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FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
or
| | Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
February 3, 1996 0-17586
STAPLES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2896127
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(State of Incorporation) (I.R.S. Employer
Identification No.)
One Research Drive, Westboro, Massachusetts 01581
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(Address of principal executive offices and zip code)
508-370-8500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0006 per share
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes | | No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|X|
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The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the last sale price of the Common Stock on February 3,
1996 as reported by Nasdaq, was approximately $2.1 billion. In determining the
market value of non-affiliate voting stock, shares of Common Stock beneficially
owned by each executive officer and director have been excluded. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Registrant had 158,453,382 shares of Common Stock outstanding as of
February 29, 1996, after giving effect to the three-for-two split of the
Company's common stock in March, 1996.
Documents Incorporated By Reference
Listed below is the document incorporated by reference and the part of the
Form 10-K into which the document is incorporated:
Portions of the Proxy Statement for the
1996 Annual Meeting of Shareholders Part III
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PART I
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ITEM 1. BUSINESS
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Staples, Inc. ("the Company") pioneered the office supplies superstore
concept in 1986 and is a leading office supplies distributor with a total of 443
retail stores located in the United States and Canada as of February 3, 1996, in
addition to a direct mail delivery business and contract stationer operations.
The Company's executive offices are located at One Research Drive,
Westboro, Massachusetts 01581 (telephone: (508) 370-8500). The Company was
organized in November 1985.
BUSINESS STRATEGY
The Company views the office products market as comprised of four principal
end-user groups: consumers and home offices; small businesses and organizations
with fewer than 50 office workers; medium-size businesses and organizations with
more than 50 office workers; and large businesses with more than 1,000 office
workers. For the first several years of its operations, the Company's business
consisted solely of its retail superstores, which target the first two and, to a
lesser extent, the third of these end-user groups. Beginning in fiscal 1990 the
Company began to address small and medium-size businesses more effectively by
increasingly emphasizing its delivery business. Since the end of fiscal 1993,
the Company, through a number of acquisitions, has entered the contract
stationer business, which targets medium- and large-size businesses. The Company
now effectively addresses all four major end-user groups. In addition to
increasing and diversifying its available market opportunities, the Company's
decision to address all four major end-user groups is resulting in a number of
important business synergies for the Company, including increased buying power,
enhanced efficiencies in distribution and advertising, increased awareness of
the Staples name, and improved capacity to leverage certain general and
administrative functions.
The Company's strategy is focused on the following:
NORTH AMERICAN SUPERSTORES
Staples' superstores are the core business of the Company, generating a
substantial majority of its sales and profits. The target customers of the
Company's superstores are primarily small businesses, home offices and
consumers.
Suburban Superstores. Most of the Company's superstores are located in
suburban markets, primarily on the East Coast, West Coast and in portions of the
Southeast and Midwest regions of the United States, in both major metropolitan
markets and smaller outlying markets. The Company's strategy for its suburban
superstores focuses on four key objectives: (i) providing superior customer
value through a combination of broad product selection, everyday low prices,
superior customer service and convenient locations; (ii) saturating targeted
suburban markets with its stores and
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achieving market share leadership in most of the major markets where it
competes; (iii) maintaining operating costs at the lowest level that is
consistent with providing quality merchandise and service (thereby enabling the
Company to provide low prices to its customers); and (iv) providing superior
customer service, including sales consulting and a "user friendly" shopping
environment.
The Company believes that its strategy of saturating its major metropolitan
markets with superstores results in a number of advantages for the Company.
First, it enhances customer awareness of the Staples name within these markets.
Second, it makes shopping at Staples superstores more convenient for its
customers, which the Company believes is a significant criterion in the
customer's choice of office products superstores. Third, it enables the Company
to take advantage of economic efficiencies in management, advertising and
distribution for the stores within a market.
Business Depot. In June 1991, the Company made its initial investment in The
Business Depot, Ltd. ("Business Depot"), which was founded by Jack Bingleman
(who currently serves as President- North American Superstores of the Company)
as a joint venture with Staples and a number of other investors to operate a
chain of office products superstores in Canada. In August 1994, the Company
exercised its option to acquire, for a purchase price of approximately $33.4
million, the 58% of the outstanding shares of Business Depot not then owned by
the Company. As of February 3, 1996, Business Depot operated 65 office product
superstores. Business Depot superstores operate under the names "Business
Depot", "Bureau en Gros" (in Quebec) and "Staples- The Office Superstore" (in
Western Canada), and offer a product selection similar to the Company's U.S.
suburban superstores in a slightly larger store format.
Express Stores. To increase its attractiveness to downtown businesses, the
Company has developed and refined a prototype for a downtown store, which
operates under the name "Staples Express". Staples Express stores average
approximately 9,000 square feet in size, or approximately 40% the size of the
current suburban prototype superstore, and generally stock about 5,300 items,
which represents a more focused assortment of products than that offered at its
larger superstores.
CONTRACT AND COMMERCIAL
The Company's Contract and Commercial division is comprised of two principal
business operations: the Company's mail order operations, which operate under
the name Staples Direct, and the Company's contract stationer business, which
operates under the names Staples National Advantage and Staples Business
Advantage. The contract stationer operations enable the Company to better
address the medium and large-size business segment of the office products
market.
Staples Direct. In fiscal 1990, the Company introduced Staples Direct, which
the Company believes has increased its access to small and medium-size
businesses that prefer to have their office products delivered. Staples Direct
offers a broad product assortment and everyday low prices similar to the
Company's suburban superstores, with the added convenience of telephone ordering
and free next-day delivery for orders over $50. Delivery orders are shipped from
either the Company's East Coast or West Coast delivery distribution centers, and
are distributed through small, dedicated delivery hubs in each of the Company's
major markets. The Company markets Staples Direct through both direct mail
catalogs and a sales force primarily focused on new accounts. In some markets,
the Company also delivers products directly from its retail stores.
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Staples Business Advantage and Staples National Advantage. The Company's
contract stationer operations are focused on serving the needs of medium- to
large-size businesses. These customers typically expect more services than a
traditional mail order business provides, such as customized pricing, payment
terms, usage reporting and the stocking of certain proprietary items. The
Company's contract stationer business is divided into two segments. Staples
National Advantage, which was established in February 1994 through the
acquisition of National Office Supply Company, Inc., is a nationwide contract
stationer business which focuses on selling to large multi-regional
corporations. Staples Business Advantage focuses on selling to medium- and
large-size regional companies. The Company has established this business through
a number of acquisitions of regional contract stationers, including Spectrum
Office Products Inc., based in Rochester, New York, in March 1994; D.A.
MacIsaac, Inc., based outside of Boston, in August 1994; Philadelphia
Stationers, Inc., based in Philadelphia, in December 1994; and Macauley's
Business Resources, Inc., based outside of Detroit, in June 1995. Additionally,
during 1995 the Company introduced Staples Business Advantage into the New York
and Washington D.C. metropolitan markets. The Company may make additional
acquisitions of contract stationers in order to fill in or expand the markets
currently served by its contract stationer business and to increase the
synergies realized in the areas of purchasing, distribution and management
information systems. The Company is also seeking to enhance the operations of
its contract stationer business by migrating to a common product line and
catalog, broadening the offerings of capital goods, introducing a retail
convenience card and consolidating distribution and administrative functions.
INTERNATIONAL
The Company believes that foreign markets may provide additional growth
opportunities for the latter part of the 1990s. The Company has approached these
markets to date through joint ventures in order to take advantage of local
operating expertise and reduce the risk associated with entering these new
markets.
The Company's first international joint venture was in Canada with Business
Depot, in which the Company made its initial investment in 1991. The Company is
also a partner in two overseas office products superstore joint ventures. In the
United Kingdom, the Company and Kingfisher plc, a British retailer, are equal
partners in Staples UK, which was formed in 1992. Staples UK operated 26 stores
as of February 3, 1996. In Germany, the Company owns a joint venture interest in
MAXI-Papier-MARKT GmbH ("MAXI-Papier"); MAXI-Papier operated 15 stores as of
February 3, 1996. The Company's joint ventures in Europe are at an early stage
of development, and there can be no assurance that they will become profitable.
STRATEGIC INITIATIVES
In addition to pursuing its growth strategy, since fiscal 1993 the Company
has been focusing on the following five strategic priorities, with the objective
of enhancing its position as a leading office products supplier:
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Profitably Increase Retail Sales Per Store. The Company is devoting
significant resources and efforts to profitably increase its retail sales per
store. Initiatives in this regard include: significantly increased marketing and
advertising, including television advertising, which has increased the Company's
exposure to households and small businesses; expanded product selection across
all key product categories; improved sales capabilities related to capital goods
(such as copiers, fax machines, computers and furniture); improved in-stock
positions; improved customer service; increased staffing levels and personnel
training; and expanded size, improved shopability and signage of the prototype
superstore. Another key element of this strategy is the Company's store remodel
program, pursuant to which the Company has remodeled over 100 existing stores as
of February 3, 1996. This program has improved store layout, lighting, signage
and the overall shopping environment, and will conform existing stores to the
new prototype to the maximum extent possible.
Profitably Increase Delivery Sales Per Store. The Company is implementing a
number of actions to profitably increase its delivery sales per store. These
actions include: broadening the product offerings available for delivery;
expanding the distribution of catalogs; increasing the number of direct sales
representatives; providing open account invoicing to large accounts; and
increasing distribution capacity. The Company believes that its delivery
operations are also benefiting from the increased marketing and advertising
undertaken in connection with its store sales growth strategy. These initiatives
have helped produce significant increases in total delivery sales and in
delivery sales per store since the beginning of fiscal 1994.
Continue Aggressive and Diversified Store Growth Strategy. After opening 41
stores in fiscal 1992 and 56 stores in fiscal 1993, the Company significantly
accelerated its store growth by opening 90 new stores in fiscal 1994 and 94 in
fiscal 1995. Furthermore, in fiscal 1996 the Company intends to open
approximately 120 stores in North America. The Company's store growth strategy
follows a three-pronged approach: continuing the saturation of its suburban
store network in its existing markets, allowing the Company to take advantage of
economies of scale in marketing, distribution and supervision costs; entering
smaller markets, within existing and new geographic areas, which offers some of
the economies of scale discussed above as well as lower operating costs and a
better competitive environment; and entering two or more major new markets per
year, such as the northern California area and Michigan, where the Company
opened stores for the first time in fiscal 1995. The Company believes that its
centralized distribution strategy facilitates its aggressive store growth by
enabling the Company to operate smaller stores than would otherwise be required,
thus reducing the cost of both opening and operating new stores, while providing
the same or better product selection as a larger, direct store delivery
competitive store.
The Company has further diversified its store growth strategy by acquiring
in August 1994 the remaining 58% of the outstanding shares of Business Depot
that it did not then own, which gave the Company a significant presence in
Canada. Business Depot operated 65 stores as of February 3, 1996.
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Reduce Costs Everywhere. The Company is maintaining its historical focus on
being a low-cost operator and is pursuing several initiatives to reduce costs as
a percentage of sales. The Company continues to add experienced personnel to its
buying team and has implemented enhancements in its replenishment software. The
Company has also utilized purchasing information obtained from some of its
newly-acquired businesses to compare product cost data and is aggressively
pursuing opportunities to take advantage of the combined purchasing power of its
various business units, as well as cross-utilizing the most effective purchasing
practices throughout its business operations. The Company also believes that its
future expansion will enable it to leverage certain fixed costs in store
operations, distribution and administration.
Improve Customer Service. The Company has increased staffing levels in
stores and delivery operations and made other investments to provide better
customer service and become a more customer-oriented business. During 1995, the
Company initiated a corporate-wide CARE program designed to empower associates
to exceed customer expectations for service by providing "great service, every
day, every way". It has also implemented a "mystery shopper program" in which
outside representatives evaluate customer service multiple times per year per
store. Additionally, the Company is planning to further increase its commitment
to training and product knowledge among its sales associates and will implement
several technological advancements to improve training, customer service and
ease of shopping.
PRODUCTS AND PURCHASING
Products
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The Company's current prototype stocks over 7,000 brand name office products
in each retail location, including office supplies, business machines, computers
and related products, office furniture, and other business-related products. The
Company tailors its product mix to meet the needs of its customers by regularly
evaluating sales and profit performance for each of its stock keeping units. In
order to minimize unit costs and selling prices, the Company sells most products
in multi-unit packages. The lot sizes are designed to be large enough to be cost
effective without being burdensome to the Company's small business customers.
The Company guarantees low prices to its customers and will not only match
competitive prices but also pay 150% of the difference if competitive price
levels are lower. The Company's products are sold at prices which generally are
up to 30% to 70% below manufacturer suggested list prices. The Company
continuously compares its pricing against other discount office supply stores,
local stationers, nearby wholesale clubs, consumer electronics retailers and
national mail order stationers to ensure that the strategy of maintaining
everyday low prices is achieved.
The Company also offers its customers an array of services. Customers may
place orders by telephone for delivery or for customer pickup. Customers may pay
with MasterCard, Visa, American Express, Discover, or Staples private label
credit card, in addition to check or cash. The Company also offers customers an
option to lease business machines and computers through a third party lessor
with varying terms. The Company also offers high-speed and self-service copying,
overnight mailing, faxing and other print services for its customers. The
Company has a return policy that entitles customers to return goods in original
packaging within 30 days after the date of sale for a full refund.
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The Company's Contract and Commercial division carries many of the same
products that are sold in the retail stores. Catalogs mailed to customers
typically contain approximately 5,000 in-stock products, with an additional
21,000 products available from wholesalers. Standard commercial credit terms are
utilized for customers serviced by the Company's contract stationers, with
unique pricing and billing services being available to each customer.
<TABLE>
The following table shows sales by each major product line as a percentage
of total sales for the periods indicated:
<CAPTION>
Fiscal Year Ended
-------------------------------------
February 3, January 28, January 29,
1996 1995 1994
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<S> <C> <C> <C>
Office supplies, services
and other supplies....................... 52.4% 53.7% 59.0%
Equipment and business machines........... 19.6 21.7 20.4
Computers and related products............ 19.8 16.2 12.9
Office furniture.......................... 8.2 8.4 7.7
</TABLE>
Purchasing and Vendor Selection
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Staples selects its vendors based upon quality, price, delivery reliability
and, where appropriate, customer brand recognition. The Company believes that it
is able to pursue this purchasing strategy with great effectiveness and at very
attractive costs in large part because of its centralized distribution
facilities. Through its distribution centers, the Company can purchase in
truckload quantities a smaller range of attractively priced high quality
products from multiple vendors and thereby achieve the lowest possbile costs in
each product category. The Company purchases the majority of its products in
full truckload quantities and minimizes freight costs through backhauls and
negotiated freight rates.
The Company offers several hundred private label items including copy paper,
staplers, and a variety of fastening supplies. The Company is able to procure
quality private label products at lower cost than brand name products, without
sacrificing quality.
Currently, the Company purchases products from several hundred active
vendors. Management believes that competitive sources of supply are available
for substantially all products it carries. The Company's buying and
merchandising staff centrally performs all product purchasing and merchandise
shelf and display planning for stores with the assistance of integrated computer
systems.
DISTRIBUTION
The Company operates centrally located distribution centers on the East and
West Coasts to service the majority of its replenishment and delivery
requirements for its U.S. stores and Staples Direct. The acquired contract
stationers utilize additional distribution centers that fulfill the unique needs
of their customers. Most products are shipped from the Company's suppliers to
the distribution centers for reshipment to Staples stores and delivery hubs, or
directly shipped to customers. The distribution centers employ computerized
selection, just-in-time replenishment procedures and material handling equipment
that help to minimize overall Company inventory levels while maintaining optimal
in-stock positions at the store level. Product processing and ticketing are
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performed at the distribution center to improve labor efficiency and reduce
costs. Furniture and other bulky items are shipped, typically in full truckload
quantities, from the Company's suppliers primarily to the Company's bulk
distribution centers in Connecticut and California. These bulk distribution
centers process and ticket furniture, bulky items and high volume items.
Products generally are delivered to Staples stores within 48 hours after the
Company's automated replenishment system generates an order for the product
based on daily point of sale information.
The Company believes that its distribution centers provide it with
significant labor, merchandise and inventory shrinkage savings by centralizing
receiving and handling functions and by enabling the Company to purchase in full
truckloads from suppliers. The Company believes that the reduction in the number
of purchase orders and invoices processed has resulted in significant
administrative cost savings. The Company's centralized purchasing and
distribution systems also permit store employees to spend more time on customer
service and store presentation.
Since the distribution centers maintain backup inventory, in-store inventory
requirements are reduced and the Company is able to operate smaller gross square
footage stores than would otherwise be required. Smaller store size reduces the
Company's rental costs in the expensive markets in which it currently operates
and allows the Company improved flexibility in locating stores more closely to
its target customers.
MARKETING STRATEGY
The Company pursues a variety of marketing strategies to attract and
retain target customers. These strategies include the use of broad-based media
advertising such as radio, television and newspaper circulars as well as
catalogs and a sophisticated direct marketing system. In addition, the Company
markets to larger companies through a combination of direct mail catalogs,
customized catalogs and a field sales force. The Company changes its level of
marketing spending as well as the mix of media employed depending upon market,
competitive and cost factors. This flexible approach allows the Company to
optimize the effectiveness and efficiency of its marketing expenditures.
Through its store and catalog direct marketing system, the Company tracks
the buying habits of many of its customers, measures the response rate to
various catalog marketing and promotional efforts and responds to changes in
purchasing patterns and customer demands. The customer database for the
Company's direct marketing system is derived from a variety of sources,
including Staples private label charge cards, Staples tax-exempt customer cards,
and Staples delivery orders.
In 1995, the Company expanded its use of television advertising. This
television advertising is designed to improve the Company's awareness and
penetration levels for both the household and business customer segments. In
addition, the Company changed the use of its direct marketing system by creating
a "Dividend" program which rewards the top store and catalog customers with
rebates and other benefits.
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STORE OPERATIONS AND TRAINING
Store Operations
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The Company strives to be the lowest cost operator of office products stores
servicing its targeted customers. Staples has sought to create stores that
appeal to its target customers for their broad selection, everyday low prices,
convenience, shopability and helpful service.
Staples retail stores display inventory according to a plan-o-gram that
designates graphically the place each item in each section of the store is
displayed and specifies the quantity in which each inventory item is to be
stocked. Related items are typically grouped together for customer convenience.
Store layouts are as uniform as the various facilities allow, so that products
destined for stores can be picked at the distribution center to match store
aisles. Store employees, therefore, are able to place products received from the
distribution center directly onto the shelf without cumbersome store-level
receiving, double-handling or, in general, price marking.
Staples' computer systems calculate replenishment points and target
inventory levels for each stock keeping unit by store based on its rate of sale
and variability in rate of sale. Sales and inventory levels are tracked by stock
keeping unit at each store through the Company's point-of-sale system and are
transmitted nightly to the Company's host computer, which in turn generates
reorders from the distribution center so that inventory arrives at Staples
stores on a just-in-time basis.
Stores are brightly lit and products are attractively displayed. Employees
are available to consult on purchases, particularly in the Company's furniture,
business machines and computer sections, where customers often need assistance
in decision-making. Recently, to provide enhanced business services, product
depth and capital goods sales, the Company expanded the size of its new
prototype to over 23,000 square feet. Where possible, the Company will expand
existing stores to fit the new format. The Company's stores typically are open
85 hours (seven days) per week.
The Company has continued to increase staffing levels at its retail stores
and delivery operations to improve customer service. Much of the increase in
staffing targets sales of capital goods such as fax machines, copiers, furniture
and computers. In addition, the Company has continued to increase its efforts to
improve its in-stock position as well as expand the product depth in certain key
categories in order to best serve its customers.
Associates and Associate Training
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The Company places great importance on recruiting, training and providing
the proper incentives for quality store level personnel. The Company has focused
on building its store management organization from within. The Company recruits
actively on college campuses and also hires talented individuals with experience
in successful retail operations. Additionally, current associates are rewarded
for recruiting new associates. A majority of the Company's store managers have
been trained in the Company's management development program.
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Management considers customer relations and its associates' knowledge of
office products and office-related capital goods to be significant to its
marketing approach and its ability to maintain customer satisfaction. New
management trainees advance through the store management structure by taking on
assignments in different areas as they are promoted. Store and telemarketing
employees prepare for new assignments by studying training modules, including
written manuals, video instruction and self-testing, which are prepared by the
Company and others. These associates are trained in a number of areas,
including, where appropriate, sales techniques, management techniques and
product knowledge.
The Company offers full-time associates the opportunity to acquire equity in
the Company through an employee stock purchase plan, and also grants stock
options to certain of its associates as an incentive to attract and retain such
associates.
As of February 3, 1996, the Company employed 10,332 full-time and 11,800
part-time employees.
EXPANSION STRATEGY
The Company's expansion strategy involves the establishment of a strong
market position by saturating each major market with a full network of stores
and focusing growth in those markets where products can be cost effectively
replenished through its distribution centers. The Company believes that networks
of stores in a metropolitan market enhance profitability by leveraging marketing
costs, distribution expense and supervision costs.
The Company currently plans to open approximately 120 stores in the United
States and Canada in fiscal 1996. The Company's growth strategy calls for
continued expansion of market share along both the East Coast and West Coast as
well as portions of the Southeast and Midwest regions of the United States.
Additionally, the Company plans to expand into 2 or more major new markets per
year as well as numerous smaller markets.
In determining where to open new stores, the Company evaluates the
concentration of small and medium-sized businesses and organizations, the number
of home offices, household income levels and the availability of quality real
estate locations, competitive factors and other factors. Ideally, stores are
located on high-traffic arteries convenient to the targeted businesses, with
parking adequate to support high sales volumes. While most of its stores have
been located in conventional strip shopping centers, the Company has also
successfully converted non-retail properties to Staples stores. Although the
Company often leases second-use properties, it has also entered into ground
leases where it plans to build a store or arranged to have landlords construct
free-standing buildings to its specifications. In addition, the Company has on
numerous occasions acquired lease rights from prior tenants. The Company
believes that this flexibility in selecting sites will prove helpful as it seeks
to locate additional stores in the difficult real estate markets in which it
operates.
During 1991, the Company entered the international arena with its investment
in Business Depot, a Canadian office superstore company. During 1992, the
Company expanded its international presence, increasing its interest in Business
Depot and entering Germany and the United Kingdom through joint ventures.
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The Company may from time to time in the future expand into other
international markets. The Company's international expansion is based on its
belief that there is a significant growth opportunity for office products stores
in these markets. To date, the Company's participation in foreign markets has
been accomplished by means of investments in joint ventures with locally based
companies.
COMPETITION
The Company competes with a variety of retailers, dealers and distributors
in the highly competitive office products market. The Company believes that its
customers choose among suppliers on the basis of price, breadth of selection,
service and convenience.
The Company's target customers have historically been serviced by
traditional office products dealers. The Company believes it competes favorably
against these dealers because it generally offers larger discounts off catalog
list prices than these dealers. In addition, the Company believes that its broad
product line, depth of in-stock inventory and extended store hours offer
competitive advantages.
The Company competes in most of its geographic markets with other
high-volume office supply chains that are similar in concept to the Company in
terms of store format, pricing strategy, and product selection, such as Office
Depot and OfficeMax. The Company believes that in the future it will face
increased competition as the Company and these chains continue to expand their
operations. No assurances can be given that the increased competition will not
have an adverse effect on the Company.
The Company also competes with mail order stationers. The Company reviews
the prices charged by certain large mail order stationers and establishes prices
which it believes are below such prices. The Company believes that it benefits
by providing its customers the opportunity to examine products in the store and
to acquire products immediately. To a lesser extent, the Company competes with
wholesale clubs, mass merchandisers and consumer electronics retailers, whose
office products selection is typically narrower than that of the Company. While
the Company's prices are comparable to nearby wholesale clubs, they are usually
significantly below those of most mass merchandisers.
Some of the Company's current and potential competitors in the office
products industry are larger than the Company and have substantially greater
financial resources. 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 and thereby reduce its gross margin and profitability.
TRADEMARKS
The Company has registered the marks "Staples" and "Staples- The Office
Superstore" on the Principal Register of the United States Patent and Trademark
Office.
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ITEM 2. PROPERTIES
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<TABLE>
As of February 3, 1996 the Company operated 443 superstores in 24 states,
the District of Columbia and 8 provinces in Canada. The following table sets
forth the locations of the Company's superstores.
<CAPTION>
STATE/PROVINCE NUMBER OF STORES
-------------- ----------------
<S> <C>
Arizona 12
California 80
Connecticut 20
Delaware 4
Florida 14
Illinois 3
Indiana 3
Kentucky 2
Maine 5
Maryland 19
Massachusetts 30
Michigan 17
New Hampshire 7
New Jersey 38
New York 53
North Carolina 2
Ohio 9
Pennsylvania 29
Rhode Island 2
South Carolina 4
Utah 1
Vermont 2
Virginia 19
Washington DC 2
West Virginia 1
Alberta 8
British Columbia 3
Manitoba 3
Newfoundland 1
Nova Scotia 3
Ontario 34
Quebec 12
Saskatchewan 1
</TABLE>
All of the existing stores are leased or subleased by the Company with
initial lease terms expiring between 1996 and 2020. In most instances, the
Company has renewal options at increased rents. Leases for 155 of the existing
stores provide for contingent rent based upon sales.
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ITEM 3. LEGAL PROCEEDINGS
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On December 16, 1992, certain former common stockholders of Office Mart
Holdings Corp. ("WORKplace") brought suit against WORKplace, the Company and
certain former directors of WORKplace alleging that they were deprived of full
consideration for their shares in connection with the acquisition of WORKplace
by the Company. The Company and its special counsel in this matter are
vigorously defending against the suit. Moreover, under the terms of the
acquisition agreement, the Company is entitled to indemnification for some or
all of any damages that may be assessed the Company in this suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended February 3, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SPLS".
At February 3, 1996, the number of holders of record of the Company's Common
Stock was 6,235.
<TABLE>
The following table sets forth for the periods indicated the high and low
sale prices per share of the Common Stock on the Nasdaq National Market, as
reported by Nasdaq, retroactively adjusted for the three-for-two stock splits
in March, 1996, July, 1995 and October, 1994.
<CAPTION>
Fiscal Year Ended January 28, 1995 High Low
---------------------------------- ---- ---
<S> <C> <C>
First Quarter $ 9.33 7.19
Second Quarter 9.03 7.15
Third Quarter 10.67 7.03
Fourth Quarter 11.11 8.78
Fiscal Year Ended February 3, 1996
----------------------------------
First Quarter $12.89 $10.50
Second Quarter 15.33 10.17
Third Quarter 19.17 14.17
Fourth Quarter 18.67 13.17
</TABLE>
The Company has never paid a cash dividend on its Common Stock. The Company
presently intends to retain earnings for use in the operation and expansion of
its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future. In addition, the Company's revolving credit agreement
restricts the payment of dividends.
- 14 -
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this Item is attached as Appendix A.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The information required by this Item is attached as Appendix B.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information required by this Item is attached as Appendix C.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not Applicable.
PART III
--------
The information required by Part III is omitted from this Annual Report on
Form 10-K, and incorporated herein by reference to the definitive proxy
statement with respect to the 1996 Annual Meeting of Stockholders (the "Proxy
Statement") which the Company will file with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required by this Item will appear under the heading
"Election of Directors - Directors and Executive Officers of the Company" in the
Company's Proxy Statement, which section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item will appear under the headings
"Election of Directors - Director Compensation"; - "Executive Compensation;
Employment Contracts, Termination of Employment and Change in Control Agreements
with Senior Executives"; and "- Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement, which sections are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item will appear under the heading
"Beneficial Ownership of Common Stock" in the Company's Proxy Statement, which
section is incorporated herein by reference.
- 15 -
<PAGE> 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item will appear under the heading
"Election of Directors - Compensation Committee Interlocks and Insider
Participation"; and "Certain Transactions" in the Company's Proxy Statement,
which sections are incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) Index to Consolidated Financial Statements.
1. FINANCIAL STATEMENTS. The following financial statements and schedules
of Staples, Inc. are included as APPENDIX C of this Report:
Consolidated Balance Sheets - February 3, 1996 and January 28, 1995.
Consolidated Statements of Income - Fiscal years ended February 3,
1996, January 28, 1995, and January 29, 1994.
Consolidated Statements of Stockholders' Equity - Fiscal years ended
February 3, 1996, January 28, 1995, and January 29, 1994.
Consolidated Statements of Cash Flows - Fiscal years ended February 3,
1996, January 28, 1995, and January 29, 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are not applicable, and, therefore,
have been omitted.
3. EXHIBITS. The exhibits which are filed with this report or which are
incorporated herein by reference are set forth in the Exhibit Index on
page E-1.
(b) Reports on Form 8-K.
Not applicable.
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 11, 1996.
Staples, Inc.
By: /s/Thomas G. Stemberg
-----------------------------------------
Thomas G. Stemberg, Chairman of the Board
and Chief Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated above.
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/Thomas G. Stemberg Chairman of the Board and Chief
- ------------------------------- Executive Officer (Principal Executive
Thomas G. Stemberg Officer)and Director
/s/Mary Elizabeth Burton Director
- -------------------------------
Mary Elizabeth Burton
/s/W. Lawrence Heisey Director
- -------------------------------
W. Lawrence Heisey
/s/Leo Kahn Director
- -------------------------------
Leo Kahn
/s/David G. Lubrano Director
- -------------------------------
David G. Lubrano
/s/Rowland T. Moriarty Director
- -------------------------------
Rowland T. Moriarty
Director
- -------------------------------
Robert C. Nakasone
</TABLE>
- 17 -
<PAGE> 18
Signatures - Cont'd
Signature Capacity
---------- --------
Director
- -------------------------------
W. Mitt Romney
Director
- -------------------------------
Martin Trust
Director
- -------------------------------
Paul F. Walsh
Director
- -------------------------------
James L. Moody, Jr.
/s/John B. Wilson Executive Vice President - Finance and
- ------------------------------- Strategy and Chief Financial Officer
John B. Wilson (Principal Financial Officer)
/s/James Flavin Senior Vice President - Finance
- ------------------------------- (Principal Accounting Officer)
James Flavin
-18-
<PAGE> 19
APPENDIX A
----------
Item 6. Selected Financial Data
- -------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (1)
(Dollar Amounts in Thousands, Except Per Share Amounts)
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
February 3, January 28, January 29, January 30, February 1,
1996 1995 (2) 1994 (3) 1993 (4) 1992 (5)
(53 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
-------------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales...................................... $3,068,061 $2,000,149 $1,308,634 $1,041,636 $762,838
Gross profit............................... 701,878 465,789 295,624 234,469 167,511
Operating income .......................... 147,813 81,727 37,685 37,457 21,043
Income before extraordinary credit......... 73,705 39,940 19,452 18,318 2,208
Net income ................................ 73,705 39,940 19,452 18,318 3,408
Earnings per common share before
extraordinary credit ................ $ .46 $ .28 $ .14 $ .14 $ .02
Earnings per common share ................ $ .46 $ .28 $ .14 $ .14 $ .03
Dividends ................................ --- --- --- --- ---
SELECTED OPERATING DATA (AT PERIOD END):
Stores open................................ 443 350 230 174 133
BALANCE SHEET DATA:
Working capital............................ $ 504,330 $ 289,395 $ 214,326 $ 234,686 $130,283
Total assets............................... 1,402,775 1,008,454 650,756 545,207 357,164
Total long-term debt, less current portion 343,647 249,387 123,592 121,353 83,535
Stockholders' equity....................... 611,416 384,990 287,207 256,321 157,768
- ----------
<FN>
(1) On June 23, 1992, February 23, 1994 and March 7, 1994, the Company
acquired Office Mart Holdings Corp. ("Office Mart"), National Office Supply
Company, Inc. ("National"), and Spectrum Office Products, Inc. ("Spectrum"),
respectively. These transactions have been accounted for using the pooling
of interests method. As a result, the financial information shown above has
been restated to include the accounts and results of operations of Office
Mart, National and Spectrum, for all periods presented. Also, all share
numbers and earnings per share data have been restated to give retroactive
effect to the three-for-two splits of the Company's common stock effected in
March, 1996, July, 1995, October, 1994, December, 1993 and July, 1991. See
Note E of Notes to Consolidated Financial Statements.
(2) Results of operations for this period include a $2,150,000 charge relating
to professional fees incurred for contract stationer acquisitions and a
$1,149,000 gain on the sale of the Company's investment in a contract
stationer. The net of these items had the effect of reducing net income per
share by $.01.
(3) Results of operations for this period include a $7,600,000 charge relating
to the revision of the Company's computer merchandise strategy, a $4,771,000
charge relating to nonrecurring merger expenses resulting from the
acquisitions of National and Spectrum, and a gain of $8,430,000 resulting
from the sale of the Company's investment in a contract stationer. The net
of these items had the effect of reducing net income per share by $.02.
(4) Results of operations include expenses related to the Office Mart merger
(primarily consulting, legal, and accounting fees) of $1,200,000 which had
the effect of reducing net income per share by $.01.
(5) Results of operations for this period include $5,914,000 of merger-related
expenses incurred by Office Mart relating primarily to the restructuring of
the WORKplace stores and inventory mix to coincide with that of the Company
and severance costs. These costs had the effect of reducing net income per
share by $.07.
</TABLE>
<PAGE> 20
Item 7. APPENDIX B
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
................................................................................
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND
JANUARY 29, 1994
GENERAL. During the year ended February 3, 1996, the Company purchased
Macauley's Business Resources, Inc. ("Macauley's"), a contract stationer. During
the year ended January 28, 1995, the Company acquired four contract stationers.
The acquisitions accounted for as purchases were D.A. MacIsaac, Inc.
("MacIsaac") and Philadelphia Stationers, Inc. ("Philadelphia"), while the
acquisitions accounted for on the pooling of interests method were National
Office Supply Company, Inc. ("National") and Spectrum Office Products, Inc.
("Spectrum"). In addition, the Company purchased the remaining 58% of
outstanding shares it did not already own of The Business Depot, Ltd. ("Business
Depot"), a retail office products chain in Canada, on August 26, 1994. The
accompanying financial statements include the results of operations of
Macauley's, Philadelphia, Business Depot and MacIsaac from the dates of
acquisition, which were June 1995 for Macauley's, December 1994 for Philadelphia
and August 1994 for Business Depot and MacIsaac. The Company accounted for the
results of Business Depot under the equity method prior to August 26, 1994. The
historical financial statements for all years presented include the results of
operations of National and Spectrum due to the pooling of interests accounting
treatment for these acquisitions.
The fiscal year ended February 3, 1996 consisted of 53 weeks, while the
fiscal years ended January 28, 1995 and January 29, 1994 consisted of 52 weeks.
All per share amounts have been restated to give effect to the three-for-two
split of the Company's common stock in March, 1996.
SALES. Sales increased 53% to $3,068,061,000 in the fiscal year ended
February 3, 1996 from $2,000,149,000 in the fiscal year ended January 28, 1995;
3% of the increase resulted from the additional week in the year ended February
3, 1996. Sales also increased 53% in the fiscal year ended January 28, 1995 from
sales of $1,308,634,000 in the fiscal year ended January 29, 1994. The growth in
each year was attributable to an increase in the number of open stores,
increased sales in existing stores and increased sales in the delivery and
contract stationer segments. Comparable store and delivery hub sales (which
represents a comparison of sales between corresponding full months in the
periods compared) for the fiscal year ended February 3, 1996 increased 20% over
the fiscal year ended January 28, 1995; comparable sales in the contract
stationer segment increased 35% over the year ended January 28, 1995. Comparable
sales for the year ended January 28, 1995 increased 23% over the year ended
January 29, 1994. As of February 3, 1996, January 28, 1995 and January 29, 1994,
the Company had 443, 350 and 230 open stores, respectively.
GROSS PROFIT. Gross profit was 22.9%, 23.3% and 22.6% of sales for the
fiscal years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively. The decrease in gross profit rate for the year ended February 3,
1996 primarily resulted from a change in product mix as a result of
<PAGE> 21
increased volumes in lower margin items such as computers. This decrease was
partially offset by purchasing efficiencies gained through enhanced vendor
volume rebate programs and the leveraging of fixed occupancy and distribution
costs over a greater sales base. The increase in gross profit rate for the year
ended January 28, 1995 was primarily due to improvements in merchandise margin,
which was a result of significantly reduced purchasing costs achieved through
the combination of the best buying practices of the acquired contract stationers
with those already in place at the Company.
OPERATING AND SELLING EXPENSES. Operating and selling expenses, which
consist of payroll, advertising and other operating expenses, were 14.5%, 15.4%
and 15.0% of sales for the fiscal years ended February 3, 1996, January 28,
1995, and January 29, 1994, respectively. The decrease as a percentage of sales
for the year ended February 3, 1996 was primarily due to the leveraging of store
payroll and fixed store operating expenses over a larger sales base. The Company
was able to leverage total operating expenses while implementing several
initiatives such as remodeling over 100 stores during the year, substantially
increasing television advertising, and making several other investments to
improve customer service. The increase as a percentage of sales for the year
ended January 28, 1995 over the previous year was primarily due to planned
increases in television and radio advertising in addition to increases in store
labor, signage and resets designed to improve customer service in the stores.
While most store expenses vary proportionately with sales, there is a fixed
cost component. Because new stores typically generate lower sales than the
Company average, the fixed cost component results in higher store operating and
selling expenses as a percentage of sales in these stores during their start-up
period. During periods when new store openings as a percentage of the total
store base are lower, store operating and selling expenses as a percentage of
sales may decrease. In addition, as the store base matures, the fixed cost
component of operating expenses is leveraged over an increased level of sales,
resulting in a decrease in store operating and selling expenses as a percentage
of sales. The Company's strategy of saturating markets results in some new
stores attracting sales away from existing stores. This also has the effect of
detracting from the expected leveraging of the fixed cost component.
PRE-OPENING EXPENSES. Pre-opening expenses relating to new store openings,
which consist primarily of salaries, supplies, marketing and occupancy costs,
are expensed by the Company as incurred and, therefore, fluctuate from period to
period depending on the timing and number of new store openings. Pre-opening
expenses averaged $58,000, $56,000 and $51,000 per store for the stores opened
in the years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as
a percentage of sales were 3.3%, 3.5% and 3.9% in the years ended February 3,
1996, January 28, 1995 and January 29, 1994 respectively. This decrease was
primarily due to the Company's ability to increase sales without proportionately
increasing overhead expenses in its core retail business. The acquisitions of
contract stationers, which historically operated with much higher overhead as a
percentage of sales, has offset, in part, this leveraging. The Company has
continued to make significant investments in its information systems staffing
and infrastructure, which the Company believes will reduce costs in future
years, without increasing total general and administrative expenses as a
percentage of sales. The Company expects general and administrative expenses to
decrease as a percentage of sales in the future, as these expenses are expected
to increase more slowly than revenues. The Company has consolidated certain
general and administrative functions at the recently acquired contract
stationers which should further reduce these expenses as a percentage of sales.
<PAGE> 22
INTEREST EXPENSE, NET. Net interest expense totaled $15,924,000,
$8,389,000, and $4,853,000 in the fiscal years ended February 3, 1996, January
28, 1995 and January 29, 1994 respectively. The increase in the years ended
February 3, 1996 and January 28, 1995 was primarily due to increased borrowings
under the Company's revolving credit facilities to fund the planned increase in
store inventories, which enhanced the product assortment and in-stock levels;
to fund the acquisition of property, plant and equipment for new stores opened;
and to fund increased investments in joint venture affiliates.
OTHER INCOME. Other income primarily relates to fees charged for
administrative services performed by the Company for its international
affiliates, which included Business Depot, Staples UK and MAXI-Papier-Markt GmbH
("MAXI"). This income totaled $109,000, $2,736,000, and $5,054,000 in the years
ended February 3, 1996, January 28, 1995 and January 29, 1994 respectively. The
decrease in the years ended February 3, 1996 and January 28, 1995 was primarily
due to the full consolidation of Business Depot subsequent to August 26, 1994
which resulted in the elimination of this income in the Company's consolidated
results, as well as a contractual reduction in the fees charged by the Company
as the affiliates perform more of their own administrative functions.
EQUITY IN LOSS OF AFFILIATES. Equity in loss of affiliates is comprised of
the Company's share of the losses incurred by Business Depot (before the
Company's acquisition of the remaining 58% of the outstanding shares it did not
already own), MAXI, and Staples UK. The Company's investments in MAXI and
Staples UK are accounted for using the equity method; Business Depot was
accounted for under the equity method until August 26, 1994. Equity in loss of
affiliates totaled $12,153,000, $11,168,000, and $9,193,000 in the years ended
February 3, 1996, January 28, 1995 and January 29, 1994 respectively. The
increase in the equity in loss for the years ended February 3, 1996 and January
28, 1995 was primarily due to the increase in the number of new stores opened by
the affiliates. The initial investments in overhead, labor and advertising,
combined with the fact that the new stores typically generate lower sales than
mature stores, cause these stores to be unprofitable initially. In addition,
during the year ended February 3, 1996 MAXI recorded a store closure charge, of
which the Company's equity share was approximately $2,500,000. The Company's
joint ventures in Europe are at an early stage of development and there can be
no assurance that they will become profitable.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax
income was 38.5% for the fiscal year ended February 3, 1996, as compared to
37.5% for the fiscal year ended January 28, 1995 and 39.9% for the fiscal year
ended January 29, 1994. The increase in rate in the year ended February 3, 1996
was principally due to a decrease in federal targeted jobs credits resulting
from the expiration of the federal targeted jobs tax credit program on December
31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
................................................................................
The Company has traditionally used a combination of cash generated from
operations and debt or equity offerings to fund its expansion and acquisition
activities. During the years ended February 3, 1996 and January 28, 1995, the
Company also utilized its revolving credit facility to support its various
growth initiatives.
<PAGE> 23
The Company opened 94 stores, 70 stores and 56 stores in the years ended
February 3, 1996, January 28, 1995 and January 29, 1994, respectively (excluding
stores acquired), and closed one store in the year ended February 3, 1996. As
the store base matures and becomes more profitable, cash generated from store
operations is expected to provide a greater portion of funds required for new
store inventories and other working capital requirements. Sales generated by the
acquired contract stationers are made under regular credit terms, which requires
that the Company carry its own receivables from these sales. The Company has
also utilized capital equipment financings to fund current working capital
requirements.
As of February 3, 1996, cash, cash equivalents, and short-term investments
totaled $110,815,000, an increase of $39,801,000 from the January 28, 1995
balance of $71,014,000. The increase was primarily due to the issuance of the 4
1/2% Convertible Subordinated Debentures due October 1, 2000 with interest
payable semi-annually ("the 4 1/2% Debentures"), which generated proceeds of
$291,032,000 after deducting the costs related to issuance. Primary cash uses
included an increase in inventory of $177,509,000 to enhance the product
assortment and in-stock levels, acquisition of property and equipment of
$116,295,000 for new stores and other corporate uses, and increased investments
in joint venture affiliates of $22,088,000; these uses were partially offset by
an increase in accounts payable and accrued expenses of $57,999,000, which
financed a portion of the increase in inventory.
The Company expects to open approximately 120 stores during fiscal 1996.
Management estimates that the Company's cash requirements, including pre-opening
expenses, leasehold improvements and fixtures (net of store inventory financed
under vendor trade terms), will be approximately $1,400,000 for each new store
(excluding the cost of any acquisitions of lease rights). Accordingly, the
Company expects to use approximately $168,000,000 for store openings during this
period. The Company will continue to make investments in information systems,
distribution centers and delivery hubs to improve operational efficiencies, and
may expend additional funds to acquire businesses or lease rights from tenants
occupying retail space that is suitable for a Staples store.
By June 30, 1995, all of the Company's $115,000,000 of 5% Convertible
Subordinated Debentures due on November 1, 1999 ("the 5% Debentures"), other
than 5% Debentures in an aggregate amount of $184,000, were converted into
12,916,800 shares of common stock at a conversion price of $8.89 per share. The
total principal amount converted was credited to common stock and additional
paid-in-capital, net of unamortized expenses of the original debt issue and
accrued but unpaid interest. The remaining $184,000 of 5% Debentures were
redeemed on July 10, 1995 for a total redemption price of $192,359. The Company
sold 20,700 shares pursuant to a standby underwriting agreement to fund the
purchase price.
On October 5, 1995, the Company issued $300,000,000 of 4 1/2% Debentures,
which are convertible, at the option of the holder, into Common Stock at a
conversion price of $22 per share. The 4 1/2% Debentures are redeemable, in
whole or in part, at the Company's option at specified redemption prices on or
after October 1, 1998. Costs incurred in connection with the issuance of the 4
1/2% Debentures are included in Other Assets and are being amortized on the
interest method over the five year period to maturity.
On October 25, 1995, after completing the $300,000,000 Debenture offering,
the Company's existing credit facility was amended to provide for financing of
up to $225,000,000. Borrowings made pursuant to this facility will bear interest
at either the lead bank's prime rate, the federal funds rate plus 0.50%, the
LIBOR rate plus a percentage spread based upon certain defined ratios, or a
<PAGE> 24
competitive bid rate. Borrowings outstanding at February 14, 1998 automatically
convert into a term loan, payable in eight installments due on the last day of
each calendar quarter. Term loan borrowings bear interest at either the lead
bank's base rate plus 0.25% or the Eurodollar lending rate plus 0.25%. This
agreement, among other conditions, contains certain restrictive covenants
including net worth maintenance, minimum interest coverage and limitations on
indebtedness, sales of assets, and dividends. As of February 3, 1996, borrowings
pursuant to the revolving credit facility totaled $25,000,000. Total cash,
short-term investments and available revolving credit amounts totaled
$310,815,000 as of February 3, 1996.
The Company expects that its current cash and cash equivalents and funds
available under its revolving credit and term loan facility will be sufficient
to fund its planned store openings and other operating cash needs for at least
the next twelve months. The Company is actively exploring alternative, low-cost
sources of debt to supplement its revolving credit line and provide for
additional liquidity. In addition, the Company is continually evaluating
financing possibilities, and it may seek to raise additional funds through any
one or a combination of public or private debt or equity-related offerings
dependent upon market conditions, or through an additional commercial bank debt
arrangement.
INFLATION AND SEASONALITY
While inflation has not had, and the Company does not expect it to have, a
material impact upon operating results, there can be no assurance that the
Company's business will not be affected by inflation in the future. The Company
believes that its business is somewhat seasonal, with sales and profitability
slightly lower during the first and second quarters of its fiscal year.
FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number
of factors, including without limitation the following:
The Company operates in a highly competitive marketplace, in which it
competes with a variety of retailers, dealers and distributors. The Company
competes in most of its geographic markets with other high-volume office supply
chains that are similar in concept to the Company in terms of store format,
pricing strategy and product selection, such as Office Depot and OfficeMax.
Moreover, the Company believes that it will face increased competition from such
chains in the future as both the Company and these chains continue to expand
their operations. Some of the Company's current and potential competitors in the
office products industry are larger than the Company and have substantially
greater financial resources. No assurance can be given that competition will not
have an adverse effect on the Company's business. In addition, if any of the
Company's major competitors were to seek to gain or retain market share by
reducing prices, the Company may be compelled to reduce its prices and thereby
reduce its gross margin and profitability.
An important part of the Company's business plan is an aggressive store
growth strategy. The Company opened 94 stores in the United States and Canada in
fiscal 1995 and plans to open approximately 120 new stores in fiscal 1996. There
can be no assurance that the Company will be able to locate and obtain favorable
store locations or leases, hire, train and integrate employees, and adapt its
management and operational systems to the extent necessary to fulfill its
expansion plans. The failure to open new stores in accordance with its growth
plans could have a material adverse impact on
<PAGE> 25
the Company's future sales and profits. Moreover, the Company's expansion
strategy is based in part on the saturation of its suburban store network in
existing markets to take advantage of economies of scale in marketing,
distribution and supervision costs; however, this can result in the
"cannibalization" of sales of existing stores. In addition, there can be no
assurance that the new stores opened by the Company will achieve sales or profit
levels commensurate with those of the Company's existing stores, particularly as
the Company enters new markets in which it has less experience or faces more
competition.
The Company has experienced and may experience in the future
fluctuations in its quarterly operating results. Factors such as the number of
new store openings (pre-opening expenses are expensed as incurred, and newer
stores are less profitable than mature stores), the extent to which new stores
"cannibalize" sales of existing stores, the mix of products sold, pricing
actions of competitors, the level of advertising and promotional expenses,
seasonality, and one-time charges associated with acquisitions or other events
could contribute to this quarterly variability. In addition, the Company's
expense levels are based in part on expectations of future sales levels, and a
shortfall in expected sales could therefore result in a disproportionate
decrease in the Company's net income.
The Company's business, including sales, number of stores and number of
employees, has grown dramatically over the past several years. In addition, the
Company has consummated a number of significant acquisitions in the last few
years, and may make additional acquisitions in the future. This internal growth,
together with the acquisitions made by the Company, have placed significant
demand on the management and operational systems of the Company. To manage its
growth effectively, the Company will be required to continue to upgrade its
operational and financial systems, expand its management team and increase and
manage its employee base.
The Company has a presence in international markets through joint ventures
with locally-based companies in Germany and the United Kingdom, and may seek to
expand into other international markets in the future. The Company's operations
in foreign markets are subject to similar risks as its North American stores in
addition to a number of additional inherent risks, including lack of complete
operating control and foreign currency fluctuations.
The Company currently expects that its current cash and cash equivalents
and funds available under its revolving credit and term loan facility will be
sufficient to fund its planned store openings and other operating cash needs for
at least the next 12 months. However, there can be no assurance that the Company
will not require additional sources of financing prior to such time, as a result
of unanticipated cash needs or opportunities, an expanded growth strategy or
disappointing operating results. There also can be no assurance that the
additional funds required by the Company, whether within the next 12 months or
thereafter, will be available to the Company on satisfactory terms.
<PAGE> 26
APPENDIX C
----------
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
FINANCIAL STATEMENTS. PAGE
-------------------- ----
<S> <C>
Report of Independent Auditors .............................................................C-2
Consolidated Balance Sheets - February 3, 1996 and January 28, 1995.........................C-3
Consolidated Statements of Income - Fiscal years ended February 3, 1996,
January 28, 1995, and January 29, 1994.....................................................C-4
Consolidated Statements of Stockholders' Equity - Fiscal years ended February 3, 1996,
January 28, 1995, and January 29, 1994.....................................................C-5
Consolidated Statements of Cash Flows - Fiscal years ended February 3, 1996,
January 28, 1995, and January 29, 1994.....................................................C-6
Notes to Consolidated Financial Statements..................................................C-7
</TABLE>
C-1
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Staples, Inc.
We have audited the accompanying consolidated balance sheets of Staples, Inc.
and subsidiaries as of February 3, 1996 and January 28, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended February 3, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 consolidated financial position of
Staples, Inc. and subsidiaries as of February 3, 1996 and January 28, 1995 and
the results of their operations and their cash flows for each of the three years
in the period ended February 3, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
March 5, 1996
C-2
<PAGE> 28
STAPLES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
February 3, January 28,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $98,130 $41,810
Short-term investments............................... 12,685 29,204
Merchandise inventories.............................. 644,514 463,493
Receivables, net..................................... 122,453 75,910
Deferred income taxes................................ 32,222 19,360
Prepaid expenses and other current assets............ 15,867 9,956
---------- ----------
TOTAL CURRENT ASSETS............................... 925,871 639,733
PROPERTY AND EQUIPMENT:
Land and buildings................................... 24,364 18,482
Leasehold improvements............................... 168,588 124,000
Equipment............................................ 144,857 97,139
Furniture and fixtures............................... 75,182 53,325
---------- ----------
TOTAL PROPERTY AND EQUIPMENT....................... 412,991 292,946
Less accumulated depreciation and amortization....... 120,496 80,301
---------- ----------
NET PROPERTY AND EQUIPMENT......................... 292,495 212,645
OTHER ASSETS:
Lease acquisition costs, net of amortization......... 40,338 41,470
Investment in affiliates............................. 32,940 23,733
Goodwill, net of amortization........................ 80,361 70,144
Deferred income taxes................................ 18,385 14,086
Other................................................ 12,385 6,643
---------- ----------
TOTAL OTHER ASSETS................................ 184,409 156,076
---------- ----------
$1,402,775 $1,008,454
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $273,633 $212,341
Accrued expenses and other current liabilities....... 139,641 131,740
Debt maturing within one year........................ 8,267 6,257
---------- ----------
TOTAL CURRENT LIABILITIES......................... 421,541 350,338
LONG-TERM DEBT ....................................... 43,647 134,387
OTHER LONG-TERM OBLIGATIONS........................... 26,171 23,739
CONVERTIBLE DEBENTURES................................ 300,000 115,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-authorized
5,000,000 shares; no shares issued ................ 0 0
Common stock, $.0006 par value-authorized 200,000,000
shares; issued 158,366,604 shares at February 3, 1996
and 141,360,982 shares at January 28, 1995.......... 95 85
Additional paid-in capital........................... 466,684 314,544
Cumulative foreign currency translation adjustments... (2,054) (2,205)
Unrealized gain (loss) on short-term investments, net of tax 32 (93)
Retained earnings ................................... 147,005 73,005
Less: 37,398 shares of treasury stock, at cost ......... (346) (346)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ 611,416 384,990
---------- ----------
$1,402,775 $1,008,454
========== ==========
</TABLE>
See notes to consolidated financial statements.
C-3
<PAGE> 29
STAPLES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales........................................ $3,068,061 $2,000,149 $1,308,634
Cost of goods sold and occupancy costs....... 2,366,183 1,534,360 1,013,010
---------- ---------- ----------
GROSS PROFIT.............................. 701,878 465,789 295,624
OPERATING EXPENSES:
Operating and selling....................... 446,324 308,456 196,132
Pre-opening................................. 5,607 4,858 2,870
General and administrative.................. 100,167 69,992 51,337
Amortization of goodwill.................... 1,967 756 0
Special charge- revised computer strategy... 0 0 7,600
---------- ---------- ----------
TOTAL OPERATING EXPENSES.................. 554,065 384,062 257,939
---------- ---------- ----------
OPERATING INCOME ......................... 147,813 81,727 37,685
OTHER INCOME (EXPENSE):
Interest expense, net....................... (15,924) (8,389) (4,853)
Gain on sale of investment.................. 0 1,149 8,430
Merger-related charges...................... 0 (2,150) (4,771)
Other income................................ 109 2,736 5,054
---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE).............. (15,815) (6,654) 3,860
---------- ---------- ----------
INCOME BEFORE EQUITY IN LOSS OF AFFILIATES
AND INCOME TAXES..................... 131,998 75,073 41,545
Equity in loss of affiliates.................. (12,153) (11,168) (9,193)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 119,845 63,905 32,352
Income tax expense............................ 46,140 23,965 12,900
---------- ---------- ----------
NET INCOME................................ $ 73,705 $ 39,940 $ 19,452
========== ========== ==========
Earnings per common share................. $ 0.46 $ 0.28 $ 0.14
========== ========== ==========
Number of shares used in computing
earnings per common share.......... 162,077,996 140,261,342 134,296,371
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
C-4
<PAGE> 30
STAPLES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
Fiscal Year Ended
--------------------------------------
February 3, January 28, January 29,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $73,705 $39,940 $19,452
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................................... 43,551 28,683 22,615
Special charge-revised computer strategy......................... 0 0 7,600
Equity in loss of affiliates..................................... 12,153 11,168 9,193
Gain on sale of investment....................................... 0 (1,149) (8,430)
Deferred income taxes benefit.................................... (13,211) (5,850) (15,450)
Change in assets and liabilities, net of effects
of purchase of other companies:
Increase in merchandise inventories ........................... (177,509) (172,038) (23,371)
(Increase) decrease in receivables ............................ (42,129) 2,831 (10,256)
(Increase) decrease in prepaid expenses
and other current assets.................................... 1,570 615 (2,805)
Increase in accounts payable, accrued
expenses and other current liabilities...................... 57,999 92,866 63,866
Increase (decrease) in other long-term obligations............. 2,094 (1,330) 5,334
---------- ---------- -----------
(115,482) (44,204) 48,296
---------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................ (41,777) (4,264) 67,748
INVESTING ACTIVITIES:
Acquisition of property and equipment.............................. (116,295) (64,663) (56,348)
Acquisition of businesses, net of cash acquired.................... 0 (58,712) 0
Proceeds from sales and maturities of short-term investments....... 16,519 43,338 22,913
Purchase of short-term investments................................. 0 0 (60,473)
Proceeds from sale of other investments............................ 0 1,149 12,664
Investment in affiliates........................................... (22,088) (18,840) (23,840)
Loans to affiliate................................................. 0 0 (12,203)
Acquisition of lease rights........................................ (2,044) (10,654) (1,507)
Other ............................................................. 2,914 (1,773) 1,000
---------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............................. (120,994) (110,155) (117,794)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock................................ 16,964 54,488 11,132
Proceeds from convertible debentures, net of issuance costs........ 291,032 0 0
Proceeds from borrowings........................................... 1,224,883 777,124 29,596
Payments on borrowings............................................. (1,313,930) (713,228) (30,360)
Purchases of treasury stock........................................ 0 (346) 0
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 218,949 118,038 10,368
Effect of exchange rate changes on cash............................ 142 215 0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 56,320 3,834 (39,678)
Cash and cash equivalents at beginning of period...................... 41,810 37,976 77,654
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $98,130 $41,810 $37,976
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
C-5
<PAGE> 31
STAPLES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995
AND JANUARY 29, 1994
<CAPTION>
CUMULATIVE UNREALIZED
ADDITIONAL FOREIGN CURRENCY GAIN
PAID-IN TRANSLATION (LOSS) ON RETAINED TREASURY
COMMON STOCK CAPITAL ADJUSTMENTS INVESTMENTS EARNINGS STOCK
------------ ---------- ---------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 30, 1993................ $85 $245,426 $(1,076) $ 11,888
Issuance of common stock for
stock options exercised................. 8,234
Contribution of common stock
to Employee Stock Ownership Plan........ 600
Sale of common stock under
Employee Stock Purchase Plan............ 2,298
Adjustment to conform fiscal
year of National Office Supply
Company, Inc. ......................... 1,725
Translation adjustments..................... (1,423)
Net income for the year..................... 19,452
--- -------- ------- ---- -------- -----
BALANCES AT JANUARY 29, 1994................ $85 $256,558 $(2,499) $ 33,065
Issuance of common stock for
stock options exercised................. 7,615
Contribution of common stock
to Employees' 401(K) Savings Plan....... 452
Sale of common stock under
Employee Stock Purchase Plan............ 2,965
Issuance of common stock
for acquisitions........................ 46,954
Unrealized loss on short-term
investments, net of tax................. $(93)
Repurchase of shares
for treasury............................ $(346)
Translation adjustments..................... 294
Net income for the year..................... 39,940
--- -------- ------- ---- -------- -----
BALANCES AT JANUARY 28, 1995................ $85 $314,544 $(2,205) $(93) $ 73,005 $(346)
Issuance of common stock for
stock options exercised................. 1 11,323
Tax benefit on exercise of options.......... 11,394
Contribution of common stock
to Employees' 401(K) Savings Plan....... 1,257
Sale of common stock under
Employee Stock Purchase Plan............ 5,641
Conversion of debt to equity................ 8 114,049
Unrealized gain on short-term
investments, net of tax................. 125
Translation adjustments..................... 151
Issuance of common stock for
acquisitions and other transactions..... 1 8,476 295
Net income for the year..................... 73,705
--- -------- ------- ---- -------- -----
BALANCES AT FEBRUARY 3, 1996................ $95 $466,684 $(2,054) $ 32 $147,005 $(346)
=== ======== ======= ==== ======== =====
</TABLE>
See notes to consolidated financial statements.
C-6
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------
NATURE OF OPERATIONS: Staples, Inc. and subsidiaries ("the Company")
operates a chain of office supply stores and contract stationer/delivery
warehouses throughout the United States and Canada. The Company is also an
investor in two joint venture affiliates in Europe which operate similar office
supply businesses.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions are eliminated in consolidation. The consolidated
financial statements reflect the impact of the three-for-two stock split
effected in the form of a 50% stock dividend declared by the Board of Directors
on March 5, 1996 and distributed on March 25, 1996 (see Note E).
FISCAL YEAR: The Company's fiscal year is the 52 or 53 weeks ending the
Saturday closest to January 31. Fiscal years 1995, 1994, and 1993 consisted of
the 53 weeks ended February 3, 1996, and the 52 weeks ended January 28, 1995 and
January 29, 1994, respectively.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management of the Company
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
CASH EQUIVALENTS: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS: Effective January 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement 115"). Statement 115
established the accounting and reporting requirements for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. All affected investment securities must be classified as one of
the following: held to maturity, trading, or available for sale. The Company's
securities are classified as available for sale and consist principally of
high-grade state and municipal securities having an original maturity of more
than three months. The investments are carried at fair value, with the
unrealized holding gains and losses reported as a component of the Company's
stockholders' equity. The cost of securities sold is based on the specific
identification method. The adoption of Statement 115 did not have a material
effect on the Company's financial position. No individual issue in the portfolio
constitutes greater than one percent of the total assets of the Company.
MERCHANDISE INVENTORIES: Merchandise inventories are valued at the lower
of weighted average cost or market.
RECEIVABLES: Receivables relate principally to amounts due from vendors
under various incentive and promotional programs and trade receivables financed
under regular commercial credit terms. Concentrations of credit risk with
respect to trade receivables are limited due to the Company's large number of
customers and their dispersions across many industries and geographic regions.
C-7
<PAGE> 33
INTEREST RATE CAPS: During the year ended January 28, 1995, the Company
entered into four interest-rate cap agreements to reduce the impact of increases
in interest rates on its floating-rate debt. All of the agreements expired
during the year ended February 3, 1996, and no additional agreements were
entered into by the Company.
<TABLE>
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation and amortization, which includes the amortization of assets
recorded under capital lease obligations, are provided using the straight-line
method over the estimated useful lives of the assets or the terms of the
respective leases. Depreciation and amortization periods are as follows:
<CAPTION>
<S> <C>
Buildings 40 years
Leasehold improvements 10 years or term of lease
Furniture and fixtures 5 to 10 years
Equipment 3 to 10 years
</TABLE>
LEASE ACQUISITION COSTS: Lease acquisition costs are recorded at cost and
amortized on the straight-line method over the respective lease terms, including
option renewal periods if renewal of the lease is probable, which range from 5
to 40 years. Accumulated amortization at February 3, 1996 and January 28, 1995
totaled $12,032,000 and $8,856,000 respectively.
INVESTMENT IN AFFILIATES: Prior to August 26, 1994, investment in
affiliates represents cash invested by the Company in foreign affiliates in
Canada, Germany and the United Kingdom, which are accounted for under the equity
method. These investments have been reduced by the Company's cumulative equity
in losses generated by these affiliates and the cumulative foreign currency
translation adjustments. On August 26, 1994, the Company acquired the remaining
58% of the outstanding shares of The Business Depot, Ltd. ("Business Depot") not
already owned. Results of operations for Business Depot have been consolidated
in the accompanying financial statements since the date of acquisition.
GOODWILL: Goodwill arising from business acquisitions is amortized on a
straight-line basis over 40 years. Accumulated amortization was $3,606,000 and
$1,553,000 as of February 3, 1996 and January 28, 1995, respectively. Management
periodically evaluates the recoverability of goodwill, which would be adjusted
for a permanent decline in value, if any, as measured by the recoverability from
projected future cash flows from the acquired businesses.
PRE-OPENING COSTS: Pre-opening costs, which consist primarily of salaries,
supplies, marketing and occupancy costs, are charged to expense as incurred.
PRIVATE LABEL CREDIT CARD RECEIVABLES: The Company offers a private label
credit card which is managed by a financial services company. Under the terms of
the agreement, the Company is obligated to pay fees which approximate the
financial institution's cost of processing and collecting the receivables, which
are non-recourse to the Company.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of the Company's
Canadian subsidiary (Business Depot) are translated into U.S. dollars at current
exchange rates as of the balance sheet date, and revenues and expenses are
translated at average monthly exchange rates. The resulting translation
adjustments, and the net exchange gains and losses resulting from the
translation of investments in the Company's European affiliates accounted for
under the equity method are recorded in a separate section of stockholders'
equity titled "Cumulative foreign
<PAGE> 34
currency translation adjustments". Note that each of these foreign entities uses
the local currency as the functional currency in its individual financial
statements.
EARNINGS PER SHARE: Earnings per share, as presented in the Statements of
Income, is based upon the weighted average number of shares of common stock and
common stock equivalents outstanding during each period. See Note K for the
computation of earnings per share for the year ended February 3, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Pursuant to Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments" ("Statement 107"), the Company has estimated the fair value of its
financial instruments using the following methods and assumptions:
- The carrying amount of cash and cash equivalents,
receivables and accounts payable approximates fair value;
- The fair values of short-term investments and the 4 1/2% Convertible
Subordinated Debentures are based on quoted market prices;
- The carrying amounts of the Company's debt approximates fair value,
estimated by discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
NEW ACCOUNTING PRONOUNCEMENTS: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement 121")
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed. The Company will adopt Statement 121 in
the first quarter of fiscal year 1996 and, based on current circumstances, does
not believe adoption will have a significant effect on the financial statements.
In October 1995, the Financial Accounting Standard Board issued Statement No.
123, "Accounting for Stock-Based Compensation" ("Statement 123"). This Statement
addresses the financial accounting and reporting standards for stock-based
employee compensation plans. The Company plans to continue to measure
compensation cost for these plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. The Company will adopt the new
disclosure requirements of Statement 123 in the first quarter of fiscal year
1996.
RECLASSIFICATIONS: Certain reclassifications were made to prior year
statements to conform to the current year presentation.
<PAGE> 35
NOTE B INVESTMENTS
- --------------------
<TABLE>
The following is a summary of available-for-sale investments as of February 3,
1996 and January 28, 1995 (in thousands):
<CAPTION>
FEBRUARY 3, 1996 Gross Gross
- ---------------- Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Debt securities $12,603 $82 $0 $12,685
======= === == =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, 1995 Gross Gross
- ---------------- Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Debt securities $29,354 $5 $155 $29,204
======= == ==== =======
</TABLE>
There were no sales of securities during the year ended February 3, 1996; the
reduction in the cost balance resulted from maturities of securities. The net
adjustment to unrealized holding gains on available-for-sale securities included
as a separate component of stockholders' equity totaled $125,000 in the year
ended February 3, 1996.
The amortized cost and estimated fair value of debt and marketable equity
securities at February 3, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the issuers
of securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
Due in one year or less $ 9,254 $ 9,285
Due after one year through two years 3,349 3,400
------- -------
$12,603 $12,685
======= =======
</TABLE>
<TABLE>
NOTE C LONG-TERM DEBT AND CREDIT AGREEMENT
- ------------------------------------------
<CAPTION>
Long-term debt consists of the following (in thousands):
February 3, January 28,
1996 1995
---------- ----------
<S> <C> <C>
Capital lease obligations and other notes payable in monthly
installments with effective interest rates from 5% to 16%;
collateralized by the related equipment .................. $26,914 $ 27,644
Revolving lines of credit ................................... 25,000 113,000
------- --------
$51,914 $140,644
------- --------
Less current portion ........................................ 8,267 6,257
------- --------
$43,647 $134,387
======= ========
</TABLE>
<PAGE> 36
<TABLE>
Aggregate annual maturities of long-term debt and capital lease obligations are
as follows (in thousands):
<CAPTION>
Fiscal year: Total
<S> <C>
1996............................. $ 8,267
1997............................. 7,209
1998............................. 6,860
1999............................. 3,571
2000............................. 1,005
Thereafter....................... 25,002
-------
$51,914
=======
</TABLE>
Included in property and equipment are capital lease obligations for equipment
recorded at the net present value of the minimum lease payments of $34,239,000.
Future minimum lease payments of $24,619,000, excluding $3,536,000 of interest,
are included in aggregate annual maturities shown above. The Company entered
into capital lease agreements totaling $5,994,000 and $13,284,000 during the
fiscal years ended February 3, 1996 and January 28, 1995, respectively.
Credit Agreement:
On October 25, 1995, the Company's existing credit facility was amended to
provide for financing of up to $225,000,000. Borrowings made pursuant to this
facility will bear interest at either the lead bank's prime rate, the federal
funds rate plus 0.50%, the LIBOR rate plus a percentage spread based upon
certain defined ratios, or a competitive bid rate. Borrowings outstanding at
February 14, 1998 automatically convert into a term loan, payable in eight
installments due on the last day of each calendar quarter. Term loan borrowings
bear interest at either lead bank's base rate plus 0.25%, or the Eurodollar
lending rate plus 0.25%. This agreement, among other conditions, contains
certain restrictive covenants including net worth maintenance, minimum interest
coverage and limitations on indebtedness, sales of assets, and dividends.
Interest paid by the Company totaled $11,946,000, $11,788,000 and $8,192,000 for
the fiscal years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively.
NOTE D CONVERTIBLE DEBENTURES
By June 30, 1995, all of the Company's $115,000,000 of 5% Convertible
Subordinated Debentures due November 1, 1999 (the "5% Debentures"), other than
5% Debentures in an aggregate amount of $184,000, were converted into 12,916,800
shares of common stock at a conversion price of $8.89 per share. The total
principal amount converted was credited to common stock and additional paid-in
capital, net of unamortized expenses of the original debt issue and accrued but
unpaid interest. The remaining $184,000 of the 5% Debentures were redeemed on
July 10, 1995 for a total redemption price of $192,359. The Company sold 20,700
shares pursuant to a standby underwriting agreement to fund the purchase price.
On October 5, 1995, the Company issued $300,000,000 of 4 1/2% Convertible
Subordinated Debentures due October 1, 2000 with interest payable semi-annually
(the "4 1/2% Debentures"), which are convertible, at the option of the holder,
into Common Stock at a conversion price of $22 per share. The 4 1/2% Debentures
are redeemable, in whole or in part, at the Company's option at specified
redemption prices on or after October 1, 1998 or in the event of certain
developments involving U.S. withholding taxes or certification requirements.
Costs incurred in connection with the issuance of the 4 1/2% Debentures are
included in Other Assets and are being amortized on the interest method over the
five year period to maturity. The fair value of the 4 1/2% Debentures at
February 3, 1996, based upon quoted market prices, totaled $308,250,000.
NOTE E STOCKHOLDERS' EQUITY
On March 5, 1996, June 29, 1995, October 3, 1994 and November 18, 1993, the
Board of Directors approved three-for-two splits of the Company's common stock
to be effected in the form of 50% stock dividends. The dividends were
distributed on March 25, 1996 to shareholders of record as of March 15, 1996,
July 24, 1995 to shareholders of record as of July 14, 1995, October 28, 1994 to
shareholders of record as of October 14, 1994, and December 13, 1993 to
shareholders of record as of November 29, 1993, respectively. The consolidated
financial statements have been retroactively restated to give effect to these
stock splits.
At February 3, 1996, 37,829,525 shares of common stock were reserved for
issuance under the Company's stock option, employee stock ownership, employee
stock purchase and director stock option plans. An additional 13,636,364 shares
of common stock are reserved for issuance upon conversion of the Company's
4 1/2% Debentures.
NOTE F EMPLOYEE BENEFIT PLANS
Stock Option Plans
The Company has two stock option plans, the 1987 Stock Option Plan and the 1992
Equity Incentive Plan (formerly the 1992 Stock Option Plan), pursuant to which
the Company may grant to management and key employees incentive and nonqualified
options to purchase up to 34,066,400 shares of common stock. This amount
includes the approval of an amendment to the Company's 1992 Equity Incentive
Plan by the shareholders of the Company on June 30, 1994 which increased the
number of shares of common stock authorized for issuance under this plan to
21,600,000. The exercise price of options granted under the plans may not be
less than 100% of the fair market value of the Company's common stock at the
date of grant. Options generally have an exercise price equal to the fair market
value of the common stock on the date of grant. Most options outstanding are
exercisable at various percentages of the total shares subject to the option
starting one year after the grant, while certain options are exercisable in
their entirety three years after the grant date. All options expire ten years
after the grant date.
Director Stock Option Plan
The Company's 1990 Director Stock Option Plan provides for the grant of options
for up to 1,063,125 shares of common stock to non-employee directors. The
exercise price of options granted are equal to the fair market value of the
Company's common stock at the date of grant. Options become exercisable in equal
amounts over the four years and expire ten years from the date of grant.
<PAGE> 37
<TABLE>
Information with respect to options granted under the above plans are as
follows:
<CAPTION>
Number of Exercise Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding at January 30, 1993 ................ 13,916,172 $ .01 - 7.70
Granted ................................... 5,568,942 5.53 - 7.16
Exercised ................................. (1,963,044) .01 - 6.81
Canceled .................................. (2,175,600) .14 - 7.70
---------- -------------
Outstanding at January 29, 1994 ................ 15,346,470 $ .01 - 7.70
Granted ................................... 8,055,993 7.85 - 11.00
Exercised ................................. (1,500,818) .01 - 7.70
Canceled .................................. (629,332) .01 - 10.22
---------- -------------
Outstanding at January 28, 1995 ................ 21,272,313 $ .01 - 11.00
Granted ................................... 3,648,540 10.50 - 18.83
Exercised ................................. (2,410,004) .01 - 9.11
Canceled .................................. (1,523,925) .79 - 18.67
---------- -------------
Outstanding at February 3, 1996................. 20,986,924 $ .01 - 18.83
========== =============
</TABLE>
Options to purchase 7,924,682 shares were exercisable at February 3, 1996.
EMPLOYEES' 401(K) SAVINGS PLAN
Under the Company's Employees' 401(K) Savings Plan (the "401(K) Plan"), the
Company may contribute up to a total of 1,012,500 shares of common stock to the
401(K) Plan. The 401(K) Plan is available to all employees of the Company who
meet minimum age and length of service requirements. Company contributions are
based upon a matching formula applied to employee contributions, with additional
contributions made at the discretion of the Board of Directors. In connection
with this plan the Company charged $1,633,000 to expense for the fiscal year
ended February 3, 1996.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Employee Stock Purchase Plan provides for a total of up to
1,687,500 shares of the Company's common stock which may be sold to
participating employees. Participating employees may purchase shares of common
stock at 85% of its fair market value at the beginning or end of an offering
period, whichever is lower, through payroll deductions in an amount not to
exceed 10% of an employee's base compensation.
<PAGE> 38
NOTE G INCOME TAXES
- --------------------
<TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
and the approximate tax effect of the Company's deferred tax assets and
liabilities as of February 3, 1996, and January 28, 1995, are as follows (in
thousands):
<CAPTION>
February 3, January 28,
1996 1995
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Inventory............................... $21,149 $12,452
Deferred rent........................... 4,890 6,065
Acquired Business Depot NOL's........... 4,766 4,766
Other net operating loss carryforwards.. 6,259 2,556
Insurance............................... 5,789 5,022
Other - net............................. 13,793 8,504
------- -------
Total Deferred Tax Assets............... 56,646 39,365
------- -------
Deferred Tax Liabilities:
Depreciation............................ (1,274) (1,495)
Other - net............................. (2,138) (815)
------- -------
Total Deferred Tax Liabilities.......... (3,412) (2,310)
------- -------
Total Valuation Allowance.................. (2,627) (3,609)
------- -------
Net Deferred Tax Assets.................... $50,607 $33,446
======= =======
</TABLE>
Pursuant to Statement 109, "Accounting for Income Taxes", deferred tax assets of
$4,000,000 and $4,766,000 attributable to businesses acquired during the fiscal
years ended February 3, 1996 and January 28, 1995, respectively, were allocated
directly to reduce goodwill generated by these acquisitions.
<TABLE>
The provision for income taxes consists of the following (in thousands):
<CAPTION>
Fiscal Year Ended
---------------------------------------------
February 3, January 28, January 29,
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Current tax expense:
Federal........................ $45,916 $24,015 $23,800
State.......................... 14,144 6,500 5,250
------- ------- -------
60,060 30,515 29,050
Deferred tax benefit.............. (13,211) (5,850) (15,450)
Tax benefit of loss carryforward.. (709) (700) (700)
------- ------- -------
Total............................. $46,140 $23,965 $12,900
======= ======= =======
</TABLE>
<PAGE> 39
<TABLE>
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows:
<CAPTION>
Fiscal Year Ended
--------------------------------------------
February 3, January 28, January 29,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate ........... 35.0% 35.0% 35.0%
State taxes, net of federal benefit 6.3% 6.4% 6.4%
Tax exempt interest .............. (0.6%) (1.5%) (3.2%)
Tax benefit of loss carryforward . (0.6%) (1.1%) (2.2%)
Federal tax credits .............. (0.9%) (2.4%) (0.9%)
Other ............................ (0.7%) 1.1% 4.8%
----- ----- -----
Effective tax rate ............... 38.5% 37.5% 39.9%
===== ===== =====
</TABLE>
Income tax payments were $44,518,000, $25,936,000, and $12,996,000, during
fiscal years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively.
The Company has net operating loss carryforwards of approximately $2,200,000
generated by Office Mart Holdings Corp. and Macauley's Business Resources, Inc.
prior to being acquired by the Company. These losses expire between the years
2005 and 2008 and are subject to an annual limitation as a result of a stock
ownership change. Business Depot has net operating loss carryforwards of
approximately $27,000,000 which expire between 1997 and 2003.
NOTE H LEASES
- --------------
The Company leases certain retail and support facilities under long-term
noncancellable lease agreements. Most lease agreements contain renewal options
and rent escalation clauses and require the Company to pay real estate taxes in
excess of specified amounts and, in some cases, allow termination within a
certain number of years with notice and a fixed payment. Certain agreements
provide for contingent rental payments based on sales.
Other long-term obligations at February 3, 1996 include $23,239,000 relating to
future rent escalation clauses and lease incentives under certain existing store
operating lease arrangements. These rent expenses are recognized on a
straight-line method over the respective terms of the leases.
<TABLE>
Future minimum lease commitments for retail and support facilities (including
lease commitments for 65 retail stores not yet opened at February 3, 1996) under
noncancellable operating leases are due as follows (in thousands):
<CAPTION>
Fiscal year:
<S> <C>
1996 ............................. $ 119,130
1997 ............................. 123,995
1998 ............................. 120,760
1999 ............................. 117,385
2000 ............................. 112,777
Thereafter ....................... 680,156
----------
$1,274,203
==========
</TABLE>
Rent expense approximated $105,125,000, $78,562,000, and $55,096,000, for
the fiscal years ended February 3, 1996, January 28, 1995, and January 29, 1994,
respectively.
<PAGE> 40
NOTE I SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
- -------------------------------------------------------------
<TABLE>
The Company has equity interests in two affiliated companies in Germany and the
United Kingdom. The following is a summary of the significant financial
information on a combined 100% basis of affiliated companies accounted for on
the equity method.
<CAPTION>
|------ 12 Months Ended -------|
February 3, January 28,
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Current assets $ 52,298 $ 41,980
Other assets 33,125 23,356
Current liabilities 29,542 29,611
Other liabilities 15,094 9,950
Shareholders' equity 40,787 25,774
Net sales 154,626 89,210
Gross profit 44,655 26,913
Net loss before income taxes (24,306) (18,106)
</TABLE>
The Company's share of loss for the unconsolidated affiliated companies for the
fiscal years ended February 3, 1996 and January 28, 1995 was $12,153,000 and
$11,168,000 (including the equity share of losses for the results of Business
Depot prior to August 26, 1994), respectively.
<PAGE> 41
<TABLE>
NOTE J QUARTERLY SUMMARY (UNAUDITED)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- --------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal Year Ended February 3, 1996
- ----------------------------------
Sales ................................. $668,795 $604,975 $818,756 $975,535
Gross Profit .......................... 150,383 139,472 191,463 220,560
Net income ............................ 7,878 9,018 21,944 34,865
Earnings per common share (1) ......... .05 .06 .13 .21
Number of shares used in computing
earnings per common share ........... 147,242 152,040 163,985 163,154
Fiscal Year Ended January 28, 1995
- ----------------------------------
Sales ................................. $397,530 $385,820 $552,096 $664,703
Gross Profit .......................... 87,421 90,593 127,415 160,360
Net income ............................ 3,285 3,283 11,989 21,383
Earnings per common share (1) ......... .02 .02 .08 (2) .14(2)
Number of shares used in computing
earnings per common share ............ 136,056 137,136 155,622 158,030
- ----------
<FN>
(1) Earnings per common share has been retroactively adjusted to reflect the three-for-two stock splits effected in the form
of a 50% stock dividend distributed in March, 1996, July, 1995 and October, 1994 (see Note E).
(2) Earnings per common share is calculated considering the $115,000 of 5% Convertible Subordinated Debentures as
common stock equivalents for the quarters ended October 29, 1994, and January 28, 1995. The 5%
Debentures are not considered in the calculation of the earnings per common share for the other quarters listed above
as the effect is antidilutive.
</TABLE>
<PAGE> 42
NOTE K - COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
The computation of earnings per common share for the fiscal year ended February
3, 1996 is as follows (amounts in thousands, except for per share data):
<CAPTION>
<S> <C>
Net income.......................... $ 73,705
Add: interest expense on 5% Debentures,
net of tax....................... 1,580 (1)
--------
Adjusted net income for earnings per
common share computation......... $ 75,285
========
Number of shares used in computing
earnings per common share........ 162,078 (1)
========
Earnings per common share, as reported $ .46
========
- ----------
<FN>
(1) The 5% Debentures were substantially converted into common stock on June
30, 1995 (see Note D). For the computation of earnings per common share,
this conversion of 12,937,500 shares is assumed to have occurred at the
beginning of the fiscal year (January 29, 1995), and is included in the
weighted average shares outstanding for the year. Therefore, the interest
expense and amortization of deferred charges related to the 5% Debentures
and incurred by the Company through June 30, 1995, net of tax, is added
back to reported net income to compute earnings per common share for the
fiscal year ended February 3, 1996.
</TABLE>
<PAGE> 43
NOTE L BUSINESS COMBINATIONS
- -----------------------------
During the year ended February 3, 1996, the Company purchased Macauley's
Business Resources, Inc. ("Macauley's"), a contract stationer. During the year
ended January 28, 1995, the Company acquired four contract stationers. The
acquisitions accounted for as purchases were D.A. MacIsaac, Inc. ("MacIsaac")
and Philadelphia Stationers, Inc. ("Philadelphia"), while the acquisitions
accounted for on the pooling of interests method were National Office Supply
Company, Inc. ("National"), and Spectrum Office Products, Inc. ("Spectrum"). In
addition, the Company acquired the remaining 58% of outstanding shares it did
not already own of Business Depot, a retail office products chain in Canada, on
August 26, 1994. The accompanying financial statements include the results of
operations of Macauley's, Philadelphia, Business Depot and MacIsaac from the
dates of acquisition, which were June 1995 for Macauley's, December 1994 for
Philadelphia and August 1994 for Business Depot and MacIsaac. The Company
accounted for the results of Business Depot under the equity method prior to
August 26, 1994. The historical financial statements for all years presented
have been restated to include National and Spectrum following the pooling of
interests method of accounting.
<TABLE>
Separate results of operations of the Company, National and Spectrum for the
periods prior to the restatement are as follows (in thousands):
<CAPTION>
January 29, 1994
(52 weeks)
----------------
<S> <C>
Net Sales:
Staples........................................... $1,121,781
National.......................................... 137,055
Spectrum.......................................... 49,798
----------
$1,308,634
==========
Net Income (Loss):
Staples........................................... $ 25,353
National.......................................... (3,109)
Spectrum.......................................... (2,792)
----------
$ 19,452
==========
</TABLE>
On August 26, 1994, the Company acquired the remaining 58% of the outstanding
shares of Business Depot that the Company did not already own. The cash price of
approximately $33,000,000 was generated through an offering of 5,703,750 shares
of the Company's common stock in August, 1994. Business Depot generated sales of
approximately $203,000,000 and a pre-tax loss of approximately $3,000,000 for
the twelve months ended January 28, 1995; the results of operations for the
period subsequent to August 26, 1994 were fully consolidated in the Company's
statement of income for the year ended January 28, 1995.
The Company also made a number of smaller acquisitions during the fiscal year
ended February 3, 1996 that were not material to its business or results of
operations.
<PAGE> 44
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 (1) --Restated Certificate of Incorporation of the Company, as amended
3.2 --Amended and Restated By-laws of the Company
4.1 (2) --Staples, Inc. Indenture dated October 5, 1995 for the $300,000,000
4 1/2% Convertible Subordinated Debentures due October 1, 2000
4.2 (3) --Rights Agreement, dated as of February 3, 1994, between the Company
and The First National Bank of Boston
*10.1 (4) --1990 Director Stock Option Plan, as amended
*10.2 (5) --1992 Equity Incentive Plan, as amended
*10.3 --Bonus plans for twelve months ending February 1, 1997
*10.4 (6) --Employment Agreement dated March 7, 1994 between the Company
and Henry P. Epstein
10.5 (7) --Agreement and Plan of Merger dated May 29, 1992 among the
Company, Staples Acquisition Corp., Office Mart Holdings Corp.,
and Office Mart Inc., as amended
10.6 (8) --Amended and Restated Revolving Credit and Term Loan
Agreement dated May 25, 1994 between the Company and The First
National Bank of Boston, and the banks named therein, (the "Credit Agreement")
as amended and restated as of February 14, 1995
10.7 --Amendment Agreement No. 1, dated as of September 28, 1995, to
the Credit Agreement
*10.8 (9) --Form of Agreement Not To Compete signed by executive officers of
the Company
*10.9 (9) --Form of Proprietary and Confidential Information Agreement signed
by executive officers of the Company
*10.10 --Form of Severance Benefits Agreement signed by executive officers
of the Company
21.1 --Subsidiaries of the Company
23.1 --Consent of Ernst & Young LLP, Independent Auditors
27.1 --Financial Data Schedule
<FN>
- ----------
* Management contract or compensatory plan or arrangement filed as an
exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
(1) Incorporated by reference to Registration Statement on Form S-3
(File No. 33-82360).
(2) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended October 28, 1995.
(3) Incorporated by reference from Current Report on Form 8-K dated February 3, 1994.
</TABLE>
E-1
<PAGE> 45
(4) Incorporated by reference from the Annual Report on Form 10-K for the
fiscal year ended January 30, 1993.
(5) Incorporated by reference from the Registration Statement on Form S-8
(File No. 33-81284).
(6) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended April 30, 1994.
(7) Incorporated by reference from the Current Report on Form 8-K dated June
23, 1992, as amended.
(8) Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
(9) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended April 29, 1995.
E-2
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
of
STAPLES, INC.
(as amended and restated through September 15, 1995)
ARTICLE I
Stockholders
------------
Section 1. ANNUAL MEETING. The annual meeting of the stockholders shall be
held for the purpose of electing directors and for such other purposes as may be
determined as hereinafter provided on such date within the months of June, July
or August in each year, as the board of directors of the corporation may
designate in each year. The hour and place of such meeting and the purposes for
which such meeting is to be held in addition to that specified above shall be
determined in each year by the board of directors or, in the absence of action
by the board, by the president. If in any year the annual meeting is not held on
said date, a special meeting in lieu thereof may be held at a later time and any
elections held or business transacted at such meeting shall have the same force
and effect as if held or transacted at the annual meeting.
Section 2. SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the chairman of the board, the president or the board of
directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purposes stated in the notice of the meeting.
Section 3. PLACE OF MEETINGS. Meetings of the stockholders may be held
anywhere within, but not without, the United States.
Section 4. NOTICE. Except as hereinafter provided, a written or printed
notice of every meeting of stockholders stating the place, date, hour and
purposes thereof shall be given by the secretary or an assistant secretary (or
by any other officer in the case of an annual meeting or by the person or
persons calling the meeting in the case of a special meeting) not less than ten
(10) days and not more than sixty (60) days before the meeting to each
stockholder entitled to vote thereat and to each stockholder who, by law, by the
certificate of incorporation or by these by-laws, is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business or
by mailing it, postage prepaid, addressed to him at his address as it appears
upon the records of the corporation. No notice of
<PAGE> 2
the place, date, hour or purposes of any annual or special meeting of
stockholders need be given to a stockholder if a written waiver of such notice,
executed before or after the meeting by such stockholder or his attorney
thereunto authorized, is filed with the records of the meeting, or to any
stockholder who attends the meeting without objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. ACTION AT A MEETING. Except as otherwise provided by the
certificate of incorporation, at any meeting of the stockholders a majority of
all shares of stock then issued, outstanding and entitled to vote shall
constitute a quorum for the transaction of any business. Though less than a
quorum be present, any meeting may without further notice be adjourned to a
subsequent date or until a quorum be had, and at any such adjourned meeting any
business may be transacted which might have been transacted at the original
meeting.
When a quorum is present at any meeting, the affirmative vote of the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as a separate
class, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on the matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the certificate of
incorporation or the by-laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
Except as otherwise provided by law or by the certificate of incorporation
or by these by-laws, each holder of record of shares of stock entitled to vote
on any matter shall have one vote for each such share held of record by him and
a proportionate vote for any fractional shares so held by him. Stockholders may
vote either in person or by proxy. No proxy shall be voted or acted upon more
than three years after its date unless the proxy provides for a longer period of
time. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the exercise
of the proxy the corporation receives a specific written notice to the contrary
from any one of them.
<PAGE> 3
Section 6. TABULATION OF VOTES. At any annual or special meeting of
stockholders the presiding officer shall be authorized to appoint a Teller for
such meeting. The Teller shall be responsible for tabulating or causing to be
tabulated shares voted at the meeting and reviewing or causing to be reviewed
all proxies. In tabulating votes, the Teller shall be entitled to rely in whole
or in part on tabulations and analyses made by personnel of the corporation, its
transfer agent, its registrar or such other organizations as are customarily
employed to provide such services. The Teller shall be authorized to determine
the legality and sufficiency both under the corporation's Certificate of
Incorporation and by-laws and under applicable law of all votes cast and proxies
delivered. I making the determinations authorized in the preceding sentence, the
Teller shall e entitled to rely on advice of counsel to the corporation. All
determinations by the Teller shall be subject to review by the presiding officer
(who will be entitled to rely on advice of such counsel) and to further review
by any court of competent jurisdiction.
Section 7. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the board of directors of the corporation
at a meeting of stockholders may be made by the board of directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
7. Such nominations, other than those made by or on behalf of the board of
directors, shall be made by notice, in writing delivered or mailed by first
class United States mail, postage prepaid, to the secretary of the corporation,
and received not less than 60 days nor more than 90 days prior to such meeting;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, such nomination
shall have been mailed or delivered to the secretary not later than the close of
business on the 10th day following the date on which the notice of the meeting
was mailed or public disclosure was made, whichever occurs first. Such notice
shall set forth (a) as to each proposed nominee (i) the name, age, business
address and, if known, residence address of each such nominee, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of stock of the corporation which are beneficially owned by each such
nominee, and (iv) any other information concerning the nominee that must be
disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including such person's written
consent to be named as a nominee and to serve as a director if
<PAGE> 4
elected); (b) as to the stockholder giving the notice (i) the name and address,
as they appear on the corporation's books, of such stockholder, and (ii) the
class and number of shares of the corporation which are beneficially owned by
such stockholder; and (c) as to the beneficial owner, if any, on whose behalf
the nomination is made, (i) the name and address of such person and (ii) the
class and number of shares of the corporation which are beneficially owned by
such person.
The officer presiding at a meeting of stockholders may, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Nothing in the foregoing provision shall obligate the corporation or the
board of directors to include in any proxy statement or other stockholder
communication distributed on behalf of the corporation or the board of directors
information with respect to any nominee for directors submitted by a
stockholder.
Section 8. NOTICE OF BUSINESS AT MEETINGS. At a meeting of the
stockholders, only such business shall be conducted as shall have been (a)
specified in the notice of meeting (or any supplement thereto), (b) brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, if such business
relates to the election of directors of the corporation, the procedures in
Section 7 must be complied with. For business to be properly brought before a
special meeting by a stockholder, and for business other than the election of
directors to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be delivered or mailed to the secretary not later than the close of
business on the 10th day following the date on which the notice of the meeting
was mailed or public disclosure was made, whichever occurs first. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear
<PAGE> 5
on the corporation's books, of the stockholder proposing such business, and the
name and address of the beneficial owner, if any, on whose behalf the proposal
is made, (c) the class and number of shares of the corporation which are
beneficially owned by such stockholder and such person, if any, and (d) any
material interest of the stockholder, and such person, if any, in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall be
conducted at any meeting of stockholders except in accordance with the
procedures set forth in this Section 8 and except that any stockholder proposal
which complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section 8.
The officer presiding at a meeting of stockholders shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 8,
and if he should so determine, he shall so declare to the meeting that any such
business not properly brought before the meeting shall not be transacted.
ARTICLE II
Directors
---------
Section 1. NUMBER AND ELECTION. There shall be a Board of Directors
consisting of not less than five directors. The exact number of directors
(subject to the limitation specified in the preceding sentence) shall be fixed
from time to time by the board of directors pursuant to a duly adopted
resolution. No director need be a stockholder.
Section 2. TERMS. The directors shall be divided into three classes,
designated as Class 1, Class 2 and Class 3, as nearly equal in number as
possible as determined by the affirmative vote of a majority of the directors,
with the initial term of office of Class 1 to expire at the next annual meeting
of stockholders; the initial term of office of Class 2 to expire at the annual
meeting of stockholders held during the 1990 calendar year; and the initial term
of office of Class 3 to expire at the annual meeting of stockholders held during
the 1991 calendar year. At each annual meeting of stockholders following such
initial classification, directors whose terms expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election.
Section 3. RESIGNATIONS. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the president or
the secretary. Such
<PAGE> 6
resignation shall become effective at the time or upon the happening of the
condition, if any, specified therein or, if no such time or condition is
specified, upon its receipt.
Section 4. REMOVAL. Any one or more of the directors may be removed from
office, with or without cause, by the vote of the holders of a majority of the
shares outstanding and entitled to vote in the election of directors; provided,
however, that, if and for so long as the Board of Directors is classified
pursuant to Section 141(d) of the Delaware General Corporation Law, stockholders
may effect the removal of one or more directors only for cause. At any meeting
of the board of directors any director may be removed form office for cause by
vote of a majority of the directors then in office, but only after a reasonable
notice and opportunity to be heard.
Section 5. VACANCIES. Vacancies in the board of directors may be
filled by vote of a majority of the remaining directors or, if not yet so
filled, by the stockholders.
Section 6. REGULAR MEETINGS. Regular meetings of the board of directors
may be held at such times and places as the board of directors may fix from time
to time and, when so fixed, no notice thereof need be given. The first meeting
of the board of directors following the annual meeting of the stockholders shall
be held without notice immediately after and at the same place as the annual
meeting of the stockholders or the special meeting held in lieu thereof. If in
any year a meeting of the board of directors is not held at such time and place,
any elections to be held or business to be transacted at such meeting may be
held or transacted at any later meeting of the board of directors with the same
force and effect as if held or transacted at such meeting. Regular meetings of
the board of directors shall be held at least once during each of the
corporation's fiscal quarters.
Section 7. SPECIAL MEETINGS. Special meetings of the board of directors
may be called at any time by the president or secretary or by any member of the
board of directors. A written, printed or telegraphic notice stating the place,
date and hour (but not necessarily the purposes) of the meeting shall be given
by the secretary or an assistant secretary or by the officer or directors
calling the meeting at least forty-eight (48) hours before such meeting to each
director by leaving such notice with him or at his residence or usual place of
business or by mailing it, postage prepaid, or sending it by prepaid telegram,
addressed to him at his last known address. Notwithstanding anything above
<PAGE> 7
to the contrary, a notice relating to any special meeting of the board of
directors called by a member of the board may be given in the shortest period
permitted under Delaware law, as amended from time to time. No notice of the
place, date or hour of any meeting of the board of directors need be given to
any director if a written waiver of such notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any director who
attends the meeting without objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 8. ACTION AT A MEETING. At any meeting of the board of directors,
a majority of the directors then in office shall constitute a quorum. Though
less than a quorum be present, any meeting may without further notice be
adjourned to a subsequent date or until a quorum be had. When a quorum is
present at any meeting a majority of the directors present may take any action
on behalf of the board except to the extent that a larger number is required by
law, by the certificate of incorporation or by these by-laws.
Section 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the directors may be taken without a meeting if all
the directors consent to the action in writing and the written consents are
filed with the records of the meetings of the directors. Such consents shall be
treated for all purposes as a vote at the meeting.
Section 10. POWERS. The board of directors shall have and may exercise all
the powers of the corporation, except such as by law, by the certificate of
incorporation or by these by-laws are conferred upon or reserved to the
stockholders. In the event of any vacancy in the board of directors, the
remaining directors then in office, except as otherwise provided by law, shall
have and may exercise all of the powers of the board of directors until the
vacancy is filled.
Section 11. COMMITTEES. The board of directors may elect from the board an
executive committee or one or more other committees and may delegate to any such
committee or committees any or all of the powers of the board except those which
by law, by the certificate of incorporation or by these bylaws may not be so
delegated. Such committees shall serve at the pleasure of the board of
directors. Except as the board of directors may otherwise determine, each such
committee may make rules for the conduct of its business, but, unless otherwise
determined by the board or in such rules, its business shall be conducted as
nearly as may be as is provided in these by-laws for the conduct of the business
of the board of directors.
Section 12. MEETING BY TELECOMMUNICATIONS. Members of the board of
directors or any committee elected thereby may participate in a meeting of such
board or committee by means
<PAGE> 8
of a conference telephone or similar communications equipment by means of which
all persons participating in a meeting can hear each other and participation by
such means shall constitute presence in person at the meeting.
ARTICLE III
Officers
--------
Section 1. ENUMERATION. The officers of the corporation shall consist of a
president, a treasurer and a secretary and such other officers, including
without limitation a chairman of the board of directors and one or more vice
presidents, assistant treasurers and assistant secretaries, as the board of
directors may from time to time determine.
Section 2. QUALIFICATIONS. No officer need be a stockholder or a director.
The same person may hold at the same time one or more offices unless otherwise
provided by law. Any officer may be required by the board of directors to give a
bond for the faithful performance of his duties in such form and with such
sureties as the board may determine.
Section 3. ELECTIONS. The president, treasurer and secretary and the
chairman of the board of directors, if any, shall be elected annually by the
board of directors at its first meeting following the annual meeting of the
stockholders. All other officers shall be chosen or appointed by the board of
directors.
Section 4. TERM. Except as otherwise provided by law, by the certificate
of incorporation or by these by-laws, the president, treasurer and secretary and
the chairman of the board of directors, if any, shall hold office until the
first meeting of the board of directors following the next annual meeting of the
stockholders and until their respective successors are chosen and qualified. All
other officers shall hold office until the first meeting of the board of
directors following the next annual meeting of the stockholders, unless a
shorter time is specified in the vote choosing or appointing such officer or
officers.
<PAGE> 9
Section 5. RESIGNATIONS. Any officer may resign by delivering his written
resignation to the corporation at its principal office or to the president or
secretary. Such resignation shall be effective at the time or upon the happening
of the condition, if any, specified therein or, if no such time or condition is
specified, upon its receipt.
Section 6. REMOVAL. Any officer may be removed from office with or
without cause by vote of a majority of the directors then in office.
Section 7. VACANCIES. Vacancies in any office may be filled by the
board of directors.
Section 8. CERTAIN DUTIES AND POWERS. The officers designated below,
subject at all times to modification by and to the direction and control of the
board of directors, shall have and may exercise the respective duties and powers
set forth below:
THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the board of
directors, if there be one, shall be the chief executive officer of the
corporation and shall, when present, preside at all meetings of the board
of directors.
THE PRESIDENT. The President shall be the chief operating officer of
the corporation, if there is then a chairman of the board of directors,
and otherwise the president shall be the chief executive officer of the
corporation and shall have general operating charge of its business.
Unless otherwise prescribed by the board of directors, he shall, when
present, preside at all meetings of the stockholders, and, if a director,
at all meetings of the board of directors unless there be a chairman of
the board of directors who is present at the meeting.
THE TREASURER. The Treasurer shall be the chief financial officer of
the corporation, unless otherwise specified by the board of directors, and
shall cause to be kept accurate books of account.
THE SECRETARY. The Secretary shall keep a record of all proceeding of
the stockholders and of all proceedings of the board of directors in a
book kept for that purpose. In the absence of the secretary from any
meeting of the stockholders or from any meeting of the board of directors,
an assistant secretary, if there be one, otherwise a secretary pro-tempore
designated by the person presiding at the meeting, shall perform the
duties of the secretary at such meeting.
Section 9. OTHER DUTIES AND POWERS. Each officer, subject at all times to
these by-laws and to the direction and control of
<PAGE> 10
the board of directors, shall have and may exercise, in addition to the duties
and powers specifically set forth in these by-laws, such duties and powers as
are prescribed by law, such duties and powers as are commonly incident to his
office and such duties and powers as the board of directors may from time to
time prescribe.
ARTICLE IV
Capital Stock
-------------
Section 1. AMOUNT AND ISSUANCE. The total number of shares and the par
value, if any, of each class of stock which the corporation is authorized to
issue shall be stated in the certificate of incorporation. The directors may at
any time issue all or from time to time any part of the unissued capital stock
of the corporation from time to time authorized under the certificate of
incorporation and may determine, subject to any requirements of law, the
consideration for which stock is to be issued and the manner of allocating such
consideration between capital and surplus.
Section 2. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates stating the number and the class and the designation
of the series, if any, of the shares held by him and otherwise in form approved
by the board of directors. Each such certificate shall be signed by the chairman
or vice-chairman of the board of directors or the president or vice-president,
and by the treasurer or an assistant treasurer or the secretary or an assistant
secretary. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Every certificate issued for shares of stock at a time when such
shares are subject to any restriction on transfer pursuant to the certificate of
incorporation, these by-laws or any agreement to which the corporation is a
party shall have the restriction noted conspicuously on the certificate and
shall also set forth on the face or back of the certificate either (i) the full
text of the restriction or (ii) a statement of the existence
<PAGE> 11
of such restriction and a statement that the corporation will furnish a copy
thereof to the holder of such certificate upon written request and without
charge.
Every certificate issued for shares of stock at a time when the
corporation is authorized to issue more than one class or series of stock shall
set forth on the face or back of the certificate either (i) the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series, if any, authorized to be issued, as set
forth in the certificate of incorporation or (ii) a statement of the existence
of such preferences, powers, qualifications and rights and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
Section 3. TRANSFERS. The board of directors may make such rules and
regulations not inconsistent with the law, with the certificate of incorporation
or with these by-laws as it deems expedient relative to the issue, transfer and
registration of stock certificates. The board of directors may appoint a
transfer agent and a registrar of transfers or either and require all stock
certificates to bear their signatures. Except as otherwise provided by law, by
the certificate of incorporation or by these by-laws, the corporation shall be
entitled to treat the record holder of any shares of stock as shown on the books
of the corporation as the holder of such shares for all purposes, including the
right to receive notice of and to vote at any meeting of stockholders and the
right to receive any dividend or other distribution in respect of such shares.
Section 4. RECORD DATE. The board of directors may fix in advance a time
as the record date for determining the stockholders entitled to notice of and to
vote at any meeting of stockholders and any adjournment thereof, to express
consent to a stockholder action without a meeting, or to receive payment of any
dividend or distribution to stockholders or allotment of any rights in respect
of stock or for the purpose of any other lawful action; and in such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Such record date fixed by the board of directors shall be not more
than sixty (60) days or less than ten (10) days before the date of any meeting
of stockholders, not more than ten (10) days after the date of adoption of a
record date for a stockholder action by written consent, and not more than sixty
(60) days before any such other action. A determination of stockholders of
record entitled to notice of and to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the board
<PAGE> 12
of directors may in its discretion fix a new record date for the adjourned
meeting.
Section 5. LOST CERTIFICATES. The board of directors may, except as
otherwise provided by law, determine the conditions upon which a new certificate
of stock may be issued in place of any certificate alleged to have been lost,
mutilated or destroyed.
ARTICLE V
Miscellaneous Provisions
------------------------
Section 1. FISCAL YEAR. The fiscal year of the corporation shall end on
the Saturday nearest to January 31 in each year; except that for the year ending
in 1991, the corporation shall have the option of using a January 26 or February
2 fiscal year end date.
Section 2. CORPORATE SEAL. The seal of the corporation shall be in
such form as shall be determined from time to time by the board of directors.
Section 3. CORPORATION RECORDS. The original, or attested copies. of the
certificate of incorporation, by-laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be available at all reasonable times to inspection by
any stockholder for any proper purpose but not if the purpose for which such
inspection is sought is to secure a list of stockholders or other information
for the purpose of selling said list or information or copies thereof or of
using the same for a purpose other than the interest of the applicant, as a
stockholder, relative to the affairs of the corporation.
Section 4. VOTING OF SECURITIES. Except as the board of directors may
otherwise prescribe, the president or the treasurer shall have full power and
authority in the name and on behalf of the corporation, subject to the
instructions of the board of directors, to waive notice of, to attend, act and
vote at, and to appoint any person or persons to act as proxy or attorney in
fact for this corporation (with or without power of substitution) at any meeting
of stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
<PAGE> 13
ARTICLE VI
Indemnification
---------------
Section 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to serve, at the
request of the corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reason-able cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Not-withstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
corporation.
Section 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to serve, at the
request of the corporation, as a director, officer
<PAGE> 14
or trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit plan),
or by reason of any action alleged to have been taken or omitted in such
capacity, against all expenses (including attorneys' fees) and amounts paid in
settlement actually and treasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the Court of
Chancery of Delaware or such other court shall deem proper.
Section 3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that an
Indemnitee has been successful, on the merits or otherwise, in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, or on appeal from any such
action, suit or proceeding, he shall be indemnified against all expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
Section 4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
his right to be indemnified, the Indemnitee must notify the corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate
<PAGE> 15
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the corporation to the Indemnitee of its election so to assume such
defense, the corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Section 4. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
Section 5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6
below, in the event that the corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of such person to make such repayment.
Section 6. PROCEDURE FOR INDEMNIFICATION. In order to obtain
indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of
this Article, the Indemnitee shall submit to the corporation a written request,
including in such request such documentation and information as is reasonably
available to
<PAGE> 16
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification or advancement of expenses.
Any such indemnification or advancement of expenses shall be made promptly, and
in any event within 60 days after receipt by the corporation of the written
request of the Indemnitee, unless with respect to requests under Section 1, 2,
or 5 the corporation determines within such 60-day period that the Indemnitee
did not meet the applicable standard of conduct set forth in Section 1 or 2, as
the case may be. Such determination shall be made in each instance by (a) a
majority vote of a quorum of the directors of the corporation consisting of
persons who are not at that time parties to the action, suit or proceeding in
question ("disinterested directors"), (b) if no such quorum is obtainable, a
majority vote of a committee of two or more disinterested directors, (c) a
majority vote of a quorum of the outstanding shares of stock of all classes
entitled to vote for directors, voting as a single class, which quorum shall
consist of stockholders who are not at that time parties to the action, suit or
proceeding in question, (d) independent legal action (who may be regular legal
counsel to the corporation), or (e) a court of competent jurisdiction.
Section 7. REMEDIES. The right to indemnification or advances as granted
by this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the corporation. Neither the failure of the corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the corporation.
Section 8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of
this Article or of the relevant provisions of the General corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
<PAGE> 17
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
Section 9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the corporation or other persons serving the corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
Section 10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under
any provision of this Article to indemnification by the corporation for some or
a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and any
appeal therefrom but not, however, for the total amount thereof, the corporation
shall nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
Section 11. INSURANCE. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise (including any employee benefit plan) against any
expense, liability or loss incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the General
corporation Law of Delaware.
<PAGE> 18
Section 12. MERGER OR CONSOLIDATION. If the corporation is merged into or
consolidated with another corporation and the corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
Section 13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
Section 14. DEFINITIONS. Terms used herein and defined in Section 145(h)
and Section 145(i) of the General corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
Section 15. SUBSEQUENT LEGISLATION. If the General Corporation Law of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
Delaware, as so amended.
ARTICLE VII
Amendments
----------
These by-laws may be amended or repealed at any annual or special meeting
of the stockholders by the affirmative vote of a majority of the shares of
capital stock then issued, outstanding and entitled to vote provided notice of
the Proposed amendment or repeal is given in the notice of the meeting. No
change in the date fixed in these by-laws for the annual meeting of the
stockholders shall be made within sixty (60) days before such date, and notice
of any change in such date shall be given to all stockholders at least twenty
(20) days before the new date fixed for such meeting.
If authorized by the certificate of incorporation, these by-laws may also
be amended or repealed in whole or in part, or new by-laws made, by the board of
directors except with respect to any provision hereof which by law, the
certificate of
<PAGE> 19
incorporation of these by-laws requires action by the stockholders.
Notwithstanding the foregoing, the affirmative vote of the holders of
shares of stock representing at least sixty-seven percent of the outstanding
shares of stock of the corporation entitled to vote with respect to the annual
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, the provisions of Article II relating to the
classification of the Board of Directors into three classes.
<PAGE> 1
EXHIBIT 10.3
STAPLES, INC.
-------------
OFFICER AND KEY MANAGEMENT BONUS PLAN
-------------------------------------
PURPOSE:
Staples' believes in providing incentives to reward Officer and Key Management
associates who have a measurable impact on sales and earnings in order to meet
the following objectives:
To align the interests of Officers and Key Management with those of our
shareholders. To maintain a total compensation program which motivates and
rewards high levels of performance; To recognize and reward efforts and
contributions made to the company's success;
PROVISIONS:
Participants have an assigned bonus award target equal to a specific percentage
of salary earned during the year. For this purpose, salary is defined as the
base pay an individual earns during the fiscal year. The percentage of
participation for each position is determined based on job level and position
responsibilities. Participants can earn up to a maximum of 200% of their bonus
award target.
BONUS CRITERIA:
<TABLE>
<CAPTION>
<S> <C>
I. POINT TEAM
Corporate Earnings 90%
Customer Service 10%
II. CORPORATE KEYMAN
Corporate Earnings 70%
Corporate Sales 20%
Customer Service 10%
III. SBU KEYMAN
Corporate Earnings 30%
SBU Earnings 40%
SBU Sales 20%
Customer Service 10%
</TABLE>
<PAGE> 2
IV. INDIVIDUAL OBJECTIVES
<TABLE>
Individual Objectives for Directors and Managers in Corporate and the SBU's
may be established if they are tied to measurable criteria that directly
support earnings and/or sales achievement.
<CAPTION>
<S> <C>
Corporate Earnings 30%
Individual Earnings Objectives 40%
Individual Sales Objectives 20%
Customer Service 10%
</TABLE>
Individual bonus payouts will be limited to 100% of bonus opportunity if the
Company does not achieve 100% of budgeted EPS.
Staples, Inc.
Officer & Keyman Bonus Plan
PERFORMANCE MEASUREMENT:
I. CORPORATE
A. Earnings - based on EPS
<TABLE>
<CAPTION>
Bonus
EPS Budget
----------
Payout
------
<S> <C>
90% Total Company Achievement 25%
100% Achievement using 100% Corp Contingency 75%
100% Achievement using 50% Corp Contingency 125%
100% Achievement using no Corp Contingency 200%
</TABLE>
B. Sales - Corporate
<TABLE>
<CAPTION>
Budgeted Bonus
Sales Payout
----- ------
<S> <C>
90% 25%
99% 75%
104% 125%
109% 200%
</TABLE>
<PAGE> 3
Corporate sales targets are the sum of each business unit sales target at
the respective payout levels. The sales bonus payout level cannot be greater
that the earnings payout level.
II. SUPERSTORES
Bonus payouts will be limited to 100% of bonus opportunity if the Company
does not achieve 100% of budgeted EPS.
<TABLE>
A. Earnings - Pretax Income Net of Bonus, Interest and G&A
<CAPTION>
Budgeted Bonus
Earnings Payout
-------- ------
<S> <C>
90% 25%
100% 75%
105% 125%
110% 200%
</TABLE>
<TABLE>
B. Sales
<CAPTION>
Budgeted Bonus
Sales Payout
----- ------
<S> <C>
90% 25%
100% 75%
104% 125%
110% 200%
</TABLE>
The sales bonus payout level cannot be greater that the earnings payout
level.
Staples, Inc.
Officer & Keyman Bonus Plan
III. STAPLES DIRECT
Bonus payouts will be limited to 100% of bonus opportunity if the Company
does not achieve 100% of budgeted EPS.
<PAGE> 4
<TABLE>
A. Earnings - Pretax Income Net of Bonus, Interest and G&A
<CAPTION>
Budgeted Bonus
Earnings Payout
-------- ------
<S> <C>
90% 25%
100% 75%
105% 125%
110% 200%
</TABLE>
<TABLE>
B. Sales
<CAPTION>
Budgeted Bonus
Sales Payout
----- ------
<S> <C>
90% 25%
95% 75%
100% 125%
105% 200%
</TABLE>
The sales bonus payout level cannot be greater that the earnings payout
level.
IV. CANADA DIRECT & CONTRACT STATIONERS
Bonus payouts will be limited to 100% of bonus opportunity if the Company
does not achieve 100% of budgeted EPS.
<TABLE>
A. Earnings - Pretax Income Net of Bonus, Interest and G&A
<CAPTION>
Budgeted Bonus
Earnings Payout
-------- ------
<S> <C>
90% 25%
100% 75%
105% 125%
110% 200%
</TABLE>
<TABLE>
B. Sales
<CAPTION>
Budgeted Bonus
Sales Payout
----- ------
<S> <C>
90% 25%
100% 75%
105% 125%
110% 200%
</TABLE>
The sales bonus payout level cannot be greater that the earnings payout
level.
<PAGE> 5
Staples, Inc.
Officer & Keyman Bonus Plan
V. INTERNATIONAL
Bonus payouts will be limited to 100% of bonus opportunity if the Company
does not achieve 100% of budgeted EPS.
<TABLE>
A. Earnings - Pretax Income Net of Bonus, Interest and G&A
<CAPTION>
Budget Payout
------ ------
<S> <C>
90% 25%
100% Using 100% Contingency 75%
100% Using 50% Contingency 125%
100% Using no Contingency 200%
</TABLE>
<TABLE>
B. Sales
<CAPTION>
Budgeted Bonus
Sales Payout
----- ------
<S> <C>
90% 25%
100% 75%
105% 125%
110% 200%
</TABLE>
The sales bonus payout level cannot be greater that the earnings payout
level.
OPERATION:
The Plan, individual incentive targets and individual objectives are established
at the beginning of the fiscal year by the Management Committee with the
approval of the Compensation Committee of the Board and provided to participants
once finalized.
Incentive compensation will be computed on the results of the operation for the
fiscal year beginning February 4, 1996 and ending February 1, 1997.
It is the intention of the Company that all incentive payments for the fiscal
year 1996 will be paid by the end of April, 1997.
<PAGE> 6
ELIGIBILITY:
Management positions which are leveled at or above level fourteen are generally
eligible for participation based on the following criteria:
Active employment in an eligible position during the fiscal year beginning
February 4, 1996 and ending on February 1, 1997;
Associates who transfer into or out of an eligible position during the fiscal
year will receive a prorated incentive award based on the number of weeks
employed in an incentive eligible position in the fiscal year;
Associates who retire or leave employment due to death or permanent disability
will receive a prorated incentive award based on the number of weeks of active
employment in the fiscal year;
<PAGE> 7
Staples, Inc.
Officer & Keyman Bonus Plan
ELIGIBILITY continued
Associates who are on sick leave in excess of four weeks are not eligible
for an incentive award for the duration of the illness unless otherwise
approved by the Management Committee;
Incentive awards are not vested. Associates who terminate for any reason
other than permanent disability, death or retirement prior to the end of the
fiscal year are not eligible to receive an award for that fiscal year.
GENERAL
Bonus awards are not earned or vested until actual payments are made; Staples,
Inc. reserves the right AT ANY TIME PRIOR TO ACTUAL PAYMENT OF BONUS AWARDS to
amend , terminate and/or discontinue the Plan in whole or in part whenever it is
considered necessary. The Compensation Committee of the Board shall be solely
responsible for interpreting the provisions of the Plan, including determining
to what extent, if any, specific items are to be counted in the relevant sales,
earnings and customer service goals for any associate.
The Plan is subject to applicable Government and economic controls in effect
during its operation and, therefore, payments may be subject to limitations.
The Plan is not considered to be a part of an employment agreement nor an
agreement on the part of management of the Company for such employment.
Any exceptions to the Plan must be approved in writing by the Management
Committee.
<PAGE> 1
EXHIBIT 10.7
AMENDMENT AGREEMENT NO. 1
to that certain
AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
dated as of May 25, 1994
and amended and restated as of February 14, 1995
This AMENDMENT AGREEMENT NO. 1 (the "AMENDMENT"), dated as of September
__, 1995, by and among STAPLES, INC. (the "BORROWER"), THE FIRST NATIONAL BANK
OF BOSTON ("FNBB"), such other lending institutions that are or may become
parties to the Credit Agreement referred to below (collectively, the "BANKS")
and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Banks (the "AGENT").
WHEREAS, the Borrower, the Banks and the Agent are parties to that certain
Amended and Restated Revolving Credit and Term Loan Agreement, dated as of May
25, 1994 and amended and restated as of February 14, 1995 (the "Credit
Agreement"), pursuant to which the Banks, upon certain terms and conditions,
have made loans to the Borrower; and
WHEREAS, the Borrower has requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
amend certain provisions of the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
[Section].1. DEFINED TERMS. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have
the same meanings herein as in the Credit Agreement.
[Section].2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended by
inserting the following new definition in the appropriate place in the
alphabetical sequence:
INDENTURE. The Indenture by and between the Borrower and
Marine Midland Bank, as trustee, with respect to the Subordinated
Debentures.
(b) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Subordinated Debentures" therein in its
entirety and substituting therefor the following:
<PAGE> 2
SUBORDINATED DEBENTURES. The 4-1/2% Convertible
Subordinated Debentures due October 1, 2000 issued by the
Borrower pursuant to the terms of the Indenture.
(c) Section 7.1 of the Credit Agreement is hereby amended by
deleting clause (l) thereof in its entirety, and substituting therefor the
following:
(l) Indebtedness in respect of (i) intercompany loans and
guaranties from the Borrower to any of its Subsidiaries or of any of
its Subsidiaries' obligations or (ii) intercompany loans and
guaranties between Subsidiaries of the Borrower or (iii)
intercompany loans and guaranties from any Guarantor to the Borrower
or of any of the Borrower's obligations or (iv) guaranties from any
Subsidiary of the Borrower of any of the Borrower's obligations,
PROVIDED in each case that (A) the aggregate amount of intercompany
loans to and guaranties of the obligations of each such Subsidiary
which is not a Guarantor shall at no time exceed $15,000,000 and (B)
the aggregate amount of all such Indebtedness of the Borrower's
Subsidiaries which are not Guarantors shall at no time exceed 25% of
the Stockholder's Equity of the Borrower;
(d) Section 7.3 of the Credit Agreement is hereby amended by
deleting clause (j) thereof in its entirety, and substituting therefor the
following:
(j) the Borrower's or any Subsidiary's guaranty of the
Indebtedness of any Guarantor or the Borrower or any other
Investments by the Borrower or any Guarantor in any Guarantor or the
Borrower or any Investments (other than loans) by any Subsidiary of
the Borrower in any Guarantor or the Borrower;
(e) Section 7.8 of the Credit Agreement is hereby amended by
deleting, in the ninth line thereof, the words "Debentures and" and
substituting therefor the words "Debt,".
(f) Section 7.8 of the Credit Agreement is further amended by
deleting the final period thereof and inserting at the end of such section
the following new subsections:
, (c) if the Borrower determines, based on a written opinion of
counsel that, as a result of any change in or amendment to the laws
affecting taxation (including regulations or rulings promulgated
thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or any change in or amendment
to the application or official interpretation of such laws,
regulations or rulings, any payment made outside of the United
States by the Borrower or its agent of the full amount of principal,
premium, if any, or interest due with respect of any outstanding
Subordinated Debenture in bearer form (a "Bearer Debenture") or
coupon appertaining thereto would be subject to any certification,
identification or other
<PAGE> 3
information reporting requirement of any kind, the effect of
which is the disclosure of the nationality, residence or identity of
the beneficial owner of such Bearer Debenture or coupon who is not a
U.S. person (as defined in the Indenture) to the Borrower, any
agent of the Borrower or any governmental authority, then the Borrower
may give notice of redemption and redeem such Bearer Debenture at par
together with accrued interest, provided that (i) the aggregate
redemption price of all such Bearer Debentures so redeemed by the
Borrower does not exceed $50,000,000, and (ii) no Default or Event of
Default has occurred and is continuing or would result after giving
effect to such redemption, and (d) if the holders of the Subordinated
Debentures shall require the Borrower to repurchase Subordinated
Debentures from such holders upon the occurrence of a Change in
Control (as defined in the Indenture for the purpose of this
[section].7.8(d) only), then subject to the subordination and turnover
provisions of the Indenture the Borrower may repurchase such
Subordinated Debentures at par together with accrued interest. The
terms of this [section].7.8(d) shall not, by implication or
otherwise, limit, impair, alter, modify, amend, constitute a waiver
of or in any other way affect any of the other terms, obligations,
covenants, Defaults or Events of Default contained in this Credit
Agreement, including without limitation the Events of Default set
forth in [section].11.1(m) of this Credit Agreement.
(g) Section 11.1 of the Credit Agreement is hereby amended by
deleting clause (k) thereof in its entirety, and substituting therefor the
following:
(k) the holders of all or any part of the Subordinated Debt
shall accelerate the maturity of all or any part of the Subordinated
Debt or the Subordinated Debt shall be prepaid, redeemed or
repurchased in whole or in part, in each case in violation of the
provisions of this Credit Agreement;
[SECTION].3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Agent and the Banks as follows:
(a) REPRESENTATIONS AND WARRANTIES IN THE CREDIT AGREEMENT. The
representations and warranties of the Borrower contained in the Credit
Agreement were true and correct when made and continue to be true and
correct on the date hereof.
(b) AUTHORITY, NO CONFLICTS, ENFORCEABILITY OF OBLIGATIONS, ETC. The
Borrower hereby confirms that the representations and warranties of the
Borrower contained in ss.ss.5.1.1, 5.1.2 and 5.1.3 of the Credit Agreement
are true and correct on and as of the date hereof as if made on the date
hereof.
[SECTION].4. EFFECTIVENESS. The effectiveness of this Amendment shall be
subject to the satisfaction of the following conditions precedent:
(a) DELIVERY OF AMENDMENT. This Amendment shall have been duly
executed and delivered by each of the Borrower, the Majority Banks and the
Agent, shall be in full force and effect and shall be in form and
substance satisfactory
<PAGE> 4
to each of the Banks. The Agent shall have received a fully executed copy
of this Amendment.
(b) PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Amendment and all documents incident
thereto shall be reasonably satisfactory in substance and form to the
Agent, and the Agent shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Agent may reasonably request.
[SECTION].5. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that this Amendment shall be a Loan Document under and as defined
in the Credit Agreement, that the Credit Agreement, as amended hereby, shall
continue in full force and effect, and that this Amendment and the Credit
Agreement shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
(d) The Borrower hereby agrees to pay to the Banks and the Agent, on
demand by the Banks and the Agent, all reasonable out-of-pocket costs and
expenses incurred or sustained by such Persons in connection with the
preparation of this Amendment (including reasonable legal fees).
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
STAPLES, INC.
By:-----------------------------
Title:
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By:-----------------------------
Title:
CORESTATES BANK, N.A.
By:-----------------------------
Title:
THE BANK OF NOVA SCOTIA
By:-----------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:-----------------------------
Title:
SHAWMUT BANK, N.A.
By:-----------------------------
Title:
<PAGE> 6
MARINE MIDLAND BANK
By:-----------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.
By:-----------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO, N.A.
By:-----------------------------
Title:
SWISS BANK CORPORATION
By:-----------------------------
Title:
FIRST FIDELITY BANK, N.A.
By:-----------------------------
Title:
FLEET BANK OF MASSACHUSETTS, N.A.
By:-----------------------------
Title:
<PAGE> 1
EXHIBIT 10.10
STAPLES, INC.
SEVERANCE BENEFITS AGREEMENT
Mr. [ ]
[Address]
[City, State ZIP]
Dear [Name]:
1. OFFICER RELATIONSHIP. You are currently, or are about to become, an
officer of Staples, Inc. and/or one of its subsidiaries ("Staples"). In order to
induce you to remain or enter into its employ, Staples agrees that you shall
receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with Staples is terminated under the
circumstances described below.
2. TERM OF THE AGREEMENT. The term of this Agreement (the "Term") shall
commence as of the date hereof and shall continue in effect until the later of
May 31, 2000 or 24 months after any Change of Control that may occur prior to
May 31, 2000. Notwithstanding the termination of your employment, any
obligations hereunder which by their terms continue (such as severance benefits)
shall survive such termination. This Agreement does not constitute a contract of
employment or impose on Staples any obligation to retain you as an employee, it
being acknowledged that your employment is "at will" and that both you and
Staples may terminate your employment at any time. Any termination of your
employment by Staples or by you during the Term shall be communicated by written
notice of termination ("Notice of Termination") to the other party hereto in
accordance with Section 7, which Notice of Termination shall specify the
provisions of this Agreement, if any, upon which such termination is based. The
"Date of Termination" shall mean the effective date of such termination as
specified in the Notice of Termination (provided that no such Notice of
Termination shall specify an effective date more than 180 days after the date of
such Notice of Termination).
3. CHANGE IN EMPLOYMENT STATUS. You shall be entitled to the benefits
provided in Section 4 if the following event (a "Qualified Termination") occurs:
your employment with Staples terminates for any reason, unless such termination
is (i) because of your death or Disability, (ii) by Staples for Cause, or (iii)
by you other than for Good Reason.
4. COMPENSATION UPON TERMINATION.
(a) In the event of a Qualified Termination, Staples will (i) pay to
you for a period of [18 months=CEO/COO, 12 months=other executive officers],
after the
<PAGE> 2
Date of Termination, in equal monthly installments, severance payments at an
annual rate equal to the sum of (i) your annual base salary rate in effect
immediately prior to the Qualified Termination (or such higher rate as may have
been in effect within the 90 days prior to the Notice of Termination plus (ii)
an annualized amount equal to the average annual bonus paid to (or accrued for)
you by Staples during the three full fiscal years preceding such Qualified
Termination.
(b) In the event of a Qualified Termination, for a [18/12]-month
period after the Date of Termination, Staples shall provide you with life,
disability, dental, accident and group health insurance benefits substantially
similar to those available to similarly situated officers. Notwithstanding the
foregoing, Staples shall not provide any such benefit if an equivalent benefit
is actually received by you during such period following your termination from
another party.
(c) Notwithstanding a Qualified Termination, the vesting schedule of
your then outstanding options to purchase Common Stock of Staples shall not be
accelerated unless specifically provided to the contrary in the respective
option agreements.
(d) If such Qualified Termination is within two years after a Change
in Control, you shall be entitled to the benefits provided in paragraphs (a) and
(b) above for an additional 6 months beyond the time period specified in such
paragraphs.
(e) The amount of any monthly payments to be made to you under
Section 4(a) shall be reduced by 50% of any cash compensation earned by or
accrued for you as a result of services rendered by you for a third party during
the month immediately preceding the date of such payment; provided, however,
that (i) this paragraph (e) shall not apply in the event of a Qualified
Termination occurring within 24 months after a Change of Control, and (ii)
nothing in this Agreement shall obligate you to seek to mitigate the amount of
any payments provided for in this Agreement by seeking alternative employment or
otherwise.
(f) The benefits payable under this Section 4 shall be conditioned
on none of the following events occurring: (i) a determination by the [Board for
CEO/COO or CEO&COO for other officers] of Staples within 60 days after your
resignation that your conduct prior to your resignation would have warranted a
discharge for "Cause" as specified in Section 5(c), or (ii) the [Board/CEO&COO]
of Staples determines that your conduct after termination of employment fails to
comply with the terms of any non-competition or confidentiality provision
contained in any employment, consulting, advisory, non-disclosure,
non-competition or other similar agreement between you and Staples.
<PAGE> 3
5. CERTAIN DEFINITIONS.
--------------------
As used herein, the following terms shall have the following respective
meanings:
(a) CHANGE IN CONTROL. A "Change in Control" shall occur or be deemed to
have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(other than Staples, any trustee or other fiduciary holding securities
under an employee benefit plan of Staples, or any corporation owned
directly or indirectly by the stockholders of Staples in substantially the
same proportion as their ownership of stock of Staples) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Staples representing 30% or more
of the combined voting power of Staples's then outstanding securities;
(ii) individuals who, as of the date hereof, constitute the Board
(as of the date hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by Staples's stockholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of Staples, as
such terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; or
(iii) the stockholders of Staples approve a merger or consolidation
of Staples with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of Staples
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 75% of the combined voting power of the voting
securities of Staples or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of Staples (or similar
transaction) in which no "person" (as hereinabove defined) acquires more
than 50% of the combined voting power of Staples's then outstanding
securities; or (iv) the stockholders of Staples approve a plan of complete
liquidation of Staples or an agreement for the sale or disposition by
Staples of all or substantially all of Staples's assets.
<PAGE> 4
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness, you shall have been absent from the full-time performance of your
duties with Staples for six (6) consecutive months and, within thirty (30) days
after written Notice of Termination is given to you, you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability."
(c) CAUSE. Termination by Staples of your employment for "Cause" shall
mean termination
(i) upon your willful and continued failure to substantially perform
your duties with Staples (other than any such failure resulting from your
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination by you
for Good Reason as defined below), provided that a written demand for
substantial performance has been delivered to you by Staples specifically
identifying the manner in which Staples believes that you have not
substantially performed your duties and you have not cured such failure
within 30 days after such demand, or
(ii) any breach by you of any of the terms of the Proprietary and
Confidential Information Agreement or Non-Competition Agreement (or other
similar agreement) between you and Staples, or
(iii) a violation by you of the Staples Business Conduct & Ethics
Policy or any attempt by you to secure any improper personal profit in
connection with the business of Staples, or
(iv) failure by you to devote your full working time to the affairs
of Staples (other than in connection with outside director positions
existing as of this date or as authorized by the [Board for CEO/COO or
CEO&COO for other officers], or
(v) the engaging by you in business other than the business of
Staples (other than in connection with outside director positions existing
as of this date or as authorized by the [Board for CEO/COO or CEO&COO for
other officers], or
(vi) by reason of your willful engaging in misconduct which is
demonstrably and materially injurious to Staples;
provided that in each case you shall have been given written notice by the
[Board for CEO/COO or CEO&COO for other officers] of Staples of Staples' intent
to terminate your employment under this Section 5(c) and an opportunity to
present to the [Board for CEO/COO or CEO&COO for other officers], in person, any
objections you may have to such termination. For purposes of this section 5(c),
no act or failure to act on your part shall be deemed "willful" unless done or
omitted to be done by you not in good faith and without reasonable belief that
your action or omission was in the best interest of Staples;
<PAGE> 5
The provisions of clauses (iv) and (v) above shall not be construed to
prevent you from investing or trading in non-conflicting investments for your
own account, including real estate, stocks, bonds, securities or other forms of
investment, other than more than 1% of securities issued by entities in
competition with Staples.
(d) GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean,
without your written consent, the occurrence of any of the following
circumstances within the 90 days immediately prior to your giving Staples a
Notice of Termination:
(i) any significant diminution in your position, duties,
responsibilities, power, title or office;
(ii) any reduction in your annual base salary from time to time;
(iii) any failure by Staples to allow your participation in a cash
bonus program in a manner substantially consistent with past practice in
light of Staples' financial performance and attainment of your specified
goals, or the substantial reduction of your participation in any other
material compensation plan (other than any stock option or stock award
program which programs are within the full discretion of the Compensation
Committee) on a significantly less favorable basis, both in terms of the
amount of benefits provided and the level of your participation relative
to other participants; unless such circumstances are fully corrected prior
to the Date of Termination specified in the Notice of Termination given in
respect thereof;
(iv) the failure by Staples to continue to provide you with benefits
substantially similar to those enjoyed by you under any of Staples's life
insurance, medical, health and accident, or disability plans in which you
were participating, the taking of any action by Staples which would
directly or indirectly materially reduce any of such benefits, or the
reduction in the number of paid vacation days to which you are entitled;
unless such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination given in respect
thereof;
(v) in the event of a Change in Control, any requirement by Staples
or of any person in control of Staples that the location at which you
perform your principal duties for Staples be changed to a new location
outside a radius of 30 miles from your business location at the time of
the Change in Control; or
(vi) the failure of Staples to obtain a satisfactory agreement from
any successor to assume and agree to perform the Agreement, as
contemplated in Section 6(a).
<PAGE> 6
Notwithstanding the foregoing, any general reduction of salary or reduction (or
elimination) of other compensation, bonus and/or benefits for its executive
officers which are substantially comparable for all such officers (but not
occurring within 24 months after a Change of Control) shall not be considered
"Good Reason."
6. SUCCESSORS; BINDING AGREEMENT.
------------------------------
(a) Staples will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of Staples expressly to assume and agree to perform this
Agreement to the same extent that Staples would be required to perform it if no
such succession had taken place. Failure of Staples to obtain an assumption of
this Agreement prior to the effectiveness of any succession shall be a breach of
this Agreement and shall entitle you to compensation from Staples in the same
amount and on the same terms as you would be entitled hereunder. As used in this
Agreement, "Staples" shall mean Staples as defined above and any successor to
its business or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or
if there is no such designee, to your estate.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
[Chairman/Chairman of the Compensation Committee] of Staples, at 100
Pennsylvania Avenue, P.O. Box 9328, Framingham, Massachusetts 01701-9328, and to
you at the address shown above or to such other address as either Staples or you
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
8. MISCELLANEOUS.
--------------
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
<PAGE> 7
(c) No waiver by you at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by Staples shall be deemed
a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) Staples shall pay to you all legal fees and expenses incurred by
you in seeking to obtain or enforce any right or benefit provided by this
Agreement.
(g) This Agreement is the exclusive agreement with respect to the
severance benefits payable to you in the event of a termination of your
employment, and this Agreement specifically replaces the letter agreement dated
_________________, 199__ and the Employee Retention Agreement dated ___________,
199__, between Staples and you, which agreements are hereby expressly terminated
effective as of the date hereof. All prior negotiations are merged into this
agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to Staples the enclosed copy of this letter, which will
then constitute our agreement on this subject.
Sincerely,
STAPLES, INC.
By:
-------------------------
Agreed to this ____ day of ________________, 1995
- ----------------------------
(Signature)
<PAGE> 1
EXHIBIT 21.1
<TABLE>
SUBSIDIARIES OF THE COMPANY
<CAPTION>
Name Under Which
Subsidiary Jurisdiction of Incorporation They Do Business
---------- ----------------------------- ----------------
<S> <C> <C>
521 Connecticut Boulevard Corp. Connecticut Inactive
Staples International, Inc. Delaware Same
Staples NRO Limited Ontario, Canada Same
Staples NRO (2) Limited Ontario, Canada Same
Staples NRO (3) Limited Ontario, Canada Same
Staples NRO (4) Limited Ontario, Canada Same
Staples Properties, Inc. California Same
Staples Security Corporation Massachusetts Same
Staples The Office Superstore, Inc. Delaware Inactive
Staples Trust Company, a
Massachusetts Business Trust Massachusetts Same
The Business Depot, Ltd. Ontario, Canada The Business Depot
Staples The Office Superstore
Bureau en Gros
Total Global Sourcing, Inc. Delaware Inactive
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-53334 and 33-88888 and Forms S-8 No. 33-30149, 33-38305,
33-38304, 33-5228, 33-43663, 33-5226, 33-68076, 33-81284, 33-79496, and
33-81282) of Staples, Inc. and in the related Prospectus of our report dated
March 5, 1996, with respect to the consolidated financial statements of Staples,
Inc. included in this Annual Report (Form 10-K) for the year ended February 3,
1996.
ERNST & YOUNG LLP
Boston, Massachusetts
April 10, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
This schedule contains summary financial information extracted from the
financial statements of Staples, Inc. for the twelve months ended February 3,
1996, and is qualified in its entirety by reference to such financial
statements.
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 98,130
<SECURITIES> 12,685
<RECEIVABLES> 122,453
<ALLOWANCES> 1,510
<INVENTORY> 644,514
<CURRENT-ASSETS> 925,871
<PP&E> 412,991
<DEPRECIATION> 120,496
<TOTAL-ASSETS> 1,402,775
<CURRENT-LIABILITIES> 421,541
<BONDS> 343,647
0
0
<COMMON> 95
<OTHER-SE> 611,321
<TOTAL-LIABILITY-AND-EQUITY> 1,402,775
<SALES> 3,068,061
<TOTAL-REVENUES> 3,068,061
<CGS> 2,366,183
<TOTAL-COSTS> 2,812,507
<OTHER-EXPENSES> 119,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,924
<INCOME-PRETAX> 119,845
<INCOME-TAX> 46,140
<INCOME-CONTINUING> 73,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,705
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
