<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration File No. 333-31249
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 25, 1997
$200,000,000
[STAPLES LOGO]
7.125% SENIOR NOTES DUE AUGUST 15, 2007
------------------------
Interest on the Notes is payable on February 15 and August 15 of each year,
commencing February 15, 1998. The Notes are not redeemable prior to maturity.
The Notes will be represented by one or more global Notes registered in the name
of the nominee of The Depository Trust Company. Beneficial interests in the
global Notes will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as described
herein, Notes in definitive form will not be issued. The Notes will be issued
only in denominations of $1,000 and integral multiples thereof. See "Description
of Notes".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------- --------------
<S> <C> <C> <C>
Per Note........................................ 99.787% 0.650% 99.137%
Total........................................... $199,574,000 $1,300,000 $198,274,000
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from August 12, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $400,000 payable by the Company.
------------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of DTC
in New York, New York, on or about August 12, 1997, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is August 7, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND
THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
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<PAGE> 3
THE COMPANY
Staples, Inc. ("Staples" or the "Company") pioneered the office products
superstore concept and is a leading office products distributor with a total of
669 retail stores located in the United States, Canada, the United Kingdom and
Germany as of July 5, 1997, in addition to a direct mail catalog business and
contract stationer operations. The Company's executive offices are located at
One Research Drive, Westborough, Massachusetts 01581 (telephone: (508)
370-8500). The Company was organized in November 1985.
BUSINESS STRATEGY
The Company views the office products market as a large diversified market
for office supplies and equipment, business machines and computers, and various
business services. Although there are no clear demarcations among segments, the
Company targets 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. The Company's ability to
address all four major end-user groups increases and diversifies its available
market opportunities, increases awareness of the Staples name among customers in
all four end-user groups (who often shop across distribution channels) and
allows the Company to enjoy a number of important economies of scale. These
include increased buying power, enhanced efficiencies in distribution and
advertising, and improved capacity to leverage certain general and
administrative functions.
The Company's effectiveness in reaching different sectors of the office
products market is accomplished through different channels of distribution
designed to be convenient to each targeted market sector. Specifically, in-store
operations seek to address the retail needs of customers, while the Company's
Contract and Commercial division focuses on customers who desire delivery of
their office products and other specialized services.
NORTH AMERICAN SUPERSTORES
Staples' North American retail operations, consisting of 613 stores as of
July 5, 1997, are the core business of the Company, generating a substantial
majority of its sales and profits. The Company's retail operations focus on
serving the needs of customers primarily in the consumer, home office and small
business segments of the office products market.
SUPERSTORES. The Company's North American superstores are located in 32
states, the District of Columbia and nine Canadian provinces in both major
metropolitan markets and smaller outlying markets. The Company's current
superstore prototype is approximately 24,000 square feet and offers about 8,000
different stock keeping units ("SKUs"). The Company's strategy for its North
American superstores focuses on four key objectives: (i) providing superior
customer value through a combination of broad product selection, everyday low
prices, outstanding customer service and convenient locations; (ii) increasing
its presence in targeted markets by adding new superstores and achieving
economies of scale in most of the major markets where it competes; (iii)
reducing operating costs to the lowest level consistent with providing quality
merchandise and service; and (iv) offering a comfortable, easy to shop store
environment with skilled sales associates available to assist the customer.
EXPRESS STORES. In select urban markets, the Company operates a smaller
store format, "Staples Express", which offers a more focused assortment of
products. These smaller stores give the Company the opportunity to meet the
office supply needs of customers in a store format that is efficient and
economical in an urban environment. Staples Express stores range from
approximately 6,000 to 10,000 square feet in size, and generally stock about
6,000 different SKUs.
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CONTRACT AND COMMERCIAL
The Company's Contract and Commercial division is comprised of two
principal operations: the Company's direct mail catalog business, which operates
under the name "Staples Direct", and the Company's contract stationer business,
which operates under the names "Staples National Advantage" and "Staples
Business Advantage".
STAPLES DIRECT. Launched in 1990, Staples Direct, the Company's direct
mail catalog business, has grown rapidly and now reaches all segments of the
office products market seeking the convenience of telephone ordering and free
next day delivery for orders over $50. Delivery orders are shipped from the
Company's delivery distribution centers and are distributed through dedicated
delivery hubs. In some markets, the Company also delivers products directly from
its retail stores. The Company markets Staples Direct through both direct mail
catalogs and a sales force primarily focused on new accounts. The Company
recently began catalog operations in Canada, the United Kingdom and Germany.
STAPLES BUSINESS ADVANTAGE AND STAPLES NATIONAL ADVANTAGE. The Company's
contract stationer operations are focused primarily on serving the needs of
medium to large size businesses that expect more services than are provided by a
traditional retail or mail order business, such as customized pricing, payment
terms, usage reporting and the stocking of certain proprietary items. The
Company's contract stationer business is divided into two segments. Staples
National Advantage, which was established in February 1994 through the
acquisition of National Office Supply Company, Inc., is a nationwide contract
stationer business which focuses on selling to large multi-regional businesses.
Staples Business Advantage focuses on selling to medium and large size regional
companies and has the flexibility to handle smaller accounts. The Company
initially established this business through acquisitions of regional contract
stationers, and more recently has entered certain metropolitan markets through
the sales and distribution capabilities of Staples Business Advantage.
INTERNATIONAL
The Company believes that foreign markets provide additional growth
opportunities. In 1991, the Company established its first international joint
venture, "Business Depot", in Canada. Business Depot became a wholly-owned
subsidiary of the Company in 1994 and is now operated as part of the Company's
North American Superstores and the Contract and Commercial divisions. The
Company also became a partner in two overseas office products superstore joint
ventures operating in the United Kingdom under the name "Staples UK" and in
Germany under the name "MAXI-
Papier-Markt-GmbH" ("MAXI-Papier"). In May 1997, the Company increased its
ownership interest in the Staples UK operations to 100% and in MAXI-Papier to
approximately 93%. As of July 5, 1997, Staples UK operated 40 stores and
MAXI-Papier operated 16 stores.
STRATEGIC INITIATIVES
Over the past several years, the Company has been focusing on numerous
strategic priorities, with the objective of enhancing its position as a leading
office products supplier:
PROFITABLY INCREASE RETAIL SALES PER STORE. The Company is devoting
significant resources and efforts to profitably increase its retail sales per
store. Initiatives in this regard include: expanding product selection across
all key product categories; improving sales capabilities related to capital
goods (such as copiers, fax machines, computers and furniture); enhancing
business services; improving in-stock positions; improving customer service;
increasing staffing levels and personnel training; expanding store size; and
improving shopability and signage. Another key element of this strategy is the
Company's store remodeling program, which the Company expects to be
substantially completed by the end of fiscal 1997. This remodeling program
incorporates the Company's
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improved store layout, lighting, signage and the overall shopping environment,
and will conform existing stores to the new prototype to the maximum extent
practicable.
CONTINUE RAPID GROWTH IN STAPLES DIRECT. The Company is implementing a
number of actions to profitably grow its delivery business. These actions
include: broadening the product offerings available for delivery; offering
specialized, more focused marketing; expanding the distribution areas of
catalogs; increasing the number of direct sales representatives; providing open
account invoicing to large accounts; and increasing distribution capacity. The
Company believes that Staples Direct's operations are also benefiting from the
increased marketing and advertising undertaken in connection with its store
sales growth strategy.
CONTINUE STORE GROWTH AND STRENGTHEN INFRASTRUCTURE. The Company has
continued its store growth over the last several years. In fiscal 1997, the
Company intends to open approximately 130 stores in North America. The Company's
store growth strategy follows a three-pronged approach: continuing the growth of
its store network in existing markets; entering smaller markets, within both
existing and new geographic areas; and entering major new markets. The Company
believes that its centralized distribution strategy facilitates its aggressive
store growth by enabling the Company to operate smaller stores than would
otherwise be required, thus reducing the cost of both opening and operating new
stores, while providing the same or better product selection as a larger,
competitive store. To support this commitment, the Company is taking steps to
strengthen its infrastructure. A new distribution facility was opened in
Hagerstown, Maryland on February 3, 1997. This 840,000 square foot facility was
strategically located so that it could effectively handle all product flow types
under one roof and receive goods by both truck and rail. Also in February 1997,
the Company began construction of a second smaller distribution facility in
Killingly, Connecticut and is currently planning to develop up to three
additional distribution facilities in North America to consolidate a number of
smaller existing facilities.
IMPROVE PRODUCTIVITY. The Company is maintaining its historical focus on
being a low cost operator and believes that it has significant opportunities to
reduce costs as a percentage of sales. The Company believes that its future
expansion will enable it to leverage certain fixed costs in store operations,
marketing, distribution and administration. The Company also expects to enhance
productivity through improvements in operating practices. Recently, the Company
formed an industrial engineering group whose goal is to reduce store operating
costs through improved store operating practices. The Company continually
evaluates the productivity of its retail space and will change assortments,
layouts and adjacencies as appropriate. The Contract and Commercial division
will also seek to improve the efficiency and productivity of its distribution
network.
IMPROVE CUSTOMER SERVICE. The Company has increased staffing levels in
stores and delivery operations and made other investments to provide better
customer service. Starting in 1995, the Company initiated a corporate-wide CARE
program designed to empower associates to exceed customer expectations for
service by providing "great service, every day, every way". The Company has also
expanded its "mystery shopper program" in which outside representatives evaluate
customer service multiple times per year per store and has tied a portion of
incentive compensation to achievement of customer satisfaction goals.
RECENT DEVELOPMENTS
On July 2, 1997, the Company announced that it had terminated its Agreement
and Plan of Merger with Office Depot, Inc.
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USE OF PROCEEDS
The net proceeds from the sale of the Company's 7.125% Senior Notes due
August 15, 2007 (the "Notes") will be used for repayment of indebtedness under
the Company's revolving credit agreement and for general working capital
purposes, including the financing of new store openings, distribution facilities
and corporate offices. See "The Company -- Strategic Initiatives -- Continue
Store Growth and Strengthen Infrastructure".
The amount outstanding under the Company's revolving credit agreement as of
July 5, 1997 was $115,000,000. The interest rate on this outstanding
indebtedness was 6.14% per annum as of July 5, 1997, which rate is subject to
change over time. The funds borrowed by the Company under its revolving credit
agreement were used to finance new store openings (including pre-opening
expenses and the costs of inventory and capital equipment), to finance the
Company's store remodeling program and for other general corporate purposes. The
Company may borrow additional amounts under its revolving credit agreement in
the future.
The Company may also use a portion of the net proceeds to take advantage of
future acquisition opportunities. While the Company from time to time explores
various acquisition opportunities, the Company currently has no specific plans
or commitments for any material acquisition.
To the extent the net proceeds are not used immediately for the
above-purposes, such funds will be invested in short- or medium-term, investment
grade securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION> THREE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------- ------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, MAY 3,
1993 1994 1995 1996 1997 1997
---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
2.72 2.37 2.85 2.91 2.83 1.73(1)
</TABLE>
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(1) Results of operations include expenses related to the proposed merger with
Office Depot, Inc., which has been terminated, resulting in lower net income
and, therefore, a lower ratio of earnings to fixed charges.
The ratios of earnings to fixed charges were computed by dividing (i) the
sum of (a) net income, including equity in loss of affiliates, before deducting
extraordinary items and the provision for income taxes and (b) fixed charges
(excluding capitalized interest), by (ii) total fixed charges. Fixed charges
(including capitalized interest) consist of interest on debt, including
amortization of debenture costs, and the interest component of rent expense,
which is estimated by management.
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CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis as of May 3, 1997, and as adjusted to give effect to the sale
by the Company of the Notes offered hereby and the application of the estimated
net proceeds therefrom, as described under "Use of Proceeds".
<TABLE>
<CAPTION>
AS OF MAY 3, 1997
--------------------------
AS ADJUSTED
ACTUAL FOR OFFERING
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.................................. $ 6,276 $ 6,276
========== ==========
7.125% Senior Notes due August 15, 2007............................ -- $ 200,000
4 1/2% Convertible Subordinated Debentures due October 1, 2000..... $ 300,000 300,000
Other long-term debt, less current portion......................... 156,576 33,576
Other long-term obligations........................................ 34,295 34,295
---------- ----------
Total long-term obligations...................................... 490,871 567,871
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized;
none issued................................................... -- --
Common Stock, $.0006 par value, 500,000,000 shares authorized;
162,618,125 shares issued..................................... 99 99
Additional paid-in capital....................................... 512,363 512,363
Cumulative foreign currency translation adjustments.............. (2,921) (2,921)
Unrealized loss on short-term investments, net of tax............ (7) (7)
Retained earnings................................................ 261,589 261,589
Less: 39,433 shares of treasury stock, at cost................... (346) (346)
---------- ----------
Total stockholders' equity.................................... 770,777 770,777
---------- ----------
Total capitalization............................................... $1,261,648 $1,338,648
========== ==========
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected consolidated financial information
and other operating data. The selected consolidated financial information in the
table are derived from the Company's audited financial statements as of and for
each of the five fiscal years ended February 1, 1997 and from the Company's
unaudited financial statements as of and for the three months ended May 3, 1997
and May 4, 1996. In the opinion of management, the unaudited financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. The results
of operations for the three months ended May 3, 1997 are not necessarily
indicative of the results to be expected for the full fiscal year or for any
future period. The table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth herein and the Consolidated Financial Statements and the related Notes
incorporated herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) THREE MONTHS ENDED
------------------------------------------------------------------- -----------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1995(2) 1994(3) 1993(4) MAY 3, MAY 4,
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) 1997(5) 1996
----------- ----------- ----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales..................... $3,967,665 $3,068,061 $2,000,149 $1,308,634 $1,041,636 $1,154,994 $ 916,800
Costs of goods sold and
occupancy costs......... 3,023,279 2,366,183 1,534,360 1,013,010 807,167 886,239 708,227
Gross profit.............. 944,386 701,878 465,789 295,624 234,469 268,755 208,573
Operating expenses(6)..... 740,385 554,065 384,062 257,939 197,012 224,240 179,674
Operating income.......... 204,001 147,813 81,727 37,685 37,457 44,515 28,899
Interest expense, net..... 20,064 15,924 8,389 4,853 4,849 4,219 4,028
Income taxes.............. 66,621 46,140 23,965 12,900 12,900 5,375 8,145
Net income................ 106,420 73,705 39,940 19,452 18,318 8,406 13,012
Earnings per common
share................... $ 0.64 $ 0.46 $ 0.28 $ 0.14 $ 0.14 $ 0.05 $ 0.08
Dividends................. -- -- -- -- -- -- --
SELECTED OPERATING DATA
(AT PERIOD END):
Stores open............... 557 443 350 230 174 599 473
BALANCE SHEET DATA:
Working capital........... $ 548,793 $ 504,330 $ 289,395 $ 214,326 $ 234,686 $ 607,420 $ 515,855
Total assets.............. 1,787,752 1,402,775 1,008,454 650,756 545,207 1,889,310 1,506,316
Total long-term debt, less
current portion......... 391,342 343,647 249,387 123,592 121,353 456,576 358,825
Stockholders' equity...... 761,686 611,416 384,990 287,207 256,321 770,777 630,480
OTHER DATA:
Ratio of earnings to fixed
charges................. 2.83 2.91 2.85 2.37 2.72 1.73 1.95
Long-term debt as percent
of total capital........ 36% 38% 42% 33% 35% 39% 38%
Depreciation and
amortization............ $ 55,948 $ 43,551 $ 28,683 $ 22,615 $ 16,879 $ 18,889 $ 18,846
Capital expenditures(7)... $ 199,614 $ 116,295 $ 64,663 $ 56,348 $ 31,444 $ 36,174 $ 37,052
</TABLE>
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(1) On February 23, 1994 and March 7, 1994, the Company acquired National Office
Supply Company, Inc. ("National") and Spectrum Office Products, Inc.
("Spectrum"), respectively. These transactions have been accounted for using
the pooling of interests method. As a result, the financial information
shown above has been restated to include the accounts and results of
operations of National and Spectrum for all periods presented. Also,
earnings per share data
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<PAGE> 9
have been restated to give retroactive effect to the three-for-two splits of
the Company's common stock effected in March 1996, July 1995, October 1994,
and December 1993.
(2) Results of operations for this period include a $2,150,000 charge relating
to professional fees incurred for contract stationer acquisitions and a
$1,149,000 gain on the sale of the Company's investment in a contract
stationer. The net of these items had the effect of reducing net income per
share by $0.01.
(3) Results of operations for this period include a $7,600,000 charge relating
to the revision of the Company's computer merchandise strategy, a $4,771,000
charge relating to nonrecurring merger expenses resulting from the
acquisitions of National and Spectrum, and a gain of $8,430,000 resulting
from the sale of the Company's investment in a contract stationer. The net
of these items had the effect of reducing net income per share by $0.02.
(4) Results of operations include expenses related to the Company's merger with
Office Mart Holdings, Inc. (primarily consulting, legal, and accounting
fees) of $1,200,000, which had the effect of reducing net income per share
by $0.01.
(5) Results of operations include expenses (primarily legal, accounting,
transaction related costs, and consulting fees) related to the proposed
merger with Office Depot, Inc., which has been terminated, of $20,562,000,
which had the effect of reducing net income per share by $0.07. See "The
Company -- Recent Developments."
(6) Operating expenses includes operating and selling, pre-opening, general and
administrative, and amortization of goodwill expenses.
(7) Consists of acquisition of property and equipment.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus Supplement, the accompanying Prospectus and the information
incorporated therein by reference contain certain forward looking statements
which are subject to various risks and uncertainties. Many factors could cause
the Company's actual results to differ materially from such forward looking
statements, including, but not limited to the number of new store openings, 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.
The following discussion and analysis should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended May 3, 1997 and the Company's Annual Report on Form 10-K for the
year ended February 1, 1997, each of which is incorporated by reference in the
accompanying Prospectus.
COMPARISON OF THREE MONTHS ENDED MAY 3, 1997 AND MAY 4, 1996
SALES
Sales increased 26% to $1,154,994,000 in the quarter ended May 3, 1997 from
$916,800,000 in the quarter ended May 4, 1996. This growth was attributable to
an increase in the number of open stores, increased sales in existing stores and
increased sales in the delivery and contract stationer segments. Comparable
store and delivery hub sales for the quarter ended May 3, 1997 increased 9% over
the quarter ended May 4, 1996; comparable sales in the contract stationer
segment increased 13% for the quarter ended May 3, 1997 versus the quarter ended
May 4, 1996. The Company had 599 stores open as of May 3, 1997 compared to 473
stores as of May 4, 1996 and 557 stores open as of February 1, 1997.
GROSS PROFIT
Gross profit as a percentage of sales was 23.3% for the three months ended
May 3, 1997 as compared to 22.8% for the same period in the prior year. The
increase in gross profit rate for the three months ended May 3, 1997 was
primarily due to the leveraging of fixed occupancy and distribution center costs
over a larger sales base, improved margins in the delivery business segment as
well as lower product costs from vendors as a result of increased purchase
discounts. This was partially offset by decreases in the merchandise margin
rates in the retail store segment, due to price reductions as well as an
increase in the sales of computer hardware (CPU's and laptops), which generate a
lower margin rate than other categories, from 8.3% of sales for the three months
ended May 4, 1996 to 8.4% of sales for the three months ended May 3, 1997.
OPERATING AND SELLING EXPENSES
Operating and selling expenses, which consist of payroll, advertising and
other store operating costs, were 16.0% of sales for both the three months ended
May 3, 1997 and the three months ended May 4, 1996. Increases as a percentage of
sales for the quarter ended May 3, 1997 in advertising, in store labor and in
costs incurred for the Company's store remodeling program, in which significant
investments have been made in store layouts and signing to improve shopability
and enhance customer service, were offset by increased leveraging of fixed store
payroll expenses and other fixed store operating costs as store sales have
increased.
While most store expenses vary proportionately with sales, there is a fixed
cost component. Because new stores typically generate lower sales than the
Company average, the fixed cost component results in higher store operating and
selling expenses as a percentage of sales in these stores during their start-up
period. During periods when new store openings as a percentage of the
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base are higher, store operating and selling expenses as a percentage of sales
may increase. In addition, as the store base matures, the fixed cost component
of operating expenses is leveraged over an increased level of sales, resulting
in a decrease in store operating and selling expenses as a percentage of sales.
The Company's strategy of continuing to add stores to many existing markets can
result in some new stores attracting sales away from existing stores.
PRE-OPENING EXPENSES
Pre-opening expenses relating to new store openings, which consist
primarily of salaries, supplies, marketing and occupancy costs, are expensed by
the Company as incurred and therefore fluctuate from period to period depending
on the timing and number of new store openings. Pre-opening expenses averaged
$67,000 per store for the three months ended May 3, 1997 as compared to $60,000
per store for the same period in the prior year. The increase is due primarily
to increased marketing expenses as well as higher costs incurred in the initial
shipment of product from the distribution centers to new stores.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended May 3, 1997
decreased as a percentage of sales to 3.1% as compared to 3.3% for the same
period in the prior year. This decrease was primarily due to the Company's
ability to increase sales without proportionately increasing overhead expenses
in its core retail business. This was partially offset by investments in the
Company's information systems staffing and infrastructure, which the Company
believes will reduce costs as a percentage of sales in future years.
INTEREST AND OTHER EXPENSE, NET
Net interest and other expense for the three months ended May 3, 1997 was
$4,219,000 as compared to $4,028,000 for the same period in the prior year. The
interest expense relates primarily to borrowings which funded the increase in
store inventories related to new store openings, expanded product assortment,
and improvements in in-stock levels; the acquisition of fixed assets for new
stores opened and remodeled; and continued investments in the information
systems and distribution center infrastructure.
MERGER-RELATED COSTS
The Company charged to expense in the quarter ended May 3, 1997 certain
nonrecurring costs consisting primarily of legal, accounting, transaction
related costs, such as filing fees, and consulting fees incurred in connection
with the proposed merger with Office Depot, Inc. As a result of the termination
of the proposed merger on July 2, 1997, the Company expects to charge to expense
in the quarter ending August 2, 1997 all remaining merger-related costs.
EQUITY IN LOSS OF AFFILIATES
Equity in loss of affiliates is comprised of the Company's share of the
losses incurred by Business Depot (before the Company's acquisition in August,
1995 of the remaining 58% of the outstanding shares it did not already own),
MAXI-Papier, and Staples UK. The Company's investments in MAXI-Papier and
Staples UK are accounted for using the equity method; Business Depot was
accounted for under the equity method until August 26, 1994. The Company's
equity in loss of affiliates increased to $5,953,000 for the three months ended
May 3, 1997 as compared to $3,714,000 for the same period in the prior year. The
increase is primarily due to the increase in the number of open stores from 47
as of May 4, 1996 to 56 as of May 3, 1997. The initial investments in overhead,
labor and advertising, combined with the fact that new stores typically generate
lower sales than mature stores, cause new stores to be unprofitable initially.
On May 6, 1997 and May 7, 1997, the Company acquired from Kingfisher PLC its
interests in the two European joint ventures,
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<PAGE> 12
Staples UK and MAXI-Papier, respectively. As a result of the acquisition, the
Company's ownership interest of Staples UK increased to 100% and its ownership
of MAXI-Papier increased to approximately 93%. The transactions are being
accounted for as purchases and the consolidated results of these entities will
be reflected in the Company's financial statements in the second quarter of
fiscal 1997. As of May 3, 1997, Staples UK and MAXI-Papier operated 40 and 16
stores, respectively. There can be no assurance that the Company's international
operations will become profitable.
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND
JANUARY 28, 1995
GENERAL
The fiscal years ended February 1, 1997 and January 28, 1995 consisted of
52 weeks, while the fiscal year ended February 3, 1996 consisted of 53 weeks.
SALES
Sales increased 29% to $3,967,665,000 in the fiscal year ended February 1,
1997 from $3,068,061,000 in the fiscal year ended February 3, 1996; excluding
the additional week in the fiscal year ended February 3, 1996, sales increased
32%. Sales increased 53% in the fiscal year ended February 3, 1996 from sales of
$2,000,149,000 in the fiscal year ended January 28, 1995; 3% of the increase
resulted from the additional week in the year ended February 3, 1996. The growth
in each year was attributable to an increase in the number of open stores,
increased sales in existing stores and increased sales in the delivery and
contract stationer segments. Comparable store and delivery hub sales for the
fiscal year ended February 1, 1997 increased 14% over the fiscal year ended
February 3, 1996; comparable sales in the contract stationer segment increased
17% over the year ended February 3, 1996. Comparable store and delivery hub
sales for the year ended February 3, 1996 increased 20% over the year ended
January 28, 1995; comparable sales in the contract stationer segment increased
35% over the year ended January 28, 1995. As of February 1, 1997, February 3,
1996, and January 28, 1995, the Company had 557, 443, and 350 open stores,
respectively.
GROSS PROFIT
Gross profit as a percentage of sales was 23.8%, 22.9%, and 23.3% of sales
for the fiscal years ended February 1, 1997, February 3, 1996 and January 28,
1995, respectively. The increase in gross profit for the year ended February 1,
1997 was primarily due to the leveraging of fixed distribution center costs over
a larger sales base, improved margins in the delivery business segment as well
as lower product costs from vendors as a result of increased purchase discounts.
This was partially offset by decreases in the merchandise margin rates in the
retail segment, as sales of computer hardware (CPU's and laptops), which
generate a lower margin rate than other categories, increased to 7.7% of total
sales for the year ended February 1, 1997 versus 7.5% in the prior year. The
decrease in gross profit rate for the year ended February 3, 1996 from the year
ended January 28, 1995 primarily resulted from a change in product mix as a
result of increased volumes in lower margin items such as computers. This
decrease was partially offset by purchasing efficiencies gained through enhanced
vendor volume rebate programs and the leveraging of fixed occupancy and
distribution costs over a greater sales base.
OPERATING AND SELLING EXPENSES
Operating and selling expenses were 15.0%, 14.5%, and 15.4% of sales for
the fiscal years ended February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. The increase as a percentage of sales for the year ended February
1, 1997 was primarily due to increased advertising as well as increases in store
labor and costs incurred for the Company's store remodeling program. The
decrease as a percentage of sales for the year ended February 3, 1996 from the
year ended
S-12
<PAGE> 13
January 28, 1995 was primarily due to the leveraging of store payroll and fixed
store operating expenses over a larger sales base.
PRE-OPENING EXPENSES
Pre-opening expenses averaged $72,000, $58,000, and $56,000 per store for
the stores opened in the years ended February 1, 1997, February 3, 1996, and
January 28, 1995, respectively. The increase was due primarily to increased
marketing expenses as well as higher costs incurred in the initial shipment of
product from the distribution centers to new stores.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses as a percentage of sales were 3.4%,
3.3%, and 3.5% in the years ended February 1, 1997, February 3, 1996, and
January 28, 1995, respectively. The increase as a percentage of sales for the
year ended February 1, 1997 was primarily due to significant investments in the
Company's information systems staffing and infrastructure, which the Company
believes will reduce costs as a percentage of sales in future years. The
decrease as a percentage of sales for the year ended February 3, 1996 from the
year ended January 28, 1995 was primarily due to the Company's ability to
increase sales without proportionately increasing overhead expenses in its core
retail business.
INTEREST EXPENSE, NET
Net interest expense totaled $20,064,000, $15,924,000, and $8,389,000 in
the fiscal years ended February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. The increase in the years ended February 1, 1997 and February 3,
1996 was primarily due to increased borrowings which funded the increase in
store inventories related to new store openings, expanded product assortment,
and improvements in in-stock levels; the acquisition of fixed assets for new
stores opened and remodeled; continued investments in the information systems
and distribution center infrastructure; and additional investments in
international operations.
OTHER INCOME
Other income primarily relates to fees charged for administrative services
performed by the Company for its international affiliates, which included
Business Depot, Staples UK, and MAXI-Papier. This income totaled $177,000,
$109,000, and $2,736,000, in the years ended February 1, 1997, February 3, 1996,
and January 28, 1995, respectively. The decrease in the years ended February 1,
1997 and February 3, 1996 was primarily due to the consolidation of Business
Depot subsequent to August 26, 1994 which resulted in the elimination of this
income in the Company's consolidated results, as well as a contractual reduction
in the fees charged by the Company as the affiliates perform more of their own
administrative functions.
EQUITY IN LOSS OF AFFILIATES
Equity in loss of affiliates totaled $11,073,000, $12,153,000, and
$11,168,000, in the years ended February 1, 1997, February 3, 1996, and January
28, 1995, respectively. The decrease in the equity loss of affiliates for the
year ended February 1, 1997 was due primarily to a store closure charge recorded
by MAXI-Papier during the year ended February 3, 1996 of which the Company's
equity share was approximately $2,500,000. This was offset in the year ended
February 1, 1997 by increased losses generated by Staples UK, the Company's
joint venture in England. The increase in the equity in loss for the year ended
February 3, 1996 from the year ended January 28, 1995 was primarily due to the
increase in the number of new stores opened by the affiliates as well as the
store closure charge recorded by MAXI-Papier during the year ended February 3,
1996. The initial investments in overhead, labor and advertising, combined with
the fact that the new stores typically
S-13
<PAGE> 14
generate lower sales than mature stores, cause these stores to be unprofitable
initially. There can be no assurance that the Company's international operations
will become profitable.
INCOME TAXES
The provision for income taxes as a percentage of pre-tax income was 38.5%
for the fiscal years ended February 1, 1997 and February 3, 1996, as compared to
37.5% for the fiscal year ended January 28, 1995. The increase in rate in the
years ended February 1, 1997 and February 3, 1996 was principally due to a
decrease in federal targeted jobs credits resulting from the expiration of the
federal targeted jobs tax credit program on December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended May 3, 1997, cash and cash equivalents
increased by $68,652,000. The principal sources of cash consisted of cash
provided by financing activities of $67,879,000 which primarily represents an
increase in the borrowings under the existing revolving credit and term loan
facility and cash provided by operations of $38,933,000. The borrowings were
primarily in anticipation of the acquisition of Staples UK and MAXI-Papier for
$57,000,000 on May 6 and 7, 1997, respectively. The cash provided by operations
primarily represents increases in accounts payable and accrued expenses of
$29,786,000 which financed the increase in merchandise inventory related to new
store openings and expanded product assortments. This was partially offset by
cash used in investing activities of $37,087,000, which includes capital
expenditures of $36,174,000 primarily incurred in connection with the opening of
43 new stores.
The Company opened 43 stores and closed one store in North America during
the three months ended May 3, 1997, and expects to open approximately 90
additional stores in the last three quarters of fiscal 1997. Management
estimates that the Company's cash requirements, including pre-opening expenses,
leasehold improvements and fixtures (net of store inventory financed under
vendor trade terms), will be approximately $1,400,000 for each new store
(excluding the cost of any acquisitions of lease rights). Accordingly, the
Company expects to use in excess of $126,000,000 for store openings during this
period. In addition, the Company plans to continue to make investments in
information systems, distribution centers and store remodels to improve
operational efficiencies and customer service, and may expend additional funds
to acquire businesses or lease rights from tenants occupying retail space that
is suitable for a Staples store. See "The Company -- Strategic
Initiatives -- Continue Store Growth and Strengthen Infrastructure". The Company
expects to meet these cash requirements through a combination of operating cash
flow, borrowings from its existing revolving line of credit and the proceeds
from this offering.
The Company maintains a five-year revolving credit facility, effective
through July 2001, with a syndicate of banks which provides up to $350,000,000
of borrowings. This agreement, among other conditions, contains certain
restrictive covenants including net worth maintenance, minimum interest coverage
and limitations on indebtedness, sales of assets, and dividends. As of May 3,
1997, borrowings pursuant to the revolving credit facility totaled $123,000,000.
Total cash, short-term investments and available revolving credit amounts
totaled $429,000,000 as of May 3, 1997.
The Company expects that its current cash and cash equivalents, funds
available under its revolving credit and term loan facility and the proceeds
from this offering will be sufficient to fund its planned store openings and
other recurring operational cash needs for the next 12 to 18 months. The Company
is continually evaluating financing possibilities, and, in addition to the
offering contemplated hereby, it may seek to raise additional funds through any
one or a combination of public or private debt or equity-related offerings,
depending upon market conditions, or through additional commercial bank debt
arrangements.
S-14
<PAGE> 15
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Offered Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of Debt Securities set forth in
the Prospectus, to which description reference is hereby made. Capitalized terms
not otherwise defined herein shall have the meanings given to them in the
Prospectus.
GENERAL
The Notes will be limited to $200,000,000 aggregate principal amount, will
be unsecured and unsubordinated obligations of the Company and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Company.
The Notes will mature on August 15, 2007. Notes will bear interest at the rate
per annum shown on the front cover of this Prospectus Supplement, payable
semi-annually on February 15 and August 15 of each year (each an "Interest
Payment Date") commencing February 15, 1998 to the person in whose name the Note
(or any predecessor Note) is registered at the close of business on the
preceding February 1 or August 1, as the case may be. The Notes will not be
redeemable by the Company prior to their stated maturity and will not be
entitled to the benefit of a sinking fund.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of global notes (the "Global Notes").
The Global Notes will be deposited with, or on behalf of the Depository, and
registered in the name of the Depository or a nominee thereof. Unless and until
it is exchanged in whole or in part for Notes in definitive form, no Global Note
may be transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by such Depository or any such Nominee to a
successor of such Depository or a nominee of such successor.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Securities Exchange Act of 1934. The
Depository was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
rules applicable to the Depository are on file with the Securities and Exchange
Commission.
A further description of the Depository's procedures with respect to Global
Notes is set forth in the Prospectus under "Description of Debt
Securities -- Global Securities".
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement, the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase, the principal amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
----------- ------------
<S> <C>
Goldman, Sachs & Co.......................................... $ 50,000,000
Chase Securities Inc......................................... 50,000,000
PaineWebber Incorporated..................................... 50,000,000
Smith Barney Inc............................................. 50,000,000
------------
Total................................................... $200,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the
Pricing Agreement, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 0.40% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
0.25% of the principal amount of the Notes to certain brokers and dealers. After
the Notes are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters.
In connection with the offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Underwriters in connection with the offering. Stabilizing transactions consist
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Notes and short positions created by the
Underwriters involve the sale by the Underwriters of a greater number of Notes
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the securities sold in the offering may be
reclaimed by the Underwriters if such Notes are repurchased by the Underwriters
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Notes, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
Certain of the Underwriters and/or their affiliates have engaged from time
to time, and may in the future engage, in investment banking and general
financing and banking transactions with the Company and its affiliates. The
Chase Manhattan Bank, the Trustee, is an affiliate of Chase Securities Inc., and
is a lender to the Company and will receive a portion of the proceeds of the
offering that will be used by the Company to repay outstanding indebtedness. See
"Use of Proceeds". Because it is anticipated that more than 10% of the net
proceeds of the offering, not including underwriting compensation, may be paid
to lenders who are affiliates of members of the National Association of
Securities Dealers, Inc. ("NASD") who are participating in the offering, the
offering is being conducted pursuant to Rule 2710(c)(8) of the NASD Conduct
Rules.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
S-16
<PAGE> 17
$500,000,000
[LOGO:STAPLES]
DEBT SECURITIES
------------------------
Staples, Inc. (the "Company") may from time to time offer its unsecured
debt securities consisting of debentures, notes or other unsecured evidences of
indebtedness (the "Debt Securities") in one or more series and in amounts, at
prices and on terms to be determined at the time of the offering. Such Debt
Securities may be either senior (the "Senior Debt Securities") or subordinated
(the "Subordinated Debt Securities"). The principal amount of the Debt
Securities offered hereby will not exceed U.S. $500,000,000 or its equivalent in
any other currency, currency unit or composite currency determined at the
applicable exchange rate at the time of sale.
The accompanying Prospectus Supplement (the "Prospectus Supplement") sets
forth, where applicable, the designation or title of such Debt Securities, the
maturity of such Debt Securities, the aggregate principal amount, premium (if
any), the rate or rates of interest (which may be fixed or variable) or the
method of calculation, and the date or dates and place or places of payment
thereof, any terms for redemption at the option of the Company or the holder,
any terms for sinking fund payments, the currency or currencies, currency unit
or units or composite currency or currencies in which such Debt Securities will
be denominated (if other than U.S. dollars), any terms of subordination, the
form of such Debt Securities (which may be in registered or global form) and the
initial public offering price, the purchase price and net proceeds to the
Company. The Prospectus Supplement also sets forth information, as applicable,
concerning certain material United States Federal income tax considerations
relating to the particular Debt Securities offered thereby.
The Company may sell Debt Securities to or through underwriters, and may
also sell Debt Securities directly to other purchasers or through agents. The
accompanying Prospectus Supplement sets forth the names of any underwriters or
agents involved in the sale of the Debt Securities in respect of which this
Prospectus is being delivered, the principal amounts, if any, to be purchased by
such underwriters and the compensation, if any, of such underwriters or agents.
See "Plan of Distribution."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 25, 1997.
<PAGE> 18
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, Suite 1300, New York, New York 10048; and
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be accessed through the Commission's electronic
data gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). The
Company's Common Stock is listed on the Nasdaq National Market and reports,
proxy and information statements and other information concerning the Company
can be inspected at the offices of the National Association of Securities
Dealers, Inc., Market Listing Section, 1801 K Street, N.W., 8th Floor,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in such Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is made to such Registration Statement
and to the exhibits relating thereto for further information with respect to the
Company and the Debt Securities. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 3, 1997; and
(c) The Company's Current Reports on Form 8-K dated May 27, 1997, June
26, 1997 and July 2, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of any such document. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein or in any
Prospectus Supplement shall be deemed to be modified by or superseded for
purposes of this Prospectus or any Prospectus Supplement to the extent that a
statement contained herein or therein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or
therein 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 Prospectus or any Prospectus Supplement.
A copy of any document or part thereof incorporated by reference in the
registration statement of which this Prospectus constitutes a part (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that the registration statement incorporates) shall be provided without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon written or oral request made to the Company at One
Research Drive, Westborough, Massachusetts 01581, Attention: General Counsel and
Secretary, (508) 370-8500.
2
<PAGE> 19
THE COMPANY
The Company pioneered the office products superstore concept and is a
leading office products distributor with a total of 669 retail stores located in
the United States, Canada, the United Kingdom and Germany as of July 5, 1997, in
addition to a direct mail catalog business and contract stationer operations.
The Company's executive offices are located at One Research Drive, Westborough,
Massachusetts 01581 (telephone: (508) 370-8500). The Company was organized in
November 1985.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Debt
Securities will be used as set forth in a Prospectus Supplement relating to such
Debt Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
- ----------------------------------------------------------------------- ------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, MAY 3,
1993 1994 1995 1996 1997 1997
- ----------- ----------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
2.72 2.37 2.85 2.91 2.83 1.73(1)
</TABLE>
- ---------------
(1) Results of operations include expenses related to the proposed merger with
Office Depot, Inc., which has been terminated, resulting in lower net
income and, therefore, a lower ratio of earnings to fixed charges.
The ratios of earnings to fixed charges were computed by dividing (i) the
sum of (a) net income, including equity in loss of affiliates, before deducting
extraordinary items and the provision for income taxes and (b) fixed charges
(excluding capitalized interest), by (ii) total fixed charges. Fixed charges
(including capitalized interest) consist of interest on debt, including
amortization of debenture costs, and the interest component of rent expense,
which is estimated by management.
3
<PAGE> 20
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may not apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture") to be entered into between the Company and The Chase Manhattan Bank,
as trustee (the "Senior Trustee"). The Subordinated Debt Securities are to be
issued under a separate Indenture (the "Subordinated Indenture)" to be entered
into between the Company and The Chase Manhattan Bank, as trustee (the
"Subordinated Trustee"). A copy of the form of each such Indenture has been
filed as an exhibit to the Registration Statement. The Senior Indenture and the
Subordinated Indenture are sometimes referred to herein collectively as the
"Indentures" and the Senior Trustee and the Subordinated Trustee are sometimes
referred to herein collectively as the "Trustees." The following summaries of
certain provisions of the Debt Securities and the Indentures do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures, including the definitions therein of
certain terms. Wherever particular Sections, Articles or defined terms of the
Indentures are referred to, it is intended that such Sections, Articles or
defined terms shall be incorporated herein by reference. Article and Section
references used herein are references to the Indentures. Capitalized terms not
otherwise defined herein shall have the respective meanings given to them in the
Indentures.
GENERAL
The Debt Securities will be unsecured obligations of the Company and, with
respect to Senior Debt Securities, unless otherwise provided in the Prospectus
Supplement relating to such Debt Securities, will rank on a parity with all
other unsecured and unsubordinated debt of the Company.
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may be
issued thereunder from time to time in one or more series. Reference is made to
the Prospectus Supplement relating to the particular Debt Securities offered
thereby (the "Offered Debt Securities") which shall set forth the following
terms, as applicable, of the Offered Debt Securities: (1) the title of the
Offered Debt Securities; (2) any limit on the aggregate principal amount of the
Offered Debt Securities; (3) the price (expressed as a percentage of the
aggregate principal amount thereof) at which the Offered Debt Securities will be
issued; (4) the Person to whom any interest on the Offered Debt Securities will
be payable, if other than the Person in whose name such Offered Debt Securities
(or one or more predecessor Securities) are registered on any Regular Record
Date; (5) the date or dates on which the principal of the Offered Debt
Securities will be payable; (6) the rate or rates per annum (which may be fixed,
floating or adjustable) at which the Offered Debt Securities will bear interest,
if any, or the formula pursuant to which such rate or rates shall be determined,
the date or dates from which such interest will accrue and the dates on which
such interest, if any, will be payable and the Regular Record Dates for such
interest payment dates; (7) the place or places where principal of (and premium,
if any) and interest, if any, on Offered Debt Securities will be payable; (8) if
applicable, the price at which, the periods within which and the terms and
conditions upon which the Offered Debt Securities may be redeemed, in whole or
in part, at the option of the Company, pursuant to a sinking fund or otherwise;
(9) if applicable, any obligation of the Company to redeem or purchase Offered
Debt Securities pursuant to any sinking fund or analogous provisions or at the
option of a Holder thereof, and the period or periods within which, the price or
prices at which and the terms and conditions upon which the Offered Debt
Securities will be redeemed or purchased, in whole or in part; (10) if other
than denominations of $1,000 and any integral multiple thereof, the
denominations in which the Offered Debt Securities will be issuable; (11) the
currency or currencies, including composite currencies or currency units, in
which payment of the principal of (or premium, if any) or interest, if any, on
any of the Offered Debt Securities will be payable if other than the currency of
the United States of America; (12) if the amount of payments of principal of (or
premium, if any) or interest, if any, on the Offered Debt Securities may be
determined with reference to one or more indices, the manner in which such
amounts will be determined; (13) if the principal of (or premium, if any) or
interest, if any, on any of the Offered Debt Securities of the
4
<PAGE> 21
series is to be payable, at the election of the Company or a Holder thereof, in
one or more currencies, including composite currencies, or currency units other
than that or those in which the Securities are stated to be payable, the
currency, currencies, including composite currencies, or currency units in which
payment of the principal of (or premium, if any) or interest, if any, on
Securities of such series as to which such election is made will be payable, and
the periods within which and the terms and conditions upon which such election
is to be made; (14) the portion of the principal amount of the Offered Debt
Securities, if other than the entire principal amount thereof, payable upon
acceleration of maturity thereof; (15) whether all or any part of the Offered
Debt Securities will be issued in the form of a permanent Global Security or
Securities, as described under "Global Securities", and, if so, the depositary
for, and other terms relating to, such permanent Global Security or Securities;
(16) any event or events of default applicable with respect to the Offered Debt
Securities in addition to those provided in the Indenture and any event or
events of default contained in the Indenture which will not be applicable with
respect to the Offered Debt Securities; (17) any other covenant or warranty
included for the benefit of the Offered Debt Securities in addition to (and not
inconsistent with) those included in the Indenture for the benefit of Debt
Securities of all series, or any other covenant or warranty included for the
benefit of the Offered Debt Securities in lieu of any covenant or warranty
included in the Indenture for the benefit of Offered Debt Securities, or any
combination of such covenants, warranties or provisions; (18) any restriction or
condition on the transferability of the Offered Debt Securities; (19) if
applicable, that such Offered Debt Securities, in whole or any specified part,
are not defeasible pursuant to the provisions of the Indenture described under
"Defeasance and Covenant Defeasance"; (20) any authenticating or paying agents,
registrars, conversion agents or any other agents with respect to the Offered
Debt Securities; and (21) any other specific terms or provisions of the Offered
Debt Securities not inconsistent with the Indenture. (Section 301)
Debt Securities may be issued under the Indentures as Original Issue
Discount Debt Securities to be offered and sold at a substantial discount below
their stated principal amount. Special Federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus Supplement
relating thereto. "Original Issue Discount Debt Security" means any Debt
Security which provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of the maturity thereof
upon the occurrence and continuance of an Event of Default. (Section 101)
If the Debt Securities are denominated in whole or in part in any currency
other than United States dollars, if the principal of (and premium, if any) or
interest, if any, on the Debt Securities are to be payable, at the election of
the Company or a Holder thereof, in a currency or currencies other than that in
which such Debt Securities are to be payable, or if any index is used to
determine the amount of payments of principal of, premium, if any, or interest
on any series of the Debt Securities, special Federal income tax, accounting and
other considerations applicable thereto will be described in the Prospectus
Supplement relating thereto.
Except as described under "Restrictions on Merger and Sale of Assets;
Subsidiary Guarantees", the Indentures do not contain any provisions that would
provide protection to Holders of the Debt Securities against a sudden and
dramatic decline in credit quality of the Company resulting from any takeover,
recapitalization or similar restructuring or from other highly leveraged
transactions.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable Prospectus Supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indentures and the
limitations applicable to Global Securities, Debt Securities of each series will
be exchangeable for other Debt Securities of the same series of any authorized
denomination and of a like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indentures and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security Registrar
or at the office of any transfer agent designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but the Company may require payment of a sum
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sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustees as Security Registrars. Any transfer agent (in
addition to the Security Registrar) initially designated by the Company for any
Securities will be named in the applicable Prospectus Supplement. (Section 305)
The Company may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for the Debt Securities of
each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, the Company will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305)
COVENANTS
Unless otherwise set forth in the applicable Prospectus Supplement, the
following covenants are only applicable to the Senior Debt Securities.
Limitation on Liens
The Senior Indenture provides that the Company may not, and may not permit
any Principal Subsidiary to, create or suffer to exist any Lien to secure any
Indebtedness of the Company or any Subsidiary upon any Principal Property, or
upon shares of capital stock or evidences of Indebtedness issued by any
Principal Subsidiary and owned by the Company or any Principal Subsidiary
(whether such Principal Property, shares or evidences of indebtedness were owned
as of the date of the Senior Indenture or thereafter acquired), without making,
or causing such Principal Subsidiary to make, effective provision to secure all
of the Senior Debt Securities issued under the Senior Indenture from time to
time Outstanding by such Lien, equally and ratably with any and all other
Indebtedness thereby secured, so long as such Indebtedness is so secured,
unless, after giving effect thereto, the sum of (A) the principal amount of
Indebtedness secured by all Liens incurred after the date of the Senior
Indenture and otherwise prohibited by the Senior Indenture and (B) the
Attributable Value of all Sale and Leaseback Transactions entered into after the
date of the Senior Indenture and otherwise prohibited by the Senior Indenture
does not exceed 10% of Consolidated Net Tangible Assets of the Company. The
foregoing restrictions shall not apply to Indebtedness secured by Liens existing
on the date of the Senior Indenture or to: (i) Liens on any property existing at
the time of the acquisition thereof; (ii) Liens on property of a corporation
existing at the time such corporation is merged into, consolidated with or
acquired by the Company or a Principal Subsidiary or at the time of a sale,
lease or other disposition of the properties of such corporation (or a division
thereof) as an entirety or substantially as an entirety to the Company or a
Principal Subsidiary, provided that such Lien as a result of such merger,
consolidation, acquisition, sale, lease or other disposition is not extended to
property owned by the Company or such Principal Subsidiary immediately prior
thereto; (iii) Liens on property of a corporation existing at the time such
corporation becomes a Principal Subsidiary; (iv) Liens securing Indebtedness of
a Principal Subsidiary to the Company or to another Principal Subsidiary; (v)
Liens to secure all or part of the cost of acquisition, construction,
development or improvement of the underlying property, or to secure Indebtedness
incurred to provide funds for any such purpose (including purchase money
security interest or money mortgage on real or personal property), provided that
the commitment of the creditor to extend the credit secured by any such Lien
shall have been obtained not later than 24 months after the later of (a) the
completion of the acquisition, construction, development or improvement of such
property or (b) the placing in operation of such property or of such property as
so constructed, developed or improved; (vi) Liens on any property created,
assumed or otherwise brought into existence in contemplation of the sale or
other disposition of the underlying property, whether directly or indirectly, by
way of share disposition or otherwise, provided that the Company must have
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disposed of such property within 180 days after the creation of such Liens and
that any Indebtedness secured by such Liens shall be without recourse to the
Company or any Subsidiary; (vii) Liens in favor of the United States of America
or any State thereof, or any department, agency or instrumentality or political
subdivision thereof, to secure partial, progress, advance or other payments;
(viii) Liens to secure Indebtedness on any Principal Property of joint ventures
which constitute Principal Subsidiaries in which the Company or a Principal
Subsidiary has an interest, to the extent such Liens are on property or assets
of, or equity interests in, such joint ventures; and (ix) any extension,
renewal, replacement or refunding of any Lien existing on the date of the Senior
Indenture or referred to in clauses (i) to (iii) or (v), provided that the
principal amount of Indebtedness secured thereby and not otherwise authorized by
clauses (i) to (iii) or (v) shall not exceed the principal amount of
Indebtedness, plus any premium or fee payable in connection with any such
extension, renewal, replacement or refunding, so secured at the time of such
extension, renewal, replacement or refunding. (Section 1008)
Limitation on Sale and Leaseback Transactions
The Senior Indenture provides that the Company may not, and may not permit
any Principal Subsidiary to, enter into any Sale and Leaseback Transaction with
respect to any Principal Property, unless, either (i) the Company or such
Principal Subsidiary would be entitled to issue, assume or guarantee
Indebtedness secured by a Lien on such Principal Property without equally and
ratably securing the outstanding Senior Debt Securities under the Senior
Indenture; (ii) the Company or such Principal Subsidiary applies, within 180
days after the effective date of such Sale and Leaseback Transaction, an amount
equal to the Net Available Proceeds therefrom to (A) the acquisition of one or
more Principal Properties or (B) to the retirement of the Senior Debt Securities
or the repayment of other Indebtedness of the Company or a Principal Subsidiary
(other than such Indebtedness owned by the Company or a Principal Subsidiary)
which, in the case of such Indebtedness of the Company, is not subordinate and
junior in right of payment to the prior payment of the Senior Debt Securities;
or (iii) after giving effect thereto, the sum of (A) the principal amount of
Indebtedness secured by all Liens incurred after the date of the Senior
Indenture and otherwise prohibited by the Senior Indenture and (B) the
Attributable Value of all Sale and Leaseback Transactions entered into after the
date of the Senior Indenture and otherwise prohibited by the Senior Indenture
does not exceed 10% of Consolidated Net Tangible Assets of the Company. The
foregoing restrictions will not apply to (x) a Sale and Leaseback Transaction
providing for a lease for a term, including any renewal thereof, of not more
than three years, by the end of which term it is intended that the use of such
Principal Property by the lessee will be discontinued; (y) a Sale and Leaseback
Transaction between the Company and a Principal Subsidiary or between Principal
Subsidiaries; (z) a Sale and Leaseback Transaction between the Company or a
Principal Subsidiary and a joint venture in which the Company or a Principal
Subsidiary has an interest. (Section 1009)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Senior Indenture. Reference is made to the Senior Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided. (Section 101)
"Attributable Value" in respect of any Sale and Leaseback Transaction
means, as of the time of determination, the lesser of (i) the sale price of the
Principal Property so leased multiplied by a fraction the numerator of which is
the remaining portion of the base term of the lease included in such Sale and
Leaseback Transaction and the denominator of which is the base term of such
lease, and (ii) the total obligation (discounted to present value at the highest
rate of interest specified by the terms of any series of Debt Securities then
Outstanding compounded semi-annually) of the lessee for rental payments (other
than amounts required to be paid on account of property taxes as well as
maintenance, repairs, insurance, water rates and other items which do not
constitute payments for property rights) during the remaining portion of the
base term of the lease included in such Sale and Leaseback Transaction.
"Consolidated Net Tangible Assets" of the Company means the aggregate
amount of assets (less applicable reserves and other properly deductible items)
after deducting therefrom (a) all current liabilities (excluding any
indebtedness for money borrowed having a maturity of less than 12 months from
the date of the most recent consolidated balance sheet of the Company but which
by its terms is renewable or extendable
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beyond 12 months from such date at the option of the borrower) and (b) all
goodwill, trade names, patents, unamortized debt discount and expense and any
other like intangibles, all as set forth on the most recent consolidated balance
sheet of the Company and computed in accordance with generally accepted
accounting principles.
"Indebtedness" of any Person means (without duplication), with respect to
any Person, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person and (iv) every obligation of the type referred to in
clauses (i) through (iii) of another Person the payment of which such Person has
guaranteed or is responsible or liable for, directly or indirectly, as obligor,
guarantor or otherwise (but only, in the case of clause (iv), to the extent such
Person has guaranteed or is responsible or liable for such obligations).
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien,
encumbrance, or other security arrangement of any kind or nature whatsoever on
or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Available Proceeds" from any Sale and Leaseback Transaction by any
Person means cash or readily marketable cash equivalents received (including by
way of sale or discounting of a note, installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiree of Indebtedness or obligations relating to the
properties or assets that are the subject of such Sale and Leaseback Transaction
or received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred and all Federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Sale and Leaseback
Transaction; (ii) all payments made by such Person or its Subsidiaries on any
Indebtedness which is secured in whole or in part by any such properties and
assets in accordance with the terms of any Lien upon or with respect to any such
properties and assets or which must, by the terms of such Lien, or in order to
obtain a necessary consent to such Sale and Leaseback Transaction or by
applicable law, be repaid out of the proceeds from such Sale and Leaseback
Transaction; and (iii) all distributions and other payments made to minority
interest holders in Subsidiaries of such Person or joint ventures as a result of
such Sale and Leaseback Transaction; provided, however, that for purposes of
clause (ii) of "Limitations on Sale and Leaseback Transactions", the amount of
Net Available Proceeds to be applied to any acquisition of Principal Properties
or retirement of Debt Securities or other Indebtedness shall be reduced by an
amount equal to the sum of (A) an amount equal to the redemption price with
respect to such Debt Securities delivered within 180 days after the effective
date of such Sale and Leaseback Transaction to the Trustee for retirement and
cancellation and (B) the principal amount, plus any premium or fee paid in
connection with a redemption in accordance with the terms, of such other
Indebtedness voluntarily retired by the Company within such 180-day period,
excluding in each case retirements pursuant to mandatory sinking fund or
prepayment provisions and payments at maturity.
"Principal Property" means any real property or any permanent improvement
thereon owned by the Company or any of its Subsidiaries including, without
limitation, any office, store, warehouse, manufacturing facility or plant or any
portion thereof, and any equipment located at or comprising a part of any such
property, having a net book value, as of the date of determination, in excess of
1% of Consolidated Net Tangible Assets of the Company.
"Principal Subsidiary" means any Subsidiary which owns any Principal
Property.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any Principal Property that, more than 12
months after (i) the completion of the acquisition, construction, development or
improvement of such Principal Property or (ii) the placing in operation of such
Principal Property or of such Principal Property as so constructed, developed or
improved, has been or is being sold, conveyed, transferred or otherwise disposed
of by such Person to such lender or investor or to any Person to whom funds have
been or
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are to be advanced by such lender on the security of such Principal Property.
The term of such arrangement, as of any date (the "measurement date"), shall end
on the date of the last payment of rent or any other amount due under such
arrangement on or prior to the first date after the measurement date on which
such arrangement may be terminated by the lessee, at its sole option without
payment of a penalty.
"Subsidiary" of any Person means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof.
RESTRICTIONS ON MERGER AND SALE OF ASSETS; SUBSIDIARY GUARANTEES
The Indentures provide that the Company may not consolidate with or merge
into any other Person or convey, transfer or lease its property and assets
substantially as an entirety to any Person (other than to one or more Wholly
Owned Subsidiaries of the Company), and the Company may not permit any Person to
merge into or consolidate with the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i)
any successor or purchaser is a corporation, partnership, limited liability
company or trust organized under the laws of the United States of America, any
State or the District of Columbia, and any such successor or purchaser expressly
assumes the Company's obligations on the Debt Securities under a supplemental
Indenture; (ii) immediately after giving effect to the transaction no Event of
Default, and no event which after notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing; (iii) if, in the
case of the Senior Indenture, as a result of any such transaction, property or
assets of the Company or any Principal Subsidiary would become subject to a Lien
which would not be permitted by the limitation on Liens contained in the Senior
Indenture, the Company or, if applicable, the successor to the Company, as the
case may be, shall take such steps as shall be necessary effectively to secure
the Senior Debt Securities issued under the Senior Indenture equally and ratably
with Indebtedness secured by such Lien; and (iv) certain other conditions are
met. (Section 801). Upon any consolidation or merger into any other Person or
any conveyance, transfer or lease of the Company's assets substantially as an
entirety to any Person (other than to one or more Wholly Owned Subsidiaries of
the Company), the successor Person shall succeed to, and be substituted for, the
Company under the Indentures, and the Company, except in the case of a lease,
shall be relieved of all obligations and covenants under the Indentures and the
Debt Securities to the extent it was the predecessor Person. (Section 802)
If the Company conveys, transfers or leases its properties and assets
substantially as an entirety, in one transaction or a series of related
transactions, to one or more Wholly Owned Subsidiaries of the Company, then the
Company shall (a) cause such Wholly Owned Subsidiary or Wholly Owned
Subsidiaries, as the case may be, to execute and deliver to the Trustee a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee pursuant to which such Wholly Owned Subsidiary or Wholly Owned
Subsidiaries shall unconditionally guarantee all of the Company's payment
obligations under the Indentures and the Debt Securities on the terms set forth
in such supplemental indenture (which guarantee, in the case of Subordinated
Debt Securities, shall be subordinate to any guarantee granted by such
subsidiary guarantor in respect to Senior Indebtedness of the Company or
indebtedness of such Wholly Owned Subsidiary which is of the type contemplated
by the definition of Senior Indebtedness) and which guarantee shall provide that
(i) if one or more of such Wholly Owned Subsidiaries, in one transaction or a
series of related transactions, thereafter conveys, transfers or leases
properties and assets which, if owned by the Company, would constitute all or
substantially all of the properties and assets of the Company and its
Subsidiaries (determined on a consolidated basis), such conveyance, transfer or
lease shall be deemed to be a conveyance, transfer or lease by the Company of
its properties and assets substantially as an entirety for purposes of Section
801 and (ii) such guarantee shall be released and discharged in full if and when
all of the issued and outstanding shares of Voting Stock of the Wholly Owned
Subsidiary are sold, directly or indirectly, by the Company or another Wholly
Owned Subsidiary of the Company to any Person (other than the Company or another
Wholly Owned Subsidiary of the Company), (b) deliver to the Trustee an Opinion
of Counsel reasonably satisfactory to the Trustee that such supplemental
indenture has been duly executed and delivered by each subsidiary guarantor and
(c) comply, and cause such Wholly Owned Subsidiary to comply, with any
applicable securities laws.
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The guarantee by a subsidiary guarantor may be subject to avoidance by a
bankruptcy trustee or debtor in possession as a fraudulent conveyance under
Title 11 of the United States Code (the "Bankruptcy Code") or applicable state
fraudulent conveyance statutes or by a creditor of a subsidiary guarantor under
applicable state fraudulent conveyance statutes. In the event that such
subsidiary guarantor becomes a debtor under the Bankruptcy Code within one year
of the delivery of the guarantee and was insolvent, rendered insolvent or left
with unreasonably small working capital, a court may void the guarantee as a
fraudulent conveyance if the court finds that the subsidiary guarantor received
less than reasonably equivalent value in exchange for the guarantee. Even if
there is no proceeding commenced under the Bankruptcy Code, if the subsidiary
guarantor is insolvent, rendered insolvent or left with unreasonably small
working capital at the time the guarantee is delivered or as a result thereof, a
court may, at the request of a creditor of the subsidiary guarantor, void the
guarantee as a fraudulent conveyance if the court finds that the subsidiary
guarantor received less than reasonably equivalent value in exchange for the
guarantee. In either event, a court may set aside the guarantee and order the
recovery of any payments made by the subsidiary guarantor during the applicable
statutory period -- one year under the Bankruptcy Code and varying periods under
state law depending upon which state's law applies. The statute of limitations
applicable to fraudulent conveyance statutes are as long as six years in some
states.
Generally, under the definition provided in the Bankruptcy Code, the
subsidiary guarantor would be considered insolvent if the sum of the subsidiary
guarantor's debts, including contingent liabilities, was greater than the value
of its assets at a fair valuation. State fraudulent conveyance statutes differ
but generally define insolvent to mean the fair saleable value of assets being
less than probable liabilities. The Bankruptcy Code and state fraudulent
conveyance statutes do not define what constitutes inadequate working capital.
Generally, courts have found companies to have inadequate working capital if the
company has insufficient current assets with which to satisfy current
liabilities as they mature in the ordinary course.
EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Debt Securities, the following events are defined in the
Indentures as "Events of Default" with respect to Debt Securities of any series:
(a) failure to pay principal (including any sinking fund payment) of (or
premium, if any, on) any Debt Security of that series when due; (b) failure to
pay any interest on any Debt Security of that series when due, continued for 30
days; (c) failure to perform any other covenant or agreement of the Company
under the Indenture (other than a covenant the performance of which is dealt
with specifically elsewhere in the Indenture or which has been included in the
Indenture solely for the benefit of a series of Debt Securities other than that
series), continued for 90 days after written notice as provided in the
Indentures; (d) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company (including a default with respect
to Debt Securities of any series other than that series) or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company, which
default shall have resulted in indebtedness in excess of $25 million becoming
declared due and payable prior to the date on which it would otherwise have
become due and payable if such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within 30 days after written notice
as provided in the Indenture; (e) certain events of bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to Debt
Securities of that series. (Section 501)
Except as defined in the Prospectus Supplement relating thereto and except
as specified in clauses (d) and (e) of the preceding paragraph, no Event of
Default with respect to Debt Securities of a particular series shall necessarily
constitute an Event of Default with respect to Debt Securities of any other
series. (Section 501) The Holders of a majority in aggregate principal amount of
the Outstanding Debt Securities of any series shall have the right, subject to
such provisions for indemnification of the Trustee, to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
under the Indenture or exercising any trust or power conferred on the Trustee
with respect to Debt Securities of that series. (Section 512)
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If an Event of Default (other than an Event of Default specified in clause
(e) of the second preceding paragraph) with respect to Debt Securities of any
series at the time Outstanding shall occur and be continuing, either the Trustee
or the Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series may, by a notice in writing to the Company (and to the
Trustee if given by the Holders), declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Debt Securities of that series to be due and payable immediately; provided,
however, that under certain circumstances the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may rescind or
annul such declaration and its consequences. (Section 502) If an Event of
Default specified in clause (e) of the second preceding paragraph occurs, the
Outstanding Debt Securities automatically will become immediately payable
without any declaration or other act on the part of the Trustee or any Holder.
(Section 502) For information as to waiver of defaults, see "Modification and
Waiver" herein.
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to the principal amount of such Original Issue
Discount Securities due on acceleration upon the occurrence of an Event of
Default and the continuation thereof.
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default with respect to Debt Securities of that series and
unless also the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of the same series shall have made written request,
and offered reasonable indemnity to the Trustee, to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Debt Securities of the same
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of any Debt Security
for enforcement of payment of the principal of (or premium, if any) or interest,
if any, on such Debt Security on or after the respective due dates expressed in
such Debt Security. (Section 508)
Subject to the provisions of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), the Trustees will be under no obligation to
exercise any of the rights or powers under the Indentures at the request of any
of the Holders of Debt Securities unless they shall have offered to such Trustee
security or indemnity in form and substance reasonably satisfactory to such
Trustee against the costs, expenses and liabilities which might be incurred by
it in compliance with such request. (Section 603)
The Company will be required to furnish to the Trustees annually a
statement by certain officers of the Company as to whether the Company is in
default in the performance and observance of any of the terms, provisions and
conditions of the Indentures. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the Trustees, with the consent of the Holders of not less than a majority of
principal amount of each series of the Outstanding Debt Securities of each
series affected by the modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Outstanding Debt Security affected thereby: (a) change the Stated Maturity
of the principal of or any installment of principal or interest, if any, on any
such Debt Security; (b) reduce the principal amount of or the interest rate, if
any, on any such Debt Security or the principal amount due upon acceleration of
an Original Issue Discount Security; (c) adversely affect any right of repayment
at the option of the Holder of any such Debt Security; (d) reduce the amount of,
or postpone the date fixed for, the payment of any sinking fund or analogous
obligation; (e) change the place or currency of payment of principal of (or
premium, if any) or the interest, if any, on any such Debt Security; (f) impair
the right to institute suit for the enforcement of any such payment on or with
respect to any such Debt Security on or after the Stated Maturity (or, in the
case of redemption, on or after the Redemption Date); (g) modify the
subordination provisions in a manner adverse to the Holders of the
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Subordinated Debt Securities; (h) reduce the percentage of the principal amount
of Outstanding Debt Securities of any series, the consent of the Holders of
which is necessary to modify or amend the Indenture; or (i) modify the foregoing
requirements or reduce the percentage of Outstanding Debt Securities necessary
to waive compliance with certain provisions of the Indenture or for waiver of
certain defaults. (Section 902)
The holders of at least a majority of the aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all Holders of that
series, waive compliance by the Company with certain restrictive provisions of
the Indenture and waive any past default under the Indenture, except a default
in the payment of principal, premium or interest or in the performance of
certain covenants. (Sections 101 and 513)
The Indentures provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities of any series have
given or taken any direction, notice, consent, waiver or other action under the
Indenture as of any date, (i) the principal amount of an Original Issue Discount
Debt Security that will be deemed to be Outstanding will be the amount of the
principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date; (ii) if, as of such date, the
principal amount payable at the Stated Maturity of a Debt Security is not
determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be an
amount determined in the manner prescribed for such Debt Security; and (iii) the
principal amount of a Security denominated in one or more foreign currencies or
currency units that will be deemed to be Outstanding will be the United States
dollar equivalent, determined as of such date in the manner prescribed for such
Debt Security, of the principal amount of such Debt Security (or, in the case of
a Debt Security described in clause (i) or (ii) above, of the amount described
in such clause). Certain Debt Securities, including those for which payment or
redemption money has been deposited or set aside in trust for the Holders and
those that have been fully defeased pursuant to Section 1302, will not be deemed
to be Outstanding. (Section 101) For purposes of the Indenture, the Debt
Securities of any series "Outstanding" thereunder are deemed to exclude persons
that control, are controlled by or are under common control with the Company;
provided that any Person which is a registered investment advisor or an
Affiliate thereof and which owns 15% or less of the outstanding voting stock of
the Company will not be deemed to control the Company. (Section 101)
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the Indentures, in the
manner and subject to the limitations provided in the Indentures. In certain
limited circumstances, the Trustees will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by Holders
of a particular series, such action may be taken only by persons who are Holders
of Outstanding Debt Securities of that series on the record date. To be
effective, such action must be taken by Holders of the requisite principal
amount of such Debt Securities within a specified period following the record
date. For any particular record date, this period will be 180 days or such
shorter period as may be specified by the Company (or the Trustee, if it set the
record date), and may be shortened or lengthened (but not beyond 180 days) from
time to time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide, unless such provision is made inapplicable to the
Debt Securities of any series pursuant to Section 301 of the Indentures (which
will be indicated in the Prospectus Supplement applicable thereto), that the
Company may elect either (A) to defease and be discharged from any and all
obligations with respect to such Debt Securities then outstanding (except for
the obligations to exchange or register the transfer of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of the Debt Securities, and to hold
monies for payments in trust) ("defeasance"), or (B) to be released from its
obligations with respect to such Debt Securities concerning certain restrictions
described under "Restrictions on Merger and Sale of Assets" (Section 801) and
any other covenants applicable to such Debt Securities which are subject to
covenant defeasance ("covenant defeasance"), and the occurrence of an event
described in clauses (c), (d) and (e) under "Events of Default" (and any
covenants determined, pursuant to Section 301 of the Indenture, to be subject to
covenant defeasance)
12
<PAGE> 29
shall no longer be an Event of Default, in each case, upon the irrevocable
deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money, and/or U.S. Government Obligations (as defined in the
Indentures) which through the payment of principal and interest in accordance
with their terms will provide money in an amount sufficient to pay the principal
of (and premium, if any) and interest, if any, on such Debt Securities, on the
scheduled due dates therefor. Such a trust may only be established if, among
other things, (i) the Company has delivered to the Trustee an opinion of counsel
(as specified in the Indentures) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, (ii) no Event of Default or event which
with the giving of notice or lapse of time, or both, would become an Event of
Default under the Indenture shall have occurred and be continuing on the date of
such deposit and (iii) certain other customary conditions precedent are
satisfied. In the case of defeasance under clause (A) above, the opinion of
counsel referred to in clause (i) above must refer to and be based on a ruling
of the Internal Revenue Service issued to the Company or published as a revenue
ruling or on a change in applicable Federal income tax law, in each case after
the date of the Indenture. (Article Thirteen)
The Company may exercise the defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of the covenant defeasance option.
If the Company exercises the defeasance option, payment of such Debt Securities
may not be accelerated because of an Event of Default. If the Company exercises
the covenant defeasance option, payment of such Debt Securities may not be
accelerated by reference to the covenants noted under clause (B) above. In the
event the Company omits to comply with the remaining obligations with respect to
such Debt Securities under the Indenture after exercising its covenant
defeasance option and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations on deposit with the Trustee may be insufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default, because the required deposit
in the defeasance trust is based upon scheduled cash flows, rather than market
values, which will vary depending on prevailing interest rates and other
factors. However, the Company will remain liable in respect of such payments.
(Article Thirteen)
The Prospectus Supplement may further describe the provisions, if any,
applicable to defeasance or covenant defeasance with respect to the Debt
Securities of a particular series.
SUBORDINATION
Unless otherwise set forth in the applicable Prospectus Supplement, the
following provisions will apply to the Subordinated Debt Securities.
The payment of the principal of, premium, if any, and interest on, and the
redemption or repurchase of the Subordinated Debt Securities will be
subordinated in right of payment to the extent set forth in the Subordinated
Indenture to the prior payment in full of the principal of, premium, if any, and
interest on all Senior Indebtedness of the Company. "Senior Indebtedness" is
defined to mean (a) all indebtedness of the Company, including the principal of,
premium, if any, and interest on such indebtedness, whether outstanding
currently or hereafter created, (i) for borrowed money, (ii) for money borrowed
by others and guaranteed, directly or indirectly, by the Company, (iii)
constituting purchase money indebtedness for the payment of which the Company is
directly or contingently liable, (iv) constituting reimbursement obligations
under bank letters of credit, (v) under interest rate and currency swaps, caps,
floors, collars or similar agreements or arrangements intended to protect the
Company against fluctuations in interest or currency exchange rates, or (vi)
under any lease of any real or personal property, which obligations are
capitalized on the Company's books, unless by the terms of the instrument
creating or evidencing such indebtedness it is provided that such indebtedness
is not superior in right of payment to the Subordinated Debt Securities or to
other indebtedness which is pari passu with, or subordinated to, the
Subordinated Debt, and (b) any modifications, refundings, deferrals, renewals or
extensions of any such Senior Indebtedness, or securities, notes or other
evidences of indebtedness issued in exchange for such Senior Indebtedness.
(Sections 1401 and 1402)
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No payment on account of principal, of premium, if any, or interest on, or
redemption, repurchase or defeasance of, the Subordinated Debt Securities may be
made by the Company if there is a default in the payment of principal of,
premium, if any, sinking funds or interest (including a default under any
purchase or redemption obligation) with respect to any Senior Indebtedness or if
any other event of default with respect to any Senior Indebtedness, permitting
the holders thereof to accelerate the maturity thereof, shall have occurred and
shall not have been cured or waived or shall not have ceased to exist after
written notice to the Company and the Trustee by any holder of Senior
Indebtedness. Upon any acceleration of the principal amount due on the
Subordinated Debt Securities or any payment or distribution of assets of the
Company to creditors upon any dissolution, winding up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal of premium, if any, sinking
fund and interest due or to become due upon all Senior Indebtedness must be paid
in full before the Holders of the Subordinated Debt Securities are entitled to
receive any payment. By reason of such subordination, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness may
recover more, ratably, than the Holders of the Subordinated Debt Securities, and
such subordination may result in a reduction or elimination of payments to the
Holders of the Subordinated Debt Securities. (Section 1402)
The Subordinated Indenture does not limit the Company's ability to incur
Senior Indebtedness or any other indebtedness. The Senior Debt Securities, if
and when issued, will constitute Senior Indebtedness.
The principal amount of outstanding Senior Indebtedness was approximately
$165 million at July 5, 1997. The applicable Prospectus Supplement will set
forth the aggregate amount of outstanding Senior Indebtedness as of the most
recent practicable date.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest payment. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that, at
the option of the Company, payment of any interest may be made by check mailed
to the address of the Person entitled thereto as such address appears in the
Security Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the Trustee in New York City will be
designated as the Company's sole Paying Agent for payments with respect to Debt
Securities of each series.
Any other Paying Agents initially designated by the Company for the Debt
Securities of a particular series will be named in the applicable Prospectus
Supplement. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each place of payment for the Debt Securities of a
particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Debt Security thereafter may look only to the Company for payment thereof.
(Section 1003)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby. Each
Global Security will be registered in the name of a Depositary or a nominee
thereof identified in the applicable Prospectus Supplement, will be deposited
with such Depositary or a nominee or a custodian therefor and will bear a legend
regarding the restrictions on exchanges and registration of transfer thereof
referred to below and any such other matters as may be provided for pursuant to
the Indentures.
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<PAGE> 31
Notwithstanding any provision in the Indentures or any Security described
herein, no Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other than the Depositary for such Global
Security or any nominee of such Depositary unless (i) the Depositary has
notified the Company that it is unwilling or unable to continue as Depositary
for such Global Security or has ceased to be a clearing agency registered under
the Exchange Act, (ii) there shall have occurred and be continuing an Event of
Default with respect to the Securities represented by such Global Security or
(iii) there shall exist such circumstances, if any, in addition to or in lieu of
those described above as may be described in the applicable Prospectus
Supplement. All securities issued in exchange for a Global Security or any
portion thereof will be registered in such names as the Depositary may direct.
(Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indentures. Except in the limited circumstances referred to above, owners of
beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificate Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Debt Securities
represented thereby for any purpose under the Debt Securities or the Indentures.
All payments of principal of and premium and interest on a Global Security will
be made to the Depositary or its nominee, as the case may be, as the Holder
thereof. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to transfer interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participant on their behalf). Payments,
transfers, exchanges and other matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Trustee or any agent of
the Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
Beneficial interests in a Global Security will trade in the Depositary's
same-day funds settlement system, in which secondary market trading activity in
those beneficial interests would be required by the Depositary to settle in
immediately available funds. Also, settlement for purchases of beneficial
interests in a Global Security upon the original issuance thereof will be
required to be made in immediately available funds.
THE TRUSTEE
The Trustee may be deemed to have a conflicting interest and may be
required to resign as Trustee if at the time of a default under the Indenture it
is a creditor of the Company.
GOVERNING LAW
The Indentures and the Debt Securities are governed by and shall be
construed in accordance with the laws of the State of New York. (Section 112)
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<PAGE> 32
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also
may sell Debt Securities directly to other purchasers or through agents.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Debt Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Act.
VALIDITY OF THE DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
validity of the Offered Debt Securities will be passed upon for the Company by
Hale and Dorr LLP, Boston, Massachusetts, and for any underwriters or agents by
Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report (Form 10-K) for the year ended February 1, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference, in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company.............................. S-3
Use of Proceeds.......................... S-6
Ratio of Earnings to Fixed Charges....... S-6
Capitalization........................... S-7
Selected Consolidated Financial
Information............................ S-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. S-10
Description of Notes..................... S-15
Underwriting............................. S-16
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information...................... 2
Incorporation of Certain Information by
Reference................................ 2
The Company................................ 3
Use of Proceeds............................ 3
Ratio of Earnings to Fixed Charges......... 3
Description of Debt Securities............. 4
Plan of Distribution....................... 16
Validity of the Debt Securities............ 16
Experts.................................... 16
</TABLE>
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$200,000,000
STAPLES, INC.
7.125% SENIOR NOTES
DUE AUGUST 15, 2007
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[STAPLES LOGO]
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GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
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