STAPLES INC, S-3/A, 1998-07-17

STAPLES INC
S-3/A, 1998-07-17
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998

REGISTRATION STATEMENT NO. 333-58743

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

STAPLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 04-2896127
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

ONE RESEARCH DRIVE,
WESTBOROUGH, MASSACHUSETTS 01581
(508) 370-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JOHN J. MAHONEY
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER AND CHIEF FINANCIAL
OFFICER
STAPLES, INC.,

ONE RESEARCH DRIVE,
WESTBOROUGH, MASSACHUSETTS 01581
(508) 370-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

WITH A COPY TO:

MARK G. BORDEN, ESQ. JEFFREY SMALL, ESQ.
HALE AND DORR LLP DAVIS POLK & WARDWELL
60 STATE STREET 450 LEXINGTON AVENUE
BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10017
(617) 526-6675 (212) 450-4000

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), SHALL DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectuses: one to be
used in connection with an offering in the United States (the "U.S.
Prospectus") and the other to be used in connection with a concurrent
international offering outside the United States (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all respects, except for the front cover pages. The form of U.S.
Prospectus is included herein and the form of the front cover page of the
International Prospectus follows the front cover page of the U.S. Prospectus.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued July 17, 1998

13,898,000 Shares

Staples, Inc.

COMMON STOCK

-----------

ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON
STOCK BY THE SELLING STOCKHOLDERS. OF THE 13,898,000 SHARES OF COMMON
STOCK BEING OFFERED HEREBY, 11,118,400 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 2,779,600 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK OF THE COMPANY IS QUOTED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SPLS." ON
JULY 8, 1998, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $32 3/8 PER
SHARE.
-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

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.

-----------

PRICE $ A SHARE

-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
-------- -------------- ---------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) The expenses of the offering will be paid by the Company and are
estimated at $325,000.
(3) Certain Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 2,084,700 additional Shares of Common Stock at the price
to public less underwriting discounts and commissions for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholders will be $ , $ and
$ , respectively. See "Principal and Selling Stockholders" and
"Underwriters."
-----------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1998 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 1998
<PAGE>

Issued July 17, 1998

13,898,000 Shares

Staples, Inc.

COMMON STOCK

-----------

ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON
STOCK BY THE SELLING STOCKHOLDERS. OF THE 13,898,000 SHARES OF COMMON
STOCK BEING OFFERED HEREBY, 2,779,600 SHARES ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 11,118,400 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK OF THE COMPANY IS QUOTED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SPLS." ON
JULY 8, 1998, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $32 3/8 PER
SHARE.
-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

PRICE $ A SHARE

SALOMON SMITH BARNEY INTERNATIONAL
, 1998
<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREIN SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 10
Price Range of Common Stock and
Dividend Policy.................... 10
Capitalization...................... 11
Selected Historical Consolidated
Financial Information.............. 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Business............................ 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................................................ 22
Principal and Selling Stockholders.................................... 25
Description of Capital Stock.......................................... 28
Certain United States Federal Tax Consequences for Non-U.S. Holders... 30
Underwriters.......................................................... 33
Legal Matters......................................................... 36
Experts............................................................... 36
Available Information................................................. 36
Incorporation of Certain Documents by Reference....................... 38
Index to Consolidated Financial Statements............................ F-1
</TABLE>

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

The Company has registered the marks "Staples" and "Staples--The Office
Superstore" on the Principal Register of the United States Patent and
Trademark Office, the mark "Staples" in Canada, the United Kingdom and Germany
and the mark "Quill" in the United States, Canada, Israel, Japan, Mexico and
the United Kingdom.

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Risk Factors," among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
including, without limitation, in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made by authorized officers of the Company.
When used in this Prospectus, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe," and similar expressions are intended to
identify forward-looking statements.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this Prospectus. Unless the context otherwise
requires, "Staples" or the "Company" refers to Staples, Inc. and its
subsidiaries, including Quill Corporation ("Quill"), a mail order distributor
of office supplies to businesses in the United States. Staples acquired Quill
on May 21, 1998.

THE COMPANY

Staples was founded in 1985 and pioneered the office products superstore
concept. The Company is a leading office products distributor with a total of
798 retail stores located in the United States, Canada, the United Kingdom and
Germany as of June 30, 1998, in addition to catalog and contract stationer
operations.

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 effectively reaches different sectors of the office products
market 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 delivered office products
businesses focus on customers who desire delivery of their office products and
other specialized services.

NORTH AMERICAN SUPERSTORES

Staples' North American retail operations, consisting of 738 stores as of
June 30, 1998, 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 33
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
the Company's 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.

3
<PAGE>

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.

DELIVERED OFFICE PRODUCTS

The Company's delivered office products business is comprised of three
principal operations: the Company's two catalog businesses, operating under the
names "Staples Direct" and "Quill," and the Company's contract stationer
business, operating under the names "Staples National Advantage" and "Staples
Business Advantage."

Staples Direct. Staples Direct, the Company's direct mail catalog business,
was launched in 1990 to target 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 generating new accounts. The Company recently expanded its
catalog operations in Canada, the United Kingdom and Germany.

Quill. In May 1998, the Company acquired Quill and certain related entities
in a pooling of interests transaction for total consideration of approximately
$690 million consisting of 25,989,417 shares of the Company's Common Stock and
cash of approximately $48 million. In 1997, Quill had net sales of
approximately $551 million. Quill is a direct marketer focused on serving the
needs of small- to medium-sized business customers across the United States
that employ between 10 and 100 office workers. Quill currently operates nine
distribution centers located throughout the United States. Quill uses targeted
database marketing techniques to address the specific needs of certain customer
groups. The Company expects to incur a charge to earnings of approximately $39
million in the fiscal quarter ending August 1, 1998 in connection with the
acquisition of Quill.

Staples National Advantage and Staples Business Advantage. The Company's
contract stationer operations focus primarily on serving the needs of medium-
to-large-size businesses that sometimes may seek 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 is a nationwide contract stationer business focused
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.

INTERNATIONAL

The Company believes that foreign markets provide significant 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. 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," now known as Staples (Deutschland), Gmbh ("Staples Germany"). In
May 1997, the Company increased its ownership interest in the Staples UK
operations to 100% and in Staples Germany to approximately 92%. As of June 30,
1998, Staples UK operated 42 stores and Staples Germany operated 18 stores.
Staples Germany recently began operating the German stores under the name
"Staples Der Buro Mega Markt."

4
<PAGE>

STRATEGY

The Company is focused on the following 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 cover a wide-range of store operations including product and
service offerings, inventory planning, staffing, customer satisfaction and
improvements in store design.

Continue Rapid Growth in Delivered Office Products. The Company is
implementing a number of actions to profitably grow its Staples Direct and
Quill businesses. The Company seeks to focus on expanding the product offerings
available for delivery, pursuing marketing initiatives to appeal to target
customers, and expanding distribution capacity.

Continue Store Growth and Strengthen Infrastructure. The Company is
continuing its store growth program. The Company's store growth strategy is
based on pursuing expansion of its network in existing markets and on entering
both major and small new markets. The Company has made significant investments
in its distribution infrastructure and inventory management systems to support
this future growth.

Improve Productivity. The Company intends to maintain its historical focus on
being a low cost operator and believes that it has significant opportunities to
reduce costs as a percentage of sales. Expansion will allow it to leverage
fixed costs in store operations, marketing, distribution and administration and
generate increased productivity through improvements in operating practices.

Improve Customer Service. The Company has increased staffing levels in stores
and delivery operations to improve service. The Company actively monitors
customer satisfaction and has implemented programs which tie employee
compensation to achievement of corporate goals.

For a more complete description of the Company's strategy, see "Business--
Strategy."

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

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 and is incorporated in the State of Delaware.

5
<PAGE>

THE OFFERING

Common Stock offered hereby:
U.S. Offering.............. 11,118,400 shares(1)
International Offering..... 2,779,600 shares
---------
Total..................... 13,898,000 shares(1)
==========
Common Stock outstanding ... 282,341,432 shares(2)

Use of Proceeds............. The Company will not receive any of the net
proceeds from the sale of the shares of Common
Stock being offered.

Nasdaq National Market
Symbol...................... SPLS
- --------
(1) Assumes the over-allotment option granted to the U.S. Underwriters is not
exercised.
(2) As of May 2, 1998. Excludes (i) 24,202,746 shares of Common Stock issuable
upon the exercise of stock options outstanding under the Company's stock
incentive plans and (ii) 20,447,048 shares issuable upon conversion of the
Company's 4 1/2% Convertible Subordinated Debentures due October 1, 2000.

RISK FACTORS

Prior to making an investment in the Common Stock offered hereby, prospective
purchasers of the Common Stock should take into account the specific
considerations set forth under "Risk Factors" as well as the other information
included or incorporated by reference in this Prospectus.

6
<PAGE>

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data include adjustments to give
effect to the acquisition by Staples of Quill on May 21, 1998. The acquisition
was accounted for under the pooling of interests method. The Company's fiscal
year is the 52 or 53 weeks ending on the Saturday closest to January 31 of the
following calendar year. Fiscal 1995 was a 53 week fiscal year.

<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEAR
--------------------- ------------------------------------------------------
MAY 2, MAY 3,
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Sales................... $1,670,611 $1,292,721 $5,732,145 $4,493,589 $3,565,235 $2,418,793 $1,693,771
Operating income........ 60,605 55,603 307,327 245,398 182,392 114,684 63,386
Net income(1)........... 35,950 19,777 167,914 144,742 108,428 72,071 44,544
Pro forma net
income(2).............. 34,136 15,229 153,128 129,413 94,539 59,219 34,507
Historical earnings per
common share........... $ 0.13 $ 0.07 $ 0.62 $ 0.54 $ 0.42 $ 0.31 $ 0.20
Historical earnings per
common share assuming
dilution............... $ 0.12 $ 0.07 $ 0.59 $ 0.52 $ 0.41 $ 0.30 $ 0.20
Pro forma earnings per
common share(3)........ $ 0.12 $ 0.06 $ 0.56 $ 0.49 $ 0.37 $ 0.26 $ 0.15
Pro forma earnings per
common share assuming
dilution(3)............ $ 0.12 $ 0.06 $ 0.54 $ 0.47 $ 0.35 $ 0.25 $ 0.15
SELECTED OPERATING DATA:
Stores open (at period
end)................... 782 599 742 557 443 350 230
</TABLE>

<TABLE>
<CAPTION>
AS OF
--------------------
MAY 2, JAN. 31,
1998 1998
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 799,489 $ 803,660
Total assets.............................................. 2,620,195 2,638,862
Total long-term debt, less current portion................ 518,066 518,959
Stockholders' equity...................................... 1,140,755 1,094,485
</TABLE>
- --------
(1) Net income for fiscal 1997 includes a pre-tax charge of $29,665,000
resulting from costs incurred in connection with the proposed merger with
Office Depot, Inc. Net income for fiscal 1994 includes a pre-tax charge of
$2,150,000 relating to non-recurring merger-related costs resulting from
various acquisitions. Net income for fiscal 1993 includes a pre-tax charge
of $4,771,000 relating to non-recurring merger-related costs resulting from
the acquisitions of National Office Supply Company, Inc. and Spectrum
Office Products, Inc.
(2) Pro forma net income includes the earnings of Quill with provision for
income taxes on previously untaxed earnings of pooled S-Corporation income.
(3) Earnings per common share have been restated to reflect 3 for 2 stock
splits effective January 1998, March 1996, July 1995 and October 1994 and
for Financial Accounting Standards No. 128, Earnings Per Share.

7
<PAGE>

RISK FACTORS

The Shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus before purchasing the
Shares offered hereby.

INTENSE COMPETITION

The Company operates in a highly competitive marketplace, in which it
competes with a variety of retailers, dealers and distributors. The Company
competes in most of its geographic markets with other high-volume office
supply chains that are similar in concept to the Company in terms of store
format, pricing strategy and product selection, such as Office Depot,
OfficeMax and Office World, as well as mass merchants, such as Wal-Mart,
warehouse clubs, computer and electronics superstores, and other discount
retailers. In addition, the Company's retail stores, as well as its delivery
and contract business, compete with numerous mail order firms, contract
stationer businesses and direct manufacturers. Such competitors have increased
their presence in the Company's markets in recent years. Some of the Company's
current and potential competitors in the office products industry are larger
than the Company and have substantially greater financial resources. No
assurance can be given that competition will not have an adverse effect on the
Company's business.

RISKS OF EXPANSION

An important part of the Company's business plan is an aggressive store
growth strategy. The Company opened 130 stores in the United States, Canada
and Europe in fiscal 1997, plans to open approximately 170 new stores in
fiscal 1998 and expects to continue to pursue an aggressive store growth
strategy in fiscal 1999 and beyond. There can be no assurance that the Company
will be able to identify and lease favorable store sites, hire and train
employees, and adapt its management and operational systems to the extent
necessary to fulfill its expansion plans. The failure to open new stores in
accordance with its growth plans could have a material adverse impact on the
Company's future sales and profits. Moreover, the Company's expansion strategy
is based in part on the continued addition of new stores to its store network
in existing markets to take advantage of economies of scale in marketing,
distribution and supervision costs; however, this may result in the
"cannibalization" of sales of existing stores. In addition, there can be no
assurance that the new stores opened by the Company will achieve sales or
profit levels commensurate with those of the Company's existing stores.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY

The Company has experienced and may experience in the future fluctuations in
its quarterly operating results. Moreover, there can be no assurance that
Staples will continue to realize the earnings growth experienced over recent
years, or that earnings in any particular quarter will not fall short of
either a prior fiscal quarter or investors' expectations. Factors such as the
number of new store openings (pre-opening expenses are expensed as incurred,
and newer stores are less profitable than mature stores), the extent to which
new stores "cannibalize" sales of existing stores, the mix of products sold,
pricing actions of competitors, the level of advertising and promotional
expenses, seasonality, and one-time charges associated with acquisitions or
other events could contribute to this quarterly variability. The Company's
sales and profitability are typically slightly lower in the first and second
quarter of its fiscal year than in other quarters. In addition, the Company's
expense levels are based in part on expectations of future sales levels, and a
shortfall in expected sales could therefore result in a disproportionate
decrease in the Company's net income.

MANAGEMENT OF GROWTH

The Company's business, including sales, number of stores and number of
employees, has grown dramatically over the past several years. In addition,
the Company has consummated a number of significant acquisitions in the last
few years, and may make additional acquisitions in the future. This internal
growth, together with the acquisitions made by the Company, have placed
significant demands on the management and operational systems of the Company.
To manage its growth effectively, the Company will be required to continue to
upgrade its operational and financial systems, expand its management team and
increase and manage its employee base.

8
<PAGE>

INTEGRATION OF CERTAIN OPERATIONS OF QUILL

In May 1998, the Company acquired all of the capital stock of Quill, which
sells office supplies in the U.S. through mail order catalogs. The Company
plans to continue to operate the Quill business separately from that of
Staples Direct. However, over time, the Company may determine that integration
of certain operations of Staples Direct and Quill may be desirable. There can
be no assurance that the Company will not encounter difficulties in any such
integration and any such difficulties could have a material adverse effect on
the operations of the Company. The Company expects to incur a charge to
earnings of approximately $39 million in the quarter ending August 1, 1998 in
connection with the acquisition of Quill.

RISKS OF INTERNATIONAL OPERATIONS

The Company has a presence in international markets through its operations
in Canada, Germany and the United Kingdom, and may seek to expand into other
international markets in the future. The Company's operations in foreign
markets are subject to risks similar to those affecting its U.S. operations,
in addition to a number of additional risks inherent in foreign operations,
including local customs and competitive conditions, and foreign currency
fluctuations. Staples' European operations are currently unprofitable, and
there can be no assurance that they will become profitable.

AVAILABILITY OF FINANCINGS

The Company currently expects that its current cash and cash equivalents and
funds available under its revolving credit facility will be sufficient to fund
its planned store openings and other operating cash needs for at least the
next 12 to 18 months. However, there can be no assurance that the Company will
not require additional sources of financing prior to such time, as a result of
unanticipated cash needs or opportunities, an expanded growth strategy or
disappointing operating results. There also can be no assurance that the
additional funds required by the Company, whether within the next 12 to 18
months or thereafter, will be available to the Company on satisfactory terms.

RISKS ASSOCIATED WITH YEAR 2000

The Company has conducted a comprehensive review of its computer systems and
applications to identify those that might be affected by the year 2000 issue
and has begun an implementation plan to resolve the year 2000 issue. The
Company is in the process of correcting or replacing those systems and
applications which are not currently year 2000 compliant. The Company believes
it will be able to modify or replace its affected systems and applications in
time to avoid any material detrimental impact on its operations. The Company
will incur internal staff costs as well as consulting and other expenses
related to infrastructure and facilities enhancements necessary to prepare its
systems and applications for the year 2000 issue. The preliminary expense
estimate for year 2000 corrective and replacement activities ranges from $20
to $30 million, a portion of which would have been incurred as part of normal
system and application upgrades. It is anticipated that all year 2000
compliance efforts will be complete by mid-1999. However, if such
modifications and conversions are not completed in a timely manner, the year
2000 issue may have a material adverse impact on the operations of the
Company.

9
<PAGE>

USE OF PROCEEDS

All of the shares of Common Stock offered hereby are being sold by the
Selling Stockholders. The Company will not receive any of the proceeds from
the sale of the shares of Common Stock being offered hereby.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "SPLS." The following table sets forth, for the periods indicated, the
high and low sale prices per share of the Common Stock as reported on the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ending February 1, 1997
First Quarter.......................................... $14 27/64 $10 43/64
Second Quarter......................................... 14 21/64 9 37/64
Third Quarter.......................................... 15 5/64 11 1/4
Fourth Quarter......................................... 14 43/64 11 27/64
Fiscal Year Ending January 31, 1998
First Quarter.......................................... 17 37/64 11 3/4
Second Quarter......................................... 17 1/2 12 53/64
Third Quarter.......................................... 19 1/2 15 21/64
Fourth Quarter......................................... 20 5/64 15 7/8
Fiscal Year Ending January 30, 1999
First Quarter.......................................... 25 11/16 18 3/8
Second Quarter (through July 8, 1998).................. 32 15/16 23 1/2
</TABLE>

On July 8, 1998, the last reported sale price of the Company's Common Stock
on the Nasdaq National Market was $32 3/8 per share. As of June 30, 1998, the
Company had 9,271 stockholders of record.

The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in
the foreseeable future. In addition, the Company's revolving credit agreement
restricts the payment of dividends.

10
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of May 2,
1998.

<TABLE>
<CAPTION>
AS OF
MAY 2, 1998
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt, less current portion............................ $ 218,066
Other long-term obligations..................................... 48,973
4 1/2% Convertible Subordinated Debentures...................... 300,000
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized;
none issued.................................................. --
Common Stock, $.0006 par value, 500,000,000 shares authorized;
282,341,432 shares issued and outstanding (1)................ 169
Additional paid-in-capital.................................... 614,604
Cumulative foreign currency translation adjustments........... (8,117)
Unrealized gain on short-term investments, net of tax......... 1,537
Retained earnings............................................. 535,155
Less: 147,281 shares of treasury stock, at cost (2,593)
----------
Total stockholders' equity.................................. 1,140,755
----------
Total capitalization...................................... $1,707,794
==========
</TABLE>
- --------
(1) Excludes (i) 24,202,746 shares of Common Stock issuable upon the exercise
of stock options outstanding under the Company's stock incentive plans and
(ii) 20,447,729 shares issuable upon conversion of the Company's 4 1/2%
Convertible Subordinated Debentures due October 1, 2000.

11
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial data and
other operating data of Staples. The selected consolidated financial data for
the five years ended January 31, 1998 are derived from the consolidated
financial statements of Staples, which have been audited by Ernst & Young LLP,
independent auditors, except for the financial statements of Quill, which were
audited by Kupferburg, Goldberg & Neimark, LLC, independent auditors. The
financial data for the 13 weeks ended May 2, 1998 and May 3, 1997 are derived
from unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, which Staples considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the 13 weeks ended May 2, 1998 are not necessarily indicative of
the results that may be expected for the entire year ending January 30, 1999.
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein.

<TABLE>
<CAPTION>
13 WEEKS ENDED FISCAL YEAR
---------------------- ----------------------------------------------------------
MAY 2, MAY 3,
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Sales................... $1,670,611 $1,292,721 $5,732,145 $4,493,589 $3,565,235 $2,418,793 $1,693,771
Gross profit............ 388,015 304,666 1,378,984 1,083,326 826,639 567,914 386,099
Operating and selling
expenses............... 255,648 198,598 833,046 651,634 501,253 343,850 228,174
Pre-opening expenses.... 3,352 2,862 9,443 8,299 5,607 4,858 2,870
General and
administrative
expenses............... 67,486 47,031 225,587 175,704 135,420 103,766 91,669
Operating income........ 60,605 55,603 307,327 245,398 182,392 114,684 63,386
Interest and other
expense, net........... (4,694) (3,936) (21,955) (22,962) (15,671) 5,330 8,022
Merger-related costs.... -- (20,562) (29,665) -- -- 2,150 4,771
Equity in loss of
affiliates............. -- (5,953) (5,953) (11,073) (12,153) (11,168) (9,193)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income(1)........... $ 35,950 $ 19,777 $ 167,914 $ 144,742 $ 108,428 $ 72,071 $ 44,544
========== ========== ========== ========== ========== ========== ==========
Pro forma net
income(2).............. $ 34,136 $ 15,229 $ 153,128 $ 129,413 $ 94,539 $ 59,219 $ 34,507
Historical earnings per
common share........... $ 0.13 $ 0.07 $ 0.62 $ 0.54 $ 0.42 $ 0.31 $ 0.20
Historical earnings per
common share assuming
dilution............... $ 0.12 $ 0.07 $ 0.59 $ 0.52 $ 0.41 $ 0.30 $ 0.20
Pro forma earnings per
common share(3)........ $ 0.12 $ 0.06 $ 0.56 $ 0.49 $ 0.37 $ 0.26 $ 0.15
Pro forma earnings per
common share assuming
dilution(3)............ $ 0.12 $ 0.06 $ 0.54 $ 0.47 $ 0.35 $ 0.25 $ 0.15
SELECTED OPERATING DATA:
Stores open (at period
end)................... 782 599 742 557 443 350 230
<CAPTION>
AS OF
----------------------------------------------------------------------
MAY 2, JAN. 31, FEB. 1, FEB. 3, JAN. 28, JAN. 29,
1998 1998 1997 1996 1995 1994
BALANCE SHEET DATA: ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Working capital.................... $ 799,489 $ 803,660 $ 623,835 $ 580,244 $ 355,639 $ 270,102
Total assets....................... 2,620,195 2,638,862 1,955,636 1,552,199 1,141,496 764,341
Total long-term debt, less current
portion........................... 518,066 518,959 402,985 351,508 257,122 132,765
Stockholders' equity............... 1,140,755 1,094,485 875,823 712,141 472,215 363,982
</TABLE>
- --------
(1) Net income for fiscal 1997 includes a pre-tax charge of $29,665,000
resulting from costs incurred in connection with the proposed merger with
Office Depot, Inc. Net income for fiscal 1994 includes a pre-tax charge of
$2,150,000 relating to non-recurring merger-related costs resulting from
various acquisitions. Net income for fiscal 1993 includes a pre-tax charge
of $4,771,000 relating to non-recurring merger-related costs resulting
from the acquisitions of National Office Supply Company, Inc. and Spectrum
Office Products, Inc.
(2) Pro forma net income includes the earnings of Quill with provision for
income taxes on previously untaxed earnings of pooled S-Corporation
income.
(3) Earnings per common share have been restated to reflect 3 for 2 stock
splits effective January 1998, March 1996, July 1995 and October 1994 and
for Financial Accounting Standards No. 128, Earnings Per Share.

12
<PAGE>

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

GENERAL

In May 1998, the Company acquired Quill in a pooling of interests
transaction. In 1997, Quill had net sales of approximately $551 million. The
following financial discussion includes adjustments to give effect to the
acquisition of Quill for all periods presented. Prior to its acquisition by
the Company, Quill elected to be treated as an S Corporation under the
Internal Revenue Code of 1986, as amended, and, accordingly, its earnings were
not subject to taxation at the corporate level. Pro forma adjustments have
been made to reflect a provision for income taxes on such previously untaxed
earnings for each period presented at an assumed rate of 40%. The Statements
of Income combine staples historical operating results for the fiscal years
ended January 31, 1998, February 1, 1997 and February 3, 1996 with the
corresponding Quill operating results for the years ended December 31, 1997,
1996 and 1995.

During the fiscal year ended January 31, 1998, the Company acquired
Kingfisher PLC's interests in Staples UK and Staples Germany. The German
stores now operate as Staples Der Buro Mega Markt. Staples UK and Staples
Germany operate a chain of office products superstores in the UK and Germany,
respectively. As a result of these acquisitions, the Company's ownership
interest in Staples UK increased to 100% and its ownership interest in Staples
Germany increased to approximately 92%. The cash purchase price of
approximately $57 million was generated through additional borrowings under
the Company's existing revolving credit facility. The transactions were
accounted for in accordance with the purchase method of accounting and
accordingly, the results of operations of Staples UK and Staples Germany have
been included in the Company's consolidated financial statements since May
1997. The excess of the purchase price has been recorded as goodwill and is
being amortized on a straight line basis over 40 years. Prior to May 1997, the
operating results of Staples UK and Staples Germany were accounted for under
the equity method.

The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("FAS 128").

The following discussion should be read in conjunction with "Selected
Consolidated Financial Information" included herein and the consolidated
financial statements and related notes thereto of the Company and its
consolidated subsidiaries included elsewhere in this Prospectus or
incorporated by reference herein. The fiscal year ended January 31, 1998 and
February 1, 1997 consisted of 52 weeks, while the fiscal year ended February
3, 1996 consisted of 53 weeks.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL QUARTERS ENDED MAY 2, 1998 AND MAY 3, 1997

Sales. Sales increased 29% to $1,670,611,000 in the quarter ended May 2,
1998 from $1,292,721,000 in the quarter ended May 3, 1997. This growth is
attributable to an increase in the number of open stores, increased sales in
existing stores and in the delivery and contract stationer segments, and the
consolidation (beginning in May 1997) of the sales of Staples UK and Staples
Germany. Comparable store and delivery hub sales for the quarter ended May 2,
1998 increased 11% over the quarter ended May 3, 1997. Comparable sales in the
contract stationer segment increased 9% for the quarter ended May 2, 1998
versus the quarter ended May 3, 1997. Comparable sales in the Quill segment
increased 11% for the quarter ended May 2, 1998 versus the quarter ended May
3, 1997. The Company had 782 stores open as of May 2, 1998 compared to 599
stores as of May 3, 1997 and 742 stores as of January 31, 1998. This total
includes 41 stores opened and one closed during the three months ended May 2,
1998 and 56 stores acquired in the UK and Germany as a result of the
acquisitions of Staples UK and Staples Germany in May 1997.

Gross Profit. Gross profit as a percentage of sales was 23.2% for the three
months ended May 2, 1998 as compared to 23.6% for the same period in the prior
year. The decrease in gross profit rate for the three months ended May 2, 1998
was primarily due to decreases in the 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

13
<PAGE>

margin rate than other categories, to 8.0% of sales from 6.6% of sales for the
three months ended May 3, 1997. This was partially offset by improved margins
in the retail and delivery business segments due to lower product costs from
vendors as a result of increased purchase discounts and changes in product
mix, as well as the leveraging of distribution center and delivery costs over
a larger sales base.

Operating and Selling Expenses. Operating and selling expenses, which
consist of payroll, advertising and other store operating costs, decreased as
a percentage of sales in the three months ended May 2, 1998 to 15.3%, as
compared to 15.4% for the same period in the prior year. The decrease was
primarily due to increased leveraging of fixed store payroll expenses and
other fixed store operating costs as store sales have increased. This was
partially offset by the acquisitions of Staples UK and Staples Germany, which
have higher costs as a percentage of sales, and costs incurred from the
Company's store remodeling program in which significant investments have been
made in store layouts and signage to improve ease-of-shopping and enhance
customer service.

Staples UK and Staples Germany store expenses are generally higher than
other Staples stores as a result of their earlier stage of development. 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 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 $82,000 per store for the three months ended May 2, 1998 as
compared to $67,000 per store for the same period in the prior year. The
increase in the average cost per store is primarily due to Staples UK and
Staples Germany store openings which are included in the three months ended
May 2, 1998 and carry a higher pre-opening expense.

General and Administrative Expenses. General and administrative expenses for
the three months ended May 2, 1998 increased as a percentage of sales to 4.0%
as compared to 3.6% for the same period in the prior year. This increase 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. In addition, general and administrative
expense for the three months ended May 2, 1998 include the results of Staples
UK and Staples Germany, which have higher general and administrative costs as
a percentage of sales; as their store bases mature, overhead expenses should
decrease as a percentage of sales. The overall increase in general and
administrative costs was partially offset by the Company's ability to increase
sales without proportionately increasing overhead expenses in its core retail
business.

Interest and Other Expense, Net. Net interest and other expense for the
three months ended May 2, 1998 was $4,694,000 as compared to $3,936,000 for
the same period in the prior year. The increase from the three months ended
May 3, 1997 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; and continued investments in the
information systems and distribution center infrastructure.

Merger-Related Costs. The Company charged to expense in the three months
ended May 3, 1997 certain non-recurring 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.

14
<PAGE>

Equity in Loss of Affiliates. Equity in Loss of Affiliates is comprised of
the Company's share of the losses incurred by Staples UK and Staples Germany
before the Company's acquisitions of these entities in May 1997. Prior to the
acquisition, the Company's investments in Staples UK and Staples Germany were
accounted for using the equity method which resulted in the Company's share of
losses from operations being included in Equity in Loss of Affiliates. The
Company's equity in loss of affiliates was $5,953,000 for the three
months ended May 3, 1997. The Company recorded no equity in loss of affiliates
for the three months ended May 2, 1998, due to the acquisition of Staples UK
and Staples Germany on May 6, 1997 and May 7, 1997, respectively. As a result
of the acquisitions, the Company's ownership interest of Staples UK increased
to 100% and its ownership interest of Staples Germany increased to
approximately 92%. The transactions were accounted for in accordance with the
purchase method of accounting and accordingly, the consolidated results of
these entities are reflected in the Company's financial statements since the
respective dates of acquisition. As of May 2, 1998, Staples UK and Staples
Germany operated 42 and 18 stores, respectively.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997, AND
FEBRUARY 3, 1996

Sales. Sales increased 28% to $5,732,145,000 in the fiscal year ended
January 31, 1998 from $4,493,589,000 in the fiscal year ended February 1,
1997. Sales increased 26% in the fiscal year ended February 1, 1997 from
$3,565,235,000 in the fiscal year ended February 3, 1996; excluding the
additional week in the fiscal year ended February 3, 1996, sales increased
28%. 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. In addition, sales for the fiscal
year ended January 31, 1998 include the consolidation of Staples UK and
Staples Germany. Comparable store and delivery hub sales for the fiscal year
ended January 31, 1998 increased 10% over the fiscal year ended February 1,
1997; comparable sales in the contract stationer segment increased 12% over
the year ended February 1, 1997. Comparable store and delivery hub sales for
the year ended February 1, 1997 increased 14% over the year ended February 3,
1996; comparable sales in the contract stationer segment increased 17% over
the year ended February 3, 1996. As of January 31, 1998, February 1, 1997, and
February 3, 1996, the Company had 742, 557, and 443 open stores, respectively.
The January 31, 1998 total includes 130 stores opened and one store closed
during the twelve months ended January 31, 1998 and 56 stores acquired in the
UK and Germany as a result of the acquisitions of Staples UK and Staples
Germany.

Gross Profit. Gross profit was 24.1%, 24.1%, and 23.2% of sales for the
fiscal years ended January 31, 1998, February 1, 1997, and February 3, 1996,
respectively. The increase in gross profit rate for the year ended February 1,
1997 as compared to the prior year ended February 1, 1996 was primarily due to
improved margins in the retail and delivery business segments due to lower
product costs from vendors as a result of increased purchase discounts and
changes in product mix, as well as the leveraging of fixed distribution center
and delivery costs over a larger sales base. This was partially offset by
decreases in the margin rates in the retail store segment due to price
reductions as well as an increase in the sales of computer hardware (CPUs and
laptops), which generate a lower margin rate than other categories, to 7.4% of
total sales for the year ended January 31, 1998 from 6.0% in the year ended
February 1, 1997 and 5.6% in the year ended February 3, 1996.

Operating and Selling Expenses. Operating and selling expenses were 14.5%,
14.5%, and 14.1% of sales for the fiscal years ended January 31, 1998,
February 1, 1997, and February 3, 1996, respectively. The increase as a
percentage of sales for the years ended January 31, 1998 and 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 in which
significant investments have been made in store layouts and signage to improve
ease-of-shopping and enhance customer service. In addition, operating and
selling expenses for the year ended January 31, 1998 include the results of
Staples UK and Staples Germany, which have higher costs as a percentage of
sales due to their early stage of development. These increases were partially
offset by increased leveraging of fixed store payroll expenses and store
operating costs as store sales have increased.

Pre-Opening Expenses. Pre-opening expenses averaged $73,000, $72,000, and
$58,000 per store for the stores opened in the years ended January 31, 1998,
February 1, 1997, and February 3, 1996, respectively. The

15
<PAGE>

increase from the fiscal year ended February 3, 1996 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 3.9%, 3.9%, and 3.8% in the years ended January 31,
1998, February 1, 1997, and February 3, 1996, respectively. The increase as a
percentage of sales for the years ended January 31, 1998 and February 1, 1997
as compared to the year ended February 3, 1996 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. In addition, general and administrative expenses for
the year ended January 31, 1998 include the results of Staples UK and Staples
Germany, which have higher costs as a percentage of sales; as their store
bases mature overhead expenses should decrease as a percentage of sales. The
overall increase in general and administrative costs were partially offset by
the Company's ability to increase sales without proportionately increasing
overhead expenses in its core retail business.

Interest and Other Expense, Net. Net interest expense totaled $21,955,000,
$22,962,000, and $15,671,000 in the fiscal years ended January 31, 1998,
February 1, 1997, and February 3, 1996, respectively. The increase in the
years ended January 31, 1998 and February 1, 1997 as compared to the year
ended 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 Staples UK and Staples Germany as well as the purchase of these
entities during the fiscal year ended January 31, 1998.

Merger-Related Costs. During the year ended January 31, 1998, the Company
charged to expense certain non-recurring 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.

Equity in Loss of Affiliates. Equity in Loss of Affiliates totaled
5,593,000, $11,073,000, and $12,153,000, in the years ended January 31, 1998,
February 1, 1997, and February 3, 1996, respectively. The decrease in the
Equity in Loss of Affiliates for the year ended January 31, 1998 was due to
the acquisition of Staples UK and Staples Germany on May 6, 1997 and May 7,
1997. As a result of the acquisitions, the Company's ownership interest of
Staples UK increased to 100% and its ownership interest of Staples Germany
increased to approximately 92%. The transactions were accounted for in
accordance with the purchase method of accounting and accordingly, the results
of operations of Staples UK and Staples Germany have been included in the
Company's consolidated financial statements since the respective acquisition
dates.

Income Taxes. The provision for income taxes, on a pro forma basis,
adjusting for a provision for taxes on the previously untaxed earnings of
Quill, would have been 38.7% for the fiscal year ended January 31, 1998 and
38.8% for the fiscal years ended February 1, 1997 and February 3, 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company has traditionally used a combination of cash generated from
operations and debt or equity offerings to fund its expansion and acquisition
activities. During the years ended January 31, 1998, February 1, 1997 and
February 3, 1996, the Company also utilized its revolving credit facility to
support its various growth initiatives.

The Company opened 130 stores, 115 stores, and 94 stores in the years ended
January 31, 1998, February 1, 1997 and February 3, 1996, respectively, and
closed one store in each of these fiscal years. In addition, in the fiscal
year ended January 31, 1998, 56 stores were added as a result of the
acquisition of Staples UK and Staples Germany. As the store base matures and
becomes more profitable, cash generated from store operations is expected to
provide a greater portion of funds required for new store inventories and
other working capital requirements. Sales generated by the contract stationer
business segment are made under regular credit terms,

16
<PAGE>

which requires that the Company carry its own receivables from these sales.
The Company also utilized capital equipment financings to fund current working
capital requirements. Subsequent to January 31, 1998, the Company paid in full
mortgages of approximately $14 million on five distribution centers acquired
from Quill.

As of January 31, 1998, cash, cash equivalents, and short-term investments
totaled $386,990,000, an increase of $254,770,000 from the February 1, 1997
balance of $132,220,000. The principal sources of funds were primarily cash
from operations, an increase in accounts payable and accrued expenses of
$323,496,000, which financed the increase in merchandise inventory of
$227,076,000 related to new store openings, expanded product assortment and
improvements in in-stock levels; and cash provided from financing activities
of $158,771,000 due primarily to the issuance of $200,000,000 of senior notes
(the "Notes") on August 12, 1997. These sources were partially offset by the
acquisition of property and equipment of $190,659,000 and cash used in the
acquisition of Staples UK and Staples Germany, net of cash acquired, of
$79,325,000.

During the three months ended May 2, 1998, cash and cash equivalents
decreased by $124,436,000. This decrease was attributable to cash used in
investing activities of $87,927,000, which includes capital expenditures and
acquisition of leases of $87,751,000 primarily incurred in connection with the
acquisition of leases from the bankrupt Rickels Home Center chain and the
opening of 41 new stores, and cash used in operating activities of
$27,143,000, which primarily reflects an increase in receivables and a
decrease in accrued expenses and other current liabilities partially offset by
operating income and depreciation and amortization. Cash used by financing
activities was primarily repayment of borrowings of $24,575,000 partially
offset by proceeds from issuances of capital stock of $15,089,000.

The Company expects to open approximately 170 stores during fiscal 1998. The
Company opened 41 stores and closed one store during the three months ended
May 2, 1998. Management estimates that the Company's cash requirements,
including pre-opening expenses, leasehold improvements and fixtures (excluding
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 $154,000,000 for
store openings during the last three quarters of fiscal 1998. In addition, the
Company plans to continue to make investments in information systems,
distribution centers and store remodeling 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. The Company will meet these cash requirements through a
combination of operating cash flow and borrowings from its existing revolving
line of credit.

The Company issued $200,000,000 of Notes on August 12, 1997 with an interest
rate of 7.125% payable semi-annually on February 15 and August 15 of each year
commencing on February 15, 1998. Net proceeds of approximately $198,000,000
from the sale of the Company's Notes were 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.

Effective November 13, 1997, the Company entered into a new revolving credit
facility, effective through November 2002, with a syndicate of banks which
provides up to $350,000,000 of available borrowings. Borrowings made pursuant
to this facility will bear interest at either the lead bank's prime rate, the
federal funds rate plus 0.50%, the LIBOR rate plus a percentage spread based
upon certain defined ratios, a competitive bid rate or a swing line loan rate.
This agreement, among other conditions, contains certain restrictive covenants
including net worth maintenance, minimum fixed charge interest coverage and
limitations on indebtedness, sales of assets, and dividends. As of May 2,
1998, no borrowings were outstanding under the revolving credit agreement.
Staples Germany also has a revolving credit facility under which $10,096,000
was outstanding as of May 2, 1998. Total cash short-term investments and
available revolving credit amounts totaled $625,378,000 as of May 2, 1998.

The Company expects that its current cash and cash equivalents and funds
available under its revolving credit will be sufficient to fund its planned
store openings and other recurring operating cash needs for at least the next
12 to 18 months. The Company is continually evaluating financing
possibilities, and it may seek to raise

17
<PAGE>

additional funds through any one or a combination of public or private debt or
equity-related offerings, depending upon market conditions, or through an
additional commercial bank debt arrangement.

INFLATION AND SEASONALITY

While inflation or deflation has not had, and the Company does not expect it
to have, a material impact upon operating results, there can be no assurance
that the Company's business will not be affected by inflation or deflation in
the future. The Company believes that its business is somewhat seasonal, with
sales and profitability slightly lower during the first and second quarters of
its fiscal year.

18
<PAGE>

BUSINESS

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.

NORTH AMERICAN SUPERSTORES

Staples' North American retail operations, consisting of 738 stores as of
June 30, 1998, 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 33
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 the Company's 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.

DELIVERED OFFICE PRODUCTS

The delivered office products business is comprised of three principal
operations: the Company's two catalog businesses, operating under the names
"Staples Direct" and "Quill," and the Company's contract stationer business,
operating under the names "Staples National Advantage" and "Staples Business
Advantage."

19
<PAGE>

Staples Direct. Staples Direct, the Company's direct mail catalog business,
was launched in 1990 to target 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 generating new accounts. The Company recently
expanded its catalog operations in Canada, the United Kingdom and Germany.

Quill. In May 1998, the Company acquired Quill and certain related entities
in a pooling of interests transaction for total consideration of approximately
$690 million consisting of 25,989,417 shares of the Company's Common Stock and
cash of approximately $48 million. In 1997, Quill had net sales of
approximately $551 million. Quill is a direct marketer focused on serving the
needs of small- to medium-sized business customers across the United States
that employ between 10 and 100 office workers. Quill currently operates nine
distribution centers located throughout the United States. Quill uses targeted
database marketing techniques to address the specific needs of certain
customer groups. The Company expects to incur a charge to earnings of
approximately $39 million in the fiscal quarter ending August 1, 1998 in
connection with the acquisition of Quill.

Staples National Advantage and Staples Business Advantage. The Company's
contract stationer operations focus primarily on serving the needs of medium-
to-large-size businesses that sometimes may seek 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 is a nationwide contract stationer
business focused 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.

INTERNATIONAL

The Company believes that foreign markets provide significant 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. 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". In May 1997, the Company increased its ownership interest
in the Staples UK operations to 100% and in Staples Germany to approximately
92%. As of June 30, 1998, Staples UK operated 42 stores and Staples Germany
operated 18 stores. Staples Germany recently began operating the German stores
under the name "Staples Der Buro Mega Markt."

STRATEGY

The Company is 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 ease-of-shopping and signage. Another key element of this strategy
is the Company's ongoing store remodeling program. This continuing remodeling
program incorporates the Company's improved Concept 97 store layout, lighting,
signage and the overall shopping environment, and will conform existing stores
to the new prototype to the maximum extent practicable. The Concept 97
prototype emphasizes certain services offered in its copy and technology
centers. The Company may pursue strategic investments, partnerships, joint
ventures or other arrangements to expand these service offerings.

20
<PAGE>

Continue Rapid Growth in Delivered Office Products. 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, including Internet
sales; 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 its
delivery 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 is
continuing its store growth program. In fiscal year 1997, the Company opened
129 new stores in North America and one new store in Europe. In fiscal 1998,
the Company intends to open approximately 150 stores in North America and 20
stores in Europe. The Company's store growth strategy follows a three-pronged
approach: (i) continuing the growth of its store network in existing markets;
(ii) entering smaller markets, within both existing and new geographic areas;
and (iii) 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, including its distribution capabilities and inventory
management systems.

Improve Productivity. The Company maintains 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 is also seeking to enhance
productivity through improvements in operating practices. The Company
continually evaluates the productivity of its retail space and changes
assortments, layouts and adjacencies as appropriate. The Company's delivery
business also seeks 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
program designed to empower associates to exceed customer expectations for
service by providing "great service, every day, every way." The Company 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.

21
<PAGE>

MANAGEMENT

The following individuals are the executive officers and Directors of the
Company:

<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Thomas G. Stemberg.......Chairman of the Board of Directors and Chief
Executive Officer
Jack C. Bingleman........President, Staples International
David B. Crosier.........Executive Vice President, Supply Chain Management
Richard R. Gentry........Executive Vice President, Merchandising
Edward C. Harsant........President, Business Depot
Susan S. Hoyt............Executive Vice President, Human Resources
Jeffrey L. Levitan.......Senior Vice President, Strategic Planning &
Business Development
Jeanne B. Lewis..........Senior Vice President, Marketing
Brian T. Light...........Senior Vice President & Chief Information Officer
John J. Mahoney..........Executive Vice President, Chief Administrative
Officer & Chief Financial Officer
Robert K. Mayerson.......Senior Vice President & Corporate Controller
James C. Peters..........President, U.S. Stores
Ronald L. Sargent........President, North American Operations
Joseph S. Vassalluzzo....President, Realty & Development
Basil L. Anderson........Director
Mary Elizabeth Burton....Director
W. Lawrence Heisey.......Director
James L. Moody, Jr.......Director
Rowland T. Moriarty......Director
Robert C. Nakasone.......Director
W. Mitt Romney...........Director
Martin Trust.............Director
Paul F. Walsh............Director
</TABLE>

Mr. Stemberg has served as Chairman of the Board of Directors and Chief
Executive Officer of Staples since February 1988. Mr. Stemberg is also a
Director of PETsMART, Inc.

Mr. Bingleman has served as President, Staples International since February
1997. Prior to that he was President, North American Superstores from August
1994 to February 1997. Mr. Bingleman was President of The Business Depot, Ltd.
from its founding in 1990 until its acquisition by Staples in August 1994.

Mr. Crosier has served as Executive Vice President, Supply Chain Management
since June 1998. Prior to that he was Vice President, Logistics for A.N.
Chesterton from April 1994 to May 1998. From December 1973 to March 1994, he
was with Digital Equipment Corporation where he served in a variety of roles,
most recently Group Business Manager.

Mr. Gentry has served as Executive Vice President, Merchandising since
February 1996. Prior to joining Staples, Mr. Gentry was with Lechmere, Inc.
from 1987 to January 1996 where he served as Executive Vice President,
Merchandising from 1993 to January 1996.

Mr. Harsant has served as President, Business Depot since January 1995.
Prior to joining Staples, Mr. Harsant was with K-Mart Corp. where he served as
Vice President, Merchandise from October 1991 to December 1994.

22
<PAGE>

Ms. Hoyt has served as Executive Vice President, Human Resources since July
1996. Prior to joining Staples, Ms. Hoyt was with Dayton Hudson Department
Stores, a clothing retailer in Minneapolis, Minnesota, where she served as
Executive Vice President of Store Operations from 1993 to 1996.

Mr. Levitan has served as Senior Vice President, Strategic Planning and
Business Development since August 1996. From 1988 to 1996, he was with The
Boston Consulting Group where he served as a strategic management consultant.

Ms. Lewis has served as Senior Vice President, Marketing since February
1998. Prior to that she served in various capacities since joining Staples in
April 1993, including Senior Vice President, Marketing and Small Business from
April 1997 to February 1998, Vice President/Divisional Merchandise Manager
from 1996 to April 1997, Director of Operations and Director of Sales and
Marketing from 1994 to 1996 and Marketing Manager from 1993 to 1994.

Mr. Light has served as Senior Vice President and Chief Information Officer
since February 1998. From 1986 to January 1998, he was an associate partner at
Andersen Consulting where he served as a business and technology consultant.

Mr. Mahoney has served as Executive Vice President, Chief Administrative
Officer and Chief Financial Officer since October 1997. Prior to that he was
Executive Vice President and Chief Financial Officer from September 1996 to
October 1997. From June 1996 to August 1996, Mr. Mahoney was Executive Vice
President and Chief Financial Officer at Hill, Holliday, Connors, Cosmopulos,
an advertising agency. Prior to joining Hill, Holliday, Mr. Mahoney was a
partner with Ernst & Young LLP, where he served in various capacities in its
accounting and auditing groups from 1975 to June 1996.

Mr. Mayerson has served as Senior Vice President and Corporate Controller
since September 1997. He joined Staples in August 1993 and from that time
until April 1996, he served as Vice President and Treasurer. Thereafter, from
April 1996 to September 1997, he served as Senior Vice President and
Treasurer.

Mr. Peters has served as President, U.S. Stores since March 1988. Previously
he served as Executive Vice President, U.S. Stores from September 1997 to
March 1998. Prior to joining Staples, Mr. Peters was with Office Depot, Inc.
where he served as Senior Vice President, Western Division from 1993 to
September 1997.

Mr. Sargent has served as President, North American Operations since October
1997. Prior to that he served in various capacities since joining Staples in
1989, including President, Staples Contract & Commercial from June 1994 to
October 1997, and Vice President, Staples Direct and Executive Vice President,
Contract & Commercial from September 1991 until June 1994.

Mr. Vassalluzzo has served as President, Realty and Development since
October 1997. Prior to that he served in various capacities since joining
Staples in September 1989, including President, Staples Realty from September
1996 to October 1997, Executive Vice President, Growth and Development from
November 1993 to September 1996 and Executive Vice President, Growth and
Support Services from April 1993 until November 1993.

Mr. Anderson has served as Executive Vice President, Finance and Chief
Financial Officer of Campbell Soup Company, a food products manufacturer since
April 1996. Prior to joining Campbell Soup, Mr. Anderson was with Scott Paper
Company where he served in a variety of capacities beginning in 1975,
including Vice President and Chief Financial Officer from February 1993 to
December 1995.

Ms. Burton has served as Chief Executive Officer of the Cosmetic Center, a
chain of 250 specialty retail stores, since June 1998. From July 1994 to June
1998, she was Chief Executive Officer of BB Capital, Inc., an investment
company. From July 1992 to January 1994, Ms. Burton was Chairman and Chief
Executive Officer of Supertans, Inc., a chain of tanning salons. She is also a
Director of Gantos, Inc.

23
<PAGE>

Mr. Heisey has served as Chairman, Emeritus of Harlequin Enterprises, Ltd.
of Toronto, Canada, a publishing company, since July 1990. Mr. Heisey was a
Director of The Business Depot, Ltd. prior to its acquisition by Staples in
August 1994.

Mr. Moody served as Chairman of the Board of Hannaford Bros. Co., a food
retailer, from May 1984 until his retirement in May 1997. Mr. Moody is a
Director of UNUM Corporation, IDEXX Laboratories, Inc., Penobscot Shoe Co.,
and Empire Company Limited, a publicly traded Canadian company. He is also a
Trustee of Colonial Group mutual funds.

Mr. Moriarty has served as Chairman and Chief Executive Officer of Cubex
Corporation, a consulting company, since 1981. Mr. Moriarty was a professor at
Harvard Business School from September 1982 to September 1992. He is also a
Director of Trammel Crow Company and Charles River Associates, Inc.

Mr. Nakasone has served as Chief Executive Officer of Toys "R" Us, Inc., a
retail store chain, since February 1998. Previously, Mr. Nakasone served in
other positions with that company including President and Chief Operating
Officer from January 1994 to February 1998 and Vice Chairman and President of
Worldwide Toy Stores from January 1989 to January 1994. Mr. Nakasone is also a
Director of Toys "R" Us.

Mr. Romney has served as Chief Executive Officer of Bain Capital, Inc., a
firm that manages certain venture capital funds, since May 1992. Mr. Romney
has been a general partner and the managing partner of each of Bain Capital
Partners and Bain Venture Capital, both general partners of venture capital
limited partnerships, since September 1984 and October 1987, respectively. He
served as Chief Executive Officer of Bain & Company, Inc., a management
consulting firm, from 1991 to 1993 and now serves as a director of such firm.
Mr. Romney is also a Director of Marriott International, Inc. and The Sports
Authority, Inc.

Mr. Trust has served as President and Chief Executive Officer of Mast
Industries, Inc., a contract manufacturer, importer and wholesaler of women's
apparel and wholly-owned subsidiary of The Limited, Inc., since 1970. Mr.
Trust is also a Director of The Limited, Inc.

Mr. Walsh has served as President and Chief Executive Officer of Wright
Express Corporation, an information and financial services company, since
February 1995. From January 1990 to February 1995, Mr. Walsh was Chairman of
BancOne Investors Services Corporation, a financial services company. He is
also a Director of Intelligent Controls, Inc.

24
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1998, by (i) each person known by
the Company to own beneficially 5% or more of the outstanding shares of its
Common Stock; (ii) each director of the Company; (iii) each of the Company's
five most highly compensated executive officers in fiscal 1997; (iv) all
directors and executive officers as a group; and (v) the Selling Stockholders.

The shares being offered by Selling Stockholders, other than the officers
and directors of the Company and the Mac Stemberg Irrevocable Trust, were
issued by Staples in connection with its acquisition of Quill in May 1998.
These shares were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, provided by Section
4(2) thereof. These shares are being registered by the Company pursuant to
registration rights granted under the Agreement and Plan of Merger dated April
6, 1998 (as amended, the "Merger Agreement") by and among Staples, Quill and
certain stockholders of Quill. The Merger Agreement provides that the former
stockholders of Quill may request, after May 21, 1999, that the Company
register the balance of the 13,123,753 remaining shares issued to them in
connection with the acquisition of Quill.

<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1)(2)(3) SHARES AFTER OFFERING(1)(2)(3)(4)
------------------------------- BEING --------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------ ---------------- ------------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
FMR Corp.(5)............ 24,279,227 8.6% 0 24,179,227 8.6%
82 Devonshire Street
Boston, MA 02109
DIRECTORS AND EXECUTIVE
OFFICERS
Thomas G. Stemberg(6)... 4,266,417 1.5% 183,156 4,083,261 1.4%
Martin Trust(7)......... 2,816,129 * 150,000 2,666,129 *
Robert C. Nakasone(8)... 410,971 * 86,296 316,051 *
Rowland T. Moriarty(9).. 392,810 * 20,000 372,810 *
W. Mitt Romney(10)...... 155,236 * 111,269 27,505 *
Paul F. Walsh(11)....... 187,857 * 88,475 94,824 *
Mary Elizabeth
Burton(12)............. 110,552 * 0 110,552 *
W. Lawrence Heisey(13).. 42,511 * 15,000 23,226 *
James L. Moody,
Jr.(14)................ 30,562 * 0 30,562 *
Basil L. Anderson(15)... 12,750 * 0 12,750 *
James C. Bingleman(16).. 505,820 * 52,500 453,320 *
John J. Mahoney......... 110,508 * 27,825 58,008 *
Ronald L. Sargent(17)... 414,908 * 172,252 242,656 *
Joseph S.
Vassalluzzo(18)........ 892,825 * 73,225 779,712 *
Richard R. Gentry....... 47,758 * 3,975 40,258 *
Edward C. Harsant(19)... 44,750 * 10,000 33,898 *
Susan S. Hoyt........... 76,710 * 20,325 39,210 *
Jeffrey L. Levitan...... 10,620 * 2,385 6,120 *
Jeanne M. Lewis(20)..... 11,348 * 397 10,598 *
Robert K. Mayerson(21).. 136,433 * 10,256 120,266 *
All current directors
and executive officers
as a group (23
persons)(22)........... 10,716,737 3.7% 1,027,336 9,412,489 3.3%
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1)(2) SHARES AFTER OFFERING(1)(2)
---------------------------- BEING --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------ -------------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
OTHER SELLING STOCKHOLD-
ERS
Jack Miller(23)......... 6,502,466 2.3% 3,234,514 3,267,952 1.2%
Harvey L. Miller(24).... 6,159,796 2.2% 3,064,061 3,095,735 1.1%
Judith N.
Bernstein(25).......... 2,822,696 * 1,164,940 1,657,756 *
Sharon A. Ring(26)...... 2,822,696 * 1,164,941 1,657,755 *
Lori S. Miller(27)...... 2,451,537 * 1,060,032 1,391,505 *
Steven N. Miller(28).... 2,451,536 * 1,060,032 1,391,504 *
Ronald J. Miller(29).... 742,318 * 209,817 532,051 *
Jack Miller 1991 Term
Trust #3 dated July 31,
1991(30)............... 951,708 * 951,708 0 *
Harvey L. Miller 1991
Term Trust #3 dated
July 31, 1991(31)...... 951,708 * 951,708 0 *
BenIda Pennsylvania
Corporation............ 1,753 * 1,753 0 *
BenIda Georgia
Corporation............ 1,723 * 1,723 0 *
BenIda Texas
Corporation............ 419 * 419 0 *
BenIda Massachusetts
Corporation............ 16 * 16 0 *
Mac Stemberg Irrevocable
Trust dated May 2,
1991................... 6,600 * 5,000 1,100 *
</TABLE>
- --------
* Less than 1%
(1) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise noted. The inclusion herein of any
shares as beneficially owned does not constitute an admission of
beneficial ownership. Each person or entity listed is deemed to
beneficially own shares issuable upon the exercise of stock options that
are exercisable within 60 days after June 30, 1998 ("Presently
Exercisable Options").
(2) If the U.S. Underwriters' over-allotment option is exercised in full, the
following Selling Stockholders will sell such number of additional shares
of Common Stock pursuant to such option and, after such sale, will
beneficially own such number of shares of Common Stock, that is set forth
below opposite their respective names:

<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
SHARES AFTER OFFERING
BEING --------------------
NAME OFFERED NUMBER PERCENTAGE
---- ------- --------- ----------
<S> <C> <C> <C>
Thomas G. Stemberg.............................. 200,000 3,883,261 1.4%
Jack Miller..................................... 473,973 2,793,979 *
Harvey L. Miller................................ 448,993 2,646,742 *
Judith N. Bernstein............................. 240,434 1,417,322 *
Sharon A. Ring.................................. 240,433 1,417,322 *
Lori S. Miller.................................. 201,818 1,189,687 *
Steven N. Miller................................ 201,817 1,189,687 *
Ronald J. Miller................................ 77,232 455,269 *
</TABLE>

(3) Number of shares deemed outstanding includes 283,540,777 shares
outstanding as of June 30, 1998 and any shares subject to Presently
Exercisable Options held by the person or entity in question.
(4) With respect to officers of the Company, excludes restricted stock to be
surrendered to the Company in payment of withholding taxes due upon
vesting of Performance Accelerated Restricted Stock held by such officers
on July 9, 1998. With respect to directors and officers of the Company,
also excludes shares surrendered to the Company in payment of the option
exercise price and withholding taxes for options exercised in connection
with this offering.
(5) Based on a Schedule 13G filed with the Securities and Exchange Commission
as of February 11, 1998.

26
<PAGE>

(6) Includes 3,795 shares owned by Mr. Stemberg's wife; 250,000 shares owned
by Thomas G. Stemberg 1998 Trust; and 80,000 shares owned by T. Stemberg
Charitable Family Trust. Of the shares being offered, 40,000 shares are
being offered by T. Stemberg Charitable Family Trust. Also includes
2,166,405 shares subject to Presently Exercisable Options.
(7) Includes 2,626,396 shares owned by Trust Investments, Inc., with which
Mr. Trust is affiliated. Mr. Trust has shared investment and voting
control of these shares. Also includes 11,389 shares held by Mr. Trust's
wife. Also includes 102,419 shares subject to Presently Exercisable
Options. All of the shares being offered are being offered by Trust
Investments, Inc.
(8) Includes 140,387 shares subject to Presently Exercisable Options.
(9) Includes 42,014 shares held by trusts for the benefit of Mr. Moriarty's
children and 32,143 shares owned by Cubex Corporation, of which Mr.
Moriarty is Chairman and Chief Executive Officer. Mr. Moriarty is not a
trustee of the trusts for the benefit of his children. Also includes
140,387 shares subject to Presently Exercisable Options.
(10) Includes 127,731 shares subject to Presently Exercisable Options. Also
includes 140,482 shares subject to Presently Exercisable Options granted
to Bain & Co., Inc. of which Mr. Romney is a director.
(11) Includes 176,468 shares subject to Presently Exercisable Options.
(12) Comprised of 110,552 shares subject to Presently Exercisable Options.
(13) Includes 34,918 shares subject to Presently Exercisable Options.
(14) Includes 15,375 shares subject to Presently Exercisable Options.
(15) Includes 3,750 shares subject to Presently Exercisable Options.
(16) Includes 450,562 shares subject to Presently Exercisable Options.
(17) Includes 293,329 shares subject to Presently Exercisable Options.
(18) Includes 751,278 shares subject to Presently Exercisable Options.
(19) Includes 29,750 shares subject to Presently Exercisable Options.
(20) Includes 6,328 shares subject to Presently Exercisable Options.

(21) Includes 30 shares owned by Mr. Mayerson's children and 120,681 shares
subject to Presently Exercisable Options.
(22) Includes 4,670,320 shares subject to Presently Exercisable Options.
(23) Comprised of shares of Common Stock held in trust for the benefit of Mr.
Jack Miller. Mr. Miller serves as President and Chief Executive Officer
of Quill, which is a wholly-owned subsidiary of Staples. Prior to its
acquisition by the Company, Mr. Miller served as an officer and director
of Quill.
(24) Comprised of shares of Common Stock held in trust for the benefit of Mr.
Harvey L. Miller. Mr. Miller is engaged as a part-time consultant to
Staples. Prior to its acquisition by the Company, Mr. Miller served as an
officer and director of Quill.
(25) Includes 2,758,177 shares of Common Stock held in various trusts for the
benefit of Ms. Judith N. Bernstein, as to which she exercises sole
investment and voting power. Excludes 951,708 shares of Common Stock held
in the Jack Miller 1991 Term Trust #3 dated July 31, 1991 for the benefit
of Judith N. Bernstein and Sharon A. Ring, as to which they share
investment and voting power. See note 30 below.
(26) Includes 2,758,177 shares of Common Stock held in various trusts for the
benefit of Ms. Sharon Ring, as to which she exercises sole investment and
voting power. Excludes 951,708 shares of Common Stock held in the Jack
Miller 1991 Term Trust #3 dated July 31, 1991 for the benefit of Judith
N. Bernstein and Sharon A. Ring, as to which they share investment and
voting power. See note 30 below.
(27) Includes 2,387,018 shares of Common Stock held in various trusts for the
benefit of Ms. Lori S. Miller, as to which she and Harvey L. Miller's
spouse share investment and voting power. Excludes 951,708 shares of
Common Stock held in the Harvey L. Miller 1991 Term Trust #3 dated July
31, 1991 for the benefit of Lori S. Miller, Steven N. Miller and Ronald
J. Miller, as to which they and Harvey L. Miller's spouse share
investment and voting power. See note 31 below.
(28) Includes 2,387,017 shares of Common Stock held in various trusts for the
benefit of Mr. Steven N. Miller, as to which he and Harvey L. Miller's
spouse share investment and voting power. Excludes 951,708 shares of
Common Stock held in the Harvey L. Miller 1991 Term Trust #3 dated July
31, 1991 for the benefit of Lori S. Miller, Steven N. Miller and Ronald
J. Miller, as to which they and Harvey L. Miller's spouse share
investment and voting power. See note 31 below.
(29) Comprised of 742,318 shares of Common Stock held in various trusts for
the benefit of Mr. Ronald J. Miller, as to which he and Harvey L.
Miller's spouse share investment and voting power. Excludes 951,708
shares of Common Stock held in the Harvey L. Miller 1991 Term Trust #3
dated July 31, 1991 for the benefit of Lori S. Miller, Steven N. Miller
and Ronald J. Miller, as to which they and Harvey L. Miller's spouse
share investment and voting power. See note 31 below.
(30) Comprised of shares of Common Stock held in trust for the benefit of
Judith N. Bernstein and Sharon A. Ring, as to which they share investment
and voting power.
(31) Comprised of shares of Common Stock held in trust for the benefit of Lori
S. Miller, Steven N. Miller and Ronald J. Miller, as to which they and
Harvey L. Miller's spouse share investment and voting power.

27
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Staples' authorized capital stock consists of 500,000,000 shares of Common
Stock, $.0006 par value per share, and 5,000,000 shares of Preferred Stock,
$.01 par value per share.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Holders of a majority of the outstanding shares of Staples Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. The Staples Board of Directors is classified
into three classes of approximately equal size, one of which is elected each
year. The holders of Common Stock are entitled to share ratably in all assets
of Staples which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding. The holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to the
rights of the holders of shares of any series of Preferred Stock which Staples
may issue in the future.

PREFERRED STOCK

Preferred Stock may be issued from time to time in one or more series and
the Staples Board, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock. The purpose of authorizing the Staples Board to
determine such rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
power of holders of Staples Common Stock and, under certain circumstances,
make it more difficult for a third party to gain control of Staples. There are
no outstanding shares of Preferred Stock and, other than the Series A Junior
Participating Preferred Stock discussed below, no designated series of
Preferred Stock.

RIGHTS PLAN

In February 1994, Staples adopted the Staples Rights Plan under which
preferred stock purchase rights ("Rights") were distributed as a dividend
(adjusted for subsequent stock splits) at the rate of 16/81st of a Right for
each share of Staples Common Stock outstanding. The Rights will expire on
February 15, 2004, unless earlier redeemed or exchanged. Each Right entitles
the holder to purchase one one-hundredth of a share of Series A Preferred
Stock of Staples at an exercise price of $130 per Right (subject to
adjustment). The Rights will be exercisable only if a person or group has
acquired beneficial ownership of 20% or more of the outstanding shares of
Common Stock or announces a tender or exchange offer that would result in such
person or group owning 30% or more of the outstanding shares of Common Stock.
Such percentages may, in the Board's discretion, be lowered, although in no
event below 10%. If any person becomes the beneficial owner of 25% or more of
the shares of Common Stock, except pursuant to a tender or exchange offer for
all shares at a fair price as determined by the outside members of the Staples
Board, or if a 20% or more stockholder constitutes or merges into or engaged
in certain self dealing transactions with Staples, or if there occurs any
reclassification, merger or other transaction or transactions which increases
by more than 1% the proportionate share of the outstanding Common Stock held
by a 20% or more stockholder, each Right not owned by a 20% or more
stockholder will enable its holder to purchase that number of shares of the
Common Stock which equals the exercise price of the right dividend by one-half
of the current market price of the Common Stock at the date of the occurrence
of the event. In addition, if Staples is involved in a merger or other
business combination transaction with another person or group in which it is
not the surviving corporation or in connection with which the Common Stock is
changed or converted, or it sells or transfers 50% or more of its assets or
earning power to another person, each Right that has not previously been
exercised will entitle its holder to purchase that number of shares of common
stock of

28
<PAGE>

such other person which equals the exercise price of the Right divided by one-
half of the current market price of such common stock at the date of the
occurrence of the event. Staples will generally be entitled to redeem the
Rights at $.02 per Right at any time until the 10th day following public
announcement that a 20% stock position has been acquired and in certain other
circumstances.

Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of sixteen eighty-one hundredths of a
share of Series A Preferred Stock purchasable upon exercise of the 16/81st of
a Right associated with each share of Common Stock should approximate the
value of one share of Common Stock.

The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Staples on
terms not approved by the Board of Directors of Staples, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by Staples at $.02 per
Right prior to the tenth day after the public announcement by a person or
group of the acquisition of 20% or more of the outstanding shares of Common
Stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

Staples is subject to the provision of Section 203 of the DGCL, an anti-
takeover law. Section 203 prevents an "Interested Stockholder" of a
corporation (generally defined to mean any beneficial owner of more than 15%
of the corporation's voting stock) from engaging in any "business combination"
(as defined in Section 203) with the corporation for a period of three years
following the date on which such Interested Stockholder became an Interested
Stockholder, unless: (i) before such person became an Interested Stockholder,
the Board of Directors of the corporation approved either the business
combination in question or the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder; (ii) upon consummation of the
transaction which resulted in the Interested Stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding (for purposes of determining the number of shares
outstanding) shares held by directors who are also officers and employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) following the transaction which resulted in
the Interested Stockholder becoming an Interested Stockholder, the business
combination is (x) approved by the Board of Directors of the corporation and
(y) authorized at a meeting of stockholders by the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. A "business combination" includes,
among others, mergers, asset sales and other transactions resulting in a
financial benefit to the Interested Stockholder.

Staples' Certificate of Incorporation requires that holders of two-thirds of
Staples' issued and outstanding stock entitled to vote thereon approve any
merger, consolidation, dissolution or sale of all or substantially all of the
assets of Staples.

Staples' Certificate of Incorporation requires all stockholder action to
occur at a meeting and prohibits stockholder action by written consent. The
Bylaws of Staples provide that special meetings of stockholders may be called
only by the Chairman of the Board of Directors or the President.

Staples has included in its Certificate of Incorporation and Bylaws
provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by Section 102(b)(7) of the DGCL and (ii) indemnify its directors
and officers to the fullest extent permitted by Section 145 of the DGCL,
including under circumstances in which indemnification is otherwise
discretionary. Staples believes that these provisions are necessary to attract
and retain qualified persons as directors and officers.

TRANSFER AGENT

The transfer agent for the Staples Common Stock is The First National Bank
of Boston.

29
<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-U.S. HOLDERS

GENERAL

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

This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative and judicial interpretations as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
This discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities or persons
holding Common Stock in connection with a hedging transaction, "straddle,"
conversion transaction or other integrated transactions. In addition, this
discussion does not address any tax consequences arising under the laws of any
state, local or foreign jurisdiction. Prospective holders should consult their
tax advisors with respect to the particular tax consequences to them of owning
and disposing of Common Stock, including the consequences under the laws of
any state, local or foreign jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a rate of 30% of
the gross amount of the dividends or such lower rate as may be specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, the Company ordinarily will presume, under current United States
Treasury Regulations, that dividends paid on or before December 31, 1999 to an
address in a foreign country are paid to a resident of such country, in the
absence of knowledge that such presumption is not warranted. Under such
Regulations, dividends paid on or before December 31, 1999 to a holder with an
address within the United States generally will be presumed to be paid to a
holder who is not a Non-U.S. Holder and will not be subject to the 30%
withholding tax, unless the Company has actual knowledge that the holder is a
Non-U.S. Holder.

Recently finalized United States Treasury Regulations generally applicable
to dividends paid after December 31, 1999 (the "Final Regulations") provide
for certain presumptions (which differ from those described above) upon which
the Company may generally rely to determine whether, in the absence of certain
documentation, a holder should be treated as a Non-U.S. Holder for purposes of
the 30% withholding tax described above. The presumption would not apply for
purposes of granting a reduced rate of withholding under a treaty. Under the
Final Regulations, to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder will generally be required either (i) to provide an Internal
Revenue Service Form W-8 certifying such Non-U.S. Holder's entitlement to
benefits under a treaty together with, in certain circumstances, additional
information or (ii) satisfy certain other applicable certification
requirements. The Final Regulations also provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty and for
purposes of the 30% withholding tax described above, dividends paid to a Non-
U.S. Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.

The Company will not withhold tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade
or business within the United States if a Form 4224 is properly filed with the
Company or its paying agent. Whether a Non-U.S. Holder is deemed to be engaged
in a U.S. trade or business is a question of facts and circumstances
determined by reference to the nexus of business activity. Whether a dividend
is effectively connected with such a business is also a question of facts and
circumstances which examines the relationship of the dividend and the Non-U.S.
Holder's trade or business. If a dividend is

30
<PAGE>

effectively connected, it will be subject to regular U.S. income tax in the
same manner as if the Non-U.S. Holder were a U.S. resident. Effectively
connected dividends may be subject to a different treatment under an
applicable tax treaty depending on whether such dividends are attributable to
a permanent establishment of the Non-U.S. Holder in the United States. The
Final Regulations will replace Form 4224 with Form W-8 and certain additional
information. A non-U.S. corporation receiving effectively connected dividends
may also be subject to an additional "branch profits tax" that is imposed,
under certain circumstances, at a rate of 30% (or such lower rate as may be
specified by any applicable treaty) of the non-U.S. corporation's effectively
connected earnings and profits, subject to certain adjustments.

A Non-U.S. Holder eligible for a reduced rate of United States withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts
currently withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service ("IRS").

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States; (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the Common Stock as a capital
asset, such individuals are present in the United States for 183 or more days
in the taxable year of the disposition, and either the non-resident alien
individual has a "tax home" in the United States or the sale is attributable
to an office or other fixed place of business maintained by the non-resident
alien individual in the United States; (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates; or (iv) the Company is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period (the "determination period").

A domestic corporation is a U.S. real property holding company ("USRPHC") if
the fair market value of its U.S. real property interests ("USRPI") comprises
a sufficiently large percentage of the corporation's overall assets. In
particular, a domestic corporation is a USRPHC if the fair market value of the
USRPIs exceeds 50% of the sum of the corporation's (i) USRPIs, (ii) interests
in non-U.S. real property, and (iii) any other of the corporation's assets
which are used or held for use in a trade or business. For purposes of these
determinations, USRPIs are broadly defined to include, among other things,
real property located in the United States as well as stock in a corporation
which is itself a USRPHC.

The Company believes that it is not, and is not likely to become, a USRPHC
for federal income tax purposes. Even if the Company were a USRPHC for federal
income tax purposes at any time during the determination period, the
disposition of Common Stock by a Non-U.S. Holder that did not own more than
five percent of the Common Stock during the determination period would not be
treated as a disposition of an interest in a USRPHC if the Common Stock were
treated as "regularly traded on an established securities market" during the
calendar year.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Generally, the Company must report annually to the IRS the amount of
dividends paid, the name and address of the recipient, and the amount, if any,
of tax withheld. The information reporting requirements apply regardless of
whether withholding was reduced by an applicable tax treaty or if withholding
was not required because the dividends were effectively connected with a trade
or business in the United States of the Non-U.S. Holder. A similar report is
sent to the holder. Pursuant to tax treaties or other agreements, the IRS may
make its reports available to tax authorities in the recipient's country of
residence.

31
<PAGE>

Under current United States Treasury Regulations, unless the Company has
actual knowledge that a holder is a Non-U.S. Holder, dividends paid on or
before December 31, 1999 to a holder at an address within the United States
may be subject to backup withholding at a rate of 31% and additional
information reporting if the holder is not an "exempt recipient" as defined in
Treasury Regulations (which includes corporations) and fails to provide a
correct taxpayer identification number and other information to the Company.
In addition, backup withholding and such additional information reporting will
generally not apply to dividends paid on or before December 31, 1999 to
holders at an address outside the United States (unless the Company has
knowledge that the holder is a United States person) or to dividends paid on
or before December 31, 1999 to Non-U.S. Holders that are either subject to the
United States withholding tax (whether at a 30% or a reduced rate) or that are
exempt from such withholding because such dividends constitute effectively
connected income. For dividends paid after December 31, 1999, the Final
Regulations provide certain presumptions and other rules under which Non-U.S.
Holders may be subject to backup withholding and related information reporting
in the absence of required certifications.

Under current United States Treasury Regulations, information reporting and
backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock by a Non-U.S. Holder effected by or through a U.S.
office of a broker unless the disposing holder certifies as to its name,
address and status as a Non-U.S. Holder or otherwise establishes an exemption.
Generally, U.S. information reporting and backup withholding will not apply to
a payment of disposition proceeds where the transaction is effected outside
the United States through a non-U.S. office of a non-U.S. broker. However,
U.S. information reporting requirements (but not backup withholding) will
apply to a payment of disposition proceeds where (a) the transaction is
effected outside the United States by or through an office outside the United
States of a broker that is either (i) a U.S. person, (ii) a foreign person
that derives 50% or more of its gross income for certain periods from
activities that are effectively connected with the conduct of a trade or
business in the United States, (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes or (iv) effective after December 31, 1999,
certain brokers that are foreign partnerships with U.S. partners or that are
engaged in a U.S. trade or business, and (b) the broker fails to maintain
documentary evidence that the holder is a Non-U.S. Holder and that certain
conditions are met, or that the holder otherwise is entitled to an exemption.

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

FEDERAL ESTATE TAX

The value of an interest in the Common Stock will be included in the gross
estate for U.S. federal estate tax purposes of any individual Non-U.S. Holder
who is treated as the owner of, or has made certain lifetime transfers of,
that interest. The interest therefore may be subject to U.S. federal estate
tax unless an applicable estate tax treaty provides otherwise.

32
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Smith Barney Inc. are acting as U.S. Representatives, and the
International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Goldman Sachs International and Smith Barney Inc. are
acting as International Representatives, have severally agreed to purchase,
and the Selling Stockholders have agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the names of
such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................
Goldman, Sachs & Co............................................
Smith Barney Inc...............................................
----------
Subtotal..................................................... 11,118,400
----------
International Underwriters:
Morgan Stanley & Co. International Limited.....................
Goldman Sachs International....................................
Smith Barney Inc...............................................
----------
Subtotal..................................................... 2,779,600
----------
Total........................................................ 13,898,000
==========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.

33
<PAGE>

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."

Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a

34
<PAGE>

person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price
and other selling terms may from time to time be varied by the
Representatives.

Certain Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an aggregate of 2,084,700 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the shares of Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.

The Company, each of its directors and executive officers and certain of the
Selling Stockholders have each agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, during the period ending 90 days after the date of this Prospectus, (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of the
Shares to the Underwriters, (y) the issuance by the Company of shares of
Common Stock upon the exercise of an option or a warrant or the conversion of
a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, issuances pursuant to the Company's
employee stock purchase plan or the issuance by the Company of options or
warrants to employees or directors of the Company pursuant to the Company's
stock-based incentive compensation plans existing on the date of this
Prospectus which are not exercisable within such 90 day period or (z)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares.

The Common Stock is listed on the Nasdaq National Market under the symbol
"SPLS."

35
<PAGE>

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

From time to time, certain of the Underwriters and their affiliates have
provided, and continue to provide, investment banking services to the Company.

LEGAL MATTERS

Certain legal matters with respect to the Shares offered hereby will be
passed upon for the Company and for certain Selling Stockholders by Hale and
Dorr LLP, Boston, Massachusetts, counsel to the Company. Certain legal matters
with respect to the Shares offered hereby will be passed upon for the other
Selling Stockholders by Neal, Gerber & Eisenberg, Chicago, Illinois. Certain
legal matters will be passed upon for the Underwriters by Davis Polk &
Wardwell, New York, New York.

EXPERTS

The consolidated financial statements of Staples at January 31, 1998 and
February 1, 1997, and for each of the three years in the period ended January
31, 1998, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein which, as to the years 1997, 1996,
and 1995, are based in part on the reports of Kupferberg, Goldberg, & Neimark,
LLC, independent auditors. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.

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 statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may 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
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The
Company is required to file electronic versions of certain documents through
the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR)
system. The Commission maintains a World Wide Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

36
<PAGE>

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect
to the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, as certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Shares, reference is
made to such Registration Statement. Statements contained in this Prospectus
regarding the contents of any agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such agreement
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission at prescribed rates.

37
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998;

(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 2, 1998;

(3) The Company's Current Report on Form 8-K dated April 6, 1998, filed
with the Commission on April 10, 1998;

(4) The Company's Current Report on Form 8-K dated May 21, 1998, filed with
the Commission on June 4, 1998;

(5) The Company's Current Report on Form 8-K dated July 1, 1998, filed with
the Commission on July 1, 1998;

(6) The Company's Current Report on Form 8-K dated July 9, 1998, filed with
the Commission on July 9, 1998; and

(7) The Company's Registration Statement on Form 8-A dated April 7, 1989
registering the Common Stock under Section 12(g) of the Exchange Act.

All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the termination of the offering of the Shares registered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be
a part hereof from the date of filing such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated by reference into this Prospectus (without exhibits to such
documents other than exhibits specifically incorporated by reference into such
documents). All such requests shall be directed to: Staples, Inc., One
Research Drive, Westborough, Massachusetts 01581, Attention: Investor
Relations, Telephone: (508) 370-8500.

38
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.. F-3
Consolidated Statements of Income for fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996............................. F-4
Consolidated Statements of Stockholders' Equity for fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996................. F-5
Consolidated Statements of Cash Flows for fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996............................. F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheets as of May 2, 1998 (unaudited) and January 31,
1998.................................................................... F-23
Consolidated Statements of Income for 13 weeks ended May 2, 1998 and May
3, 1997 (unaudited)..................................................... F-24
Consolidated Statements of Cash Flows for 13 weeks ended May 2, 1998 and
May 3, 1997 (unaudited)................................................. F-25
Notes to Consolidated Financial Statements............................... F-26
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Staples, Inc.

We have audited the accompanying consolidated balance sheets of Staples,
Inc. as of January 31, 1998 and February 1, 1997 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Quill Corporation which statements reflect total assets constituting 6% for
1997 and 8% for 1996 of the related consolidated financial statement totals,
and which reflect net income constituting approximately 20%, 25% and 30% of
the related consolidated financial statement totals for 1997, 1996 and 1995,
respectively. These statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for Quill Corporation is based solely on the reports of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Staples, Inc. at
January 31, 1998 and February 1, 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1998 in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Boston, Massachusetts
June 29, 1998

F-2
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 381,088 $ 117,035
Short-term investments............................... 5,902 15,185
Merchandise inventories.............................. 1,124,642 845,854
Receivables, net..................................... 203,143 211,459
Deferred income taxes................................ 33,108 31,202
Prepaid expenses and other current assets............ 38,257 41,589
---------- ----------
Total current assets............................... 1,786,140 1,262,324
Property and Equipment:
Land and buildings................................... 150,947 103,619
Leasehold improvements............................... 292,128 235,006
Equipment............................................ 304,177 239,290
Furniture and fixtures............................... 173,711 117,823
---------- ----------
Total property and equipment....................... 920,963 695,738
Less accumulated depreciation and amortization....... 310,701 216,781
---------- ----------
Net property and equipment......................... 610,262 478,957
Other Assets:
Lease acquisition costs, net of amortization......... 43,244 42,552
Investments.......................................... 16,450 10,046
Investment in affiliates............................. -- 40,542
Goodwill, net of amortization........................ 139,753 81,306
Deferred income taxes................................ 15,451 16,708
Other................................................ 27,562 23,201
---------- ----------
Total other assets................................. 242,460 214,355
---------- ----------
$2,638,862 $1,955,636
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 672,956 $ 448,968
Accrued expenses and other current liabilities....... 266,023 181,236
Debt maturing within one year........................ 43,501 8,285
---------- ----------
Total current liabilities.......................... 982,480 638,489
Long-Term Debt......................................... 218,959 102,985
Other Long-Term Obligations............................ 42,803 38,339
Convertible Debentures................................. 300,000 300,000
Minority interest...................................... 135 --
Stockholders' Equity:
Preferred stock, $.01 par value-authorized 5,000,000
shares; no shares issued............................
Common stock, $.0006 par value-authorized 500,000,000
shares; issued 278,159,308 shares at January 31,
1998 and 269,405,480 shares at February 1, 1997..... 167 162
Additional paid-in capital........................... 593,883 508,833
Cumulative foreign currency translation adjustments.. (10,315) (147)
Unrealized gain/(loss) on investments................ 1,056 20
Retained earnings.................................... 510,040 367,301
Less: treasury stock 59,149, at cost................. (346) (346)
---------- ----------
Total stockholders' equity......................... 1,094,485 875,823
---------- ----------
$2,638,862 $1,955,636
========== ==========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales...................................... $5,732,145 $4,493,589 $3,565,235
Cost of goods sold and occupancy costs..... 4,353,161 3,410,263 2,738,596
---------- ---------- ----------
Gross profit........................... 1,378,984 1,083,326 826,639
Operating expenses:
Operating and selling.................... 833,046 651,634 501,253
Pre-opening.............................. 9,443 8,299 5,607
General and administrative............... 225,587 175,704 135,420
Amortization of goodwill................. 3,581 2,291 1,967
---------- ---------- ----------
Total operating expenses............... 1,071,657 837,928 644,247
---------- ---------- ----------
Operating income....................... 307,327 245,398 182,392
Other income (expense):
Interest and other expense, net.......... (21,955) (22,962) (15,671)
Merger-related costs..................... (29,665) -- --
---------- ---------- ----------
Total other income (expense)........... (51,620) (22,962) (15,671)
---------- ---------- ----------
Income before equity in loss of
affiliates and income taxes........... 255,707 222,436 166,721
Equity in loss of affiliates............... (5,953) (11,073) (12,153)
---------- ---------- ----------
Income before income taxes............. 249,754 211,363 154,568
Income tax expense......................... 81,924 66,621 46,140
---------- ---------- ----------
Net income before minority interest.... 167,830 144,742 108,428
Minority interest.......................... 84 -- --
---------- ---------- ----------
Net income............................. $ 167,914 $ 144,742 $ 108,428
========== ========== ==========
Earnings per common share
Historical net income per common share... $ 0.62 $ 0.54 $ 0.42
========== ========== ==========
Earnings per common share--assuming
dilution
Historical net income per common share... $ 0.59 $ 0.52 $ 0.41
========== ========== ==========
Pro forma:
Historical net income.................... $ 167,914 $ 144,742 $ 108,428
Provision for income taxes on previously
untaxed earnings of pooled S-Corporation
income.................................. 14,786 15,329 13,889
---------- ---------- ----------
Pro forma net income................... $ 153,128 $ 129,413 $ 94,539
========== ========== ==========
Earnings per common share
Pro forma net income per common share.... $ 0.56 $ 0.49 $ 0.37
========== ========== ==========
Earnings per common share--assuming
dilution
Pro forma net income per common share.... $ 0.54 $ 0.47 $ 0.35
========== ========== ==========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

FOR THE FISCAL YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997,
AND FEBRUARY 3, 1996

<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN UNREALIZED
ADDITIONAL CURRENCY GAIN
COMMON PAID-IN TRANSLATION (LOSS) ON RETAINED TREASURY
STOCK CAPITAL ADJUSTMENTS INVESTMENTS EARNINGS STOCK
------ ---------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 28,
1995................... $143 $314,526 $ (2,228) $ (93) $160,213 $(346)
Issuance of common stock
for stock options
exercised.............. 1 11,323
Tax benefit on exercise
of options............. 11,394
Contribution of common
stock to Employees'
401(K) Savings Plan.... 1,257
Sale of common stock
under Employee Stock
Purchase Plan.......... 5,641
Conversion of debt to
equity................. 8 114,049
Unrealized gain on
short-term investments,
net of tax............. 125
Translation
adjustments............ 155
Issuance of common stock
for acquisitions and
other transactions..... 7 8,470 295
Dividends to
shareholders of
acquired S-Corp........ (21,227)
Net income for the
year................... 108,428
---- -------- -------- ------ -------- -----
Balances at February 3,
1996................... $159 $466,660 $ (2,073) $ 32 $247,709 $(346)
Issuance of common stock
for stock options
exercised.............. 3 13,726
Tax benefit on exercise
of options............. 16,773
Contribution of common
stock to Employees'
401(K) Savings Plan.... 1,998
Sale of common stock
under Employee Stock
Purchase Plan.......... 8,980
Issuance of Performance
Accelerated Restricted
Stock.................. 532
Unrealized loss on
short-term investments,
net of tax............. (12)
Translation
adjustments............ 1,926
Issuance of common stock
for acquisitions and
other transactions..... 164 (242)
Dividends to
shareholders of
acquired S-Corp........ (24,908)
Net income for the
year................... 144,742
---- -------- -------- ------ -------- -----
Balances at February 1,
1997................... $162 $508,833 $ (147) $ 20 $367,301 $(346)
Issuance of common stock
for stock options
exercised.............. 5 32,178
Tax benefit on exercise
of options............. 32,873
Contribution of common
stock to Employees'
401(K) Savings Plan.... 2,318
Sale of common stock
under Employee Stock
Purchase Plan.......... 10,499
Issuance of Performance
Accelerated Restricted
Stock.................. 7,182
Unrealized gain on
investments, net of
tax.................... 1,036
Translation
adjustments............ (10,168)
Minority interest.......
Dividends to
shareholders of
acquired S-Corp........ (25,175)
Net income for the
year................... 167,914
---- -------- -------- ------ -------- -----
Balance at January 31,
1998................... $167 $593,883 $(10,315) $1,056 $510,040 $(346)
==== ======== ======== ====== ======== =====
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................... $ 167,914 $ 144,742 $ 108,428
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities: provided by (used in)
operating activities:
Minority interest...................... (84) -- --
Depreciation and amortization.......... 90,714 61,497 48,401
Expense from 401k and PARS stock
contribution.......................... 10,409 2,715 1,633
Equity in loss of affiliates........... 5,953 11,073 12,153
Deferred income taxes
(benefit)/expense..................... 3,877 3,137 (13,211)
Change in assets and liabilities, net
of effects of purchase of other
companies:
Increase in merchandise inventories.. (227,076) (171,593) (175,386)
Decrease (increase) in receivables... 17,569 (41,905) (49,731)
Increase in prepaid expenses and
other assets ....................... (5,026) (7,026) (2,094)
Increase in accounts payable, accrued
expenses and other current
liabilities......................... 323,496 179,803 60,956
Increase (decrease) in other long-
term obligations.................... 5,074 6,303 (1,625)
--------- ----------- -----------
224,906 44,004 (118,904)
--------- ----------- -----------
Net cash provided by (used in)
operating activities.............. 392,820 188,746 (10,476)
INVESTING ACTIVITIES:
Acquisition of property and equipment.... (190,659) (212,007) (124,121)
Acquisition of businesses, net of cash
acquired................................ (79,325) -- --
Proceeds from sales and maturities of
short-term investments.................. 13,618 8,800 16,519
Purchase of short-term investments....... (4,500) (9,595) (2,204)
Proceeds from sales and maturities of
long-term investments................... 265 -- --
Purchase of long-term investments........ (5,714) (10,036) --
Investment in affiliates................. (3,788) (18,629) (22,088)
Acquisition of lease rights.............. (2,717) (5,534) (2,044)
Other.................................... (11,998) 2,657 2,024
--------- ----------- -----------
Net cash used in investing
activities........................ (284,818) (244,344) (131,914)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock...... 48,043 21,773 17,857
Proceeds from convertible debentures, net
of deferred costs....................... -- -- 291,032
Proceeds from borrowings................. 965,921 1,171,174 1,226,895
Payments on borrowings................... (830,018) (1,120,670) (1,313,930)
Dividends to shareholders of acquired S-
Corp.................................... (25,175) (24,908) (21,227)
--------- ----------- -----------
Net cash provided by financing
activities........................ 158,771 47,369 200,627
Effect of exchange rate changes on cash.. (2,720) 643 142
Net increase in cash and cash
equivalents............................. 264,053 (7,586) 58,379
Cash and cash equivalents at beginning of
period.................................. 117,035 124,621 66,242
--------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 381,088 $ 117,035 $ 124,621
========= =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS: Staples, Inc. and subsidiaries ("the Company")
operates a chain of office supply stores and contract stationer/delivery
warehouses throughout North America and in Germany and the United Kingdom.

BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions are eliminated in consolidation.

FISCAL YEAR: The Company's fiscal year is the 52 or 53 weeks ending the
Saturday closest to January 31. Fiscal years 1997, 1996 and 1995, consisted of
the 52 weeks ended January 31, 1998 and February 1, 1997, and the 53 weeks
ended February 3, 1996, respectively. The statements of income combine
Staples' historical operating results for the fiscal years with the
corresponding Quill operating results for the years ended December 31, 1997,
1996 and 1995.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management of the Company to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

CASH EQUIVALENTS: The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.

SHORT-TERM INVESTMENTS: The Company's securities are classified as available
for sale and consist principally of high-grade state and municipal securities
having an original maturity of more than three months. The investments are
carried at fair value, with the unrealized holding gains and losses reported
as a component of the Company's stockholders' equity. The cost of securities
sold is based on the specific identification method. No individual issue in
the portfolio constitutes greater than one percent of the total assets of the
Company.

MERCHANDISE INVENTORIES: Merchandise inventories are valued at the lower of
weighted-average cost or market.

RECEIVABLES: Receivables relate principally to amounts due from vendors
under various incentive and promotional programs and trade receivables
financed under regular commercial credit terms. Concentrations of credit risk
with respect to trade receivables are limited due to the Company's large
number of customers and their dispersion across many industries and geographic
regions.

ADVERTISING: The Company expenses the production costs of advertising the
first time the advertising takes place, except for the direct-response
advertising, which is capitalized and amortized over its expected period of
future benefits. Direct-response advertising consists primarily of the direct
catalog production costs. The capitalized costs of the advertising are
amortized over the six month period following the publication of the catalog
in which it appears. At January 31, 1998, direct catalog production costs
included in prepaid and other assets totaled $7,667,000. Total advertising and
marketing expense was $288,838,000, $221,000,000, $147,216,000 for the years
ended January 31, 1998, February 1, 1997 and February 3, 1996, respectively.

PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation and amortization, which includes the amortization of assets
recorded under capital lease obligations, are provided using the straight-line
method over the estimated useful lives of the assets or the terms of the
respective leases. Depreciation and amortization periods are as follows:

F-7
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<S> <C>
Buildings....................................... 40 years
Leasehold improvements.......................... 10 years or term of lease
Furniture and fixtures.......................... 5 to 10 years
Equipment....................................... 3 to 10 years
</TABLE>

LEASE ACQUISITION COSTS: Lease acquisition costs are recorded at cost and
amortized on the straight-line method over the respective lease terms,
including option renewal periods if renewal of the lease is probable, which
range from 5 to 40 years. Accumulated amortization at January 31, 1998 and
February 1, 1997 totaled $19,483,000 and $15,432,000, respectively.

INVESTMENT IN AFFILIATES: Investment in affiliates represents cash invested
by the Company in foreign affiliates in Germany and the United Kingdom, which
were accounted for under the equity method until May 1997, at which time the
Company acquired controlling interest in the affiliates (see Note I). As a
result, prior to May 1997, the Company accounted for its interests in these
affiliates under the equity method and subsequent to May 1997, it has
consolidated the affiliates in its financial statements.

GOODWILL: Goodwill arising from business acquisitions is amortized on a
straight-line basis over 40 years. Accumulated amortization was $10,622,000
and $5,897,000 as of January 31, 1998 and February 1, 1997, respectively.
Management periodically evaluates the recoverability of goodwill, which would
be adjusted for a permanent decline in value, if any, as measured by the
recoverability from projected future cash flows from the acquired businesses.

PRE-OPENING COSTS: Pre-opening costs, which consist primarily of salaries,
supplies, marketing and occupancy costs, are charged to expense as incurred.

PRIVATE LABEL CREDIT CARD RECEIVABLES: The Company offers a private label
credit card which is managed by a financial services company. Under the terms
of the agreement, the Company is obligated to pay fees which approximate the
financial institution's cost of processing and collecting the receivables,
which are non-recourse to the Company.

FOREIGN CURRENCY TRANSLATION: The assets and liabilities of the Company's
foreign subsidiaries, The Business Depot Ltd. ("Business Depot"), Staples UK,
and Staples Germany, are translated into U.S. dollars at current exchange
rates as of the balance sheet date, and revenues and expenses are translated
at average monthly exchange rates. The resulting translation adjustments, and
the net exchange gains and losses resulting from the translation of
investments in the Company's European affiliates during the year ended January
31, 1998, are recorded in a separate section of stockholders' equity titled
"Cumulative foreign currency translation adjustments".

STOCK OPTION PLANS: The Company has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). As permitted by FAS 123, the Company continues to account for its
stock-based plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and provides pro forma disclosures
of the compensation expense determined under the fair value provisions of FAS
123.

EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("FAS 128"). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods

F-8
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

have been presented, and where appropriate, restated to conform to the FAS 128
requirements. See Note K for the computation of earnings per share for the
years ended January 31, 1998, February 1, 1997 and February 3, 1996.

FAIR VALUE OF FINANCIAL INSTRUMENTS. Pursuant to Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments" ("FAS 107"), the Company has estimated the fair value of its
financial instruments using the following methods and assumptions:

-- The carrying amount of cash and cash equivalents, receivables and
accounts payable approximates fair value;

-- The fair values of short-term investments and the 4 1/2% Convertible
Subordinated Debentures are based on quoted market prices;

-- The carrying amounts of the Company's debt approximates fair value,
estimated by discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.

LONG-LIVED ASSETS: The Company has adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flow estimated to be
generated by those assets are less than the assets' carrying amount. The
Company has evaluated all long-lived assets and determined that no impairment
existed at January 31, 1998 and February 1, 1997, respectively. FAS 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of.

COMPREHENSIVE INCOME: In June 1997, the Financial Accounting Standards Board
issued Statement 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, adoption in fiscal year 1998 will have no impact
on the Company's net income or stockholders' equity. FAS 130 requires
unrealized gains or losses on the Company's available-for-sale securities and
the foreign currency translation adjustments, which currently are reported in
stockholders' equity, to be included in other comprehensive income and the
disclosure of total comprehensive income. If the Company adopted FAS 130 for
the year ended January 31, 1998, the total of other comprehensive income items
and comprehensive income (which includes Quill pro forma net income) would be
a loss of $10,168,000 and income of $143,996,000, respectively, and would be
displayed separately in the consolidated statements of income.

SEGMENT REPORTING: In 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131") which changes the way public companies report
information about operating segments. The Company will adopt FAS 131 in fiscal
year 1998. This statement, which is based on the management approach to
segment reporting, establishes requirements to report selected segment
information quarterly and to report entity-wide disclosures about products and
services, major customers, and the major countries in which the Company holds
assets and reports revenues.

F-9
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE B--INVESTMENTS

The following is a summary of available-for-sale investments as of January
31, 1998 and February 1, 1997 (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
JANUARY 31, 1998
Short-term:
Certificates of deposit.......... $ 3,236 $ -- $-- $ 3,236
Debt securities.................. 2,659 7 -- 2,666
------- ------ ---- -------
Total short-term............... $ 5,895 $ 7 $-- $ 5,902
======= ====== ==== =======
Long-term:
Municipal obligations............ $ 9,986 $ 125 $ (7) $10,104
Equity securities................ 4,061 950 (15) 4,996
Money market instruments......... 1,350 -- -- 1,350
------- ------ ---- -------
Total long-term................ $15,397 $1,075 $(22) $16,450
======= ====== ==== =======
FEBRUARY 1, 1997
Short-term:
Debt securities.................. $ 7,968 $ 18 $-- $ 7,986
Certificates of deposits......... 7,199 -- -- 7,199
------- ------ ---- -------
Total short-term............... $15,167 $ 18 $-- $15,185
======= ====== ==== =======
Long-term:
Municipal obligations............ 5,652 14 (6) 5,660
Money market instruments......... 3,573 -- -- 3,573
Equity securities................ 811 17 (15) 813
------- ------ ---- -------
Total long-term................ $10,036 $ 31 $(21) $10,046
======= ====== ==== =======
</TABLE>

Proceeds from the sale of investment securities were $265,000 and $0 during
the year ended January 31, 1998 and February 1, 1997, respectively. Other
reductions in the cost balance resulted from maturities of securities. The net
adjustment to unrealized holding gains and losses on available-for-sale
securities included as a separate component of stockholders' equity totaled
$1,036,000 and ($12,000) for the years ended January 31, 1998 and February 1,
1997, respectively.

The amortized cost and estimated fair value of debt and marketable equity
securities at January 31, 1998, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities
because the issuers of securities may have the right to prepay obligations
without prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------- ----------
<S> <C> <C>
Due in one year or less................................... $ 7,824 $ 7,831
Due after one year through five years..................... 3,969 4,012
Due after five years...................................... 5,439 5,514
Equity securities......................................... 4,061 4,996
------- -------
Total................................................... $21,293 $22,353
======= =======
</TABLE>

F-10
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE C--LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Capital lease obligations and other notes payable
in monthly installments with effective interest
rates from 4% to 16%; collateralized by the
related equipment................................. $ 14,909 $ 19,062
Note payable with a fixed rate of 6.16%............ 25,000 25,000
Senior notes with a fixed rate of 7.125%........... 200,000 --
Mortgage notes at various rates.................... 13,805 12,708
Revolving lines of credit.......................... 8,746 54,500
-------- --------
$262,460 $111,270
Less current portion............................... 43,501 8,285
-------- --------
$218,959 $102,985
======== ========
</TABLE>

Aggregate annual maturities of long-term debt and capital lease obligations
are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR: TOTAL
------------ --------
<S> <C>
1998................................................................ $ 43,635
1999................................................................ 3,790
2000................................................................ 3,929
2001................................................................ 1,295
2002................................................................ 1,816
Thereafter.......................................................... 207,995
--------
$262,460
========
</TABLE>

Included in property and equipment are capital lease obligations for
equipment recorded at the net present value of the minimum lease payments of
$25,352,000. Future minimum lease payments of $7,956,000, excluding $2,292,000
of interest, are included in aggregate annual maturities shown above. The
Company entered into capital lease agreements totaling $2,770,000 and
$2,733,000 during the fiscal years ended January 31, 1998 and February 1,
1997, respectively.

SENIOR NOTES:

The Company issued $200,000,000 of senior notes (the "Notes") on August 12,
1997 with an interest rate of 7.125% payable semi-annually on February 15 and
August 15 of each year commencing on February 15, 1998. The Notes are due
August 15, 2007. Net proceeds of approximately $198,000,000 from the sale of
the Company's Notes were used for repayment of indebtedness under the
Company's revolving credit facility and for general working capital purposes,
including the financing of new store openings, distribution facilities and
corporate offices.

MORTGAGE NOTES:

The Company has mortgage notes on five distribution centers, which are
secured by the land and building of the distribution centers. The mortgages
are carried at various floating and fixed rates. The mortgages were paid in
full by the Company on May 21, 1998.

F-11
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CREDIT AGREEMENT:

Effective November 13, 1997, the Company entered into a new revolving credit
facility, effective through November 2002, with a syndicate of banks which
provides up to $350,000,000 of borrowings. Borrowings made pursuant to this
facility will bear interest at either the lead bank's prime rate, the federal
funds rate plus 0.50%, the LIBOR rate plus a percentage spread based upon
certain defined ratios, a competitive bid rate, or a swing line loan rate.
This agreement, among other conditions, contains certain restrictive covenants
including net worth maintenance, minimum fixed charge interest coverage and
limitations on indebtedness, sales of assets, and dividends. As of January 31,
1998, no borrowings were outstanding under the revolving credit facility.
Staples Germany also has a revolver of which $8,746,000 was outstanding as of
January 31, 1998.

Interest paid by the Company totaled $23,012,000, $22,501,000 and
$14,715,000 for the fiscal years ended January 31, 1998, February 1, 1997, and
February 3, 1996, respectively. Capitalized interest totaled $1,387,000 and
$611,000 in the years ended January 31, 1998 and February 1, 1997,
respectively.

INTEREST RATE SWAPS:

During fiscal 1996 the Company entered into a binding interest rate swap
agreement to reduce the impact of increases in interest rates on a portion of
its floating-rate debt. The risk to the Company from this swap agreement was
that the financial institution that was counterparty to this agreement might
fail to perform its obligation under the agreement, which would cause the
interest rate on the notional amount under this agreement to reflect current
market rates rather than the contractual fixed rate. The agreement was with a
major financial institution which was expected to fully perform under the
terms of the agreement, which mitigated this off-balance sheet risk. At
February 1, 1997 the Company had one interest rate swap outstanding. The
agreement bound the Company to pay a fixed rate of 5.65% on $25,000,000 of the
Company's floating rate debt. In return the Company received payments based on
a floating rate on $25,000,000 of the Company's floating rate debt. The
floating rate equaled the 3-month LIBOR in effect at any one of the quarterly
reset dates. The fair market value of the swap agreement as of February 1,
1997 approximated the carrying value based on quoted market prices. With the
issuance of the Notes, the Company was able to repay all outstanding revolving
credit loans that were subject to floating rates. Thus, the Company did not
see the need to retain this interest rate swap arrangement and terminated it
on July 29, 1997.

NOTE D--CONVERTIBLE DEBENTURES

By June 30, 1995, all of the Company's $115,000,000 of 5% Convertible
Subordinated Debentures due November 1, 1999 (the "5% Debentures"), were
converted into 19,406,250 shares of common stock at a conversion price of
$5.93 per share. The total principal amount converted was credited to common
stock and additional paid-in capital, net of unamortized expenses of the
original debt issue and accrued but unpaid interest.

On October 5, 1995, the Company issued $300,000,000 of 4 1/2% Convertible
Subordinated Debentures due October 1, 2000 with interest payable semi-
annually (the "4 1/2% Debentures"), which are convertible, at the option of
the holder, into Common Stock at a conversion price of $14.67 per share. The 4
1/2% Debentures are redeemable, in whole or in part, at the Company's option
at specified redemption prices on or after October 1, 1998 or in the event of
certain developments involving U.S. withholding taxes or certification
requirements. Costs incurred in connection with the issuance of the 4 1/2%
Debentures are included in Other Assets and are being amortized on the
interest method over the five year period to maturity. The fair value of the 4
1/2% Debentures at January 31, 1998, based upon quoted market prices, totaled
$386,250,000.

NOTE E--STOCKHOLDERS' EQUITY

On December 30, 1997, March 5, 1996 and June 29, 1995, the Board of
Directors approved three-for-two splits of the Company's common stock to be
effected in the form of 50% stock dividends. The dividends were

F-12
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

distributed on January 30, 1998 to shareholders of record as of January 20,
1998, March 25, 1996 to shareholders of record as of March 15, 1996 and July
24, 1995 to shareholders of record as of July 14, 1995, respectively. The
consolidated financial statements have been retroactively restated to give
effect to these stock splits.

At January 31, 1998, 83,409,662 shares of common stock were reserved for
issuance under the Company's stock option, employee stock ownership, 401(k),
employee stock purchase and director stock option plans. An additional
20,454,545 shares of common stock are reserved for issuance upon conversion of
the Company's 4 1/2% Debentures.

NOTE F--EMPLOYEE BENEFIT PLANS

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, since the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

EMPLOYEE STOCK PURCHASE PLAN

The Company's 1994 Employee Stock Purchase Plan authorizes a total of up to
5,906,250 shares of the Company's common stock to be sold to participating
employees. Participating employees may purchase shares of common stock at 85%
of its fair market value at the beginning or end of an offering period,
whichever is lower, through payroll deductions in an amount not to exceed 10%
of an employee's base compensation.

STOCK OPTION PLANS

Under the Company's 1992 Equity Incentive Plan ("1992 Plan") the Company may
grant to management and key employees incentive and nonqualified options to
purchase up to 58,500,000 shares of common stock and Performance Accelerated
Restricted Stock ("PARS"). This amount was approved by the shareholders of the
Company on June 18, 1997. As of February 27, 1997, the Company's 1987 Stock
Option Plan (the "1987 Plan") expired; however, unexercised options under this
plan remain outstanding. The exercise price of options granted under the plans
may not be less than 100% of the fair market value of the Company's common
stock at the date of grant. Options generally have an exercise price equal to
the fair market value of the common stock on the date of grant. Some options
outstanding are exercisable at various percentages of the total shares subject
to the option starting one year after the grant, while other options are
exercisable in their entirety three to five years after the grant date. All
options expire ten years after the grant date, subject to earlier termination
in the event of employment termination.

The Company's 1990 Director Stock Option Plan ("Director's Plan") authorizes
up to 1,594,688 shares of common stock to be issued to non-employee directors.
The exercise price of options granted are equal to the fair market value of
the Company's common stock at the date of grant. Options become exercisable in
equal amounts over four years and expire ten years from the date of grant,
subject to earlier termination, in certain circumstances, in the event the
optionee ceases to serve as a director.

Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to January 28, 1995 under the fair valued method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1995, 1996, and 1997: risk-free interest rates ranging from 5.49% to
6.12%;

F-13
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

volatility factor of the expected market price of the Company's common stock
of .30 for fiscal years 1995 and 1996 and .35 for fiscal year 1997; and a
weighted-average expected life of the option of 4.0 years for the 1987 Plan
and the 1992 Plan and 2.0 to 5.0 years for the Director's Plan.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. For purposes
of FAS 123's disclosure requirements, the Employee Stock Purchase Plan is
considered a compensatory plan. The expense was calculated based on the fair
value of the employees' purchase rights. This was estimated as the difference
between the employees' purchase price and the closing price. The Company's pro
forma information, which includes the pro forma results of Quill, follows (in
thousands except for earnings per share information):

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income................... $138,983 $122,116 $90,521
Pro forma earnings per share........... $ 0.51 $ 0.46 $ 0.35
Pro forma earnings per common share--
assuming dilution..................... $ 0.49 $ 0.44 $ 0.34
</TABLE>

This pro forma impact only takes into account options granted since January
28, 1995 and is likely to increase in future years as additional options are
granted and amortized ratably over the vesting period.

Information with respect to options granted under the above plans are as
follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Outstanding at January 28, 1995................... 31,908,470 $ 3.95
Granted......................................... 5,472,810 10.46
Exercised....................................... (3,615,006) 3.27
Canceled........................................ (2,285,888) 5.31
---------- ------
Outstanding at February 3, 1996................... 31,480,386 $ 4.93
Granted......................................... 4,781,291 13.23
Exercised....................................... (4,093,695) 3.43
Canceled........................................ (1,571,412) 7.34
---------- ------
Outstanding at February 1, 1997................... 30,596,570 $ 6.39
Granted......................................... 6,437,705 15.65
Exercised....................................... (6,764,939) 4.17
Canceled........................................ (1,871,922) 11.15
---------- ------
Outstanding at January 31, 1998................... 28,397,414 $ 8.01
========== ======
</TABLE>

The weighted-average fair values of options granted during the years ended
January 31, 1998 and February 1, 1997 were $5.70 and $5.72, respectively.
Exercise prices for the options outstanding as of January 31, 1998 ranged from
$0.01 to $19.42.

Options to purchase 12,280,890 shares were exercisable at January 31, 1998.

F-14
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

PERFORMANCE ACCELERATED RESTRICTED STOCK ("PARS")

PARS are shares of the Company's Common Stock granted outright to employees
without cost to the employee. The shares, however, are restricted in that they
are not transferable (e.g. they may not be sold) by the employee until they
vest, generally after the end of five years. Such vesting date may accelerate
if the Company achieves certain compound annual earnings per share growth over
a certain number of interim years. If the employee leaves the Company prior to
the vesting date for any reason, the PARS shares will be forfeited by the
employee and will be returned to the Company. Once the PARS have vested, they
become unrestricted and may be transferred and sold like any other Staples
shares.

PARS issued in the fiscal year ended January 31, 1998 totaling approximately
675,000 which have a weighted average fair value of $18.71, initially vest on
February 1, 2002 or will accelerate on May 1, in 1999, 2000, or 2001 upon
attainment of certain compound annual earnings per share targets in the prior
fiscal year. PARS totaling approximately 585,000 which have a weighted average
fair value of $14.75, issued in fiscal year 1996 will fully vest on May 1,
1998.

In connection with the issuance of the PARS, the Company included $7,496,000
and $532,000 in compensation expense for the fiscal years ended January 31,
1998 and February 1, 1997, respectively.

EMPLOYEES' 401(K) SAVINGS PLAN

Under the Company's Employees' 401(k) Savings Plan (the "401(k) Plan"), and
Supplemental Executive Retirement Plan (the "SERP Plan"), the Company may
contribute up to a total of 1,668,750 shares of common stock to these plans.
The 401(k) Plan is available to all employees of the Company who meet minimum
age and length of service requirements. Company contributions are based upon a
matching formula applied to employee contributions, with additional
contributions made at the discretion of the Board of Directors. In connection
with these plans the Company included approximately $2,000,000 in expense for
each of the fiscal years ended January 31, 1998 and February 1, 1997.

NOTE G--INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
and the approximate tax effect of the Company's deferred tax assets and
liabilities as of January 31, 1998 and February 1, 1997, are as follows (in
thousands):

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Inventory.......................................... $ 20,116 $22,597
Deferred rent...................................... 14,797 7,566
Acquired NOL's..................................... 7,132 --
Other net operating loss carryforwards............. 22,907 5,206
Insurance.......................................... 5,967 5,756
Employee benefits.................................. 5,569 2,545
Other--net......................................... 13,660 7,620
-------- -------
Total Deferred Tax Assets........................ 90,148 51,290
-------- -------
Deferred Tax Liabilities:
Depreciation....................................... (6,687) (1,922)
Other--net......................................... (4,835) 208
-------- -------
Total Deferred Tax Liabilities................... (11,522) (1,714)
-------- -------
Total Valuation Allowance............................ (30,067) (1,666)
-------- -------
Net Deferred Tax Assets.............................. $ 48,559 $47,910
======== =======
</TABLE>

F-15
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Net deferred tax assets of approximately $4,500,000 and $440,000
attributable to businesses acquired during the fiscal years ended January 31,
1998 and February 1, 1997, respectively, were allocated directly to reduce
goodwill generated by these acquisitions. The deferred tax assets disclosed as
acquired NOL's and other net operating loss carryforwards, totaling
$30,000,000, have been fully reserved for due to the uncertainty of the
realization of the asset within the local country jurisdiction. Further, if
this asset is utilitized when income is earned within the foreign
jurisdiction, the Company will not have a consolidated tax benefit as the
Company will be required to pay U.S. income taxes on the income offset by the
foreign NOL.

For financial reporting purposes, income before taxes includes the following
components (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pretax income:
United States.......................... $213,549 $187,644 $159,210
Foreign................................ 36,205 23,719 (4,642)
-------- -------- --------
$249,754 $211,363 $154,568
======== ======== ========
</TABLE>

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense:
Federal................................ $53,248 $50,546 $45,207
State.................................. 10,707 12,337 14,144
Foreign................................ 14,092 601 0
------- ------- -------
78,047 63,484 59,351
Deferred tax expense (benefit)........... 3,877 3,137 (13,211)
------- ------- -------
Total.................................... $81,924 $66,621 $46,140
======= ======= =======
</TABLE>

A reconciliation of the federal statutory tax rate to the Company's
effective tax rate on pro forma net income is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate.................. 35.0% 35.0% 35.0%
State taxes, net of federal benefit..... 6.0% 6.3% 6.3%
Tax exempt interest..................... (0.5%) (0.4%) (0.6%)
Tax benefit of loss carryforward........ (0.0%) (0.2%) (0.6%)
Federal tax credits..................... (0.0%) (0.0%) (0.9%)
Income of S-Corporation................. 0.2% 0.3% 0.3%
Other................................... (2.0%) (2.2%) (0.7%)
---- ---- ----
Effective tax rate...................... 38.7% 38.8% 38.8%
==== ==== ====
</TABLE>

F-16
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation of the federal statutory tax rate to the Company's
effective tax rate on historical net income is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate.................. 35.0 % 35.0 % 35.0 %
State taxes, net of federal benefit..... 6.0 % 6.3 % 6.3 %
Tax exempt interest..................... (0.5)% (0.4)% (0.6)%
Tax benefit of loss carryforward........ (0.0)% (0.2)% (0.6)%
Federal tax credits..................... (0.0)% (0.0)% (0.9)%
Untaxed earnings of S-Corporation....... (5.7)% (7.0)% (8.6)%
Other................................... (2.0)% (2.2)% (0.7)%
---- ---- ----
Effective tax rate...................... 32.8 % 31.5 % 29.9 %
==== ==== ====
</TABLE>

Income tax payments were $23,487,877, $45,925,276, and $44,518,000, during
fiscal years ended January 31, 1998, February 1, 1997, and February 3, 1996,
respectively. The Company has net operating losses of approximately
$83,500,000 that can be carried forward indefinitely, $16,500,000 of which is
attributable to the Company's increased ownership in Staples Germany.

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $28,000,000 at January 31, 1998. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes (subject to an adjustment for foreign tax credits)
and withholding taxes payable to the various foreign countries. Determination
of the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its hypothetical
calculation. Withholding taxes of approximately $500,000 would be payable upon
remittance of all previously unremitted earnings at January 31, 1998.

NOTE H--LEASES AND OTHER OFF-BALANCE SHEET COMMITMENTS

The Company leases certain retail and support facilities under long-term
noncancellable lease agreements. Most lease agreements contain renewal options
and rent escalation clauses and require the Company to pay real estate taxes
in excess of specified amounts and, in some cases, allow termination within a
certain number of years with notice and a fixed payment. Certain agreements
provide for contingent rental payments based on sales.

Other long-term obligations at January 31, 1998 include $37,670,000 relating
to future rent escalation clauses and lease incentives under certain existing
store operating lease arrangements. These rent expenses are recognized on a
straight-line method over the respective terms of the leases. Future minimum
lease commitments for retail and support facilities (including lease
commitments for 79 retail stores not yet opened at January 31, 1998) under
noncancellable operating leases are due as follows (in thousands):

<TABLE>
<S> <C>
Fiscal year:
1998.............................................................. $ 221,127
1999.............................................................. 226,390
2000.............................................................. 219,160
2001.............................................................. 210,257
2002.............................................................. 197,434
Thereafter........................................................ 1,518,819
----------
$2,593,187
==========
</TABLE>

F-17
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Rent expense approximated $193,990,000, $142,508,000, and $111,315,000, for
the fiscal years ended January 31, 1998, February 1, 1997, and February 3,
1996, respectively.

Letters of credit are issued by the Company during the ordinary course of
business through major financial institutions as required by certain vendor
contracts. As of January 31, 1998, the Company had available open letters of
credit totaling $11,268,000.

NOTE I--SUMMARIZED FINANCIAL INFORMATION OF AFFILIATES

The Company had equity interests in two affiliated companies in Germany and
the United Kingdom. On May 6, 1997 and May 7, 1997, the Company acquired
Kingfisher PLC's interests in Staples UK and Staples Germany, respectively. As
a result of these acquisitions, the Company's ownership interest of Staples UK
increased to 100% and its ownership interest of Staples Germany increased to
approximately 92%. The cash purchase price of approximately $57 million was
generated through additional borrowings under the Company's existing revolving
credit and term loan facility. The transactions were accounted for in
accordance with the purchase method of accounting and accordingly, the results
of operations of Staples UK and Staples Germany have been included in the
Company's consolidated financial statements since May, 1997. The following is
a summary of the significant financial information on a combined 100% basis of
affiliated companies accounted for on the equity method.

<TABLE>
<CAPTION>
12 MONTHS ENDED
---------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current assets................................... $ 64,858 $ 52,298
Other assets..................................... 32,538 33,125
Current liabilities.............................. 32,683 29,542
Other liabilities................................ 8,550 15,094
Shareholders' equity............................. 56,163 40,787
Net sales........................................ 230,845 154,626
Gross profit..................................... 68,500 44,655
Net loss before income taxes..................... (22,961) (24,306)
</TABLE>

The Company's share of loss for the unconsolidated affiliated companies for
the fiscal years ended February 1, 1997 and February 3, 1996 was $11,073,000
and $12,153,000, respectively. Prior to the acquisition, the Company's share
of loss in 1997 for the unconsolidated affiliated companies was $5,953,000.

Sales in the Canadian region are primarily generated from retail operations.
The sales amounts primarily reflect the rules and regulations of the
respective governing tax authorities. Operating income is determined by
deducting from net sales the related costs and operating expenses attributed
to the region. Identifiable assets include those directly identified with the
region. For the years ended January 31, 1998, February 1, 1997 and February 3,
1996, sales are $555,753,000, $431,049,000 and $72,299,000, respectively;
operating income is $37,171,000, $24,466,000 and a loss of $1,832,000,
respectively, and identifiable assets are $276,643,000, $214,595,000 and
$156,154,000, respectively.

F-18
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE J--QUARTERLY SUMMARY (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED
JANUARY 31, 1998
Sales................... $1,292,721 $1,192,339 $1,552,393 $1,694,692
Gross Profit.......... 304,666 286,621 375,471 412,226
Net income............ 19,777(1) 22,759(1) 52,030 73,348
Pro forma net income.. 15,229(2) 19,577(2) 48,602(2) 69,720(2)
Earnings per common
share
Historical net income
per common share..... 0.07 0.08 0.19 0.27
Pro forma net income
per common share..... 0.06 0.07 0.18 0.25
Number of shares used
in computing earnings
per common share..... 269,048 270,156 272,822 276,240
Earnings per share--
assuming dilution
Historical net income
per common share..... 0.07 0.08 0.18(3) 0.25(3)
Pro forma net income
per common share..... 0.06 0.07 0.17(3) 0.24(3)
Number of shares used
in computing earnings
per common share..... 277,352 279,193 301,569(3) 305,673(3)
Fiscal Year Ended
February 1, 1997
Sales................... $1,056,807 $ 932,747 $1,210,855 $1,293,180
Gross Profit.......... 245,570 223,221 291,899 322,636
Net income............ 22,173 22,732 41,738 58,099
Pro forma net income.. 18,509(2) 19,481(2) 37,811(2) 53,612(2)
Earnings per common
share
Historical net income
per common share..... 0.08 0.09 0.16 0.22
Pro forma net income
per common share..... 0.07 0.07 0.14 0.20
Number of shares used
in computing earnings
per common share..... 264,269 265,770 267,114 268,505
Earnings per share--
assuming dilution
Historical net income
per common share..... 0.08 0.08 0.15(3) 0.20(3)
Pro forma net income
per common share..... 0.07 0.07 0.14(3) 0.19(3)
Number of shares used
in computing earnings
per common share..... 274,149 275,602 297,508(3) 297,364(3)
</TABLE>
- --------
(1) Net income for the quarters ended May 3, 1997 and August 2, 1997 include a
pre-tax charge of $20,562 and $9,103, respectively, resulting from costs
incurred in connection with the proposed merger with Office Depot, Inc.
(2) Pro forma net income includes the earnings of Quill with provision for
income taxes on previously untaxed earnings of pooled S-Corportation
income.
(3) Earnings per share--assuming dilution is calculated considering the $300
million of 4 1/2% Convertible Subordinated Debentures as common stock
equivalents for the quarters ended November 1, 1997, January 31, 1998,
November 2, 1996 and February 1, 1997. The Debentures are not considered
in the calculation of the earnings per share for the other quarters above
as the effect is antidilutive.

F-19
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE K--COMPUTATION OF EARNINGS PER COMMON SHARE

The computation of earnings per common share and earnings per common share--
assuming dilution shown for both historical and pro forma results, for the
fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 is
as follows (in thousands, except share data):

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
HISTORICAL EARNINGS PER SHARE
Numerator:
Historical net income................ $ 167,914 $ 144,742 $ 108,428
Interest expense on 5% Debentures,
net of tax(1)....................... -- -- 1,580
------------ ------------ ------------
Numerator for earnings per common
share --income available to common
stockholders........................ $ 167,914 $ 144,742 $ 110,008
Effect of dilutive securities:
4 1/2% convertible debentures........ 9,365 9,373 --
------------ ------------ ------------
Numerator for earnings per common
share--assuming dilution-- income
available to common stockholders
after assumed conversion............ $ 177,279 $ 154,115 $ 110,008
Denominator:
Weighted-average shares.............. 272,063,765 266,413,382 260,553,340
Performance accelerated restricted
stock............................... 1,553 -- --
------------ ------------ ------------
Denominator for earnings per common
share--
weighted-average shares............. 272,065,318 266,413,382 260,553,340
Effect of dilutive securities:
Incremental shares................... 13,853,003 15,210,213 13,967,837
Windfall shares...................... (5,339,824) (5,696,787) (5,414,767)
Performance accelerated restricted
stock............................... 139,728 -- --
4 1/2% convertible debentures........ 20,454,546 20,454,546 --
------------ ------------ ------------
Dilutive potential common shares..... 29,107,453 29,967,972 8,553,070
Denominator for earnings per common
share--assuming dilution--adjusted
weighted-average shares and assumed
conversions......................... 301,172,771 296,381,354 269,106,410
Earnings per common share.............. $ 0.62 $ 0.54 $ 0.42
============ ============ ============
Earnings per common share--assuming
dilution.............................. $ 0.59 $ 0.52 $ 0.41
============ ============ ============
</TABLE>

F-20
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
PRO FORMA EARNINGS PER SHARE
Numerator:
Pro forma net income............... $ 153,128 $ 129,413 $ 94,539
Interest expense on 5% Debentures,
net of tax(1)..................... -- -- 1,580
------------ ------------ ------------
Numerator for earnings per common
share--income available to common
stockholders...................... $ 153,128 $ 129,413 $ 96,119
Effect of dilutive securities:
4 1/2% convertible debentures...... 9,365 9,373 2,492
------------ ------------ ------------
Numerator for earnings per common
share--assuming dilution--income
available to common stockholders
after assumed conversion.......... $ 162,493 $ 138,786 $ 98,611
Denominator:
Weighted-average shares............ 272,063,765 266,413,382 260,553,340
Performance accelerated restricted
stock............................. 1,553
------------ ------------ ------------
Denominator for earnings per common
share--weighted-average shares.... 272,065,318 266,413,382 260,553,340
Effect of dilutive securities:
Incremental shares................. 13,853,003 15,210,213 13,967,837
Windfall shares.................... (5,339,824) (5,696,787) (5,414,767)
Performance accelerated restricted
stock............................. 139,728 -- --
4 1/2% convertible debentures...... 20,454,546 20,454,546 9,090,909
------------ ------------ ------------
Dilutive potential common shares... 29,107,453 29,967,972 17,643,979
Denominator for earnings per common
share--assuming dilution--adjusted
weighted-average shares and
assumed conversions............... 301,172,771 296,381,354 278,197,319
Earnings per common share............ $ 0.56 $ 0.49 $ 0.37
============ ============ ============
Earnings per common share--assuming
dilution............................ $ 0.54 $ 0.47 $ 0.35
============ ============ ============
</TABLE>
- --------
(1) The 5% Debentures were substantially converted into common stock on June
30, 1995 (see Note D). For the computation of earnings per common share,
this conversion of 19,406,250 shares is assumed to have occurred at the
beginning of the fiscal year (January 29, 1995), and is included in the
weighted-average shares outstanding for the year. Therefore, the interest
expense and amortization of deferred charges related to the 5% Debentures
and incurred by the Company through June 30, 1995, net of tax, is added
back to reported net income to compute earnings per common share for the
fiscal year ended February 3, 1996.

F-21
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE L--BUSINESS ACQUISITIONS

On May 21, 1998, the Company acquired Quill. The acquisition was structured
as an exchange of shares in which the stockholders of Quill received
approximately 26 million shares of the Company's common stock, at an exchange
ratio established at a combination of fixed and variable prices, and cash paid
to dissenting shareholder of approximately $48 million, which equates to a
purchase price of approximately $690 million. The Merger was accounted for as
a pooling of interests and, accordingly, the Company's consolidated financial
statements have been restated to include the operations of Quill for all
periods prior to the acquisition. The statements of income combine Staples'
historical operating results for the fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996 with the corresponding Quill operating
results for the years ended December 31, 1997, 1996 and 1995, respectively.
Prior to the acquisition, Quill elected to be taxed as an S Corporation under
the Internal Revenue Code. Accordingly, the current taxable income of Quill
was taxable to its shareholders who were responsible for the payment of taxes
thereon. Quill will be included in the company's U.S. federal income tax
return subsequent to the date of the acquisition. Pro forma adjustments have
been made to the restated statements of operations to reflect the income taxes
that would have been provided had Quill been subject to income taxes.

Separate net sales and net income of the merged entities prior to the
acquisition are presented in the following table.

<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Staples................................ $5,181,035 $3,967,665 $3,068,061
Quill.................................. 551,110 525,924 497,174
---------- ---------- ----------
Combined............................. $5,732,145 $4,493,589 $3,565,235
========== ========== ==========
Net income
Staples................................ $ 130,949 $ 106,420 $ 73,705
Quill.................................. 36,965 38,322 34,723
---------- ---------- ----------
Combined............................. $ 167,914 $ 144,742 $ 108,428
========== ========== ==========
Pro forma net income
Staples................................ $ 130,949 $ 106,420 $ 73,705
Quill(1)............................... 22,179 22,993 20,834
---------- ---------- ----------
Combined............................. $ 153,128 $ 129,413 $ 94,539
========== ========== ==========
</TABLE>
- --------
(1) Reflects adjustment for provision for income taxes on previously untaxed
earnings.

F-22
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MAY 2, JANUARY 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 256,652 $ 381,088
Short-term investments............................... 1,367 5,902
Merchandise inventories.............................. 1,131,272 1,124,642
Receivables, net..................................... 241,634 203,143
Prepaid expenses and other current assets............ 80,880 71,365
---------- ----------
Total current assets............................... 1,711,805 1,786,140
Property and Equipment:
Land and buildings................................... 164,232 150,947
Leasehold improvements............................... 306,395 292,128
Equipment............................................ 317,885 304,177
Furniture and fixtures............................... 185,482 173,711
---------- ----------
Total property and equipment....................... 973,994 920,963
Less accumulated depreciation and amortization....... 339,466 310,701
---------- ----------
Net property and equipment......................... 634,528 610,262
Other Assets:
Lease acquisition costs, net of amortization......... 79,148 43,244
Investments.......................................... 15,565 16,450
Goodwill, net of amortization........................ 136,745 139,753
Other................................................ 42,404 43,013
---------- ----------
Total other assets................................. 273,862 242,460
---------- ----------
$2,620,195 $2,638,862
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 623,320 $ 672,956
Accrued expenses and other current liabilities....... 269,177 266,023
Debt maturing within one year........................ 19,819 43,501
---------- ----------
Total current liabilities.......................... 912,316 982,480
Long-Term Debt......................................... 218,066 218,959
Other Long-Term Obligations............................ 48,973 42,803
Convertible Debentures................................. 300,000 300,000
Minority Interest...................................... 85 135
Stockholders' Equity:
Preferred stock, $.01 par value-authorized 5,000,000
shares; no shares issued............................
Common stock, $.0006 par value-authorized 500,000,000
shares; issued 282,341,432 shares at May 2, 1998 and
278,159,308 shares at January 31, 1998.............. 169 167
Additional paid-in capital........................... 614,604 593,883
Cumulative foreign currency translation adjustments.. (8,117) (10,315)
Unrealized gain/(loss) on short-term investments..... 1,537 1,056
Retained earnings.................................... 535,155 510,040
Less: treasury stock, at cost, 147,281 shares at May
2, 1998 and 59,149 shares at January 31, 1998....... (2,593) (346)
---------- ----------
Total stockholders' equity......................... 1,140,755 1,094,485
---------- ----------
$2,620,195 $2,638,862
========== ==========
</TABLE>

See notes to consolidated financial statements.

F-23
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------------
MAY 2, MAY 3,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Sales................................................ $ 1,670,611 $ 1,292,721
Cost of goods sold and occupancy costs............... 1,282,596 988,055
----------- -----------
Gross profit..................................... 388,015 304,666
Operating expenses:
Operating and selling.............................. 255,648 198,598
Pre-opening........................................ 3,352 2,862
General and administrative......................... 67,486 47,031
Amortization of goodwill........................... 924 572
----------- -----------
Total operating expenses......................... 327,410 249,063
----------- -----------
Operating income................................. 60,605 55,603
Other income (expense):
Interest and other expense, net.................... (4,694) (3,936)
Merger-related costs............................... -- (20,562)
----------- -----------
Total other income (expense)..................... (4,694) (24,498)
Income before equity in loss of affiliates and
income taxes.................................... 55,911 31,105
Equity in gain/(loss) of affiliates.................. -- (5,953)
----------- -----------
Income before income taxes....................... 55,911 25,152
Income tax expense................................... 20,011 5,375
----------- -----------
Net income before minority interest.............. 35,900 19,777
Minority interest.................................... 50 --
----------- -----------
Net income....................................... $ 35,950 $ 19,777
=========== ===========
Historical net income per common share............... $ 0.13 $ 0.07
=========== ===========
Historical net income per common share assuming dilu-
tion................................................ $ 0.12 $ 0.07
=========== ===========
Pro forma:
Historical net income.............................. $ 35,950 $ 19,777
Provision for income taxes on previously untaxed
earnings of pooled S-Corporation income .......... 1,814 4,548
----------- -----------
Pro forma net income............................. $ 34,136 $ 15,229
=========== ===========
Pro forma net income per common share................ $ 0.12 $ 0.06
=========== ===========
Pro forma net income per common share assuming dilu-
tion................................................ $ 0.12 $ 0.06
=========== ===========
Number of shares used in computing historical and pro
forma net income per common share................... 279,351,552 269,046,566
=========== ===========
Number of shares used in computing historical and pro
forma net income per common share assuming dilu-
tion................................................ 307,744,245 277,350,655
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-24
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------
MAY 2, MAY 3,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 35,950 $ 19,777
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Minority interest....................................... (50) --
Depreciation and amortization........................... 28,652 21,148
Equity in loss of affiliates............................ -- 5,953
Net increase (decrease) in deferred tax assets.......... 2,795 (3,456)
(Increase)/decrease in assets:
Merchandise inventories................................ (3,704) (10,299)
Receivables............................................ (37,841) (9,764)
Prepaid expenses and other assets...................... (8,167) 2,011
(Decrease)/increase in accounts payable, accrued
expenses and other current liabilities................. (50,787) 24,530
Increase in other long-term obligations................. 6,009 2,208
-------- --------
(63,093) 32,331
-------- --------
Net cash (used in)/provided by operating activities... (27,143) 52,108
INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (50,925) (36,791)
Proceeds from sales and maturities of short-term
investments.............................................. 11,389 6,924
Purchase of short-term investments........................ (6,854) --
Proceeds from sales and maturities of long-term
investments.............................................. 3,430 --
Purchase of long-term investments......................... (2,545) --
Investment in affiliates.................................. 762 (1,670)
Acquisition of lease rights............................... (36,826) (375)
Other..................................................... (6,358) (9,107)
-------- --------
Net cash used in investing activities................. (87,927) (41,019)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock....................... 15,089 3,512
Proceeds from borrowings.................................. (334) 365,880
Payments on borrowings.................................... (24,575) (301,801)
-------- --------
Net cash (used in)/provided by financing activities... (9,820) 67,591
Effect of exchange rate changes on cash................... 454 (1,073)
Net (decrease)/increase in cash and cash equivalents.. (124,436) 77,607
Cash and cash equivalents at beginning of period...... 381,088 117,035
-------- --------
Cash and cash equivalents at end of period............ $256,652 $194,642
======== ========
</TABLE>

See notes to consolidated financial statements.

F-25
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements include
the accounts of Staples, Inc. and subsidiaries (the "Company"). All
intercompany accounts and transactions are eliminated in consolidation.

These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes included elsewhere in
this Prospectus.

NOTE 2--COMPUTATION OF EARNINGS PER SHARE

For the fiscal year ended January 31, 1998, the Company adopted Statement of
Accounting Standards No. 128 ("FAS 128") which requires the presentation of
Basic and Diluted earnings per share, which replaces primary and fully diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share have been
restated for all periods presented to reflect the adoption of FAS 128.

Average common and common equivalent shares used in computing diluted
earnings per share include approximately 28,393,000 and 8,304,000 shares for
the quarters ended May 2, 1998 and May 3, 1997, respectively, as a result of
applying the treasury stock method to outstanding stock options as well as the
convertible debentures. Convertible debentures were not included in the
calculations for the quarter ended May 3, 1997 as their inclusion would be
anti-dilutive.

NOTE 3--GUARANTOR SUBSIDIARIES

The 7.125% senior notes due August 15, 2007, the 4.5% convertible
subordinated debentures due October 1, 2000 and the obligations under the
$350,000,000 revolving credit facility effective through November, 2002 with a
syndicate of banks are fully and unconditionally guaranteed on an unsecured,
joint and several basis by certain wholly owned subsidiaries of the Company
(the "Guarantor Subsidiaries"). The following condensed consolidating
financial data illustrates the composition of Staples, Inc. (the "Parent
Company"), Guarantor Subsidiaries, and non-guarantor subsidiaries as of and
for the quarter ended May 2, 1998. The non-guarantor subsidiaries represent
more than an inconsequential portion of the consolidated assets and revenues
of the Company. Separate complete financial statements of the respective
Guarantors Subsidiaries would not provide additional information which would
be useful in assessing the financial condition of the Guarantor Subsidiaries
and thus, are not presented.

Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the consolidating presentation. Earnings of
subsidiaries are, therefore, reflected in the Parent Company's investment
accounts and earnings. The principal elimination entries eliminate the Parent
Company' investment in subsidiaries and intercompany balances and
transactions.

F-26
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE THIRTEEN WEEKS ENDED MAY 2, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
STAPLES, INC. GUARANTOR GUARANTOR
(PARENT CORP.) SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales................... $ -- $1,264,650 $405,961 $1,670,611
Cost of goods sold...... 269 967,630 314,697 1,282,596
-------- ---------- -------- ----------
Gross profit.......... (269) 297,020 91,264 388,015
Operating expenses...... 29,158 221,454 76,798 327,410
-------- ---------- -------- ----------
Operating income...... (29,427) 75,566 14,466 60,605
Interest expense, net... (6,016) (8,034) 9,356 (4,694)
Provision for income
taxes.................. 1,965 (16,853) (5,123) (20,011)
Minority interest....... -- -- 50 50
-------- ---------- -------- ----------
Net income............ $(33,478) $ 50,679 $ 18,749 $ 35,950
======== ========== ======== ==========
</TABLE>

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MAY 2, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
STAPLES, INC. GUARANTOR GUARANTOR
(PARENT CORP.) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents
and short-term
investments............ $ 73,585 $ 7,352 $ 177,082 $ $258,019
Merchandise
inventories............ (6,046) 936,278 201,040 1,131,272
Other current assets and
intercompany........... 820,556 473,089 501,511 (1,472,642) 322,514
---------- ---------- ---------- ----------- ----------
Total current assets.. 888,095 1,416,719 879,633 (1,472,642) 1,711,805
Net property, equipment
and other assets....... 212,118 557,227 334,558 (195,513) 908,390
---------- ---------- ---------- ----------- ----------
Total assets.......... 1,100,213 1,973,946 1,214,191 $(1,668,155) 2,620,195
========== ========== ========== =========== ==========
Total current
liabilities............ $ 128,063 $ 714,808 $ 306,813 $ (237,368) $ 912,316
Total long-term
liabilities............ 301,443 237,192 28,489 567,124
Total stockholders'
equity................. 670,707 1,021,946 878,889 (1,430,787) 1,140,755
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders'
equity............... $1,100,213 $1,973,946 $1,214,191 $(1,668,155) $2,620,195
========== ========== ========== =========== ==========
</TABLE>

F-27
<PAGE>

STAPLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THIRTEEN WEEKS ENDED MAY 2, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
STAPLES, INC. GUARANTOR GUARANTOR
(PARENT CORP.) SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net cash (used
in)/provided by
operating activities.... $ (52,210) $ 594 $ 24,473 $ (27,143)
Investing Activities:
Acquisition of
property, equipment
and lease rights...... (14,238) (65,722) (7,791) (87,751)
Other.................. (43,267) 64,227 (21,136) (176)
--------- -------- -------- ---------
Cash used in investing
activities.............. (57,505) (1,495) (28,927) (87,927)
Financing Activities:
Payments on
borrowings............ (25,251) -- 676 (24,575)
Other.................. 19,225 -- (4,470) 14,755
--------- -------- -------- ---------
Cash used in financing
activities.............. (6,026) -- (3,794) (9,820)
Effect of exchange rate
changes on cash......... -- -- 454 454
Net decrease in cash..... (115,741) (901) (7,794) (124,436)
Cash and cash equivalents
at beginning of period.. 189,252 8,253 183,583 381,088
--------- -------- -------- ---------
Cash and cash equivalents
at end of period........ $ 73,511 $ 7,352 $175,789 $ 256,652
========= ======== ======== =========
</TABLE>

NOTE 4--INCOME TAXES

The provision for income taxes on previously untaxed earnings of pooled S-
Corporations included in results for the quarter ended May 2, 1998 have been
provided for on a pro forma basis at the Company's effective tax rate of 39%.

F-28
<PAGE>

[STAPLES LOGO APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Company (except expenses incurred by
the Selling Stockholders for brokerage fees, selling commissions, underwriting
discounts and selling commissions and expenses incurred by the Selling
Stockholders for legal services). All amounts shown are estimates except the
Securities and Exchange Commission registration fee.

<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission.................. 145,868
Blue Sky Fees................................................... 10,000
Legal fees and expenses of the Company.......................... 75,000
Accounting fees and expenses.................................... 75,000
Miscellaneous expenses.......................................... 19,132
--------
Total Expenses................................................ $325,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Except as hereinafter set forth, there is no provision of the Company's
Certificate of Incorporation, or any contract, arrangement or statute under
which any director or officer of the Company is insured or indemnified in any
manner against any liability that he may incur in his capacity as such.

Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of
the corporation in related capacities against amounts paid and expenses
incurred in connection with an action or proceeding to which he is or is
threatened to be made a party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful, provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court
determines that such indemnification is proper under the circumstances. The
Company's Certificate of Incorporation provides that the Company shall
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law.

The Company's Certificate of Incorporation also provides that no director
shall be liable to the Company or its stockholders for monetary damages for
breach of his fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction in which the
director derived an improper personal benefit.

The By-laws of the Company contain provisions to the effect that each
director, officer and employee of the Company shall be indemnified by the
Company against liabilities and expenses in connection with any legal
proceedings to which he may be made a party or with which he may become
involved or threatened by reason of having been an officer, director or
employee of the Company or of any other organization at the request of the
Company. The provisions include indemnification with respect to matters
covered by a settlement. Any such indemnification shall be made only if the
Board determines by a majority vote of a quorum consisting of disinterested
directors (or, if such quorum is not obtainable, or if the Board of Directors
directs, by independent legal counsel) or by stockholders, that
indemnification is proper in the circumstances because the person seeking

II-1
<PAGE>

indemnification has met the applicable standards of conduct. It must be
determined that the director, officer or employee acted in good faith with the
reasonable belief that his action was in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, that
he had no reasonable cause to believe his conduct was unlawful.

The Company maintains directors and officers liability insurance for the
benefit of its directors and officers.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Underwriting Agreement
5.1* Opinion of Hale and Dorr LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Kupferberg, Goldberg & Neimark, LLC
23.3* Consent of Hale and Dorr LLP
24.1* Power of Attorney
</TABLE>
- --------

* Previously filed.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-2
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Westborough, Commonwealth of Massachusetts on the
16th day of July, 1998.

Staples, Inc.

/s/ Thomas G. Stemberg
By: _________________________________
THOMAS G. STEMBERG
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND
CHAIRMAN OF THE BOARD OF DIRECTORS

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 16th day of July, 1998.

<TABLE>
<S> <C>
SIGNATURE TITLE

/s/ Thomas G. Stemberg President, Chief Executive Officer and
- ------------------------------------- Chairman of the Board of Directors
THOMAS G. STEMBERG (Principal Executive Officer)

/s/ John J. Mahoney Executive Vice President--Finance
- ------------------------------------- and Chief Financial Officer
JOHN J. MAHONEY (Principal Financial Officer)

/s/ Robert K. Mayerson Senior Vice President and Corporate
- ------------------------------------- Controller (Principal Accounting
ROBERT K. MAYERSON Officer)

Director
- -------------------------------------
BASIL L. ANDERSON

* Director
- -------------------------------------
MARY ELIZABETH BURTON

* Director
- -------------------------------------
W. LAWRENCE HEISEY

* Director
- -------------------------------------
JAMES L. MOODY, JR.

* Director
- -------------------------------------
ROWLAND T. MORIARTY

* Director
- -------------------------------------
ROBERT C. NAKASONE

* Director
- -------------------------------------
W. MITT ROMNEY

* Director
- -------------------------------------
MARTIN TRUST

Director
- -------------------------------------
PAUL F. WALSH

*By: /s/ John J. Mahoney
----------------------------------
JOHN J. MAHONEY
ATTORNEY-IN-FACT
</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Underwriting Agreement........................................... --
5.1* Opinion of Hale and Dorr LLP..................................... --
23.1 Consent of Ernst & Young LLP..................................... --
23.2 Consent of Kupferberg, Goldberg & Neimark, LLC................... --
23.3* Consent of Hale and Dorr LLP..................................... --
24.1* Power of Attorney................................................ --
</TABLE>
- --------

* Previously filed.

<PAGE>

13,898,000 SHARES

STAPLES, INC.

COMMON STOCK, PAR VALUE $.0006 PER SHARE

UNDERWRITING AGREEMENT

July __, 1998
<PAGE>

July __, 1998

Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co. International Limited
Goldman Sachs International
Smith Barney Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs and Mesdames:

Certain shareholders of Staples, Inc., a Delaware corporation (the
"COMPANY"), named in Part A of Schedule I hereto severally propose to sell to
the several Underwriters named in Schedule II and Schedule III hereto (the
"UNDERWRITERS") an aggregate of 13,898,000 shares of the Common Stock, par value
$.0006 per share, of the Company (the "FIRM SHARES"), each such shareholder
selling the amount set forth opposite such shareholder's name in Part A of
Schedule I hereto. Certain of the Firm Shares will be issued upon the exercise
of options (the "OPTIONS") outstanding under the Company's stock-based incentive
compensation plans, which exercise will occur immediately prior to the purchase
of the Firm Shares by the Underwriters.

It is understood that, subject to the conditions hereinafter stated,
11,118,400 Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 2,779,600 Firm Shares (the "INTERNATIONAL SHARES") will be sold to the
several International Underwriters named in Schedule III hereto (the

1
<PAGE>

"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Smith Barney Inc. shall act as representatives (the "U.S.
REPRESENTATIVES") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited, Goldman Sachs International and Smith Barney Inc. shall
act as representatives (the "INTERNATIONAL REPRESENTATIVES") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.

Certain shareholders of the Company named in Part B of Schedule I hereto
severally propose to sell to the several U.S. Underwriters not more than an
additional 2,084,700 shares of the Company's Common Stock, par value $.0006 per
share (the "ADDITIONAL SHARES"), if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shareholders named in
Part A and Part B of Schedule I hereto are collectively referred to as the
"SELLING SHAREHOLDERS." The shares of Common Stock, par value $.0006 per share,
of the Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "COMMON STOCK."

The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement contains two prospectuses to be used in
connection with the offering and sale of the Shares: the U.S. prospectus, to be
used in connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international prospectus,
to be used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "PROSPECTUS" (including,
in the case of all references to the Registration Statement and the Prospectus,
documents incorporated therein by reference). If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION
STATEMENT"), then any reference herein to the term "REGISTRATION STATEMENT"
shall be deemed to include such Rule 462 Registration Statement.

2
<PAGE>

1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the Company's
knowledge, threatened by the Commission.

(b) (i) Each document filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
incorporated by reference in the Prospectus complied or will comply when so
filed in all material respects with the Exchange Act and the applicable
rules and regulations of the Commission thereunder, (ii) the Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (iii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.

(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

3
<PAGE>

(d) Each Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X) of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each Significant
Subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and, except for directors' qualifying
shares, are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims.

(e) This Agreement has been duly authorized, executed and delivered
by the Company.

(f) The authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained
in the Prospectus.

(g) The outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable.

(h) The shares of Common Stock to be issued upon exercise of the
Options have been duly authorized and, when issued upon exercise of and
full payment of the applicable exercise price for the Options and delivered
in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not be
subject to any preemptive or similar rights.

(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.

4
<PAGE>

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).

(k) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.

(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.

(m) The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.

(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures

5
<PAGE>

required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.

2. Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders severally and not jointly represents and warrants to
and agrees with each of the Underwriters that:

(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Shareholder.

(b) The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement and either (i) the Irrevocable Power of Attorney and Custody
Agreement signed by such Selling Shareholder appointing certain individuals
as such Selling Shareholder's attorneys-in-fact to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement, and Staples, Inc., as Custodian, relating to the
deposit of the Shares to be sold by such Selling Shareholder (the "POWER OF
ATTORNEY AND CUSTODY AGREEMENT") or (ii) the Irrevocable Power of Attorney
signed by such Selling Shareholder appointing certain individuals as such
Selling Shareholder's attorneys-in-fact to the extent set forth therein (
the "POWER OF ATTORNEY"), will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such Selling
Shareholder (if such Selling Shareholder is a corporation), or the
instrument creating and governing such Selling Shareholder (if such Selling
Shareholder is a trust), or any agreement or other instrument binding upon
such Selling Shareholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Shareholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Shareholder of its obligations under this
Agreement or the Power of Attorney and Custody Agreement or Power of
Attorney, as applicable, except such as may be required by the Securities
Act or the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares.

6
<PAGE>

(c) Except for the shares of Common Stock to be issued upon the
exercise of Options, which exercise is expected to occur immediately prior
to the purchase of the Firm Shares by the Underwriters, such Selling
Shareholder has valid title to the Shares to be sold by such Selling
Shareholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and the Power of
Attorney and Custody Agreement or Power of Attorney, as applicable, and to
sell, transfer and deliver the Shares to be sold by such Selling
Shareholder; and, on the Closing Date, after giving effect to the exercise
of the Options, such Selling Shareholder will have valid title to all of
the Shares to be sold by such Selling Shareholder and the legal right and
power, and all authorization and approval required by law, to sell,
transfer and deliver all of the Shares to be sold by such Selling
Shareholder.

(d) The Power of Attorney and Custody Agreement or Power of
Attorney, as applicable, has been duly authorized, executed and delivered
by such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder.

(e) Upon transfer (as defined below) of the Shares to The
Depository Trust Company, The Depository Trust Company will acquire the
Shares free of all adverse claims (within the meaning of Sections 8-
102(a)(1) and 8-303 of the Uniform Commercial Code as in effect in New
York, Illinois or Massachusetts, as applicable (the "UCC")). "Transfer" of
the Shares to The Depository Trust Company will occur upon the making by
the Company's transfer agent of appropriate entries transferring the Shares
on its books and records to The Depository Trust Company. Each of the
Underwriters shall acquire a "securities entitlement" (within the meaning
of Section 8-102(a)(17) of the UCC) in the Shares to be purchased by it,
free of all adverse claims created by, through or with respect to the
Selling Shareholder, upon the making by The Depository Trust Company of a
book entry that shares of the Company's stock in the amounts set forth
opposite each Underwriter's name on Schedule II or III hereto have been
credited to such Underwriter's security account (within the meaning of
Section 8-501(a) of the UCC) with The Depository Trust Company.

(f) All information with respect to such Selling Shareholder
furnished by or on behalf of such Selling Shareholder for use in the
Registration Statement and Prospectus is, and on the Closing Date will be,
true, correct and complete in all material respects, and does not, and on
the Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information not
misleading.

7
<PAGE>

3. Agreements to Sell and Purchase. Each Selling Shareholder, severally
and not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Selling Shareholder at U.S. $______ a
share (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the number of Firm Shares to be sold by such Selling
Shareholder as the number of Firm Shares set forth in Schedules II and III
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Shareholders
named in Part B of Schedule I severally agree to sell to the U.S. Underwriters
the Additional Shares, and the Underwriters shall have a one-time right to
purchase, severally and not jointly, up to 2,084,700 Additional Shares at the
Purchase Price. If the U.S. Representatives, on behalf of the U.S.
Underwriters, elect to exercise such option, the U.S. Representatives shall so
notify the Selling Shareholders named in Part B of Schedule I in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
II hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.

The Company and each Selling Shareholder hereby agree that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 90 days after the date of
the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other

8
<PAGE>

arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof of
which the Underwriters have been advised in writing, issuances pursuant to the
Company's employee stock purchase plan or the issuance by the Company of options
or warrants to employees or directors of the Company pursuant to the Company's
stock-based incentive compensation plans existing on the date hereof which are
not exercisable within such 90 day period, (C) transactions by any person other
than the Company relating to shares of Common Stock or other securities acquired
in open market transactions after the completion of the offering of the Shares
or (D) bona fide gifts so long as the donees agree to terms substantially
similar to the foregoing. In addition, each Selling Shareholder, agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.

4. Terms of Public Offering. The Selling Shareholders are advised by
you that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Selling
Shareholders are further advised by you that the Shares are to be offered to the
public initially at U.S. $___ a share (the "PUBLIC OFFERING PRICE") and to
certain dealers selected by you at a price that represents a concession not in
excess of U.S. $____ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in excess
of U.S. $___ a share, to any Underwriter or to certain other dealers.

5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Selling Shareholder named in Part A of Schedule I shall be made to such Selling
Shareholder named in Part A of Schedule I in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on July __, 1998, or at such other time on the same or such other date,
not later than _________, 1998, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "CLOSING DATE."

Payment for any Additional Shares shall be made to the Selling Shareholders
named in Part B of Schedule I in Federal or other funds immediately

9
<PAGE>

available in New York City against delivery of such Additional Shares for the
respective accounts of the several U.S. Underwriters at 10:00 a.m., New York
City time, on the date specified in the notice described in Section 3 or at such
other time on the same or on such other date, in any event not later than
_______, 1998, as shall be designated in writing by the U.S. Representatives.
The time and date of such payment are hereinafter referred to as the "OPTION
CLOSING DATE."

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

6. Conditions to the Underwriters' Obligations. The obligations of the
Selling Shareholders to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement shall
have become effective not later than 2:00 p.m. (New York City time) on the date
hereof or such later time or date as shall have been consented to by the
Representatives.

The several obligations of the Underwriters are subject to the following
further conditions:

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and

(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that,

10
<PAGE>

in your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 6(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.

The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.

11
<PAGE>

(c) The Underwriters shall have received on the Closing Date an
opinion of Hale and Dorr LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:

(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in the Commonwealth of Massachusetts;

(ii) the authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof
contained in the Prospectus;

(iii) the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable;

(iv) the shares of Common Stock to be issued upon exercise of
and full payment of the applicable exercise price for the Options have
been duly authorized and, when issued upon exercise of the Options and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive rights;

(v) this Agreement has been duly authorized, executed and
delivered by the Company;

(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or

12
<PAGE>

the certificate of incorporation or by-laws of the Company or, to such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its Significant Subsidiaries that is filed as an
exhibit to or incorporated by reference in the Registration Statement,
or, any judgment, order or decree known to such counsel of any
governmental body, agency or court having jurisdiction over the
Company or any Significant Subsidiary and specifically naming the
Company or such Significant Subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its
obligations under this Agreement, except such as have been obtained or
as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares by the U.S.
Underwriters;

(vii) the statements (A) in the Prospectus under the
captions "Description of Capital Stock," "Certain United States
Federal Tax Consequences for Non-U.S. Holders" and "Underwriters" and
(B) in the Registration Statement in Item 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein in
all material respects;

(viii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
Significant Subsidiaries is a party or to which any of the properties
of the Company or any of its Significant Subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;

(ix) the Company is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended; and

(x) such counsel (A) is of the opinion that each document, if
any, filed pursuant to the Exchange Act and incorporated by reference
in the Registration Statement and the Prospectus (except

13
<PAGE>

for financial statements and schedules and other financial and
statistical data included therein as to which such counsel need not
express any opinion) complied when so filed as to form in all material
respects with the Exchange Act and the rules and regulations of the
Commission thereunder and (B) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.

Such counsel shall also state that no facts have come to its attention
leading such counsel to believe that (except for financial statements
and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Registration Statement
and the prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.

(d) The Underwriters shall have received on the Closing Date an
opinion of Charles Freeman, Managing Corporate Counsel for the Company,
dated the Closing Date, to the effect that:

(i) each Significant Subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus; and

(ii) all of the issued shares of capital stock of each
Significant Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and, except
for directors' qualifying shares, are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims.

14
<PAGE>

(e) The Underwriters shall have received on the Closing Date an
opinion of Neal, Gerber & Eisenberg, on behalf of all Selling Shareholders
other than those who are officers or directors of the Company or persons
related thereto, and of Hale and Dorr LLP, on behalf of the Selling
Shareholders who are officers or directors of the Company or persons
related thereto, each dated the Closing Date, to the effect that:

(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders;

(ii) the execution and delivery by each Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, this Agreement and either the Power of Attorney and Custody
Agreement or Power of Attorney, as applicable, will not contravene any
provision of applicable law, or the certificate of incorporation or
by-laws of such Selling Shareholder (if such Selling Shareholder is a
corporation), or the instrument creating and governing such Selling
Shareholder (if such Selling Shareholder is a trust), or, any
agreement or other instrument binding upon such Selling Shareholder
and known to such counsel or, any judgment, order or decree known to
such counsel of any governmental body, agency or court having
jurisdiction over such Selling Shareholder and specifically naming
such Selling Shareholder, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Shareholder of its
obligations under this Agreement or the Power of Attorney and Custody
Agreement or Power of Attorney, as applicable, except such as have
been obtained or as may be required by the securities or Blue Sky laws
of the various states in connection with offer and sale of the Shares;

(iii) each of the Selling Shareholders has valid title to
the Shares to be sold by such Selling Shareholder and the legal right
and power, and all authorization and approval required by law, to
enter into this Agreement and the Power of Attorney and Custody
Agreement or Power of Attorney, as applicable, and to sell, transfer
and deliver the Shares to be sold by such Selling Shareholder;

(iv) the Power of Attorney and Custody Agreement or Power of
Attorney, as applicable, of each Selling Shareholder has been duly
authorized, executed and delivered by such Selling Shareholder and is
a valid and binding agreement of such Selling Shareholder; and

15
<PAGE>

(v) upon transfer (as defined below) of the Shares to The
Depository Trust Company, The Depository Trust Company will acquire
the Shares free of all adverse claims (within the meaning of Sections
8-102(a)(1) and 8-303 of the Uniform Commercial Code as in effect in
New York, Illinois or Massachusetts, as applicable (the "UCC")).
"Transfer" of the Shares to The Depository Trust Company will occur
upon the making by the Company's transfer agent of appropriate entries
transferring the Shares on its books and records to The Depository
Trust Company. Each of the Underwriters shall acquire a "securities
entitlement" (within the meaning of Section 8-102(a)(17) of the UCC)
in the Shares to be purchased by it, free of all adverse claims
created by, through or with respect to the Selling Shareholder, upon
the making by The Depository Trust Company of a book entry that shares
of the Company's stock in the amounts set forth opposite each
Underwriter's name on Schedule II or III hereto have been credited to
such Underwriter's security account (within the meaning of Section 8-
501(a) of the UCC) with The Depository Trust Company.

(f) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(c)(v),
6(c)(vii) (but only as to the statements in the Prospectus under
"Underwriters") and 6(c)(x) above.

With respect to Section 6(c)(x) above, Hale and Dorr LLP and
Davis Polk & Wardwell may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto
(other than the documents incorporated therein by reference) and
review and discussion of the contents thereof, but are without
independent check or verification, except as specified. With respect
to Section 6(e) above, Neal, Gerber & Eisenberg and Hale and Dorr LLP
may rely upon an opinion or opinions of counsel for any Selling
Shareholders and, with respect to factual matters and to the extent
such counsel deems appropriate, upon the representations of each
Selling Shareholder contained herein and in the Power of Attorney and
Custody Agreement or Power of Attorney, as applicable, and in other
documents and instruments; provided that (A) each such counsel for the
Selling Shareholders is satisfactory to your counsel, (B) a copy of
each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of each such Power
of Attorney and

16
<PAGE>

Custody Agreement and Power of Attorney and of any such other
documents and instruments shall be delivered to you and shall be in
form and substance satisfactory to your counsel and (D) Neal, Gerber &
Eisenberg and Hale and Dorr LLP shall state in their opinions that
they are justified in relying on each such other opinion.

The opinions of Hale and Dorr LLP described in Sections 6(c) and
6(e) above and the opinion of Neal, Gerber & Eisenberg described in
Section 6(e) above (and any opinions of counsel for any Selling
Shareholder referred to in the immediately preceding paragraph) shall
be rendered to the Underwriters at the request of the Company or one
or more of the Selling Shareholders, as the case may be, and shall so
state therein.

(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Ernst & Young LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus; provided that the letter delivered on the Closing Date shall
use a "cut-off date" not earlier than the date hereof.

(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, executive officers
and directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.

The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on the
Option Closing Date of such documents as they may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Additional Shares upon the exercise of the underlying options and other
matters related to the issuance of the Additional Shares.

7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

17
<PAGE>

(a) To furnish to Morgan Stanley & Co. Incorporated, without
charge, 1 signed copy of the Registration Statement (including exhibits
thereto and documents incorporated therein by reference) and for delivery
to each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto but including documents incorporated therein by
reference) and to furnish to you in New York City, without charge, prior to
10:00 a.m. New York City time on the business day next succeeding the date
of this Agreement and during the period mentioned in Section 7(c) below, as
many copies of the Prospectus, any documents incorporated therein by
reference and any supplements and amendments thereto or to the Registration
Statement as you may reasonably request. The terms "SUPPLEMENT" and
"AMENDMENT" or "AMEND" as used in this Agreement shall include all
documents subsequently filed by the Company with the Commission pursuant to
the Exchange Act that are deemed to be incorporated by reference in the
Prospectus.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.

18
<PAGE>

(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-
month period ending ________, 1999/1/ that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.

8. Expenses. Unless this Agreement is terminated by the Underwriters
pursuant to any of the provisions of Section 10 other than clause (a)(ii), the
Company agrees to pay or cause to be paid all expenses incident to the
performance of its and the Selling Shareholders' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
7(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) the cost of printing certificates
representing the Shares, (vi) the costs and charges of any transfer agent,
registrar or depositary, (vii) the costs and expenses of the Custodian, (viii)
the costs and expenses of the Company and any of the Selling Shareholders
relating to investor presentations on any "road show" undertaken in connection
with the marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any of the
Selling Shareholders and any such consultants, and the cost of any aircraft
chartered in connection with the road show, and (ix) all other

- -----------------------
/1/ Insert date one year after the end of the Company's fiscal quarter in which
the closing will occur.

19
<PAGE>

costs and expenses incident to the performance of the obligations of the Company
and the Selling Shareholders hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 9 entitled "Indemnity and Contribution", and the last paragraph
of Section 11 below, (a) the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel, stock transfer
taxes payable on resale of any of the Shares by them and any advertising
expenses connected with any offers they may make and (b) the Selling
Shareholders will pay any brokerage fees, selling commissions or underwriting
discounts incurred by the Selling Shareholders, the fees, disbursements and
expenses of their counsel and the exercise price of the Options.

The provisions of this Section shall not supersede or otherwise affect any
agreement that the Company and any of the Selling Shareholders may otherwise
have for the allocation of such expenses among themselves.

9. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless each Selling Shareholder, each Underwriter and each person, if
any, who controls any Underwriter or any Selling Shareholder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter or any Selling Shareholder furnished to
the Company in writing by such Underwriter through you or by any such Selling
Shareholder expressly for use therein, provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 7(a) hereof.

20
<PAGE>

(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with respect to information relating to such
Selling Shareholder furnished in writing by or on behalf of such Selling
Shareholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto, provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 7(a) hereof,
provided, further, that with respect to any amount due an indemnified person
under this paragraph (b), each Selling Shareholder shall be liable only to the
extent of the net proceeds received by such Selling Shareholder from the sale of
such Selling Shareholder's Shares.

(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the

21
<PAGE>

Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to such Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.

(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Shareholders and all persons, if any, who control
any Selling Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be

22
<PAGE>

designated in writing by the Company. In the case of any such separate firm for
the Selling Shareholders and such control persons of any Selling Shareholders,
such firm shall be designated in writing by the persons named as attorneys-in-
fact for the Selling Shareholders under the Power of Attorney and Custody
Agreement or Power of Attorney, as applicable. The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.

(e) To the extent the indemnification provided for in Section 9(a), 9(b)
or 9(c) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and each Selling Shareholder on the one hand and the
Underwriters on the other hand in connection with the offering of the Shares
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of the Shares (before deducting expenses) received by each
Selling Shareholder and the total underwriting discounts and commissions
received by the Underwriters, in each

23
<PAGE>

case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the Company
or any Selling Shareholder on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by such Selling Shareholder or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.

(f) The Company, the Selling Shareholders and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this Section
9 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 9(e).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 9, no Selling Shareholder shall be required to contribute any
amount in excess of the amount by which the net proceeds received by such
Selling Shareholder from the sale of such Selling Shareholder's Shares exceeds
the amount of any damages that such Selling Shareholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

(g) The indemnity and contribution provisions contained in this Section
9 and the representations, warranties and other statements of the Company and
the Selling Shareholders contained in this Agreement shall remain operative and
in full force and effect regardless of (i) any termination of this Agreement,
(ii) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person controlling

24
<PAGE>

any Selling Shareholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.

10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.

11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you and the Selling Shareholders for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement

25
<PAGE>

shall terminate without liability on the part of any non-defaulting Underwriter,
the Company or the Selling Shareholders. In any such case either you or the
relevant Selling Shareholders shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company or any Selling
Shareholder to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company or any Selling Shareholder shall be
unable to perform its obligations under this Agreement, the Company will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering contemplated
hereunder.

12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

13. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.

14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

26
<PAGE>

Very truly yours,

STAPLES, INC.

By:
-----------------------------------------
Name:
Title:

The Selling Shareholders named Schedule I hereto other
than those who are officers and directors of the
Company, acting severally

By:
-----------------------------------------
Jack Miller
Attorney-in-Fact

By:
-----------------------------------------
Harvey L. Miller
Attorney-in-Fact

The Selling Shareholders named in Schedule I hereto who
are officers and directors of the Company, acting
severally

By:
-----------------------------------------
Attorney-in-Fact

27
<PAGE>

Accepted as of the date hereof

Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Smith Barney Inc.

Acting severally on behalf of themselves and the several U.S. Underwriters named
in Schedule II hereto.

By: Morgan Stanley & Co. Incorporated

By:
------------------------------------------------------------------
Name:
Title:

Morgan Stanley & Co.
International Limited
Goldman Sachs International
Smith Barney Inc.

Acting severally on behalf of themselves
and the several International Underwriters named in Schedule
III hereto

By: Morgan Stanley & Co. International Limited

By:
------------------------------------------------------------------
Name:
Title:

28
<PAGE>

SCHEDULE I

SELLING SHAREHOLDERS

PART A

SELLING SHAREHOLDER Number of Firm Shares To Be
Sold
- --------------------------------------------------------------------------------
<S> <C>

Jack Miller, as trustee of the Jack Miller Trust
dated January 18, 1984........................... 3,234,514

Harvey L. Miller, as trustee of the Harvey L.
Miller Trust dated January 21, 1983.............. 3,064,061

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #2 dated May 31, 1983
F/B/O Judith N. Bernstein (Trust 2A1)............ 898,476

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #2 dated May 31, 1983
F/B/O Sharon A. Ring (Trust 2A1)................. 898,476

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Lori Susan Miller (Trust 2A1)......... 792,772

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Steven Neil Miller (Trust 2A1)........ 792,771

The Northern Trust Company, as trustee of the
Jack Miller 1991 Term Trust #3 dated July 31,
1991............................................. 951,708

The Northern Trust Company, as trustee of the
Harvey L. Miller 1991 Term Trust #3 dated July
31, 1991......................................... 951,708

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #4 dated July 31, 1991
F/B/O Judith N. Bernstein........................ 266,464

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #4 dated July 31, 1991
F/B/O Sharon A. Ring............................. 266,465
</TABLE>

29
<PAGE>

SELLING SHAREHOLDER Number of Firm Shares To Be
Sold
- --------------------------------------------------------------------------------
<S> <C>

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #4 dated July 31,
1991 F/B/O Lori Susan Miller..................... 267,260

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #4 dated July 31,
1991 F/B/O Steven Neil Miller.................... 267,261

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Ronald Jeffrey Miller (Trust 2A)...... 109,800

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #1 dated May 31,
1983 F/B/O Ronald Jeffrey Miller................. 100,017

BenIda Pennsylvania Corporation................... 1,753

BenIda Georgia Corporation........................ 1,723

BenIda Texas Corporation.......................... 419

BenIda Massachusetts Corporation.................. 16

Mac Stemberg Irrevocable Trust dated May 2, 1991.. 5,000

Thomas G. Stemberg................................ 183,156

Martin Trust...................................... 150,000

Robert C. Nakasone................................ 86,296

Rowland T. Moriarty............................... 20,000

W. Mitt Romney.................................... 111,269

Paul F. Walsh..................................... 88,475

W. Lawrence Heisey................................ 15,000

James C. Bingleman................................ 52,500

John J. Mahoney................................... 27,825

Ronald L. Sargent................................. 172,252

Joseph S. Vassalluzzo............................. 73,225

Richard R. Gentry................................. 3,975

Edward C. Harsant................................. 10,000
</TABLE>

30
<PAGE>

SELLING SHAREHOLDER Number of Firm Shares To Be
Sold
- --------------------------------------------------------------------------------
<S> <C>

Susan S. Hoyt..................................... 20,325

Jeffrey L. Levitan................................ 2,385

Jeanne M. Lewis................................... 397

Robert K. Mayerson................................ 10,256
------

Total........................................ 13,898,000
==========
</TABLE>

31
<PAGE>

PART B

SELLING SHAREHOLDER Number of Additional Shares
To Be Sold
- --------------------------------------------------------------------------------
<S> <C>
Jack Miller, as trustee of the Jack Miller Trust
dated January 18, 1984........................... 473,973

Harvey L. Miller, as trustee of the Harvey L.
Miller Trust dated January 21, 1983.............. 448,993

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #2 dated May 31, 1983
F/B/O Judith N. Bernstein (Trust 2A1)............ 131,659

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #2 dated May 31, 1983
F/B/O Sharon A. Ring (Trust 2A1)................. 131,659

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Lori Susan Miller (Trust 2A1)......... 116,169

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Steven Neil Miller (Trust 2A1)........ 116,169

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #4 dated July 31, 1991
F/B/O Judith N. Bernstein........................ 108,775

The Northern Trust Company, as trustee of the
Jack Miller Family Trust #4 dated July 31, 1991
F/B/O Sharon A. Ring............................. 108,774

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #4 dated July 31,
1991 F/B/O Lori Susan Miller..................... 85,649

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #4 dated July 31,
1991 F/B/O Steven Neil Miller.................... 85,648

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #2 dated May 31,
1983 F/B/O Ronald Jeffrey Miller (Trust 2A)...... 17,917

</TABLE>

32
<PAGE>

SELLING SHAREHOLDER Number of Additional Shares
To Be Sold
- --------------------------------------------------------------------------------
<S> <C>
The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #4dated May 31,
1983 F/B/O Ronald Jeffrey Miller................. 44,659

The Northern Trust Company, as trustee of the
Harvey L. Miller Family Trust #1 dated May 31,
1983 F/B/O Ronald Jeffrey Miller................. 14,656

Thomas G. Stemberg................................ 200,000
-------

Total........................................ 2,084,700
=========
</TABLE>

33
<PAGE>

SCHEDULE II

U.S. UNDERWRITERS

UNDERWRITER Number of Firm Shares To Be
Purchased
- --------------------------------------------------------------------------------
<S> <C>
Morgan Stanley & Co. Incorporated.................

Goldman, Sachs & Co. .............................

Smith Barney Inc. ................................

[NAMES OF OTHER U.S. UNDERWRITERS]................

Total U.S. Firm Shares:......................
</TABLE>

34
<PAGE>

SCHEDULE III

INTERNATIONAL UNDERWRITERS

<TABLE>
<CAPTION>
UNDERWRITER Number of Firm Shares To Be
Purchased
- --------------------------------------------------------------------------------
<S> <C>

Morgan Stanley & Co. International Limited........

Goldman Sachs International.......................

Smith Barney Inc. ................................

[NAMES OF OTHER INTERNATIONAL UNDERWRITERS].......

Total International Firm Shares...................
</TABLE>

35
<PAGE>

EXHIBIT A

[FORM OF LOCK-UP LETTER]

July __, 1998

Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Morgan Stanley & Co. International Limited
Goldman Sachs International
Smith Barney Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs and Mesdames:

The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") and Morgan Stanley & Co. International Limited ("MSIL") propose to
enter into an Underwriting Agreement (the "UNDERWRITING AGREEMENT") with
Staples, Inc., a Delaware corporation (the "COMPANY") and certain shareholders
of the Company (the "SELLING SHAREHOLDERS"), providing for the public offering
(the "PUBLIC OFFERING") by the several Underwriters, including Morgan Stanley
and MSIL (the "UNDERWRITERS"), of 13,898,000 shares (the "SHARES") of the Common
Stock, par value $.0006 per share, of the Company (the "COMMON STOCK").

To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the final prospectus relating
to the Public

36
<PAGE>

Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (a) the sale of any Shares to the
Underwriters pursuant to the Underwriting Agreement, (b) transactions relating
to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering or (c) bona fide gifts
so long as the donees agree to terms substantially similar to the foregoing. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 90 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.

Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation among the Company, the Selling Shareholders and the Underwriters.

Very truly yours,

----------------------------------
(Name)

----------------------------------
(Address)

<PAGE>

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the use of our report
dated June 29, 1998, in the Registration Statement on Form S-3 and related
Prospectus of Staples, Inc. for the registration of 15,982,700 shares of its
common stock and to the incorporation by reference therein of our report dated
March 3, 1998 (except for Note L, as to which the date is April 7, 1998), with
respect to the consolidated financial statements of Staples, Inc. included in
its Annual Report on Form 10-K for the year ended January 31, 1998 and the
incorporation by reference therein of our report dated June 29, 1998 with
respect to the supplemental consolidated financial statements of Staples, Inc.
included in its Current Report on Form 8-K dated July 1, 1998, filed with the
Securities and Exchange Commission.

/s/ Ernst & Young LLP

July 15, 1998
Boston, Massachusetts

<PAGE>

Exhibit 23.2

CONSENT OF KUPFERBERG, GOLDBERG & NEIMARK, LLC, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the use of our report
dated February 24, 1998 in the Registration Statement on Form S-3 and related
Prospectus of Staples, Inc. for the registration of 15,982,700 shares of its
common stock and to incorporation by reference therein of our report dated
February 24, 1998 with respect to the consolidated financial statements of
Quill Corporation and Subsidiary as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, included in the
Current Report on Form 8-K dated July 1, 1998, of Staples, Inc., filed with
the Securities and Exchange Commission.

/s/ Kupferberg, Goldberg & Neimark, LLC

July 16, 1998
Chicago, Illinois