<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1997
REGISTRATION NO. 333-15853
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STAPLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5112 04-2896127
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NO.) IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
</TABLE>
ONE RESEARCH DRIVE, WESTBOROUGH, MASSACHUSETTS 01581 (508) 370-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER M. SCHWARZENBACH, ESQ.
Staples, Inc.
One Research Drive
Westborough, Massachusetts 01581
(508) 370-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MARK G. BORDEN, ESQ.
PATRICK J. RONDEAU, ESQ. JAMES C. MORPHY, ESQ. WILLARD G. FRAUMANN,
Hale and Dorr LLP Sullivan & Cromwell P.C.
60 State Street 125 Broad Street Kirkland & Ellis
Boston, Massachusetts 02109 New York, New York 200 East Randolph Drive
(617) 526-6000 10004 Chicago, Illinois 60601
(212) 558-4000 (312) 861-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Letterhead of Staples, Inc.]
January 23, 1997
Dear Stockholder:
As most of you are aware, Staples has entered into an agreement to merge
with Office Depot, Inc. At a Special Meeting of Stockholders of Staples on
Thursday, February 27, 1997, you will be asked to consider and approve the
issuance of Staples common stock in the merger and certain related matters. The
accompanying Joint Proxy Statement/Prospectus presents the details of this
proposed strategic merger.
In the merger, each share of Office Depot common stock will be converted
into the right to receive 1.14 shares of Staples common stock. We estimate that
the shares of Staples common stock to be issued to Office Depot stockholders in
the merger will represent approximately 53% of the outstanding common stock of
Staples after the Merger.
Staples' Board of Directors has unanimously approved the merger and
recommends that you vote FOR the merger proposal and the related matters.
Staples' Board of Directors believes that the merger represents a unique
strategic fit between two companies with similar business strategies and
complementary geographical presence and operations. The Board believes that the
merger should result in significant synergies for the combined company and a
number of other important advantages for Staples stockholders. For further
information regarding the merger and the potential benefits of the merger, I
urge that you read carefully the accompanying Joint Proxy Statement/Prospectus
and, specifically, the section "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors."
Even if you plan to attend the Special Meeting in person, please complete,
sign and promptly return the enclosed proxy card in the enclosed postage-prepaid
envelope.
Sincerely,
THOMAS G. STEMBERG
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
STAPLES, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 1997
To the Stockholders of
STAPLES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Staples
Special Meeting") of Staples, Inc., a Delaware corporation ("Staples"), will be
held on Thursday, February 27, 1997, at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts commencing at 9:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Common Stock, par value $.0006 per share, of Staples ("Staples Common
Stock"), pursuant to the Agreement and Plan of Merger (as amended, the
"Merger Agreement") dated as of September 4, 1996 among Staples, Marlin
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Staples ("Sub"), and Office Depot, Inc., a Delaware corporation
("Office Depot"), pursuant to which, among other things (a) Sub will be
merged with and into Office Depot, which will be the surviving
corporation, and Office Depot will become a wholly-owned subsidiary of
Staples and (b) each outstanding share of Common Stock, par value $.01
per share, of Office Depot will be converted into the right to receive
1.14 shares of Staples Common Stock (together with an appropriate number
of preferred stock purchase rights attached thereto);
2. To consider and vote upon a proposal to approve an amendment to Staples'
Certificate of Incorporation changing the name of Staples to
"Staples/Office Depot, Inc."
3. To consider and vote upon a proposal to approve an amendment to Staples'
1992 Equity Incentive Plan increasing the number of shares issuable
thereunder from 21,600,000 to 39,000,000.
4. To transact such other business as may properly come before the Staples
Special Meeting or any adjournment or postponement of the Staples Special
Meeting.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/ Prospectus.
Stockholders at the close of business on January 22, 1997 are entitled to
notice of, and to vote at, the Staples Special Meeting and any adjournment or
postponement of the Staples Special Meeting.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
By Order of the Board of Directors
PETER M. SCHWARZENBACH
SECRETARY
Westborough, Massachusetts
January 23, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
[Letterhead of Office Depot, Inc.]
January 23, 1997
Dear Stockholder:
As most of you are aware, Office Depot has entered into an agreement to
merge with Staples, Inc. At a Special Meeting of Stockholders of Office Depot on
Thursday, February 27, 1997, you will be asked to consider and approve the
Merger Agreement relating to the merger. The accompanying Joint Proxy
Statement/Prospectus presents the details of this proposed strategic merger.
In the merger, each share of Office Depot common stock will be converted
into the right to receive 1.14 shares of Staples common stock. We estimate that
the shares of Staples common stock to be issued to Office Depot stockholders in
the merger will represent approximately 53% of the outstanding common stock of
Staples after the Merger.
Office Depot's Board of Directors has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval and adoption of the
Merger Agreement.
Office Depot's Board of Directors believes that the merger represents a
unique strategic fit between two companies with similar business strategies and
complementary geographical presence and operations. The Board believes that the
merger should result in significant synergies for the combined company and a
number of other important advantages for Office Depot stockholders. For further
information regarding the merger and the potential benefits of the merger, I
urge that you read carefully the accompanying Joint Proxy Statement/Prospectus
and, specifically, the section "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors."
Even if you plan to attend the Special Meeting in person, please complete,
sign and promptly return the enclosed proxy card in the enclosed postage-prepaid
envelope.
Sincerely,
DAVID I. FUENTE
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
<PAGE>
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 1997
To the Stockholders of
OFFICE DEPOT, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Office
Depot Special Meeting") of Office Depot, Inc., a Delaware corporation ("Office
Depot"), will be held on Thursday, February 27, 1997, at the offices of Kirkland
& Ellis, 153 East 53rd Street, New York, New York, commencing at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger (as amended, the "Merger Agreement") dated as of
September 4, 1996, among Staples, Inc., a Delaware corporation
("Staples"), Marlin Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Staples ("Sub"), and Office Depot, pursuant to
which, among other things (a) Sub will be merged with and into Office
Depot, which will be the surviving corporation, and Office Depot will
become a wholly-owned subsidiary of Staples and (b) each outstanding
share of Common Stock, par value $.01 per share, of Office Depot
(together with the associated preferred stock purchase rights) will be
converted into the right to receive 1.14 shares of Common Stock, par
value $.0006 per share, of Staples (together with an appropriate number
of preferred stock purchase rights attached thereto); and
2. To transact such other business as may properly come before the Office
Depot Special Meeting or any adjournment or postponement of the Office
Depot Special Meeting.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/ Prospectus.
Stockholders of record at the close of business on January 22, 1997 are
entitled to notice of, and to vote at, the Office Depot Special Meeting and any
adjournment or postponement of the Office Depot Special Meeting.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
By Order of the Board of Directors
BARRY J. GOLDSTEIN
SECRETARY
Delray Beach, Florida
January 23, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. DO NOT
SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE>
STAPLES, INC.
AND
OFFICE DEPOT, INC.
---------------------
JOINT PROXY STATEMENT
---------------------
STAPLES, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.0006 per share ("Staples Common Stock"), of Staples,
Inc., a Delaware corporation ("Staples"), in connection with the solicitation of
proxies by the Board of Directors of Staples for use at a Special Meeting of
Stockholders of Staples (the "Staples Special Meeting") to be held on Thursday,
February 27, 1997, at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, commencing at 9:00 a.m., local time, and at any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, par value $.01 per share ("Office Depot Common Stock"), of Office
Depot, Inc., a Delaware corporation ("Office Depot"), in connection with the
solicitation of proxies by the Board of Directors of Office Depot for use at the
Special Meeting of Stockholders of Office Depot (the "Office Depot Special
Meeting") to be held on Thursday, February 27, 1997 at the offices of Kirkland &
Ellis, 153 East 53rd Street, New York, New York, commencing at 9:00 a.m., local
time, and at any adjournment or postponement thereof.
Staples has filed a Registration Statement on Form S-4 (including the
exhibits and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering up to
190,000,000 shares of Staples Common Stock (and accompanying Staples preferred
stock purchase rights) which may be issued pursuant to the Agreement and Plan of
Merger, dated as of September 4, 1996, among Staples, Marlin Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Staples ("Sub"), and
Office Depot, as amended by Amendment No. 1 thereto dated January 17, 1997 (as
amended, the "Merger Agreement") in exchange for outstanding shares of Office
Depot Common Stock (including shares that may become outstanding prior to the
closing of the Merger upon the exercise of options for the purchase of Office
Depot Common Stock). This Joint Proxy Statement/Prospectus constitutes the
Prospectus of Staples comprising a part of the Registration Statement. The
Merger Agreement is attached as Annex A to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Pursuant to the Merger Agreement, Sub
will be merged with and into Office Depot (the "Merger"), which will be the
surviving corporation in the Merger and become a wholly-owned subsidiary of
Staples, and each outstanding share of Office Depot Common Stock will be
converted into the right to receive 1.14 shares of Staples Common Stock
(together with an appropriate number of preferred stock purchase rights attached
thereto). Based upon the number of outstanding shares of Staples Common Stock
and Office Depot Common Stock as of December 31, 1996, the shares of Staples
Common Stock issued to Office Depot stockholders in the Merger would represent
approximately 53% of the outstanding shares of Staples Common Stock immediately
following the closing of the Merger. On January 22, 1997, the last reported sale
price of the Staples Common Stock on the Nasdaq National Market was $21.25 per
share, and the last reported sale price of the Office Depot Common Stock on the
New York Stock Exchange was $20.75 per share.
Upon the closing of the Merger (and subject to the approval by Staples'
stockholders of the related amendment to its Certificate of Incorporation, as
described elsewhere in this Joint Proxy Statement/Prospectus), Staples will
change its name to "Staples/Office Depot, Inc."
All information contained in this Joint Proxy Statement/Prospectus relating
to Staples has been supplied by Staples, and all information relating to Office
Depot has been supplied by Office Depot.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH STAPLES AND OFFICE DEPOT STOCKHOLDERS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Staples and Office Depot on or about
January 29, 1997.
The date of this Joint Proxy Statement/Prospectus is January 23, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 4
SUMMARY................................................................................ 6
The Companies...................................................................... 6
Date and Place of the Meetings..................................................... 6
Stockholders Entitled to Vote...................................................... 6
Purposes of the Meetings........................................................... 7
Votes Required..................................................................... 7
Effects of the Merger.............................................................. 7
Recommendations.................................................................... 8
Opinions of Financial Advisors..................................................... 8
Interests of Certain Persons....................................................... 9
Effective Time of the Merger....................................................... 9
Management and Operations of Staples/Office Depot Following the Merger............. 9
Conditions to the Merger........................................................... 10
Termination........................................................................ 10
Stock Option Agreements............................................................ 10
No Appraisal Rights................................................................ 11
Certain Federal Income Tax Consequences............................................ 11
Accounting Treatment............................................................... 11
Surrender of Certificates.......................................................... 11
Certain Effects of the Merger on the Rights of Holders of Office Depot Common
Stock............................................................................. 12
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION............. 13
COMPARATIVE PER SHARE DATA............................................................. 16
MARKET PRICE INFORMATION............................................................... 17
RISK FACTORS........................................................................... 18
Risks Relating to the Merger....................................................... 18
Risks Relating to Staples/Office Depot............................................. 19
THE STAPLES SPECIAL MEETING............................................................ 21
General............................................................................ 21
Matters to be Considered........................................................... 21
Boards of Directors' Recommendations............................................... 21
Record Date and Voting............................................................. 21
Proxies............................................................................ 22
THE OFFICE DEPOT SPECIAL MEETING....................................................... 24
General............................................................................ 24
Matters to be Considered........................................................... 24
Boards of Directors' Recommendations............................................... 24
Record Date and Voting............................................................. 24
Proxies............................................................................ 25
THE MERGER............................................................................. 26
Background of the Merger........................................................... 26
Reasons for the Merger; Recommendations of the Boards of Directors................. 27
Opinions of Financial Advisors..................................................... 30
Interests of Certain Persons in the Merger......................................... 40
Management and Operations of Staples/Office Depot Following the Merger............. 43
Accounting Treatment............................................................... 44
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Certain Federal Income Tax Consequences............................................ 45
Regulatory Approvals............................................................... 46
Federal Securities Law Consequences................................................ 47
Stock Market Quotation............................................................. 47
No Appraisal Rights................................................................ 48
Certain Legal Proceedings.......................................................... 48
THE MERGER AGREEMENT................................................................... 49
General............................................................................ 49
Conversion of Shares............................................................... 49
Representations and Warranties..................................................... 50
Certain Covenants.................................................................. 50
No Solicitation.................................................................... 51
Management of Staples/Office Depot Following the Merger............................ 52
Related Matters After the Merger................................................... 52
Stock Options and Employee Benefits................................................ 52
Stockholders Rights Plans.......................................................... 53
Director and Officer Indemnification............................................... 53
Conditions......................................................................... 53
Termination; Termination Fees and Expenses......................................... 54
Amendment and Waiver............................................................... 57
STOCK OPTION AGREEMENTS................................................................ 58
Staples Option..................................................................... 58
Office Depot Option................................................................ 59
STAPLES, INC........................................................................... 61
Business........................................................................... 61
Security Ownership of Certain Beneficial Owners and Management..................... 64
OFFICE DEPOT, INC...................................................................... 66
Business........................................................................... 66
Security Ownership of Certain Beneficial Owners and Management..................... 70
Other Employment Agreements........................................................ 72
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................ 73
DESCRIPTION OF STAPLES CAPITAL STOCK................................................... 82
Common Stock....................................................................... 82
Preferred Stock.................................................................... 82
Rights Plan........................................................................ 82
Delaware Law and Certain Charter Provisions........................................ 83
Transfer Agent..................................................................... 84
COMPARISON OF STOCKHOLDER RIGHTS....................................................... 85
AMENDMENT TO STAPLES' CERTIFICATE OF INCORPORATION..................................... 86
AMENDMENT TO STAPLES' 1992 EQUITY INCENTIVE PLAN....................................... 87
Summary of the Equity Plan......................................................... 87
Federal Income Tax Consequences.................................................... 88
LEGAL MATTERS.......................................................................... 90
EXPERTS................................................................................ 90
</TABLE>
<TABLE>
<S> <C> <C> <C>
Annex A -- Merger Agreement.......................................................... A-1
Annex B -- Opinion of Goldman, Sachs & Co............................................ B-1
Annex C -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated............. C-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
Staples and Office Depot are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Staples and Office Depot with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, 13th floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, Washington, D.C. 20549. In addition, Staples and Office Depot are
each required to file electronic versions of such material with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Staples Common Stock is quoted on the Nasdaq National Market.
Reports and other information concerning Staples can also be inspected at the
offices of the National Association of Securities Dealers, Inc., Market Listing
Section, 1735 K Street, N.W., Washington, D.C. 20006. Office Depot Common Stock
is listed on the New York Stock Exchange. Reports and other information
concerning Office Depot can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
Staples has filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the shares of Staples Common Stock to
be issued pursuant to the Merger Agreement. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement. For further information with respect to Staples, Office
Depot and the Staples Common Stock, reference is hereby made to the Registration
Statement (including the exhibits and schedules thereto). Statements contained
in this Joint Proxy Statement/Prospectus or in any document incorporated by
reference in this Joint Proxy Statement/Prospectus as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document (if any) filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Staples documents filed with the Commission are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended February 3, 1996;
2. Quarterly Reports on Form 10-Q for the quarters ended May 4, 1996,
August 3, 1996, as amended, and November 2, 1996;
3. Current Report on Form 8-K dated September 4, 1996; and
4. The description of Staples' capital stock contained in Staples'
Registration Statement on Form 8-A dated April 7, 1989, as amended.
The following Office Depot documents filed with the Commission are
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended December 30, 1995;
2. Quarterly Reports on Form 10-Q for the quarters ended March 30, 1996,
June 29, 1996 and September 28, 1996; and
3. Current Reports on Form 8-K both dated September 4, 1996.
4
<PAGE>
All documents and reports subsequently filed by Staples or Office Depot
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Joint Proxy Statement/Prospectus and prior to the date of the Staples
Special Meeting and the Office Depot Special Meeting shall be deemed to be
incorporated by reference in this Joint Proxy Statement/Prospectus and to be
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available to any person, including any beneficial owner, to whom
this Joint Proxy Statement/Prospectus is delivered, on written or oral request,
without charge, in the case of documents relating to Staples, directed to
Staples, Inc., One Research Drive, Westborough, Massachusetts 01581 (telephone
number (508) 370-8500), Attention: Secretary, or, in the case of documents
relating to Office Depot, directed to Office Depot, Inc., 2200 Old Germantown
Road, Delray Beach, Florida 33445 (telephone number (561) 278-4800), Attention:
Secretary. In order to ensure timely delivery of any of such documents, any
request should be made by February 20, 1997.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY STAPLES,
OFFICE DEPOT OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF STAPLES OR
OFFICE DEPOT SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
"Staples" and "Staples--The Office Superstore" are registered trademarks of
Staples. "Office Depot," "Images," "Furniture at Work" and "Uptime Services" are
registered trademarks or service marks of Office Depot.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED, OR
INCORPORATED BY REFERENCE, IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
ANNEXES HERETO. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
CERTAIN OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS MAY CONSTITUTE FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS AS TO THE BENEFITS AND SYNERGIES EXPECTED TO BE REALIZED AS A RESULT
OF THE MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES USED BY
THE FINANCIAL ADVISORS TO STAPLES AND OFFICE DEPOT. SEE "THE MERGER--REASONS FOR
THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS" AND "--OPINIONS OF
FINANCIAL ADVISORS." THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FACTORS INCLUDE THOSE SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS UNDER THE HEADING "RISK FACTORS."
ALL SHARE AND PER SHARE DATA IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAVE
BEEN ADJUSTED TO GIVE EFFECT TO ALL STOCK SPLITS OF STAPLES COMMON STOCK AND
OFFICE DEPOT COMMON STOCK EFFECTED PRIOR TO THE DATE HEREOF.
THE COMPANIES
STAPLES. Staples pioneered the office supply superstore concept in 1986 and
is a leading office supplies distributor with over 500 retail stores located in
the United States and Canada. Staples also operates a direct mail delivery
business and a contract stationer business. The principal executive office of
Staples is located at One Research Drive, Westborough, Massachusetts 01581 and
its telephone number is 508-370-8500. As used in this Joint Proxy
Statement/Prospectus, the term "Staples" refers to Staples, Inc. and its
wholly-owned subsidiaries, unless the context otherwise requires.
OFFICE DEPOT. Office Depot operates the largest chain of high-volume retail
office supply stores in North America, provides delivery service to businesses
and is a full-service contract stationer serving businesses throughout the
United States. The principal executive office of Office Depot is located at 2200
Old Germantown Road, Delray Beach, Florida 33445 and its telephone number is
561-278-4800. As used in this Joint Proxy Statement/Prospectus, the term "Office
Depot" refers to Office Depot, Inc. and its wholly-owned subsidiaries, unless
the context otherwise requires.
Upon the closing of the Merger (and subject to the approval by Staples'
stockholders of the related amendment to its Certificate of Incorporation, as
described elsewhere in this Joint Proxy Statement/ Prospectus), Staples will
change its name to "Staples/Office Depot, Inc." Staples, from and after the
consummation of the Merger, is sometimes referred to herein as "Staples/Office
Depot."
DATE AND PLACE OF THE MEETINGS
The Staples Special Meeting will be held on Thursday, February 27, 1997, at
the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts,
commencing at 9:00 a.m., local time.
The Office Depot Special Meeting will be held on Thursday, February 27,
1997, at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New
York, commencing at 9:00 a.m., local time.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Staples Common Stock at the close of business
on January 22, 1997, are entitled to notice of and to vote at the Staples
Special Meeting. At such date there were 162,084,342 shares of Staples Common
Stock outstanding, each of which will be entitled to one vote on each matter to
be acted upon or which may properly come before the Staples Special Meeting.
6
<PAGE>
Holders of record of shares of Office Depot Common Stock at the close of
business on January 22, 1997, are entitled to notice of and to vote at the
Office Depot Special Meeting. At such date there were 157,266,501 shares of
Office Depot Common Stock outstanding, each of which will be entitled to one
vote on each matter to be acted upon or which may properly come before the
Office Depot Special Meeting.
PURPOSES OF THE MEETINGS
STAPLES SPECIAL MEETING. The purpose of the Staples Special Meeting is to
consider and vote upon the following proposals: (i) the issuance of up to
190,000,000 shares of Staples Common Stock in exchange for shares of Office
Depot Common Stock pursuant to the Merger Agreement (the "Merger Proposal");
(ii) an amendment to Staples' Certificate of Incorporation to change the name of
Staples to "Staples/ Office Depot, Inc." (the "Charter Proposal"); (iii) an
amendment to Staples' 1992 Equity Incentive Plan to increase the number of
shares of Staples Common Stock authorized for issuance thereunder from
21,600,000 to 39,000,000 shares (the "Plan Proposal"); and (iv) such other
matters as may properly be brought before the Staples Special Meeting, or any
adjournment or postponement thereof.
OFFICE DEPOT SPECIAL MEETING. The purpose of the Office Depot Special
Meeting is to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement and (ii) such other matters as may properly be brought before
the Office Depot Special Meeting, or any adjournment or postponement thereof.
VOTES REQUIRED
STAPLES. The approval of the Merger Proposal will require the affirmative
vote of the holders of shares representing a majority of the votes cast on the
proposal. The approval of the Charter Proposal will require the affirmative vote
of the holders of a majority of the shares of Staples Common Stock outstanding
on the record date. The approval of the Plan Proposal will require the
affirmative vote of the holders of shares representing a majority of the votes
cast on the proposal. The approval of neither the Charter Proposal nor the Plan
Proposal is a condition to the approval of the Merger Proposal or the
consummation of the Merger.
OFFICE DEPOT. The approval and adoption of the Merger Agreement will
require the affirmative vote of the holders of a majority of the shares of
Office Depot Common Stock outstanding on the record date.
EFFECTS OF THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) Sub
will be merged with and into Office Depot, which will be the surviving
corporation in the Merger (the "Surviving Corporation"), and Office Depot will
become a wholly-owned subsidiary of Staples and (ii) each issued and outstanding
share of Office Depot Common Stock (together with the associated preferred stock
purchase rights) will be converted into the right to receive 1.14 shares of
Staples Common Stock (the "Exchange Ratio"), together with an appropriate number
of preferred stock purchase rights (the "Staples Rights") attached thereto.
Fractional shares of Staples Common Stock will not be issuable in connection
with the Merger. Office Depot stockholders otherwise entitled to a fractional
share will be paid the value of such fraction in cash determined as described
below under "The Merger Agreement --Conversion of Shares." Each outstanding
share of Staples Common Stock will remain outstanding and be unaffected by the
Merger.
Based upon the number of outstanding shares of Staples Common Stock and
Office Depot Common Stock as of December 31, 1996, the stockholders of Office
Depot immediately prior to the consummation of the Merger will own approximately
53% of the outstanding shares of Staples Common Stock immediately following
consummation of the Merger.
7
<PAGE>
Upon consummation of the Merger, pursuant to the Merger Agreement, each
outstanding option to purchase Office Depot Common Stock will be converted into
an option to purchase such number of shares of Staples Common Stock (rounded
down to the nearest whole number) as is equal to the number of shares of Office
Depot Common Stock issuable upon exercise of such option immediately prior to
the Effective Time (as defined below) multiplied by the Exchange Ratio. The
exercise price per share of each such option, as so converted, will be equal to
(x) the aggregate exercise price for the shares of Office Depot Common Stock
otherwise purchasable pursuant to such Office Depot Stock Option immediately
prior to the Effective Time divided by (y) the number of whole shares of Staples
Common Stock deemed purchasable pursuant to such Office Depot Stock Option as
determined above (rounded up to the nearest whole cent). See "The Merger
Agreement--Stock Options and Employee Benefits."
RECOMMENDATIONS
The Board of Directors of Staples (the "Staples Board") (a) has unanimously
approved (i) the Merger Agreement and the issuance of shares of Staples Common
Stock pursuant to the Merger Agreement, (ii) the amendment to Staples'
Certificate of Incorporation to change the name of Staples to "Staples/ Office
Depot, Inc." and (iii) the amendment to Staples' 1992 Equity Incentive Plan to
increase the number of shares of Staples Common Stock authorized for issuance
thereunder to 39,000,000 shares, and (b) unanimously recommends that holders of
Staples Common Stock vote in favor of the Merger Proposal, the Charter Proposal
and the Plan Proposal.
The Board of Directors of Office Depot (the "Office Depot Board") has
unanimously approved the Merger Agreement and unanimously recommends that
holders of Office Depot Common Stock vote in favor of the approval and adoption
of the Merger Agreement.
The Staples Board and the Office Depot Board believe that the Merger
represents a unique strategic fit between two leading companies with similar
business strategies and complementary geographical presence and operations. Both
Boards of Directors believe that Staples/Office Depot, as a combined company,
will have greater financial strength, operational efficiencies, earning power
and growth potential than either Staples or Office Depot would have on its own.
See "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors."
OPINIONS OF FINANCIAL ADVISORS
STAPLES. On September 3, 1996, Goldman, Sachs & Co. ("Goldman Sachs")
delivered its oral opinion to the Staples Board to the effect that, as of such
date, the Exchange Ratio was fair to Staples. Goldman Sachs subsequently
delivered its written opinion, dated the date hereof, to the effect that, as of
the date hereof, the Exchange Ratio is fair to Staples.
The full text of the written opinion of Goldman Sachs, dated the date
hereof, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with its opinion, is attached hereto as
Annex B and is incorporated herein by reference. HOLDERS OF STAPLES COMMON STOCK
ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The
Merger--Opinions of Financial Advisors--Staples."
OFFICE DEPOT. On September 3, 1996, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") delivered its written opinion to the Office Depot
Board that, as of such date, the Exchange Ratio was fair to the holders of
Office Depot Common Stock from a financial point of view. Merrill Lynch
subsequently delivered its written opinion, dated the date hereof, that, as of
the date hereof, the Exchange Ratio is fair to the holders of Office Depot
Common Stock from a financial point of view.
The full text of the written opinion of Merrill Lynch, dated the date
hereof, which sets forth assumptions made, matters considered and limitations on
the review undertaken, is attached hereto as Annex C and is incorporated herein
by reference. HOLDERS OF OFFICE DEPOT COMMON STOCK ARE URGED TO,
8
<PAGE>
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinions of
Financial Advisors--Office Depot."
INTERESTS OF CERTAIN PERSONS
Substantially all outstanding stock options for the purchase of Staples
Common Stock were granted pursuant to option agreements that provide for partial
or full acceleration of the exercisability of such options in connection with a
change in control (as defined in such option agreements) of Staples. Staples has
also entered into a Severance Benefits Agreement with each of its executive
officers, as well as certain other members of management, which provide certain
benefits in the event of the termination of such officer's employment by Staples
without cause or by such officer for good reason (each as defined in such
Agreements); such benefits are increased in the event such a termination of
employment occurs within two years following a change in control of Staples (as
defined in such agreements). The approval of the Merger by Staples stockholders
will constitute a change in control of Staples within the meaning of both the
stock option agreements and Severance Benefits Agreements. See "The
Merger--Interests of Certain Persons in the Merger--Staples Stock Option and
Severance Agreements."
All outstanding stock options for the purchase of Office Depot Common Stock
were granted pursuant to option agreements that provide that such options shall
become exercisable in full from and after the date of a change in control of
Office Depot. The Merger will constitute a change in control of Office Depot
within the meaning of such option agreements. See "The Merger--Interests of
Certain Persons in the Merger--Office Depot Stock Options." See also "The Merger
Agreement--Stock Options and Employee Benefits" and "Office Depot,
Inc.--Security Ownership of Certain Beneficial Owners and Management."
Each of the executive officers of Office Depot, as well as a number of other
members of Office Depot management, has entered into an Employment Agreement
with Staples, which will take effect upon the closing of the Merger. See "The
Merger--Interests of Certain Persons in the Merger--Employment Agreements."
Pursuant to the Merger Agreement, Staples has agreed to indemnify each
present and former director and officer of Office Depot against liabilities or
expenses incurred in connection with claims relating to matters prior to the
closing of the Merger, and to maintain in effect directors' and officers'
liability insurance for their benefit. See "The Merger Agreement--Director and
Officer Indemnification."
Peter J. Solomon, a member of the Office Depot Board, is also Chairman of
Peter J. Solomon Company Limited ("PJSC"). PJSC was engaged by Office Depot to
provide investment banking services in connection with the Merger. See "The
Merger--Background of the Merger" and "The Merger--Interests of Certain Persons
in the Merger--Arrangements with PJSC."
See "The Merger--Interests of Certain Persons in the Merger --Ownership and
Voting of Stock" for a description of the Staples Common Stock and Office Depot
Common Stock owned by Staples and Office Depot directors and officers and their
affiliates.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware (the time of the filing of
such Certificate of Merger is referred to herein as the "Effective Time"). The
Effective Time will occur as promptly as practicable after the requisite
stockholder approvals have been obtained and all other conditions to the Merger
have been satisfied or waived.
MANAGEMENT AND OPERATIONS OF STAPLES/OFFICE DEPOT FOLLOWING THE MERGER
The Board of Directors of Staples/Office Depot, following the Effective
Time, will consist of the following 15 persons: Thomas G. Stemberg, Martin E.
Hanaka, James L. Moody, Jr., Rowland T. Moriarty,
9
<PAGE>
Robert C. Nakasone, W. Mitt Romney, Martin Trust, Paul F. Walsh (all of whom are
currently directors of Staples), David I. Fuente, Herve Defforey, James L.
Heskett, Frank Scruggs, Peter J. Solomon and Cynthia Cohen Turk (all of whom are
currently directors of Office Depot) and one additional independent director to
be mutually agreed upon.
Upon the closing of the Merger, David I. Fuente, who is currently Chairman
of the Board and Chief Executive Officer of Office Depot, will become Executive
Chairman of Staples/Office Depot; Thomas G. Stemberg, who is currently Chairman
of the Board and Chief Executive Officer of Staples, will become Chief Executive
Officer of Staples/Office Depot; and Martin E. Hanaka, who is currently
President and Chief Operating Officer of Staples, will become President and
Chief Operating Officer of Staples/Office Depot. For additional information
regarding the senior management of Staples/Office Depot following the Merger,
see "The Merger--Management and Operations of Staples/Office Depot Following the
Merger."
Staples/Office Depot currently expects to change the name of both Staples'
retail stores (most of which currently operate under the name "Staples--The
Office Superstore") and Office Depot's retail stores (most of which currently
operate under the name "Office Depot") to "Staples--The Office Depot." The
corporate headquarters of Staples/Office Depot will continue to be located in
Massachusetts. However, it is currently anticipated that certain significant
functions (including the MIS department and certain accounting functions of
Office Depot) will continue to be located in Delray Beach, Florida, the current
headquarters of Office Depot.
CONDITIONS TO THE MERGER
The obligations of Staples and Office Depot to consummate the Merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining requisite approvals of the stockholders of Staples and Office
Depot, obtaining requisite regulatory approvals (including under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act")), the continuing accuracy as of the Effective Time of the representations
and warranties made by Staples and Office Depot in the Merger Agreement, the
receipt of certain legal opinions with respect to tax matters and the receipt of
an accountants' letter with respect to qualification of the Merger as a pooling
of interests transaction. Each party has the right to waive certain of the
closing conditions referred to above. See "The Merger-- Accounting Treatment,"
"The Merger--Certain Federal Income Tax Consequences," "The Merger-- Regulatory
Approvals" and "The Merger Agreement--Conditions."
TERMINATION
The Merger Agreement is subject to termination (i) by mutual written consent
of Staples and Office Depot, (ii) at the option of either Staples or Office
Depot if the Merger is not consummated by February 28, 1997 (although either
Staples or Office Depot may unilaterally extend such date to May 31, 1997) and
(iii) prior to such time upon the occurrence of certain events. See "The Merger
Agreement-- Termination; Termination Fees and Expenses."
Under certain circumstances, either Staples or Office Depot may be required
to reimburse the other party for expenses of up to $5,000,000 or to pay the
other party a termination fee of $75,000,000 if the Merger Agreement is
terminated. See "The Merger Agreement--Termination; Termination Fees and
Expenses" and "Stock Option Agreements."
STOCK OPTION AGREEMENTS
Staples and Office Depot have entered into Stock Option Agreements, each
dated as of September 4, 1996, pursuant to which (i) Staples has the right,
under certain circumstances, to purchase up to 31,200,000 shares of Office Depot
Common Stock (or approximately 19.9% of the outstanding Office Depot Common
Stock as of September 4, 1996 prior to giving effect to such issuance) at a
price of $20.325 per share (the "Staples Stock Option Agreement"), and (ii)
Office Depot has the right, under certain circumstances, to
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<PAGE>
purchase up to 31,900,000 shares of Staples Common Stock (or approximately 19.9%
of the outstanding Staples Common Stock as of September 4, 1996 prior to giving
effect to such issuance) at a price of $18.5625 per share (the "Office Depot
Stock Option Agreement"). Each Stock Option Agreement contains other features
which, among other things, (1) permit the optionholder to receive a cash payment
in lieu of stock upon exercise of the option and (2) limit the profit which the
optionholder can realize in connection with the option. See "Stock Option
Agreements."
NO APPRAISAL RIGHTS
Holders of Office Depot Common Stock are not entitled to appraisal rights
under Section 262 of the Delaware General Corporation Law (the "DGCL") in
connection with the Merger because the Office Depot Common Stock was listed on
the New York Stock Exchange on the record date for the Office Depot Special
Meeting and the shares of Staples Common Stock to be issued pursuant to the
Merger will be listed on the Nasdaq National Market or the New York Stock
Exchange as of the Effective Time. Holders of Staples Common Stock are not
entitled to appraisal rights under Section 262 of the DGCL in connection with
the Merger because Staples is not a constituent corporation in the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by Staples or Office Depot and no gain or loss will be
recognized by Office Depot stockholders, except in respect of cash received in
lieu of fractional shares. A condition to the Merger is that Staples and Office
Depot each have received an opinion of counsel to the effect that the Merger
will constitute a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). For a further
discussion of the federal income tax consequences of the Merger, see "The
Merger--Certain Federal Income Tax Consequences." See also "The Merger
Agreement--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Staples has been advised by its independent
accountants that they believe the Merger will qualify as a pooling of interests
under generally accepted accounting principles. Under this method of accounting,
the recorded assets and liabilities of Staples and Office Depot will be carried
forward to the combined company at their recorded amounts, the operating results
of the combined company will include the operating results of Staples and Office
Depot for the entire fiscal year in which the combination occurs and the
reported operating results of the separate companies for prior periods will be
combined and restated as the operating results of the combined company. A
condition to the Merger is that Staples and Office Depot shall have received a
letter from Ernst & Young LLP ("Ernst & Young"), Staples' independent
accountants, regarding its concurrence with the conclusions of Staples'
management as to the appropriateness of pooling of interests accounting, under
Accounting Principles Board Opinion No. 16, for the Merger. See "The
Merger--Accounting Treatment" and "The Merger Agreement--Conditions."
SURRENDER OF CERTIFICATES
Following the Effective Time, Staples will mail a letter of transmittal to
all holders of record of Office Depot Common Stock immediately prior to the
Merger containing instructions for surrendering their stock certificates in
exchange for certificates representing shares of Staples Common Stock and a cash
payment in lieu of fractional shares, if any. CERTIFICATES SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. See "The Merger
Agreement--Conversion of Shares."
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<PAGE>
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF OFFICE DEPOT COMMON
STOCK
Upon consummation of the Merger, holders of Office Depot Common Stock will
become stockholders of Staples. The internal affairs of Staples are governed by
the DGCL and Staples' Certificate of Incorporation and By-Laws. The Merger will
result in certain differences in the rights of holders of Office Depot Common
Stock. See "Description of Staples Capital Stock" and "Comparison of Stockholder
Rights."
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<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following selected historical financial information of Staples and
Office Depot has been derived from their respective historical financial
statements and should be read in conjunction with such consolidated financial
statements and the notes thereto incorporated by reference herein. See
"Available Information" and "Incorporation of Certain Documents by Reference."
The Staples and Office Depot historical financial statement information as of
and for the interim periods presented below has been prepared on the same basis
as the historical information derived from audited financial statements and, in
the opinion of management of the respective companies, includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations of the respective companies
as of such dates and for such periods.
The selected pro forma combined financial information is derived from the
pro forma combined condensed financial statements, appearing elsewhere herein,
which give effect to the Merger as a pooling of interests, and should be read in
conjunction with such pro forma statements and the notes thereto. For the
purpose of the pro forma combined statement of income data, Staples' results of
operations for the fiscal years ended January 29, 1994, January 28, 1995 and
February 3, 1996 and the nine months ended October 28, 1995 and November 2, 1996
have been combined with Office Depot's results of operations for the fiscal
years ended December 25, 1993, December 31, 1994 and December 30, 1995 and the
nine months ended September 30, 1995 and September 28, 1996, respectively. For
the purpose of the pro forma combined balance sheet, Staples' consolidated
balance sheet as of November 2, 1996 has been combined with Office Depot's
consolidated balance sheet as of September 28, 1996, giving effect to the Merger
as if it had occurred on November 2, 1996.
The pro forma combined information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have been achieved if the Merger had been consummated as of
the beginning of the periods presented, nor is it necessarily indicative of the
future operating results or financial position of Staples/Office Depot. The pro
forma combined financial information does not give effect to any cost savings
which may result from the integration of Staples' and Office Depot's operations.
Additionally, the pro forma combined statements of income do not include the
merger-related, consolidation and integration expenses associated with the
Merger (which are currently estimated to be approximately $520 million,
excluding the deferred tax benefit of $175 million relating to these expenses).
No material adjustments were required to conform the accounting policies of the
two companies.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1992(1) 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
STAPLES--INCOME STATEMENT DATA
Sales........................... $ 762,838 $1,041,636 $1,308,634 $2,000,149 $3,068,061 $2,092,526 $2,803,676
Operating income................ 21,043 37,457 37,685 81,727 147,813 86,650 122,649
Net income...................... 3,408 18,318 19,452 39,940 73,705 38,840 59,538
Net income per common share..... $ .03 $ .14 $ .14 $ .28 $ .46 $ .24 $ .36
STAPLES--BALANCE SHEET DATA
Working capital................. $ 130,283 $ 234,686 $ 214,326 $ 289,395 $ 504,330 $ 567,033
Total assets.................... 357,164 545,207 650,756 1,008,454 1,402,775 1,783,614
Long-term debt, less current
portion....................... 83,535 121,353 123,592 249,387 343,647 439,599
Stockholders' equity............ 157,768 256,321 287,207 384,990 611,416 692,171
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1991 1992 1993 1994(1) 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------- -------------
OFFICE DEPOT--
INCOME STATEMENT
DATA
Sales............... $1,497,882 $1,962,953 $2,836,787 $4,266,199 $5,313,192 $ 3,888,730 $ 4,524,010
Operating income.... 44,694 71,855 122,538 192,829 244,077 179,583 176,868
Net income (2)...... 19,400 46,641 70,832 104,957 132,399 96,734 93,578
Net income per
common share--
primary........... $ .15 $ .33 $ .48 $ .69 $ .85 $ .63 $ .59
Net income per
common share--
fully diluted..... $ .15 $ .33 $ .48 $ .68 $ .83 $ .61 $ .58
OFFICE DEPOT--
BALANCE SHEET DATA
Working capital..... $ 203,326 $ 386,426 $ 471,114 $ 487,333 $ 708,984 $ 784,468
Total assets........ 607,938 908,585 1,531,092 1,903,983 2,531,217 2,590,817
Long-term debt, less
current portion... 9,259 158,313 367,602 393,800 494,910 524,874
Stockholders'
equity............ 331,699 413,907 590,284 715,271 1,002,995 1,116,225
</TABLE>
- ------------------------
(1) Fiscal year consisted of 53 weeks. All other fiscal years presented consist
of 52 weeks.
(2) Net income for the years ended December 28, 1991 and December 26, 1992
includes an extraordinary credit of $614 and $1,396, respectively.
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<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1994 1995(3) 1996(3) 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME (1):
Sales...................................... $ 4,145,421 $ 6,266,348 $ 8,381,253 $ 5,981,256 $ 7,327,686
Net income................................. 85,449 144,569 206,441 135,828 153,370
Net income per common share-- primary...... $ .28 $ .46 $ .61 $ .40 $ .44
Net income per common share--fully diluted $ .28 $ .46 $ .60 $ .40 $ .44
Shares used to compute net income per
common share--primary.................... 302,606 314,191 339,406 337,936 347,079
Shares used to compute net income per
common share--fully diluted.............. 314,901 333,188 358,434 357,011 366,061
<CAPTION>
NOVEMBER 2, 1996 (2)
--------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA (1):
Working capital.................................................................................... $ 981,501
Total assets....................................................................................... 4,294,859
Long-term debt, less current portion............................................................... 964,473
Stockholders' equity............................................................................... 1,458,824
</TABLE>
- ------------------------
(1) See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
(2) The pro forma combined balance sheet as of November 2, 1996 includes an
accrual of $520 million for the estimated merger-related, consolidation and
integration expenses and the deferred tax benefit of $175 million relating
to these expenses.
(3) Fiscal year ended January 28, 1995 consists of 53 weeks for Office Depot and
52 weeks for Staples. Fiscal year ended February 3, 1996 consists of 53
weeks for Staples and 52 weeks for Office Depot. All other fiscal years
presented consist of 52 weeks for both companies.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited historical per share data
of Staples and Office Depot and combined per share data on an unaudited pro
forma basis after giving effect to the Merger on a pooling of interests basis
(and assuming the issuance of 1.14 shares of Staples Common Stock in the Merger
in exchange for each share of Office Depot Common Stock). This data should be
read in conjunction with the selected financial data and the unaudited pro forma
combined condensed financial statements included elsewhere in this Joint Proxy
Statement/Prospectus and the separate historical financial statements of Staples
and Office Depot incorporated by reference herein. The pro forma combined
financial data are not necessarily indicative of the operating results or
financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
Staples/Office Depot. Neither Staples nor Office Depot has ever paid any cash
dividends on its Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1994 1995 1996(1) 1995 1996
--------------- --------------- --------------- --------------- ---------------
HISTORICAL--STAPLES:
Net income............................. $ .14 $ .28 $ .46 $ .24 $ .36
Book value............................. $ 2.16 $ 2.72 $ 3.86 $ 3.59 $ 4.30
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------- --------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994(1) 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
HISTORICAL--OFFICE DEPOT:
Net income--primary.................... $ .48 $ .69 $ .85 $ .63 $ .59
Net income--fully diluted.............. $ .48 $ .68 $ .83 $ .61 $ .58
Book value............................. $ 4.02 $ 4.79 $ 6.44 $ 6.17 $ 7.11
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------- --------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1994 1995(2) 1996(2) 1995 1996(3)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED--PER STAPLES/OFFICE
DEPOT SHARE(4):
Net income--primary.................... $ .28 $ .46 $ .61 $ .40 $ .44
Net income--fully diluted.............. $ .28 $ .46 $ .60 $ .40 $ .44
Book value............................. $ 2.92 $ 3.53 $ 4.81 $ 4.56 $ 4.29
EQUIVALENT PRO FORMA COMBINED--PER
OFFICE DEPOT SHARE(5):
Net income--primary.................... $ .32 $ .52 $ .70 $ .46 $ .50
Net income--fully diluted.............. $ .32 $ .52 $ .68 $ .46 $ .50
Book value............................. $ 3.33 $ 4.02 $ 5.48 $ 5.20 $ 4.89
</TABLE>
- ------------------------
(1) Fiscal year consisted of 53 weeks. All other fiscal years presented are
52-week years.
(2) Fiscal year ended January 28, 1995 consists of 53 weeks for Office Depot and
52 weeks for Staples. Fiscal year ended February 3, 1996 consists of 53
weeks for Staples and 52 weeks for Office Depot. All other fiscal years
presented consist of 52 weeks for both companies.
(3) The pro forma combined balance sheet as of November 2, 1996 includes an
accrual of $520 million for the estimated merger-related, consolidation and
integration expenses and the deferred tax benefit of $175 million relating
to these expenses. See Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
(4) For the purposes of the pro forma combined data, Staples' financial data for
the fiscal years ended January 29, 1994, January 28, 1995 and February 3,
1996 and the nine months ended October 28, 1995 and November 2, 1996 have
been combined with Office Depot's financial data for the fiscal years ended
December 25, 1993, December 31, 1994 and December 30, 1995 and the nine
months ended September 30, 1995 and September 28, 1996, respectively.
(5) The equivalents of Office Depot's pro forma per share amounts are calculated
by multiplying the combined pro forma per share amounts by the Exchange
Ratio of 1.14 shares of Staples Common Stock for each share of Office Depot
Common Stock.
16
<PAGE>
MARKET PRICE INFORMATION
Staples Common Stock is quoted on the Nasdaq National Market under the
symbol "SPLS." Office Depot Common Stock is listed on the New York Stock
Exchange under the symbol "ODP."
The table below sets forth, for the fiscal quarters indicated, the reported
high and low sale prices of Staples Common Stock and Office Depot Common Stock
on the Nasdaq National Market and the New York Stock Exchange, respectively. For
purposes of comparison, the Office Depot Common Stock price information is
presented for the fiscal periods of Staples rather than for Office Depot's
historical fiscal periods.
<TABLE>
<CAPTION>
STAPLES OFFICE DEPOT
COMMON STOCK COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FISCAL 1994
Quarter ended April 30, 1994.................................... $ 9.41 $ 7.19 $ 26.50 $ 20.92
Quarter ended July 30, 1994..................................... 9.04 7.15 25.75 18.88
Quarter ended October 29, 1994.................................. 10.67 7.04 27.00 20.88
Quarter ended January 28, 1995.................................. 11.22 8.78 26.13 21.63
FISCAL 1995
Quarter ended April 29, 1995.................................... 12.89 10.17 26.50 20.88
Quarter ended July 29, 1995..................................... 15.67 10.17 31.75 22.25
Quarter ended October 28, 1995.................................. 19.42 13.92 32.13 26.50
Quarter ended February 3, 1996.................................. 18.83 12.58 30.00 16.88
FISCAL 1996
Quarter ended May 4, 1996....................................... 21.63 16.00 23.88 18.50
Quarter ended August 3, 1996.................................... 21.50 14.38 25.63 12.88
Quarter ended November 2, 1996.................................. 22.63 16.88 23.75 15.38
Quarter ending February 1, 1997
(through January 22, 1997).................................... 22.00 17.13 21.88 16.88
</TABLE>
On September 3, 1996, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sale price of Staples Common Stock on the Nasdaq National Market was
$19.50 per share, and the last reported sale price of Office Depot Common Stock
on the New York Stock Exchange was $15.875 per share. Based on an Exchange Ratio
of 1.14 shares of Staples Common Stock for each share of Office Depot Common
Stock, the pro forma equivalent per share value of Office Depot Common Stock on
September 3, 1996 was $22.23 per share.
On January 22, 1997, the most recent practicable date prior to the printing
of this Joint Proxy Statement/Prospectus, the last reported sale price of
Staples Common Stock on the Nasdaq National Market was $21.25 per share, and the
last reported sale price of Office Depot Common Stock on the New York Stock
Exchange was $20.75 per share.
Because the market price of Staples Common Stock is subject to fluctuation,
the market value of the shares of Staples Common Stock that holders of Office
Depot Common Stock will receive in the Merger may increase or decrease prior to
the Merger.
STAPLES AND OFFICE DEPOT STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE STAPLES COMMON STOCK AND THE OFFICE DEPOT COMMON STOCK.
17
<PAGE>
RISK FACTORS
The following risk factors, in addition to the other information contained
or incorporated by reference in this Joint Proxy Statement/Prospectus, should be
considered by holders of Staples Common Stock in evaluating whether to approve
the Merger Proposal and by holders of Office Depot Common Stock in evaluating
whether to approve and adopt the Merger Agreement and thereby become holders of
Staples Common Stock.
RISKS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. Staples, which is headquartered in
Massachusetts, operates over 500 office product superstores in various markets
across the United States and Canada; operates a delivery business and contract
stationer businesses; and is a joint venture partner in office supply store
chains in the United Kingdom and Germany. Office Depot, which is headquartered
in Florida, operates over 500 office product superstores in various markets
(most of which are different from those of Staples) across the United States and
Canada; operates a Business Services Division providing delivery and contract
stationer services; and has joint ventures or licensed operations in Colombia,
Israel, Poland, Mexico and France. Integrating the operations (including product
purchasing, distribution of product to stores, marketing plans and activities,
employee hiring and training, and expansion strategy) and management of the two
companies will be a time-consuming process and is currently expected to result
in the closing of approximately 50 stores of Staples/Office Depot, and there can
be no assurance that this integration will result in the achievement of all of
the anticipated synergies and other benefits expected to be realized from the
Merger. In addition, any required divestitures of stores or assets or other
commitments required by the FTC (see "the Merger--Regulatory Approvals") could
limit the synergies and other benefits expected. Moreover, the integration of
these organizations will require the dedication of management resources, which
may temporarily distract attention from the day-to-day business of the combined
company. The inability of management to successfully integrate the operations of
the two companies could have a material adverse effect on the business and
operating results of Staples/Office Depot. See "The Merger--Reasons for the
Merger; Recommendations of the Boards of Directors."
MERGER-RELATED CHARGES. Staples and Office Depot estimate that, as a result
of the Merger, the combined company will incur consolidation and integration
expenses of approximately $484 million. In addition, it is expected that Staples
and Office Depot will incur merger-related expenses of approximately $36
million, consisting of investment banking, legal and accounting fees and
financial printing and other related charges. The combined company expects to
incur a $400 million charge relating to the above-referenced expenses in the
quarter in which the Merger is consummated. The remaining charge of $120 million
will be expensed as it is incurred. The respective managements of Staples and
Office Depot anticipate that plans and decisions will be completed and a
substantial portion of the remaining $120 million charge will be recorded during
fiscal year 1997. The amount of these charges is a preliminary estimate and is
subject to change. Moreover, additional unanticipated expenses may be incurred
in connection with the integration of the businesses of Staples and Office
Depot.
FIXED CONVERSION RATIO DOES NOT REFLECT CHANGES IN STOCK PRICES. The number
of shares of Staples Common Stock into which each share of Office Depot Common
Stock is to be converted in the Merger is fixed. The market value of Staples
Common Stock and/or Office Depot Common Stock at the Effective Time of the
Merger may vary significantly from the price as of the date of execution of the
Merger Agreement, the date hereof or the date on which stockholders vote on the
Merger due to, among other factors, market perception of the synergies expected
to be achieved by the Merger, changes in the business, operations or prospects
of Staples or Office Depot, market assessments of the likelihood that the Merger
will be consummated and the timing thereof, and general market and economic
conditions. Because the Exchange Ratio will not be adjusted to reflect changes
in the market value of Staples Common Stock or Office Depot Common Stock, the
market value of the Staples Common Stock issued in the Merger, and
18
<PAGE>
the market value of the Office Depot Common Stock surrendered in the Merger, may
be higher or lower than the value of such shares at the time the Merger was
negotiated or approved by stockholders.
RISKS RELATING TO STAPLES/OFFICE DEPOT
Because of the similar nature of the business of Staples and Office Depot,
the risks set forth below apply to the operations of each company individually
as well as to the operations of the combined company following the Merger.
COMPETITION. Both Staples and Office Depot operate in a highly competitive
marketplace, in which they compete with a variety of retailers, dealers and
distributors. Each of Staples and Office Depot competes in many of its
geographic markets with Office Max, another high-volume office products
retailer, independent dealers, contract stationers, mail order stationers,
wholesale clubs, mass merchandisers, consumer electronics retailers, computer
superstores and manufacturers. Some of the current and potential competitors of
Staples and Office Depot in the office products industry are larger and have
greater financial resources than Staples and Office Depot (even as a combined
company). No assurance can be given that competition will not have an adverse
effect on the business of Staples and Office Depot.
GROWTH STRATEGY. An important part of the business plans of both Staples
and Office Depot is an aggressive store growth strategy. Staples opened 94
stores in the United States and Canada in fiscal 1995 and plans to open
approximately 115 new stores in fiscal 1996. Office Depot opened 82 new stores
in the United States and Canada in fiscal 1995 and opened 60 new stores in
fiscal 1996. Management of both companies anticipates that this aggressive store
growth strategy will continue to be pursued by Staples/ Office Depot following
the closing of the Merger. There can be no assurance that either company (or,
following the Merger, Staples/Office Depot) will be able to identify and lease
favorable store sites, 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 such company's future sales and
profits. Moreover, the expansion strategies of Staples and Office Depot are each
based in part on the continued addition of new stores to 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 will achieve sales or profit levels
commensurate with those of existing stores.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Both Staples and Office Depot
have experienced in the past, and either company (or, following the Merger,
Staples/Office Depot) may experience in the future, fluctuations in its
quarterly operating results. Moreover, there can be no assurance that
Staples/Office Depot will continue to realize the earnings growth experienced by
the two companies over recent years, or that earnings in any particular quarter
will not fall short of either a prior fiscal quarter or investors' expectations.
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 quarterly variability in
operating results. In addition, both companies' 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 net income.
MANAGEMENT OF GROWTH. The business of both Staples and Office Depot,
including sales, number of stores and number of employees, has grown
dramatically over the past several years. In addition, each 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, have resulted in integration costs and placed significant
demand on the management and operational systems of both companies. To manage
their growth effectively, both Staples and Office Depot (and, following the
19
<PAGE>
Merger, Staples/Office Depot) will be required to continue to upgrade their
operational and financial systems, expand their management team and increase and
manage their employee base.
INTERNATIONAL OPERATIONS. Both Staples and Office Depot have a presence in
international markets, primarily through joint ventures or licensing
arrangements. Staples/Office Depot may enter additional international markets in
the future. Operations in foreign markets are subject to risks similar to those
affecting such companies' North American stores, in addition to a number of
risks inherent in these foreign operations, including lack of complete operating
control, local customs and competitive conditions and foreign currency
fluctuations. Both Staples' and Office Depot's foreign operations are at an
early stage of development and are currently unprofitable, and there can be no
assurance that they will become profitable.
FUTURE CASH NEEDS. Staples and Office Depot each currently expects that the
cash and cash equivalents of the combined company, together with the funds
available under the proposed new $800 million credit agreement to be entered
into by Staples/Office Depot upon the closing of the Merger, will be sufficient
to fund the planned store openings and other operating cash needs of
Staples/Office Depot for at least the next twelve months. However, there can be
no assurance that Staples/Office Depot 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, whether
within the next twelve months or thereafter, will be available on satisfactory
terms.
20
<PAGE>
THE STAPLES SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Staples Common Stock in connection with the solicitation of proxies by the
Staples Board of Directors for use at the Staples Special Meeting to be held on
Thursday, February 27, 1997, at the offices of Hale and Dorr LLP, 60 State
Street, Boston Massachusetts, commencing at 9:00 a.m., local time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Staples on or about January 29, 1997.
MATTERS TO BE CONSIDERED
At the Staples Special Meeting, holders of Staples Common Stock will be
asked to consider and vote upon:
(i) the issuance of shares of Staples Common Stock in exchange for
shares of Office Depot Common Stock pursuant to the Merger Agreement (the
Merger Proposal);
(ii) an amendment to Staples' Certificate of Incorporation to change the
name of Staples to "Staples/Office Depot, Inc." (the Charter Proposal);
(iii) an amendment to Staples' 1992 Equity Incentive Plan to increase the
number of shares of Staples Common Stock authorized for issuance under the
Plan from 21,600,000 to 39,000,000 shares (the Plan Proposal); and
(iv) such other matters as may properly be brought before the Staples
Special Meeting, or any adjournment or postponement thereof.
BOARDS OF DIRECTORS' RECOMMENDATIONS
The Board of Directors of Staples has unanimously approved the Merger
Proposal, the Charter Proposal and the Plan Proposal and recommends a vote FOR
approval of such proposals.
RECORD DATE AND VOTING
Staples has fixed January 22, 1997 as the record date for the determination
of the Staples stockholders entitled to notice of and to vote at the Staples
Special Meeting. Accordingly, only holders of record of Staples Common Stock on
the record date will be entitled to notice of and to vote at the Staples Special
Meeting. As of January 22, 1997, there were outstanding and entitled to vote
162,084,342 shares of Staples Common Stock (constituting all of the voting stock
of Staples), which shares were held by approximately 9,234 holders of record.
Each holder of record of shares of Staples Common Stock on the record date is
entitled to one vote per share, which may be cast either in person or by
properly executed proxy, at the Staples Special Meeting. The presence, in person
or by properly executed proxy, of the holders of a majority of the outstanding
shares of Staples Common Stock entitled to vote at the Staples Special Meeting
is necessary to constitute a quorum at the Staples Special Meeting.
The approval of the Merger Proposal will require the affirmative vote of the
holders of shares of Staples Common Stock representing a majority of the votes
cast on the proposal. The approval of the Charter Proposal will require the
affirmative vote of the holders of a majority of the shares of Staples Common
Stock outstanding on the record date. The approval of the Plan Proposal will
require the affirmative vote of the holders of shares of Staples Common Stock
representing a majority of the votes cast on the proposal. The approval of the
issuance of shares of Staples Common Stock pursuant to the Merger is required by
the rules of the National Association of Securities Dealers, Inc. governing
corporations with
21
<PAGE>
securities listed on the Nasdaq National Market. The approval of neither the
Charter Proposal nor the Plan Proposal is a condition to the approval of the
Merger Proposal or the consummation of the Merger.
Shares of Staples Common Stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
Staples Special Meeting. Shares which abstain from voting as to a particular
matter will be treated as shares that are present and entitled to vote at the
Staples Special Meeting for purposes of determining whether a quorum exists, but
will not be counted as votes cast on such matter. If a broker or nominee holding
stock in "street name" indicates on a proxy that it does not have discretionary
authority to vote as to a particular matter ("broker non-votes"), those shares
will be treated as present and entitled to vote at the Staples Special Meeting
for purposes of determining whether a quorum exists, but will not be counted as
votes cast on such matter. Accordingly, in determining whether the Merger
Proposal and the Plan Proposal have received the requisite number of affirmative
votes, abstentions and broker non-votes will have no effect on the voting on
such proposals; and in determining whether the Charter Proposal has received the
requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as a vote against the Charter Proposal.
As of December 31, 1996, directors and executive officers of Staples and
their affiliates may be deemed to be beneficial owners of approximately 6.2% of
the outstanding shares of Staples Common Stock. Each of the directors and
executive officers of Staples has advised Staples that he or she intends to vote
or direct the vote of all shares of Staples Common Stock over which he or she
has voting control for approval of the Merger Proposal, the Charter Proposal and
the Plan Proposal. See "Staples, Inc.--Security Ownership of Certain Beneficial
Owners and Management."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Staples
stockholders in connection with the solicitation of proxies by and on behalf of
the Board of Directors of Staples for use at the Staples Special Meeting, and is
accompanied by a form of proxy.
All shares of Staples Common Stock which are entitled to vote and are
represented at the Staples Special Meeting by properly executed proxies received
prior to or at such Meeting, and not revoked, will be voted at such Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted for approval of the Merger Proposal, the Charter Proposal and the Plan
Proposal.
If any other matters are properly presented at the Staples Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn such Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Staples, at or before the taking of the vote at the
Staples Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Staples before the taking of the
vote at the Staples Special Meeting or (iii) attending the Staples Special
Meeting and voting in person (although attendance at the Staples Special Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent to Staples, Inc., One
Research Drive, Westborough, Massachusetts 01581, Attention: Secretary, or hand
delivered to the Secretary of Staples at or before the taking of the vote at the
Staples Special Meeting.
22
<PAGE>
All expenses of Staples' solicitation of proxies, including the cost of
preparing and mailing this Joint Proxy Statement/Prospectus to Staples
stockholders, will be borne by Staples. In addition to solicitation by use of
the mails, proxies may be solicited from Staples stockholders by directors,
officers and employees of Staples in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Staples has retained Corporate
Investor Communications, Inc., a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the Staples Special Meeting at a
cost of approximately $6,000 plus reimbursement of reasonable out-of-pocket
expenses. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and Staples will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
23
<PAGE>
THE OFFICE DEPOT SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Office Depot Common Stock in connection with the solicitation of proxies by the
Office Depot Board of Directors for use at the Office Depot Special Meeting to
be held on Thursday, February 27, 1997, at the offices of Kirkland & Ellis, 153
East 53rd Street, New York, New York, commencing at 9:00 a.m., local time, and
at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Office Depot on or about January 27,
1997.
MATTERS TO BE CONSIDERED
At the Office Depot Special Meeting, holders of Office Depot Common Stock
will be asked to consider and vote upon a proposal to approve and adopt the
Merger Agreement and such other matters as may properly be brought before the
Office Depot Special Meeting, or any adjournment or postponement thereof.
BOARDS OF DIRECTORS' RECOMMENDATIONS
The Board of Directors of Office Depot has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
RECORD DATE AND VOTING
The Office Depot Board of Directors has fixed January 22, 1997 as the record
date for the determination of the Office Depot stockholders entitled to notice
of and to vote at the Office Depot Special Meeting. Accordingly, only holders of
record of shares of Office Depot Common Stock on the record date will be
entitled to notice of and to vote at the Office Depot Special Meeting. As of
January 22, 1997, there were outstanding and entitled to vote 157,266,501 shares
of Office Depot Common Stock (constituting all of the voting stock of Office
Depot), which shares were held by approximately 3,343 holders of record. Each
holder of record of shares of Office Depot Common Stock on the record date is
entitled to one vote per share, which may be cast either in person or by
properly executed proxy, at the Office Depot Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Office Depot Common Stock entitled to vote at the Office
Depot Special Meeting is necessary to constitute a quorum at the Office Depot
Special Meeting.
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Office Depot
Common Stock outstanding on the record date.
Shares of Office Depot Common Stock represented in person or by proxy will
be counted for the purpose of determining whether a quorum is present at the
Office Depot Special Meeting. Shares which abstain from voting as to a
particular matter, and shares held by a broker or nominee in "street name" which
indicates on a proxy that it does not have discretionary authority to vote as to
a particular matter, will be treated as shares that are present and entitled to
vote at the Office Depot Special Meeting for purposes of determining whether a
quorum exists. Because the Merger Agreement must be approved by the holders of a
majority of the shares of Office Depot Common Stock outstanding on the record
date, abstentions and broker non-votes will have the same effect as a vote
against the Merger Agreement.
As of December 31, 1996, directors and executive officers of Office Depot
and their affiliates may be deemed to have or share beneficial ownership of
approximately 7.7% of the outstanding shares of Office Depot Common Stock. Each
of the directors and executive officers of Office Depot has advised Office Depot
that he or she intends to vote or direct the vote of all shares of Office Depot
Common Stock over
24
<PAGE>
which he or she has or shares voting control for approval and adoption of the
Merger Agreement. See "Office Depot, Inc.--Security Ownership of Certain
Beneficial Owners and Management."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Office Depot
stockholders in connection with the solicitation of proxies by and on behalf of
the Board of Directors of Office Depot for use at the Office Depot Special
Meeting, and is accompanied by a form of proxy.
All shares of Office Depot Common Stock which are entitled to vote and are
represented at the Office Depot Special Meeting by properly executed proxies
received prior to or at such Meeting, and not revoked, will be voted at such
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted for approval and adoption of the Merger Agreement.
If any other matters are properly presented at the Office Depot Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn such Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Office Depot, at or before the taking of the vote at the
Office Depot Special Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of Office Depot before the taking
of the vote at the Office Depot Special Meeting or (iii) attending the Office
Depot Special Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent to Office Depot, Inc.,
2200 Old Germantown Road, Delray Beach, Florida 33445, Attention: Secretary, or
hand delivered to the Secretary of Office Depot at or before the taking of the
vote at the Office Depot Special Meeting.
All expenses of Office Depot's solicitation of proxies, including the cost
of mailing this Joint Proxy Statement/Prospectus to Office Depot stockholders,
will be borne by Office Depot. In addition to solicitation by use of the mails,
proxies may be solicited from Office Depot stockholders by directors, officers
and employees of Office Depot in person or by telephone, telegram or other means
of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Office Depot has retained
Corporate Investor Communications, Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the Office Depot
Special Meeting at a cost of approximately $6,500 plus reimbursement of
reasonable out-of-pocket expenses. Arrangements will also be made with brokerage
houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and Office Depot will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
OFFICE DEPOT STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
Over the past several years, representatives and advisors of Staples and
representatives and advisors of Office Depot have from time to time had
conversations concerning the possibility of some type of business combination
involving the two companies. These conversations were exploratory in nature, and
did not progress beyond the preliminary stage.
In April 1996, Goldman Sachs, acting on behalf of Staples, contacted PJSC,
which had previously acted on behalf of Office Depot in various investment
banking matters, to explore the possibility of a strategic transaction with
Office Depot. In May 1996, Staples and Office Depot entered into a
confidentiality agreement for the purpose of permitting the exchange of certain
information between the parties.
In May and June 1996, representatives and advisors of Staples and
representatives and advisors of Office Depot met from time to time to exchange
information and to discuss the feasibility of, structure of and strategic
rationale for a business combination involving the two companies. These
discussions did not result in any agreement between the parties.
In late July 1996, Staples made a proposal to PJSC concerning a strategic
merger in which Staples would be the surviving company. During the first half of
August, a series of discussions ensued between advisors of the companies
regarding the Staples proposal. On August 16, 1996, Staples' representatives and
advisors and Office Depot's representatives and advisors met to discuss the
structure of a possible strategic merger, a range of possible exchange ratios
(the number of shares of Staples Common Stock to be issued in the merger in
exchange for each share of Office Depot Common Stock) and other terms. At the
end of this meeting, both Staples and Office Depot believed that it was
advisable to convene meetings of their respective Boards of Directors and
instruct their respective counsel to begin to prepare documentation for a
strategic business combination. On August 19, 1996, Office Depot retained
Merrill Lynch as a co-financial advisor with PJSC with respect to this potential
strategic transaction with Staples.
From August 17, 1996 through September 3, 1996, Staples and Office Depot and
their respective advisors proceeded with work on, and held a series of meetings
and discussions regarding, the Merger Agreement, Stock Option Agreements and
related documents, and the financial, legal and accounting "due diligence"
investigation of the respective companies. During this period, representatives
and advisors of Staples and Office Depot also held several meetings to negotiate
the principal business terms of the Merger, including the exchange ratio.
At meetings of the Staples Board held on August 23, 27 and 28, 1996, the
Staples directors discussed with Staples' management and legal and financial
advisors the status of the merger discussions with Office Depot, as well as the
proposed terms of the merger and the effects of the merger on Staples and the
combined companies. See "The Merger--Reasons for the Merger; Recommendations of
the Boards of Directors." The Staples Board met again on the afternoon of
September 3, 1996, at which meeting the proposed terms of the Merger Agreement
were discussed, Staples' management and advisors made presentations concerning
the Merger and Goldman Sachs delivered its oral opinion that, as of such date,
the Exchange Ratio was fair to Staples. See "The Merger--Opinions of Financial
Advisors--Staples." At such meeting, the Staples Board unanimously approved the
Merger Agreement and the issuance of shares of Staples Common Stock pursuant to
the Merger Agreement and unanimously recommended that the holders of Staples
Common Stock vote in favor of the Merger Proposal.
At meetings of the Office Depot Board held on August 21, 26, 28 and 30,
1996, the Office Depot directors discussed with Office Depot's management and
legal and financial advisors the status of the merger discussions with Staples,
as well as the proposed terms of the merger and the effects of the merger on
Office Depot and the combined companies. See "The Merger--Reasons for the
Merger; Recommendations of the Boards of Directors." The Office Depot Board met
again on the afternoon of September 3, 1996, at which meeting the proposed terms
of the Merger Agreement were discussed, Office Depot's
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management and advisors made presentations concerning the Merger and Merrill
Lynch delivered its written opinion that, as of such date and based upon and
subject to the factors and assumptions set forth therein, the Exchange Ratio was
fair to the holders of Office Depot Common Stock from a financial point of view.
See "The Merger--Opinions of Financial Advisors--Office Depot." At such meeting,
the Office Depot Board unanimously approved the Merger Agreement and unanimously
recommended that the holders of Office Depot Common Stock vote in favor of the
approval and adoption of the Merger Agreement.
During the evening of September 3, 1996, following the approval of the
Merger Agreement and related matters by the respective Boards of Directors of
Staples and Office Depot, Staples and Office Depot finalized, executed and
delivered the Merger Agreement and related documents. A joint public
announcement of the Merger was made by the parties on the morning of September
4, 1996.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Staples Board has unanimously determined that the Merger is in the best
interests of Staples and its stockholders and unanimously recommends that the
stockholders of Staples vote FOR approval of the Merger Proposal for the reasons
set forth below.
The Office Depot Board has unanimously determined that the Merger is in the
best interests of Office Depot and its stockholders and unanimously recommends
that the stockholders of Office Depot vote FOR approval and adoption of the
Merger Agreement for the reasons set forth below.
JOINT REASONS FOR THE MERGER
The Staples Board and the Office Depot Board believe that the Merger
represents a unique strategic fit between two companies with similar business
strategies and complementary geographical presence and operations. Both Boards
of Directors believe that Staples/Office Depot, as a combined company, will have
greater financial strength, operational efficiencies, earning power and growth
potential than either Staples or Office Depot would have on its own. The Staples
Board and the Office Depot Board identified a number of potential benefits of
the Merger which they believe will contribute to the success of the combined
company and thus inure to the benefit of stockholders of both companies,
including the following:
- SYNERGIES OF THE COMBINED COMPANY. Staples/Office Depot, as a combined
company, will have over $10 billion in revenues for fiscal 1996 and over
1,000 stores in the United States and Canada. Each Board of Directors
believes that this should result in a number of important synergies,
including (i) reduced product costs, as a result of benefits to be derived
from the significant increase in the volume of purchases and the
opportunities for more direct sourcing from manufacturers; (ii) reduced
advertising and marketing expenses (as a percentage of revenues of the
combined company), primarily as a result of the elimination of redundant
advertising and marketing programs by the separate companies and the
availability of national advertising at reduced rates; (iii) reduced
distribution costs (as a percentage of revenues of the combined company)
as a result of the combination of the complementary distribution networks
of the two companies; and (iv) reduced general and administrative expenses
(as a percentage of revenues of the combined company) due to the
opportunity to leverage certain financial and administrative functions
over a larger store and revenue base.
- COMBINATION OF BEST OF BOTH COMPANIES. The combined company will be able
to take advantage of the best personnel and the best operating systems and
practices currently employed by Staples and Office Depot. For example, the
management team of Staples/Office Depot will be expanded to include
highly-skilled executive officers of both Staples and Office Depot, and
the computer and information systems of the combined company will utilize
the best aspects of the systems currently used by Staples and Office Depot
individually.
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- COMPLEMENTARY STORE NETWORK. Although both Staples and Office Depot are
national chains, their store networks are highly complementary. Staples
stores are located predominantly in the Northeast and mid-Atlantic regions
and on the West Coast, while there are high concentrations of Office Depot
stores in the Southeast, Texas and California. The combined company will
have a presence in 134 of the 140 largest U.S. metropolitan statistical
areas, but both Staples and Office Depot stores currently are located in
only 30 of those metropolitan statistical areas. The increased store
network is expected to enable Staples/Office Depot to leverage marketing,
distribution and general and administrative expenses over a larger store
base.
- COMPLEMENTARY DELIVERY NETWORK. Both Staples and Office Depot have
delivery operations that service customers throughout the United States.
The combination of the distribution center networks of the two companies
is expected to result in cost savings by reducing the average distance
between delivery customers and the nearest distribution center of the
combined company. In addition, further savings will be realized as a
result of the combined company's ability to service a given geographic
area with a single delivery truck (rather than two trucks from separate
companies).
STAPLES' REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger Agreement, the Staples
Board consulted with management of Staples, as well as with its financial and
legal advisors, and considered the factors described above under "--Joint
Reasons for the Merger" and a number of additional factors, including the
following:
(i) The Staples Board considered the effectiveness of the Merger in
implementing and accelerating Staples' basic long-term growth strategy.
(ii) The Staples Board analyzed the financial performance and condition,
businesses and prospects of Staples and Office Depot, including, but not
limited to, information with respect to their respective recent and historic
stock prices and earnings performance. The Staples Board considered the
detailed financial analyses presented by Goldman Sachs, using the pro forma
financial information provided by the respective managements of Staples and
Office Depot, as well as the Staples Board's own knowledge of Staples,
Office Depot and their respective businesses.
(iii) The Staples Board considered the oral opinion of Goldman Sachs,
subsequently confirmed in writing as of the date hereof, that, as of
September 3, 1996, the Exchange Ratio was fair to Staples. See "The
Merger--Opinions of Financial Advisors--Staples."
(iv) The Staples Board considered the terms of the Merger Agreement and
the Stock Option Agreements, which are reciprocal in nature. The Staples
Board also considered certain other information regarding the Merger,
including the terms and structure of the Merger and the proposed
arrangements with respect to the Board of Directors and management structure
and operations of the combined company following the Merger. See "The
Merger--Management and Operations of Staples/Office Depot Following the
Merger."
(v) The Staples Board considered the effect on Staples stockholders of
Staples continuing as a stand-alone entity compared to the effect of Staples
combining with Office Depot, in light of the factors summarized above with
respect to the financial condition and prospects of the two companies on a
stand-alone basis and of the combined company, and the current economic,
financial and business environment.
(vi) The Staples Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities. See "The
Merger--Regulatory Approvals."
(vii) The Staples Board considered the expectation that the Merger will
be a tax-free transaction to Staples and its stockholders and will be
accounted for as a pooling of interests transaction. See
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"The Merger--Certain Federal Income Tax Consequences" and "The
Merger--Accounting Treatment."
(viii) The Staples Board considered the effect of the Merger on Staples'
other constituencies, including its senior management and other employees,
customers and the communities served by Staples. See "The Merger--Interests
of Certain Persons in the Merger."
The Staples Board also considered a number of potential risks relating to
the Merger, including (i) the difficulty and management distraction inherent in
integrating two large and geographically dispersed operations and the risk that
the synergies and benefits sought in the Merger would not be fully achieved,
(ii) the risk that the Merger would not be consummated, and the effect of the
public announcement of the Merger on the market price of Staples Common Stock
and (iii) the substantial charges expected to be incurred by Staples/Office
Depot in connection with the Merger. See "Risk Factors." The Staples Board
believed that these risks were outweighed by the potential benefits to be
realized from the Merger.
The foregoing discussion of the information and factors considered by the
Staples Board is not intended to be exhaustive but is believed to include all
material factors considered by the Staples Board. In view of the wide variety of
information and factors considered, the Staples Board did not find it practical
to, and did not, assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors.
OFFICE DEPOT'S REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger Agreement, the Office Depot
Board consulted with management of Office Depot, as well as with its financial
and legal advisors, and considered the factors described above under "--Joint
Reasons for the Merger" and a number of additional factors, including the
following:
(i) The Office Depot Board considered the effectiveness of the Merger in
implementing and accelerating Office Depot's basic long-term growth
strategy.
(ii) The Office Depot Board analyzed the financial performance and
condition, businesses and prospects of Staples and Office Depot, including,
but not limited to, information with respect to their respective recent and
historic stock prices and earnings performance. The Office Depot Board
considered the detailed financial analyses, pro forma and other information
with respect to Staples and Office Depot presented by PJSC and Merrill
Lynch, as well as the Office Depot Board's own knowledge of Staples, Office
Depot and their respective businesses.
(iii) The Office Depot Board considered the written opinion of Merrill
Lynch, that, as of September 3, 1996 and based upon and subject to the
factors and assumptions set forth therein, the Exchange Ratio was fair to
holders of Office Depot Common Stock from a financial point of view. See
"The Merger--Opinions of Financial Advisors--Office Depot."
(iv) The Office Depot Board considered the terms of the Merger Agreement
and the Stock Option Agreements, which are reciprocal in nature. The Office
Depot Board also considered certain other information regarding the Merger,
including the terms and structure of the Merger and the proposed
arrangements with respect to the Board of Directors and management structure
and operations of the combined company following the Merger. See "The
Merger--Management and Operations of Staples/Office Depot Following the
Merger."
(v) The Office Depot Board considered the effect on Office Depot
stockholders of Office Depot continuing as a stand-alone entity compared to
the effect of Office Depot combining with Staples, in light of the factors
summarized above with respect to the financial condition and prospects of
the two companies on a stand-alone basis and of the combined company, and
the current economic, financial and business environment.
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(vi) The Office Depot Board considered the likelihood of the Merger
being approved by the appropriate regulatory authorities. See "The
Merger--Regulatory Approvals."
(vii) The Office Depot Board considered the expectation that the Merger
will be a tax-free transaction to Office Depot and its stockholders and will
be accounted for as a pooling of interests transaction. See "The
Merger--Certain Federal Income Tax Consequences" and "The Merger--
Accounting Treatment."
(viii) The Office Depot Board considered the effect of the Merger on
Office Depot's other constituencies, including its senior management and
other employees, customers and the communities served by Office Depot. See
"The Merger--Interests of Certain Persons in the Merger."
The Office Depot Board also considered a number of potential risks relating
to the Merger, including (i) the difficulty and management distraction inherent
in integrating two large and geographically dispersed operations and the risk
that the synergies and benefits sought in the Merger would not be fully
achieved, (ii) the risk that the Merger would not be consummated and (iii) the
substantial charges expected to be incurred by Staples/Office Depot in
connection with the Merger. See "Risk Factors." The Office Depot Board believed
that these risks were outweighed by the potential benefits to be realized from
the Merger.
The foregoing discussion of the information and factors considered by the
Office Depot Board is not intended to be exhaustive but is believed to include
all material factors considered by the Office Depot Board. In view of the wide
variety of information and factors considered, the Office Depot Board did not
find it practical to, and did not, assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing weights
to different factors.
OPINIONS OF FINANCIAL ADVISORS
STAPLES
On September 3, 1996, Goldman Sachs delivered its oral opinion to the Board
of Directors of Staples to the effect that, as of such date, the Exchange Ratio
was fair to Staples. Goldman Sachs subsequently confirmed its earlier opinion by
delivery of its written opinion, dated the date hereof, to the Staples Board to
the effect that, as of the date hereof, and based upon and subject to the
factors and assumptions set forth therein, the Exchange Ratio is fair to
Staples.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED THE DATE
HEREOF, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION
OF THE ANALYSES PERFORMED BY GOLDMAN SACHS AND IS QUALIFIED BY REFERENCE TO THE
WRITTEN OPINION OF GOLDMAN SACHS SET FORTH AS ANNEX B HERETO. STOCKHOLDERS OF
STAPLES ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with the opinion attached hereto as Annex B, Goldman Sachs
reviewed, among other things, (i) the Merger Agreement; (ii) this Joint Proxy
Statement/Prospectus; (iii) the Annual Reports to Stockholders and Annual
Reports on Form 10-K of Staples for the five fiscal years ended February 3, 1996
and the Annual Reports to Stockholders and Annual Reports on Form 10-K of Office
Depot for the five fiscal years ended December 30, 1995; (iv) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of Staples and Office
Depot; (v) certain other communications from Staples and Office Depot to their
respective stockholders; and (vi) certain internal financial analyses and
forecasts for Staples and Office Depot prepared by their respective managements.
Goldman Sachs also has reviewed certain financial analyses and forecasts for the
combined operations of Staples and Office Depot prepared by the managements of
Staples and Office Depot and provided to Goldman Sachs by Staples. Goldman Sachs
also held discussions with members of the senior management of Staples and
Office Depot regarding the
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past and current business operations, financial condition and future prospects
of their respective companies and of the combined operations of Staples and
Office Depot. In addition, Goldman Sachs reviewed the reported price and trading
activity for Staples Common Stock and Office Depot Common Stock, compared
certain financial and stock market information for Staples and Office Depot with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the retail industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate. Staples imposed no limitations on the scope of Goldman Sachs'
studies or analyses.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs has relied upon the
managements of Staples and Office Depot as to the reasonableness and
achievability of the financial and operating forecasts (and the assumptions and
bases therefor) provided to it by Staples, and with Staples' consent Goldman
Sachs has assumed that such forecasts, including without limitation projected
cost savings and operating synergies resulting from the combination of Staples
and Office Depot, reflect the best currently available estimates and judgments
of such respective managements and that such projections and forecasts will be
realized in the amounts and time periods currently estimated by such
managements. Goldman Sachs has also assumed, with Staples' consent, that the
Merger will be accounted for as a pooling of interests under generally accepted
accounting principles. Goldman Sachs has not made an independent evaluation or
appraisal of the assets and liabilities of Staples or Office Depot or any of
their respective subsidiaries and Goldman Sachs has not been furnished with any
such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the Staples Board
of Directors on September 3, 1996. Goldman Sachs utilized substantially the same
type of financial analyses in connection with providing the written opinion
attached hereto as Annex B.
(i) CONTRIBUTION ANALYSIS. Goldman Sachs analyzed the historical and
projected relative earnings and revenue contributions of Staples and Office
Depot to the combined company following the Merger. Projected earnings and
revenues for Staples were provided by Staples management and projected
earnings and revenues for Office Depot were provided by Office Depot
management and modified by Staples management. The earnings contribution
analysis indicated that Office Depot would have provided 64% of the combined
company's earnings in fiscal 1995 and is projected to provide 55% of the
combined company's earnings in fiscal 1996, 52% in fiscal 1997, 51% in
fiscal 1998, 50% in fiscal 1999 and 49% in fiscal 2000. The revenue
contribution analysis indicated that Office Depot would have provided 63% of
the combined company's revenues in fiscal 1995 and is projected to provide
61% of the combined company's revenues in fiscal 1996, 59% in fiscal 1997,
57% in fiscal 1998, 57% in fiscal 1999 and 57% in fiscal 2000. Based on the
Exchange Ratio and the number of outstanding shares of Staples Common Stock
and Office Depot Common Stock as of September 30, 1996 the Merger will
result in stockholders of Office Depot owning approximately 53% of the
Staples Common Stock following the Merger.
(ii) HISTORICAL RATIO ANALYSIS. Goldman Sachs examined the average ratio
of the daily closing prices of Office Depot Common Stock as compared to
Staples Common Stock (the "Average Daily Ratio") for a range of periods
prior to and including August 30, 1996. Such analysis indicated that for the
30 days ending on August 30, 1996 the Average Daily Ratio was 0.859, for the
60 days ending on August 30, 1996 the Average Daily Ratio was 0.915, for the
90 days ending on August 30, 1996 the Average Daily Ratio was 0.995, for the
180 days ending on August 30, 1996 the Average Daily Ratio was 1.057 and for
the 365 days ending on August 30, 1996 the Average Daily Ratio was 1.253.
(iii) PROJECTED EARNINGS PER SHARE AND ACCRETION ANALYSIS. Goldman Sachs
analyzed the projected earnings per share ("EPS") and the projected EPS
accretion of the combined company following the
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Merger using the synergies for the combined company projected by Staples
management of $91 million in fiscal 1997, $146 million in fiscal 1998 and
$211 million in fiscal 1999. The projections of EPS for Staples were
provided by Staples management and projections of EPS for Office Depot were
provided by Office Depot management and modified by Staples management. Such
analysis indicated that the Merger is projected to be accretive to Staples'
standalone EPS by 6.4% in fiscal 1997, 7.9% in fiscal 1998 and 10.3% in
fiscal 1999.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
Goldman Sachs' analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all of its analyses and
did not assign relative weights to any of the analyses.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Staples Board of Directors as to the fairness of the Exchange
Ratio to Staples and do not purport to be appraisals or to necessarily reflect
the prices at which businesses or securities actually may be sold or may trade
in the future. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, neither Staples
nor Goldman Sachs assumes responsibility if future results are different from
those projected. Goldman Sachs' opinion necessarily was based on the economic,
market and the other conditions as in effect on, and the information made
available to it as of, the date of its opinion. As described above under the
caption "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors," Goldman Sachs' opinion to the Staples Board was one of many factors
taken into consideration by the Staples Board in making its determination to
approve the Merger Agreement. In addition, the terms of the Merger were
determined through negotiations between Staples and Office Depot and were
approved by the Staples Board. Although Goldman Sachs provided advice to Staples
during the course of these negotiations, the decision to enter into the Merger
Agreement and to accept the Exchange Ratio was solely that of the Staples Board.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Staples selected
Goldman Sachs as its financial advisor because Goldman Sachs is an
internationally recognized investment banking firm having substantial experience
in transactions similar to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Staples and/or Office Depot for its own account and for the
account of customers.
Pursuant to a letter agreement dated April 15, 1996 (the "Engagement
Letter"), Staples engaged Goldman Sachs to act as its financial advisor with
respect to a potential strategic transaction. Pursuant to the terms of the
Engagement Letter, Staples has agreed to pay Goldman Sachs upon consummation of
the Merger a transaction fee of 0.375% of the aggregate consideration paid in
the Merger. For this purpose, the "aggregate consideration" includes the total
consideration paid (including amounts paid to holders of options, warrants and
convertible securities), plus the principal amount of all indebtedness for
borrowed money as set forth on the most recent consolidated balance sheet of
Office Depot prior to the consummation of the Merger. Staples also has agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, plus any sales, use or similar taxes arising in connection with
the Merger, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
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OFFICE DEPOT
Office Depot retained Merrill Lynch to act as its co-financial advisor with
PJSC in connection with the Merger. On September 3, 1996, Merrill Lynch rendered
to the Office Depot Board its written opinion that, as of such date and based
upon and subject to the factors and assumptions set forth therein, the Exchange
Ratio was fair to the holders of Office Depot Common Stock from a financial
point of view. Merrill Lynch subsequently delivered its written opinion dated
the date of this Joint Proxy Statement/Prospectus (the "Merrill Lynch Opinion")
that, as of such date and based upon and subject to the factors and assumptions
set forth therein, the Exchange Ratio was fair to the holders of Office Depot
Common Stock from a financial point of view.
The full text of the Merrill Lynch Opinion, which sets forth the assumptions
made, matters considered, and qualifications and limitations on the review
undertaken by Merrill Lynch, is attached as Annex C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The summary of the
Merrill Lynch Opinion set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion. No
limitations were imposed by the Office Depot Board upon Merrill Lynch with
respect to investigations made or procedures followed by Merrill Lynch in
rendering the Merrill Lynch Opinion.
The Merrill Lynch Opinion was provided to the Office Depot Board for its
information and is directed only to the fairness from a financial point of view
of the Exchange Ratio to the holders of Office Depot Common Stock and does not
constitute a recommendation to any Office Depot stockholder as to how such
stockholder should vote at the Office Depot Special Meeting. The Exchange Ratio
was determined through negotiations between Staples and Office Depot and was
approved by the Office Depot Board. Merrill Lynch provided advice to Office
Depot during the course of such negotiations, but did not make a recommendation
with respect to the Exchange Ratio. The Merrill Lynch Opinion is based upon
financial, economic, market and other conditions as they existed and could be
evaluated as of the date of the Merrill Lynch Opinion.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Office Depot Board. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Office Depot or Staples. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, the opinion of Merrill Lynch delivered to the Office Depot Board on
September 3, 1996 and Merrill Lynch's presentation to the Office Depot Board
were among several factors taken into consideration by the Office Depot Board in
making its determination to approve the Merger Agreement. Consequently, the
Merrill Lynch analyses described below should not be viewed as determinative of
the decision of the Office Depot Board or Office Depot's management with respect
to the fairness of the Exchange Ratio.
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In arriving at its opinion, Merrill Lynch, among other things, reviewed
certain publicly available business and financial information relating to each
of Office Depot and Staples, as well as the Merger Agreement and the Stock
Option Agreements. Merrill Lynch also reviewed certain other information,
including financial forecasts, for Office Depot and Staples, as well as certain
information regarding the cost savings and related expenses and synergies
expected to result from the Merger (the "Expected Savings and Synergies"), in
each case provided to it by Office Depot and Staples, and met with members of
senior management of each of Office Depot and Staples to discuss their
respective businesses and prospects and the Expected Savings and Synergies.
Merrill Lynch also considered certain financial and stock market data for
Office Depot and Staples, and compared that data with similar data for other
publicly held companies that Merrill Lynch deemed to be reasonably similar to
Office Depot and Staples. In addition, Merrill Lynch considered the financial
terms of certain other mergers and acquisitions. Merrill Lynch reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as it deemed necessary, including its
assessment of general economic, market and monetary conditions.
In connection with its review, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to Merrill
Lynch by Office Depot and Staples, and Merrill Lynch did not independently
verify such information or undertake an independent appraisal of the assets or
liabilities of Office Depot or Staples. With respect to the financial forecasts
and the information related to the Expected Savings and Synergies furnished by
Office Depot and Staples, Merrill Lynch assumed that such forecasts and
information were reasonably prepared and reflected the best currently available
estimates and judgment of management of Office Depot or Staples as to the
expected future financial performance of Office Depot and Staples, as the case
may be, as well as the Expected Savings and Synergies. In addition, Merrill
Lynch assumed that the Merger will qualify for pooling of interests accounting
treatment in accordance with generally accepted accounting principles and as a
tax-free reorganization for United States Federal income tax purposes. The
Merrill Lynch Opinion is necessarily based upon market, economic, financial and
other conditions as they existed and could be evaluated as of the date of such
opinion. Merrill Lynch was not authorized by Office Depot or the Office Depot
Board to solicit, nor did it solicit, third-party indications of interest for
the acquisition of all or any part of Office Depot. In addition, Merrill Lynch
was not asked to consider, and the Merrill Lynch Opinion does not in any manner
address, the price at which shares of Staples Common Stock will actually trade
following consummation of the Merger.
The following is a summary of the analyses performed by Merrill Lynch in
connection with the preparation of the opinion dated September 3, 1996 of
Merrill Lynch and presented to the Office Depot Board on that date.
BUSINESS AND FINANCIAL COMPARISON
COMPARATIVE REVIEW. Merrill Lynch compared the 1995 sales of Office Depot
and Staples for each of the general product categories of office supplies,
business machines and furniture and retail and non-retail channels. Merrill
Lynch also compared the respective (i) percentage increases in comparable store
sales, (ii) number of stores owned, (iii) average store size at year-end, (iv)
average age of stores and (v) amount of retail sales per average gross square
foot for Office Depot and Staples. Merrill Lynch compared the number of
superstores owned by each of Office Depot and Staples in each state in the
United States and in each province in Canada. Merrill Lynch also compared the
total number of stores owned by Office Depot and Staples, respectively, as of
1991 year-end and compared the number of stores opened each year by Office Depot
and Staples, respectively, from 1992 through 1995 and as estimated to be opened
in 1996 and 1997.
REVENUE GROWTH AND MARGIN COMPARISON. Merrill Lynch compared (i) the annual
percentage changes in revenue from 1991 through 1995 for Office Depot, from 1992
through 1995 for Staples and as estimated
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for each company in 1996 and (ii) the annual incremental revenue growth from
1991 through 1995 for Office Depot, from 1992 through 1995 for Staples and as
estimated for each company in 1996. Merrill Lynch also compared the gross profit
margins for Office Depot and Staples, respectively, from 1990 (for Office Depot)
and from 1991 (for Staples) through 1995 and as estimated for 1996. In addition,
Merrill Lynch compared the operating margins and net profit margins for Office
Depot and Staples, respectively, for the same periods.
ANNUAL AND QUARTERLY COMPARABLE STORE SALES GROWTH. Merrill Lynch compared
the percentage annual comparable store sales growth for Office Depot and
Staples, respectively, from 1990 through 1995 and as estimated for 1996. In
addition, Merrill Lynch compared the percentage quarterly comparable store sales
growth for Office Depot and Staples, respectively, from 1994 through 1995 and
for each of the first two quarters of 1996.
STOCK MARKET PERFORMANCE
PUBLIC MARKET OVERVIEW. Merrill Lynch reviewed certain trading information
for each of Office Depot and Staples and, on the basis thereof, calculated their
respective market values and market capitalizations. For this purpose, Merrill
Lynch defined "market capitalization" as market value of the relevant company's
common equity plus total debt less cash and cash equivalents. Merrill Lynch then
calculated the market capitalization of each of Office Depot and Staples as a
multiple of sales; earnings before interest, taxes, depreciation and
amortization ("EBITDA"); and earnings before interest and taxes ("EBIT"). For
Office Depot's latest 12 months ("LTM") ended June 1996 and as projected for
each of the fiscal years ending in December 1996 and 1997, the multiples yielded
by such calculation were (i) with respect to sales, 0.53x, 0.48x and 0.40x,
respectively, (ii) with respect to EBITDA, 9.7x, 9.0x and 7.2x, respectively,
and (iii) with respect to EBIT, 12.5x, 11.4x and 8.7x, respectively. For
Staples' LTM ended April 1996 and the fiscal years ending in January 1997 and
1998, the multiples yielded by such calculation were (i) with respect to sales,
1.03x, 0.83x and 0.65x, respectively, (ii) with respect to EBITDA, 17.5x, 14.4x
and 10.9x, respectively, and (iii) with respect to EBIT, 23.8x, 18.4x and 13.0x,
respectively.
Merrill Lynch also calculated the market value of each of Office Depot and
Staples as a multiple of their respective earnings per share ("EPS") (based on
First Call Corporation estimates for all periods other than Office Depot's LTM
ended June 1996 and Staples' LTM ended April 1996). For Office Depot's LTM ended
June 1996 and the fiscal years ending in December 1996 and 1997, such
calculation yielded multiples of 19.3x, 17.8x and 14.2x, respectively. For
Staples' LTM ended April 1996 and the fiscal years ending in January 1997 and
1998, such calculation yielded multiples of 40.3x, 31.9x and 24.1x,
respectively. Merrill Lynch also compared the Institutional Brokers Estimate
System, Inc. ("IBES") five-year estimated growth rate (a composite of research
analysts' estimates) of 23.6% and 31.4% for Office Depot and Staples,
respectively.
SIGNIFICANT EVENTS/HISTORICAL PRICE PERFORMANCE. Merrill Lynch compared the
percentage change in the trading price of the Office Depot Common Stock and the
Staples Common Stock to the S&P 400 index, in each case for the period from
December 30, 1994 through August 30, 1996. Merrill Lynch also compared the
percentage change in the trading price of the Office Depot Common Stock and the
Staples Common Stock for the one-year period beginning on August 16, 1995, the
three-year period beginning on August 13, 1993 and the five-year period
beginning on August 16, 1991 and ending, in each case, on August 30, 1996.
ANALYSIS OF P/E TRENDS OF SELECTED GROWTH RETAILERS
RATIO OF HISTORICAL NEXT FISCAL YEAR ("NFY") P/E MULTIPLE TO PROJECTED
EARNINGS GROWTH RATE. Merrill Lynch calculated the price earnings ratio ("P/E")
of selected growth retailers that Merrill Lynch considered to be reasonably
comparable to Office Depot and Staples as a multiple of their respective
projected earnings growth rates and compared such multiples during the period
from July 1991 (or since inception of the company, if later) to July 1996. The
selected growth retailers were Walmart Stores Inc., Circuit City
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Stores Inc., Toys R Us, Inc., Home Depot Inc., The Sports Authority Inc.,
Price/Costco Inc. and Autozone, Inc. (the "Selected Growth Retailers"). Such
ranges approximated (i) 1.1x to 1.5x for Walmart Stores Inc., (ii) 0.6x to 1.1x
for Circuit City Stores Inc., (iii) 0.7x to 1.2x for Toys R Us, Inc., (iv) 0.7x
to 1.5x for Home Depot Inc., (v) 0.5x to 0.8x for The Sports Authority Inc.,
(vi) 0.7x to 1.0x for Price/Costco Inc. and (vii) 0.6x to 1.4x for Autozone,
Inc.
COMPARISON OF SELECTED GROWTH RETAILERS. Merrill Lynch compared the
estimated 1997 P/E multiple (based on First Call Corporation estimates as of
August 30, 1996 calendarized to December year-ends) (the "1997 P/E Multiple")
and the projected five-year EPS growth rates (based on IBES estimates) (the
"Projected Growth Rates") for Office Depot, Staples and each of the Selected
Growth Retailers. Merrill Lynch determined that the approximate 1997 P/E
Multiples and the Projected Growth Rates are 14x and 23% for Office Depot, 24x
and 32% for Staples, 17x and 13% for Walmart Stores Inc., 16x and 17% for
Circuit City Stores Inc., 15x and 12% for Toys R Us, Inc., 23x and 25% for Home
Depot Inc., 22x and 25% for The Sports Authority Inc., 13x and 13% for
Price/Costco Inc. and 19x and 25% for Autozone, Inc. Its analysis indicated that
Toys R Us, Inc. and Walmart Stores Inc. currently trade at a premium to their
respective Projected Growth Rates, that Price/Costco Inc. trades at about its
Projected Growth Rate and that the remaining companies trade at a discount to
their respective Projected Growth Rates.
COMPARISON OF OFFICE PRODUCT COMPANIES. Merrill Lynch compared the 1997 P/E
Multiple and the Projected Growth Rates for Office Depot, Staples and each of
the following selected office product companies: Boise Cascade Office Products
Corp., BT Office Products International, Inc., CompUSA Inc., Corporate Express,
Inc., Global DirectMail Corporation, Office Max, Inc. and Viking Office
Products, Inc. (the "Office Products Companies"). Merrill Lynch determined that
the approximate 1997 P/E Multiples and Projected Growth Rates are 14.0x and 23%
for Office Depot, 24.0x and 32% for Staples, 16.5x and 25% for Boise Cascade
Office Products Corp., 16.0x and 30% for BT Office Products International, Inc.,
20.0x and 25% for CompUSA Inc., 36.0x and 45% for Corporate Express, Inc., 31.0x
and 30% for Global DirectMail Corporation, 19.0x and 30% for Office Max, Inc.
and 25.0x and 30% for Viking Office Products, Inc. Its analysis indicated that
Global DirectMail Corporation currently trades at a premium to its Projected
Growth Rate and that the remaining companies trade at a discount to their
respective Projected Growth Rates.
VALUATION IMPACT OF DECLINING GROWTH. Merrill Lynch compared the impact of
declining growth experienced by Office Depot and Staples from 1992 to 1996 by
comparing the change in the projected earnings compound annual growth rate and
the NFY P/E multiple for each company during the period. The analysis indicated
that for Office Depot and Staples (i) their respective approximate projected
earnings compound annual growth rates were 35% and 38% in 1992 and 26% and 33%
in 1996 and (ii) their respective approximate NFY P/E multiples were 33x and 29x
in 1992 and 14x and 24x in 1996.
DISCOUNTED CASH FLOW ANALYSIS
Merrill Lynch performed a discounted cash flow analysis for Office Depot and
Staples, in each case on a stand-alone basis, based upon estimates of projected
financial performance prepared by the respective managements of Office Depot and
Staples. Using these projections, Merrill Lynch calculated ranges of total
equity value and total equity value per share and, in so doing, utilized (i)
terminal multiples of 2001 unlevered net income of 15.0x and 17.5x for Office
Depot and 17.5x and 20.0x for Staples and (ii) discount rates, reflecting the
weighted average cost of capital, ranging from 13.0% to 17.0%. The analysis
yielded (a) a total equity range of $3,068.6 million to $4,309.9 million for
Office Depot and $4,705.7 million to $6,253.1 million for Staples and (b) a per
share range of $17.57 to $24.67 for Office Depot and $26.40 to $35.08 for
Staples. Merrill Lynch also performed a sensitivity analysis with respect to
adjusted projections which were also prepared by the respective managements of
Office Depot and Staples and which assumed reduced sales growth and margins in
each company beginning in 1997, and calculated ranges of total equity
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value per share utilizing the same terminal multiples and discount rates. For
Office Depot and Staples, the analysis yielded respective ranges of $16.14 to
$22.74 and $24.49 to $32.51, respectively.
SYNERGY DISCOUNTED CASH FLOW ANALYSIS
In addition, Merrill Lynch performed a discounted cash flow analysis based
upon the Expected Savings and Synergies. Using the projections of the
managements of Office Depot and Staples of total net cash synergies, adjusted to
reflect potential differences in the timing of realization, of ($287.9) million,
$44.4 million, $104.2 million, $129.7 million and $171.9 million for the
respective years 1997 through 2001, Merrill Lynch calculated ranges of total
synergy value and synergy value per share for each of Office Depot and Staples,
based upon their respective pro forma ownership in the combined company and
utilizing discount rates ranging from 13.0% to 17.0% and assumed perpetual
growth rates of 1.0%, 2.0% and 3.0%. At such respective assumed perpetual growth
rates, this analysis yielded ranges of (i) $258.9 million to $424.7 million (or
$1.48 to $2.43 per share) for Office Depot and $235.0 million to $385.5 million
(or $1.32 to $2.16 per share) for Staples, (ii) $278.9 million to $466.5 million
(or $1.60 to $2.67 per share) for Office Depot and $253.2 million to $423.5
million (or $1.42 to $2.38 per share) for Staples and (iii) $301.8 million to
$516.8 million (or $1.73 to $2.96 per share) for Office Depot and $274.0 million
to $469.1 million (or $1.54 to $2.63 per share) for Staples.
COMPARABLE PUBLIC COMPANIES ANALYSIS
Merrill Lynch performed a comparable public companies analysis pursuant to
which it compared certain publicly available financial and operating data,
projections of future financial performance (reflecting First Call Corporation
estimates calendarized to December year-end) and market statistics (calculated
based upon closing stock prices on August 30, 1996) of three categories of
selected publicly traded companies (the Superstore Office Retailers (as defined
below), the Office Products Companies and the Selected Growth Retailers).
Merrill Lynch compared (i) the closing stock price as a multiple of estimated
1996 and 1997 EPS, (ii) the market capitalization as a multiple of each of LTM
sales and LTM EBITDA and (iii) the 1997 P/E Multiple as a multiple of the
Projected Growth Rate for each company and calculated the mean and median of
each multiple by company category.
The first category of companies considered by Merrill Lynch comprised Office
Depot, Staples, CompUSA Inc. and Office Max, Inc. (the "Superstore Office
Retailers"). For the Superstore Office Retailers, such analysis indicated (i)
mean and median price to estimated 1996 EPS multiples of 24.7x and 24.5x, (ii)
mean and median price to estimated 1997 EPS multiples of 19.3x and 19.5x, (iii)
mean and median market capitalization to LTM sales multiples of 0.64x and 0.53x,
(iv) mean and median market capitalization to LTM EBITDA multiples of 12.6x and
11.6x and (v) mean and median 1997 P/E Multiple to Projected Growth Rate
multiples of 0.70x and 0.69x.
For the Office Products Companies, such analysis indicated (i) mean and
median price to estimated 1996 EPS multiples of 34.1x and 31.9x, (ii) mean and
median price to estimated 1997 EPS multiples of 25.0x and 24.9x, (iii) mean and
median market capitalization to LTM sales multiples of 1.46x and 1.62x, (iv)
mean and median market capitalization to LTM EBITDA multiples of 19.0x and 21.5x
and (v) mean and median 1997 P/E Multiple to Projected Growth Rate multiples of
0.78x and 0.81x.
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For the Selected Growth Retailers, such analysis indicated (i) mean and
median price to estimated 1996 EPS multiples of 21.1x and 19.7x, (ii) mean and
median price to estimated 1997 EPS multiples of 17.8x and 17.6x, (iii) mean and
median market capitalization to LTM sales multiples of 0.96x and 0.76x, (iv)
mean and median market capitalization to LTM EBITDA multiples of 11.6x and 10.9x
and (v) mean and median 1997 P/E Multiple to Projected Growth Rate multiples of
1.00x and 0.92x.
Based on the comparable public companies analysis, Merrill Lynch derived a
range of implied price per share of Office Depot Common Stock of $17.40 to
$25.52, compared to the $22.52 implied offer price to the stockholders of Office
Depot in the Merger (based on the $19.75 closing price per share of Staples
Common Stock on August 30, 1996).
No company utilized in the comparable public companies analysis was
identical to Office Depot or Staples. Accordingly, an analysis of the results of
such a comparison is not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
COMPARABLE OFFICE SUPPLY RETAILING/DISTRIBUTION ACQUISITIONS ANALYSIS
Merrill Lynch reviewed publicly available information regarding 16
transactions consummated during the five and one-half year period beginning on
January 1, 1991 and for each transaction calculated (i) the offer value as a
multiple of each of net income, cash flow and book value and (ii) the
transaction value as a multiple of each of EBITDA, EBIT and sales. Such analysis
indicated that the offer value as a multiple of net income, cash flow and book
value, respectively, (i) ranged from 2.3x to 38.4x, with a mean of 18.8x and a
median of 17.2x, (ii) ranged from 1.1x to 64.8x, with a mean of 14.7x and a
median of 10.2x, and (iii) ranged from 0.3x to 44.2x, with a mean of 7.6x and a
median of 3.4x. Such analysis also indicated that transaction value as a
multiple of EBITDA, EBIT and sales, respectively, (i) ranged from 3.2x to 22.3x,
with a mean of 9.1x and a median of 8.7x, (ii) ranged from 5.2x to 22.3x, with a
mean of 11.8x and a median of 11.9x, and (iii) ranged from 0.19x to 1.42x, with
a mean of 0.57x and a median of 0.54x.
Based on the comparable acquisitions analysis, Merrill Lynch derived a range
of implied prices per share of Office Depot Common Stock and a range of prices
per share of Staples Common Stock of $15.48 to $25.39 and $11.29 to $18.73,
respectively, compared to the $22.52 implied offer price to the stockholders of
Office Depot in the Merger (based on the $19.75 closing price per share of
Staples Common Stock on August 30, 1996).
No company utilized in the comparable office supply retailing/distribution
acquisitions analysis was identical to Office Depot or Staples. Accordingly, an
analysis of the results of this comparison is not purely mathematical; rather,
it involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
comparable acquired companies and other factors that could affect the
acquisition value of such companies and Office Depot.
PRO FORMA CONTRIBUTION ANALYSIS
Merrill Lynch compared the pro forma relative equity ownership of the
stockholders of Office Depot and stockholders of Staples in the combined company
of 52.6% and 47.4%, respectively, to the pro forma relative contributions of
each of Office Depot and Staples to the combined company for the years 1993 to
2000 (including LTM) for net sales, EBITDA, EBIT, net income and number of
stores (excluding synergies and acquisition adjustments). With respect to the
years 1996 through 2000, such analysis was based on estimates prepared by Office
Depot management with respect to Office Depot and on estimates prepared by
Staples management with respect to Staples. The analysis indicated, among other
things, that for 1995, LTM, 1996, 1997, 1998, 1999 and 2000, respectively,
Office Depot would have contributed (i) 63.4% of 1995 net sales, 63.2% of 1995
EBITDA, 64.2% of each of 1995 EBIT and 1995 net income and 53.1% of the 1995
number of stores, (ii) 63.5% of LTM net sales, 62.0% of LTM EBITDA, 63.1% of LTM
EBIT,
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63.0% of LTM net income and 52.7% of the LTM number of stores, (iii) 59.9% of
1996 net sales, 57.5% of 1996 EBITDA, 58.2% of 1996 EBIT, 58.3% of 1996 net
income and 50.4% of the 1996 number of stores, (iv) 57.3% of 1997 net sales,
50.6% of 1997 EBITDA (with an additional 9.4% attributable to synergies), 49.6%
of 1997 EBIT (with an additional 12.0% attributable to synergies), 49.8% of 1997
net income (with an additional 13.1% attributable to synergies) and 48.8% of the
1997 number of stores, (v) 55.3% of 1998 net sales, 46.6% of 1998 EBITDA (with
an additional 13.0% attributable to synergies), 44.6% of 1998 EBIT (with an
additional 16.2% attributable to synergies), 43.8% of 1998 net income (with an
additional 17.0% attributable to synergies) and 48.1% of the 1998 number of
stores, (vi) 53.7% of 1999 net sales, 44.6% of 1999 EBITDA (with an additional
13.6% attributable to synergies), 42.2% of 1999 EBIT (with an additional 16.6%
attributable to synergies), 40.9% of 1999 net income (with an additional 17.0%
attributable to synergies) and 48.3% of the 1999 number of stores and (vii)
52.8% of 2000 net sales, 43.6% of 2000 EBITDA (with an additional 13.1%
attributable to synergies), 41.0% of 2000 EBIT (with an additional 15.8%
attributable to synergies), 39.6% of 2000 net income (with an additional 15.8%
attributable to synergies) and 48.5% of the 2000 number of stores.
ANALYSIS OF PRO FORMA MERGER COMBINATION
Merrill Lynch reviewed the pro forma synergies and cost savings projected by
the management of Staples and the one-time integration expenditures and charges
projected by the managements of Office Depot and Staples. Merrill Lynch also
analyzed the impact of the Merger for Office Depot and Staples stockholders on
the pro forma fully diluted EPS. Based upon the projections prepared by the
respective managements of Office Depot and Staples (the "Management Scenario"),
the analysis indicated that, for the Office Depot stockholders, the Merger would
be 3.3% accretive in 1997, 11.0% accretive in 1998, 18.2% accretive in 1999,
22.1% accretive in 2000 and 25.7% accretive in 2001. Based upon sensitivity
analyses of the projections prepared by the respective managements of Office
Depot and Staples which assumed reduced sales growth and margins for each
company beginning in 1997 (the "Sensitivity Scenario"), the analysis indicated
that, for the Office Depot stockholders, the Merger would be 6.5% accretive in
1997, 12.2% accretive in 1998, 19.1% accretive in 1999, 22.8% accretive in 2000
and 26.5% accretive in 2001. Based upon the projections of the management of
Staples and a sensitivity analysis of the projections of the management of
Office Depot which assumed the same reduced sales growth for Office Depot (the
"Staples/Sensitivity Scenario"), the analysis indicated that, for the Office
Depot stockholders, on an EPS basis, the Merger would be 8.7% accretive in 1997,
14.9% accretive in 1998, 22.5% accretive in 1999, 27.0% accretive in 2000 and
31.2% accretive in 2001.
RELATIONSHIP OF P/E TO PROJECTED GROWTH--CERTAIN SCENARIOS. Merrill Lynch
also calculated for Office Depot and Staples the ratio of each company's current
NFY P/E multiple (based on First Call Corporation earnings estimates) to its
projected earnings growth rate using each of the above scenarios and current NFY
P/E multiples of 14.2x for Office Depot and 24.1x for Staples. Merrill Lynch
performed such analysis using earnings growth rates for Office Depot and
Staples, respectively, of (i) 20.9% and 33.1% under the Management Scenario,
(ii) 22.2% and 31.9% under the Sensitivity Scenario and (iii) 22.2% and 33.1%
under the Staples/Sensitivity Scenario. In addition, Merrill Lynch calculated
for Office Depot and Staples the ratio of each company's NFY P/E multiple to the
projected combined earnings growth rate assuming 100% synergies and using each
of the above scenarios, current NFY P/E multiples of 14.2x for Office Depot,
24.1x for Staples and the average current NFY P/E multiple of 19.1x. Merrill
Lynch performed such analysis using combined earnings growth rates of 27.9%
under the Management Scenario, 28.1% under the Sensitivity Scenario and 28.7%
under the Staples/Sensitivity Scenario. Based on the Management Scenario, the
combined ratios were 0.51x at Office Depot's current NFY P/E, 0.86x at Staples'
current NFY P/E and 0.69x at the average current NFY P/E. Based upon the
Sensitivity Scenario and applying the current NFY P/E multiples and the
projected combined growth rate, the analysis indicated that the implied ratios
of current NFY P/E to the projected combined growth rate were 0.50x at Office
Depot's current NFY P/E, 0.86x at Staples' current NFY P/E and 0.68x at the
average current NFY P/E. Based upon the Staples/ Sensitivity Scenario and
applying the current NFY P/E multiples and the projected combined growth rate,
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the analysis indicated that the implied ratios of current NFY P/E to the
projected combined growth rate were 0.49x at Office Depot's current NFY P/E,
0.84x at Staples' current NFY P/E and 0.67x at the average current NFY P/E.
In addition, Merrill Lynch compared EPS for Office Depot and Staples (based
on First Call Corporation estimates and assuming 100% synergies), calculated pro
forma EPS for the combined company and calculated, among other things, the
implied future Staples stock price and the implied future value to Office Depot
stockholders in the Merger based on the Exchange Ratio, in each case, for the
years 1996 through 2000. Merrill Lynch performed the calculation using each of
the above scenarios and NFY P/E multiples of 14.2x for Office Depot, 24.1x for
Staples and 19.1x for the average of the two companies. Merrill Lynch also
indicated that the closing prices of shares of Office Depot Common Stock and
Staples Common Stock on August 30, 1996 were $16.00 and $19.75, respectively,
and that the implied offer price per share of Office Depot Common Stock in the
Merger (based on the Exchange Ratio) was $22.52.
Based upon the Management Scenario, the analysis indicated, among other
things, that at the 19.1x multiple and for the respective years 1996 through
2000 (i) the implied future Staples stock prices were $20.11, $26.26, $33.60,
$42.04 and $51.60 and (ii) the implied future values to Office Depot
stockholders were $22.92, $29.94, $38.30, $47.92 and $58.83. Based upon the
Sensitivity Scenario, the analysis indicated, among other things, that at the
19.1x multiple and for the respective years 1996 through 2000 (i) the implied
future Staples stock prices were $18.75, $24.81, $31.73, $39.41 and $48.16 and
(ii) the implied future values to Office Depot stockholders were $21.37, $28.28,
$36.17, $44.93 and $54.90. Based upon the Staples/Sensitivity Scenario, the
analysis indicated, among other things, that at the 19.1x multiple and for the
respective years 1996 through 2000 (i) the implied future Staples stock prices
were $19.13, $25.42, $32.63, $40.77 and $49.93 and (ii) the implied future
values to Office Depot stockholders were $21.81, $28.98, $37.19, $46.48 and
$56.92.
Pursuant to a letter agreement of August 19, 1996 between Office Depot and
Merrill Lynch, Office Depot agreed to pay Merrill Lynch (i) $1,000,000 upon
Merrill Lynch's delivery of the opinion dated September 3, 1996, (ii) $1,000,000
upon the mailing of this Joint Proxy Statement/Prospectus and (iii) an amount
equal to 0.1125% of the aggregate consideration (less any fees paid pursuant to
clauses (i) or (ii) above) paid in connection with the Merger upon consummation
of the Merger. Office Depot also agreed to reimburse Merrill Lynch for all
out-of-pocket expenses, including the fees and expenses of its legal counsel,
and to indemnify Merrill Lynch and certain related persons and entities for
certain liabilities, including liabilities under securities laws, related to or
arising out of its engagement.
Office Depot retained Merrill Lynch based upon Merrill Lynch's experience
and expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of its
business, Merrill Lynch and its affiliates may actively trade the debt and
equity securities of Office Depot and Staples for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
STAPLES STOCK OPTION, PERFORMANCE ACCELERATED RESTRICTED STOCK AND SEVERANCE
AGREEMENTS
Substantially all outstanding stock options for the purchase of Staples
Common Stock were granted pursuant to option agreements that provide that such
options shall become exercisable as to an additional 25% of the shares of
Staples Common Stock originally covered thereby upon a change in control (as
defined in such option agreements) of Staples. Such stock option agreements and
the agreements underlying Staples' Performance Accelerated Restricted Stock
("PARs") grants further provide that such
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options and PARs shall generally become exercisable in full if, within one year
following a change in control, Staples terminates the employment of the
optionholder or stockholder without cause (as defined in the option or PAR
agreement) or the optionholder or stockholder resigns as a result of certain
changes in his or her employment conditions or responsibilities. The approval of
the Merger by the Staples stockholders will constitute a change in control of
Staples within the meaning of such option and PAR agreements. As of December 31,
1996, there were outstanding (i) options for the purchase of an aggregate of
20,425,601 shares of Staples Common Stock and (ii) an aggregate of 379,249 PARs.
See also "Staples, Inc.--Security Ownership of Certain Beneficial Owners and
Management."
Staples has entered into a Severance Benefits Agreement with each of its
executive officers, as well as certain other members of management. Such
Agreements require Staples to pay the officer's salary and continue the
officer's benefits for a period of six to eighteen months (depending upon the
officer) in the event of the termination of such officer's employment by Staples
without cause or by such officer for good reason (each as defined in such
Agreements). In the event such a termination of employment occurs within two
years following a change in control of Staples (as defined in such Agreements),
the time period for which Staples must pay such officer's salary and continue
such officer's benefits is increased by six months. The approval of the Merger
by the Staples stockholders will constitute a change in control of Staples
within the meaning of the Severance Benefit Agreements. In addition, the
Severance Benefits Agreements with Martin E. Hanaka, President and Chief
Operating Officer of Staples, and John C. Bingleman, President-- North American
Superstores of Staples, provide that certain options for Staples Common Stock
held by such individuals shall become exercisable in full upon an employment
termination without cause or for good reason (regardless of whether a change in
control has occurred).
OFFICE DEPOT STOCK OPTIONS
All outstanding stock options for the purchase of Office Depot Common Stock
were granted pursuant to option agreements that provide that such options shall
become exercisable in full from and after the date of a change in control of
Office Depot. The Merger will constitute a change in control of Office Depot
within the meaning of such option agreements. As of December 31, 1996, there
were outstanding options for the purchase of an aggregate of 8,570,064 shares of
Office Depot Common Stock. See also "The Merger Agreement--Stock Options and
Employee Benefits" and "Office Depot, Inc.--Security Ownership of Certain
Beneficial Owners and Management."
EMPLOYMENT AGREEMENTS
David I. Fuente, Barry J. Goldstein and Richard M. Bennington, all of whom
are currently executive officers of Office Depot, each have entered into an
Employment Agreement with Staples, which will take effect upon the Effective
Time. Each Employment Agreement has a three-year term and contemplates that
during the one-year period beginning upon the Effective Time and ending on the
first anniversary thereof (the "Initial Period") the executive will devote a
significant portion of his time to the integration of the two companies. The
Employment Agreement provides for an annual base salary, bonus arrangements and
other benefits which are comparable to those currently received by the executive
from Office Depot. In order to induce the executive to remain employed by
Staples/Office Depot during the critical transitional period in which the
operations of the two companies are being integrated, the Employment Agreement
provides that the executive shall be paid a bonus (the "Initial Bonus") equal to
50% of his Base Amount (as defined below) if he is employed by Office Depot as
of the Effective Time and an additional bonus (the "Transition Bonus") equal to
150% of his Base Amount if he is employed by Staples/Office Depot on the first
anniversary of the Effective Time. Generally, an executive's "Base Amount" means
the sum of his current annual base salary with Office Depot and the highest
annual bonus earned by him during the five full fiscal years prior to the date
of the Employment Agreement. The Employment Agreement also provides that if the
executive's employment is terminated either (i) by Staples/Office Depot without
cause (as defined in the Employment Agreement), (ii) by the executive for good
reason (as defined in the
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Employment Agreement, including, among other things, a diminution in his
position or responsibilities after the Initial Period from such executive's
duties prior to the Merger or a required relocation), or (iii) upon the death or
disability of the executive, then Staples/Office Depot shall provide certain
benefits to the executive (or his estate or beneficiary), including (a) the
payment of 100% of his Base Amount (the "Severance Payment"), (b) if such
employment termination occurs during the Initial Period (and the executive has
therefore not received the Transition Bonus) the payment of an additional amount
equal to the Transition Bonus, (c) the payment of a pro rata portion of his
annual bonus for the year in which employment termination occurs and (d) the
continuation of employee benefits (including medical, disability and other
insurance benefits) for a period of three years after such employment
termination. The Employment Agreement further provides that in the event the
payments to the executive under the Employment Agreement (the "Original
Payments") are subject to the excise tax imposed by Section 4999 of the Code (or
any interest or penalties are incurred by the executive with respect to such
excise tax), then Staples/Office Depot shall make an additional payment (the
"Gross-Up Payment") to the executive in an amount such that after payment by the
executive of all taxes (including the excise tax) imposed upon the Gross-Up
Payment, the executive retains a portion of the Gross-Up Payment equal to the
amount of the excise tax imposed upon the Original Payments (provided that if
the net after-tax payments to the executive after the Gross-Up Payment would not
be at least $50,000 greater than the net after-tax payments to the executive
that would result from an elimination of the Gross-Up Payment and a reduction of
the Original Payments to such amount that would avoid the imposition of any
excise tax, then no Gross-Up Payment shall be made to the executive and the
Original Payments shall be reduced to such reduced amount). The Employment
Agreement also contains a covenant by the executive that he will not, while
employed by Staples/Office Depot and for two years after the termination of his
employment with Staples/ Office Depot, participate in any capacity in any
business engaged principally in the sale of office supplies in any country where
Staples/Office Depot or its affiliates is then doing business.
F. Terry Bean, Harry S. Brown, R. John Schmidt, Jr. and William P. Seltzer,
all of whom are currently executive officers of Office Depot, have each entered
into an Employment Agreement with Staples on substantially the terms described
in the preceding paragraph, with the following exceptions: the amount of the
Transition Bonus payable to the executive is 100% (rather than 150%) of his Base
Amount; and the amount of the Severance Payment payable to the executive is 50%
(rather than 100%) of his Base Amount.
Approximately 51 additional employees of Office Depot have each entered into
an Employment Agreement with Staples on substantially the terms described above,
with the following exceptions: no bonuses are paid to such employee upon either
the Effective Time or the first anniversary of the Effective Time; the Base
Amount is calculated with reference to the highest annual bonus earned in the
prior three fiscal years (rather than five); the amount of the Severance Payment
is 100% of his or her Base Amount; the provision of benefits following certain
employment terminations continues for one year (rather than three); and there is
no Gross-Up Payment made in the event that the Original Payments are subject to
the excise tax under Section 4999 of the Code (the amount of the Original
Payments under these Employment Agreements would not normally trigger such
excise tax).
INDEMNITY ARRANGEMENTS
Pursuant to the Merger Agreement, Staples has agreed to indemnify each
present and former director and officer of Office Depot against liabilities or
expenses incurred in connection with claims relating to matters occurring prior
to the closing of the Merger, and to maintain in effect directors' and officers'
liability insurance for their benefit. See "The Merger Agreement--Director and
Officer Indemnification." In addition, Office Depot has entered into an
indemnity agreement with each of its directors and executive officers pursuant
to which Office Depot has agreed, among other things, to indemnify such persons
to the maximum extent permitted by Delaware law.
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OWNERSHIP AND VOTING OF STOCK
As of December 31, 1996, directors and executive officers of Staples and
their affiliates may be deemed to be beneficial owners of approximately 6.2% of
the outstanding shares of Staples Common Stock. Each of the directors and
executive officers of Staples has advised Staples that he or she intends to vote
or direct the vote of all the outstanding shares of Staples Common Stock over
which he or she has voting control in favor of the approval of the Merger
Proposal, the Charter Proposal and the Plan Proposal. See "Staples,
Inc.--Security Ownership of Certain Beneficial Owners and Management."
As of December 31, 1996, directors and executive officers of Office Depot
and their affiliates may be deemed to have or share beneficial ownership of
approximately 7.7% of the outstanding shares of Office Depot Common Stock. Each
of the directors and executive officers of Office Depot has advised Office Depot
that he or she intends to vote or direct the vote of all the outstanding shares
of Office Depot Common Stock over which he or she has or shares voting control
in favor of the approval and adoption of the Merger Agreement. See "Office
Depot, Inc.--Security Ownership of Certain Beneficial Owners and Management."
As of December 31, 1996, Staples owned 100 shares of Office Depot Common
Stock and directors and executive officers of Staples and their affiliates may
be deemed to be beneficial owners of an aggregate of approximately 45,000 shares
of Office Depot Common Stock, or approximately .03% of the outstanding shares of
Office Depot Common Stock. As of December 31, 1996, neither Office Depot nor its
directors and executive officers and their affiliates beneficially owned any
shares of Staples Common Stock.
ARRANGEMENTS WITH PJSC
Peter J. Solomon, a member of the Office Depot Board, is also Chairman of
PJSC. PJSC was engaged by Office Depot to provide investment banking services in
connection with the Merger. Under the engagement letter between Office Depot and
PJSC, Office Depot has agreed to pay PJSC upon consummation of the Merger a
transaction fee of 0.375% of the aggregate consideration paid or payable in the
Merger (the "Initial Transaction Fee"), minus (a) the amount paid (up to $2
million) by Office Depot to a financial advisor other than PJSC for a fairness
opinion and (b) the amount paid by Office Depot to any additional financial
advisor hired by Office Depot (up to an aggregate of 30% of the Initial
Transaction Fee). For this purpose, the "aggregate consideration" includes the
total amount of cash, securities, contractual arrangements and other properties
paid or payable to holders of Office Depot equity securities (including any
amounts paid to holders of options, warrants and convertible securities), plus
the amount of any short-term and long-term debt of Office Depot (x) existing on
the balance sheet of Office Depot at the time of the consummation of the Merger
or (y) repaid, retired or assumed in connection with the Merger. PJSC is also
entitled, if Office Depot receives a break-up, termination or topping fee in
connection with the termination or abandonment of the Merger, to a cash fee
equal to 70% of the lesser of (i) $10 million or (ii) 20% of the aggregate
amount of all such break-up fees. Office Depot also has agreed to reimburse PJSC
for its reasonable out-of-pocket expenses, including attorneys' fees, under
certain circumstances and to indemnify PJSC against certain liabilities,
including certain liabilities under the federal securities laws.
MANAGEMENT AND OPERATIONS OF STAPLES/OFFICE DEPOT FOLLOWING THE MERGER
The Board of Directors of Staples/Office Depot, following the Effective
Time, will consist of the following 15 persons: Thomas G. Stemberg, Martin E.
Hanaka, James L. Moody, Jr., Rowland T. Moriarty, Robert C. Nakasone, W. Mitt
Romney, Martin Trust, Paul F. Walsh (all of whom are currently directors of
Staples), David I. Fuente, Herve Defforey, James L. Heskett, Frank Scruggs,
Peter J. Solomon and Cynthia Cohen Turk (all of whom are currently directors of
Office Depot) and one additional independent director to be mutually agreed
upon.
Upon the closing of the Merger, David I. Fuente, who is currently Chairman
of the Board and Chief Executive Officer of Office Depot, will become Executive
Chairman of Staples/Office Depot; and Thomas
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G. Stemberg, who is currently Chairman of the Board and Chief Executive Officer
of Staples, will become Chief Executive Officer of Staples/Office Depot; and
Martin E. Hanaka, who is currently President and Chief Operating Officer of
Staples, will become President and Chief Operating Officer of Staples/Office
Depot. It is currently anticipated that the other members of the senior
management of Staples/Office Depot immediately following the closing of the
Merger will be as follows:
<TABLE>
<S> <C>
F. Terry Bean Executive Vice President
Richard M. Bennington President, North American Superstores
John C. Bingleman President, International
Harry S. Brown Executive Vice President
James E. Flavin Senior Vice President, Controller and Chief
Accounting Officer
Richard R. Gentry Executive Vice President, Merchandising
Barry J. Goldstein Executive Vice President
Susan S. Hoyt Executive Vice President, Human Resources
Todd J. Krasnow Executive Vice President, Marketing
Jeffrey Levitan Senior Vice President, Strategy
John J. Mahoney Executive Vice President and Chief Financial
Officer
Ronald L. Sargent President, Staples Contract & Commercial/
Business Services Division
William P. Seltzer Executive Vice President and Chief
Information Officer
Joseph S. Vassalluzzo President, Staples/Office Depot Realty
</TABLE>
Staples/Office Depot intends to change the name of both Staples' retail
stores (most of which currently operate under the name "Staples--The Office
Superstore") and Office Depot's retail stores (most of which currently operate
under the name "Office Depot") to "Staples--The Office Depot." The corporate
headquarters of Staples/Office Depot will continue to be located in
Massachusetts. However, it is currently anticipated that certain significant
functions (including the MIS department and certain accounting functions of
Office Depot) will continue to be located in Delray Beach, Florida, the current
headquarters of Office Depot.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Staples has received a letter from Ernst &
Young, Staples' independent accountants, to the effect that it believes, as of
the date of the Merger Agreement, the Merger will qualify as a pooling of
interests under generally accepted accounting principles. Under this method of
accounting, the recorded assets and liabilities of Staples and Office Depot will
be carried forward to the combined company at their recorded amounts, the
operating results of the combined company will include the operating results of
Staples and Office Depot for the entire fiscal year in which the combination
occurs and the reported operating results of the separate companies for prior
periods will be combined and restated as the operating results of the combined
company. A condition to the Merger is that Staples and Office Depot shall have
received a letter
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from Ernst & Young regarding its concurrence with the conclusions of Staples'
management as to the appropriateness of pooling of interests accounting, under
Accounting Principles Board Opinion No. 16, for the Merger. See "The Merger
Agreement--Conditions" and "Unaudited Pro Forma Combined Condensed Financial
Statements."
Each of the affiliates of Staples and Office Depot has executed a written
agreement to the effect that such person will not transfer shares of common
stock of either Staples or Office Depot during the period beginning 30 days
prior to the Effective Time and ending on the date that Staples publishes
financial statements which reflect 30 days of operations of the combined company
(which agreements relate to the ability of Staples/Office Depot to account for
the Merger as a pooling of interests).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are applicable to holders of Office Depot
Common Stock. This discussion reflects the opinions of Hale and Dorr, counsel to
Staples, and Kirkland & Ellis, counsel to Office Depot, attached as Exhibits 8.1
and 8.2 to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part (the "Exhibit Opinions"). The Exhibit Opinions
each include an opinion to the effect that the Merger will constitute a
"reorganization" (a "Reorganization") for federal income tax purposes within the
meaning of Section 368(a) of the Code. The Exhibit Opinions are based on certain
assumptions and representations and are subject to certain limitations and
qualifications as noted in the opinions.
Office Depot stockholders should be aware that this section does not deal
with all federal income tax considerations that may be relevant to particular
Office Depot stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are foreign persons or who
acquired their Office Depot Common Stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger) including, without limitation, the exercise of options or
rights to purchase Office Depot Common Stock in anticipation of the Merger.
Finally, no foreign, state or local tax considerations are addressed herein.
ACCORDINGLY, OFFICE DEPOT STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM.
The following discussion is based on the interpretation, by each companies'
respective counsel, of the Code, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
The Internal Revenue Service (the "IRS") is not bound by such discussion and is
not precluded from adopting a contrary position. In addition, there can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Staples, Office Depot and their respective stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger qualifying as a Reorganization, the respective counsel of
Staples and Office Depot are of the opinion that:
(a) No gain or loss will be recognized by the holders of Office Depot Common
Stock upon the receipt of Staples Common Stock solely in exchange for such
Office Depot Common Stock in the Merger (except to the extent of cash received
in lieu of fractional shares).
(b) The aggregate tax basis of the Staples Common Stock so received by
Office Depot stockholders in the Merger (including any fractional share of
Staples Common Stock not actually received) will be the same as the aggregate
tax basis of the Office Depot Common Stock surrendered in exchange therefor.
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(c) The holding period of the Staples Common Stock received by each Office
Depot stockholder in the Merger will include the holding period for the Office
Depot Common Stock surrendered in exchange therefor, provided that the Office
Depot Common Stock so surrendered is held as a capital asset at the Effective
Time.
(d) Cash payments received by holders of Office Depot Common Stock in lieu
of a fractional share will be treated as received in redemption of such
fractional shares, subject to the provisions of Section 302 of the Code, as if
such fractional share of Staples Common Stock had been issued in the Merger and
then redeemed by Staples.
(e) No gain or loss will be recognized by Staples, Sub or Office Depot
solely as a result of the Merger.
Neither Staples nor Office Depot has requested a ruling from the IRS in
connection with the Merger. However, it is a condition of the respective
obligations of Staples and Office Depot to consummate the Merger that such
parties receive tax opinions to the effect that for federal income tax purposes,
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code. The Exhibit Opinions are not intended to satisfy these
closing conditions. These closing opinions, which are collectively referred
to herein as the "Tax Opinions," neither bind the IRS nor preclude the IRS from
adopting a contrary position. As with the Exhibit Opinions, the Tax Opinions
will be subject to certain assumptions and qualifications and will be based on
the truth and accuracy of certain representations of Staples, Office Depot, Sub,
and certain of their respective stockholders, including representations in
certain certificates of the respective managements of Staples, Office Depot and
Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in an Office Depot stockholder recognizing gain or loss with respect to
each share of Common Stock of Office Depot surrendered equal to the difference
between the stockholder's basis in such share and the fair market value, as of
the Effective Time of the Merger, of the Staples Common Stock received in
exchange therefor. In such event, a stockholder's aggregate basis in the Staples
Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Staples Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Common Stock of Office Depot). All or a portion of such gain may be
taxable as ordinary income. Gain would also have to be recognized to the extent
that an Office Depot stockholder was treated as receiving (directly or
indirectly) consideration other than Staples Common Stock in exchange for the
stockholder's Office Depot Common Stock.
REGULATORY APPROVALS
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied.
Staples and Office Depot filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on October 2, 1996 and December 23,
1996. On November 1, 1996 and January 10, 1997, the FTC submitted to Staples and
Office Depot requests for additional information and documentary material.
Staples and Office Depot have furnished and are continuing to furnish
information and documentary materials to the FTC in response to these requests.
The FTC has agreed that the waiting period will expire at 12:01 A.M. on February
25, 1997, provided that the parties have substantially complied with these
requests. However, at any time before or after consummation of the Merger, the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of stores or other
assets of Staples or Office Depot. In addition, at any time after the Effective
Time of the Merger, any state could take such action under its antitrust laws as
it deems necessary or desirable in the public interest. Such
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action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of stores or other assets of Staples or Office Depot. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, Staples and Office Depot believe
that the Merger can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Merger on antitrust grounds will not be made or that, if such a challenge
were made, Staples and Office Depot would prevail or would not be required to
accept certain conditions, including the divestiture of stores or other assets
and/or commitments as to future business practices and other matters, in order
to consummate the Merger.
CANADIAN REGULATORY APPROVALS. Because both Staples and Office Depot
operate stores in Canada, the Merger is subject to review under the Competition
Act (Canada) (the "Competition Act"). Under the Competition Act, certain
mergers, including the Merger, may not be completed until either an advance
ruling certificate under Section 102 of the Competition Act has been issued by
the Director of Investigation and Research (the "Director") or a pre-merger
notification has been filed and the applicable waiting period has elapsed.
Staples and Office Depot applied for an advance ruling certificate on October
16, 1996 and filed a short-form notification in accordance with Part IX of the
Competition Act on November 1, 1996. The applicable seven day waiting period
expired on November 8, 1996. In addition, an advance ruling certificate under
section 102 of the Competition Act was issued in respect of the Merger on
December 16, 1996. An advance ruling certificate prohibits the Director from
applying to the Competition Tribunal for an order regarding a merger base solely
on information that was the basis for the issuance of the advance ruling
certificate, provided that the merger is substantially completed within one year
of such issuance. The Merger may also require certain exemption orders under
Canadian securities laws.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Staples Common Stock received by Office Depot stockholders in
the Merger will be freely transferable, except that shares of Staples Common
Stock received by persons who are deemed to be affiliates of Office Depot prior
to the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in the
case of such persons who become affiliates of Staples) or otherwise in
compliance with (or pursuant to an exemption from) the registration requirements
of the Securities Act. Persons deemed to be affiliates of Office Depot or
Staples are those individuals or entities that control, are controlled by, or
are under common control with, such party and generally include executive
officers and directors of such party as well as certain principal stockholders
of such party. The Merger Agreement requires Office Depot to use its best
efforts to cause each of its affiliates to execute a written agreement to the
effect that such person will not offer or sell or otherwise dispose of any of
the shares of Staples Common Stock issued to such person in or pursuant to the
Merger except in compliance with the Securities Act and the rules and
regulations promulgated by the Commission thereunder. This Joint Proxy
Statement/Prospectus does not cover any resales of Staples Common Stock received
by affiliates of Office Depot in the Merger.
STOCK MARKET QUOTATION
It is a condition to the Merger that the shares of Staples Common Stock to
be issued pursuant to the Merger Agreement be approved for quotation on the
Nasdaq National Market or listed on the New York Stock Exchange. An application
will be filed for listing the shares of Staples Common Stock to be issued in the
Merger on the Nasdaq National Market.
NO APPRAISAL RIGHTS
Holders of Office Depot Common Stock are not entitled to appraisal rights
under Section 262 of the DGCL in connection with the Merger because the Office
Depot Common Stock was quoted on the New
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York Stock Exchange on the record date for the Office Depot Special Meeting and
the shares of Staples Common Stock to be issued pursuant to the Merger will be
listed on the Nasdaq National Market or the New York Stock Exchange at the
Effective Time. Holders of Staples Common Stock are not entitled to appraisal
rights under Section 262 of the DGCL in connection with the Merger because
Staples is not a constituent corporation in the Merger.
CERTAIN LEGAL PROCEEDINGS
On September 6, 1996, a complaint was filed in the Court of Chancery of the
State of Delaware in and for New Castle County, entitled DR. WILLIAM A.
DOMBROWSKI V. OFFICE DEPOT, INC. ET AL., Civil Action No. 15203. Among other
things, this lawsuit asserts a claim for breach of fiduciary duty against
members of the Office Depot Board, seeks to be certified as a class action and
seeks injunctive relief in connection with the Merger. Office Depot and the
Office Depot Board believe that this lawsuit is without merit and will defend
against it vigorously.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Staples and Office Depot are urged to read the Merger Agreement in its entirety
for a more complete description of the terms and conditions of the Merger.
GENERAL
The Merger Agreement provides that, following the approval of the Merger
Proposal by the stockholders of Staples, the approval and adoption of the Merger
Agreement by the stockholders of Office Depot, and the satisfaction or waiver of
the other conditions to the Merger, Sub will be merged with and into Office
Depot, with Office Depot continuing as the Surviving Corporation, which shall be
a wholly-owned subsidiary of Staples.
If all conditions to the Merger are satisfied or waived, the Merger will
become effective at the time (the Effective Time) of the filing by the Surviving
Corporation of a duly executed Certificate of Merger with the Secretary of State
of the State of Delaware.
CONVERSION OF SHARES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of Office Depot Common Stock (other than shares
owned by Office Depot as treasury stock or by Staples, Sub or any other
wholly-owned subsidiary of Staples, all of which will be cancelled) will be
converted into the right to receive 1.14 shares (the Exchange Ratio) of Staples
Common Stock. Based upon the number of outstanding shares of Staples Common
Stock and Office Depot Common Stock as of September 30, 1996, the stockholders
of Office Depot immediately prior to the consummation of the Merger will own
approximately 53% of the outstanding shares of Staples Common Stock immediately
following consummation of the Merger. If any holder of shares of Office Depot
Common Stock would be entitled to receive a number of shares of Staples Common
Stock that includes a fraction, then, in lieu of a fractional share, such holder
will be entitled to receive cash in an amount equal to such fractional share of
Staples Common Stock multiplied by the average of the last reported sales price
of Staples Common Stock, as reported on the Nasdaq National Market, on each of
the ten trading days immediately preceding the date of the Effective Time. Each
share of Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into one share of common stock of the Surviving
Corporation.
As soon as reasonably practicable after the Effective Time, The First
National Bank of Boston (the "Exchange Agent") will mail transmittal forms and
exchange instructions to each holder of record of Office Depot Common Stock to
be used to surrender and exchange certificates formerly evidencing shares of
Office Depot Common Stock for certificates evidencing the shares of Staples
Common Stock to which such holder has become entitled. After receipt of such
transmittal forms, each holder of certificates formerly representing Office
Depot Common Stock will be able to surrender such certificates to the Exchange
Agent, and each such holder will receive in exchange therefor certificates
evidencing the number of whole shares of Staples Common Stock to which such
holder is entitled and any cash which may be payable in lieu of a fractional
share of Staples Common Stock. OFFICE DEPOT STOCKHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Time, each certificate formerly representing Office
Depot Common Stock, until so surrendered and exchanged, shall be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
Staples Common Stock which the holder of such certificate is entitled to receive
in the Merger and any cash payment in lieu of a fractional share of Staples
Common Stock. The holder of such unexchanged certificate will not be entitled to
receive any dividends or other distributions payable by Staples until the
certificate has been exchanged. Subject to applicable laws, following surrender
of such
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certificates, such dividends and distributions, together with any cash payment
in lieu of a fractional share of Staples Common Stock, will be paid without
interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) due organization, valid
existence and good standing of each of Staples, Office Depot and each of their
respective subsidiaries and certain similar corporate matters; (b) the capital
structure of each of Staples and Office Depot; (c) the authorization, execution,
delivery and enforceability of the Merger Agreement, the consummation of the
transactions contemplated by the Merger Agreement and related matters; (d)
conflicts under charters or by-laws, required consents or approvals and
violations of any instruments or law; (e) documents and financial statements
filed by each of Staples and Office Depot with the Commission and the accuracy
of information contained therein; (f) undisclosed liabilities; (g) the absence
of certain material adverse events, changes or events; (h) taxes and tax
returns; (i) properties; (j) intellectual property; (k) agreements, contracts
and commitments; (l) litigation; (m) environmental matters and hazardous
materials; (n) compliance with laws; (o) accounting and tax matters relating to
the Merger; (p) the accuracy of information supplied by each of Staples and
Office Depot in connection with the Registration Statement and this Joint Proxy
Statement/Prospectus; (q) labor matters; (r) insurance; (s) the absence of
existing discussions with other parties; (t) opinions of financial advisors; (u)
inapplicability to the Merger of certain provisions of the DGCL; (v) the Office
Depot Rights Plan (as defined below); and (w) the interim operations of Sub.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, each of Staples and Office Depot has
agreed that, during the period from the date of the Merger Agreement until the
Effective Time, except as otherwise consented to in writing by the other party
or as contemplated by the Merger Agreement, it and each of its respective
subsidiaries will: (a) carry on its business in the ordinary course in
substantially the same manner as previously conducted; (b) pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, and pay
or perform other obligations when due; (c) use reasonable efforts to preserve
intact its present business organization, management team and business
relationships; (d) not accelerate, amend or change the period of exercisability
of options or restricted stock granted under any employee stock plan or
authorize cash payments in exchange for any options granted under any employee
stock plan, except as required pursuant to the plan or any related agreement;
(e) not declare or pay any dividends on or make other distributions in respect
of any of its capital stock, not effect certain other changes in its
capitalization, and not purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with the termination of service; (f) not issue or sell, or
authorize or propose the issuance or sale of, any shares of its capital stock or
securities convertible into shares of its capital stock, or any subscriptions,
rights, warrants or options to acquire or other agreements obligating it to
issue any such shares or other convertible securities, subject to certain
exceptions (including the issuance of shares upon the exercise of outstanding
stock options and convertible debt); (g) not make any material acquisitions; (h)
not sell, lease, license or otherwise dispose of material properties or assets
outside the ordinary course of business; (i) not increase the compensation
payable to its officers or employees (except for increases to non-officer
employees consistent with past practices), grant additional severance or
termination pay or enter into employment or severance agreements, enter into any
collective bargaining agreement (other than as required by law) or establish,
adopt, enter into or amend any plan for the benefit of its directors, officers,
or employees; (j) not incur indebtedness for money borrowed other than in the
ordinary course of business; (k) not amend its Certificate of Incorporation or
Bylaws, except as contemplated by the Merger Agreement; and (l) confer on a
regular basis with the other party on the status of ongoing operations.
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Pursuant to the Merger Agreement, Staples and Office Depot each agree to use
its best efforts to (i) take all appropriate action to consummate the
transactions contemplated by the Merger Agreement as promptly as practical, (ii)
obtain any consents, licenses, permits, waivers, approvals, authorizations or
orders from governmental entities or other third parties required in connection
with the transactions contemplated by the Merger Agreement and (iii) make all
necessary filings and submissions with respect to the transactions contemplated
by the Merger Agreement under federal, state and foreign securities laws,
antitrust laws and other applicable laws. Staples and Office Depot also agree to
use their best efforts to obtain any governmental clearances required for the
closing of the Merger, including contesting and resisting governmental action
that would prohibit the Merger, submitting to judicial or administrative orders,
selling or disposing of (or holding in trust) particular assets or categories of
assets or businesses of Staples, Office Depot or their affiliates, and
withdrawing from doing business in particular jurisdictions. Notwithstanding the
foregoing, neither Staples nor Office Depot is required to take any action that
would reasonably be expected to substantially impair the overall benefits
expected, as of the date of the Merger Agreement, to be realized from the
consummation of the Merger.
NO SOLICITATION
The Merger Agreement provides that Staples and Office Depot will not,
directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent, (i) solicit, initiate or encourage any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its subsidiaries, other than the transactions contemplated by the
Merger Agreement (any of the foregoing inquiries or proposals being referred to
as an "Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal; PROVIDED, HOWEVER, that nothing contained in the Merger
Agreement shall prevent Staples or Office Depot or their respective Boards of
Directors from (a) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Merger and the long-term prospects
of Office Depot and Staples as a combined company, would, if consummated, result
in a transaction more favorable over the long term than the transaction
contemplated by the Merger Agreement (any such more favorable Acquisition
Proposal being referred to as a "Superior Proposal") and the Board of Directors
of such party determines in good faith after consultation with outside legal
counsel that such action is necessary for such Board of Directors to comply with
its fiduciary duties to stockholders under applicable law and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, such Board of Directors receives from
such person or entity an executed confidentiality agreement with terms no less
favorable to such party than those contained in the agreement dated May 16, 1996
between Staples and Office Depot; or (b) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal.
Staples and Office Depot are each required to promptly notify the other
party (orally and in writing) upon receipt of any Acquisition Proposal or
request for non-public information or access to its properties, books or records
in connection with an Acquisition Proposal.
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MANAGEMENT OF STAPLES/OFFICE DEPOT FOLLOWING THE MERGER
The Merger Agreement provides that the Board of Directors of Staples/Office
Depot, following the Effective Time, will consist of the following 15 persons:
Thomas G. Stemberg, Martin E. Hanaka, James L. Moody, Jr., Rowland T. Moriarty,
Robert C. Nakasone, W. Mitt Romney, Martin Trust, Paul F. Walsh (all of whom are
currently directors of Staples), David I. Fuente, Herve Defforey, James L.
Heskett, Frank Scruggs, Peter J. Solomon and Cynthia Cohen Turk (all of whom are
currently directors of Office Depot) and one additional independent director to
be mutually agreed upon.
The Merger Agreement further provides that, upon the closing of the Merger,
David I. Fuente, who is currently Chairman of the Board and Chief Executive
Officer of Office Depot, will become Executive Chairman of Staples/Office Depot;
and Thomas G. Stemberg, who is currently Chairman of the Board and Chief
Executive Officer of Staples, will become Chief Executive Officer of
Staples/Office Depot; and Martin E. Hanaka, who is currently President and Chief
Operating Officer of Staples, will become President and Chief Operating Officer
of Staples/Office Depot. See also "The Merger--Management and Operations of
Staples/Office Depot Following the Merger."
RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into Office Depot, and
Office Depot will be the Surviving Corporation and a wholly-owned subsidiary of
Staples. Each share of Sub Common Stock issued and outstanding immediately prior
to the Effective Time will be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation.
The Certificate of Incorporation of Office Depot, as in effect immediately
prior to the Effective Time and as the capitalization provisions are amended in
accordance with the provisions of the Merger Agreement, shall become the
Certificate of Incorporation of the Surviving Corporation. The Bylaws of Sub, as
in effect immediately prior to the Effective Time, shall become the Bylaws of
the Surviving Corporation.
After the Effective Time, all shares of Office Depot Common Stock will cease
to be listed on the New York Stock Exchange, and the Surviving Corporation will
terminate the registration of Office Depot Common Stock under the Exchange Act.
STOCK OPTIONS AND EMPLOYEE BENEFITS
At the Effective Time, each outstanding option to purchase shares of Office
Depot Common Stock (an "Office Depot Stock Option") shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Office Depot Stock Option, the number of shares of Staples
Common Stock (rounded down to the nearest whole number) as the holder of such
Office Depot Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time. The exercise price per share of each such option, as so
converted, will be equal to (x) the aggregate exercise price for the shares of
Office Depot Common Stock otherwise purchasable pursuant to such Office Depot
Stock Option immediately prior to the Effective Time divided by (y) the number
of whole shares of Staples Common Stock deemed purchasable pursuant to such
Office Depot Stock Option as determined above (rounded up to the nearest whole
cent). As of December 31, 1996, options to acquire 8,570,064 shares of Office
Depot Common Stock were outstanding. All outstanding Office Depot Stock Options
will become exercisable in full upon the closing of the Merger.
Staples agreed to reserve for issuance a sufficient number of shares of
Staples Common Stock for delivery upon exercise of the Office Depot Stock
Options assumed as described above. As soon as practicable after the Effective
Time, Staples shall file a registration statement on Form S-8 with respect to
the shares of Staples Common Stock subject to such options and shall use its
best efforts to maintain the effectiveness of such registration statement for so
long as such options remain outstanding.
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Office Depot has agreed to terminate its 1989 Employee Stock Purchase Plan
as of or prior to the Effective Time.
Staples has agreed that, during the one-year period commencing as of the
Effective Time, the employees of Office Depot and its subsidiaries will continue
to be provided with benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of securities) which are
no less favorable in the aggregate than those provided by Office Depot and its
subsidiaries to such employees as of the execution of the Merger Agreement.
Staples and Office Depot will agree upon an appropriate severance policy for
employees of Office Depot not covered by the Employment Agreements described
under "The Merger--Interests of Certain Persons in the Merger--Employment
Agreements."
STOCKHOLDERS RIGHTS PLANS
Office Depot entered into a Rights Agreement dated as of September 4, 1996
with ChaseMellon Shareholder Services, L.L.C. (the "Office Depot Rights Plan").
The Office Depot Rights Plan provides that the transactions contemplated by the
Merger Agreement and Staples Stock Option Agreement are exempt from the
provisions of the Office Depot Rights Plan.
Staples is party to a Rights Agreement dated February 3, 1994 with The First
National Bank of Boston (the "Staples Rights Plan"). The provisions of the
Staples Rights Plan are triggered by neither the transactions contemplated by
the Merger Agreement nor the transactions contemplated by the Office Depot Stock
Option Agreement.
DIRECTOR AND OFFICER INDEMNIFICATION
The Merger Agreement provides that, from and after the Effective Time,
Staples and the Surviving Corporation shall indemnify and hold harmless each
present and former director and officer of Office Depot against all costs or
expenses, judgments, fines, losses, claims, damages, liabilities or amounts paid
in settlement incurred in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any matter existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, or at
or after the Effective Time, to the fullest extent that Office Depot would have
been permitted under Delaware law and its Certificate of Incorporation or Bylaws
in effect on the date of the Merger Agreement to indemnify such person. Staples
and the Surviving Corporation shall also be obligated to advance expenses as
incurred to the fullest extent permitted under applicable law, provided the
person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification.
For a period of six years after the Effective Time, Staples shall cause the
Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are covered as of the date of the Merger Agreement by Office Depot's
directors' and officers' liability insurance policy, with coverage in an amount
and scope at least as favorable as Office Depot's existing coverage; provided
that neither Staples nor the Surviving Corporation shall be required to expend
in excess of 200% of the annual premium paid by Office Depot as of the date of
the Merger Agreement for such coverage (the "Current Premium"), and if the
premium would at any time exceed 200% of the Current Premium, the Surviving
Corporation shall maintain insurance policies which provide the maximum coverage
available at an annual premium equal to 200% of the Current Premium.
CONDITIONS
The respective obligations of Staples and Office Depot to effect the Merger
are subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Proposal shall have been approved by the stockholders of Staples and the
Merger Agreement shall have been approved and adopted by the stockholders of
Office Depot; (b) the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated; (c) all material
governmental authorizations, consents,
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orders or approvals (including those required under the Competition Act (Canada)
and the Investment Canada Act) shall have been obtained; (d) the Registration
Statement shall have become effective and shall not be the subject of a stop
order or proceedings seeking a stop order; (e) no order, injunction or judgment,
or statute, rule or regulation, shall be in effect that makes the Merger illegal
or otherwise prohibits the consummation of the Merger; (f) Staples and Office
Depot shall have received a letter from Ernst & Young regarding its concurrence
with the conclusions of Staples' management as to the appropriateness of
accounting for the Merger as a pooling of interests under Accounting Principles
Board Opinion No. 16 (see "The Merger--Accounting Treatment"); and (g) the
shares of Staples Common Stock to be issued in the Merger shall have been
approved for quotation on the Nasdaq National Market or listing on the New York
Stock Exchange.
In addition, the obligations of Staples and Sub to effect the Merger are
subject to the satisfaction of the following conditions: (i) the representations
and warranties of Office Depot in the Merger Agreement shall be true and correct
as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by the Merger Agreement and breaches which, individually or in the
aggregate, have not had and are not reasonably likely to have a material adverse
effect upon either Office Depot or the consummation of the transactions
contemplated by the Merger Agreement (the "Office Depot Representation Bringdown
Condition"); (ii) Office Depot shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; and (iii) Staples shall have received a written legal
opinion to the effect that the Merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Code (see "The Merger--Certain Federal Income Tax Consequences"). In
addition, the obligations of Office Depot and Sub to effect the Merger are
subject to the satisfaction of the following conditions: (i) the representations
and warranties of Staples in the Merger Agreement shall be true and correct as
of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by the Merger Agreement and breaches which, individually or in the
aggregate, have not had and are not reasonably likely to have a material adverse
effect upon either Staples or the consummation of the transactions contemplated
by the Merger Agreement (the "Staples Representation Bringdown Condition"); (ii)
Staples shall have performed in all material respects all obligations required
to be performed by it under the Merger Agreement at or prior to the Closing
Date; and (iii) Office Depot shall have received a written legal opinion to the
effect that the Merger will be treated for federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code (see
"The Merger--Certain Federal Income Tax Consequences").
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Staples and Office Depot:
(a) by mutual written consent of Staples and Office Depot; or
(b) by either Staples or Office Depot if the Merger shall not have been
consummated by February 28, 1997 (provided that (i) either Staples or Office
Depot may extend such date to May 31, 1997 by providing written notice thereof
on or prior to February 28, 1997 (February 28, 1997, or May 31, 1997 if such
date is so extended, is referred to as the "Outside Date") and (ii) the right to
terminate the Merger Agreement under this clause shall not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of or resulted in the failure of the Merger to occur on or before
such date); or
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(c) by either Staples or Office Depot if a court of competent jurisdiction
or other Governmental Entity (as defined in the Merger Agreement) shall have
issued a nonappealable final order, decree or ruling or taken any other
nonappealable final action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by Staples if, at the Office Depot Special Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of Office
Depot in favor of the Merger Agreement shall not have been obtained; or by
Office Depot if, at the Staples Special Meeting (including any adjournment or
postponement), the requisite vote of the stockholders of Staples in favor of the
Merger Proposal shall not have been obtained; or
(e) by Staples, if (i) the Board of Directors of Office Depot shall have
withdrawn or modified its recommendation of the Merger Agreement or the Merger;
(ii) after the receipt by Office Depot of an Acquisition Proposal, Staples
requests in writing that the Board of Directors of Office Depot reconfirm its
recommendation of the Merger Agreement or the Merger and the Board of Directors
of Office Depot fails to do so within 10 business days after its receipt of
Staples' request; (iii) the Board of Directors of Office Depot shall have
recommended to the stockholders of Office Depot an Alternative Transaction (as
defined in the Merger Agreement); (iv) a tender offer or exchange offer for 20%
or more of the outstanding shares of Office Depot Common Stock is commenced
(other than by Staples or an affiliate of Staples) and the Board of Directors of
Office Depot recommends that the stockholders of Office Depot tender their
shares in such tender or exchange offer; or (v) for any reason Office Depot
fails to call and hold the Office Depot Special Meeting by the Outside Date
(provided that Staples' right to terminate the Merger Agreement under such
clause (v) shall not be available if at such time Office Depot would be entitled
to terminate the Merger Agreement by reason of a breach by Staples); or
(f) by Office Depot, if (i) the Board of Directors of Staples shall have
withdrawn or modified its recommendation of the Merger Agreement or the Merger;
(ii) after the receipt by Staples of an Acquisition Proposal, Office Depot
requests in writing that the Board of Directors of Staples reconfirm its
recommendation of the Merger Proposal and the Board of Directors of Staples
fails to do so within 10 business days after its receipt of Office Depot's
request; (iii) the Board of Directors of Staples shall have recommended to the
stockholders of Staples an Alternative Transaction (as defined in the Merger
Agreement); (iv) a tender offer or exchange offer for 20% or more of the
outstanding shares of Staples Common Stock is commenced (other than by Office
Depot or an affiliate of Office Depot) and the Board of Directors of Staples
recommends that the stockholders of Staples tender their shares in such tender
or exchange offer; or (v) for any reason Staples fails to call and hold the
Staples Special Meeting by the Outside Date (provided that Office Depot's right
to terminate the Merger Agreement under such clause (v) shall not be available
if at such time Staples would be entitled to terminate the Merger Agreement by
reason of a breach by Office Depot); or
(g) by Staples or Office Depot, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in the Merger Agreement, which breach (i) causes the Office Depot
Representation Bringdown Condition (in the case of a termination by Staples) or
the Staples Representation Bringdown Condition (in the case of a termination by
Office Depot) not to be satisfied and (ii) shall not have been cured within 20
business days following receipt by the breaching party of written notice of such
breach from the other party (such a breach shall be referred to herein as a
"Section 8.01(g) Breach").
In the event of any termination of the Merger Agreement by either Staples or
Office Depot as provided above, the Merger Agreement will become void and there
will be no liability or obligation (with limited exceptions) on the part of
Staples, Office Depot, Sub or their respective officers, directors, stockholders
or affiliates, except as provided below with respect to expense reimbursements
and termination fees.
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Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses.
Office Depot shall pay Staples up to $5,000,000 as reimbursement for
expenses of Staples actually incurred relating to the transactions contemplated
by the Merger Agreement prior to termination (including fees and expenses of
Staples' counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of the
Merger Agreement by Staples (i) under the circumstances described in paragraph
(d) above (other than in the circumstances set forth in clause (i) of the
following paragraph) or (ii) under the circumstances described in paragraph (b)
or (g) above as a result of the failure to satisfy the Office Depot
Representation Bringdown Condition.
Office Depot shall pay Staples a termination fee of $75,000,000 (the
"Staples Termination Fee") upon the earliest to occur of the following events:
(i) the termination of the Merger Agreement by Staples under the circumstances
described in paragraph (d) above, if a proposal for an Alternative Transaction
(as defined in the Merger Agreement) involving Office Depot shall have been made
prior to the Office Depot Special Meeting; (ii) the termination of the Merger
Agreement by Staples under the circumstances described in paragraph (e) above;
or (iii) the termination of the Merger Agreement by Staples under the
circumstances described in paragraph (g) above after a breach by Office Depot of
a covenant or agreement in the Merger Agreement. Office Depot's payment of the
Staples Termination Fee as described in this paragraph shall be the sole and
exclusive remedy of Staples against Office Depot and any of its subsidiaries and
their respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment;
provided that this limitation shall not apply in the event of a willful breach
of the Merger Agreement by Office Depot.
Staples shall pay Office Depot up to $5,000,000 as reimbursement for
expenses of Office Depot actually incurred relating to the transactions
contemplated by the Merger Agreement prior to termination (including fees and
expenses of Office Depot's counsel, accountants and financial advisors, but
excluding any discretionary fees paid to such financial advisors), upon the
termination of the Merger Agreement by Office Depot (i) under the circumstances
described in paragraph (d) above (other than in the circumstances set forth in
clause (i) of the following paragraph) or (ii) under the circumstances described
in paragraph (b) or (g) above as a result of the failure to satisfy the Staples
Representation Bringdown Condition.
Staples shall pay Office Depot a termination fee of $75,000,000 (the "Office
Depot Termination Fee") upon the earliest to occur of the following events: (i)
the termination of the Merger Agreement by Office Depot under the circumstances
described in paragraph (d) above, if a proposal for an Alternative Transaction
involving Staples shall have been made prior to the Staples Special Meeting;
(ii) the termination of the Merger Agreement by Office Depot under the
circumstances described in paragraph (e) above; or (iii) the termination of the
Merger Agreement by Office Depot under the circumstances described in paragraph
(g) above after a breach by Staples of a covenant or agreement in the Merger
Agreement. Staples' payment of the Office Depot Termination Fee as described in
this paragraph shall be the sole and exclusive remedy of Office Depot against
Staples and any of its subsidiaries and their respective directors, officers,
employees, agents, advisors or other representatives with respect to the
occurrences giving rise to such payment; provided that this limitation shall not
apply in the event of a willful breach of the Merger Agreement by Staples.
If applicable, any expenses and fees payable as described above shall be
paid within one business day after the first to occur of the relevant
termination events.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of Staples and Office Depot,
but after approval by the stockholders of Staples or Office Depot of the Merger,
no amendment shall be made which by law requires further approval by such
stockholders, without such further approval. Staples and Office Depot, by action
taken or authorized by their respective Boards of Directors, may extend the time
for performance of the obligations or other acts of the other parties to the
Merger Agreement, may waive inaccuracies in the representations or warranties
contained in the Merger Agreement and may waive compliance with any agreements
or conditions contained in the Merger Agreement.
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STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Staples and Office
Depot Stock Option Agreements, copies of which are filed as exhibits to Staples'
Current Report on Form 8-K dated September 4, 1996, which is incorporated herein
by reference. Such summaries are qualified in their entirety by reference to the
Stock Option Agreements.
STAPLES OPTION
Pursuant to the Staples Stock Option Agreement, Staples has the right (the
"Staples Option"), under the circumstances described below, to acquire up to
31,200,000 shares of authorized but unissued Office Depot Common Stock (the
"Staples Option Shares") (or approximately 19.9% of the outstanding Office Depot
Common Stock as of September 4, 1996 prior to giving effect to the exercise of
such option), including the associated rights under the Office Depot Rights
Plan, at a price of $20.325 per share (the "Staples Option Price"). The Staples
Stock Option Agreement could have the effect of making an acquisition of Office
Depot by a third party more costly because of the need to acquire in any such
transaction the Staples Option Shares issued under the Staples Stock Option
Agreement, and could also jeopardize the ability of a third party to acquire
Office Depot in a transaction accounted for as a pooling of interests.
The Staples Option may be exercised by Staples, in whole or in part, at any
time or from time to time after the occurrence of an event (other than a Section
8.01(g) Breach) which would entitle Staples, upon termination of the Merger
Agreement, to payment of the Staples Termination Fee (as described in "The
Merger Agreement--Termination; Termination Fees and Expenses" above). Staples
may exercise the Staples Option by either (a) paying the Staples Option Price in
cash and receiving the Staples Option Shares or (b) electing, in lieu of the
payment of the Staples Option Price and the receipt of the Staples Option
Shares, to receive a cash payment (the "Cash Exercise Payment") from Office
Depot in the amount of the excess of (i) the higher of the price paid for the
Office Depot Common Stock in an Alternative Transaction or the then current
market price of the Office Depot Common Stock over (ii) the Staples Option
Price.
Upon exercise by Staples of the Staples Option for at least 15,700,000
shares of Office Depot Common Stock (which represented approximately 10% of the
outstanding Office Depot Common Stock as of the date of execution of the Staples
Stock Option Agreement), Staples shall be entitled to designate one person to be
appointed to the Board of Directors of Office Depot, and Office Depot shall
(subject to certain limitations) cause such designee to be appointed to its
Board of Directors.
In the event Staples exercises the Staples Option in whole or in part,
Office Depot shall have a right of first refusal with respect to certain sales
by Staples of the Staples Option Shares prior to the earlier of the first
anniversary of the termination of the Merger Agreement or the occurrence of a
change in control event (as defined in the Staples Stock Option Agreement) with
respect to Office Depot. At any time prior to the first anniversary of the
termination of the Merger Agreement, Staples shall have the right to sell to
Office Depot all (but not less than all) of the Staples Option Shares at a price
equal to the greater of (i) the Staples Option Price or (ii) the average of the
closing prices for Office Depot Common Stock on the five trading days ending
five days prior to the date Staples gives notice of its exercise of such right.
In addition, if a change in control event with respect to Office Depot has not
occurred prior to the first anniversary of the termination of the Merger
Agreement, Office Depot shall have the right, during the 30-day period beginning
on such anniversary, to purchase all (but not less than all) of the Staples
Option Shares at a purchase price equal to the greater of (i) the Staples Option
Price or (ii) the average of the closing prices for Office Depot Common Stock on
the five trading days ending five days prior to the date Office Depot gives
notice of its exercise of such right.
The Staples Stock Option Agreement further provides that if Staples desires
to sell any of the Staples Option Shares within three years after the purchase
of such shares and such sale requires the registration
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of such shares under the Securities Act, Office Depot shall be required to
prepare and file (subject to certain limitations) a registration statement under
the Securities Act for the purpose of permitting such sale of shares by Staples.
Office Depot shall not be required to have declared effective more than two such
registration statements.
Notwithstanding any other provisions of the Staples Stock Option Agreement,
(i) in no event shall Staples' Total Profit (as defined below) exceed
$150,000,000 and (ii) the Staples Option may not be exercised for a number of
Staples Option Shares that would result in a Notional Total Profit (as defined
below) of more than $150,000,000. "Total Profit" means the aggregate amount
(before taxes) of (i) the Staples Termination Fee received by Staples, (ii) the
Cash Exercise Payment received by Staples, (iii) the amount received by Staples
for the repurchase of the Staples Option Shares by Office Depot pursuant to the
second preceding paragraph, less the purchase price paid by Staples for such
shares and (iv) the net cash amounts received by Staples pursuant to the sale of
Staples Option Shares to an unaffiliated party, less the purchase price paid by
Staples for such shares. "Notional Total Profit" means, with respect to such
number of Staples Option Shares as to which Staples proposes to exercise the
Staples Option, the Total Profit determined as of the date on which Staples
gives its option exercise notice, assuming that the Staples Option were
exercised on such date for the designated number of Staples Option Shares and
assuming that such shares, together with all other Staples Option Shares held by
Staples and its affiliates as of such date, were sold for cash at the closing
market price for the Office Depot Common Stock as of the close of business on
the preceding trading day (less customary brokerage commissions).
The Staples Option shall terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Staples realizes a Total Profit of $150,000,000 and
(iii) 90 days after the termination of the Merger Agreement; provided that (a)
if the Staples Option cannot be exercised because of a preliminary or permanent
injunction or other court order or because the applicable waiting period under
the HSR Act shall not have expired or been terminated, the date referred to in
clause (iii) above shall be extended until 30 days after such impediment to
exercise has been removed and (b) if Staples seeks to exercise the Staples
Option but is unable to do so with respect to all of the Staples Option Shares
subject to the Staples Option because of the limitation on Notional Total Profit
described above, the date referred to in clause (iii) above shall be extended
for an additional 180 days (but in no event more than 270 days after the
termination of the Merger Agreement).
OFFICE DEPOT OPTION
Pursuant to the Office Depot Stock Option Agreement, Office Depot has the
right (the "Office Depot Option"), under the circumstances described below, to
acquire up to 31,900,000 shares of authorized but unissued Staples Common Stock
(the "Office Depot Option Shares") (or approximately 19.9% of the outstanding
Staples Common Stock as of September 4, 1996 prior to giving effect to the
exercise of such option), including the associated rights under the Staples
Rights Plan, at a price of $18.5625 per share (the "Office Depot Option Price").
The Office Depot Stock Option Agreement could have the effect of making an
acquisition of Staples by a third party more costly because of the need to
acquire in any such transaction the Office Depot Option Shares issued under the
Office Depot Stock Option Agreement, and could also jeopardize the ability of a
third party to acquire Staples in a transaction accounted for as a pooling of
interests.
The Office Depot Option may be exercised by Office Depot, in whole or in
part, at any time or from time to time after the occurrence of an event (other
than a Section 8.01(g) Breach) which would entitle Office Depot, upon
termination of the Merger Agreement, to payment of the Office Depot Termination
Fee (as described in "The Merger Agreement--Termination; Termination Fees and
Expenses" above). Office Depot may exercise the Office Depot Option by either
(a) paying the Office Depot Option Price in cash and receiving the Office Depot
Option Shares or (b) electing, in lieu of the payment of the Office Depot Option
Price and the receipt of the Office Depot Option Shares, to receive a Cash
Exercise Payment from Staples in the amount of the excess of (i) the higher of
the price paid for the Staples
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<PAGE>
Common Stock in an Alternative Transaction or the then current market price of
the Staples Common Stock over (ii) the Office Depot Option Price.
Upon exercise by Office Depot of the Office Depot Option for at least
16,100,000 shares of Staples Common Stock (which represented approximately 10%
of the outstanding Staples Common Stock as of the date of execution of the
Office Depot Stock Option Agreement), Office Depot shall be entitled to
designate one person to be appointed to the Board of Directors of Staples, and
Staples shall (subject to certain limitations) cause such designee to be
appointed to its Board of Directors.
In the event Office Depot exercises the Office Depot Option in whole or in
part, Staples shall have a right of first refusal with respect to certain sales
by Office Depot of the Office Depot Option Shares prior to the earlier of the
first anniversary of the termination of the Merger Agreement or the occurrence
of a change in control event (as defined in the Office Depot Stock Option
Agreement) with respect to Staples. At any time prior to the first anniversary
of the termination of the Merger Agreement, Office Depot shall have the right to
sell to Staples all (but not less than all) of the Office Depot Option Shares at
a price equal to the greater of (i) the Office Depot Option Price or (ii) the
average of the closing prices for Staples Common Stock on the five trading days
ending five days prior to the date Office Depot gives notice of its exercise of
such right. In addition, if a change in control event with respect to Staples
has not occurred prior to the first anniversary of the termination of the Merger
Agreement, Staples shall have the right, during the 30-day period beginning on
such anniversary, to purchase all (but not less than all) of the Office Depot
Option Shares at a purchase price equal to the greater of (i) the Office Depot
Option Price or (ii) the average of the closing prices for Staples Common Stock
on the five trading days ending five days prior to the date Staples gives notice
of its exercise of such right.
The Office Depot Stock Option Agreement further provides that if Office
Depot desires to sell any of the Office Depot Option Shares within three years
after the purchase of such shares and such sale requires the registration of
such shares under the Securities Act, Staples shall be required to prepare and
file (subject to certain limitations) a registration statement under the
Securities Act for the purpose of permitting such sale of shares by Office
Depot. Staples shall not be required to have declared effective more than two
such registration statements.
Notwithstanding any other provisions of the Office Depot Stock Option
Agreement, (i) in no event shall Office Depot's Total Profit (as defined below)
exceed $150,000,000 and (ii) the Office Depot Option may not be exercised for a
number of Office Depot Option Shares that would result in a Notional Total
Profit (as defined below) of more than $150,000,000. "Total Profit" means the
aggregate amount (before taxes) of (i) the Office Depot Termination Fee received
by Office Depot, (ii) the Cash Exercise Payment received by Office Depot, (iii)
the amount received by Office Depot for the repurchase of the Office Depot
Option Shares by Staples pursuant to the second preceding paragraph, less the
purchase price paid by Office Depot for such shares and (iv) the net cash
amounts received by Office Depot pursuant to the sale of Office Depot Option
Shares to an unaffiliated party, less the purchase price paid by Office Depot
for such shares. "Notional Total Profit" means, with respect to such number of
Office Depot Option Shares as to which Office Depot proposes to exercise the
Office Depot Option, the Total Profit determined as of the date on which Office
Depot gives its option exercise notice, assuming that the Office Depot Option
were exercised on such date for the designated number of Office Depot Option
Shares and assuming that such shares, together with all other Office Depot
Option Shares held by Office Depot and its affiliates as of such date, were sold
for cash at the closing market price for the Staples Common Stock as of the
close of business on the preceding trading day (less customary brokerage
commissions).
The Office Depot Option shall terminate upon the earlier of (i) the
Effective Time, (ii) the date on which Office Depot realizes a Total Profit of
$150,000,000 and (iii) 90 days after the termination of the Merger Agreement;
provided that (a) if the Office Depot Option cannot be exercised because of a
preliminary or permanent injunction or other court order or because the
applicable waiting period under the HSR Act shall not have expired or been
terminated, the date referred to in clause (iii) above shall be
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extended until 30 days after such impediment to exercise has been removed and
(b) if Office Depot seeks to exercise the Office Depot Option but is unable to
do so with respect to all of the Office Depot Option Shares subject to the
Office Depot Option because of the limitation on Notional Total Profit described
above, the date referred to in clause (iii) above shall be extended for an
additional 180 days (but in no event more than 270 days after the termination of
the Merger Agreement).
STAPLES, INC.
BUSINESS
The information in this section pertains to the business of Staples as it is
currently conducted without giving effect to the Merger.
Staples pioneered the office supplies superstore concept in 1986 and is a
leading office supplies distributor with a total of 558 retail stores located in
the United States and Canada as of December 31, 1996, in addition to a direct
mail delivery business and contract stationer operations.
BUSINESS STRATEGY
Staples 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. Staples effectively addresses all four major end-user groups. In
addition to increasing and diversifying its available market opportunities,
Staples' decision to address all four major end-user groups is resulting in a
number of important business synergies for Staples, 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.
Staples' strategy is focused on the following:
NORTH AMERICAN SUPERSTORES
Staples' superstores are the core business of Staples, generating a
substantial majority of its sales and profits.
SUBURBAN SUPERSTORES. Most of Staples' 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 and in Canada, in both major
metropolitan markets and smaller outlying markets. Staples' 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) increasing its
presence in targeted metropolitan markets by adding new stores and achieving
economies of scale in most of the major metropolitan markets where it competes;
(iii) maintaining operating costs at the lowest level that is consistent with
providing quality merchandise and service (thereby enabling Staples to provide
low prices to its customers); and (iv) providing superior customer service,
including sales consulting and a "user friendly" shopping environment.
Staples believes that its strategy of continuing to add new stores in its
major metropolitan markets with superstores results in a number of advantages
for Staples. 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 Staples believes is a significant criterion in the
customer's choice of office products superstores. Third, it enables Staples to
take advantage of economic efficiencies in management, advertising and
distribution for the stores within a market.
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EXPRESS STORES. To increase its attractiveness to downtown businesses,
Staples 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
Staples' Contract and Commercial division is comprised of two principal
business operations: Staples' mail order operations, which operate under the
name Staples Direct, and Staples' contract stationer business, which operates
under the names Staples National Advantage and Staples Business Advantage.
STAPLES DIRECT. In fiscal 1990, Staples introduced Staples Direct, which
Staples 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 Staples' suburban
superstores, with the added convenience of telephone ordering and free next-day
delivery for orders over $50. Delivery orders are shipped from either Staples'
East Coast or West Coast delivery distribution centers, and are distributed
through small, dedicated delivery hubs in each of Staples' major markets.
Staples markets Staples Direct through both direct mail catalogs and a sales
force primarily focused on new accounts. In some markets, Staples also delivers
products directly from its retail stores.
STAPLES BUSINESS ADVANTAGE AND STAPLES NATIONAL ADVANTAGE. Staples'
contract stationer operations are focused on serving the needs of customers that
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. Staples' 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. Staples has established this business through a
number of acquisitions of regional contract stationers, as well as the
introduction of Staples Business Advantage into the New York and Washington D.C.
metropolitan markets. Staples 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. Staples 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
Staples believes that foreign markets may provide additional growth
opportunities for the latter part of the 1990s. Staples 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.
Staples' first international joint venture was in Canada with Business
Depot, in which Staples made its initial investment in 1991. In 1994, Business
Depot became a wholly-owned subsidiary of Staples. Staples is also a partner in
two overseas office products superstore joint ventures. In the United Kingdom,
Staples and Kingfisher plc, a British retailer ("Kingfisher"), are equal
partners in Staples UK, which was formed in 1992. Staples UK operated 35 stores
as of December 31, 1996. In Germany, Staples owns a joint venture interest in
MAXI-Papier-MARKT GmbH ("MAXI-Papier"); MAXI-Papier operated 16 stores as of
December 31, 1996. On December 11, 1996, Staples and Kingfisher entered into a
definitive agreement pursuant to which Staples will acquire Kingfisher's
interest in Staples UK and MAXI-Papier (which will increase Staples' ownership
interest in Staples UK to 100% and in MAXI-Papier to approximately 91%).
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These acquisitions are expected to close in May 1997. Staples' 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 Staples has
been focusing on the following five strategic priorities, with the objective of
enhancing its position as a leading office products supplier:
PROFITABLY INCREASE RETAIL SALES PER STORE. Staples is devoting significant
resources and efforts to profitably increasing its retail sales per store.
Initiatives in this regard include: significantly increased marketing and
advertising, including television advertising, which has increased Staples'
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 and improved shopability and signage of the
prototype superstore. Another key element of this strategy is Staples' store
remodel program, pursuant to which Staples has remodeled over 162 existing
stores as of December 31, 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. Staples 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. Staples 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, Staples significantly
accelerated its store growth by opening 90 new stores in fiscal 1994 and 94 in
fiscal 1995. In fiscal 1996 Staples intends to open approximately 115 stores in
North America. Staples' store growth strategy follows a three-pronged approach:
continuing the growth of its suburban store network in its existing markets;
entering smaller markets, within both existing and new geographic areas; and
entering major new markets each year. Staples believes that its centralized
distribution strategy facilitates its aggressive store growth by enabling
Staples 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, competitive store.
REDUCE COSTS EVERYWHERE. Staples is maintaining its historical focus on
being a low-cost operator and is pursuing several initiatives to reduce costs as
a percentage of sales. Staples continues to add experienced personnel to its
buying team and has implemented enhancements in its replenishment software.
Staples also believes that its future expansion will enable it to leverage
certain fixed costs in store operations, distribution and administration.
IMPROVE CUSTOMER SERVICE. Staples 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, Staples
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, Staples is planning to further increase its commitment to training
and product knowledge among its sales associates and is implementing several
technological advancements to improve training, customer service and ease of
shopping.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Staples Common Stock as of December 31, 1996 by (i) each
stockholder known by Staples to beneficially own more than 5% of the outstanding
shares of Staples Common Stock, (ii) each director of Staples, (iii) the Chief
Executive Officer and the four other most highly compensated (for fiscal 1995)
executive officers of Staples who were serving as such at the end of fiscal
1995, and (iv) all current directors and executive officers of Staples as a
group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OUTSTANDING
BENEFICIALLY COMMON
BENEFICIAL OWNER OWNED (1) STOCK(2)
- -------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
5% STOCKHOLDERS
FMR Corp. (3)......................................................................... 20,725,148 12.8%
82 Devonshire Street
Boston, MA 02109
Chancellor Capital Management, Inc. (4)............................................... 8,116,200 5.0%
Chancellor Capital Trust Company
1166 Avenue of the Americas
New York, NY 10036
DIRECTORS
Thomas G. Stemberg (5)................................................................ 3,605,153 2.2%
Martin Trust (6)...................................................................... 1,964,452 1.2%
Leo Kahn (7).......................................................................... 715,369 *
Robert C. Nakasone (8)................................................................ 298,710 *
Rowland T. Moriarty (9)............................................................... 259,002 *
W. Mitt Romney (10)................................................................... 176,513 *
Paul F. Walsh (11).................................................................... 119,856 *
Martin E. Hanaka...................................................................... 52,622 *
Mary Elizabeth Burton (12)............................................................ 49,884 *
W. Lawrence Heisey (13)............................................................... 18,655 *
James L. Moody, Jr. (14).............................................................. 14,625 *
OTHER EXECUTIVES
John C. Bingleman (15)................................................................ 156,143 *
John B. Wilson (16)................................................................... 429,488 *
Ronald L. Sargent (17)................................................................ 302,111 *
All current directors and executive officers as a group (22 persons) (18)............. 10,233,221 6.2%
</TABLE>
- ------------------------
* Less than 1%
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The inclusion herein of any shares as
beneficially owned does not constitute an admission of beneficial ownership.
Each person or group of persons listed is deemed to beneficially own shares
issuable upon the exercise of stock options that are exercisable within 60
days after December 31, 1996 ("Presently Exercisable Options"). This table
does not give effect to the acceleration of Staples stock options that will
occur upon the closing of the Merger. See "The Merger-- Interests of Certain
Persons in the Merger-- Staples Stock Option and Severance Agreements."
(2) Number of shares deemed outstanding includes 161,712,030 shares outstanding
as of December 31, 1996, plus any shares subject to Presently Exercisable
Options held by the person or entity in question.
(3) Based on a Schedule 13G filed with the Commission on October 10, 1996.
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(4) Based on a Schedule 13G filed with the Commission on February 1, 1996.
(5) Includes 310,674 shares owned by the Thomas G. Stemberg 1995 Trust and 2,530
shares owned by Mr. Stemberg's wife. Also includes 2,328,750 shares subject
to Presently Exercisable Options.
(6) Includes 1,850,931 shares owned by Trust Investments, Inc., with which Mr.
Trust is affiliated. Mr. Trust has shared investment and voting control of
these shares. Also includes 7,593 shares held by Mr. Trust's wife. Also
includes 55,311 shares subject to Presently Exercisable Options.
(7) Includes 75,000 shares owned by Mr. Kahn's wife. Also includes 74,294 shares
subject to Presently Exercisable Options.
(8) Includes 74,294 shares subject to Presently Exercisable Options.
(9) Includes 28,012 shares held by trusts for the benefit of Mr. Moriarty's
children and 21,429 shares owned by Cubex Corporation, of which Mr. Moriarty
is Chairman and Chief Executive Officer. Mr. Moriarty is not a trustee of
the trusts for the benefit of his children. Also includes 74,294 shares
subject to Presently Exercisable Options.
(10) Includes 71,482 shares subject to Presently Exercisable Options. Also
includes 86,694 shares subject to Presently Exercisable Options granted to
Bain & Co., Inc., of which Mr. Romney is a director.
(11) Includes 112,263 shares subject to Presently Exercisable Options.
(12) Comprised of 49,884 shares subject to Presently Exercisable Options.
(13) Includes 13,593 shares subject to Presently Exercisable Options.
(14) Includes 4,500 shares subject to Presently Exercisable Options.
(15) Includes 112,500 shares subject to Presently Exercisable Options.
(16) Includes 427,056 shares subject to Presently Exercisable Options. Mr.
Wilson resigned as an executive officer of Staples, effective September 15,
1996.
(17) Includes 258,730 shares subject to Presently Exercisable Options.
(18) Includes 4,528,753 shares subject to Presently Exercisable Options.
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OFFICE DEPOT, INC.
BUSINESS
The information in this section pertains to the business of Office Depot as
it is currently conducted without giving effect to the Merger.
Office Depot operates the largest chain of high-volume retail office
products stores in North America, provides delivery service to businesses and is
a full-service contract stationer serving businesses throughout the United
States. Office Depot sells high-quality, brand-name office products at
significant discounts at its office products stores and through its delivery
business.
Office Depot began its operations in 1986 with its first retail store. As of
December 31, 1996, Office Depot operated 561 office products stores in 38
states, the District of Columbia and five Canadian provinces. Through its 23
customer service centers and certain retail stores, Office Depot delivers office
products and provides value-added services to businesses.
Office Depot's office products stores carry a wide selection of merchandise,
including general office supplies, business machines and computers, office
furniture and other business-related products for sale. Office Depot also
operates four Images-TM- stores and three Furniture At Work-TM- stores. Office
Depot's business strategy for its office products stores has been to enhance the
sales and profitability of its existing stores and to add new stores in
locations where Office Depot can establish a significant market presence. During
1995, Office Depot opened 82 new office products stores and closed one store and
during 1996, Office Depot opened 60 new office products stores.
Office Depot's delivery business provides delivery services of office
products to and full service contract stationer service for small-, medium- and
large-size businesses, schools and other educational institutions and
governmental agencies. Office Depot's delivery sales exceeded $1.65 billion in
1995. Office Depot provides its delivery customers access to a broad selection
of office products and office furniture, including the approximately 6,000 items
available at Office Depot's office products stores and approximately 5,000
additional items which are stocked only at Office Depot's customer service
centers. In addition, Office Depot provides its contract stationer customers
with specialized resources and services designed to aid them in achieving
improved efficiencies and significant reduction in their overall office products
and office furniture costs. Office Depot's nationwide full service contract
stationer business was built primarily through the acquisition of eight contract
stationers in 1993 and 1994.
Office Depot's strategy for its delivery business is to build an integrated
national operation to provide delivery service and to increase Office Depot's
penetration into new and existing markets for its full service contract
stationer business. Office Depot also seeks to enhance its operating margins
through the conversion of contract stationer businesses that have been acquired
by Office Depot into a national network of facilities providing a consistent
high-level of customer service. Office Depot is in the process of combining the
operations of its 23 contract stationer warehouses and delivery centers, as well
as the delivery functions at the retail stores. During 1995, Office Depot
replaced eight of its customer service centers with larger, more efficient
facilities, closed three customer service centers, and added two new customer
service centers. During 1996, Office Depot replaced four of its customer service
centers.
Through expansion of both its office supply stores and delivery business,
Office Depot seeks to increase efficiencies in operations, purchasing, marketing
and management. Office Depot's merchandising strategy is to offer customers a
wide selection of brand-name office products at everyday low prices. Office
Depot is able to maintain its competitive price policy primarily as a result of
the significant cost efficiencies achieved through its operating format and
purchasing power. Office Depot buys substantially all of its inventory directly
from manufacturers in large quantities. It does not utilize a central warehouse
and maintains most of its inventory on the sales floors of its stores, at its
crossdocks and at its customer service centers.
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Office Depot has entered into licensing arrangements for the operation of
office products stores in Colombia, Israel and Poland and joint venture
agreements to operate stores in Mexico and France. As of December 31, 1996,
there were five, seven, three, seven and two stores and delivery centers open in
Colombia, Israel, Poland, Mexico and France under these arrangements,
respectively. Office Depot's joint venture partner in France is Carrefour S.A.,
which beneficially owns approximately 6% of the issued and outstanding Office
Depot Common Stock through its indirect wholly-owned subsidiary Fourcar B.V.
Office Depot has also entered into a joint venture in Japan and a licensing
arrangement in Thailand, with store openings expected to begin in early 1997 in
Thailand and late 1997 in Japan.
MERCHANDISING AND PRODUCT STRATEGY
Office Depot's merchandising strategy is to offer a broad selection of
brand-name office products at everyday low prices. Office Depot offers a
comprehensive selection of paper and paper products, filing supplies, computer
hardware and software, calculators, copiers, typewriters, telephones, facsimile
and other business machines, office furniture, art and engineering supplies and
virtually every other type of office supply. Each of Office Depot's office
products stores stocks approximately 6,000 stock-keeping units (including
variations in color and size), and each customer service center stocks
approximately 11,000 stock-keeping units, including the 6,000 stock-keeping
units stocked at the stores.
Office Depot buys substantially all of its merchandise directly from
manufacturers and other primary source suppliers. Products are generally
delivered from manufacturers directly to the stores or customer service centers.
Office Depot operates nine cross-dock operations that receive bulk deliveries
from certain vendors and sort and deliver merchandise to Office Depot's stores
and customer service centers. The cross-dock operations enable Office Depot to
maintain better in-stock positions. No single customer accounts for more than
one percent of Office Depot's sales. Office Depot has no material long-term
contracts or commitments with any vendor or customer.
Initial purchasing decisions are generally made at the corporate
headquarters level by buyers who are responsible for selecting and pricing
merchandise. Inventory levels are monitored, and reorders for products are
prepared by central replenishment buyers or "rebuyers" with the assistance of a
computerized automatic replenishment system. This system allows buyers to devote
more time to selecting products, developing new product lines, analyzing
competitive developments and negotiating with vendors in order to obtain more
favorable prices and product availability. Purchase orders to approximately 400
vendors are currently transmitted by electronic data interchange (EDI), which
expedites orders and promotes accuracy and efficiency. Office Depot receives
Advance Ship Notices (ASN) and invoicing via EDI from selected vendors and
continues to expand this program to other vendors.
MARKETING AND SALES
Office Depot's marketing programs are designed to attract new customers and
to provide information to existing customers. Office Depot places advertisements
with the major local newspapers in each of its markets. These newspaper
advertisements are supplemented with local radio and television advertising and
direct marketing efforts. During 1992, Office Depot launched a major national
television advertising campaign utilizing the "Taking Care of Business" theme.
The current series of television commercials is running on three national
television networks and on twelve national cable stations. All print
advertisements, as well as catalog layouts, are created by Office Depot's
in-house graphics department. Office Depot periodically issues catalogs
featuring merchandise offered in its stores.
Office Depot has a low price guarantee policy. Under this policy, Office
Depot will match any competitor's lower price and give the customer 55% (up to
$55) of the difference toward the customer's purchase. This program assures
customers of always receiving the lowest price from Office Depot even during
periodic sales promotions by competitors.
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<PAGE>
In addition to the sales associates at each of its stores, Office Depot has
a direct sales force serving its contract stationer customers. The sales force
operates out of Office Depot's 23 regional customer service centers and
additional satellite sales offices. All members of Office Depot's sales force
are employees of Office Depot.
SERVICES
Each Office Depot store contains a multipurpose business center for
printing, copying and a wide assortment of other services. These business
centers offer shoppers a range of printing and reproduction capabilities,
including business cards, letterhead stationery and envelopes, personalized
checks and business forms, full- or self-service copies, color copies, custom
stamps and labels, signs and banners.
Office Depot currently operates 23 regional customer service centers in 17
states. Delivery orders received from customers in these areas, whether through
Office Depot's telephone centers, contract customer orders or at its stores, are
substantially handled through these facilities. Office Depot believes that these
facilities enable it to provide improved delivery services on a more cost
effective basis.
Office Depot's customers nationwide can place orders by telephone or
facsimile using toll-free telephone numbers that route the calls through Office
Depot order departments located in South Florida, Atlanta and the San Francisco
area. Orders received by the order departments are transmitted electronically to
the store or delivery center nearest the customer for pick-up or delivery at a
nominal delivery fee or free delivery with a minimum order size. Orders are
packaged, invoiced and shipped for next-day delivery.
Office Depot provides the office products purchasing departments of its
business customers with a wide range of services designed to improve
efficiencies and reduce costs, including electronic ordering, stockless office
procurement and business forms management services, desktop delivery programs
and comprehensive product utilization reports. For contract customers, Office
Depot will typically sell on credit through an open account, although all credit
options provided at the retail stores are also available to all delivery
customers.
Office Depot offers revolving credit terms to its customers through the use
of private label credit cards. Every customer can apply for one of these credit
cards, which are issued without charge. Sales transactions using the private
label credit cards are transmitted by computer to financial services companies,
which credit Office Depot's bank account with the net proceeds within two days.
GROWTH STRATEGY
OFFICE SUPPLY STORES. Office Depot's business strategy for its office
supply stores has been to enhance the sales and profitability of its existing
stores, and to add new stores in locations where Office Depot can achieve a
significant market presence. Office Depot opened 82 new stores and closed one
store in 1995 and opened 60 new stores in 1996. Prior to selecting a new store
site, Office Depot obtains detailed demographic information indicating business
concentrations, traffic counts, population, income levels and future growth
prospects. Office Depot's existing and scheduled new stores are located
primarily in suburban strip shopping centers on major commercial thoroughfares
where the cost of space is generally lower than at urban locations.
DELIVERY SERVICES. Office Depot's strategy for delivery services is to
build an integrated national operation which will provide delivery services to
small- and medium-size businesses and enable it to increase the penetration in
new and existing markets by Office Depot's full service contract stationer
business. Office Depot is in the process of combining the operations of its
contract stationer warehouses and delivery centers, as well as the delivery
functions at the retail stores. During 1995, Office Depot replaced eight of its
existing customer service centers with larger, more efficient facilities, closed
three
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<PAGE>
customer service centers, and added two new customer service centers. During
1996, Office Depot replaced four of its existing customer service centers with
larger, more efficient facilities.
NEW OPPORTUNITIES. In addition to Office Depot's core business focus and
expansion opportunities, Office Depot has also been developing and testing new
growth concepts including the following:
INTERNATIONAL--Retail office products stores operated under the Office
Depot name abroad, either through joint ventures or licensing arrangements.
Since 1994, a total of 24 such stores and delivery centers have been opened
in Colombia, Israel, Mexico, Poland and France, and Office Depot expects
additional stores to be opened in these countries as well as in Japan and
Thailand.
IMAGES--Retail facilities which provide a range of business services
including graphic design, printing, copying, shipping and fulfillment
services. Five Images units are currently open in South Florida.
OFFICE DEPOT "MEGASTORES"--45,000-50,000 square foot Office Depot retail
stores with expanded assortments of furniture, computer software and
accessories and general office supplies. The first megastore opened in
August 1995 in Las Vegas. Four additional megastores opened in the New York
metropolitan market during 1995 and 1996.
FURNITURE AT WORK--Approximately 20,000 square foot office furniture
stores, which offer a broad line of office furniture, office accessories and
design services. Office Depot opened its first store in Texas in the fourth
quarter of 1995 and opened additional stores in California, South Florida
and Texas in 1996.
UPTIME SERVICES--Providers, primarily through outside service companies,
of a variety of technology support services which complement Office Depot's
computer and business machine offerings, including on-site installation (at
home or office), computer rentals and training, software support and product
protection. Office Depot began offering these services to both United States
and Canadian customers in July 1995.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Office Depot Common Stock as of December 31, 1996 by (i)
each stockholder known by Office Depot to own beneficially more than 5% of the
outstanding shares of Office Depot Common Stock, (ii) each director of Office
Depot, (iii) the Chief Executive Officer and the four other most highly
compensated (for fiscal 1995) executive officers of Office Depot who were
serving as such at the end of fiscal 1995 (and Mark D. Begelman, who resigned as
an executive officer in June 1995) and (iv) all executive officers and directors
of Office Depot as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF CLASS
BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
- ------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Fourcar B.V.(3)........................................ 9,192,600 5.8%
Coolsingel 139
3012 AG Rotterdam
The Netherlands
Massachusetts Financial Services Company(4)............ 8,616,200 5.5%
500 Boylston Street
Boston, Massachusetts 02116
F. Terry Bean(5)....................................... 115,712 *
Mark D. Begelman(6).................................... 193,996 *
Richard M. Bennington(7)............................... 216,198 *
Harry S. Brown(8)...................................... 57,811 *
Cynthia Cohen Turk(9).................................. 8,188 *
Herve Defforey(10)..................................... 9,192,600 5.8%
David I. Fuente(11).................................... 1,350,812 *
Barry J. Goldstein(12)................................. 456,332 *
W. Scott Hedrick(13)................................... 61,782 *
James L. Heskett....................................... 1,000 *
John B. Mumford(14).................................... 76,011 *
Michael J. Myers(15)................................... 35,036 *
Frank Scruggs.......................................... -- *
Peter J. Solomon(16)................................... 104,564 *
All executive officers and directors
as a group (16 persons)(17).......................... 12,291,191 7.7%
</TABLE>
- ------------------------
* Less than 1%
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The inclusion herein of any shares
does not constitute an admission of beneficial ownership. Each of the
persons or group of persons listed is deemed to beneficially own shares
issuable upon the exercise of Presently Exercisable Options. This table does
not give effect to the
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<PAGE>
acceleration of Office Depot options that will occur upon the closing of the
Merger. The address of each of the persons named in the table is Office
Depot's address.
(2) Based on 157,228,438 shares of Common Stock outstanding as of December 31,
1996. Shares subject to Presently Exercisable Options are considered for the
purpose of determining the percent of the class held by the holder of such
option, but not for the purpose of computing the percentage held by others.
(3) Based solely upon a Schedule 13D dated July 31, 1995.
(4) Based solely upon a Schedule 13G dated February 12, 1996. Of the 8,616,200
shares shown as beneficially owned by Massachusetts Financial Services
Company ("MFSC"), MFSC has sole voting power with respect to 8,339,920 of
such shares and sole dispositive power with respect to all 8,616,200 of such
shares.
(5) Includes 110,000 shares subject to Presently Exercisable Options issued to
Mr. Bean pursuant to the Office Depot, Inc. Stock Option and Stock
Appreciation Rights Plan (the "Option Plan").
(6) Includes 168,996 shares subject to Presently Exercisable Options issued to
Mr. Begelman pursuant to the Option Plan.
(7) Includes 208,753 shares subject to Presently Exercisable Options issued to
Mr. Bennington pursuant to the Option Plan.
(8) Includes 51,666 shares subject to Presently Exercisable Options issued to
Mr. Brown pursuant to the Option Plan.
(9) Includes 7,500 shares subject to Presently Exercisable Options issued to
Ms. Cohen Turk as a director of Office Depot and 170 shares held of record
by Ms. Cohen Turk's spouse. Ms. Cohen Turk disclaims beneficial ownership of
the shares held of record by her spouse.
(10) Mr. Defforey is an executive director of Carrefour and a member of the
oversight committee (but not the board of directors) of Carrefour Nederland
B.V. (a subsidiary of Carrefour which directly owns all of the outstanding
capital stock of Fourcar) and may be deemed to share voting and dispositive
power as to the 9,192,600 shares held of record by Fourcar. Mr. Defforey
disclaims beneficial ownership of these shares.
(11) Includes 990,156 shares subject to Presently Exercisable Options issued to
Mr. Fuente pursuant to the Option Plan, 1,890 shares held of record by his
spouse, 3,990 shares held of record by his step-daughter, Rebecca Mishkin,
and 2,300 shares held of record by an irrevocable trust for the benefit of
his step-daughter. Mr. Goldstein is the trustee of such trust. Mr. Fuente
disclaims beneficial ownership of the shares held by his spouse, his
step-daughter and Mr. Goldstein, as trustee.
(12) Includes 340,034 shares subject to Presently Exercisable Options issued to
Mr. Goldstein pursuant to the Option Plan and 2,300 shares held of record by
an irrevocable trust for the benefit of Mr. Fuente's step-daughter, of which
Mr. Goldstein is the trustee. As the trustee, Mr. Goldstein has investment
and voting power with respect to the shares held by the trust. Mr. Goldstein
disclaims beneficial ownership of the shares held by the trust.
(13) Includes 29,261 shares subject to Presently Exercisable Options issued to
Mr. Hedrick as a director of Office Depot.
(14) Includes 29,261 shares subject to Presently Exercisable Options issued to
Mr. Mumford as a director of Office Depot and 46,750 shares held of record
by the John Brese Mumford and Christine Joyce Mumford Family Trust dated
October 13, 1983.
(15) Includes 32,036 shares subject to Presently Exercisable Options issued to
Mr. Myers as a director of Office Depot.
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<PAGE>
(16) Includes 73,064 shares subject to Presently Exercisable Options granted to
Mr. Solomon as a director of Office Depot.
(17) Includes 2,420,976 shares subject to Presently Exercisable Options. Also
includes 9,192,600 shares held by Fourcar B.V. on account of Mr. Defforey's
relationship with such entity. Mr. Defforey disclaims beneficial ownership
of such shares. See Note 10 above.
OTHER EMPLOYMENT AGREEMENTS
David I. Fuente, Barry J. Goldstein, Richard M. Bennington, F. Terry Bean,
Harry Brown, R. John Schmidt, Jr. and William P. Seltzer, all of whom are
currently executive officers of Office Depot, entered into Employment Agreements
with Office Depot in September 1996. Each Employment Agreement provides that if
(but only if) Office Depot undergoes a Change of Control (as defined in the
Employment Agreements), not including a business combination with Staples or any
of its affiliates, during the Change of Control Period (as defined below), the
executive will be entitled to certain employment rights, a minimum annual base
salary and bonus, participation rights in Office Depot incentive, savings,
retirement and welfare benefit plans, and certain payments and other benefits
upon termination of employment in certain circumstances. As used above, "Change
of Control Period" means the period commencing on the date of the Employment
Agreement and ending on the third anniversary thereof, provided that the Change
of Control Period will be automatically extended unless earlier terminated by
Office Depot. The purpose of the Employment Agreements is to assure the
continued dedication of the executive, notwithstanding the possibility, threat
or occurrence of a Change of Control.
The Employment Agreements provide for the employment of the executive for
the twelve-month period following a Change of Control (the "Employment Period")
on terms comparable to those the executive enjoyed immediately prior to the
Change of Control. If, during the Employment Period, Office Depot terminates an
executive's employment other than for cause, the executive terminates his own
employment for Good Reason (as defined in the Employment Agreements) or the
executive's employment is terminated due to his death or disability, the
executive will be entitled to a lump sum cash payment of (a) the sum of (i) the
executive's accrued but unpaid annual base salary and (ii) the higher of the
executive's highest bonus under any of Office Depot's annual incentive bonus
plans during the last three full fiscal years prior to the Change of Control and
the annualized annual bonus paid or payable for the most recently completed
fiscal year (such higher amount being referred to as the "Highest Annual
Bonus"), plus (b) two (in the case of Messrs. Bean, Brown, Schmidt and Seltzer)
or three (in the case of Messrs. Fuente, Goldstein and Bennington) times the sum
of such executive's annual base salary and Highest Annual Bonus, plus (c) the
equivalent of the amount the executive would have received under Office Depot's
retirement plans had he continued to be employed by Office Depot for two or
three years, as the case may be, following his termination. Moreover, if Office
Depot terminates an executive's employment other than for cause or the executive
terminates his own employment for Good Reason, the executive and his family will
continue to receive Office Depot welfare benefits for two or three years, as the
case may be, following the termination date. Each executive will receive a
smaller payment and benefit rights (as described in the Employment Agreements)
if terminated for cause or if the executive terminates his own employment for
other than Good Reason. The Employment Agreements further provide for the
payment of a "gross up" payment in the event that the payments set forth above
are subject to the excise tax imposed by Section 4999 of the Code.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between Staples and Office Depot accounted for on
a pooling of interests basis and are based on the respective historical
financial statements and the notes thereto of Staples and Office Depot, which
are incorporated by reference in this Joint Proxy Statement/Prospectus. The pro
forma combined condensed balance sheet combines Staples' November 2, 1996
unaudited consolidated balance sheet with Office Depot's September 28, 1996
unaudited consolidated balance sheet. The pro forma statements of income combine
Staples' historical operating results for the nine months ended November 2, 1996
and October 28, 1995 and the fiscal years ended February 3, 1996, January 28,
1995 and January 29, 1994 with the corresponding Office Depot operating results
for the nine months ended September 28, 1996 and September 30, 1995 and the
fiscal years ended December 30, 1995, December 31, 1994 and December 25, 1993,
respectively.
For purposes of the preparation of the unaudited pro forma combined balance
sheet, an estimate of $520 million is used for the sum of the merger-related,
consolidation and integration expenses; the deferred tax benefit of $175 million
relating to these expenses is also included.
The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
Staples/Office Depot. The pro forma combined financial information does not give
effect to any cost savings which may result from the integration of Staples' and
Office Depot's operations.
These pro forma combined financial statements are based on, and should be
read in conjunction with, the historical consolidated financial statements and
the related notes thereto of Staples and Office Depot, incorporated by reference
in this Joint Proxy Statement/Prospectus. See "Available Information" and
"Incorporation of Certain Documents by Reference."
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF NOVEMBER 2, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
------------------
OFFICE
STAPLES DEPOT ADJUSTMENTS COMBINED
--------- --------- ------- --
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............. $ 68,270 $ 35,574 0 $103,844
Short-term investments................ 8,165 0 0 8,165
Merchandise inventories............... 817,423 1,236,276 (100,000)(2) 1,953,699
Receivables, net...................... 219,452 393,356 0 612,808
Prepaid expenses and other current
assets.............................. 72,039 39,803 0 111,842
--------- --------- ------- --
Total Current Assets............ 1,185,349 1,705,009 (100,000) 2,790,358
Net Property and Equipment.............. 399,456 643,366 (150,000)(2) 892,822
Other Assets
Goodwill, net of amortization......... 81,884 191,352 (4,572 )(3) 268,664
Other................................. 116,925 51,090 175,000(2) 343,015
--------- --------- ------- --
Total Other Assets.............. 198,809 242,442 170,428 611,679
--------- --------- ------- --
1,783,614 2,590,817 (79,572) 4,294,859
--------- --------- ------- --
--------- --------- ------- --
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable...................... 439,188 716,033 0 1,155,221
Accrued expenses and other current
liabilities......................... 171,608 202,070 0 373,678
Debt maturing within one year......... 7,520 2,438 0 9,958
Accrued merger-related, consolidation
and integration expenses............ 270,000(2) 270,000
--------- --------- ------- --
Total Current Liabilities....... 618,316 920,541 270,000 1,808,857
Long-Term Debt.......................... 139,599 129,573 0 269,172
Other Long-Term Obligations............. 33,528 29,177 0 62,705
Convertible Debentures.................. 300,000 395,301 0 695,301
Stockholders' Equity:
Common Stock.......................... 97 1,592 0 1,689
Additional paid-in capital............ 483,941 625,762 0 1,109,703
Cumulative foreign currency
translation adjustments............. 2,156 (1,040) 0 1,116
Unrealized gain on short-term
investments......................... 21 0 21
Retained earnings..................... 206,302 491,661 (349,572)(2)(3) 348,391
Less: treasury stock.................. (346) (1,750) 0 (2,096)
--------- --------- ------- --
Total Stockholders' Equity...... 692,171 1,116,225 (349,572) 1,458,824
--------- --------- ------- --
$1,783,614 $2,590,817 $(79,572) $4,294,859
--------- --------- ------- --
--------- --------- ------- --
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
74
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED NOVEMBER 2, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
<S> <C> <C> <C> <C>
STAPLES OFFICE DEPOT ADJUSTMENTS COMBINED
------------ ------------ ------------- ------------
Sales..................................................... $ 2,803,676 $ 4,524,010 0 $ 7,327,686
Cost of goods sold and occupancy costs.................... 2,146,590 3,510,242 0 5,656,832
------------ ------------ ------ ------------
Gross profit........................................ 657,086 1,013,768 0 1,670,854
Operating Expenses:
Operating and selling..................................... 430,761 703,870 0 1,134,631
Pre-opening............................................... 7,790 6,746 0 14,536
General and administrative................................ 94,173 122,342 0 216,515
Amortization of goodwill.................................. 1,713 3,942 (254)(3) 5,401
Special charge--revised computer strategy................. 0 0 0 0
------------ ------------ ------ ------------
Total Operating Expenses............................ 534,437 836,900 (254) 1,371,083
------------ ------------ ------ ------------
Operating income.................................... 122,649 176,868 254 299,771
Other income (expense):
Interest expense, net................................... (14,577) (17,783) 0 (32,360)
Gain on sale of investment.............................. 0 0 0 0
Merger-related costs.................................... 0 0 0 0
Other................................................... 0 0 0 0
------------ ------------ ------ ------------
Total other income (expense)........................ (14,577) (17,783) 0 (32,360)
Income before equity in loss of affiliates and
income taxes...................................... 108,072 159,085 254 267,411
Equity/franchise income (loss)............................ (11,262) (1,830) 0 (13,092)
------------ ------------ ------ ------------
Income before income taxes.......................... 96,810 157,255 254 254,319
Income tax expense........................................ 37,272 63,677 0 100,949
------------ ------------ ------ ------------
Net income.......................................... $ 59,538 $ 93,578 254 $ 153,370
------------ ------------ ------ ------------
------------ ------------ ------ ------------
Net income per common share--primary...................... $ 0.36 $ 0.59 $ 0.44
Net income per common share--fully diluted................ $ 0.36 $ 0.58 $ 0.44
Number of shares used in computing net income per common
share--primary.......................................... 166,407 158,484 22,188(1) 347,079
Number of shares used in computing net income per common
share--fully diluted.................................... 166,407 175,135 24,519(1) 366,061
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 28, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
<S> <C> <C> <C> <C>
STAPLES OFFICE DEPOT ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Sales..................................................... $ 2,092,526 $ 3,888,730 0 $ 5,981,256
Cost of goods sold and occupancy costs.................... 1,611,207 3,004,607 0 4,615,814
------------ ------------ ----------- ------------
Gross profit........................................ 481,319 884,123 0 1,365,442
Operating Expenses:
Operating and selling..................................... 317,037 580,243 0 897,280
Pre-opening............................................... 4,113 10,408 0 14,521
General and administrative................................ 72,127 110,007 0 182,134
Amortization of goodwill.................................. 1,392 3,882 (254)(3) 5,020
Special charge--revised computer strategy................. 0 0 0 0
------------ ------------ ----------- ------------
Total Operating Expenses............................ 394,669 704,540 (254) 1,098,955
------------ ------------ ----------- ------------
Operating income.................................... 86,650 179,583 254 266,487
Other income (expense):
Interest expense, net................................... (11,942) (16,782) 0 (28,724)
Gain on sale of investment.............................. 0 0 0 0
Merger-related costs.................................... 0 0 0 0
Other................................................... 0 0 0 0
------------ ------------ ----------- ------------
Total other income (expense)........................ (11,942) (16,782) 0 (28,724)
Income before equity in loss of affiliates and
income taxes...................................... 74,708 162,801 254 237,763
Equity/franchise income (loss)............................ (11,554) (614) 0 (12,168)
------------ ------------ ----------- ------------
Income before income taxes.......................... 63,154 162,187 254 225,595
Income tax expense........................................ 24,314 65,453 0 89,767
------------ ------------ ----------- ------------
Net income.......................................... $ 38,840 $ 96,734 $ 254 $ 135,828
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net income per common share--primary...................... $ 0.24 $ 0.63 $ 0.40
Net income per common share--fully diluted................ $ 0.24 $ 0.61 $ 0.40
Number of shares used in computing net income per
share--primary.......................................... 161,719 154,576 21,641(1) 337,936
Number of shares used in computing net income per
share--fully diluted.................................... 161,719 171,309 23,983(1) 357,011
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
<S> <C> <C> <C> <C>
STAPLES OFFICE DEPOT ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Sales..................................................... $ 3,068,061 $ 5,313,192 0 $ 8,381,253
Cost of goods sold and occupancy costs.................... 2,366,183 4,110,334 0 6,476,517
------------ ------------ ----------- ------------
Gross profit........................................ 701,878 1,202,858 0 1,904,736
Operating Expenses:
Operating and selling..................................... 446,324 782,478 0 1,228,802
Pre-opening............................................... 5,607 17,746 0 23,353
General and administrative................................ 100,167 153,344 0 253,511
Amortization of goodwill.................................. 1,967 5,213 (337)(3) 6,843
Special charge--revised computer strategy................. 0 0 0 0
------------ ------------ ----------- ------------
Total Operating Expenses............................ 554,065 958,781 (337) 1,512,509
------------ ------------ ----------- ------------
Operating income.................................... 147,813 244,077 337 392,227
Other income (expense):
Interest expense, net................................... (15,924) (21,194) 0 (37,118)
Gain on sale of investment.............................. 0 0 0 0
Merger-related costs.................................... 0 0 0 0
Other................................................... 109 0 0 109
------------ ------------ ----------- ------------
Total other income (expense)........................ (15,815) (21,194) 0 (37,009)
Income before equity in loss of affiliates and
income taxes...................................... 131,998 222,883 337 355,218
Equity/franchise income (loss)............................ (12,153) (962) 0 (13,115)
------------ ------------ ----------- ------------
Income before income taxes.......................... 119,845 221,921 337 342,103
Income tax expense........................................ 46,140 89,522 0 135,662
------------ ------------ ----------- ------------
Net income.......................................... $ 73,705 $ 132,399 $ 337 $ 206,441
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net income per common share--primary...................... $ 0.46 $ 0.85 $ 0.61
Net income per common share--fully diluted................ $ 0.46 $ 0.83 $ 0.60
Number of shares used in computing net income per common
share primary........................................... 162,078 155,551 21,777(1) 339,406
Number of shares used in computing net income per common
share--fully diluted.................................... 162,078 172,242 24,114(1) 358,434
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
<S> <C> <C> <C> <C>
STAPLES OFFICE DEPOT ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Sales..................................................... $ 2,000,149 $ 4,266,199 0 $ 6,266,348
Cost of goods sold and occupancy costs.................... 1,534,360 3,283,498 0 4,817,858
------------ ------------ ----------- ------------
Gross profit........................................ 465,789 982,701 0 1,448,490
Operating Expenses:
Operating and selling..................................... 308,456 642,572 0 951,028
Pre-opening............................................... 4,858 11,990 0 16,848
General and administrative................................ 69,992 130,022 0 200,014
Amortization of goodwill.................................. 756 5,288 (344)(3) 5,700
Special charge--revised computer strategy................. 0 0 0 0
------------ ------------ ----------- ------------
Total Operating Expenses............................ 384,062 789,872 (344) 1,173,590
------------ ------------ ----------- ------------
Operating income.................................... 81,727 192,829 344 274,900
Other income (expense):
Interest expense, net................................... (8,389) (14,096) 0 (22,485)
Gain on sale of investment.............................. 1,149 0 (1,149)(3) 0
Merger-related costs.................................... (2,150) 0 0 (2,150)
Other................................................... 2,736 0 0 2,736
------------ ------------ ----------- ------------
Total other income (expense)........................ (6,654) (14,096) (1,149) (21,899)
Income before equity in loss of affiliates and
income taxes...................................... 75,073 178,733 (805) 253,001
Equity/franchise income (loss)............................ (11,168) 197 0 (10,971)
------------ ------------ ----------- ------------
Income before income taxes.......................... 63,905 178,930 (805) 242,030
Income tax expense........................................ 23,965 73,973 (477)(4) 97,461
------------ ------------ ----------- ------------
Net income.......................................... $ 39,940 $ 104,957 $ (328) $ 144,569
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net income per common share--primary...................... $ 0.28 $ 0.69 $ 0.46
Net income per common share--fully diluted................ $ 0.28 $ 0.68 $ 0.46
Number of shares used in computing net income per common
share--primary.......................................... 140,261 152,570 21,360(1) 314,191
Number of shares used in computing net income per common
share--fully diluted.................................... 140,261 169,234 23,693(1) 333,188
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
STAPLES OFFICE DEPOT ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sales..................................................... $ 1,308,634 $ 2,836,787 0 $ 4,145,421
Cost of goods sold and occupancy costs.................... 1,013,010 2,185,145 0 3,198,155
------------ ------------ ----------- ------------
Gross profit.......................................... 295,624 651,642 0 947,266
Operating Expenses:
Operating and selling..................................... 196,132 423,272 0 619,404
Pre-opening............................................... 2,870 9,073 0 11,943
General and administrative................................ 51,337 95,142 0 146,479
Amortization of goodwill.................................. 0 1,617 (97)(3) 1,520
Special charge--revised computer strategy................. 7,600 0 0 7,600
------------ ------------ ----------- ------------
Total Operating Expenses.............................. 257,939 529,104 (97) 786,946
------------ ------------ ----------- ------------
Operating income...................................... 37,685 122,538 97 160,320
Other income (expense):
Interest expense, net................................. (4,853) (6,696) 0 (11,549)
Gain on sale of investment............................ 8,430 0 (8,430)(3) 0
Merger-related costs.................................. (4,771) 0 0 (4,771)
Other................................................. 5,054 0 0 5,054
------------ ------------ ----------- ------------
Total other income (expense).......................... 3,860 (6,696) (8,430) (11,266)
Income before equity in loss of affiliates and income
taxes............................................... 41,545 115,842 (8,333) 149,054
Equity/franchise income (loss)............................ (9,193) 108 0 (9,085)
------------ ------------ ----------- ------------
Income before income taxes............................ 32,352 115,950 (8,333) 139,969
Income tax expense........................................ 12,900 45,118 (3,498)(4) 54,520
------------ ------------ ----------- ------------
Net income............................................ $ 19,452 $ 70,832 $ (4,835) $ 85,449
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net income per common share--primary...................... $ 0.14 $ 0.48 $ 0.28
Net income per common share--fully diluted................ $ 0.14 $ 0.48 $ 0.28
Number of shares used in computing net income per common
share--primary.......................................... 134,296 147,640 20,670(1) 302,606
Number of shares used in computing net income per common
share--fully diluted.................................... 134,296 158,425 22,180(1) 314,901
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. PRO FORMA EARNINGS PER SHARE
The pro forma combined net income per share is based on the combined
weighted average number of common and common equivalent shares of Staples Common
Stock and Office Depot Common Stock for each period. This is based on the
Exchange Ratio of 1.14 shares of Staples Common Stock for each share of Office
Depot Common Stock, as described in the Merger Agreement.
The dilutive impact of the Office Depot Zero Coupon Liquid Yield Option
Notes is included in the calculation of fully diluted earnings per share (but
not primary earnings per share), as these convertible notes are not considered
common stock equivalents. The fully diluted calculation assumes conversion of
the notes into common stock as of the beginning of the periods presented; the
reported net income has been adjusted to add back the interest expense on the
notes, net of tax.
The impact of Staples' convertible debentures is not included in the
calculation of fully diluted earnings per share as the effect of these
debentures was anti-dilutive.
NOTE 2. MERGER RELATED, CONSOLIDATION AND INTEGRATION EXPENSES
Staples and Office Depot estimate they will incur merger related costs of
approximately $36 million consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
In addition, it is expected that as a result of the Merger, the combined
company will incur significant consolidation and integration expenses estimated
to be $484 million. For the purposes of the preparation of the unaudited pro
forma combined financial statements, an estimate of $520 million is used for the
sum of merger related, consolidation and integration expenses. These expenses
are expected to include:
- store and distribution center closures in overlapping markets;
- write-offs of store assets (including signage) as a result of remodeling
retail stores;
- costs associated with the elimination of certain products from the
combined merchandise assortment, including the sale below cost or other
disposition of products to be discontinued;
- write-off of hardware and software relating to the elimination of
duplicate management information systems;
- severance, relocation and retraining costs;
- incremental and "one-time" advertising and marketing costs; and
- other related charges.
The deferred tax benefit of $175 million relating to these expenses has also
been reflected as a pro forma adjustment in the pro forma combined balance sheet
as of November 2, 1996.
Approximately $400 million will be charged to operations in the fiscal
quarter in which the Merger is consummated. The remaining charge of $120 million
will be expensed as it is incurred. The respective managements of Staples and
Office Depot anticipate that plans and decisions will be completed and a
substantial portion of the remaining $120 million charge will be recorded during
fiscal 1997. The unaudited pro forma combined condensed balance sheet gives
effect to such expenses as if they had been incurred as of November 2, 1996, but
the effects of these costs have not been reflected in the unaudited pro forma
combined condensed statements of operations.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. EASTMAN TRANSACTION
On September 13, 1993, Office Depot acquired Eastman Office Products
Corporation ("Eastman"), a contract stationer and office furniture dealer
headquartered in California. The acquisition was accounted for as a purchase.
Staples owned approximately 17% of Eastman as of the date of acquisition, and
therefore recorded a gain of $8,430,000 during the year ended January 29, 1994
and a gain of $1,149,000 during the year ended January 28, 1995 as a result of
the sale of this interest to Office Depot. Since the merger of Staples and
Office Depot will be accounted for as a pooling of interests, the portion of the
Eastman transaction relating to the Staples ownership interest must be
eliminated from the pro forma financial statements. Therefore, the "gain on sale
of investment" included in the Pro Forma Combined Condensed Statements of Income
for the years ended January 29, 1994 and January 28, 1995 has been eliminated.
In addition, since the goodwill recorded by Office Depot will be reduced to
reflect the Staples ownership interest, amortization of goodwill has been
reduced for all Pro Forma Combined Condensed Statements of Income presented.
This reduction in goodwill has also been reflected as an adjustment to the Pro
Forma Combined Condensed Balance Sheet as of November 2, 1996.
NOTE 4. PROVISION FOR INCOME TAXES
The provisions for income taxes for the years ended January 29, 1994 and
January 28, 1995 have been adjusted to reflect the elimination of the gain on
the sale of the Eastman investment originally recorded by Staples, as discussed
in Note 3. There was no adjustment to the provision for income taxes to reflect
the reduced amortization of goodwill discussed in Note 3 since this amortization
is not tax-deductible.
NOTE 5. CONFORMING ADJUSTMENTS
No material adjustments were required to conform the accounting policies of
Staples and Office Depot.
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<PAGE>
DESCRIPTION OF STAPLES CAPITAL STOCK
Staples' authorized capital stock consists of 500,000,000 shares of Staples
Common Stock, $.0006 par value per share, and 5,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of December 31, 1996, there were 161,332,781 outstanding shares of
Staples Common Stock held by approximately 9,360 holders of record. The holders
of Staples Common Stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
The Staples Board is classified into three classes of approximately equal size,
one of which is elected each year. Accordingly, holders of a majority of the
Staples Common Stock entitled to vote in any election of directors may elect all
of the directors standing for election. The holders of Staples Common Stock are
entitled to share ratably in all assets of Staples which are legally available
for distribution, after payment of all debts and other liabilities and subject
to the prior rights of any holders of Preferred Stock then outstanding. The
holders of Staples Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Staples Common Stock are fully paid
and nonassessable. The rights, preferences and privileges of holders of Staples
Common Stock are subject to the rights of the holders of shares of any series of
Preferred Stock which Staples may issue in the future. Staples has never paid
cash dividends on the Staples Common Stock. Staples 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 rights of holders of Staples Common Stock to receive dividends are
limited by Staples' revolving credit agreement, which provides that Staples may
not pay any dividends in any fiscal year in excess of 25% of the consolidated
net income of Staples for such fiscal year.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series and
the Staples Board, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock. The purpose of authorizing the Staples Board to
determine such rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of holders of Staples Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of Staples. As of December 31,
1996, there were no outstanding shares of Preferred Stock and, other than the
Series A Junior Participating Preferred Stock (the "Series A Preferred Stock")
discussed below under "Description of Staples Capital Stock--Rights Plan," no
designated series of Preferred Stock.
RIGHTS PLAN
In February 1994, Staples adopted the Staples Rights Plan under which
preferred stock purchase rights ("Rights") were distributed as a dividend at the
rate of eight twenty-sevenths of a Right for each share of Staples Common Stock
outstanding. The Rights will expire on February 15, 2004, unless earlier
redeemed or exchanged. Each Right entitles the holder to purchase one
one-hundredth of a share of Series A Preferred Stock of Staples at an exercise
price of $130 per Right (subject to adjustment). The Rights will be exercisable
only if a person or group has acquired beneficial ownership of 20% or more of
the outstanding Staples Common Stock or announces a tender or exchange offer
that would result in such person or group owning 30% or more of the Staples
Common Stock. Such percentages may, in the Board's discretion, be lowered,
although in no event below 10%. If any person becomes the beneficial owner of
25% or more of the shares of Staples Common Stock, except pursuant to a tender
or exchange offer for all shares at a fair price as determined by the outside
members of the Staples Board, or if a 20% or more
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<PAGE>
stockholder consolidates or merges into or engages in certain self dealing
transactions with Staples, or if there occurs any reclassification, merger or
other transaction or transactions which increases by more than 1% the
proportionate share of the outstanding Staples Common Stock held by a 20% or
more stockholder, each Right not owned by a 20% or more stockholder will enable
its holder to purchase that number of shares of the Staples Common Stock which
equals the exercise price of the right divided by one-half of the current market
price of the Staples Common Stock at the date of the occurrence of the event. In
addition, if Staples is involved in a merger or other business combination
transaction with another person or group in which it is not the surviving
corporation or in connection with which the Staples Common Stock is changed or
converted, or it sells or transfers 50% or more of its assets or earning power
to another person, each Right that has not previously been exercised will
entitle its holder to purchase that number of shares of common stock of such
other person which equals the exercise price of the Right divided by one-half of
the current market price of such common stock at the date of the occurrence of
the event. Staples will generally be entitled to redeem the Rights at $.02 per
Right at any time until the 10th day following public announcement that a 20%
stock position has been acquired and in certain other circumstances.
The Series A Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Subject to the rights of holders of any shares of any series
of Preferred Stock ranking prior and superior to the Series A Preferred Stock,
each share of Series A Preferred Stock will be entitled to a preferential
quarterly dividend payment of the greater of (a) $3.375 per share or (b) an
aggregate dividend of 337.5 times the dividend declared per share of Staples
Common Stock. In the event of liquidation, the holders of the Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $337.50
per share and will be entitled to an aggregate payment of 337.5 times the
payment made per share of Staples Common Stock. Each share of Series A Preferred
Stock will have 337.5 votes, voting together with the Staples Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
Staples Common Stock is exchanged, each share of Series A Preferred Stock will
be entitled to receive 337.5 times the amount received per share of Staples
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of eight twenty-seven-hundredths of a
share of Series A Preferred Stock purchasable upon exercise of the eight
twenty-sevenths of a Right associated with each share of Staples Common Stock
should approximate the value of one share of Staples Common Stock.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Staples on
terms not approved by the Board of Directors of Staples, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by Staples at $.02 per
Right prior to the tenth day after the public announcement by a person or group
of the acquisition of 20% or more of the Staples Common Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Staples is subject to the provisions of Section 203 of the DGCL, an
anti-takeover law. Section 203 prevents an "Interested Stockholder" of a
corporation (generally defined to mean any beneficial owner of more than 15% of
the corporation's voting stock) from engaging in any "business combination" (as
defined in Section 203) with the corporation for a period of three years
following the date on which such Interested Stockholder became an Interested
Stockholder, unless: (i) before such person became an Interested Stockholder,
the Board of Directors of the corporation approved either the business
combination in question or the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder; (ii) upon consummation of the
transaction which resulted in the Interested Stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
(for purposes of determining the number of shares outstanding) shares held by
directors who are also officers and employee stock plans
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<PAGE>
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) following the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder, the business combination is (x)
approved by the Board of Directors of the corporation and (y) authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. A "business combination" includes, among others,
mergers, asset sales and other transactions resulting in a financial benefit to
the Interested Stockholder.
Staples' Certificate of Incorporation requires that holders of two-thirds of
Staples' issued and outstanding stock entitled to vote thereon approve any
merger, consolidation, dissolution or sale of all or substantially all of the
assets of Staples.
Staples' Certificate of Incorporation requires all stockholder action to
occur at a meeting and prohibits stockholder action by written consent. The
Bylaws of Staples provide that special meetings of stockholders may be called
only by the Chairman of the Board of Directors or the President.
Staples has included in its Certificate of Incorporation and Bylaws
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Section 102(b)(7) of the DGCL and (ii) indemnify its directors and officers
to the fullest extent permitted by Section 145 of the DGCL, including under
circumstances in which indemnification is otherwise discretionary. Staples
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
TRANSFER AGENT
The transfer agent for the Staples Common Stock is The First National Bank
of Boston.
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of certain of the material differences between
the rights of holders of Staples Common Stock and the rights of holders of
Office Depot Common Stock. Since both Staples and Office Depot are organized
under the laws of the State of Delaware, such differences arise from differences
between various provisions of the Certificate of Incorporation and Bylaws of
Staples and the Certificate of Incorporation and Bylaws of Office Depot.
NUMBER, CLASSIFICATION AND REMOVAL OF DIRECTORS. Staples' Bylaws provide
that the number of directors of Staples shall be fixed by the Board of Directors
and shall be not less than five. The Bylaws of Staples also provide that the
Board of Directors shall be divided into three classes serving staggered three-
year terms and that any one or more of the directors of Staples may be removed,
with or without cause, by the holders of at least a majority of the shares then
entitled to vote in an election of directors, provided, however, that, if and
for so long as the Board of Directors of Staples is classified pursuant to
Section 141(d) of the DGCL, stockholders may effect the removal of one or more
directors only for cause. Office Depot's Bylaws provide that the number of
directors shall be fixed by the Board of Directors, do not provide for the
classification of the Board of Directors and provide that any director or the
entire Board of Directors may be removed from office at any time, with or
without cause, by the holders of at least a majority of the shares then entitled
to vote in an election of directors.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. The respective Bylaws of Staples
and Office Depot provide that a stockholder must give advance written notice to
the respective company if the stockholder intends to bring any business before a
meeting of stockholders or to make nominations for the board of directors. The
Bylaws of Staples require that for business to be properly brought by a
stockholder before an annual or special meeting, notice must be received by the
Secretary of Staples 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, notice
by the stockholder to be timely must be delivered to the Secretary of Staples
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.
The Bylaws of Office Depot provide that for business to be properly brought
by a stockholder at an annual meeting, notice must be received by the secretary
of Office Depot not less than 90 days prior to the date of the previous year's
annual meeting; provided, however, that if the date of an annual meeting differs
from that of the previous year by more than 30 days, notice by the stockholder
must be so received not later than seven days after notice of such meeting has
been given (or such greater period of time as is set forth in such notice). To
be timely in connection with a special meeting, a stockholder's notice must be
received at the principal executive offices of Office Depot not less than seven
days after notice of such meeting has been given (or such greater period of time
as is set forth in such notice).
VOTING REQUIREMENTS AND QUORUMS OF STOCKHOLDER MEETINGS. The respective
Bylaws of Staples and Office Depot provide that at any meeting of stockholders,
the holders of a majority of the outstanding shares of stock then issued,
outstanding and entitled to vote shall constitute a quorum for the transaction
of any business. Staples' Bylaws provide that, when a quorum is present, any
election by stockholders shall be by a plurality of votes cast. With respect to
all other matters, the affirmative vote of the holders of shares of stock
representing a majority of the votes cast thereon is required, except when a
different vote is required by express provision of law.
Office Depot's Bylaws provide that when a quorum is present, any election of
directors by stockholders shall be by a plurality of votes cast. With respect to
all other matters, the affirmative vote of the holders of shares of stock
representing a majority of the votes cast thereon is required, provided that
when a stockholder approval requirement is applicable under the stockholder
approval policy of the New York Stock Exchange, the requirements of Rule 16b-3
under the Exchange Act, any provision of the Code, or is otherwise required by
law, the vote required for approval shall be the vote specified in such
stockholder
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<PAGE>
approval policy, Rule 16b-3, such Code provision or other law, as the case may
be (or the highest such requirement if more than one is applicable).
TRANSACTIONS WITH INTERESTED STOCKHOLDERS. Staples is subject to Section
203 of the DGCL ("Section 203"). Section 203 prevents an "Interested
Stockholder" of a corporation (generally defined to mean any beneficial owner of
more than 15% of the corporation's voting stock) from engaging in any "business
combination" (as defined in Section 203) with the corporation for a period of
three years following the date on which such Interested Stockholder became an
Interested Stockholder, unless: (i) before such person became an Interested
Stockholder, the Board of Directors of the corporation approved either the
business combination in question or the transaction which resulted in the
Interested Stockholder becoming an Interested Stockholder; (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding (for purposes of determining the number of
shares outstanding) shares held by directors who are also officers and employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) concurrently with or following the
transaction which resulted in the Interested Stockholder becoming an Interested
Stockholder, the business combination is (x) approved by the Board of Directors
of the corporation and (y) authorized at a meeting of stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder. A "business
combination" includes, among others, mergers, asset sales and other transactions
resulting in a financial benefit to the Interested Stockholder.
Office Depot has expressly elected not to be governed by Section 203.
APPROVAL OF CERTAIN ACTIONS. Staples' Certificate of Incorporation requires
the affirmative vote of two-thirds of the capital stock of Staples outstanding
and entitled to vote thereon with respect to certain actions including, among
others, the sale, lease or exchange of all or substantially all of the property
and assets of Staples; the merger or consolidation of Staples with or into any
other corporation or entity; and the dissolution of Staples.
The Certificate of Incorporation of Office Depot does not contain any
comparable provision.
The foregoing summary does not purport to be a complete statement of the
rights of holders of Staples Common Stock and Office Depot Common Stock under,
and is qualified in its entirety by reference to, the DGCL, the respective
Certificates of Incorporation and Bylaws of Staples and Office Depot and the
Staples and Office Depot Rights Agreements. See "Description of Staples Capital
Stock" for a summary of certain other rights relating to the Staples Common
Stock.
AMENDMENT TO STAPLES' CERTIFICATE OF INCORPORATION
At the Staples Special Meeting, Staples stockholders will be asked to
consider and vote upon a proposal to amend the Certificate of Incorporation of
Staples, subject to the approval of the Merger Proposal and the consummation of
the Merger, to change the name of the corporation from "Staples, Inc." to
"Staples/Office Depot, Inc." (the "Charter Proposal"). The Board of Directors of
Staples believes the approval of the Charter Proposal is in the best interests
of Staples and its stockholders and recommends a vote FOR the proposal.
The approval of the Charter Proposal is not a condition to the approval of
the Merger Proposal or the consummation of the Merger. However, approval of the
Merger Proposal and the consummation of the Merger are conditions to the filing
of the Certificate of Amendment giving effect to the Charter Proposal.
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<PAGE>
AMENDMENT TO STAPLES' 1992 EQUITY INCENTIVE PLAN
At the Staples Special Meeting, Staples stockholders will be asked to
consider and vote upon a proposal to amend the 1992 Equity Incentive Plan of
Staples (the "Equity Plan") to increase the number of shares of Staples Common
Stock authorized for issuance thereunder from 21,600,000 shares to 39,000,000
shares (the Plan Proposal). The Board of Directors of Staples believes the
approval of the Plan Proposal is in the best interest of Staples and its
stockholders and recommends a vote FOR this proposal.
The Board of Directors believes that stock options and other equity awards
which may be granted under the Equity Plan have been, and will continue to be,
an important compensation element in attracting and retaining key employees who
are expected to contribute to Staples' growth and success. As a result of the
proposed Merger between Staples and Office Depot, the number of outstanding
shares of Staples Common Stock and the number of employees of Staples (including
employees of its subsidiaries) will more than double. In addition,
Staples/Office Depot will not be permitted to grant any options which remained
available for grant under Office Depot's option plans. To ensure that
Staples/Office Depot has the ability to continue to provide incentive to
employees in the form of stock options and restricted stock awards, the Board of
Directors of Staples has determined that the number of shares of Staples Common
Stock available for issuance under the Equity Plan should be increased to
39,000,000 shares.
The Plan Proposal is being presented to the stockholders of Staples as a
separate proposal from the Merger Proposal, and the approval of the Plan
Proposal is not a condition to the approval of the Merger Proposal or the
consummation of the Merger.
The Equity Plan is summarized below. This summary is qualified in all
respects by reference to the full text of the Equity Plan, copies of which are
available upon request to the Secretary of Staples.
SUMMARY OF THE EQUITY PLAN
The Equity Plan authorizes Staples to grant options and make restricted
stock awards for up to 21,600,000 shares of Staples Common Stock. As of December
31, 1996, 2,723,800 shares of Staples Common Stock had been issued under the
Equity Plan (pursuant to both stock option exercises and restricted stock
awards), 17,565,876 shares of Staples Common Stock were subject to outstanding
stock options under the Equity Plan and 1,310,324 shares of Staples Common Stock
remained available for future option grants or restricted stock awards under the
Equity Plan. In addition, 208,552 shares remained available for future option
grants under Staples' 1987 Stock Option Plan (the "1987 Plan"). Any shares
subject to options granted pursuant to the Equity Plan which terminate or expire
unexercised will be available for subsequent option grants or restricted stock
awards under the Equity Plan. In addition, any restricted stock awarded under
the Equity Plan which is repurchased by Staples will be available for subsequent
option grants or restricted stock awards under the Equity Plan. No employee may
receive options and awards for more than 1,350,000 shares of Staples Common
Stock in any fiscal year.
Employees (including any persons who have entered into an agreement with
Staples under which they will be employed by Staples in the future), officers
and directors of, and consultants to, Staples (and its subsidiaries) are
eligible to receive stock options and restricted stock awards under the Equity
Plan. As of December 31, 1996, Staples had approximately 25,011 employees
(although this number will more than double if the Merger is consummated).
During the fiscal year ended February 3, 1996, (i) Messrs. Stemberg, Hanaka,
Bingleman, Wilson, Sargent and Vassalluzzo received options to purchase 213,750
shares, 150,000 shares, 103,500 shares, 58,500 shares, 74,250 shares and 37,500
shares of Staples Common Stock, respectively, under the Equity Plan and the 1987
Plan, (ii) all executive officers as a group received options to purchase an
aggregate of 821,625 shares of Staples Common Stock under the Equity Plan and
the 1987 Plan; and (iii) all non-executive employees as a group received options
to purchase an aggregate of 2,504,399 shares of Staples Common Stock under the
Equity Plan and the 1987 Plan. As stock option grants and restricted stock
awards under the Equity Plan are discretionary and vary from year to year
depending upon a number of factors, Staples cannot now determine the number or
nature of awards
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to be granted to any particular executive officer, executive officers as a
group, or non-executive employees as a group under the Equity Plan.
Stock options granted under the Equity Plan may be either incentive stock
options within the meaning of Section 422 of the Code or non-qualified stock
options. Options may not be granted at an exercise price of less than the fair
market value of the Staples Common Stock on the date of grant (or less than 110%
of the fair market value of the Staples Common Stock in the case of incentive
stock options granted to optionees holding 10% or more of the voting stock of
Staples). Currently, options granted under the Equity Plan generally become
exercisable in full on the third anniversary of the date of grant, provided the
optionee continues to be employed by Staples on such date. Most options granted
under the Equity Plan provide that in the event of a change in control of
Staples (as defined), such option will automatically become vested in full or
vest as to a portion of the unvested shares, depending on the optionee's role
with Staples following the change in control. The approval of the Merger by
Staples stockholders will constitute such a change in control. Options generally
expire 60 days after the optionee ceases to be an employee of Staples. Incentive
stock options and non-qualified options issuable under the Equity Plan expire no
later than ten years and ten years and 30 days, respectively, from the date of
grant.
Restricted stock awards entitle the recipient to acquire shares of Staples
Common Stock under terms that provide for vesting over a period of time and a
right of repurchase in favor of Staples with respect to unvested stock, at a
price equal to their original purchase price (if any), when the recipient's
relationship with Staples terminates. The purchase price for a restricted stock
award may be less than the fair market value of the Staples Common Stock, and
restricted stock may also be issued without the payment of a purchase price. The
recipient may not sell, transfer or otherwise dispose of shares subject to a
restricted stock award until such shares are vested. In fiscal 1996, Staples has
issued to certain of its executives, for no monetary consideration, restricted
stock that vests on February 1, 2002, subject to acceleration of vesting in full
if Staples achieves specified earnings per share growth targets in any fiscal
year from fiscal 1997 through fiscal 2000. Such restricted stock shall be deemed
repurchased and forfeited if the recipient leaves the employment of Staples for
any reason prior to the vesting date.
The Equity Plan is administered by the Compensation Committee of the Staples
Board, which is authorized, subject to the provisions of the Equity Plan, to
determine the persons to whom, and the time or times at which, stock options and
restricted stock awards are granted, the number of shares of Staples Common
Stock covered by the option or award, its exercise price or purchase price, the
period and rate over which the stock option becomes exercisable or the
repurchase rights with respect to the restricted stock awards lapse, and the
expiration date of stock options.
The Staples Board may at any time amend or modify the terms of the Equity
Plan in any respect, except that if the approval of the stockholders of Staples
is required under Section 162(m) or Section 422 of the Code, the Staples Board
may not effect such modification or amendment without such approval. The Equity
Plan will terminate on the earlier of (i) April 16, 2002, or (ii) the date on
which all shares available for issuance under the Equity Plan shall have been
issued.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax considerations
regarding the treatment of incentive stock options and nonstatutory stock
options. The tax consequences recognized by an optionee may vary; THEREFORE, AN
OPTIONEE SHOULD CONSULT HIS OR HER TAX ADVISOR FOR ADVICE CONCERNING ANY
SPECIFIC TRANSACTION.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option granted under
the Equity Plan (provided that the difference between the option exercise price
and the fair market value of the stock on the date of exercise must be included
in the optionee's "alternative minimum taxable income" as described below), and
no corresponding expense deduction will be available to Staples. Generally, if
an optionee holds shares acquired upon the exercise of
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incentive stock options until the later of (i) two years from the grant of the
option and (ii) one year from the date of exercise (the "Statutory Holding
Period"), any gain to the optionee upon a sale of such shares will be treated as
a capital gain. The gain recognized upon the sale of the shares is the
difference between the sale price and the option price of the shares. The net
federal income tax effect on the holder of incentive stock options is to defer,
until the shares are sold, taxation of any increase in the shares' value from
the time of grant to the time of exercise, and to cause all such increase to be
treated as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period (a "Disqualifying Disposition"), he or she will realize taxable
income at ordinary income tax rates in an amount equal to the lesser of (i) the
fair market value of the shares on the date of exercise less the option price,
or (ii) the amount realized on the sale less the option price, and Staples will
receive a corresponding business expense deduction. Any additional gain will be
treated as a long-term capital gain if the shares are held for more than one
year prior to the sale and as short-term capital gain if the shares are held for
a shorter period. If the optionee sells the shares for less than the option
price, he or she will recognize a capital loss equal to the difference between
the sale price and the option price. The loss will be a long-term capital loss
if the shares are held for more than one year prior to the sale and as a
short-term capital loss if the shares are held for a shorter period.
Special rules may apply to options held by persons who are required to file
reports pursuant to Section 16 of the Exchange Act, or any successor provision
("Reporting Persons"). If the optionee making a Disqualifying Disposition is a
Reporting Person, and the option was exercised within six months of the date of
grant, the amount of ordinary income (and the amount of Staples' business
expense deduction) will be equal to the lesser of (i) the fair market value of
the shares on the date that is six months after the date of grant less the
option price, or (ii) the sale price less the option price.
For purposes of the "alternative minimum tax" applicable to individuals, the
exercise of an incentive stock option is treated in the same manner as the
exercise of a nonstatutory option. Thus, an optionee must, in the year of option
exercise, include the difference between the exercise price and the fair market
value of the shares on the date of exercise in alternative minimum taxable
income. The alternative minimum tax is imposed upon an individual's alternative
minimum taxable income at a rate of 26% to 28% but only to the extent that such
tax exceeds the taxpayer's regular income tax liability for the taxable year.
NONSTATUTORY STOCK OPTIONS. No taxable income is recognized by the optionee
upon the grant of a nonstatutory option. The optionee must recognize as ordinary
income in the year in which the option is exercised the amount by which the fair
market value of the purchased shares on the date of exercise exceeds the option
price (and Staples is required to withhold an appropriate amount for tax
purposes). However, the following special rules apply to Reporting Persons. If a
Reporting Person exercises the option within six months of the date of grant,
upon exercise of such option no income will be recognized by the optionee until
six months have expired from the date the option was granted, and the income
then recognized will include any appreciation in the value of the shares during
the period between the date of exercise and the date six months after the date
of grant, unless the optionee makes an election under Section 83(b) of the Code
to have the difference between the exercise price and fair market value at the
time of exercise recognized as ordinary income as of the time of exercise.
Staples will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee. Any additional gain or any loss
recognized upon the subsequent disposition of the purchased shares will be a
capital gain or loss, and will be a long-term gain or loss if the shares are
held for more than one year.
RESTRICTED STOCK AWARDS. For federal income tax purposes, neither Staples
nor the recipient of a restricted stock award will recognize any income or be
entitled to any deduction at the time the award is granted, unless the recipient
makes an election under Section 83(b) of the Code. If the recipient makes a
Section 83(b) election within 30 days of the date of the grant, then the
recipient will recognize ordinary income, for the year in which the award is
granted, in an amount equal to the excess of the fair market
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value of the shares at the time the award is granted over the purchase price
paid for the shares. If such election is made and the recipient subsequently
forfeits some or all of the shares, the recipient generally will not be entitled
to any tax refund. If the Section 83(b) election is not made, the recipient will
recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the excess of the fair
market value of the shares at the time of such lapse over the original purchase
price paid for the shares. Staples will be entitled to deduct as a compensation
expense (subject to the limitations imposed by Section 162(m) of the Code) the
same amount the employee is required to recognize as ordinary income, in the
same year the employee includes the amount in income for federal income tax
purposes.
Any additional gain or any loss recognized upon the disposition of the
shares acquired pursuant to a restricted stock award will be a capital gain or
loss, and will be a long-term gain or loss if the shares are held for more than
one year. For this purpose, the holding period begins just after the date on
which the forfeiture provisions or restrictions lapse if a Section 83(b)
election is not made, or just after the award is granted if a Section 83(b)
election is made.
This tax summary is general and does not apply to gifts or any dispositions
other than sales. Also, under certain circumstances, a person may be entitled to
a credit for alternative minimum tax already paid. In addition, in some
individual cases, it will be important to consider the state, federal and
international tax consequences of participation in the Equity Plan and the
effect, if any, of gift, estate and inheritance taxes.
LEGAL MATTERS
The validity of the shares of Staples Common Stock to be issued in
connection with the Merger will be passed upon for Staples by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Staples at January 28, 1995 and
February 3, 1996 and for each of the three years in the period ended February 3,
1996 incorporated in this Joint Proxy Statement/ Prospectus and Registration
Statement by reference to Staples' Annual Report on Form 10-K for the fiscal
year ended February 3, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
Representatives of Ernst & Young LLP are expected to be present at the
Staples Special Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from stockholders.
The consolidated financial statements and the related financial statement
schedule incorporated in this Joint Proxy Statement/Prospectus by reference from
Office Depot's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of September 4, 1996,
among
Staples, Inc.
Marlin Acquisition Corp.
and
Office Depot, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I
THE MERGER.............................................................................................. A-1
Section 1.01 Effective Time of the Merger.......................................................... A-1
Section 1.02 Closing............................................................................... A-1
Section 1.03 Effects of the Merger................................................................. A-2
Section 1.04 Directors and Officers................................................................ A-2
ARTICLE II
CONVERSION OF SECURITIES................................................................................ A-2
Section 2.01 Conversion of Capital Stock........................................................... A-2
Section 2.02 Exchange of Certificates.............................................................. A-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF OFFICE DEPOT.......................................................... A-5
Section 3.01 Organization of Office Depot.......................................................... A-5
Section 3.02 Office Depot Capital Structure........................................................ A-5
Section 3.03 Authority; No Conflict; Required Filings and Consents................................. A-6
Section 3.04 SEC Filings; Financial Statements..................................................... A-7
Section 3.05 No Undisclosed Liabilities............................................................ A-7
Section 3.06 Absence of Certain Changes or Events.................................................. A-7
Section 3.07 Taxes................................................................................. A-8
Section 3.08 Properties............................................................................ A-8
Section 3.09 Intellectual Property................................................................. A-9
Section 3.10 Agreements, Contracts and Commitments................................................. A-9
Section 3.11 Litigation............................................................................ A-9
Section 3.12 Environmental Matters................................................................. A-9
Section 3.13 Employee Benefit Plans................................................................ A-10
Section 3.14 Compliance With Laws.................................................................. A-10
Section 3.15 Accounting and Tax Matters............................................................ A-11
Section 3.16 Registration Statement; Proxy Statement/Prospectus.................................... A-11
Section 3.17 Labor Matters......................................................................... A-11
Section 3.18 Insurance............................................................................. A-11
Section 3.19 No Existing Discussions............................................................... A-12
Section 3.20 Opinion of Financial Advisor.......................................................... A-12
Section 3.21 Section 203 of the DGCL Not Applicable................................................ A-12
Section 3.22 Rights Agreement...................................................................... A-12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STAPLES AND SUB....................................................... A-12
Section 4.01 Organization of Staples and Sub....................................................... A-12
Section 4.02 Staples Capital Structure............................................................. A-12
Section 4.03 Authority; No Conflict; Required Filings and Consents................................. A-13
Section 4.04 SEC Filings; Financial Statements..................................................... A-14
Section 4.05 No Undisclosed Liabilities............................................................ A-14
Section 4.06 Absence of Certain Changes or Events.................................................. A-14
Section 4.07 Taxes................................................................................. A-15
Section 4.08 Properties............................................................................ A-15
</TABLE>
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<S> <C> <C>
Section 4.09 Intellectual Property................................................................. A-15
Section 4.10 Agreements, Contracts and Commitments................................................. A-16
Section 4.11 Litigation............................................................................ A-16
Section 4.12 Environmental Matters................................................................. A-16
Section 4.13 Employee Benefit Plans................................................................ A-16
Section 4.14 Compliance With Laws.................................................................. A-17
Section 4.15 Accounting and Tax Matters............................................................ A-17
Section 4.16 Registration Statement; Proxy Statement/Prospectus.................................... A-17
Section 4.17 Labor Matters......................................................................... A-17
Section 4.18 Insurance............................................................................. A-18
Section 4.19 Opinion of Financial Advisor.......................................................... A-18
Section 4.20 No Existing Discussions............................................................... A-18
Section 4.21 Section 203 of the DGCL Not Applicable................................................ A-18
Section 4.22 Interim Operations of Sub............................................................. A-18
ARTICLE V
CONDUCT OF BUSINESS..................................................................................... A-18
Section 5.01 Covenants of Office Depot and Staples................................................. A-18
Section 5.02 Cooperation........................................................................... A-19
ARTICLE VI
ADDITIONAL AGREEMENTS................................................................................... A-20
Section 6.01 No Solicitation....................................................................... A-20
Section 6.02 Proxy Statement/Prospectus; Registration Statement.................................... A-20
Section 6.03 Nasdaq and NYSE Quotation............................................................. A-21
Section 6.04 Access to Information................................................................. A-21
Section 6.05 Stockholders Meetings................................................................. A-21
Section 6.06 Legal Conditions to Merger............................................................ A-21
Section 6.07 Public Disclosure..................................................................... A-22
Section 6.08 Tax-Free Reorganization............................................................... A-23
Section 6.09 Pooling Accounting.................................................................... A-23
Section 6.10 Affiliate Agreements.................................................................. A-23
Section 6.11 Nasdaq Quotation...................................................................... A-23
Section 6.12 Stock Plans........................................................................... A-23
Section 6.13 Brokers or Finders.................................................................... A-24
Section 6.14 Indemnification....................................................................... A-24
Section 6.15 Letter of Staples' Accountants........................................................ A-25
Section 6.16 Letter of Office Depot's Accountants.................................................. A-25
Section 6.17 Stock Option Agreements............................................................... A-25
Section 6.18 Benefit Plans......................................................................... A-25
ARTICLE VII
CONDITIONS TO MERGER.................................................................................... A-25
Section 7.01 Conditions to Each Party's Obligation To Effect the Merger............................ A-25
Section 7.02 Additional Conditions to Obligations of Staples and Sub............................... A-26
Section 7.03 Additional Conditions to Obligations of Office Depot.................................. A-27
ARTICLE VIII
TERMINATION AND AMENDMENT............................................................................... A-27
Section 8.01 Termination........................................................................... A-27
</TABLE>
ii
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<S> <C> <C>
Section 8.02 Effect of Termination................................................................. A-28
Section 8.03 Fees and Expenses..................................................................... A-29
Section 8.04 Amendment............................................................................. A-30
Section 8.05 Extension; Waiver..................................................................... A-30
ARTICLE IX
MISCELLANEOUS........................................................................................... A-30
Section 9.01 Nonsurvival of Representations, Warranties and Agreements............................. A-30
Section 9.02 Notices............................................................................... A-30
Section 9.03 Interpretation........................................................................ A-31
Section 9.04 Counterparts.......................................................................... A-31
Section 9.05 Entire Agreement; No Third Party Beneficiaries........................................ A-32
Section 9.06 Governing Law......................................................................... A-32
Section 9.07 Assignment............................................................................ A-32
</TABLE>
Exhibit A--Staples Stock Option Agreement
Exhibit B--Office Depot Option Agreement
Schedule 1--List of Directors
iii
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TABLES OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Acquisition Proposal.......................................................................... Section 6.01(a)
Affiliate..................................................................................... Section 6.10
Affiliate Agreement........................................................................... Section 6.10
Agreement..................................................................................... Preamble
Alternative Transaction....................................................................... Section 8.03(g)
Bankruptcy and Equity Exception............................................................... Section 3.03(a)
Blue Sky...................................................................................... Section 7.02(d)
Certificate of Merger......................................................................... Section 1.01
Certificates.................................................................................. Section 2.02(b)
Closing....................................................................................... Section 1.02
Closing Date.................................................................................. Section 1.02
Code.......................................................................................... Preamble
Confidentiality Agreement..................................................................... Section 6.01(a)
Constituent Corporations...................................................................... Section 1.03
Costs......................................................................................... Section 6.14(a)
Current Premium............................................................................... Section 6.14(b)
DGCL.......................................................................................... Section 1.01
Exchange Ratio................................................................................ Section 2.01(c)
Effective Time................................................................................ Section 1.01
Environmental Law............................................................................. Section 3.12(c)
ERISA......................................................................................... Section 3.13(a)
ERISA Affiliate............................................................................... Section 3.13(a)
Exchange Act.................................................................................. Section 3.03(c)
Exchange Agent................................................................................ Section 2.02(a)
Exchange Fund................................................................................. Section 2.02(a)
Expiration Date............................................................................... Section 8.01(b)
Governmental Entity........................................................................... Section 3.03(c)
Hazardous Substance........................................................................... Section 3.12(c)
HSR Act....................................................................................... Section 3.03(c)
Incentive Stock Options....................................................................... Section 6.12(a)
Indemnified Parties........................................................................... Section 6.14(a)
IRS........................................................................................... Section 3.07(b)
Joint Proxy Statement......................................................................... Section 3.16
Material Adverse Change....................................................................... Section 3.06
Material Leases............................................................................... Section 3.08
Merger........................................................................................ Preamble
Office Depot Balance Sheet.................................................................... Section 3.04(b)
Office Depot Common Stock..................................................................... Section 2.01(b)
Office Depot Disclosure Schedule.............................................................. Article III
Office Depot Employee Plans................................................................... Section 3.13(a)
Office Depot Material Adverse Effect.......................................................... Section 3.01
Office Depot Material Contracts............................................................... Section 3.10
Office Depot Preferred Stock.................................................................. Section 3.02(a)
Office Depot SEC Reports...................................................................... Section 3.04(a)
Office Depot Stock Option..................................................................... Section 6.12(a)
Office Depot Stock Option Agreement........................................................... Preamble
Office Depot Stock Plans...................................................................... Section 3.02(a)
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Office Depot Stockholders' Meeting............................................................ Section 3.16
Order......................................................................................... Section 6.06(b)
Outside Date.................................................................................. Section 8.01(b)
Registration Statement........................................................................ Section 3.16
Rule 145...................................................................................... Section 6.10
SEC........................................................................................... Section 3.04(a)
Securities Act................................................................................ Section 3.03(c)
Staples Balance Sheet......................................................................... Section 4.04(b)
Staples Common Stock.......................................................................... Section 2.01(b)
Staples Disclosure Schedule................................................................... Article IV
Staples Employee Plans........................................................................ Section 4.13(a)
Staples Material Adverse Effect............................................................... Section 4.01
Staples Material Contracts.................................................................... Section 4.10
Staples Preferred Stock....................................................................... Section 4.02(a)
Staples Rights................................................................................ Section 2.01(c)
Staples Rights Plan........................................................................... Section 4.02(b)
Staples SEC Reports........................................................................... Section 4.04(a)
Staples Stock Option Agreement................................................................ Preamble
Staples Stock Plans........................................................................... Section 4.02(a)
Staples Stockholders' Meeting................................................................. Section 3.16
Staples Voting Proposal....................................................................... Section 6.05(a)
Stock Option Agreements....................................................................... Preamble
Subsidiary.................................................................................... Section 3.01
Superior Proposal............................................................................. Section 6.01(a)
Surviving Corporation......................................................................... Section 1.03(a)
Tax........................................................................................... Section 3.07(a)
Taxes......................................................................................... Section 3.07(a)
Third Party................................................................................... Section 8.03(g)
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of September 4,
1996, by and among Staples, Inc., a Delaware corporation ("Staples"), Marlin
Acquisition Corp., a Delaware corporation and a direct, wholly-owned subsidiary
of Staples ("Sub"), and Office Depot, Inc., a Delaware corporation ("Office
Depot").
WHEREAS, the Boards of Directors of Staples and Office Depot deem it
advisable and in the best interests of each corporation and its respective
stockholders that Staples and Office Depot combine in order to advance the
long-term business interests of Staples and Office Depot;
WHEREAS, the combination of Staples and Office Depot shall be effected by
the terms of this Agreement through a merger in which the stockholders of Office
Depot will become stockholders of Staples (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of Staples' and Office Depot's willingness
to enter into this Agreement, Staples and Office Depot have entered into (i) a
Stock Option Agreement dated as of the date of this Agreement and attached
hereto as EXHIBIT A (the "Staples Stock Option Agreement"), pursuant to which
Office Depot granted Staples an option to purchase shares of common stock of
Office Depot under certain circumstances, and (ii) a Stock Option Agreement
dated as of the date of this Agreement and attached hereto as EXHIBIT B, (the
"Office Depot Stock Option Agreement" and, together with the Staples Stock
Option Agreement, the "Stock Option Agreements"), pursuant to which Staples
granted Office Depot an option to purchase shares of common stock of Staples
under certain circumstances;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, a certificate of merger in such form as is required by the
relevant provisions of the Delaware General Corporation Law ("DGCL") (the
"Certificate of Merger") shall be duly prepared, executed and acknowledged by
the Surviving Corporation (as defined in Section 1.03) and thereafter delivered
to the Secretary of State of the State of Delaware for filing, as provided in
the DGCL, as early as practicable on the Closing Date (as defined in Section
1.02). The Merger shall become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware (the "Effective
Time").
Section 1.02 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., E.S.T., on a date to be specified by Staples and Office
Depot, which shall be no later than the second business day after satisfaction
of the latest to occur of the conditions set forth in Sections 7.01, 7.02(b)
(other than the delivery of the officers' certificate referred to therein) and
7.03(b) (other than the delivery of the officers' certificate referred to
therein) (provided that the other closing conditions set forth in Article VII
have been met or waived as provided in Article VII at or prior to the Closing)
(the "Closing Date"), at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts, unless another date, place or time is agreed to in writing by
Staples and Office Depot.
A-1
<PAGE>
Section 1.03 EFFECTS OF THE MERGER. At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into Office Depot
(Sub and Office Depot are sometimes referred to below as the "Constituent
Corporations" and Office Depot following the Merger is sometimes referred to
below as the "Surviving Corporation"), (ii) the Certificate of Incorporation of
Office Depot shall be amended so that Article FOURTH of such Certificate of
Incorporation reads in its entirety as follows: "The total number of shares of
all classes of stock which the Corporation shall have authority to issue is
1,000, all of which shall consist of Common Stock, par value $.01 per share,"
and, as so amended, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation, and (iii) the Bylaws of Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation.
Section 1.04 DIRECTORS AND OFFICERS.
(a) The officers of Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation.
(b) Prior to the Effective Time, Staples shall (i) increase the number of
the members of the Board of Directors of Staples and the Surviving Corporation
to 15 and (ii) take such action as may be necessary such that the Board of
Directors of Staples and the Surviving Corporation, immediately following the
Effective Time is comprised of the persons listed on SCHEDULE 1 attached hereto.
(c) Staples shall take such action so that, upon the Effective Time, the
following persons, subject to availability, shall hold the following positions
with Staples: David I. Fuente--Executive Chairman; Thomas G. Stemberg--Chief
Executive Officer; and Martin E. Haneka--Chief Operating Officer and President.
It is the current intention of the parties that: (i) David I. Fuente will remain
as Executive Chairman for up to three years and then become Chairman of the
Executive Committee, and (ii) Thomas G. Stemberg will remain as Chief Executive
Officer for up to three years and then become Chairman of the Board.
(d) Staples shall, promptly following the execution of this Agreement, offer
to enter into Employment Agreements, in the forms attached to the Staples
Disclosure Schedule (as defined in Article IV), with those Office Depot
employees listed in Section 1.04 of the Staples Disclosure Schedule.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.01 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Office Depot Common Stock or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock, par value $.01 per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND STAPLES-OWNED STOCK. All shares of
Common Stock, par value $.01 per share, of Office Depot ("Office Depot Common
Stock") that are owned by Office Depot as treasury stock and any shares of
Office Depot Common Stock owned by Staples, Sub or any other wholly-owned
Subsidiary (as defined in Section 3.01) of Staples shall be cancelled and
retired and shall cease to exist and no stock of Staples or other consideration
shall be delivered in exchange therefor. All shares of Common Stock, par value
$.0006 per share, of Staples ("Staples Common Stock") owned by Office Depot
shall be unaffected by the Merger.
(c) EXCHANGE RATIO FOR OFFICE DEPOT COMMON STOCK. Subject to Section 2.02,
each issued and outstanding share of Office Depot Common Stock (other than
shares to be cancelled in accordance with Section 2.01(b)) shall be converted
into the right to receive 1.14 shares (the "Exchange Ratio") of Staples
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Common Stock. All such shares of Office Depot Common Stock, when so converted,
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Staples Common Stock and any cash in lieu of fractional
shares of Staples Common Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 2.02, without
interest.
Section 2.02 EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of Office Depot Common Stock for Staples Common Stock
pursuant to the Merger are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Staples shall deposit with a
bank or trust company designated by Staples and Office Depot (the "Exchange
Agent"), for the benefit of the holders of shares of Office Depot Common Stock,
for exchange in accordance with this Section 2.02, through the Exchange Agent,
certificates representing the shares of Staples Common Stock (such shares of
Staples Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 2.01 in exchange for outstanding shares of Office Depot Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Office Depot Common Stock (the "Certificates")
whose shares were converted pursuant to Section 2.01 into the right to receive
shares of Staples Common Stock (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Staples and Office Depot
may reasonably specify) and (ii) instructions for effecting the surrender of the
Certificates in exchange for certificates representing shares of Staples Common
Stock (plus cash in lieu of fractional shares, if any, of Staples Common Stock
as provided below). Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Staples,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Staples Common Stock which such
holder has the right to receive pursuant to the provisions of this Article II,
and the Certificate so surrendered shall immediately be cancelled. In the event
of a transfer of ownership of Office Depot Common Stock which is not registered
in the transfer records of Office Depot, a certificate representing the proper
number of shares of Staples Common Stock may be issued to a transferee if the
Certificate representing such Office Depot Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Staples
Common Stock and cash in lieu of any fractional shares of Staples Common Stock
as contemplated by this Section 2.02.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Staples Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Staples Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to subsection (e)
below until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Staples Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Staples Common Stock
to which such holder is entitled pursuant to subsection (e) below and the amount
of dividends or other distributions with a record date after the Effective Time
previously paid with respect to such whole shares of Staples Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date
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after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Staples Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN OFFICE DEPOT COMMON STOCK. All shares
of Staples Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or (e) of this Section 2.02) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Office Depot
Common Stock, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by Office Depot on such
shares of Office Depot Common Stock in accordance with the terms of this
Agreement (to the extent permitted under Section 5.01) prior to the date hereof
and which remain unpaid at the Effective Time, and from and after the Effective
Time there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Office Depot Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Section 2.02.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of Staples Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of Staples.
Notwithstanding any other provision of this Agreement, each holder of shares of
Office Depot Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Staples Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Staples Common Stock multiplied by the average of
the last reported sales prices of Staples Common Stock, as reported on the
Nasdaq National Market, on each of the ten trading days immediately preceding
the date of the Effective Time.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Office Depot for 180 days after the
Effective Time shall be delivered to Staples, upon demand, and any stockholders
of Office Depot who have not previously complied with this Section 2.02 shall
thereafter look only to Staples for payment of their claim for Staples Common
Stock, any cash in lieu of fractional shares of Staples Common Stock and any
dividends or distributions with respect to Staples Common Stock.
(g) NO LIABILITY. Neither Staples nor Office Depot shall be liable to any
holder of shares of Office Depot Common Stock or Staples Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) WITHHOLDING RIGHTS. Each of Staples and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Office Depot
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Surviving
Corporation or Staples, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Office Depot Common Stock in respect of which such deduction and
withholding was made by Surviving Corporation or Staples, as the case may be.
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed
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Certificate the shares of Staples Common Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Staples
Common Stock deliverable in respect thereof pursuant to this Agreement.
(j) AFFILIATES. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in Section
6.10) of Office Depot shall not be exchanged until Staples has received an
Affiliate Agreement (as defined in Section 6.10) from such Affiliate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF OFFICE DEPOT
Office Depot represents and warrants to Staples and Sub that the statements
contained in this Article III are true and correct except as set forth herein
and in the disclosure schedule delivered by Office Depot to Staples on or before
the date of this Agreement (the "Office Depot Disclosure Schedule"). The Office
Depot Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify other paragraphs in this Article III
only to the extent that it is reasonably apparent from a reading of such
disclosure that it also qualifies or applies to such other paragraphs.
Section 3.01 ORGANIZATION OF OFFICE DEPOT. Each of Office Depot and its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed to
be conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, properties, financial
condition or results of operations of Office Depot and its Subsidiaries, taken
as a whole (a "Office Depot Material Adverse Effect"). Except as set forth in
the Office Depot SEC Reports (as defined in Section 3.04) filed prior to the
date hereof, neither Office Depot nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by Office Depot and comprising less
than five percent (5%) of the outstanding stock of such company. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
Section 3.02 OFFICE DEPOT CAPITAL STRUCTURE.
(a) The authorized capital stock of Office Depot consists of 400,000,000
shares of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock,
$.01 par value ("Office Depot Preferred Stock"). As of August 30, 1996, (i)
156,882,058 shares of Office Depot Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable and (ii) no shares of
Office Depot Common Stock were held in the treasury of Office Depot or by
Subsidiaries of Office Depot. The Office Depot Disclosure Schedule shows the
number of shares of Office Depot Common Stock reserved for future issuance
pursuant to stock options granted and outstanding as of August 27, 1996 and the
plans under which such options were granted (collectively, the "Office Depot
Stock Plans"). No material change in such capitalization has occurred between
August 27, 1996 and the date of this Agreement. As of the date of this
Agreement, none of the shares of Office Depot Preferred Stock is issued and
outstanding. All
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shares of Office Depot Common Stock subject to issuance as specified above are
duly authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be validly issued, fully
paid and nonassessable. There are no obligations, contingent or otherwise, of
Office Depot or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Office Depot Common Stock or the capital stock of any
Subsidiary or to provide funds to or make any material investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations of Subsidiaries entered
into in the ordinary course of business. All of the outstanding shares of
capital stock of each of Office Depot's Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable and all such shares (other than
directors' qualifying shares in the case of foreign Subsidiaries) are owned by
Office Depot or another Subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Office Depot's voting rights,
charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02 or as reserved for future
grants of options under the Office Depot Stock Plans or the Staples Stock Option
Agreement, there are no equity securities of any class of Office Depot or any of
its Subsidiaries, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. There are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Office Depot or any of its Subsidiaries is a party or
by which it is bound obligating Office Depot or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Office Depot or any of its Subsidiaries or obligating
Office Depot or any of its Subsidiaries to grant, extend, accelerate the vesting
of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. To the best knowledge of Office Depot, there are no
voting trusts, proxies or other voting agreements or understandings with respect
to the shares of capital stock of Office Depot.
Section 3.03 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Office Depot has all requisite corporate power and authority to enter
into this Agreement and the Staples Stock Option Agreement and to consummate the
transactions contemplated by this Agreement and the Staples Stock Option
Agreement. The execution and delivery of this Agreement and the Staples Stock
Option Agreement and the consummation of the transactions contemplated by this
Agreement and the Staples Stock Option Agreement by Office Depot have been duly
authorized by all necessary corporate action on the part of Office Depot,
subject only to the approval of the Merger by Office Depot's stockholders under
the DGCL. This Agreement and the Staples Stock Option Agreement have been duly
executed and delivered by Office Depot and constitute the valid and binding
obligations of Office Depot, enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (the "Bankruptcy and Equity Exception").
(b) The execution and delivery of this Agreement and the Staples Stock
Option Agreement by Office Depot does not, and the consummation of the
transactions contemplated by this Agreement and the Staples Stock Option
Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of Office Depot,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Office Depot or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Office Depot or any of its Subsidiaries or any of its
or their properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Office Depot Material Adverse Effect.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Office Depot or any of its Subsidiaries in
connection with the execution and delivery of this Agreement and the Staples
Stock Option Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the pre-merger notification
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, ("HSR Act"), (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State, (iii) the filing of the Joint Proxy Statement (as
defined in Section 3.16 below) with the Securities and Exchange Commission (the
"SEC") in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country (including the
Canadian Competition Act and the Investment Canada Act) and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not be reasonably likely to have a Office Depot Material
Adverse Effect.
Section 3.04 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Office Depot has filed and made available to Staples all forms, reports
and documents required to be filed by Office Depot with the SEC since July 1,
1994 other than registration statements on Form S-8 (collectively, the "Office
Depot SEC Reports"). The Office Depot SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated in such Office Depot SEC Reports or
necessary in order to make the statements in such Office Depot SEC Reports, in
the light of the circumstances under which they were made, not misleading. None
of Office Depot's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Office Depot SEC Reports complied as to form
in all material respects with the applicable published rules and regulations of
the SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Office Depot and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
audited balance sheet of Office Depot as of December 30, 1995 is referred to
herein as the "Office Depot Balance Sheet."
Section 3.05 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Office
Depot SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since June 29, 1996 in the ordinary course of
business consistent with past practices, Office Depot and its Subsidiaries do
not have any liabilities, either accrued, contingent or otherwise (whether or
not required to be reflected in financial statements in accordance with
generally accepted accounting principles), and whether due or to become due,
which individually or in the aggregate are reasonably likely to have a Office
Depot Material Adverse Effect.
Section 3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Office Depot SEC Reports filed prior to the date hereof or disclosed in
writing by Office Depot to Staples on or prior to the date hereof, since the
date of the Office Depot Balance Sheet, Office Depot and its Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (i) any
material adverse change in the financial condition, results of
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operations, business or properties (a "Material Adverse Change"), of Office
Depot and its Subsidiaries, taken as a whole (other than changes that are the
effect or result of economic factors affecting the economy as a whole or the
retail markets in which Office Depot competes), or any development or
combination of developments of which the management of Office Depot is aware
that, individually or in the aggregate, has had, or is reasonably likely to
have, a Office Depot Material Adverse Effect (other than developments that are
the effect or result of actions to be taken by Staples or economic factors
affecting the economy as a whole or the retail markets in which Office Depot
competes); (ii) any damage, destruction or loss (whether or not covered by
insurance) with respect to Office Depot or any of its Subsidiaries having a
Office Depot Material Adverse Effect; (iii) any material change by Office Depot
in its accounting methods, principles or practices to which Staples has not
previously consented in writing; (iv) any revaluation by Office Depot of any of
its assets having a Office Depot Material Adverse Effect; or (v) any other
action or event that would have required the consent of Staples pursuant to
Section 5.01 of this Agreement had such action or event occurred after the date
of this Agreement and that, individually or in the aggregate, has had or is
reasonably likely to have a Office Depot Material Adverse Effect.
Section 3.07 TAXES.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Office Depot and each of its Subsidiaries have (i) filed all federal,
state, local and foreign tax returns and reports required to be filed by them
prior to the date of this Agreement (taking into account extensions), (ii) paid
or accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for
which a notice of assessment or collection has been received (other than amounts
being contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Office Depot
Material Adverse Effect. Neither the Internal Revenue Service (the "IRS") nor
any other taxing authority has asserted any claim for taxes, or to the actual
knowledge of the executive officers of Office Depot, is threatening to assert
any claims for taxes, which claims, individually or in the aggregate, are
reasonably likely to have a Office Depot Material Adverse Effect. Office Depot
and each of its Subsidiaries have withheld or collected and paid over to the
appropriate governmental authorities (or are properly holding for such payment)
all taxes required by law to be withheld or collected, except for amounts which
are not reasonably likely, individually or in the aggregate, to have a Office
Depot Material Adverse Effect. Neither Office Depot nor any of its Subsidiaries
has made an election under Section 341(f) of the Code, except for any such
election which shall not have a Office Depot Material Adverse Effect. There are
no liens for taxes upon the assets of Office Depot or any of its Subsidiaries
(other than liens for taxes that are not yet due or that are being contested in
good faith by appropriate proceedings), except for liens which are not
reasonably likely, individually or in the aggregate, to have a Office Depot
Material Adverse Effect.
Section 3.08 PROPERTIES.
(a) Office Depot has provided to Staples a true and complete list of all
real property leased by Office Depot or its Subsidiaries pursuant to leases
providing for the occupancy, in each case, of (i) a retail store or (ii) other
facilities in excess of 20,000 square feet (collectively "Material Lease(s)")
and the location of the premises. Office Depot is not in default under any of
such leases, except where the existence of such defaults, individually or in the
aggregate, is not reasonably likely to have a Office Depot Material Adverse
Effect.
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(b) Office Depot has provided to Staples a true and complete list of all
real property that Office Depot or any of its Subsidiaries owns. With respect to
each such item of real property, except for such matters that, individually or
in the aggregate, are not reasonably likely to have a Office Depot Material
Adverse Effect: (a) Office Depot or the identified Subsidiary has good and clear
record and marketable title to such property, insurable by a recognized national
title insurance company at standard rates, free and clear of any security
interest, easement, covenant or other restriction, except for recorded
easements, covenants and other restrictions which do not materially impair the
current uses or occupancy of such property; and (b) the improvements constructed
on such property are in good condition, and all mechanical and utility systems
servicing such improvements are in good condition, free in each case of material
defects.
Section 3.09 INTELLECTUAL PROPERTY. Office Depot owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Office Depot as currently
conducted, subject to such exceptions that would not be reasonably likely to
have a Office Depot Material Adverse Effect.
Section 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Office Depot has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Office Depot SEC Reports ("Office Depot Material
Contracts") in such a manner as, individually or in the aggregate, are
reasonably likely to have a Office Depot Material Adverse Effect. Each Office
Depot Material Contract that has not expired by its terms is in full force and
effect.
Section 3.11 LITIGATION. Except as described in the Office Depot SEC
Reports filed prior to the date hereof, there is no action, suit or proceeding,
claim, arbitration or investigation against Office Depot pending or as to which
Office Depot has received any written notice of assertion, which, individually
or in the aggregate, is reasonably likely to have a Office Depot Material
Adverse Effect or a material adverse effect on the ability of Office Depot to
consummate the transactions contemplated by this Agreement.
Section 3.12 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Office Depot SEC Reports filed prior to the
date hereof and except for such matters that, individually or in the aggregate,
are not reasonably likely to have a Office Depot Material Adverse Effect: (i)
Office Depot and its Subsidiaries have complied with all applicable
Environmental Laws (as defined in Section 3.12(b)); (ii) the properties
currently owned or operated by Office Depot and its Subsidiaries (including
soils, groundwater, surface water, buildings or other structures) are not
contaminated with any Hazardous Substances (as defined in Section 3.12(c));
(iii) the properties formerly owned or operated by Office Depot or any of its
Subsidiaries were not contaminated with Hazardous Substances during the period
of ownership or operation by Office Depot or any of its Subsidiaries; (iv)
neither Office Depot nor its Subsidiaries are subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
neither Office Depot nor any of its Subsidiaries has been associated with any
release or threat of release of any Hazardous Substance; (vi) neither Office
Depot nor any of its Subsidiaries has received any notice, demand, letter, claim
or request for information alleging that Office Depot or any of its Subsidiaries
may be in violation of or liable under any Environmental Law; (vii) neither
Office Depot nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (viii)
there are no circumstances or conditions involving Office Depot or any of its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use or
transfer of any property of Office Depot pursuant to any Environmental Law.
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(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (A) the protection, investigation
or restoration of the environment, health and safety, or natural resources, (B)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
Section 3.13 EMPLOYEE BENEFIT PLANS.
(a) Office Depot has listed in Section 3.13 of the Office Depot Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Office Depot or any trade or
business (whether or not incorporated) which is a member or which is under
common control with Office Depot (an "ERISA Affiliate") within the meaning of
Section 414 of the Code, or any Subsidiary of Office Depot (together, the
"Office Depot Employee Plans").
(b) With respect to each Office Depot Employee Plan, Office Depot has made
available to Staples, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Office Depot Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Office Depot Employee Plan and (iv) the most recent actuarial report or
valuation relating to a Office Depot Employee Plan subject to Title IV of ERISA.
(c) With respect to the Office Depot Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Office Depot, there
exists no condition or set of circumstances in connection with which Office
Depot could be subject to any liability that is reasonably likely to have a
Office Depot Material Adverse Effect under ERISA, the Code or any other
applicable law.
(d) With respect to the Office Depot Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Office Depot, which obligations are reasonably likely to have a
Office Depot Material Adverse Effect.
(e) Except as disclosed in Office Depot SEC Reports filed prior to the date
of this Agreement, and except as provided for in this Agreement, neither Office
Depot nor any of its Subsidiaries is a party to any oral or written (i)
agreement with any officer or other key employee of Office Depot or any of its
Subsidiaries, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Office Depot
of the nature contemplated by this Agreement, (ii) agreement with any officer of
Office Depot providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof and for the
payment of compensation in excess of $100,000 per annum, or (iii) agreement or
plan, including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
Section 3.14 COMPLIANCE WITH LAWS. Office Depot has complied with, is not
in violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation
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with respect to the conduct of its business, or the ownership or operation of
its business, except for failures to comply or violations which, individually or
in the aggregate, have not had and are not reasonably likely to have a Office
Depot Material Adverse Effect.
Section 3.15 ACCOUNTING AND TAX MATTERS. To its knowledge, after
consulting with its independent auditors, neither Office Depot nor any of its
Affiliates (as defined in Section 6.10) has taken or agreed to take any action
which would (i) prevent Staples from accounting for the business combination to
be effected by the Merger as a pooling of interests or (ii) prevent the Merger
from constituting a transaction qualifying as a reorganization under 368(a) of
the Code.
Section 3.16 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information to be supplied by Office Depot for inclusion in the registration
statement on Form S-4 pursuant to which shares of Staples Common Stock issued in
the Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information supplied by Office Depot for inclusion in the joint proxy
statement/prospectus to be sent to the stockholders of Staples and Office Depot
in connection with the meeting of Office Depot's stockholders to consider this
Agreement and the Merger (the "Office Depot Stockholders' Meeting") and in
connection with the meeting of Staples' stockholders (the "Staples Stockholders'
Meeting") to consider the issuance of shares of Staples Common Stock pursuant to
the Merger (the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to stockholders of Office Depot or Staples, at the
time of the Office Depot Stockholders' Meeting and the Staples Stockholders'
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Joint Proxy Statement not
false or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Office Depot Stockholders' Meeting or the Staples Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to Office Depot or any of its Affiliates,
officers or directors should be discovered by Office Depot which should be set
forth in an amendment to the Registration Statement or a supplement to the Joint
Proxy Statement, Office Depot shall promptly inform Staples.
Section 3.17 LABOR MATTERS. Neither Office Depot nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor, as of the date hereof, is Office Depot or any of its
Subsidiaries the subject of any material proceeding asserting that Office Depot
or any of its Subsidiaries has committed an unfair labor practice or is seeking
to compel it to bargain with any labor union or labor organization nor, as of
the date of this Agreement, is there pending or, to the knowledge of the
executive officers of Office Depot, threatened, any material labor strike,
dispute, walkout, work stoppage, slow-down or lockout involving Office Depot or
any of its Subsidiaries.
Section 3.18 INSURANCE. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by Office Depot or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Office Depot and its Subsidiaries and
their respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Office Depot Material Adverse Effect.
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Section 3.19 NO EXISTING DISCUSSIONS. As of the date hereof, Office Depot
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Acquisition Proposal (as defined in Section
6.01).
Section 3.20 OPINION OF FINANCIAL ADVISOR. The financial advisor of Office
Depot, Merrill Lynch, Pierce, Fenner & Smith Incorporated, has delivered to
Office Depot an opinion dated the date of this Agreement to the effect that the
Exchange Ratio is fair to the holders of Office Depot Common Stock from a
financial point of view.
Section 3.21 SECTION 203 OF THE DGCL NOT APPLICABLE. Section 203 of the
DGCL is not applicable to Office Depot or (by reason of Office Depot's
participation therein) the Merger. No other "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation is
applicable to Office Depot or (by reason of Office Depot's participation
therein) the Merger or the other transactions contemplated by this Agreement.
Section 3.22 RIGHTS AGREEMENT. Office Depot has entered into a Rights
Agreement, a true and correct copy of which has previously been provided to
Staples, under which Staples is defined as an "Exempt Person."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STAPLES AND SUB
Staples and Sub represent and warrant to Office Depot that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule delivered by Staples to Office Depot on or before the date
of this Agreement (the "Staples Disclosure Schedule"). The Staples Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV and the disclosure in any
paragraph shall qualify other paragraphs in this Article IV only to the extent
that it is reasonably apparent from a reading of such document that it also
qualifies or applies to such other paragraphs.
Section 4.01 ORGANIZATION OF STAPLES AND SUB. Each of Staples and Sub and
Staples' other Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted and as proposed to be conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, properties, financial condition
or results of operations of Staples and its Subsidiaries, taken as a whole (a
"Staples Material Adverse Effect"). Except as set forth in the Staples SEC
Reports (as defined in Section 4.04) filed prior to the date hereof, neither
Staples nor any of its Subsidiaries directly or indirectly owns any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association or entity, excluding securities in any publicly traded company held
for investment by Staples and comprising less than five percent (5%) of the
outstanding stock of such company.
Section 4.02 STAPLES CAPITAL STRUCTURE.
(a) The authorized capital stock of Staples consists of 500,000,000 shares
of Common Stock, $.0006 par value, and 5,000,000 shares of Preferred Stock, $.01
par value ("Staples Preferred Stock"). As of August 3, 1996, (i) 160,449,493
shares of Staples Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and (ii) 37,390 shares of Staples
Common Stock were held in the treasury of Staples or by Subsidiaries of Staples.
The Staples Disclosure Schedule shows the number of shares of Staples Common
Stock reserved for future issuance pursuant to stock options granted and
outstanding as of August 3, 1996 and the plans under which such options were
granted (collectively, the "Staples Stock Plans"). No material change in such
capitalization has occurred between August 3, 1996 and the date of this
Agreement. As of the date of this Agreement, none of the shares of Staples
Preferred
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Stock is issued and outstanding. All shares of Staples Common Stock subject to
issuance as specified above are duly authorized and, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of Staples or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Staples Common Stock or the capital
stock of any Subsidiary or to provide funds to or make any material investment
(in the form of a loan, capital contribution or otherwise) in any such
Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Staples' Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by Staples or another Subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Staples' voting
rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02 or as reserved for future
grants of options under the Staples Stock Plans or the Office Depot Stock Option
Agreement, and except for the Staples Rights issued and issuable under the
Rights Agreement dated February 3, 1994 between Staples and The First National
Bank of Boston (the "Staples Rights Plan"), there are no equity securities of
any class of Staples or any of its Subsidiaries, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding. There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Staples or any of its
Subsidiaries is a party or by which it is bound obligating Staples or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Staples or any of its Subsidiaries
or obligating Staples or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. To the best knowledge of Staples, there are no
voting trusts, proxies or other voting agreements or understandings with respect
to the shares of capital stock of Staples.
Section 4.03 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Each of Staples and the Sub has all requisite corporate power and
authority to enter into this Agreement and (in the case of Staples) the Office
Depot Stock Option Agreement and to consummate the transactions contemplated by
this Agreement and (in the case of Staples) the Office Depot Stock Option
Agreement. The execution and delivery of this Agreement and (in the case of
Staples) the Office Depot Stock Option Agreement and the consummation of the
transactions contemplated by this Agreement and (in the case of Staples) the
Office Depot Stock Option Agreement by Staples and Sub have been duly authorized
by all necessary corporate action on the part of each of Staples and Sub
(including the approval of the Merger by Staples as the sole stockholder of
Sub), subject only to the approval of the Staples Voting Proposal (as defined in
Section 6.05) by Staples' stockholders. This Agreement and (in the case of
Staples) the Office Depot Stock Option Agreement have been duly executed and
delivered by each of Staples and Sub and constitute the valid and binding
obligations of each of Staples and Sub, enforceable in accordance with their
terms, subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement and (in the case of
Staples) the Office Depot Stock Option Agreement by each of Staples and Sub does
not, and the consummation of the transactions contemplated by this Agreement and
(in the case of Staples) the Office Depot Stock Option Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of Staples or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Staples or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound, or
(iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Staples or any of its Subsidiaries or any of its or their properties or
assets, except in the case of (ii)
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and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which are not, individually or in the aggregate,
reasonably likely to have a Staples Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Staples or any of its Subsidiaries in connection with the execution
and delivery of this Agreement and (in the case of Staples) the Office Depot
Stock Option Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of the pre-merger notification
report under the HSR Act, (ii) the filing of the Registration Statement with the
SEC in accordance with the Securities Act, (iii) the filing of the Certificate
of Merger with the Delaware Secretary of State, (iv) the filing of the Joint
Proxy Statement with the SEC in accordance with the Exchange Act, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country (including the Canadian Competition Act and the
Investment Canada Act) and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have a Staples Material Adverse Effect.
Section 4.04 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Staples has filed and made available to Office Depot all forms, reports
and documents required to be filed by Staples with the SEC since July 1, 1994
other than registration statements on Form S-8 (collectively, the "Staples SEC
Reports"). The Staples SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Staples SEC
Reports or necessary in order to make the statements in such Staples SEC
Reports, in the light of the circumstances under which they were made, not
misleading. None of Staples' Subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Staples SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Staples and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
audited balance sheet of Staples as of February 3, 1996 is referred to herein as
the "Staples Balance Sheet."
Section 4.05 NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Staples SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since July 27, 1996 in the ordinary course of
business consistent with past practices, Staples and its Subsidiaries do not
have any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles), and whether due or to become due, which
individually or in the aggregate, are reasonably likely to have a Staples
Material Adverse Effect.
Section 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Staples SEC Reports filed prior to the date hereof, since the date of the
Staples Balance Sheet, Staples and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any Material Adverse
Change in Staples and its Subsidiaries, taken as a whole (other than changes
that are the effect or result of economic factors affecting the economy as a
whole or the retail markets in which Staples competes), or any development or
combination of developments of which the management of Staples is aware that,
individually or in the aggregate, has had, or is
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reasonably likely to have, a Staples Material Adverse Effect (other than
developments that are the effect or result of actions to be taken by Office
Depot or economic factors affecting the economy as a whole or the retail markets
in which Staples competes); (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to Staples or any of its Subsidiaries having
a Staples Material Adverse Effect; (iii) any material change by Staples in its
accounting methods, principles or practices to which Office Depot has not
previously consented in writing; (iv) any revaluation by Staples of any of its
assets having a Staples Material Adverse Effect; or (v) any other action or
event that would have required the consent of Office Depot pursuant to Section
5.01 of this Agreement had such action or event occurred after the date of this
Agreement and that, individually or in the aggregate, has had or is reasonably
likely to have a Staples Material Adverse Effect.
Section 4.07 TAXES. Staples and each of its Subsidiaries have (i) filed
all federal, state, local and foreign tax returns and reports required to be
filed by them prior to the date of this Agreement (taking into account
extensions), (ii) paid or accrued all Taxes due and payable, and (iii) paid or
accrued all Taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clause (i), (ii) or (iii) for any such
filings, payments or accruals which are not reasonably likely, individually or
in the aggregate, to have a Staples Material Adverse Effect. Neither the IRS nor
any other taxing authority has asserted any claim for taxes, or to the actual
knowledge of the executive officers of Staples, is threatening to assert any
claims for taxes, which claims, individually or in the aggregate, are reasonably
likely to have a Staples Material Adverse Effect. Staples and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all taxes
required by law to be withheld or collected, except for amounts which are not
reasonably likely, individually or in the aggregate, to have a Staples Material
Adverse Effect. Neither Staples nor any of its Subsidiaries has made an election
under Section 341(f) of the Code, except for any such election which shall not
have a Staples Material Adverse Effect. There are no liens for taxes upon the
assets of Staples or any of its Subsidiaries (other than liens for taxes that
are not yet due or that are being contested in good faith by appropriate
proceedings), except for liens which are not reasonably likely, individually or
in the aggregate, to have a Staples Material Adverse Effect.
Section 4.08 PROPERTIES.
(a) Staples has provided to Office Depot a true and complete list of all
real property leased by Staples or its Subsidiaries pursuant to Material Leases
and the location of the premises. Staples is not in default under any of such
Material Leases, except where the existence of such defaults, individually or in
the aggregate, is not reasonably likely to have a Staples Material Adverse
Effect.
(b) Staples has provided to Office Depot a true and complete list of all
real property that Staples or any of its Subsidiaries owns. With respect to each
such item of real property, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Staples Material Adverse Effect:
(a) Staples or the identified Subsidiary has good and clear record and
marketable title to such property, insurable by a recognized national title
insurance company at standard rates, free and clear of any security interest,
easement, covenant or other restriction, except for recorded easements,
covenants and other restrictions which do not materially impair the current uses
or occupancy of such property; and (b) the improvements constructed on such
property are in good condition, and all mechanical and utility systems servicing
such improvements are in good condition, free in each case of material defects.
Section 4.09 INTELLECTUAL PROPERTY. Staples owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are necessary to conduct the business of Staples as currently conducted,
subject to such exceptions that would not be reasonably likely to have a Staples
Material Adverse Effect.
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Section 4.10 AGREEMENTS, CONTRACTS AND COMMITMENTS. Staples has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Staples SEC Reports ("Staples Material Contracts") in
such a manner as, individually or in the aggregate, are reasonably likely to
have a Staples Material Adverse Effect. Each Staples Material Contract that has
not expired by its terms is in full force and effect.
Section 4.11 LITIGATION. Except as described in the Staples SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Staples pending or as to which Staples has
received any written notice of assertion, which, individually or in the
aggregate, is reasonably likely to have a Staples Material Adverse Effect or a
material adverse effect on the ability of Staples to consummate the transactions
contemplated by this Agreement.
Section 4.12 ENVIRONMENTAL MATTERS. Except as disclosed in the Staples SEC
Reports filed prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Staples
Material Adverse Effect: (i) Staples and its Subsidiaries have complied with all
applicable Environmental Laws; (ii) the properties currently owned or operated
by Staples and its Subsidiaries (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Staples or any of
its Subsidiaries were not contaminated with Hazardous Substances during the
period of ownership or operation by Staples or any of its Subsidiaries; (iv)
neither Staples nor its Subsidiaries are subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) neither
Staples nor any of its Subsidiaries has been associated with any release or
threat of release of any Hazardous Substance; (vi) neither Staples nor any of
its Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that Staples or any of its Subsidiaries may be in violation
of or liable under any Environmental Law; (vii) neither Staples nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving Staples or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of
Staples pursuant to any Environmental Law.
Section 4.13 EMPLOYEE BENEFIT PLANS.
(a) Staples has listed in Section 4.13 of the Staples Disclosure Schedule
all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Staples or any ERISA Affiliate of
Staples, or any Subsidiary of Staples (together, the "Staples Employee Plans").
(b) With respect to each Staples Employee Plan, Staples has made available
to Office Depot, a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS, (ii) such Staples Employee Plan, (iii) each
trust agreement and group annuity contract, if any, relating to such Staples
Employee Plan and (iv) the most recent actuarial report or valuation relating to
a Staples Employee Plan subject to Title IV of ERISA.
(c) With respect to the Staples Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Staples, there exists
no condition or set of circumstances in connection with which Staples could be
subject to any liability that is reasonably likely to have a Staples Material
Adverse Effect under ERISA, the Code or any other applicable law.
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(d) With respect to the Staples Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Staples, which obligations are reasonably likely to have a Staples
Material Adverse Effect.
(e) Except as disclosed in Staples SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Staples
nor any of its Subsidiaries is a party to any oral or written (i) agreement with
any officer or other key employee of Staples or any of its Subsidiaries, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Staples of the nature
contemplated by this Agreement, (ii) agreement with any officer of Staples
providing any term of employment or compensation guarantee extending for a
period longer than one year from the date hereof or for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Section 4.14 COMPLIANCE WITH LAWS. Staples has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Staples Material Adverse Effect.
Section 4.15 ACCOUNTING AND TAX MATTERS. To its knowledge, after
consulting with its independent auditors, neither Staples nor any of its
Affiliates has taken or agreed to take any action which would (i) prevent
Staples from accounting for the business combination to be effected by the
Merger as a pooling of interests, or (ii) prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Code.
Section 4.16 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information in the Registration Statement (except for information supplied by
Office Depot for inclusion in the Registration Statement, as to which Staples
makes no representation) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were made, not
misleading. The information (except for information supplied by Office Depot for
inclusion in the Joint Proxy Statement, as to which Staples makes no
representation) in the Joint Proxy Statement shall not, on the date the Joint
Proxy Statement is first mailed to stockholders of Staples or Office Depot, at
the time of the Staples Stockholders' Meeting and the Office Depot Stockholder's
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Joint Proxy Statement not
false or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Staples Stockholders' Meeting or the Office Depot Stockholders'
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to Staples or any of its Affiliates, officers
or directors should be discovered by Staples which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, Staples shall promptly inform Office Depot.
Section 4.17 LABOR MATTERS. Neither Staples nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor
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union or labor organization, nor, as of the date hereof, is Staples or any of
its Subsidiaries the subject of any material proceeding asserting that Staples
or any of its Subsidiaries has committed an unfair labor practice or is seeking
to compel it to bargain with any labor union or labor organization nor, as of
the date of this Agreement, is there pending or, to the knowledge of the
executive officers of Staples, threatened, any material labor strike, dispute,
walkout, work stoppage, slow-down or lockout involving Staples or any of its
Subsidiaries.
Section 4.18 INSURANCE. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by Staples or any of its Subsidiaries are with
reputable insurance carriers, provide full and adequate coverage for all normal
risks incident to the business of Staples and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Staples Material Adverse Effect.
Section 4.19 OPINION OF FINANCIAL ADVISOR. The financial advisor of
Staples, Goldman, Sachs & Co., has delivered to Staples an opinion dated the
date of this Agreement to the effect that the Exchange Ratio is fair to Staples
from a financial point of view.
Section 4.20 NO EXISTING DISCUSSIONS. As of the date hereof, Staples is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal.
Section 4.21 SECTION 203 OF THE DGCL NOT APPLICABLE. The restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or performance
of this Agreement by Staples or the consummation by Staples of the Merger or the
other transactions contemplated by this Agreement. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation is applicable to Staples or (by reason of Staples' participation
therein) the Merger or the other transactions contemplated by this Agreement.
Section 4.22 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.01 COVENANTS OF OFFICE DEPOT AND STAPLES. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, Office Depot and Staples each agrees as
to itself and its respective Subsidiaries (except to the extent that the other
party shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it. Office
Depot and Staples shall each promptly notify the other party of any material
event or occurrence not in the ordinary course of business of Office Depot or
Staples, respectively. Except as expressly contemplated by this Agreement or as
set forth in Section 5.01 of the Office Depot Disclosure Schedule, subject to
Section 6.01, Office Depot and Staples each shall not (and shall not permit any
of its respective Subsidiaries to), without the written consent of the other
party:
(a) Accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options
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granted under any of such plans except as required by the terms of such plans or
any related agreements in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to such
party;
(c) Issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than (i) the grant
of options consistent with past practices to employees, which options represent
in the aggregate the right to acquire no more than 500,000 shares (net of
cancellations) of Office Depot Common Stock or Staples Common Stock, as the case
may be, or (ii) the issuance of shares of Office Depot Common Stock or Staples
Common Stock, as the case may be, pursuant to the exercise of options
outstanding on the date of this Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets (other than inventory and other items in the ordinary course
of business), except for any such acquisitions involving aggregate consideration
of not more than $1,000,000;
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business; provided, however, that in no event shall either party enter into any
agreement, option or other arrangements (including without limitation any joint
venture) involving the licensing of such party's name or system in any foreign
country;
(f) (i) Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees (other than officers) in accordance with past practices, (ii) grant
any additional severance or termination pay to, or enter into any employment or
severance agreements with, any employees or officers, (iii) enter into any
collective bargaining agreement (other than as required by law or extensions to
existing agreements in the ordinary course of business), (iv) establish, adopt,
enter into or amend any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) Amend or propose to amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement; or
(h) Incur any indebtedness for borrowed money other than in the ordinary
course of business; or
(i) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (h) above.
Section 5.02 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Staples and Office Depot shall
confer on a regular and frequent basis with one or more representatives of the
other party to report on the general status of ongoing operations and shall
promptly provide the other party or its counsel with copies of all filings made
by such party with any Governmental Entity in connection with this Agreement,
the Merger and the transactions contemplated hereby and thereby.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01 NO SOLICITATION.
(a) Office Depot and Staples each shall not, directly or indirectly, through
any officer, director, employee, financial advisor, representative or agent of
such party (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transaction involving such party or any of its Subsidiaries,
other than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to or recommend any Acquisition Proposal; PROVIDED,
HOWEVER, that nothing contained in this Agreement shall prevent Office Depot or
Staples, or their respective Board of Directors, from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity or recommending an unsolicited bona fide written
Acquisition Proposal to the stockholders of such party, if and only to the
extent that (1) the Board of Directors of such party believes in good faith
(after consultation with its financial advisor) that such Acquisition Proposal
is reasonably capable of being completed on the terms proposed and, after taking
into account the strategic benefits anticipated to be derived from the Merger
and the long-term prospects of Office Depot and Staples as a combined company,
would, if consummated, result in a transaction more favorable over the long term
than the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and the Board of Directors of such party determines in good faith
after consultation with outside legal counsel that such action is necessary for
such Board of Directors to comply with its fiduciary duties to stockholders
under applicable law and (2) prior to furnishing such non-public information to,
or entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than those
contained in the Non-Disclosure Agreement dated May 16, 1996 between Staples and
Office Depot (the "Confidentiality Agreement"); or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
(b) Office Depot and Staples shall each notify the other party immediately
after receipt by Office Depot or Staples (or their advisors) of any Acquisition
Proposal or any request for nonpublic information in connection with an
Acquisition Proposal or for access to the properties, books or records of such
party by any person or entity that informs such party that it is considering
making, or has made, an Acquisition Proposal. Such notice shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact. Such
party shall continue to keep the other party hereto informed, on a current
basis, of the status of any such discussions or negotiations and the terms being
discussed or negotiated.
Section 6.02 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practical after the execution of this Agreement, Staples
and Office Depot shall prepare and file with the SEC the Joint Proxy Statement,
and Staples shall prepare and file with the SEC the Registration Statement, in
which the Joint Proxy Statement will be included as a prospectus, provided that
Staples may delay the filing of the Registration Statement until approval of the
Joint Proxy Statement by the SEC. Staples and Office Depot shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practical. The Joint Proxy Statement shall include the
recommendation of the Board of Directors of Office Depot in favor of this
Agreement and the Merger and the recommendation of the Board of Directors of
Staples in favor of the issuance of shares of Staples
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Common Stock pursuant to the Merger; provided that the Board of Directors of
either party may withdraw such recommendation if such Board of Directors
believes in good faith after consultation with outside legal counsel that the
withdrawal of such recommendation is necessary for such Board of Directors to
comply with its fiduciary duties under applicable law.
(b) Staples and Office Depot shall make all necessary filings with respect
to the Merger under the Securities Act, the Exchange Act, applicable state blue
sky laws and the rules and regulations thereunder.
Section 6.03 NASDAQ AND NYSE QUOTATION. Each of Staples and Office Depot
agrees to continue the quotation of Staples Common Stock and Office Depot Common
Stock, respectively, on the Nasdaq National Market and New York Stock Exchange,
respectively, during the term of this Agreement so that appraisal rights will
not be available to stockholders of Office Depot under Section 262 of the DGCL.
Section 6.04 ACCESS TO INFORMATION. Upon reasonable notice, Office Depot
and Staples shall each (and shall cause each of their respective Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Office Depot and
Staples shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is nonpublic in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.04 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Merger.
Section 6.05 STOCKHOLDERS MEETINGS.
(a) Office Depot and Staples each shall call a meeting of its respective
stockholders to be held as promptly as practicable for the purpose of voting, in
the case of Office Depot, upon this Agreement and the Merger and, in the case of
Staples, upon the issuance of shares of Staples Common Stock pursuant to the
Merger (the "Staples Voting Proposal"). Subject to Sections 6.01 and 6.02,
Office Depot and Staples shall, through their respective Boards of Directors,
recommend to their respective stockholders approval of such matters and shall
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof. Unless otherwise required to comply with the
applicable fiduciary duties of the respective directors of Office Depot and
Staples, as determined by such directors in good faith after consultation with
outside legal counsel, each party shall use all reasonable efforts to solicit
from stockholders of such party proxies in favor of such matters.
(b) Staples may also submit additional proposals to its stockholders at the
Staples Stockholders' Meeting (including without limitation a proposal to amend
its Certificate of Incorporation to increase the number of authorized shares of
Common Stock or amend its 1992 Equity Incentive Plan to increase the number of
shares of Common Stock issuable thereunder), separate from the proposal referred
to in Section 6.05(a). The approval by Staples' stockholders of such additional
proposals shall not be a condition to the closing of the Merger under this
Agreement.
Section 6.06 LEGAL CONDITIONS TO MERGER.
(a) Office Depot and Staples shall each use their best efforts to (i) take,
or cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary and proper under applicable law to consummate and make
effective the transactions contemplated hereby as promptly as practicable, (ii)
obtain from any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders required to be
obtained or made by Office Depot or Staples or any of
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their Subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the Merger, and (iii) as promptly as practicable,
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Merger required under (A) the Securities
Act and the Exchange Act, and any other applicable federal or state securities
laws, (B) the HSR Act and any related governmental request thereunder, (C) the
Canadian Competition Act and any related governmental request thereunder, (D)
the Investment Canada Act, and (E) any other applicable law. Office Depot and
Staples shall cooperate with each other in connection with the making of all
such filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
Office Depot and Staples shall use their best efforts to furnish to each other
all information required for any application or other filing to be made pursuant
to the rules and regulations of any applicable law (including all information
required to be included in the Joint Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Staples and Office Depot agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective best efforts to obtain
any government clearances required for Closing (including through compliance
with the HSR Act and any applicable foreign government reporting requirements),
to respond to any government requests for information, and to contest and resist
any action, including any legislative, administrative or judicial action, and to
have vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (an "Order") that
restricts, prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement, including, without limitation, by
vigorously pursuing all available avenues of administrative and judicial appeal
and all available legislative action. Staples and Office Depot also agree to
take any and all of the following actions to the extent necessary to obtain the
approval of any Governmental Entity with jurisdiction over the enforcement of
any applicable laws regarding the Merger: entering into negotiations; providing
information; substantially complying with any second request for information
pursuant to the HSR Act; making proposals; entering into and performing
agreements or submitting to judicial or administrative orders; selling or
otherwise disposing of, or holding separate (through the establishment of a
trust or otherwise) particular assets or categories of assets, or businesses of
Staples, Office Depot or any of their affiliates; and withdrawing from doing
business in a particular jurisdiction. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other federal, state or foreign antitrust or fair trade law. Staples shall be
entitled to direct any proceedings or negotiations with any Governmental Entity
relating to any of the foregoing, provided that it shall afford Office Depot a
reasonable opportunity to participate therein. Notwithstanding anything to the
contrary in this Section 6.06, neither Staples nor Office Depot nor any of their
respective Subsidiaries shall be required to take any action that would
reasonably be expected to substantially impair the overall benefits expected, as
of the date hereof, to be realized from the consummation of the Merger.
(c) Each of Office Depot and Staples shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their best efforts to obtain any
third party consents related to or required in connection with the Merger that
are (A) necessary to consummate the transactions contemplated hereby, (B)
disclosed or required to be disclosed in the Office Depot Disclosure Schedule or
the Staples Disclosure Schedule, as the case may be, or (C) required to prevent
a Office Depot Material Adverse Effect or a Staples Material Adverse Effect from
occurring prior to or after the Effective Time.
Section 6.07 PUBLIC DISCLOSURE. Staples and Office Depot shall consult
with each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this
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Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law.
Section 6.08 TAX-FREE REORGANIZATION. Staples and Office Depot shall each
use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
Section 6.09 POOLING ACCOUNTING. From and after the date hereof and until
the Effective time, neither Office Depot nor Staples, nor any of their
respective Subsidiaries or other Affiliates shall knowingly take any action, or
knowingly fail to take any action, that is reasonably likely to jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes.
Section 6.10 AFFILIATE AGREEMENTS. Upon the execution of this Agreement,
Staples and Office Depot will provide each other with a list of those persons
who are, in Staples' or Office Depot's respective reasonable judgment,
"affiliates" of Staples or Office Depot, respectively, within the meaning of
Rule 145 (each such person who is an "affiliate" of Staples or Office Depot
within the meaning of Rule 145 is referred to as an "Affiliate") promulgated
under the Securities Act ("Rule 145"). Staples and Office Depot shall provide
each other such information and documents as Office Depot or Staples shall
reasonably request for purposes of reviewing such list and shall notify the
other party in writing regarding any change in the identity of its Affiliates
prior to the Closing Date. Office Depot and Staples shall each use its best
efforts to deliver or cause to be delivered to each other by September 30, 1996
(and in any case prior to the Effective Time) from each of its Affiliates, an
executed Affiliate Agreement, in form and substance satisfactory to Staples and
Office Depot, by which each Affiliate of Office Depot agrees to comply with the
applicable requirements of Rule 145 and such requirements as may be necessary
for the Merger to be treated as a pooling of interests for accounting purposes
and each Affiliate of Staples agrees to comply with such requirements as may be
necessary for the Merger to be treated as a pooling of interests for accounting
purposes (an "Affiliate Agreement"). Staples shall be entitled to place
appropriate legends on the certificates evidencing any Staples Common Stock to
be received by such Affiliates of Office Depot pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the Staples Common Stock, consistent with the terms of the Affiliate
Agreements (provided that such legends or stop transfer instructions shall be
removed, three years after the Effective Date, upon the request of any
stockholder that is not then an Affiliate of Staples).
Section 6.11 NASDAQ QUOTATION. Staples shall use its best efforts to cause
the shares of Staples Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
Section 6.12 STOCK PLANS.
(a) At the Effective Time, each outstanding option to purchase shares of
Office Depot Common Stock (an "Office Depot Stock Option") under the Office
Depot Stock Plans, whether vested or unvested, shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Office Depot Stock Option, the same number of shares of Staples Common
Stock as the holder of such Office Depot Stock Option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (rounded downward to the nearest whole
number), at a price per share (rounded upward to the nearest whole cent) equal
to (y) the aggregate exercise price for the shares of Office Depot Common Stock
purchasable pursuant to such Office Depot Stock Option immediately prior to the
Effective Time divided by (z) the number of full shares of Staples Common Stock
deemed purchasable pursuant to such Office Depot Stock Option in accordance with
the foregoing.
(b) As soon as practicable after the Effective Time, Staples shall deliver
to the participants in Office Depot Stock Plans appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to Office
Depot Stock Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.12 after giving effect to
the Merger).
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(c) Staples shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Staples Common Stock for delivery
under Office Depot Stock Plans assumed in accordance with this Section 6.12. As
soon as practicable after the Effective Time, Staples shall file a registration
statement on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Staples Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(d) The Board of Directors of Office Depot shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Office Depot Stock Plans and the instruments evidencing the
Office Depot Stock Options, to provide for the conversion of the Office Depot
Stock Options into options to acquire Staples Common Stock in accordance with
this Section 6.12, and that no consent of the holders of the Office Depot Stock
Options is required in connection with such conversion.
(e) The Board of Directors of Office Depot shall, prior to or as of the
Effective Time, take appropriate action to approve the deemed cancellation of
the Office Depot Stock Options for purposes of Section 16(b) of the Exchange
Act. The Board of Directors of Staples shall, prior to or as of the Effective
Time, take appropriate action to approve the deemed grant of options to purchase
Staples Common Stock under the Office Depot Stock Options (as converted pursuant
to this Section 6.12) for purposes of Section 16(b) of the Exchange Act.
(f) Office Depot shall terminate its 1989 Employee Stock Purchase Plan as of
or prior to the Effective Time.
Section 6.13 BROKERS OR FINDERS. Each of Staples and Office Depot
represents, as to itself, its Subsidiaries and its Affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
except Peter J. Solomon Company and Merrill Lynch & Company, Inc., whose fees
and expenses will be paid by Office Depot in accordance with Office Depot's
agreements with such firms (copies of which have been delivered by Office Depot
to Staples prior to the date of this Agreement), and Goldman, Sachs & Co., whose
fees and expenses will be paid by Staples in accordance with Staples' agreement
with such firm (a copy of which has been delivered by Staples prior to the date
of this Agreement). Each of Staples and Office Depot agrees to indemnify and
hold the other harmless from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or any of its Affiliates.
Section 6.14 INDEMNIFICATION.
(a) From and after the Effective Time, Staples agrees that it will, and will
cause the Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of Office Depot (the "Indemnified Parties"), against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities or amounts paid in settlement (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Office Depot would have been permitted under
Delaware law and its certificate of incorporation or bylaws in effect on the
date hereof to indemnify such Indemnified Party (and Staples and the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification).
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(b) For a period of six years after the Effective Time, Staples shall cause
the Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by Office Depot's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered to
Staples) with coverage in amount and scope at least as favorable as Office
Depot's existing coverage; PROVIDED, that in no event shall Staples or the
Surviving Corporation be required to expend in excess of 200% of the annual
premium currently paid by Office Depot for such coverage (currently
approximately $421,000) (the "Current Premium"); and if such premium would at
any time exceed 200% of the Current Premium, then the Surviving Corporation
shall maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of the Current Premium.
(c) The provisions of this Section 6.14 are intended to be an addition to
the rights otherwise available to the current officers and directors of Office
Depot by law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
Section 6.15 LETTER OF STAPLES' ACCOUNTANTS. Staples shall use reasonable
efforts to cause to be delivered to Office Depot and Staples a letter of Ernst &
Young, LLP, Staples' independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Office Depot, in form reasonably satisfactory to Office Depot and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
Section 6.16 LETTER OF OFFICE DEPOT'S ACCOUNTANTS. Office Depot shall use
reasonable efforts to cause to be delivered to Staples and Office Depot a letter
of Deloitte & Touche, LLP, Office Depot's independent auditors, dated a date
within two business days before the date on which the Registration Statement
shall become effective and addressed to Staples, in form reasonably satisfactory
to Staples and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 6.17 STOCK OPTION AGREEMENTS. Staples and Office Depot each agree
to fully perform their respective obligations under the Stock Option Agreements.
Section 6.18 BENEFIT PLANS. Staples agrees that, during the period
commencing at the Effective Time and ending on the first anniversary thereof,
the employees of Office Depot and its Subsidiaries will continue to be provided
with benefits under employee benefit plans (other than stock option or other
plans involving the potential issuance of securities) which are no less
favorable in the aggregate than those currently provided by Office Depot and its
Subsidiaries to such employees. Staples and Depot shall agree upon an
appropriate severance policy for employees of Office Depot not covered by the
Employment Agreements referred to in Section 1.04(d).
ARTICLE VII
CONDITIONS TO MERGER
Section 7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Office Depot Common Stock and the Staples Voting Proposal
shall have been approved by the affirmative vote of the holders of a majority of
the shares of Staples Common Stock present or represented at the Staples
Stockholders' Meeting at which a quorum is present.
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<PAGE>
(b) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) CANADIAN COMPETITION ACT. (i) The Director of Investigation and
Research shall have issued an Advance Ruling Certificate under section 102 of
the Canadian Competition Act reasonably satisfactory to the parties with respect
to the Merger, or any applicable waiting period under section 123 of the
Canadian Competition Act shall have expired and neither the Director nor any of
his representatives shall have advised the parties that the Director intends to
make an application under section 92 in respect of the Merger, and (ii) the
Director shall not have subsequently withdrawn such Advance Ruling Certificate
or indicated that he has obtained information as a result of which he is no
longer satisfied that he would not have sufficient grounds on which to apply to
the Competition Tribunal under section 92 of the Canadian Competition Act with
respect to the Merger.
(d) ICA APPROVALS. Either (i) Staples shall have received from the
Minister responsible for administering the Investment Canada Act a notice
pursuant to subsection 21(1) of that Act stating that the Minister is satisfied
that the Merger is likely to be of net benefit to Canada, such notice to be on
terms and in form reasonably satisfactory to the parties; or (ii) such Minister
shall be deemed, pursuant to subsection 21(2) of the Investment Canada Act, to
be satisfied that the Merger is likely to be of net benefit to Canada and
Staples shall have received a notice from such Minister to that effect.
(e) APPROVALS. Other than the filing provided for by Section 1.02, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity the
failure of which to file, obtain or occur is reasonably likely to have a Staples
Material Adverse Effect or Office Depot Material Adverse Effect shall have been
filed, been obtained or occurred.
(f) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(g) NO INJUNCTIONS. No Governmental Entity or federal, state or foreign
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any order, executive order, stay, decree, judgment or
injunction (each an "Order) or statute, rule, regulation which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(h) POOLING LETTERS. Staples and Office Depot shall have received a letter
from Ernst & Young LLP, addressed to Staples regarding its concurrence with
Staples' management conclusions, as to the appropriateness of the pooling of
interests accounting, under Accounting Principles Board Opinion No. 16 for the
Merger, as contemplated to be effected as of the date of the letter, it being
agreed that Staples and Office Depot shall each provide reasonable cooperation
to Ernst & Young LLP to enable them to issue such a letter.
(i) NASDAQ. The shares of Staples Common Stock to be issued in the Merger
shall have been approved for quotation on the Nasdaq National Market or listing
on the New York Stock Exchange.
Section 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF STAPLES AND SUB. The
obligations of Staples and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Staples and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Office Depot set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for, (i) changes contemplated by this
Agreement and (ii) where the failures to be true and correct, individually or in
the aggregate, have not had and are not reasonably likely to have a Office Depot
Material Adverse Effect, or a material adverse effect upon the consummation of
the
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transactions contemplated hereby; and Staples shall have received a certificate
signed on behalf of Office Depot by the chief executive officer and the chief
financial officer of Office Depot to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF OFFICE DEPOT. Office Depot shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date; and Staples shall have
received a certificate signed on behalf of Office Depot by the chief executive
officer and the chief financial officer of Office Depot to such effect.
(c) TAX OPINION. Staples shall have received a written opinion from Hale
and Dorr, counsel to Staples, to the effect that the Merger will be treated for
Federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code; provided that if Hale and Dorr does not render such
opinion, this condition shall nonetheless be deemed satisfied if Kirkland &
Ellis renders such opinion to Staples (it being agreed that Staples and Office
Depot shall each provide reasonable cooperation to Kirkland & Ellis or Hale and
Dorr, as the case may be, to enable them to render such opinion).
Section 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF OFFICE DEPOT. The
obligation of Office Depot to effect the Merger is subject to the satisfaction
of each of the following conditions, any of which may be waived, in writing,
exclusively by Office Depot:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Staples and Sub set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for, (i) changes contemplated by this Agreement and (ii)
where the failures to be true and correct, individually or in the aggregate,
have not had and are not reasonably likely to have a Staples Material Adverse
Effect, or a material adverse effect upon the consummation of the transactions
contemplated hereby; and Office Depot shall have received a certificate signed
on behalf of Staples by the chief executive officer and the chief financial
officer of Staples to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF STAPLES AND SUB. Staples and Sub shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, and Office Depot
shall have received a certificate signed on behalf of Staples by the chief
executive officer and the chief financial officer of Staples to such effect.
(c) TAX OPINION. Office Depot shall have received the opinion of Kirkland
& Ellis, counsel to Office Depot, to the effect that the Merger will be treated
for Federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code; provided that if Kirkland & Ellis does not render
such opinion, this condition shall nonetheless be deemed satisfied if Hale and
Dorr renders such opinion to Office Depot (it being agreed that Staples and
Office Depot shall each provide reasonable cooperation to Kirkland & Ellis or
Hale and Dorr, as the case may be, to enable them to render such opinion).
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Office Depot or Staples:
(a) by mutual written consent of Staples and Office Depot; or
(b) by either Staples or Office Depot if the Merger shall not have been
consummated by February 28, 1997 (provided that (i) either Staples or Office
Depot may extend such date to May 31, 1997 by providing written notice thereof
to the other party on or prior to February 14, 1997 (February 28, 1997, as it
may be
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so extended, shall be referred to herein as the "Outside Date") and (ii) the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date); or
(c) by either Staples or Office Depot if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger; or
(d) by Staples, if, at the Office Depot Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of Office
Depot in favor of this Agreement and the Merger shall not have been obtained; or
by Office Depot if, at the Staples Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of Staples
in favor of the Staples Voting Proposal shall not have been obtained; or
(e) by Staples, if (i) the Board of Directors of Office Depot shall have
withdrawn or modified its recommendation of this Agreement or the Merger; (ii)
after the receipt by Office Depot of an Acquisition Proposal, Staples requests
in writing that the Board of Directors of Office Depot reconfirm its
recommendation of this Agreement or the Merger and the Board of Directors of
Office Depot fails to do so within 10 business days after its receipt of
Staples' request; (iii) the Board of Directors of Office Depot shall have
recommended to the stockholders of Office Depot an Alternative Transaction (as
defined in Section 8.03(g)); (iv) a tender offer or exchange offer for 20% or
more of the outstanding shares of Office Depot Common Stock is commenced (other
than by Staples or an Affiliate of Staples) and the Board of Directors of Office
Depot recommends that the stockholders of Office Depot tender their shares in
such tender or exchange offer; or (v) for any reason Office Depot fails to call
and hold the Office Depot Stockholders' Meeting by the Outside Date (provided
that Staples' right to terminate this Agreement under such clause (v) shall not
be available if at such time Office Depot would be entitled to terminate this
Agreement under Section 8.01(g)); or
(f) by Office Depot, if (i) the Board of Directors of Staples shall have
withdrawn or modified its recommendation of the Staples Voting Proposal; (ii)
after the receipt by Staples of an Acquisition Proposal, Office Depot requests
in writing that the Board of Directors of Staples reconfirm its recommendation
of the Staples Voting Proposal and the Board of Directors of Staples fails to do
so within 10 business days after its receipt of Office Depot's request; (iii)
the Board of Directors of Staples shall have recommended to the stockholders of
Staples an Alternative Transaction (as defined in Section 8.03(g)); (iv) a
tender offer or exchange offer for 20% or more of the outstanding shares of
Staples Common Stock is commenced (other than by Office Depot or an Affiliate of
Office Depot) and the Board of Directors of Staples recommends that the
stockholders of Staples tender their shares in such tender or exchange offer; or
(v) for any reason Staples fails to call and hold the Staples Stockholders'
Meeting by the Outside Date (provided that Office Depot's right to terminate
this Agreement under such clause (v) shall not be available if at such time
Staples would be entitled to terminate this Agreement under Section 8.01(g)); or
(g) by Staples or Office Depot, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.02(a) or (b) (in the case of termination by Staples) or 7.03(a) or (b)
(in the case of termination by Office Depot) not to be satisfied, and (ii) shall
not have been cured within 20 business days following receipt by the breaching
party of written notice of such breach from the other party.
Section 8.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Staples,
Office Depot, Sub or their respective officers, directors, stockholders or
Affiliates, except as set forth in Sections 6.13 and 8.03; provided that, the
provisions of Sections 6.13 and 8.03 of this
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Agreement, the Stock Option Agreements and the Confidentiality Agreement shall
remain in full force and effect and survive any termination of this Agreement.
Section 8.03 FEES AND EXPENSES.
(a) Except as set forth in this Section 8.03, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
(b) Office Depot shall pay Staples up to $5,000,000 as reimbursement for
expenses of Staples actually incurred relating to the transactions contemplated
by this Agreement prior to termination (including, but not limited to, fees and
expenses of Staples' counsel, accountants and financial advisors, but excluding
any discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Staples pursuant to (i) Section 8.01(d) as a result of the
failure to receive the requisite vote for approval of this Agreement and the
Merger by the stockholders of Office Depot at the Office Depot Stockholders'
Meeting (other than in the circumstances set forth in Section 8.03(c)(i)) or
(ii) Section 8.01(b) or Section 8.01(g) as a result of the failure to satisfy
the condition set forth in Section 7.02(a).
(c) Office Depot shall pay Staples a termination fee of $75,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Staples pursuant to Section
8.01(d), if a proposal for an Alternative Transaction (as defined below)
involving Office Depot shall have been made prior to the Office Depot
Stockholders' Meeting;
(ii) the termination of this Agreement by Staples pursuant to Section
8.01(e); or
(iii) the termination of this Agreement by Staples pursuant to Section
8.01(g) after a breach by Office Depot of a covenant or agreement in this
Agreement.
Office Depot's payment of a termination fee pursuant to this subsection
shall be the sole and exclusive remedy of Staples against Office Depot and any
of its Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment; provided that this limitation shall not apply in the event of a
willful breach of this Agreement by Office Depot.
(d) Staples shall pay Office Depot up to $5,000,000 as reimbursement for
expenses of Office Depot actually incurred relating to the transactions
contemplated by this Agreement prior to termination (including, but not limited
to, fees and expenses of Office Depot's counsel, accountants and financial
advisors, but excluding any discretionary fees paid to such financial advisors),
upon the termination of this Agreement by Office Depot pursuant to (i) Section
8.01(d) as a result of the failure to receive the requisite vote for approval of
the Staples Voting Proposal by the stockholders of Staples at the Staples
Stockholders' Meeting (other than in the circumstances set forth in Section
8.03(e)(i)) or (ii) Section 8.01(b) or Section 8.01(g) as a result of the
failure to satisfy the condition set forth in Section 7.03(a).
(e) Staples shall pay Office Depot a termination fee of $75,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Office Depot pursuant to
Section 8.01(d), if a proposal for an Alternative Transaction (as defined
below) involving Staples shall have been made prior to the Staples
Stockholders' Meeting;
(ii) the termination of this Agreement by Office Depot pursuant to
Section 8.01(f); or
(iii) the termination of this Agreement by Office Depot pursuant to
Section 8.01(g) after a breach by Staples of a covenant or agreement in this
Agreement.
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Staples' payment of a termination fee pursuant to this subsection shall be
the sole and exclusive remedy of Office Depot against Staples and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment; provided that this limitation shall not apply in the event of a
willful breach of this Agreement by Staples.
(f) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), 8.03(d) or 8.03(e) shall be paid within one business day after
the first to occur of the events described in Section 8.03(b), 8.03(c)(i), (ii)
or (iii), 8.03(d) or 8.03(e)(i), (ii) or (iii).
(g) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Staples or Office Depot or their respective affiliates (a "Third Party"),
acquires more than 20% of the outstanding shares of Office Depot Common Stock or
Staples Common Stock, as the case may be, pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger or other business combination involving
Staples or Office Depot pursuant to which any Third Party acquires more than 20%
of the outstanding shares of Office Depot Common Stock or Staples Common Stock,
as the case may be, or the entity surviving such merger or business combination,
(iii) any other transaction pursuant to which any Third Party acquires control
of assets (including for this purpose the outstanding equity securities of
Subsidiaries of Staples or Office Depot, and the entity surviving any merger or
business combination including any of them) of Staples or Office Depot having a
fair market value (as determined by the Board of Directors of Staples or Office
Depot, as the case may be, in good faith) equal to more than 20% of the fair
market value of all the assets of Staples or Office Depot, as the case may be,
and their respective Subsidiaries, taken as a whole, immediately prior to such
transaction, or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
Section 8.04 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Office Depot or of Staples, but, after any
such approval, no amendment shall be made which by law requires further approval
by such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.05 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.01 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
1.04, 2.01, 2.02, 6.14, 6.17 and Article IX, and the agreements of the
Affiliates delivered pursuant to Section 6.10. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement.
Section 9.02 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or
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certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Staples or Sub, to
Staples, Inc.
One Research Drive
Westborough, MA 01581
Attn: Secretary
Telecopy: (508) 370-7805
with a copy to:
Hale and Dorr
60 State Street
Boston, MA 02109
Attn: Mark G. Borden, Esq.
Telecopy: (617) 526-5000
and
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attn: James C. Morphy, Esq.
Telecopy: (212) 558-3299
(b) if to Office Depot, to
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, FL 33445
Attn: Secretary
Telecopy: (561) 266-1850
with a copy to
Kirkland & Ellis
200 East Randolph Street
Chicago, IL 60601
Attn: Willard G. Fraumann, Esq.
Telecopy: (312) 861-2200
Section 9.03 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
September 4, 1996.
Section 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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<PAGE>
Section 9.05 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein) (a)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.14 are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder; provided that the Confidentiality Agreement shall remain in
full force and effect until the Effective Time. Each party hereto agrees that,
except for the representations and warranties contained in this Agreement,
neither Office Depot nor Staples makes any other representations or warranties,
and each hereby disclaims any other representations and warranties made by
itself or any of its officers, directors, employees, agents, financial and legal
advisors or other representatives, with respect to the execution and delivery of
this Agreement or the transactions contemplated hereby, notwithstanding the
delivery or disclosure to the other or the other's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
Section 9.06 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 9.07 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, Staples, Sub and Office Depot have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
<TABLE>
<S> <C> <C> <C>
STAPLES, INC. MARLIN ACQUISITION CORP.
By: /s/ THOMAS G. STEMBERG By: /s/ THOMAS G. STEMBERG
------------------------------------- -------------------------------------
Title: Chief Executive Officer Title: President
------------------------------------- -------------------------------------
</TABLE>
<TABLE>
<S> <C>
OFFICE DEPOT, INC.
BY: /S/ DAVID I. FUENTE
--------------------------------------
David I. Fuente
--------------------------------------
Title: Chief Executive Officer
--------------------------------------
</TABLE>
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<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1, dated as of January 17, 1997, is made to the Agreement
and Plan of Merger dated as of September 4, 1996 (the "Agreement") by and among
Staples, Inc., a Delaware corporation ("Staples"), Marlin Acquisition Corp., a
Delaware corporation and a direct, wholly-owned subsidiary of Staples ("Sub"),
and Office Depot, Inc., a Delaware corporation ("Office Depot").
In consideration of the mutual agreements set forth below, Staples, Sub and
Office Depot hereby agree as follows:
1. Section 8.01(b) of the Agreement is hereby amended by changing the
reference in clause (i) thereof from "February 14, 1997" to "February 28, 1997".
2. That Schedule 1 of the Agreement is hereby amended by (a) replacing
"Dennis Defforey" with "Herve Defforey" and (b) replacing "Alan L. Wurtzel" with
"Frank Scruggs."
3. All other provisions of the Agreement shall remain in effect in
accordance with their terms.
IN WITNESS WHEREOF, Staples, Sub and Office Depot have caused this Amendment
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
<TABLE>
<S> <C> <C> <C>
STAPLES, INC. MARLIN ACQUISITION CORP.
By: /s/ JOHN J. MAHONEY By: /s/ ROBERT MAYERSON
------------------------------------- -------------------------------------
Title: Chief Financial Officer Title: Treasurer
------------------------------------- -------------------------------------
</TABLE>
<TABLE>
<S> <C>
OFFICE DEPOT, INC.
BY: /S/ BARRY J. GOLDSTEIN
--------------------------------------
Title: Executive Vice President
--------------------------------------
</TABLE>
A-33
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ANNEX B
ANNEX B--OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
January 23, 1997
Board of Directors
Staples, Inc.
One Research Drive
P.O. Box 5114
Westborough, MA 01581
Gentlemen and Madame:
You have requested our opinion as to the fairness to Staples, Inc.
("Staples" or the "Company") of the exchange ratio of 1.14 shares of Common
Stock, par value $0.0006 per share (the "Shares"), of Staples (the "Exchange
Ratio") to be exchanged for each outstanding share of Common Stock, par value
$0.01 per share (the "Office Depot Shares"), of Office Depot, Inc. ("Office
Depot") pursuant to the Agreement and Plan of Merger dated as of September 4,
1996 among Staples, Marlin Acquisition Corp., a direct wholly-owned subsidiary
of Staples ("Sub"), and Office Depot (the "Agreement").
Goldman, Sachs & Co. ("Goldman Sachs" or the "Firm"), as part of its
investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. We are familiar with the Company having provided
investment banking services to the Company from time to time, including having
acted as lead underwriter of the 4 1/2% Convertible Subordinated Debentures due
2000 of the Company offered in October 1995, and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have also provided certain investment
banking services to Office Depot from time to time, including having acted as a
co-manager of a public offering of Office Depot Shares in August 1995. In the
course of the trading activities of Goldman Sachs, the Firm accumulated a long
position of 425,006 of Staples' 4 1/2% Convertible Subordinated Debentures due
2000.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended February 3, 1996; Annual Reports to
Stockholders and Annual Reports on Form 10-K of Office Depot for the five fiscal
years ended December 30, 1995; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company and Office Depot; certain other
communications from the Company and Office Depot to their respective
stockholders; and certain internal financial analyses and forecasts for the
Company and Office Depot prepared by their respective managements. We also have
reviewed certain financial analyses and forecasts for the combined operations of
the Company and Office Depot prepared by the managements of the Company and
Office Depot and provided to us by the Company. We also have held discussions
with members of the senior management of the Company and Office Depot regarding
the strategic rationale for, and benefits of, the transaction contemplated by
the Agreement and the past and current business operations, financial condition,
and future prospects of their respective companies and of the combined
operations of the Company and Office Depot. In addition, we have reviewed the
reported price and trading activity for the Shares and Office Depot Shares,
compared certain financial and stock market information for the Company and
Office Depot with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the retailing industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
B-1
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Staples, Inc.
January 23, 1997
Page 2
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed the accuracy and
completeness thereof for purposes of this opinion. In that regard, we have
relied upon the managements of the Company and Office Depot as to the
reasonableness and achievability of the financial and operating forecasts (and
the assumptions and bases therefor) provided to us by the Company, and with your
consent we have assumed that such forecasts, including, without limitation,
projected cost savings and operating synergies resulting from the combination of
the two companies, reflect the best currently available estimates and judgments
of such respective managements and such projections and forecasts will be
realized in the amounts and time periods currently estimated by such
managements. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or Office Depot or any of
their subsidiaries, and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and do not constitute a recommendation to any stockholder as to how
such stockholder should vote on the proposed transaction. We have assumed with
your consent that (i) the merger will be accounted for as a pooling of interest
under generally accepted accounting principles and (ii) the conditions contained
in the Agreement to the Company's obligation to consummate the merger will be
satisfied without waiver.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to Staples.
Very truly yours,
/s/ Goldman, Sachs & Co.
(GOLDMAN, SACHS & CO.)
B-2
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ANNEX C
ANNEX C--OPINION OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
January 23, 1997
Board of Directors
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Members of the Board:
Staples, Inc. (the "Acquiror"), Marlin Acquisition Corp., a wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), and Office Depot, Inc. (the
"Company") have entered into an Agreement and Plan of Merger dated as of
September 4, 1996 (the "Agreement") pursuant to which the Acquisition Sub will
be merged with and into the Company in a transaction (the "Merger") in which
each outstanding share of the Company's common stock, par value $0.01 per share
(the "Company Shares"), will be converted into the right to receive 1.14 shares
(the "Exchange Ratio") of the common stock of the Acquiror, par value $0.0006
per share (the "Acquiror Shares"). In connection with the Merger, the Acquiror
and the Company also have entered into (i) a stock option agreement dated as of
September 4, 1996 (the "Acquiror Stock Option Agreement") pursuant to which the
Acquiror has granted the Company an option to purchase up to 19.9% of the
outstanding Acquiror Shares and (ii) a stock option agreement dated as of
September 4, 1996 (the "Company Stock Option Agreement" and, together with the
Acquiror Stock Option Agreement, the "Stock Option Agreements") pursuant to
which the Company has granted the Acquiror an option to purchase up to 19.9% of
the outstanding Company Shares.
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of the Company Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 30, 1995,
December 31, 1994 and December 25, 1993, the Company's Forms 10-Q and
related unaudited financial information for the quarterly periods ended
March 30, 1996, June 29, 1996 and September 28, 1996 and the Company's Forms
8-K dated September 6, 1996 and September 16, 1996;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended February 3, 1996,
January 28, 1995 and January 29, 1994, the Acquiror's Forms 10-Q and related
unaudited financial information for the quarterly periods ended May 4, 1996,
August 3, 1996 and November 2, 1996 and the Acquiror's Form 8-K dated
September 4, 1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror, as well as the cost savings and
related expenses and synergies expected to result from the Merger (the
"Expected Savings and Synergies"), furnished to us by the Company and the
Acquiror;
(4) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their respective businesses, prospects
and the Expected Savings and Synergies;
C-1
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(5) Reviewed the historical market prices and trading activity for the
Company Shares and the Acquiror Shares and compared them with those of
certain publicly traded companies that we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
(6) Compared the historical and projected results of operations of the
Company and the Acquiror with those of certain companies that we deemed to
be reasonably similar to the Company and the Acquiror, respectively;
(7) Compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions that we deemed to
be relevant;
(8) Reviewed the Agreement and the Stock Option Agreements; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company
or the Acquiror. With respect to the financial forecasts and the information
related to the Expected Savings and Synergies furnished by the Company and the
Acquiror, we have assumed that such forecasts and information have been
reasonably prepared and reflect the best currently available estimates and
judgment of the management of the Company or the Acquiror as to the expected
future financial performance of the Company or the Acquiror, as the case may be,
as well as the Expected Savings and Synergies. In addition, we have assumed that
the Merger will qualify for pooling-of-interests accounting treatment in
accordance with generally accepted accounting principles and as a tax-free
reorganization for United States Federal income tax purposes. Our opinion is
necessarily based upon market, economic, financial and other conditions as they
exist and can be evaluated as of the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company. In addition, we have not been asked to consider, and this
opinion does not in any manner address, the price at which the Acquiror Shares
will actually trade following consummation of the Merger.
As you are aware, we have acted as financial advisor to the Company in
connection with the Merger and will receive fees from the Company for our
services. We also have, in the past, provided financial advisory and financing
services to the Company and have received fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the securities of the Company and the Acquiror for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair to the holders of the Company Shares from a financial
point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have 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, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful, provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances. Staples' Certificate of Incorporation provides
that Staples shall indemnify its directors and officers to the fullest extent
permitted by the Delaware General Corporation Law.
Staples' Certificate of Incorporation also provides that no director shall
be liable to Staples or its stockholders for monetary damages for breach of his
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Staples or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction in which the director derived an improper
personal benefit.
Staples' By-laws contain provisions to the effect that each director,
officer and employee of Staples shall be indemnified by Staples against
liabilities and expenses in connection with any legal proceedings to which he
may be made a party or with which he may become involved or threatened by reason
of having been an officer, director or employee of Staples or of any other
organization at the request of Staples. The provisions include indemnification
with respect to matters covered by a settlement. Any such indemnification shall
be made only if the Staples Board determines by a majority vote of a quorum
consisting of disinterested directors (or, if such quorum is not obtainable, or
if the Staples Board directs, by independent legal counsel) or by stockholders,
that indemnification is proper in the circumstances because the person seeking
indemnification has met the applicable standards of conduct. It must be
determined that the director, officer or employee acted in good faith with the
reasonable belief that his action was in or not opposed to the best interests of
Staples and, with respect to any criminal action or proceeding, that he had no
reasonable cause to believe his conduct was unlawful.
Staples has a directors and officers liability policy that insures Staples'
officers and directors against certain liabilities.
II-1
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C> <C>
2.1(1) -- Agreement and Plan of Merger dated as of September 4, 1996, among Staples, Inc.
("Staples"), Marlin Acquisition Corp. and Office Depot, Inc. ("Office Depot").
5.1* -- Opinion of Hale and Dorr LLP.
8.1* -- Opinion of Hale and Dorr LLP as to Tax Matters.
8.2* -- Opinion of Kirkland & Ellis as to Tax Matters.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Hale and Dorr (included in Exhibits 5.1 and 8.1).
23.4* -- Consent of Kirkland & Ellis (included in Exhibit 8.2).
23.5 -- Consent of Goldman Sachs & Co., Incorporated.
23.6 -- Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
24.1* -- Power of Attorney.
99.1(2) -- Opinion of Goldman Sachs & Co., Incorporated.
99.2(3) -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
99.3* -- Form of Proxy Card of Staples.
99.4* -- Form of Proxy Card of Office Depot.
</TABLE>
- ------------------------
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Attached as Annex B to the Joint Proxy Statement/Prospectus.
(3) Attached as Annex C to the Joint Proxy Statement/Prospectus.
* Previously filed.
(B) 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.
ITEM 22. UNDERTAKINGS.
A. Staples hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, as amended (the "Securities Act"), each filing
of Staples' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act), that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
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B. Staples hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), Staples undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to this
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Staples
pursuant to the foregoing provisions, or otherwise, Staples has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Staples of expenses incurred
or paid by a director, officer or controlling person of Staples in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Staples will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. Staples hereby undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding to
the request.
E. Staples hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Westborough, Commonwealth
of Massachusetts on the 23rd day of January 1997.
STAPLES, INC.
By: /s/ THOMAS G. STEMBERG
-----------------------------------------
Thomas G. Stemberg
CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and or the dates indicated.
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------- ----------------
Chairman of the
/s/ THOMAS G. STEMBERG Board of Directors
- ---------------------------------------- and Chief Executive January 23, 1997
Thomas G. Stemberg Officer (Principal
Executive Officer)
* President and
- ---------------------------------------- Director January 23, 1997
Martin E. Hanaka
Executive Vice
/s/ JOHN J. MAHONEY President and Chief
- ---------------------------------------- Financial Officer January 23, 1997
John J. Mahoney (Principal
Financial Officer)
Senior Vice
* President--Finance
- ---------------------------------------- (Principal January 23, 1997
James Flavin Accounting Officer)
*
- ---------------------------------------- Director January 23, 1997
Mary Elizabeth Burton
- ---------------------------------------- Director
W. Lawrence Heisey
II-4
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SIGNATURE TITLE DATE
- ------------------------------------------ -------------------- --------------
* January 23,
- ------------------------------------------ Director 1997
Leo Kahn
* January 23,
- ------------------------------------------ Director 1997
James L. Moody
* January 23,
- ------------------------------------------ Director 1997
Rowland T. Moriarty
* January 23,
- ------------------------------------------ Director 1997
Robert C. Nakasone
* January 23,
- ------------------------------------------ Director 1997
W. Mitt Romney
* January 23,
- ------------------------------------------ Director 1997
Martin Trust
* January 23,
- ------------------------------------------ Director 1997
Paul E. Walsh
/s/ PETER M. SCHWARZENBACH
- ------------------------------------------
*Peter M. Schwarzenbach
Attorney-in-Fact
II-5
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 5, 1996, with respect to the consolidated
financial statements of Staples, Inc. included in its Annual Report (Form 10-K)
for the fiscal year ended February 3, 1996, incorporated by reference in the
Joint Proxy Statement of Staples, Inc. and Office Depot, Inc. that is made a
part of Amendment No. 2 to the Registration Statement (S-4 No. 333-15853) and
Prospectus of Staples, Inc. for the registration of 190,000,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
January 22, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-15853 of Staples, Inc. on Form S-4 of our reports
dated February 12, 1996, appearing in and incorporated by reference in the
Annual Report on Form 10-K of Office Depot, Inc. for the year ended December 30,
1995 and to the reference to us under the heading "Experts" in the Joint Proxy
Statement/ Prospectus of Staples, Inc. and Office Depot, Inc., which is part of
this Registration Statement.
/s/_DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 22, 1997
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
PERSONAL AND CONFIDENTIAL
January 23, 1997
Board of Directors
Staples, Inc.
One Research Drive
P.O. Box 5114
Westborough, MA 01581
Re: Registration Statement of Staples, Inc. (the "Company") relating to the
Common Stock, par value $0.0006 per share, of the Company (the "Shares")
being registered in connection with the proposed Merger among the Company,
Marlin Acquisition Corp., a direct wholly-owned subsidiary of the Company
("Sub"), and Office Depot, Inc. ("Office Depot").
Gentlemen and Madame:
Reference is made to our opinion letter dated January 23, 1997 with respect
to the fairness to the Company of the exchange ratio of 1.14 Shares to be
exchanged for each outstanding share of Common Stock, par value $0.01 per share
(the "Office Depot Shares") of Office Depot pursuant to the Agreement and Plan
of Merger dated as of September 4, 1996 among the Company, Sub and Office Depot.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "Summary -- Opinions of Financial Advisors", "The Merger
- -- Background of the Merger", "The Merger -- Reasons for the Merger,
Recommendations of the Boards of Directors -- Staples' Reasons for the Merger"
and "The Merger -- Opinions of Financial Advisors -- Staples" and to the
inclusion of the foregoing opinion in the Joint Proxy Statement/Prospectus
included in the above-mentioned Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
(GOLDMAN, SACHS & CO.)
<PAGE>
EXHIBIT 23.6
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated the date of this
Proxy Statement to the Board of Directors of Office Depot, Inc. included as
Annex C to the Proxy Statement which forms a part of the Registration Statement
on Form S-4 relating to the proposed merger of Marlin Acquisition Corp., a
wholly owned subsidiary of Staples, Inc., with and into Office Depot, Inc. and
to the references to such opinion in such Proxy Statement under the captions
"Summary--Opinions of Financial Advisors", "The Merger--Background of the
Merger", "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors--OFFICE DEPOT'S REASONS FOR THE MERGER" and "The Merger--Opinions of
Financial Advisors--OFFICE DEPOT".
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
January 23, 1997 MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
