
element to its growth strategy and is central to its ability to maintain a low
cost operating structure.

The Company manages the distribution process centrally from its corporate
headquarters. Purchase orders issued by Linens 'n Things are electronically
transmitted to the majority of its suppliers. At the end of 1996, approximately
80% of total inventory was being received through the distribution center. The
balance of the Company's merchandise is directly shipped to individual stores.
The Company plans to continue efforts to ship as much merchandise through the
distribution center as possible to ensure all benefits of the Company's
logistics strategy are fully leveraged. Continued growth will also facilitate
new uses of EDI technologies between Linens 'n Things and its suppliers to
exploit the most productive and beneficial use of its assets and resources.

Management estimates that the distribution center can support the Company's
growth through the end of 1998. As the Company continues to open more
superstores in the western United States, another distribution center may be
desirable to support the further growth of the Company. Such a distribution
center would further increase freight savings and reduce transit time to the
western stores. In order to realize greater efficiency, the Company uses third
party delivery services to ship its merchandise from the distribution center to
its stores.

MANAGEMENT INFORMATION SYSTEMS

Over the last three years, the Company has made significant investment in
technology to improve customer service, gain efficiencies and reduce operating
costs. Linens 'n Things has installed an IBM AS/400, with a customized
management information system, which integrates all major aspects of the
Company's business, including sales, distribution, purchasing, inventory
control, merchandise planning and replenishment and financial systems. The
Company utilizes POS terminals with price look-up capabilities for both
inventory and sales transactions on a SKU basis. Information obtained daily by
the system results in automatic inventory replenishment in response to specific
requirements of each superstore. The upgraded terminals will also enable the
store operator to initiate the credit approval process and will have the
capability to support the Company's bridal registry service. The Company has
further integrated its planning process through a comprehensive EDI system used
for substantially all purchase orders, invoices and bills of lading and which,
combined with automatic shipping notice technology used in the distribution
systems, creates additional efficiencies by capturing data through bar codes
thereby reducing clerical errors and inventory shrinkage.

29
<PAGE> 30

The Company believes its management information systems have fully
integrated the Company's stores, distribution center and home office. The
Company continually evaluates and upgrades its management information systems on
a regular basis to enhance the quantity, quality and timeliness of information
available to management.

STORE MANAGEMENT AND OPERATIONS

Each superstore is staffed with one General Manager, two to four
Merchandise Managers and one Receiving Manager. The operations of each store are
supervised by a District Manager who generally supervises six to ten stores and
one of three Zone Vice Presidents. Each Zone Vice President reports to the
Senior Vice President of Store Operations.

The Company places a strong emphasis on its people, their development and
opportunity for advancement, particularly at the store level. The Company's
commitment to maintaining a high internal promotion rate is best exemplified
through the practice of opening each new store with a seasoned management crew,
who participate in training at an existing store immediately prior to the new
opening. As a result, the vast majority of General Managers opening a new store
have significant experience at the Company. Additionally, the structured
management training program requires each new associate to learn all facets of
the business within the framework of a fully operational store. This program
includes, among other things, product knowledge, merchandise presentation,
business and sales perspective, employee relations and manpower planning,
complemented at the associate level through daily product knowledge seminars and
structured register training materials. The Company believes that its policy of
promoting from within the Company, as well as the opportunities for advancement
generated by its ongoing store expansion program, serve as incentives to attract
and retain quality individuals which, the Company believes, results in lower
turnover.

Linens 'n Things stores are open seven days a week, generally from 10:00
a.m. to 9:00 p.m. Monday through Saturday and 11:00 a.m. to 6:00 p.m. on Sunday,
unless affected by local laws.

EMPLOYEES

As of March 29, 1997, the Company employed approximately 6,100 people of
whom approximately 2,600 were full-time employees and 3,500 were part-time
employees. Less than 7% of employees are non-store personnel. None of the
Company's employees are represented by unions, and the Company believes that its
relationship with its employees is good.

COMPETITION

The Company believes that although it will continue to face competition
from retailers in all four of the categories referred to in
"Business -- Industry," its most significant competition is from the large
format specialty stores. The home textiles industry is becoming increasingly
competitive as several specialty retailers are in the process of expanding into
new markets. The visibility of the Company may encourage additional competitors
or may encourage existing competitors to imitate the Company's format and
methods. If any of the Company's major competitors seek to gain or retain market
share by reducing prices, the Company may be required to reduce its prices in
order to remain competitive.

The Company believes that the ability to compete successfully in its
markets is determined by several factors, including price, breadth and quality
of product selection, in-stock availability of merchandise, effective
merchandise presentation, customer service and superior store locations. The
Company believes that it is well positioned to compete on the basis of these
factors. Nevertheless, there can be no assurance that any or all of the factors
that enable the Company to compete favorably will not be adopted by companies
having greater financial and other resources than the Company.

PROPERTIES

The Company currently leases all of its existing stores and expects that
its policy of leasing rather than owning will continue as it expands. The
Company's leases provide for original lease terms that generally range

30
<PAGE> 31

from 5 to 20 years and certain of the leases provide for renewal options that
range from 5 to 15 years at increased rents. Certain of the leases provide for
scheduled rent increases (which, in the case of fixed increases, the Company
accounts for on a straight line basis over the noncancelable lease term) and
certain of the leases provide for contingent rent (based upon store sales
exceeding stipulated amounts). CVS remains obligated under its guarantees of the
Company's store leases where CVS guaranteed such leases in the past (including
extensions and renewals provided for in the terms of such leases at the time
such guarantees were furnished, and certain new leases identified in the
Stockholder Agreement through the initial lease terms thereof. CVS will not
enter into any additional guarantees of leases on behalf of the Company. See
"Risk Factors -- Limited Operating History as a Stand-Alone Company."

The Company owns its 275,000 square foot distribution center in North
Carolina. The Company leases its 59,000 square foot corporate office in Clifton,
New Jersey.

LEGAL PROCEEDINGS

There are no material legal proceedings against the Company. The Company is
involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

TRADE NAMES AND SERVICE MARKS

The Company uses the "Linens 'n Things" name as a trade name and as a
service mark in connection with retail services. The Company has registered the
"Linens 'n Things" logo as a service mark with the United States Patent and
Trademark Office. Management believes that the name Linens 'n Things is an
important element of the Company's business.

31
<PAGE> 32

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information regarding the executive officers
and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------
<S> <C> <C>
Norman Axelrod................ 44 Chairman of the Board, Chief Executive Officer,
President and Director
James M. Tomaszewski.......... 48 Senior Vice President, Chief Financial Officer
Steven B. Silverstein......... 37 Senior Vice President, General Merchandise
Manager
Hugh J. Scullin............... 48 Senior Vice President, Store Operations
Stanley P. Goldstein.......... 62 Director
Charles C. Conaway............ 36 Director
Philip E. Beekman............. 65 Director
</TABLE>

Mr. Axelrod has been Chief Executive Officer and President of the Company
since 1988, a Director since September 1996 and Chairman of the Board since
January 1997. Prior to joining Linens 'n Things, Mr. Axelrod held various
management positions at Bloomingdale's between 1976 to 1988 including: Buyer,
Divisional Merchandise Manager, Vice President/Merchandise Manager and Senior
Vice President/General Merchandise Manager. Mr. Axelrod earned his B.S. from
Lehigh University and his M.B.A. from New York University.

Mr. Tomaszewski has served as Senior Vice President, Chief Financial
Officer since joining Linens 'n Things in 1994. Mr. Tomaszewski began his career
with J.L. Hudsons Department Store in Detroit in 1970. In 1982, he was promoted
to Vice President Controller of Diamonds Department Store in Tempe, Arizona. In
1985, he joined Filene's Department Store as Vice President, Controller, and
later that year he was promoted to Senior Vice President and Chief Financial
Officer for Filene's Basement. In 1987, Mr. Tomaszewski joined Lechmere's in
Boston as Senior Vice President and Chief Financial Officer. In 1992, he was
promoted to Executive Vice President Retail Operations at Lechmere's and elected
to Lechmere's Board of Directors. Mr. Tomaszewski has a B.S. in Finance and
Economics and an M.B.A. in Finance from Wayne State University.

Mr. Silverstein joined Linens 'n Things in 1992 as Vice President, General
Merchandise Manager. Prior to joining Linens 'n Things, Mr. Silverstein was
Merchandise Vice President of Home Textiles at Bloomingdale's from 1985 to 1992.
Mr. Silverstein has been Senior Vice President, General Merchandise Manager
since 1993. He received his B.A. from Cornell University and his M.B.A. from
Wharton Business School.

Mr. Scullin joined Linens 'n Things in 1989 as Vice President, Store
Operations. Mr. Scullin has been Senior Vice President, Store Operations since
1994. From 1978 to 1987, Mr. Scullin held various management positions with The
Gap, Inc., including Zone Vice President at both The Gap and Banana Republic
from 1984 to 1987. From 1987 to 1989, Mr. Scullin was Vice President of Stores
with Alcott and Andrews. Mr. Scullin graduated from St. Joseph's University with
a B.S. in Marketing Management.

Mr. Goldstein has been a Director of the Company since October 1996. Mr.
Goldstein is Chairman and Chief Executive Officer of CVS and has served in
various capacities at CVS since 1969. He served as President of CVS from January
1987 to January 1994 and as Executive Vice President of CVS from 1984 to
December 1986. Prior to that, he served as President of CVS which was a division
of Melville Corporation. Mr. Goldstein also serves on the board of NYNEX and
Footstar, Inc. Mr. Goldstein received his B.S. from The Wharton School of the
University of Pennsylvania.

Mr. Conaway has been a Director of the Company since September 1996. Mr.
Conaway is Executive Vice President and Chief Financial Officer of CVS. Prior to
joining CVS, he held the position of Executive Vice President and Chief
Operating Officer for Reliable Drug Stores, Inc. Mr. Conaway joined CVS in 1992
as the Senior Vice President, Pharmacy and has held his current positions since
1995. Mr. Conaway holds a B.S. in Accounting from Michigan State University and
an M.B.A. from the University of Michigan.

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<PAGE> 33

Mr. Beekman has been a Director of the Company since January 1997. Mr.
Beekman is President of Owl Hollow Enterprises, Inc., a consulting and
investment company. From 1986 to 1994, he was Chairman of the Board and Chief
Executive Officer of Hook SupeRx, Inc., a retail drug store chain. Prior to that
he was President and Chief Operating Officer of Seagram Company Limited. Mr.
Beekman is also a director of Fisher Scientific International, Inc., Mafco
Consolidated Group Inc., General Chemical Group, Inc. and BT Office Products
International.

The Board of Directors currently consists of four members and is divided
into three classes approximately equal in size. Directors are generally elected
for three-year terms on a staggered term basis, so that the term of office of
one class will expire each year and the terms of office of the other classes
will extend for additional periods of one and two years, respectively. The
Company currently intends to increase the number of directors serving on its
Board to six or seven by the end of 1997.

Pursuant to the Company's Certificate of Incorporation and the Stockholder
Agreement, CVS currently has the right to designate two members of the Board of
Directors of the Company. Upon completion of the Offering, CVS will have no
further right to designate members of the Company's Board of Directors. The
Company may ask current CVS designee directors to continue to serve on the
Company's Board of Directors after they are no longer CVS designees.

KEY MANAGERS

The following table sets forth information regarding the key managers of
the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------
<S> <C> <C>
William T. Giles..................... 37 Vice President, Finance, Controller
Matthew J. Meaney.................... 50 Vice President, Management
Information Systems
Brian D. Silva....................... 40 Vice President, Human Resources
Dominick J. Trapasso................. 43 Vice President, Logistics
</TABLE>

Mr. Giles joined Linens 'n Things in 1991 as Assistant Controller and was
promoted to Vice President, Finance, Controller in 1994. From 1981 to 1990, Mr.
Giles was with Price Waterhouse. From 1990 to 1991, Mr. Giles held the position
of Director of Financial Reporting with Melville Corporation. Mr. Giles is a
certified public accountant and member of the American Institute of Certified
Public Accountants. He graduated from Alfred University with a B.A. in
Accounting and Management.

Mr. Meaney joined Linens 'n Things in 1991 as Vice President, Management
Information Systems. From 1985 to 1991, Mr. Meaney was Vice President of
Management Information Services for Laura Ashley, Inc. Mr. Meaney received a
B.S. in Economics from St. Peter's College and an M.B.A. in Finance from Seton
Hall University.

Mr. Silva has been Vice President, Human Resources, since joining Linens 'n
Things in 1995. Mr. Silva was Assistant Vice President, Human Resources at The
Guardian, an insurance and financial services company, from 1986 to 1995. He
holds an M.A. in Organizational Development from Columbia University and an M.A.
in Human Resources Management from New York Institute of Technology. Mr. Silva
received his B.A. from St. John's University.

Mr. Trapasso has been Vice President, Logistics since joining Linens 'n
Things in 1993. From 1979 to 1986, he was employed with John Wanamaker as
Director, Warehouse, Distribution. From 1986 to 1993, he was Senior Vice
President, Distribution, Transportation at Charming Shoppes, Inc. Mr. Trapasso
received his B.A. from New York University.

33
<PAGE> 34

COMPENSATION OF DIRECTORS

Directors who are not receiving compensation as officers or employees of
the Company or any of its affiliates are paid an annual retainer of $10,000 and
a $750 fee for attendance at each meeting of the Board or any committee of the
Board. Non-employee directors are also eligible to participate in the 1996
Non-Employee Director Stock Plan (the "1996 Director Plan"). Under the 1996
Director Plan, each non-employee director is entitled to receive an option to
purchase 7,000 shares of the Company's Common Stock upon the director's first
election to the Board. In addition, each non-employee director is entitled to
receive an option to purchase 700 shares of Common Stock on the date of each
annual meeting commencing with the 1997 Annual Meeting. The 1996 Director Plan
also provides for automatic grants of 700 stock units ("Stock Units") to each
non-employee director in 1996 and thereafter on the date of each annual meeting.
Each Stock Unit represents the right to receive one share of Common Stock at the
end of a specified period. One-half of such Stock Units will be paid six months
and a day after the grant date and the other half on the next annual meeting,
provided that on such date the non-employee director has not ceased to serve as
a director for any reason other than death, disability, or retirement at or
after attaining age 65.

EXECUTIVE COMPENSATION

The following table sets forth information on compensation earned in fiscal
years 1996 and 1995 by the Company's Chairman of the Board, Chief Executive
Officer and President and the three other most highly compensated key policy
making officers of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
AWARDS
-----------------------------
NUMBER OF
ANNUAL COMPENSATION RESTRICTED SECURITIES
FISCAL ---------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARD(S) ($) OPTIONS/SARS # COMPENSATION ($)
- ---------------------------- ------ ---------- --------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Norman Axelrod,............. 1996 475,000 65,313 999,353(1) 385,355 3,167(5)
Chairman of the Board, 1995 455,000 0 750,004(2) 75,069(3)(4) 6,918(6)
Chief Executive Officer
and President
James M. Tomaszewski,....... 1996 279,000 27,900 290,438(1) 75,000 1,357(5)
Senior Vice President, 1995 264,000 0 100,016(2) 17,324(3)(4) 5,373(6)
Chief Financial Officer
Steven B. Silverstein,...... 1996 275,000 27,500 290,438(1) 75,000 3,167(5)
Senior Vice President, 1995 265,000 0 200,031(2) 23,098(3)(4) 7,069(6)
General Merchandise
Manager
Hugh J. Scullin,............ 1996 210,000 21,000 174,263(1) 45,000 3,167(5)
Senior Vice President, 1995 210,000 0 0 6,929(3)(4) 8,519(6)
Store Operations
</TABLE>

- ---------------
(1) Valuation of the restricted stock awards in the above table is based on the
offering price in the IPO of $15.50, net of consideration paid of $0.01 per
share. The number and value of the restricted stock holdings at the end of
fiscal 1996 for each of the named executives is: Mr. Axelrod, 64,516 shares,
$1,265,481; Mr. Tomaszewski 18,750 shares, $367,781; Mr. Silverstein 18,750
shares, $367,781; and Mr. Scullin 11,250 shares, $220,669. The foregoing
values are calculated by multiplying the total number of restricted shares
by the closing price of the Company's Common Stock on the last day of fiscal
1996, $19.625, net of consideration paid of $0.01 per share. Shares of
restricted stock vest 25% on July 1, 1997, July 1, 1998, July 1, 1999 and
July 1, 2000. Holders of restricted stock are entitled to receive dividends,
if any, on the restricted stock.

(2) Represents CVS restricted stock which was subject to a four year vesting
period from the date of grant, April 11, 1995. As of the IPO date Messrs.
Tomaszewski and Silverstein elected to surrender 3,091 and 6,182 CVS

34
<PAGE> 35

restricted shares, with a value of $129,822 and $259,644, respectively,
(based on the value of CVS common stock on the IPO date of $42.00), for an
equivalent number of vested CVS share units payable on November 25, 1999.
With respect to Mr. Axelrod, all remaining shares of CVS restricted stock
became immediately vested in connection with the IPO and, along with certain
stock options and accumulated pension benefits, were terminated and a
deferred compensation account was established for him in lieu thereof. See
"-- Employment Agreements and Change in Control Agreements."

(3) These options were grants to buy CVS common stock which become exercisable
in one-third increments over a three year period, except for Mr. Scullin who
received a traditional grant which was fully exercisable one year after the
grant date. An additional one-third of the options granted to Messrs.
Tomaszewski and Silverstein became fully vested and were exercisable for
approximately a 90-day period following the IPO at which time the exercise
period expired. In the case of Mr. Scullin, his options were fully
exercisable for approximately a 90-day period following the IPO. In the case
of Mr. Axelrod, his options are fully exercisable until December 31, 1999.
See footnote (1) to table entitled "Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values" for description of option
exercises in 1996. Except in the case of Mr. Axelrod, all CVS options have
been cancelled following the expiration of the 90-day period after the IPO.

(4) The information shown in the table reflects the spinoff by CVS of Footstar,
Inc. in October 1996 which resulted in (i) reducing the exercise price of
the options to buy CVS common stock to 86.59% of the original exercise price
and increasing the number of securities underlying such options by 15.49%;
and (ii) increasing the number of shares of restricted stock by 15.49%.

(5) Represents $3,167, $1,357, $3,167 and $3,167 contributed under the CVS
401(k) Profit Sharing Plan from January through November of 1996 for Messrs.
Axelrod, Tomaszewski, Silverstein and Scullin, respectively.

(6) Includes $3,918, $2,373, $4,069 and $5,519 contributed under the CVS 401(k)
Profit Sharing Plan for Messrs. Axelrod, Tomaszewski, Silverstein and
Scullin, respectively, and shares of CVS common stock with a value of $3,000
contributed under the CVS Employee Stock Ownership Plan for each of the
named executives.

Option Grants in Last Fiscal Year. The table below sets forth certain
information concerning stock options granted during 1996 by the Company to the
Chief Executive Officer and each of the other named executive officers of the
Company. The hypothetical present values on date of grant shown in the last
column below for stock options granted in 1996 are presented pursuant to the
rules of the Securities and Exchange Commission (the "SEC" or the "Commission")
and are calculated under the modified Black-Scholes Model for pricing options.
The Company is not aware of any model or formula which will determine with
reasonable accuracy a present value for stock options. The actual before-tax
amount, if any, realized upon the exercise of stock options will depend upon the
excess, if any, of the market price of the Company's Common Stock over the
exercise price per share of Common Stock of the stock option at the time the
stock option is exercised. There is no assurance that the hypothetical present
values of the stock options reflected in this table will be realized. No stock
appreciation rights ("SARs") have been granted or are outstanding.

35
<PAGE> 36

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
NUMBER OF PERCENT OF GRANT
SECURITIES TOTAL OPTIONS DATE
UNDERLYING OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR (2) ($/SHARE) DATE ($)(3)
- ------------------------- ------------------ --------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Norman Axelrod........... 385,355 38.8% 15.500 11/24/2006 2,512,515
James M. Tomaszewski..... 75,000 7.5% 15.500 11/24/2006 489,000
Steven B. Silverstein.... 75,000 7.5% 15.500 11/24/2006 489,000
Hugh J. Scullin.......... 45,000 4.5% 15.500 11/24/2006 293,400
</TABLE>

- ---------------
(1) These ten year options were granted under the 1996 Incentive Compensation
Plan at fair market value and vest and become exercisable with respect to
25% of the underlying shares on November 25, 1997, 1998, 1999 and 2000.

(2) Options were granted during 1996 to purchase a total of 994,330 shares.

(3) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted include the stock's expected volatility rate (45%), risk
free rate of return (6.0%), dividend yield (0%), projected time of exercise
(5 years) and projected risk of forfeiture and non-marketability for the
vesting period (5% per annum).

Option Exercises And Year-End Option Holdings. The following table shows
information regarding option exercises during 1996 as well as 1996 year-end
option holdings for each of the named executive officers.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS/SARS
ACQUIRED ON OPTIONS/SARS AT FY-END AT FY-END ($)
EXERCISE VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
- ---------------------------- ----------- ------------ ------------------------ --------------------
<S> <C> <C> <C> <C>
Norman Axelrod.............. 0 0 0/385,355 0/1,589,589
James M. Tomaszewski........ 0 0 0/75,000 0/309,375
Steven B. Silverstein....... 0 0 0/75,000 0/309,375
Hugh J. Scullin............. 0 0 0/45,000 0/185,625
</TABLE>

- ---------------
(1) Each of the named executive officers also received from CVS, prior to the
IPO, options to purchase shares of CVS common stock. As of December 31, 1996
the number of exercisable and unexercisable securities underlying such
options were as follows: Mr. Axelrod 75,069/0, Mr. Tomaszewski 20,210/0, Mr.
Silverstein 25,214/0 and Mr. Scullin 12,705/0. The value of unexercised,
in-the-money options as of December 31, 1996, measured against the closing
price of CVS common stock of $41.375, for options that were exercisable and
for options that were unexercisable, is as follows: Mr. Axelrod $676,562/0,
Mr. Tomaszewski $169,025/0, Mr. Silverstein $159,768/0 and Mr. Scullin
$30,908/0. Only Mr. Scullin exercised CVS options during 1996, for a
realized value of $58,375, by exercising 9,816 options. The information in
this footnote reflects the spinoff by CVS of Footstar, Inc. in October 1996,
which resulted in reducing the exercise price of the options to buy CVS
common stock to 86.59% of the original exercise price and increasing the
number of securities underlying such options by 15.49%. None of such
options, except those held by Mr. Axelrod, are currently outstanding. See
footnote (3) to the Summary Compensation Table.

Employment Agreements and Change in Control Agreements. The Company has
entered into employment agreements with Messrs. Axelrod, Tomaszewski,
Silverstein, and Scullin (each referred to in this section

36
<PAGE> 37

individually as an "Employment Agreement" and collectively as the "Employment
Agreements"). The following briefly summarizes the principal terms of the
Employment Agreements.

The period of employment under the Employment Agreements extends initially
for four years subject to automatic one-year extensions at the end of the
initial term unless either party gives notice of non-renewal at least 180 days
prior to expiration of the term. The Employment Agreements generally provide for
payment of an annual base salary that will be reviewed each year, but may not be
decreased from the amount in effect in the previous year. The base salary
currently is $505,000, $279,000, $275,000 and $210,000 for Messrs. Axelrod,
Tomaszewski, Silverstein and Scullin, respectively, and there is an annual
target bonus opportunity of a minimum of 55% and a maximum of 110% of base
salary for Mr. Axelrod and a minimum of 40% and a maximum of 80% of base salary
for the other named executive officers. The Employment Agreements also generally
provide for (i) continued payment of base salary, incentive compensation, and
other benefits for 24 months in the case of Mr. Axelrod and for 12 months in the
case of the other named executive officers in the event the executive's
employment is terminated other than in connection with the death of the
executive, a termination by the Company for "cause" or voluntary termination by
the executive without "good reason;" (ii) other restrictive covenants including
non-disclosure, non-solicitation of employees and availability for litigation
support; (iii) participation in certain benefit plans and programs (including
retirement benefits, disability and life insurance, and medical benefits); (iv)
annual and long-term incentive compensation opportunities; and (v) deferred
compensation arrangements. In the case of Mr. Axelrod, he received from the
Company an initial crediting to a deferred compensation account of approximately
$2.2 million in lieu of certain accumulated CVS pension benefits, outstanding
CVS restricted stock awards and outstanding CVS stock options.

In the event of a change in control, the Employment Agreements generally
provide lump sum severance benefits equal to 2 times (2.99 for Mr. Axelrod) base
salary and target bonus and continued participation in certain welfare benefit
plans for 24 months (36 months for Mr. Axelrod). In addition, in the case of
voluntary termination the Company may elect to pay the executive over a 12 month
period an amount equal to annual base salary plus target annual bonus in
exchange for the executive's agreement not to compete with the Company for a
period of one year. Upon a termination for cause, the executives have agreed not
to compete with the Company for a period of one year.

A "change in control" is defined to include a variety of events, including
significant changes in the stock ownership of the Company or a significant
subsidiary, certain changes in the Company's Board of Directors, certain mergers
and consolidations of the Company or a significant subsidiary, and the sale or
disposition of all or substantially all of the consolidated assets of the
Company. "Good reason" is defined generally as demotion, reduction in
compensation, unapproved relocation in the case of Mr. Axelrod or a material
breach of the Employment Agreement by the Company. "Cause" is defined generally
as a breach of the restrictive covenants referred to in clause (ii) above,
certain felony convictions, or willful acts or gross negligence that are
materially damaging to the Company.

If payments under the Employment Agreements following a change in control
are subject to the "golden parachute" excise tax, the Company will make an
additional "gross-up" payment sufficient to ensure that the net after-tax amount
retained by the executive (taking into account all taxes, including those on the
gross-up payment) is the same as would have been the case had such excise tax
not applied. The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and, in the case of Mr. Axelrod, provides that the Company generally
will reimburse Mr. Axelrod for expenses incurred in seeking enforcement of his
Employment Agreement, unless Mr. Axelrod's assertion of such rights is in bad
faith or is frivolous.

Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors is comprised of Mr. Goldstein
and Mr. Conaway. Mr. Goldstein is Chairman of the Board, Chief Executive Officer
and a Director of CVS and Mr. Conaway is Executive Vice President and Chief
Financial Officer of CVS. Prior to consummation of the Offering, CVS owns
approximately 32.5% of the Company's Common Stock.

37
<PAGE> 38

1996 INCENTIVE COMPENSATION PLAN

The Company has adopted the 1996 Incentive Compensation Plan (the "1996
ICP"). The Company's Board of Directors believes that attracting and retaining
key employees is essential to the Company's growth and success. The 1996 ICP
provide for grants of stock options, stock appreciation rights ("SARs"),
restricted stock, deferred stock, other stock-related awards, and performance or
annual incentive awards that may be settled in cash, stock, or other property
("Awards"). The total number of shares of the Company's Common Stock reserved
and available for delivery to participants in connection with Awards is (i)
2,312,132 shares, plus (ii) 12% of the number of shares of Common Stock newly
issued by the Company or delivered out of treasury shares during the term of the
Plan (excluding any issuance or delivery in connection with Awards, or any other
compensation or benefit plan of the Company); provided, however, that the total
number of shares of Common Stock with respect to which incentive stock options
may be granted is 1,974,944 shares. The Committee administering the 1996 ICP
may, in its discretion, accelerate the exercisability, the lapsing of
restrictions, or the expiration of deferral or vesting periods of any Award, and
such accelerated exercisability, lapse, expiration and vesting will occur
automatically in the case of a "change in control" of the Company except to the
extent otherwise determined by the Committee at the date of grant. In addition,
the Committee may provide that the performance goals relating to any
performance-based award will be deemed to have been met upon the occurrence of
any change in control. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the 1996 ICP or the Committee's authority to grant
Awards without further stockholder approval, except stockholder approval must be
obtained for any amendment or alteration if required by law or regulation or
under the rules of any stock exchange or automated quotation system on which the
shares are then listed or quoted.

PRINCIPAL AND SELLING SHAREHOLDER AND MANAGEMENT

The following table and the notes thereto set forth information as of
immediately prior to and immediately after completion of the Offering relating
to beneficial ownership (as defined in Rule 13d-3 of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) of the Company's Common Stock by
the Selling Shareholder, by each of the Company's executive officers and
directors and by the executive officers and directors as a group. Other than as
set forth below, the Company knows of no person, entity or group which owns 5%
or more of the Company's Common Stock.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO OFFERING(1) AFTER OFFERING(2)
--------------------- ---------------------
NUMBER NUMBER
OF SHARES PERCENT OF SHARES PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Selling Shareholder
Nashua Hollis CVS, Inc.(3)....................... 6,267,758 32.5% 750,000 3.9%

Executive Officers and Directors
Norman Axelrod(4)................................ 64,816 * 64,816 *
Philip E. Beekman................................ 1,000 * 1,000 *
Charles C. Conaway............................... 350 * 350 *
Stanley P. Goldstein............................. 350 * 350 *
James M. Tomaszewski(5).......................... 18,750 * 18,750 *
Steven B. Silverstein(6)......................... 19,750 * 19,750 *
Hugh J. Scullin(7)............................... 13,950 * 13,950 *
Executive Officers and Directors as a
Group(3)(4)(5)(6)(7)............................. 118,966 * 118,966 *
</TABLE>

- ---------------

* Represents less than 1% of the total outstanding Common Stock.

(1) Common Stock is the only class of equity securities of the Company
outstanding.

(2) Assuming the Underwriter's over-allotment option is not exercised.

38
<PAGE> 39

(3) Nashua Hollis CVS, Inc. is an indirect subsidiary of CVS. Nashua Hollis CVS,
Inc. is a New Hampshire corporation with offices located at 670 White Plains
Road, Suite 210, Scarsdale, New York 10583.

(4) Includes 64,516 shares of restricted stock. Includes 200 shares held by Mr.
Axelrod's minor children, as to which shares Mr. Axelrod disclaims
beneficial ownership.

(5) Represents 18,750 shares of restricted stock.

(6) Includes 18,750 shares of restricted stock.

(7) Includes 11,250 shares of restricted stock and includes 500 shares as to
which shares Mr. Scullin disclaims beneficial ownership held by Mr.
Scullin's minor child.

39
<PAGE> 40

RELATIONSHIP WITH CVS AND RELATED PARTY TRANSACTIONS

Prior to consummation of the Offering, CVS owns approximately 32.5% of the
Common Stock of the Company and has the right to designate two members of the
Board of Directors of the Company. Upon completion of the Offering CVS will own
approximately 3.9% of the Common Stock of the Company and will have no further
right to designate members of the Board of Directors of the Company. See
"Management" and "-- The Stockholder Agreement." This section describes certain
current arrangements between CVS and the Company.

The following are summary descriptions of the terms and conditions of the
Transitional Services Agreement, Stockholder Agreement, Subordinated Note and
Tax Disaffiliation Agreement. The descriptions do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of such documents, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.

Administrative Costs. CVS historically allocated various administrative
costs to the Company. Allocations were based on the Company's ratable share of
costs incurred by CVS on behalf of the Company for the combined programs. The
total costs allocated to the Company in 1996 through the date of the IPO was
approximately $900,000. Since the IPO, CVS no longer provides administrative
services to the Company, except for the transitional services referred to below.

Lease Guarantees. CVS guaranteed the leases of certain stores operated by
the Company and, prior to the IPO, charged a fee for that service which amounted
to approximately $300,000 in 1996. Subsequent to the IPO, CVS no longer charges
the Company a fee for this service. Since the IPO, CVS has remained obligated
under its guarantees of the Company's store leases where CVS guaranteed such
leases in the past (including extensions and renewals provided for in the terms
of such leases at the time such guarantees were furnished) and certain new
leases identified in the Stockholder Agreement through the initial lease terms
thereof. CVS will not enter into any additional guarantees of leases on behalf
of the Company. The Company has agreed to indemnify CVS under the Stockholder
Agreement for any losses arising in connection with such lease guarantees.

Transitional Services Agreement. CVS and the Company entered into a
transitional services agreement (the "Transitional Services Agreement")
effective concurrently with the IPO under which CVS provides or causes to be
provided to the Company certain specified services for a transitional period
after the IPO. The transitional services to be provided by CVS include check
authorization and collection, insurance claims administration and, under certain
circumstances, VSAT satellite communications system services (the "Services").
The Transitional Services Agreement provides that the Services will be provided
in exchange for fees based on CVS's costs for such Services. The period for
which CVS is to provide the Services varies depending on the type of Service,
but will not exceed 18 months unless the parties otherwise agree. Pursuant to
the Stockholder Agreement, CVS may terminate the provision of any or all of the
Services if a person or group acquires Majority Beneficial Ownership of the
Company.

Financing. The weighted average interest rate on borrowings by the Company
from CVS for 1996 through the IPO was 6.2%. Concurrently with the IPO, the
Company issued $13.5 million of subordinated indebtedness to CVS. The
Subordinated Note consisted of a $10 million tranche ("Tranche A") and a $3.5
million tranche ("Tranche B"), each of which is for a four year term at an
interest rate of 90-day LIBOR plus the spread that would from time to time be
applicable to 90-day LIBOR borrowings under the Company's Revolving Credit
Facility. There is no principal amortization prior to maturity. If the net
proceeds to CVS of the IPO (which were $188,370,000) plus the net proceeds from
any subsequent public or private sales of Common Stock by CVS (including
proceeds from the sale of shares offered hereby), together with the market value
of the Common Stock of which CVS continues to be the beneficial owner at
December 31, 1997 (collectively, the "CVS Value") (i) exceeds $375 million but
is less than $400 million, then CVS would be required to reduce by 50% the
outstanding principal amount of Tranche A; (ii) exceeds $400 million, then CVS
would be required to reduce by 75% the outstanding principal amount of Tranche
A; and (iii) exceeds $450 million, then CVS would be required to reduce by 100%
the total outstanding principal amount of Tranche A. To the extent that the
gross proceeds received by CVS from any public or private sale by CVS of shares
of the Company's Common Stock after the IPO (including proceeds from the sale of
shares offered hereby) exceeds (such excess, the "Appreciated

40
<PAGE> 41

Amount") the amount equal to the number of shares sold in such sales (the
"Post-IPO Sold Shares") times $16.00 per share, the principal amount of Tranche
B is reduced by: (i) 50% of the portion of the Adjusted Proceeds Amount (defined
as the Appreciated Amount less transaction expenses attributable to the
Appreciated Amount, determined on an after-tax basis at the applicable effective
tax rate for CVS) up to $2.00 times the Post-IPO Sold Shares; and (ii) 65% of
the remaining portion, if any, of the Adjusted Proceeds Amount (up to a maximum
aggregate reduction for Tranche B of $3.5 million). The $3.5 million Tranche B
indebtedness will be converted into equity upon consummation of this Offering
pursuant to the above-described provisions. With the exception of the
Subordinated Note, the Company no longer receives financing assistance support
from CVS.

The Stockholder Agreement. The Company and CVS entered into the
Stockholder Agreement as of December 2, 1996 in connection with the IPO. The
Stockholder Agreement provides that the Company and CVS will indemnify each
other against certain liabilities. In addition, pursuant to the Stockholder
Agreement no person or group may acquire Majority Beneficial Ownership of the
Company unless (i) CVS receives prior written notice that such person or group
proposes to acquire Majority Beneficial Ownership and (ii) prior to such
acquisition such person or group provides to CVS (unless waived by CVS in
writing) a guarantee, in form and substance acceptable to CVS, of the
obligations of the Company under the Stockholder Agreement to indemnify CVS in
respect of the CVS Lease Guarantees. Upon such person or group acquiring
Majority Beneficial Ownership, CVS may terminate the provision of any or all of
its services under the Transitional Services Agreement. These provisions
regarding acquisition of Majority Beneficial Ownership could limit the ability
or willingness of a third party to make an offer to acquire the Company.

The Stockholder Agreement also provides that, at the request of CVS, the
Company will use its best efforts to effect registration under the applicable
federal and state securities laws of the shares of the Common Stock held by CVS
for sale in accordance with certain specified methods described in the
Stockholder Agreement on up to two occasions (one of which includes this
Offering), and will take such other action necessary to permit the sale thereof
in other jurisdictions, subject to certain limitations specified in the
Stockholder Agreement. Upon completion of this Offering, CVS will have one
customary "demand" registration right remaining under the Stockholder Agreement.
CVS will also have the right, which it may exercise from time to time, to
include the shares of Common Stock (and any other securities issued in respect
of or in exchange for such shares) held by it in certain other registrations of
Common Stock initiated by the Company on its own behalf or on behalf of its
other shareholders. CVS may transfer certain registration rights to purchasers
of the Company's Common Stock from CVS, which transferees may collectively
exercise "demand" registration rights on not more than two occasions (which
exercise will not diminish CVS's remaining "demand" registration rights). The
Company will be responsible for customary registration and related expenses in
connection with the exercise of such registration rights, except that CVS will
pay one-half of such expenses in connection with each demand registration
(including the registration in connection with this Offering) requested by CVS
(and the excess of the Company's share of such CVS demand registration expenses
over $200,000 in the aggregate). Without the written consent of CVS, the Company
may not grant to any person registration rights entitling such person to request
that the Company effect, prior to January 1, 1998, a registration of Company
securities under the Securities Act of 1933 for the account of such person.

Terms of the Tax Disaffiliation Agreement. CVS and the Company have
entered into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement")
that sets forth each party's rights and obligations with respect to payments and
refunds, if any, with respect to taxes for periods before and after the IPO and
related matters such as the filing of tax returns and the conduct of audits or
other proceedings involving claims made by taxing authorities.

In general, CVS is responsible for filing consolidated federal and
consolidated, combined or unitary state income tax returns for periods through
the date the IPO was completed, and paying the associated taxes. The Company
will reimburse CVS for the portion of such taxes, if any, relating to the
Company's businesses, provided, however, that with respect to any combined and
unitary state income taxes based in part on allocation percentages, the Company
will reimburse CVS for the portion of such taxes attributable to the Company's
businesses' contributions to the relevant allocation percentage. The Company
will be reimbursed, however, for tax attributes, such as net operating losses
and foreign tax credits, when and to the extent that they are used on a

41
<PAGE> 42

consolidated, combined or unitary basis. The Company will be responsible for
filing, and paying the taxes associated with, all other tax returns for tax
periods (or portions thereof) relating solely to the Company's businesses. CVS,
however, will be responsible for preparing all income tax returns to be filed by
the Company for tax periods that end on or before the date on which the IPO was
completed.

In general, the Company has agreed to indemnify CVS for taxes relating to a
tax period (or portion thereof) ending on or before the completion of the IPO to
the extent such taxes are attributable to the Company's businesses or, in the
case of any combined and unitary state income taxes based in part on allocation
percentages, to the extent such taxes are attributable to contribution of the
Company's businesses to the relevant allocation percentage and CVS will agree to
indemnify the Company for all other taxes relating to a tax period (or portion
thereof) ending on or before the completion of the IPO. The Tax Disaffiliation
Agreement also provides that CVS will generally pay to the Company the net
benefit realized by CVS relating to the Company's businesses from the carryback
to tax periods or portions thereof ending on or before the completion of the IPO
of certain tax attributes of the Company arising in tax periods or portions
thereof beginning after the completion of the IPO.

The Company and CVS have agreed not to take (or omit to take) any action
that results in any increased liability relating to a tax period (or portion
thereof) ending on or before the completion of the IPO. The Company and CVS have
each agreed to indemnify the other for liabilities arising as a result of the
breach of this agreement. The Company has also agreed to indemnify CVS for
liabilities resulting from a breach by the Company of a similar agreement and
certain other agreements contained in the Tax Disaffiliation Agreement among
Footstar, Inc., Melville Corporation (CVS's predecessor) and their respective
affiliates, to which the Company continues to be a party.

For details as to other related party transactions, see note 16 in the
Notes to Consolidated Financial Statements.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has 19,268,458 outstanding shares of Common Stock. The
5,517,758 shares of Common Stock offered hereby will be immediately freely
tradeable without restriction under the Securities Act except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 adopted under the Securities Act. The remaining
750,000 shares of Common Stock held by CVS upon completion of the Offering are
"restricted securities" for purposes of Rule 144 and may not be resold in a
public distribution except in compliance with the registration requirements of
the Securities Act or pursuant to Rule 144. The share numbers in this section
assume that the Underwriters' over-allotment options are not exercised.

In general, under Rule 144, as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned for at
least one year shares of Common Stock which are treated as "restricted
securities," including persons who may be deemed affiliates of the Company,
would be entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (192,685 shares as of the date of this Prospectus) or the average weekly
reported trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given, provided certain
manner of sale and notice requirements and requirements as to the availability
of current public information about the Company are satisfied (which
requirements as to the availability of current public information are expected
to be satisfied for all periods after the date of this Prospectus). In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not "restricted securities" (such as shares
acquired by affiliates in the Offering). Under Rule 144(k) a shareholder who is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned for at least two years
shares of Common Stock which are treated as "restricted securities," would be
entitled to sell such shares, without regard to the foregoing restrictions and
requirements.

The Company and CVS have agreed pursuant to the Underwriting Agreement that
they will not, with certain limited exceptions, sell any Common Stock without
the prior consent of Credit Suisse First Boston Corporation

42
<PAGE> 43

("Credit Suisse First Boston") for a period of 90 days from the date of this
Prospectus. See "Underwriting." After the expiration of such 90-day period, or
earlier in certain circumstances or if permitted by Credit Suisse First Boston,
the 750,000 shares of Common Stock held by CVS will become available for sale
subject to the applicable resale limitations of Rule 144.

CVS has certain rights to register its shares of Common Stock under the
Securities Act. See "Relationship with CVS and all Related Party
Transactions -- The Stockholder Agreement." CVS has publicly announced its
intention to reduce its ownership of the Company's Common Stock below 10% of the
outstanding shares by the end of 1997. The Stockholder Agreement provides that,
at the request of CVS, the Company will use its best efforts to effect
registration under the applicable federal and state securities laws of the
shares of the Common Stock held by CVS for sale in accordance with certain
specified methods described in the Stockholder Agreement on up to two occasions
(one of which includes this Offering), and will take such other action necessary
to permit the sale thereof in other jurisdictions, subject to certain
limitations specified in the Stockholder Agreement. Upon completion of the
Offering, CVS will have one remaining customary "demand" registration right. CVS
will also have the right, which it may exercise from time to time, to include
the shares of the Common Stock (and any other securities issued in respect of or
in exchange for such shares) held by it in certain other registrations of the
Common Stock initiated by the Company on its own behalf or on behalf of its
other shareholders.

The Common Stock is listed on the New York Stock Exchange under the symbol
"LIN". See "Price Range of Common Stock." The Company can make no prediction as
to the effect, if any, that sales of shares of Common Stock or the availability
of shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
equity securities.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, par value $.01 per share and 60,000,000 shares of Common Stock,
par value $.01 per share. As of the date of this Prospectus, the Company had
19,268,458 shares of Common Stock issued and outstanding, 2,511,432 shares of
Common Stock reserved for issuance pursuant to outstanding stock options and
existing benefit plans, no treasury shares and no shares of Preferred Stock
outstanding.

PREFERRED STOCK

The Board of Directors has the authority, subject to any limitations
prescribed by law, to issue the Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the shareholders of the Company. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of Common Stock. The Company has no current
plans to issue any of the Preferred Stock.

COMMON STOCK

Each holder of Common Stock is entitled to one vote per share on all
matters submitted to a vote of shareholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which means
that the holders of a majority of the shares voting for election of directors
can elect all members of the Board of Directors. Under Delaware law, the
approval of the holders of a majority of all outstanding stock is required to
effect a merger of the Company, the disposition of all or substantially all of
the Company's assets or for certain other actions. The Certificate of
Incorporation prohibits removal of directors by the stockholders, except for
cause with the affirmative vote of the holders of not less than a majority of
the total voting power of all

43
<PAGE> 44

outstanding voting securities voting as a class. The Certificate of
Incorporation prohibits the taking of stockholder action by written consent in
lieu of a meeting, and generally permits special meetings of stockholders to be
called only by the Board of Directors, the Chairman of the Board, the President
or the Secretary of the Company, or by CVS so long as CVS owns 10% of the
Company's Common Stock. Upon consummation of this Offering, CVS will no longer
own 10% of the Company's Common Stock. The affirmative vote of 80% of the total
voting power of all outstanding securities voting as a class is required to
amend any provision of the Certificate of Incorporation, other than those
provisions relating to the Company's name, registered agent, purpose or
authorized stock. See "Risk Factors -- Influence by CVS" and "Principal and
Selling Shareholder and Management." Subject to the preferential rights of the
holders of shares of Preferred Stock, if any, the holders of Common Stock are
entitled to share ratably in such dividends, if any, as may be declared and paid
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon liquidation or dissolution of the Company, the holders of Common
Stock of the Company will be entitled to share ratably in the assets of the
Company legally available for distribution to shareholders after payment of
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Holders of Common Stock have no conversion, sinking fund,
redemption, preemptive or subscription rights. The shares of Common Stock
presently issued and outstanding, including the shares of Common Stock offered
hereby, are fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to the rights of the holders of shares of
any series of Preferred Stock which the Company may issue in the future.

CERTAIN PROVISIONS OF LAW

The Company is subject to the "Business Combination" provisions contained
in Section 203 of the Delaware General Corporation Law. In general, such
provisions prohibit a publicly held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction which the person
became an "interested stockholder," unless (i) the transaction is approved by
the Board of Directors prior to the date the "interested stockholder" obtained
such status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder,"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of shareholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." A "business combination" is defined
to include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an "interested stockholder" is a Person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is the First National
Bank of Boston.

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<PAGE> 45

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated May 29, 1997 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as the
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Selling Shareholder the following respective numbers of
shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................................ 2,358,879
Donaldson, Lufkin & Jenrette Securities Corporation............................... 2,358,879
Sanford C. Bernstein & Co., Inc. ................................................. 100,000
Invemed Associates, Inc. ......................................................... 100,000
J.P. Morgan Securities Inc. ...................................................... 100,000
Morgan Stanley & Co. Incorporated................................................. 100,000
PaineWebber Incorporated.......................................................... 100,000
Robertson, Stephens & Company LLC................................................. 100,000
Salomon Brothers Inc ............................................................. 100,000
Tucker Anthony Incorporated....................................................... 100,000
---------
Total................................................................... 5,517,758
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.

The Selling Shareholder has granted to the Underwriters an option, expiring
at the close of business on the 30th day after the date of this Prospectus, to
purchase up to 749,900 additional shares at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.

The Company and the Selling Shareholder have been advised by the
Representatives that the Underwriters propose to offer shares of Common Stock to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $0.60 per share, and the Underwriters and such
dealers may allow a discount of $0.10 per share on sales to certain other
dealers. After the commencement of the offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.

The Company, CVS, the Selling Shareholder and certain executive officers of
the Company have agreed that during the period beginning from the date of the
Prospectus (as defined in the Underwriting Agreement) and continuing to and
including the date 90 days after the date of the Prospectus not to offer, sell,
contract to sell, grant any option to purchase, establish a put equivalent
position (as defined in Rule 16a-1(h) under the Exchange Act), pledge or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
securities that are substantially similar to the Common Stock, including but not
limited to any securities that are convertible into or exercisable or
exchangeable for, or that represent the right to receive, Common Stock or any
substantially similar securities or, in the case of the Company and the
executive officers, publicly disclose the intention to make any such offer,
sale, pledge or disposal, without the prior written consent of Credit Suisse
First Boston, except (i) for private sales so long as the purchaser thereof
enters into a corresponding lockup agreement with Credit Suisse First Boston for
the then unexpired portion of the 90-day period, (ii) for grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
issuances of Common Stock pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date hereof and

45
<PAGE> 46

(iii) for preparation of a registration statement or preparation for an offering
so as to be in a position to file a registration statement and proceed with an
offering immediately after expiration of such 90-day period.

The Company and CVS have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which creates
a syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member is purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the New York Stock Exchange
or otherwise and, if commenced, may be discontinued at any time.

Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, various investment banking and
commercial banking services for CVS and the Company, for which such Underwriters
have received and will receive customary fees and commissions.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Shareholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Common Stock are effected.
Accordingly, any resale of the Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling Shareholder
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHT OF ACTION AND ENFORCEMENT

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

All of the Company's directors and officers as well as the experts and the
Selling Shareholder named herein may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service

46
<PAGE> 47

of process within Canada upon the Company or such persons. All or a substantial
portion of the assets of the Company and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Company or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the Company of such persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by such purchasers under relevant Canadian
legislation.

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a
non-resident fiduciary of a foreign estate or trust.

This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of Common Stock, including the consequences under the laws
of any state, local or foreign jurisdiction.

Proposed United States Treasury Regulations were issued in April 1996 (the
"Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. It is not
clear whether the Proposed Regulations would be finalized in the current form.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.

DIVIDENDS

Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate of
30% of the gross amount of the dividend or such lower rate as may be specified
by an applicable income tax treaty. For purposes of determining whether tax is
to be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, in accordance with existing United States Treasury Regulations, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.

Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty. The Proposed Regulations would
also provide

47
<PAGE> 48

special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder that
is an entity should be treated as paid to the entity or those holding an
interest in that entity.

There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with the Company or its Paying Agent. Instead, the
effectively connected dividends will be subject to regular U.S. income tax at
the graduated rate in the same manner as if the Non-U.S. Holder were a U.S.
resident. In addition to such graduated tax, a non-U.S. corporation receiving
effectively connected dividends may be subject to a "branch profits tax" which
is imposed, under certain circumstances, at a rate of 30% (or such lower rate as
may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such holder in the United States, (ii) in
the case of certain Non-U.S. Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
United States for 183 or more days in the taxable year of the disposition, (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code
regarding the taxation of U.S. expatriates, or (iv) the Company is or has been a
"U.S. real property holding corporation" for federal income tax purposes and the
Non-U.S. Holder owned directly or pursuant to certain attribution rules more
than 5% of the Company's Common Stock (assuming the Common Stock is regularly
traded on an established securities market) at any time within the shorter of
the five-year period preceding such disposition or such holder's holding period.
The Company is not, and does not anticipate becoming, a U.S. real property
holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.

Dividends paid to a Non-U.S. Holder that are subject to the 30% or reduced
treaty rate of withholding tax previously discussed will be exempt from the U.S.
backup withholding tax. Otherwise, dividends may be subject to backup
withholding imposed at a rate of 31% if the Non-U.S. Holder fails to establish
that it is entitled to an exemption or to provide a correct taxpayer
identification number and certain other information to the Company or its Paying
Agent.

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock paid to or through a U.S. office of a broker unless
the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds outside the United
States if the payment is made through an office outside the United States of a
broker that is (i) a U.S. person, (ii) a foreign person which derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, unless the broker maintains documentary
evidence that the holder is a Non-U.S. Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.

The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder

48
<PAGE> 49

would be subject to backup withholding and information reporting unless the
Company receives certification from the holder of non-U.S. status.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who at the time of death is treated as the
owner of, or has made certain lifetime transfers of, an interest in the Common
Stock will be required to include the value thereof in his gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.

LEGAL MATTERS

The validity of the shares of the Common Stock being offered hereby will be
passed upon for the Company by Pitney, Hardin, Kipp & Szuch, Morristown, New
Jersey, and for the Selling Shareholder by Davis Polk & Wardwell. Certain legal
matters relating to the Common Stock offered hereby will be passed on for the
Underwriters by Latham & Watkins, New York, New York.

EXPERTS

The consolidated financial statements of Linens 'n Things, Inc. and its
subsidiaries as of December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996, included herein and elsewhere in this
Prospectus, have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements, and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
in New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of such materials may be obtained at prescribed rates
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains
a site on the World Side Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants, such as
the Company, that file electronically with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

The Company's Common Stock is listed on the New York Stock Exchange.
Periodic reports, proxy statements, and other information concerning the Company
can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.

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<PAGE> 50

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, as permitted by the Rules and
Regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to herein are not necessarily complete and where such contract or other document
is an exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions of such exhibit, to which reference is hereby
made for a full statement of the provisions thereof. The Registration Statement,
including the exhibits and schedules filed therewith, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located in New York (Seven World Trade Center,
13th Floor, New York, New York 10048) and Chicago (Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of these
documents may be obtained at prescribed rates from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may be accessed electronically by means of
the Commission's World Wide Web site at http://www.sec.gov.

The Company distributes to its shareholders annual reports containing
audited financial statements certified by its independent accountants and
quarterly reports for the first three quarters of each year containing unaudited
financial information.

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<PAGE> 51

LINENS 'N THINGS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996, March 30, 1996
and March 29, 1997.................................................................. F-3
Consolidated Statements of Operations for the fiscal years 1994, 1995 and 1996 and for
the thirteen weeks ended March 30, 1996 and March 29, 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal years 1994, 1995 and
1996 and for the thirteen weeks ended March 29, 1997................................ F-5
Consolidated Statements of Cash Flows for the fiscal years 1994, 1995 and 1996 and for
the thirteen weeks ended March 30, 1996 and March 29, 1997.......................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 52

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Linens 'n Things, Inc.

We have audited the accompanying consolidated balance sheets of Linens 'n
Things, Inc. and Subsidiaries as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 Linens 'n
Things, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.

As discussed in the notes to the consolidated financial statements, the
Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective October 1, 1995 and changed its policy for accounting
for the costs of internally developed software effective January 1, 1995.

/s/ KPMG PEAT MARWICK LLP

New York, New York
February 4, 1997

F-2
<PAGE> 53

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH MARCH
--------------------- 30, 29,
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 4,222 $ 26,914 $ 4,251 $ 3,048
Accounts receivable, net................... 13,955 17,384 9,633 15,738
Inventories................................ 176,893 202,134 180,348 202,166
Prepaid expenses and other current
assets................................... 11,076 10,360 10,755 9,785
-------- -------- -------- --------
TOTAL CURRENT ASSETS.......................... 206,146 256,792 204,987 230,737
-------- -------- -------- --------
Property and equipment, net................ 107,542 138,508 111,111 137,862
Goodwill, net of accumulated amortization
of $3,965 at December 31, 1995, $4,814 at
December 31, 1996, $4,178 at March 30, 1996
and $5,028 at March 29, 1997............... 23,225 22,376 23,013 22,163
Deferred charges and other noncurrent
assets, net.............................. 6,609 6,281 6,433 6,117
-------- -------- -------- --------
TOTAL ASSETS.................................. $343,522 $423,957 $345,544 $396,879
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 96,496 $ 92,529 $ 69,427 $ 67,971
Accrued expenses and other current
liabilities.............................. 41,318 53,207 28,706 43,345
Short-term debt............................ -- -- -- 5,720
Due to related parties..................... 118,652 -- 159,854 --
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES..................... 256,466 145,736 257,987 117,036
Long-term note............................. -- 13,500 -- 13,500
Deferred income taxes and other long-term
liabilities................................ 10,378 14,994 12,666 16,264
-------- -------- -------- --------
TOTAL LIABILITIES............................. 266,844 174,230 270,653 146,800
-------- -------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; 1,000,000
shares authorized; none issued and
outstanding................................ -- -- -- --
Common stock, $.01 par value; 60,000,000
shares authorized; 19,267,758 issued and
outstanding at December 31, 1996 and March
29, 1997................................... -- 193 -- 193
Additional paid-in capital................. 42,372 200,189 42,372 200,189
Retained earnings.......................... 34,306 49,345 32,519 49,697
-------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.................... 76,678 249,727 74,891 250,079
-------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $343,522 $423,957 $345,544 $396,879
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 54

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
-------------------
YEAR ENDED DECEMBER 31, MARCH MARCH
------------------------------ 30, 29,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $440,118 $555,095 $696,107 $138,167 $179,911
Cost of sales, including buying and
warehousing costs......................... 265,721 345,162 426,196 87,669 111,596
-------- -------- -------- -------- --------
Gross profit.............................. 174,397 209,933 269,911 50,498 68,315
Selling, general and administrative
expenses.................................. 142,155 190,826 239,228 51,509 67,371
Restructuring and asset impairment
charges................................... -- 10,974 -- -- --
-------- -------- -------- -------- --------
Operating profit (loss)................... 32,242 8,133 30,683 (1,011) 944
Interest expense, net....................... 3,170 7,059 4,692 2,082 336
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting
principle.............................. 29,072 1,074 25,991 (3,093) 608
Provision for income taxes.................. 11,874 1,108 10,952 (1,307) 256
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle......... 17,198 (34) 15,039 (1,786) 352
Cumulative effect of change in accounting
principle, net......................... -- 178 -- -- --
-------- -------- -------- -------- --------
Net income (loss)........................... $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
======== ======== ======== ======== ========
Per share of common stock:
Income (loss) before cumulative effect of
change in accounting principle......... $ 0.89 $ (0.00) $ 0.78 $ (0.09) $ 0.02
Cumulative effect of change in accounting
principle, net......................... -- 0.01 -- -- --
-------- -------- -------- -------- --------
Net income (loss)......................... $ 0.89 $ (0.01) $ 0.78 $ (0.09) $ 0.02
-------- -------- -------- -------- --------
Weighted average shares outstanding....... 19,268 19,268 19,286 19,268 19,706
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 55

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 100 $ -- $ 42,372 $31,968 $ 74,340
Net income.................................. -- -- -- 17,198 17,198
Dividends paid to CVS....................... -- -- -- (5,719) (5,719)
---------- ---- -------- ------- --------
Balance at December 31, 1994.................. 100 -- 42,372 43,447 85,819
Net loss.................................... -- -- -- (212) (212)
Dividends paid to CVS....................... -- -- -- (8,929) (8,929)
---------- ---- -------- ------- --------
Balance at December 31, 1995.................. 100 -- 42,372 34,306 76,678
Net income.................................. -- -- -- 15,039 15,039
Capital contributions by CVS, net of assets
and liabilities transferred.............. -- -- 158,010 -- 158,010
Conversion of common stock.................. 19,267,658 193 (193) -- --
---------- ---- -------- ------- --------
Balance at December 31, 1996.................. 19,267,758 193 200,189 49,345 249,727
Net income (unaudited)...................... -- -- -- 352 352
---------- ---- -------- ------- --------
Balance at March 29, 1997 (unaudited)......... 19,267,758 $193 $200,189 $49,697 $250,079
========== ==== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 56

LINENS 'N THINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEAR ENDED DECEMBER 31, -----------------------
----------------------------------- MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 9,588 12,862 14,569 3,538 4,264
Restructuring and asset impairment
charges................................ -- 10,974 -- -- --
Cumulative effect of change in accounting
principle.............................. -- 294 -- -- --
Deferred income taxes.................... 3,580 (3,296) 4,342 1,559 450
Loss on disposal of assets............... 2,928 3,817 2,400 172 634
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... (6,122) (1,933) (3,429) 4,322 1,646
Increase in inventories................ (42,171) (46,333) (25,241) (3,455) (32)
Decrease (increase) in prepaid expenses
and other current assets............ 421 (1,928) (957) 814 1,099
(Increase) decrease in deferred charges
and other noncurrent assets......... (318) 567 (329) (3) --
Increase (decrease) in accounts
payable............................. 24,946 17,246 9 (13,556) (19,241)
Increase (decrease) in accrued expenses
and other liabilities............... 5,625 (4,135) 13,836 (12,584) (3,161)
-------- -------- --------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... 15,675 (12,077) 20,239 (20,979) (13,989)
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........ (39,074) (41,329) (46,429) (6,889) (3,875)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions by CVS............... -- -- 158,010 -- --
Increase (decrease) in due to related
parties.................................. 22,832 51,200 (118,652) 41,202 --
Proceeds from issuance of short-term
debt..................................... -- -- -- -- 5,720
Dividends paid to CVS...................... (5,719) (8,929) -- -- --
Issuance of long-term note................. -- -- 13,500 -- --
Increase (decrease) in book overdrafts..... 8,169 11,251 (3,976) (13,305) (11,722)
-------- -------- --------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................... 25,282 53,522 48,882 27,897 (6,002)
-------- -------- --------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 1,883 116 22,692 29 (23,866)
Cash and cash equivalents at beginning of
period................................... 2,223 4,106 4,222 4,222 26,914
-------- -------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... $ 4,106 $ 4,222 $ 26,914 $ 4,251 $ 3,048
======== ======== ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized)...... $ 3,360 $ 7,339 $ 4,957 $ 2,214 $ 386
======== ======== ========= ======== ========
Income taxes............................... $ 9,014 $ 7,214 $ 6,590 $ 67 $ 881
======== ======== ========= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Linens 'n Things, Inc. and subsidiaries (collectively the "Company")
operated 169 stores, including 132 superstores, in 34 states across the United
States as of December 31, 1996. The Company's stores emphasize a broad
assortment of home textiles, housewares and home accessories, carrying both
national brand and private label goods.

2. INITIAL PUBLIC OFFERING

The Company was a wholly-owned subsidiary of CVS Corporation ("CVS" or the
"Parent"), formerly Melville Corporation, until November 26, 1996, when CVS
completed an initial public offering ("IPO") of 13,000,000 shares of the
Company's common stock. Subsequent to the IPO, CVS owned approximately 32.5% of
the Company's common stock, having retained 6,267,758 shares.

During 1996, CVS acquired 100 shares of common stock of Linens 'n Things
Center, Inc. ("LNT Center"), a newly formed California corporation, for
$130,010,000. In June, 1996, CVS contributed all outstanding shares of common
stock of Bloomington, MN., L.T., Inc. to LNT Center. In addition, CVS made a
capital contribution of $28,000,000 to LNT Center during October, 1996.
Subsequently, CVS contributed all outstanding shares of common stock of LNT
Center to Linens 'n Things, Inc., a newly formed Delaware corporation. The
accompanying consolidated financial statements are presented as if Linens 'n
Things, Inc. had existed and owned LNT Center and Bloomington, MN., L.T., Inc.
throughout 1994, 1995 and 1996.

Immediately prior to the completion of the IPO, the authorized capital
stock of the Company was changed from 100 shares of common stock, par value $.01
per share, to 60 million shares of common stock, par value $.01 per share, and
each issued and outstanding share of common stock was converted into 192,677.58
shares of common stock.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include those of the Company and its
wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated.

Accounting Changes

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). As permitted under SFAS No. 123, the Company elected not to
adopt the fair value based method of accounting for its stock-based compensation
plans, but will account for such compensation under the provisions of Accounting
Principles Board Opinion No. 25 ("APB No. 25"). The Company has, however,
complied with the disclosure requirements of SFAS No. 123.

Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS No. 121").

Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The Company
believes that this change results in a better matching of revenues and expenses.
The impact on 1995 as a result of this change, exclusive of the cumulative
effect of $0.3 million (before income tax effect), was to reduce net income by
$0.2 million.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Value Of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and

F-7
<PAGE> 58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accrued expenses are reflected in the consolidated financial statements at
carrying value which approximates fair value due to the short-term nature of
these instruments. The carrying value of the Company's borrowings approximates
the fair value based on the current rates available to the Company for similar
instruments.

Cash and Cash Equivalents

The Company's cash management program utilizes zero balance accounts.
Accordingly, all book overdraft balances have been reclassified to current
liabilities. Cash equivalents are considered, in general, to be those securities
with maturities of three months or less when purchased.

Inventories

Inventories consist of finished goods merchandise purchased from domestic
and foreign vendors and are carried at the lower of cost or market. Inventories
are determined on the retail inventory method valued on a first-in, first-out
(FIFO) basis.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets (generally 40
years for buildings and 10 years for furniture, fixtures and equipment).
Capitalized software costs are amortized on a straight-line basis over their
estimated useful lives (generally 5 years), beginning in the year placed in
service. Leasehold improvements are amortized over the shorter of the related
lease term or the economic lives of the related assets. Fully depreciated
property and equipment is removed from the asset and related accumulated
depreciation accounts.

Maintenance and repairs are charged directly to expense as incurred. Major
renewals or replacements are capitalized after making the necessary adjustments
to the asset and accumulated depreciation accounts of the items renewed or
replaced.

Impairment of Long-Lived Assets

When changes in circumstance warrant measurement, impairment losses for
store fixed assets are calculated by comparing the present value of projected
individual store cash flows over the lease term to the asset carrying values.

Deferred Charges

Deferred charges, principally beneficial leasehold costs, are amortized on
a straight-line basis, generally over the remaining life of the leasehold
acquired.

Goodwill

The excess of acquisition costs over the fair value of net assets acquired
is amortized on a straight-line basis not to exceed 40 years. Impairment is
assessed based on the profitability of the related business relative to planned
levels.

Store Opening and Closing Costs

New store opening costs are charged to expense as incurred. In the event a
store is closed before its lease has expired, the total lease obligation, less
sublease rental income, is provided for in the year of closing.

Advertising Costs

The Company charges production costs of advertising to expense the first
time the advertising takes place.

F-8
<PAGE> 59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

The Company and CVS have entered into a Tax Disaffiliation Agreement. Under
the agreement, the Company is generally responsible for any of its tax with
respect to periods prior to the IPO, determined as if on a separate company
basis. For periods subsequent to the IPO, the Company will file its own federal
and state tax returns.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Earnings Per Share

Earnings per share is calculated by dividing net income (loss) by the
weighted average shares outstanding, which includes common stock equivalents.
For the periods prior to the IPO, the weighted average shares assumed are based
on the actual shares outstanding at the time of the IPO.

Interim Financial Statements

The accompanying consolidated balance sheets as of March 30, 1996 and March
29, 1997 and the related consolidated statements of operations and cash flows
for the thirteen weeks ended March 30, 1996 and March 29, 1997 and consolidated
statement of shareholders' equity for the thirteen weeks ended March 29, 1997
are unaudited. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation for the periods presented.

The results of operations for the thirteen weeks ended March 30, 1996 and
March 29, 1997 are not necessarily indicative of results to be achieved for the
full fiscal year.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could be different from those estimates.

4. STRATEGIC PROGRAM AND ASSET IMPAIRMENT CHARGE

During the fourth quarter of 1995, CVS announced a comprehensive strategic
program (the "CVS Strategic Program") which resulted, insofar as it relates to
the Company, in the Company recording a pre-tax charge of $23.4 million in the
fourth quarter of 1995. The pre-tax charge of $23.4 million consisted of: (i)
restructuring charges of $9.5 million consisting of estimated tenancy costs
($3.8 million) and asset write-offs ($5.0 million) associated with the closing
of six unprofitable stores and asset write-offs related to management
information systems outsourcing ($0.7 million); (ii) asset write-offs and other
non-cash charges totaling $12.5 million consisting primarily of the write-off of
certain non-productive assets, as well as costs associated with the changeover
to the Company's new distribution network relating to the opening of the
distribution center; and (iii) a non-cash asset impairment charge of $1.4
million due to the early adoption of SFAS No. 121 relating to store fixtures and
leasehold improvements. The charge resulted from the Company grouping assets at
a lower level than under its previous accounting policy regarding asset
impairment. Factors leading to impairment were a combination of historical
losses, anticipated future losses and inadequate cash flows. The net sales and
operating losses in 1995 of the stores to be closed were approximately $14.3
million and $1.5 million, respectively.

F-9
<PAGE> 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Of the six stores to be closed pursuant to the restructuring, five were
closed in 1996 and the remaining store was closed in early 1997.

The restructuring reserve balance of $1.9 million as of December 31, 1996
relates primarily to remaining tenancy costs.

5. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Credit and charge card receivables............................... $ 5,353 $ 3,379
Due from landlords............................................... 4,069 10,536
Other, net of allowance.......................................... 4,533 3,469
------- -------
Total.................................................. $13,955 $17,384
======= =======
</TABLE>

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred income taxes............................................ $ 8,323 $ 6,650
Other............................................................ 2,753 3,710
------- -------
Total.................................................. $11,076 $10,360
======= =======
</TABLE>

7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Land........................................................... $ 430 $ 430
Building....................................................... 4,760 4,760
Furniture, fixtures and equipment.............................. 89,792 118,072
Leasehold improvements......................................... 35,034 46,454
Computer software.............................................. 4,404 6,331
------- -------
134,420 176,047
Less accumulated depreciation and amortization................. 26,878 37,539
------- -------
Total................................................ $107,542 $138,508
======= =======
</TABLE>

F-10
<PAGE> 61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Income taxes payable............................................. $ 2,472 $ 994
Other taxes payable.............................................. 6,051 8,678
Rent............................................................. 6,082 5,844
Salaries and employee benefits................................... 3,331 7,347
Restructuring reserves........................................... 3,835 1,878
Other............................................................ 19,547 28,466
------- -------
Total.................................................. $41,318 $53,207
======= =======
</TABLE>

9. SHORT-TERM BORROWING ARRANGEMENTS

Prior to the IPO, all financing was provided by CVS. Interest rates charged
on borrowings from CVS were based on CVS' commercial paper borrowing rates. In
connection with the IPO, the Company repaid all indebtedness to CVS and entered
into a three-year, $125 million senior revolving credit facility agreement (the
"Credit Agreement"). The Credit Agreement contains certain financial covenants,
including those relating to the maintenance of a minimum tangible net worth, a
minimum fixed charge coverage ratio, and a maximum leverage ratio, as defined in
the Credit Agreement. As of December 31, 1996, the Company was in compliance
with all terms and conditions of the Credit Agreement.

Interest on all borrowings is determined based upon several alternative
rates as stipulated in the Credit Agreement. As of December 31, 1996, there were
no borrowings under the Credit Agreement but $2.3 million of letters of credit
were outstanding under the Credit Agreement. The letters of credit were used to
guarantee certain foreign purchase contracts. The Company is not obligated under
any formal or informal compensating balance requirements.

10. LONG-TERM NOTE

In conjunction with the IPO, the Company issued a four-year, $13.5 million
subordinated note (the "Note") to CVS. The Note contains no principal
amortization prior to maturity in December 2000, and requires quarterly interest
payments at the 90-day LIBOR rate plus the applicable spread under the Credit
Agreement described above. The Note also provides for forgiveness by CVS, at
varying amounts, based upon the proceeds from any sales of the Company's common
stock by CVS together with the market value of the common stock which CVS
continues to own at December 31, 1997. The borrowing rate at December 31, 1996
was 6.875%.

11. DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES

Deferred income taxes and other long-term liabilities consisted of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred income taxes............................................ $ 8,015 $10,684
Other............................................................ 2,363 4,310
------- -------
Total.......................................................... $10,378 $14,994
======= =======
</TABLE>

12. LEASES

The Company has non-cancelable operating leases, primarily for retail
stores, which expire through 2022. The leases generally contain renewal options
for periods ranging from five to fifteen years and require the

F-11
<PAGE> 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company to pay costs such as real estate taxes and common area maintenance.
Contingent rentals are paid based on a percentage of sales. Net rental expense
for all operating leases for the years ended December 31 was as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals.............................. $ 28,065 $ 38,788 $ 53,264
Contingent rentals........................... 492 201 210
------- ------- -------
28,557 38,989 53,474
Less sublease rentals........................ 45 151 151
------- ------- -------
Total.............................. $ 28,512 $ 38,838 $ 53,323
======= ======= =======
</TABLE>

At December 31, 1996, the future minimum rental payments required under
operating leases and the future minimum sublease rentals excluding lease
obligations for closed stores were as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
----------------------------------------------------------------- ----------
<S> <C>
1997............................................................. $ 65,067
1998............................................................. 69,564
1999............................................................. 68,686
2000............................................................. 69,456
2001............................................................. 69,863
Thereafter....................................................... 747,467
----------
$1,090,103
==========
Total future minimum sublease rentals............................ $ 322
==========
</TABLE>

13. STOCK INCENTIVE PLANS

Concurrent with the IPO, the Company adopted the 1996 Incentive
Compensation Plan (the "Plan"), which provides for the granting of options,
deferred stock grants and other stock-based awards, up to a maximum of 2,312,132
shares of common stock, to key employees. The Company also adopted the 1996
Non-Employee Directors Stock Plan (the "Directors' Plan"), which provides for
the granting of options and stock unit grants to non-employee directors
("eligible directors"), up to a maximum of 200,000 shares. The Company has
reserved 2,512,132 shares for the issuance under these plans.

Stock options and grants under the Plan and the Directors' Plan are awarded
at the fair market value of the shares at the date of grant. The right to
exercise options generally commences one to four years after, and expires ten
years after, the grant date, provided the optionee or eligible director
continues to be employed by, or remain in service as director to, the Company.

Under the Directors' Plan, any person who becomes an eligible director
receives an initial option grant to purchase 7,000 shares of common stock, and,
at the date of each annual shareholders meeting thereafter, will receive an
option grant to purchase 700 shares and a stock unit grant for 700 shares.

As of December 31, 1996, options to purchase 994,330 shares and 14,000
shares were granted under the Plan and Directors' Plan, respectively, and none
were exercised or cancelled. No options granted were exercisable as of December
31, 1996. Additionally, in 1996, 160,666 deferred stock grants were awarded
under the Plan.

F-12
<PAGE> 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of each stock option granted during 1996 is estimated on the
date of grant using the Black-Scholes option pricing model using the following
assumptions:

<TABLE>
<S> <C>
Expected life (years).................................................. 5.0
Expected volatility.................................................... 45%
Risk-free interest rate................................................ 6%
Expected dividend yield................................................ 0%
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<S> <C>
OUTSTANDING EXERCISE PRICE............................................. $15.50
Number Outstanding................................................... 994,330
Weighted Average Remaining Contractual Life.......................... 5 years
EXERCISABLE
Weighted Average Exercise Price...................................... $15.50
Exercisable Number................................................... --
</TABLE>

The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized in connection with these plans. Set forth below are the
Company's net income and net income per share presented "as reported" and as if
compensation cost had been recognized in accordance with the provisions of SFAS
No. 123:

<TABLE>
<CAPTION>
1996
-------------
(IN MILLIONS,
EXCEPT PER
SHARE DATA)
<S> <C>
NET INCOME:
As reported........................................................ $15.0
Pro-forma.......................................................... $14.9
NET INCOME PER SHARE OF COMMON STOCK:
As reported........................................................ $0.78
Pro-forma.......................................................... $0.77
</TABLE>

The effects of applying SFAS No. 123 in this pro-forma disclosure are not
necessarily indicative of future amounts. The Company anticipates granting
additional awards in future years that based on the plans' current design will,
on an annual basis, be less than the initial year's (1996) award.

14. EMPLOYEE BENEFIT PLANS

Upon completion of the IPO, the Company discontinued participation in CVS'
401(k) profit-sharing plan. On December 1, 1996, the Company adopted a 401(k)
savings plan. All employees who were eligible to participate in the 401(k)
profit-sharing plan administered by CVS prior to the IPO were immediately
eligible to participate in the new plan. All other employees become eligible
upon completion of twelve months of service within which 1,000 hours were
worked, provided the employee is at least 21 years of age. Participants may
contribute between 2% and 15% of annual earnings, subject to statutory
limitations. Company contributions for the matching component of both plans
amounted to approximately $0.4 million, $0.6 million and $0.3 million for the
years ended December 31, 1994, 1995 and 1996, respectively.

F-13
<PAGE> 64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31 were as follows
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits................................................. $1,030 $ 4,011
Inventories....................................................... 5,156 4,313
Other............................................................. 872 1,297
------ -------
TOTAL DEFERRED TAX ASSETS........................................... 7,058 9,621
DEFERRED TAX LIABILITIES:
Property and equipment............................................ 6,750 13,655
------ -------
NET DEFERRED TAX ASSET (LIABILITY).................................. $ 308 $(4,034)
====== =======
</TABLE>

Based on the Company's historical and current pretax earnings, management
believes it is more likely than not that the Company will realize the deferred
tax assets.

The provision for income taxes comprised the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
CURRENT:
Federal.................................................. $ 6,161 $2,565 $ 3,030
State.................................................... 1,272 914 1,106
------- ------ -------
7,433 3,479 4,136
DEFERRED:
Federal.................................................. 3,580 (2,143) 5,484
State.................................................... 861 (228) 1,332
------- ------ -------
4,441 (2,371) 6,816
------- ------ -------
Total............................................ $11,874 $1,108 $10,952
======= ====== =======
</TABLE>

The following is a reconciliation between the statutory Federal income tax
rate and the effective rate for the years ended December 31:

<TABLE>
<CAPTION>
1994 1995 1996
----- ------ -----
<S> <C> <C> <C>
Effective tax rate........................................... 40.8% 103.2% 42.1%
State income taxes, net of Federal benefit................... (4.8) (41.5) (6.1)
Goodwill..................................................... (1.0) (27.8) (1.1)
Meals and entertainment...................................... (0.2) (5.1) (0.3)
Targeted jobs tax credit..................................... 0.2 5.5 --
Other........................................................ -- 0.7 0.4
----- ------ -----
Statutory Federal income tax rate.................. 35.0% 35.0% 35.0%
</TABLE>

16. RELATED PARTY TRANSACTIONS

Prior to the IPO, CVS provided financing and cash management for the
Company, allocated certain costs to the Company for services provided, and
charged the Company for costs related to participation in certain employee
benefit programs. Such charges terminated upon the completion of the IPO and
have been replaced by

F-14
<PAGE> 65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs of the Company's own programs. Allocations to the Company by CVS were
based on the Company's share of costs paid by the Parent on its behalf for
consolidated programs. Such allocations may not be reflective of the costs which
would have been incurred if the Company operated on a stand-alone basis or which
will be incurred in the future. Management believes that the basis for
allocations was reasonable. If the Company had operated on a stand-alone basis
for the years ended December 31, 1994, 1995 and 1996, it would have incurred a
net increase in expense of an estimated $755,000 pre-tax, in each such years.
The following is a summary of the amounts charged or allocated to the Company:

Administrative Costs

CVS allocated various administrative costs to the Company. Allocations were
based on the Company's ratable share of costs incurred by CVS on behalf of the
Company for the combined programs. The total costs allocated to the Company for
the years ended December 31, 1994, 1995, and 1996 were approximately $3.3
million, $3.0 million and $0.9 million, respectively.

In addition, CVS guaranteed the leases of certain stores operated by the
Company and charged a fee, prior to the IPO, for that service which amounted to
approximately $0.3 million for each of the years ended December 31, 1994, 1995
and 1996.

Borrowings

The weighted average interest rate on borrowings from CVS and other
divisions for the years ended December 31, 1994, 1995 and 1996 was 4.9%, 6.5%
and 6.2%, respectively. The related interest expense recognized by the Company
on such borrowings was $3.2 million, $7.1 million and $4.6 million,
respectively.

Employee Stock Ownership Program

The Company's employees participated in CVS' Employee Stock Ownership
("ESOP"). The ESOP was a defined contribution plan for all employees meeting
certain eligibility requirements.

CVS charged compensation expense to the Company based upon total payments
due to the ESOP. The charge allocated to the Company was based on the Company's
proportionate share of qualifying compensation expense and did not reflect the
manner in which CVS funded these costs or the related tax benefits realized by
CVS. As a result of the Company's allocation from CVS, compensation expense of
approximately $0.7 million, $1.0 million and $1.5 million was recognized for the
years ended December 31, 1994, 1995 and 1996, respectively.

These costs, with the exception of interest expense, are included in
selling, general and administrative expenses on the Consolidated Statements of
Operations.

17. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

F-15
<PAGE> 66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
NET SALES
1995.................................. $115,298 $124,290 $138,050 $177,457 $555,095
1996.................................. 138,167 147,649 180,438 229,853 696,107
GROSS PROFIT
1995.................................. 42,787 47,896 54,666 64,584(1) 209,933(2)
1996.................................. 50,498 56,252 69,159 94,002 269,911
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE, NET
1995.................................. 860 1,644 2,599 (5,137) (34)
1996.................................. (1,786) (411) 4,966 12,270 15,039
NET INCOME (LOSS)
1995.................................. 682 1,644 2,599 (5,137)(1) (212)(2)
1996.................................. (1,786) (411) 4,966 12,270 15,039
NET INCOME (LOSS) PER SHARE
1995.................................. .04 .09 .13 (.27)(1) (0.01)(2)
1996.................................. (.09) (.02) .26 .63 0.78
</TABLE>

- ---------------
(1) Excluding the CVS Strategic Program, gross profit and net income in the
fourth quarter of 1995 would have been $72.8 million and $9.0 million,
respectively, and earnings per share would have been $.47.

(2) Excluding the CVS Strategic Program, gross profit and net income for the
year ended 1995 would have been $218.1 million and $13.9 million,
respectively, and earnings per share would have been $.72.

F-16
<PAGE> 67

- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 10
Capitalization........................ 11
Dividend Policy....................... 11
Price Range of Common Stock........... 11
Selected Financial and Operating
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 23
Management............................ 32
Principal and Selling Shareholder and
Management.......................... 38
Relationship with CVS and Related
Party Transactions.................. 40
Shares Eligible for Future Sale....... 42
Description of Capital Stock.......... 43
Underwriting.......................... 45
Notice to Canadian Residents.......... 46
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 47
Legal Matters......................... 49
Experts............................... 49
Available Information................. 49
Additional Information................ 50
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- ------------------------------------------------------

[LINENS 'N THINGS LOGO]

5,517,758 Shares
Common Stock
($.01 par value)

PROSPECTUS

CREDIT SUISSE FIRST BOSTON

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
- ------------------------------------------------------