<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: October 30, 1999
------------------------------------------------
Commission File Number: 0-17586
--------------------------------------------------------
STAPLES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2896127
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Hundred Staples Drive, Framingham, MA 01702
----------------------------------------------------
(Address of principal executive office and zip code)
508-253-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 469,804,600 shares of Staples Retail and Delivery Common
Stock and 11,384,616 shares of Staples.com Common Stock, both par value $.0006,
outstanding as of December 13, 1999.
<PAGE> 2
STAPLES, INC.
OCTOBER 30, 1999
TABLE OF CONTENTS
PAGE
Part I - Financial Information:
STAPLES, INC.:
Item 1. Financial Statements (unaudited):
Staples, Inc. Consolidated Balance Sheets ............................. 3
Staples, Inc. Consolidated Statements of Income ....................... 4
Staples, Inc. Consolidated Statements of Cash Flows ................... 5
Staples, Inc. Notes to Consolidated Financial Statements .............. 6-12
Item 2. Staples, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 13-19
Item 3. Staples, Inc. Quantitative and Qualitative Disclosures about
Market Risk ...................................................... 20
STAPLES RETAIL AND DELIVERY:
Item 1. Financial Statements (unaudited):
Staples Retail and Delivery Combined Balance Sheets ................... 21
Staples Retail and Delivery Combined Statements of Income ............. 22
Staples Retail and Delivery Combined Statements of Cash Flows ......... 23
Staples Retail and Delivery Notes to Combined Financial Statements .... 24-27
Item 2. Staples Retail and Delivery Management's Discussion and Analysis
of Financial Condition and Results of Operations ................. 28-35
STAPLES.COM:
Item 1. Financial Statements (unaudited):
Staples.com Combined Balance Sheets ................................... 36
Staples.com Combined Statements of Operations ......................... 37
Staples.com Combined Statements of Cash Flows ......................... 38
Staples.com Notes to Combined Financial Statements .................... 39-40
Item 2. Staples.com Management's Discussion and Analysis
of Financial Condition and Results of Operations ................. 41-44
Part II - Other Information............................................. 45
Signature ............................................................... 46
Page 2
<PAGE> 3
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 30,
1999 JANUARY 30,
(UNAUDITED) 1999
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 90,164 $ 357,993
Short-term investments.............................. 1,211 17,428
Merchandise inventories............................. 1,534,439 1,340,432
Receivables, net.................................... 433,123 221,836
Deferred income taxes............................... 47,374 75,261
Prepaid expenses and other current assets........... 67,192 51,150
---------- ----------
TOTAL CURRENT ASSETS............................... 2,173,503 2,064,100
PROPERTY AND EQUIPMENT:
Land and buildings.................................. 309,326 231,378
Leasehold improvements.............................. 427,329 372,451
Equipment........................................... 498,333 400,225
Furniture and fixtures.............................. 288,219 239,755
---------- ----------
TOTAL PROPERTY AND EQUIPMENT....................... 1,523,207 1,243,809
Less accumulated depreciation and amortization...... 492,036 403,520
---------- ----------
NET PROPERTY AND EQUIPMENT......................... 1,031,171 840,289
OTHER ASSETS:
Lease acquisition costs, net of amortization........ 70,613 75,127
Investments......................................... 25,665 --
Goodwill, net of amortization....................... 378,093 148,201
Deferred income taxes............................... 31,335 28,735
Other............................................... 25,265 22,814
---------- ----------
TOTAL OTHER ASSETS................................. 530,971 274,877
---------- ----------
$3,735,645 $3,179,266
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 935,855 $ 794,427
Accrued expenses and other current liabilities...... 538,793 438,311
Debt maturing within one year....................... 21,832 32,594
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 1,496,480 1,265,332
LONG-TERM DEBT ........................................ 492,910 205,015
OTHER LONG-TERM OBLIGATIONS............................ 58,515 52,033
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-authorized
5,000,000 shares; no shares issued -- --
Common stock, $.0006 par value-authorized
1,500,000,000 shares; issued 467,201,085 at
October 30, 1999 and 461,538,061 shares at
January 30, 1999................................... 280 277
Additional paid-in capital.......................... 1,109,883 1,043,194
Cumulative foreign currency translation adjustments. (9,791) (11,675)
Unrealized gain on investments...................... 1,138 7
Retained earnings .................................. 828,914 633,321
Less: treasury stock at cost, 10,269,153 shares at
October 30, 1999 and 488,922 shares at January 30,
1999............................................... (242,684) (8,238)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY..................... 1,687,740 1,656,886
---------- ----------
$3,735,645 $3,179,266
========== ==========
See notes to consolidated financial statements.
Page 3
<PAGE> 4
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
13 WEEKS ENDED 39 WEEKS ENDED
---------------------------- ----------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales................................................. $ 2,393,811 $ 1,899,770 $ 6,305,987 $ 5,046,086
Cost of goods sold and occupancy costs................ 1,799,564 1,431,596 4,762,428 3,849,207
------------ ------------ ------------ ------------
GROSS PROFIT...................................... 594,247 468,174 1,543,559 1,196,879
OPERATING AND OTHER EXPENSES:
Operating and selling............................... 340,263 264,575 926,320 719,957
Pre-opening......................................... 4,570 4,011 13,977 11,595
General and administrative.......................... 89,497 79,958 263,747 218,138
Amortization of goodwill............................ 3,060 901 8,318 2,752
Merger-related and integration costs................ -- -- -- 41,000
Interest and other expense, net..................... 5,162 4,372 10,554 14,960
------------ ------------ ------------ ------------
TOTAL OPERATING AND OTHER EXPENSES................ 442,552 353,817 1,222,916 1,008,402
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES......................... 151,695 114,357 320,643 188,477
Income tax expense.................................... 59,161 45,171 125,051 74,502
------------ ------------ ------------ ------------
NET INCOME BEFORE MINORITY INTEREST............... 92,534 69,186 195,592 113,975
Minority interest................................... -- -- -- 135
------------ ------------ ------------ ------------
NET INCOME........................................ $ 92,534 $ 69,186 $ 195,592 $ 114,110
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE
Historical net income per common share............ $ 0.20 $ 0.16 $ 0.42 $ 0.27
============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHARE
Historical net income per common share............ $ 0.20 $ 0.15 $ 0.41 $ 0.26
============ ============ ============ ============
PRO FORMA:
Historical net income ............................. $ 114,110
Provision for income taxes on
previously untaxed earnings of
pooled S-Corporation income.................. 1,814
------------
PRO FORMA NET INCOME.............................. $ 112,296
============
BASIC EARNINGS PER COMMON SHARE
Pro forma net income per common share............. $ 0.27
============
DILUTED EARNINGS PER COMMON SHARE
Pro forma net income per common share............. $ 0.26
============
Number of shares used in computing historical and
pro forma basic net income per common share....... 460,547,504 426,183,678 461,933,928 423,056,732
============ ============ ============ ============
Number of shares used in computing historical and
pro forma diluted net income per common share..... 472,344,107 469,768,126 475,059,118 466,194,189
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
39 WEEKS ENDED
-----------------------------
OCTOBER 30, OCTOBER 31,
1999 1998
-------- --------
Operating Activities:
<S> <C> <C>
Net income ................................................................... $195,592 $114,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest............................................................ -- (135)
Depreciation and amortization................................................ 126,020 89,682
Merger-related and integration costs......................................... -- 41,000
Expense from 401K and PARS stock contribution................................ 13,633 6,351
Deferred income tax expense/(benefit)........................................ 24,630 (23,388)
Change in assets and liabilities, net of companies
acquired using purchase accounting:
Increase in merchandise inventories ......................................... (150,260) (177,353)
Increase in receivables ..................................................... (184,997) (74,394)
(Increase)/Decrease in prepaid expenses and other assets..................... (30,274) 4,501
Increase in accounts payable, accrued
expenses and other current liabilities.................................... 160,175 150,228
Increase in other long-term obligations...................................... 5,146 7,267
-------- --------
(35,927) 23,759
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... 159,665 137,869
INVESTING ACTIVITIES:
Acquisition of property and equipment......................................... (251,114) (254,140)
Acquisition of businesses, net of cash acquired............................... (241,940) --
Proceeds from sales and maturities of short-term investments.................. 32,836 11,356
Purchase of short-term investments............................................ (16,651) (6,899)
Proceeds from sales and maturities of long-term investments................... -- 18,995
Purchase of long-term investments............................................. (23,756) (2,545)
Acquisition of lease rights................................................... (130) (37,705)
Other ........................................................................ 2,170 2,994
-------- --------
NET CASH USED IN INVESTING ACTIVITIES......................................... (498,585) (267,944)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock........................................... 30,191 41,998
Proceeds from borrowings...................................................... 745,501 26,171
Payments on borrowings........................................................ (470,164) (53,598)
Purchase of dissenting shareholder S-Corporation stock........................ -- (48,102)
Purchase of treasury stock.................................................... (234,446) (8,057)
Dividends to shareholders of acquired S-Corp.................................. -- (15,904)
-------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES........................... 71,082 (57,492)
Effect of exchange rate changes on cash....................................... 9 124
NET DECREASE IN CASH AND CASH EQUIVALENTS....................................... (267,829) (187,443)
Cash and cash equivalents at beginning of period................................ 357,993 381,088
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 90,164 $193,645
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
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 ("Staples" and 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 only 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 fiscal year. These financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended January 30, 1999.
Certain previously reported amounts have been reclassified to conform with the
current period presentation.
NOTE 2 - COMPUTATION OF EARNINGS PER COMMON SHARE
Staples calculates earnings per share in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("FAS 128") which requires
disclosure of basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities,
while diluted earnings per share includes such effects.
Average common and common equivalent shares used in computing diluted earnings
per share include approximately 11,797,000 and 13,347,000 shares for the three
and nine months ended October 30, 1999 and approximately 43,584,000 and
43,137,000 shares for the same periods ended October 31, 1998, respectively, as
a result of applying the treasury stock method to outstanding stock options,
performance accelerated restricted stock ("PARS"), convertible debentures and
derivative instruments.
NOTE 3 - COMPREHENSIVE INCOME
Staples calculates comprehensive income in accordance with SFAS No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components. The
adoption of SFAS 130 had no impact on Staples' net income or stockholders'
equity. SFAS 130 requires Staples to report comprehensive income which includes
net income, foreign currency translation adjustments and unrealized gains and
losses on short-term investments, which are reported separately in stockholders'
equity, in the notes to the financial statements for interim periods. During the
three and nine months ended October 30, 1999, total comprehensive income
amounted to approximately $96,684,000 and $198,604,000, respectively, compared
to $68,315,000 and $109,708,000, for the corresponding periods ended October 31,
1998.
NOTE 4 - DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH
REPORTABLE SEGMENT DERIVES ITS REVENUES
Staples has three reportable segments: North America Retail, North America
Delivery Operations, and European Operations. Staples' North America Retail
segment consists of two operating units that operate office supply stores
throughout the US and Canada. Staples' North America Delivery Operations segment
consists of five operating units that sell office products and supplies directly
to businesses throughout the US and Canada. The European Operations segment
consists of six operating units that operate office supply stores in the United
Kingdom, Germany, the Netherlands and Portugal and sell office products and
supplies directly to businesses throughout the United Kingdom, and Germany.
Page 6
<PAGE> 7
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Measurement of Segment Profit or Loss and Segment Assets
Staples evaluates performance and allocates resources based on profit or loss
from operations before income taxes, not including gains and losses on Staples'
investment portfolio. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at Staples' cost, therefore, there
is no intercompany profit or loss recognized on these transactions.
Factors Management Used to Identify the Enterprise's Reportable Segments
Staples' reportable segments are business units that distribute office products
and supplies in different manners. The reportable segments are each managed
separately because they distribute products to different classes of customers
with different distribution methods. The European Operations are considered a
separate operating segment because of the significant difference in the
operating environment from the North American operations.
The following is a summary of significant accounts and balances by reportable
segment for the thirteen and thirty-nine weeks ended October 30, 1999 and
October 31, 1998:
<TABLE>
<CAPTION>
Thirteen weeks ended October 30, 1999:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $1,627,065 $ 641,368 $125,378 $ -- $2,393,811
Depreciation and
amortization expense....... $ 31,697 $ 9,334 $ 3,412 $ -- $ 44,443
Segment profit (loss)...... $ 154,496 $ 59,979 $ (9,557) $(53,223) $ 151,695
Segment assets............. $3,158,055 $ 691,963 $299,035 $ -- $4,149,053
Expenditures for long-lived
assets..................... $ 210,349 $ 186,700 $119,891 $ -- $ 516,940
Thirteen weeks ended October 31, 1998:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
Revenues from external
customers.................. $1,313,216 $ 496,722 $ 89,832 $ -- $1,899,770
Depreciation and
amortization expense....... $ 23,811 $ 5,079 $ 2,144 $ -- $ 31,034
Segment profit (loss)...... $ 121,515 $ 46,583 $ (2,152) $ (51,589) $ 114,357
Expenditures for long-lived
assets..................... $ 252,858 $ 26,202 $ 12,785 $ -- $ 291,845
Segment assets, at January
30, 1999................... $2,866,114 $ 448,452 $162,693 $ -- $3,497,259
Thirty-nine weeks ended October 30, 1999:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
Revenues from external
customers.................. $4,218,054 $1,795,665 $292,268 $ -- $6,305,987
Depreciation and
amortization expense....... $ 92,200 $ 25,172 $ 8,648 $ -- $ 126,020
Segment profit (loss)...... $ 361,035 $ 143,591 $(28,912) $(155,071) $ 320,643
</TABLE>
(1) All other is composed of corporate general and administrative expenses.
Page 7
<PAGE> 8
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Thirty-nine weeks ended October 31, 1998:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers................ $3,401,693 $1,402,880 $241,513 $ -- $5,046,086
Merger and integration
costs.................... $ -- $ 41,000 $ -- $ -- $ 41,000
Depreciation and
amortization expense..... $ 68,667 $ 15,085 $ 5,930 $ -- $ 89,682
Segment profit (loss).... $ 267,294 $ 67,538 $(12,783) $(133,572) $ 188,477
</TABLE>
(1) All other is composed of corporate general and administrative expenses.
Asset Reconciliation: October 30, January 30,
1999 1999
---------- ----------
Total assets for reportable segments............... $4,149,053 $3,497,259
Elimination of intercompany receivables............ (120,677) (89,664)
Elimination of intercompany investments............ (292,731) (228,329)
---------- ----------
Total consolidated assets............ $3,735,645 $3,179,266
========== ==========
Geographic Information:
<TABLE>
<CAPTION>
REVENUES FROM EXTERNAL CUSTOMERS ($ IN 000'S)
----------------------------------------------------------------------
13 WEEKS ENDED 39 WEEKS ENDED
---------------------------------- ----------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
N. America ............ $2,268,433 $1,809,938 $6,013,719 $4,804,573
European............... 125,378 89,832 292,268 241,513
---------- ---------- ---------- ----------
Totals................. $2,393,811 $1,899,770 $6,305,987 $5,046,086
========== ========== ========== ==========
LONG-LIVED ASSETS ($ IN 000'S)
----------------------------------
OCTOBER 30, 1999 JANUARY 30, 1999
---------------- ----------------
N. America ................................................ $1,416,306 $1,027,704
European................................................... 89,236 35,913
---------- ----------
Totals..................................................... $1,505,542 $1,063,617
========== ==========
</TABLE>
NOTE 5 - GUARANTOR SUBSIDIARIES
The 7.125% senior notes due August 15, 2007 and the obligations under the
$350,000,000 revolving credit facility effective through November, 2002 with a
syndicate of banks are fully and unconditionally guaranteed on an unsecured,
joint and several basis by certain wholly owned subsidiaries of the Company (the
"Guarantor Subsidiaries"). The following condensed consolidating financial data
illustrates the composition of Staples, Inc. (the "Parent Company"), Guarantor
Subsidiaries, and non-guarantor subsidiaries as of and for the thirteen and
thirty-nine weeks ended October 30, 1999 and October 31, 1998. The non-guarantor
subsidiaries represent more than an inconsequential portion of the consolidated
assets and revenues of the Company. Separate complete financial statements of
the respective Guarantor Subsidiaries would not provide additional information
which would be useful in assessing the financial condition of the Guarantor
Subsidiaries and thus are not presented.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investment in subsidiaries and intercompany balances and
transactions.
Page 8
<PAGE> 9
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Balance Sheet
As of October 30, 1999
($ in 000's)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments...... $ 18,354 $ 24,413 $ 48,608 $ -- $ 91,375
Merchandise inventories....... (5,328) 1,195,091 344,676 -- 1,534,439
Other current assets and
Intercompany................ 608,247 525,435 684,359 (1,270,352) 547,689
---------- ---------- ---------- ----------- ----------
Total current assets.......... 621,273 1,744,939 1,077,643 (1,270,352) 2,173,503
Net property, equipment and
other assets................ 329,063 795,131 767,742 (329,794) 1,562,142
---------- ---------- ---------- ----------- ----------
Total assets.................. $ 950,336 $2,540,070 $1,845,385 $(1,600,146) $3,735,645
========== ========== ========== =========== ==========
Total current liabilities..... $ (305,993) $ 974,221 $ 675,416 $ 152,836 $1,496,480
Total long-term liabilities... 292,910 238,275 20,240 -- 551,425
Total stockholders' equity.... 963,419 1,327,574 1,149,729 (1,752,982) 1,687,740
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity........ $ 950,336 $2,540,070 $1,845,385 $(1,600,146) $3,735,645
========== ========== ========== =========== ==========
Condensed Consolidating Balance Sheet
As of January 30, 1999
($ in 000's)
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash, cash equivalents and
short-term investments...... $ 219,426 $ 16,348 $ 139,647 $ -- $ 375,421
Merchandise inventories....... (5,561) 1,095,906 250,087 -- 1,340,432
Other current assets and
Intercompany................ 780,629 396,920 552,395 (1,381,697) 348,247
---------- ---------- ---------- ----------- ----------
Total current assets.......... 994,494 1,509,174 942,129 (1,381,697) 2,064,100
Net property, equipment and
other assets................ 271,129 710,049 362,178 (228,190) 1,115,166
---------- ---------- ---------- ----------- ----------
Total assets.................. $1,265,623 $2,219,223 $1,304,307 $(1,609,887) $3,179,266
========== ========== ========== =========== ==========
Total current liabilities..... $ 86,206 $ 830,728 $ 266,789 $ 81,609 1,265,332
Total long-term liabilities... 7,581 237,128 12,339 -- 257,048
Total stockholders' equity.... 1,171,836 1,151,367 1,025,179 (1,691,496) 1,656,886
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity........ $1,265,623 $2,219,223 $1,304,307 $(1,609,887) $3,179,266
========== ========== ========== =========== ==========
</TABLE>
Page 9
<PAGE> 10
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Income
For the thirteen weeks ended October 30, 1999
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Sales................................... $ -- $1,763,310 $ 630,501 $2,393,811
Cost of goods sold and occupancy costs.. 224 1,328,565 470,775 1,799,564
-------- ---------- ---------- ----------
Gross profit............................ (224) 434,745 159,726 594,247
Operating and other expenses............ (563) 320,342 122,773 442,552
-------- ---------- ---------- ----------
Income before income taxes.............. 339 114,403 36,953 151,695
Provision/(Benefit) for income taxes.... 30,837 12,975 15,349 59,161
-------- ---------- ---------- ----------
Net income.............................. $(30,498) $ 101,428 $ 21,604 $ 92,534
======== ========== ========== ==========
Condensed Consolidated Statement of Income
For the thirteen weeks ended October 31, 1998
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
Sales................................... $ -- $1,440,647 $ 459,123 $1,899,770
Cost of goods sold and occupancy costs.. 389 1,085,063 346,144 1,431,596
-------- ---------- ---------- ----------
Gross profit............................ (389) 355,584 112,979 468,174
Operating and other expenses............ 6,256 275,559 72,002 353,817
-------- ---------- ---------- ----------
Income before income taxes.............. (6,645) 80,025 40,977 114,357
Provision/(Benefit) for income taxes.... (16,304) 45,820 15,655 45,171
Minority interest....................... -- -- -- --
-------- ---------- ---------- ----------
Net income.............................. $ 9,659 $ 34,205 $ 25,322 $ 69,186
======== ========== ========== ==========
Condensed Consolidated Statement of Income
For the thirty-nine weeks ended October 30, 1999
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
Sales................................... $ -- $4,705,348 $1,600,639 $6,305,987
Cost of goods sold and occupancy costs.. 566 3,567,153 1,194,709 4,762,428
-------- ---------- ---------- ----------
Gross profit............................ (566) 1,138,195 405,930 1,543,559
Operating and other expenses............ 15,803 896,983 310,130 1,222,916
-------- ---------- ---------- ----------
Income before income taxes.............. (16,369) 241,212 95,800 320,643
Provision/(Benefit) for income taxes.... 24,655 64,985 35,411 125,051
-------- ---------- ---------- ----------
Net income.............................. $(41,024) $ 176,227 $ 60,389 $ 195,592
======== ========== ========== ==========
Condensed Consolidated Statement of Income
For the thirty-nine weeks ended October 31, 1998
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
Sales................................... $ -- $3,823,734 $1,222,352 $5,046,086
Cost of goods sold and occupancy costs.. 1,314 2,916,166 931,727 3,849,207
-------- ---------- ---------- ----------
Gross profit............................ (1,314) 907,568 290,625 1,196,879
Operating and other expenses............ 59,000 750,538 198,864 1,008,402
-------- ---------- ---------- ----------
Income before income taxes.............. (60,314) 157,030 91,761 188,477
Provision/(Benefit) for income taxes.... (22,781) 71,646 25,637 74,502
Minority interest....................... -- -- 135 135
-------- ---------- ---------- ----------
Net income.............................. $(37,533) $ 85,384 $ 66,259 $ 114,110
======== ========== ========== ==========
</TABLE>
Page 10
<PAGE> 11
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
For the thirty-nine weeks ended October 30, 1999
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by/(used in)
operating activities....................... $(238,461) $151,531 $246,595 $159,665
Investing Activities:
Acquisition of property,
equipment and lease rights............... (21,284) (144,401) (85,559) (251,244)
Other...................................... (22,880 935 (225,396) (247,341)
--------- -------- -------- --------
Cash used in by investing
activities................................... (44,164) (143,466) (310,955) (498,585)
Financing Activities:
Payments on borrowings..................... (434,184) -- (35,980) (470,164)
Other...................................... 515,736 -- 25,510 541,246
--------- -------- -------- --------
Cash provided by/(used in)
financing activities....................... 81,552 -- (10,470) 71,082
Effect of exchange rate changes on cash...... -- -- 9 9
--------- -------- -------- --------
Net (decrease)/increase in cash.............. (201,073) 8,065 (74,821) (267,829)
Cash and cash equivalents at
beginning of period........................ 219,426 16,348 122,219 357,993
--------- -------- -------- --------
Cash and cash equivalents at end
of period.................................. $ 18,353 $ 24,413 $ 47,398 $ 90,164
========= ======== ======== ========
Condensed Consolidated Statement of Cash Flows
For the thirty-nine weeks ended October 31, 1998
($ in 000's)
Staples, Inc. Guarantor Non-Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
------------- ------------ ------------- ------------
Net cash (used in)/provided by
Operating activities....................... $ (83,348) $134,770 $ 86,447 $137,869
Investing Activities:
Acquisition of property,
equipment and lease rights............... (44,748) (225,317) (21,780) (291,845)
Other...................................... (54,448) 94,946 (16,597) 23,901
--------- -------- -------- --------
Cash used in investing
Activities................................... (99,196) (130,371) (38,377) (267,944)
Financing Activities:
Payments on borrowings..................... (26,916) -- (26,682) (53,598)
Other...................................... 39,223 -- (43,117) (8,808)
--------- -------- -------- --------
Cash provided by/(used in) financing activities 12,307 -- (69,799) (57,492)
Effect of exchange rate changes on cash...... -- -- 124 124
--------- -------- -------- --------
Net (decrease)/increase in cash.............. (170,237) 4,399 (21,605) (187,443)
Cash and cash equivalents at
beginning of period........................ 189,252 8,253 183,583 381,088
--------- -------- -------- --------
Cash and cash equivalents at end
of period.................................. $ 19,015 $ 12,652 $161,978 $193,645
========= ======== ======== ========
</TABLE>
NOTE 6 - INVESTMENTS
Investments consist of stock purchased in internet-related companies. These
investments have been accounted for on a cost basis as each investment
represents an interest of no greater than fifteen percent of the outstanding
stock of that company.
Page 11
<PAGE> 12
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - ACQUISITIONS
On February 26, 1999, Staples completed the acquisition of Claricom Holdings,
Inc. and certain related entities, now referred to as Staples Communications,
for a purchase price of approximately $137,900,000. The acquisition has been
accounted for using the purchase method of accounting and accordingly Staples
has recognized goodwill of approximately $158,400,000, including a provision for
merger related and integration costs of approximately $7,000,000. Staples
Communications is a full-service supplier of telecommunications services to
small and medium sized businesses in the United States.
On October 7, 1999, Staples completed the acquisition of three European office
supply companies: Sigma Burowelt in Germany, Office Centre in the Netherlands
and Office Centre in Portugal, for a purchase price of approximately
$117,600,000. The acquisitions have been accounted for using the purchase method
of accounting and accordingly Staples has recognized goodwill of approximately
$82,000,000, including a provision for merger related and integration costs of
approximately $15,000,000. The acquisition includes 42 office supply
superstores, with 15 stores in Germany, 21 stores in the Netherlands and 6
stores in Portugal.
NOTE 8 - EQUITY FORWARD PURCHASE AGREEMENT
During the quarter ended July 31, 1999, Staples entered into an equity forward
purchase to hedge against stock price fluctuations for the repurchase of Staples
common stock in connection with the annual stock option grant to employees and
directors. Under the agreement Staples may purchase 2,600,000 shares of Staples
stock at an average price of $30.263 or may elect to settle the contract on a
net share basis in lieu of physical settlement.
NOTE 9 - SUBSEQUENT EVENTS
On November 9, 1999, at a special stockholder meeting, the stockholders of
Staples, Inc. approved the Tracking Stock Proposal and the Stock Plan Proposals
as described in the Proxy Statement dated October 12, 1999.
On November 15, 1999, Staples issued notes in the aggregate principal amount of
150,000,000 Euros. The notes bear interest at a rate of 5.875 per cent per annum
and are due on November 15, 2004.
Also on November 15, 1999, Staples entered into an interest rate swap for an
aggregate notional amount of 150,000,000 Euros in order to minimize financing
costs on the notes issued the same date. The swap agreement is scheduled to
terminate on November 15, 2004. Under the interest rate swap agreement, Staples
is entitled to receive annual interest payments at a fixed rate of approximately
5.875% and is required to make quarterly interest payments at a floating rate of
the one month EURIBOR plus 1.1175%, currently approximately 4.1475%. Staples has
designated its 150,000,000 Euro notes and its interest rate swap agreement to be
an integrated transaction. Accordingly, the interest rate swap agreement is
being accounted for as a hedge and the differential to be paid or received on
the interest rate swap agreements is accrued and recognized as an adjustment to
interest expense over the life of the agreement.
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<PAGE> 13
STAPLES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES. Our sales increased 26.0% to $2,393,811,000 in the quarter ended October
30, 1999 from $1,899,770,000 in the quarter ended October 31, 1998 and increased
25.0% to $6,305,987,000 for the nine months ended October 30, 1999 compared to
$5,046,086,000 for the nine months ended October 31, 1998. This growth was
attributable to an increased number of open stores and increased sales in
existing stores and in the delivery and contract stationer segments. Comparable
store and delivery hub sales for both the quarter and nine months ended October
30, 1999 increased 9% over the same periods ended October 31, 1998. Comparable
sales in the contract stationer segment, including Quill, increased 13% and 12%
for the three and nine months ended October 30, 1999, respectively, as compared
to the three and nine months ended October 31, 1998. The Company had 1,107
stores open as of October 30, 1999 compared to 878 stores as of October 31, 1998
and 913 stores as of January 30, 1999; this total includes 56 stores opened and
42 stores acquired during the quarter ended October 30, 1999.
GROSS PROFIT. Our gross profit as a percentage of sales was 24.8% and 24.5% for
the three and nine months ended October 30, 1999 as compared to 24.6% and 23.7%
for the same periods in the prior year. The gross profit rate was increased by
continually improving margins in the retail and delivery segments due to lower
product costs from vendors and improved worldwide buying as well as the
leveraging of fixed distribution center and delivery costs over a larger sales
base. Furthermore, the addition of Staples Communications, which has higher
gross profit margins than Staples' traditional business units, contributed to
the increase in gross profit over the prior year. These increases were partially
offset by continued price reductions and decreased margins on computer hardware
sales such as CPUs, laptops and printers.
OPERATING AND SELLING EXPENSES. Our operating and selling expenses, which
consist of payroll, advertising and other operating expenses, increased as a
percentage of sales in the three and nine months ended October 30, 1999 to 14.2%
and 14.7%, as compared to 13.9% and 14.3% for the same periods in the prior
year. The increase was primarily due to increased costs of investing in our
selling operations, primarily retail and call center personnel, increased
marketing costs in our delivery operations and Staples.com and the addition of
Staples Communications. Staples Communications has higher operating and selling
expenses as a percentage of sales than Staples' traditional business units.
These increases were partially offset by the continued leveraging of fixed store
and delivery operating costs as sales have increased.
PRE-OPENING EXPENSES. Our pre-opening expenses relating to new store openings,
consisting primarily of salaries, supplies, marketing and occupancy costs, are
expensed 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 and $92,000 per store for the three and nine months ended October 30,
1999, as compared to $85,000 and $83,000 per store for the same periods in the
prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses as
a percentage of sales were 3.7% and 4.2% for the three and nine months ended
October 30, 1999, respectively, as compared to 4.2% and 4.3% for the same
periods in the prior year. The decrease was primarily due to decreased Year 2000
compliance and other information systems ("IS") costs, synergies realized from
the Quill integration as well as Staples' ability to increase sales without
proportionately increasing overhead expenses in its core retail and direct
business. These decreases were partially offset by costs incurred for new
businesses, including Staples Communications and Staples.com, which have higher
general and administrative expenses as a percentage of sales than Staples'
traditional business units.
AMORTIZATION OF GOODWILL. Amortization of goodwill for the three and nine months
ended October 30, 1999 was $3,060,000 and $8,318,000 as compared to $901,000 and
$2,752,000 for the same periods in the prior year. The increase in amortization
is due to the goodwill from the acquisitions of Ivan Allen Corporation on
November 1, 1998 and Claricom Holdings, Inc., now referred to as Staples
Communications, on February 26, 1999.
Page 13
<PAGE> 14
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
MERGER-RELATED AND INTEGRATION COSTS. In connection with the acquisition of
Quill, we recorded a charge to operating expense of $41,000,000 during the nine
months ended October 31, 1998. These costs consist of direct merger-related and
integration costs from the transaction.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense for the three
and nine months ended October 30, 1999 was $5,162,000 and $10,554,000,
respectively, as compared to $4,372,000 and $14,960,000 for the same periods in
the prior year. The interest expense relates primarily to existing borrowings.
The increase in net interest expense during the three months ended October 30,
1999 was primarily due to interest expense related to increased borrowings on
lines of credit partially offset by the conversion of Staples' $300,000,000 of 4
1/2% Debentures into common stock in December 1998. The decrease in the net
interest expense during the nine months ended October 30, 1999 was primarily due
to the conversion of Staples' $300,000,000 of 4 1/2% Debentures into common
stock in December 1998.
INCOME TAXES. Our provision for income taxes as a percentage of pre-tax income
was 39% for both the three and nine months ended October 30, 1999 and 39.5% for
the same periods ended October 31, 1998. On a pro forma basis, to reflect a
provision for income taxes on previously untaxed earnings of Quill, Staples'
effective tax rate would have been 40.5% for the nine months ended October 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Staples has traditionally used a combination of cash generated from operations
and debt or equity offerings to fund our expansion and acquisition activities.
Staples has also utilized our revolving credit facility to support various
growth initiatives.
Staples opened 152 stores and 139 stores during the nine months ended October
30, 1999 and October 31, 1998, respectively. Forty-two stores were added through
acquisitions during the nine months ended October 30, 1999. To the extent that
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 and certain direct mail customers are made
under regular credit terms, which requires that we carry our own receivables
from these sales. As we expand our contract and direct mail businesses
worldwide, we anticipate that our accounts receivable portfolio will grow.
Receivables from our vendors under rebate, cooperative advertising and marketing
programs are a significant percentage of our total receivables and tend to
fluctuate somewhat seasonally. Staples also utilized capital equipment
financings to fund current working capital requirements. Staples expects to open
approximately 18 stores during the last quarter of fiscal 1999. Staples
estimates that its cash requirements, including pre-opening expenses, inventory,
leasehold improvements and fixtures, will be approximately $1,500,000 for each
new store (excluding the cost of any acquisitions of lease rights). Accordingly,
Staples expects to use approximately $27,000,000 for store openings during this
period.
In December 1998, Staples committed to a plan to close and relocate stores,
which cannot be expanded and upgraded, to our current store model. Staples
expects to complete the lease agreements for the relocation sites during fiscal
year 1999 and the stores will be closed and relocated during fiscal years 1999
and 2000.
During the nine months ended October 30, 1999, cash and cash equivalents
decreased by $267,829,000. This decrease was primarily attributable to cash used
in investing activities of $498,585,000, including cash used in the acquisition
of businesses of $241,940,000 and the acquisition of property and equipment of
$251,114,000, primarily for the 152 new stores opened. This decrease was
partially offset by cash provided by operating activities of $159,665,000. Cash
provided by operating activities was comprised primarily of net income and an
increase in accounts payable, accrued expenses and other current liabilities of
$160,175,000, which was partially
Page 14
<PAGE> 15
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
offset by an increase in merchandise inventories of $150,260,000 and an increase
in accounts receivables of $184,997,000. Cash provided by financing activities
of $71,082,000 includes $275,337,000 of net borrowings and $30,191,000 of
proceeds from sales of capital stock for the exercise of stock options and the
employee stock purchase plan offset by treasury stock purchases of $234,446,000.
During the quarter ended May 1, 1999, Staples began a stock repurchase program
of Staples Stock intended to provide shares for employee stock programs. The
Board has authorized up to $400,000,000 to be used in fiscal 1999 for these
repurchases. During the nine months ended October 30, 1999, we repurchased
9,471,000 shares for approximately $225,161,000 under this program and 309,000
shares for approximately $9,284,000 from employees upon exercise of PARS. In
addition, on July 2, 1999, Staples entered into an equity forward purchase
agreement to hedge against stock price fluctuations for the repurchase of our
common stock in connection with the annual stock option grant to employees and
directors. Under the agreement Staples may purchase 2,600,000 shares at an
average price of $30.263 or may elect to settle the contract on a net share
basis in lieu of physical settlement.
During the nine months ended October 30, 1999, we made investments of
approximately $23,756,000 in internet related companies. These investments are
accounted for on a cost basis as each investment represents an interest of no
greater than fifteen percent of the outstanding stock of that company. As of
October 30, 1999, Staples has recognized an unrealized gain on these investments
of $1,909,000. Staples also plans to continue to make investments in information
systems, distribution centers and store remodels to improve operational
efficiencies and customer service, and may expend additional funds to acquire
businesses or lease rights from tenants occupying retail space that is suitable
for a Staples store. Staples expects to meet these cash requirements through a
combination of operating cash flow and borrowings from our existing revolving
lines of credit.
On August 12, 1997, Staples issued $200,000,000 of 7.125% senior notes with
interest 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 senior notes were used for repayment of indebtedness under the
revolving credit agreement and for general working capital purposes, including
the financing of new store openings, distribution facilities and corporate
offices.
Staples also maintains a 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 and sales of
assets.
As of October 30, 1999, $290,000,000 of borrowings was outstanding under the
revolving credit agreement. Staples also has available $110,000,000 in other
uncommitted, short-term bank credit lines, of which no borrowings were
outstanding as of October 30, 1999. Staples UK has a $50,000,000 line of credit
which had an outstanding balance of $19,675,000 at October 30, 1999 and Business
Depot has a $17,000,000 line of credit which had no outstanding balance at
October 30, 1999. Total short-term investments and available revolving credit
amounts totaled $338,021,000 as of October 30, 1999.
In a subsequent event, on November 15, 1999, Staples issued notes in the
aggregate principal amount of 150,000,000 Euro. The notes bear interest at a
rate of 5.875 per cent per annum and are due on November 15, 2004.
Staples expects that income from operations, together with our current
short-term investments, funds available under our revolving credit facility and
the funds received through the issuance of the Euro Bond will be sufficient to
fund our planned store openings and other recurring operating cash needs for at
least the next 12
Page 15
<PAGE> 16
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
to 18 months. Staples continually evaluates financing possibilities, and we may
seek to raise additional funds through any one or a combination of public or
private debt or equity-related offerings, depending upon market conditions, or
through an additional commercial bank debt arrangement.
INFLATION AND SEASONALITY
While neither inflation nor deflation has had, and we do not expect either to
have, a material impact upon operating results, there can be no assurance that
inflation or deflation will not affect our business in the future. Staples
believes that our business is somewhat seasonal, with sales and profitability
slightly lower during the first and second quarters of our fiscal year.
FUTURE OPERATING RESULTS
This quarterly report on Form 10-Q includes or incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify these
forward-looking statements by our use of the words "believes", "anticipates",
"plans", "expects", "may", "will", "would", "intends", "estimates" and other
similar expressions, whether in the negative or affirmative. Staples cannot
guarantee that they actually will achieve these plans, intentions or
expectations disclosed in the forward looking statements made. Staples has
included important factors in the cautionary statements below that Staples
believes could cause actual results to differ materially from the
forward-looking statements contained herein. The forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers or
dispositions. Staples does not assume any obligation to update any
forward-looking statement contained herein.
Staples' market is highly competitive and Staples may not continue to compete
successfully. Staples competes in a highly competitive marketplace with a
variety of retailers, dealers and distributors. In most of our geographic
markets, Staples competes with other high-volume office supply chains, such as
Office Depot, OfficeMax and Office World, that have store formats, pricing
strategies and product selections that are similar to Staples. Staples also
competes with mass merchants, such as Wal-Mart, warehouse clubs, computer and
electronic superstores, and other discount retailers. In addition, Staples'
retail stores and delivery and contract businesses compete with numerous mail
order firms, contract stationer businesses and direct manufacturers. Many of
Staples' competitors, including Office Depot, OfficeMax and Wal-Mart, have in
recent years significantly increased the number of stores they operate within
Staples' markets. Some of Staples' current and potential competitors are larger
than Staples and have substantially greater financial resources. It is possible
that increased competition or improved performance by Staples' competitors may
reduce Staples' market share, may force us to charge lower prices than we
otherwise would, and may adversely affect Staples' business and financial
performance in other ways.
Staples may be unable to continue to successfully open new stores. An important
part of Staples' business plan is to aggressively increase our number of stores.
Staples opened 174 stores in the United States, Canada and Europe in fiscal 1998
and plans to open approximately 170 new stores in fiscal 1999. For Staples'
growth strategy to be successful, Staples must identify and lease favorable
store sites, hire and train employees and adapt management and operational
systems to meet the needs of Staples' expanded operations. These tasks may be
difficult to accomplish successfully. If Staples is unable to open new stores as
quickly as planned, Staples' future sales and profits could be materially
adversely affected. Even if we succeed in opening new stores, these new stores
may not achieve the same sales or profit levels as our existing stores. Also,
our expansion strategy includes opening new stores in markets where Staples
already has a presence so we can take advantage of economies of scale in
marketing, distribution and supervision costs. However, these new stores may
result in the loss of sales in existing stores in nearby areas.
Page 16
<PAGE> 17
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Staples' quarterly operating results are subject to significant fluctuation.
Staples' operating results have fluctuated from quarter to quarter in the past,
and we expect that they will continue to do so in the future. Staples'
earnings may not continue to grow at rates similar to the growth rates achieved
in recent years and may fall short of either a prior fiscal period or investors'
expectations. Factors that could cause these quarterly fluctuations include the
following:
- the number of new store openings, primarily because Staples expenses
pre-opening expenses as they are incurred and newer stores are less
profitable than mature stores;
- the extent to which sales in new stores result in the loss of sales in
existing stores;
- the mix of products sold;
- pricing actions of competitors;
- the level of advertising and promotional expenses;
- seasonality, primarily because the sales and profitability of Staples'
stores are typically slightly lower in the first and second quarter of
the fiscal year than in other quarters; and
- charges associated with acquisitions.
Most of Staples' operating expenses, such as rent expense, advertising expense
and employee salaries, do not vary directly with the amount of sales and are
difficult to adjust in the short term. As a result, if sales in a particular
quarter are below expectations for that quarter, Staples may not proportionately
reduce operating expenses for that quarter, and therefore this sales shortfall
would have a disproportionate effect on our net income for the quarter.
The market price of Staples common stock is based in large part on professional
securities analysts' expectations that Staples business will continue to grow
and achieve certain levels of net income. If Staples' financial performance in a
particular quarter does not meet the expectations of securities analysts, this
may adversely affect the views of those securities analysts concerning Staples
growth potential and future financial performance. If the securities analysts
that regularly follow Staples common stock lower their rating of the common
stock or lower their projections for future growth and financial performance,
the market price of Staples common stock is likely to drop significantly. In
addition, in those circumstances, the decrease in Staples common stock price
would probably be disproportionate to the shortfall in financial performance.
Staples' rapid growth may continue to strain operations, which could adversely
affect the business and financial results. Staples' business, including sales,
number of stores and number of employees, has grown dramatically over the past
several years. In addition, Staples has acquired a number of significant
companies in the last few years and may make additional acquisitions in the
future. This growth has placed significant demands on management and operational
systems. If Staples is not successful in upgrading the operational and financial
systems, expanding the management team and increasing and effectively managing
the employee base, this growth is likely to result in operational inefficiencies
and ineffective management of the business and employees, which will in turn
adversely affect Staples' business and financial performance.
Staples' international operations may not become profitable. Staples currently
operates in international markets through The Business Depot Ltd. in Canada,
Staples UK in the United Kingdom, Staples Deutschland and Sigma Burowelt in
Germany and Office Centre in the Netherlands and Portugal. Consolidated European
operations are currently unprofitable, and Staples cannot guarantee that they
will become profitable. Staples may seek to expand further into other
international markets in the future. Staples' foreign operations encounter risks
similar to those faced by our US stores, as well as risks inherent in foreign
operations, such as local customs and competitive conditions and foreign
currency fluctuations.
Staples may be unable to obtain adequate future financing. It is possible that
Staples will require additional sources of financing earlier than anticipated,
as a result of unexpected cash needs or opportunities, an expanded growth
strategy or disappointing operating results. Additional funds may not be
available on satisfactory terms when needed, or at all, whether in the next 12
to 18 months or thereafter.
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<PAGE> 18
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE
Staples has completed a comprehensive assessment of its internal computer
systems and applications to identify those that might be affected by computer
programs using two digits rather than four to define the applicable year (the
"Year 2000 issue"). Staples has used internal personnel as well as external
contractors and consultants to identify those systems and applications which are
affected by the Year 2000 issue. Those systems and applications identified as
needing remediation have been or will be replaced or modified and tested for
compliance. Remediation of the most critical Information Technology (IT) related
systems and applications was completed on schedule during the first quarter of
1999, and anticipated individual application testing was completed during the
second quarter of 1999. These systems include Merchandising/Logistics,
Distribution, Store Point of Sale, and Corporate Finance. The remediation of the
less critical IT systems was also completed during the second quarter of 1999.
These systems and applications include Marketing Systems and Non-Mission
Critical Desktop Applications. Testing of these less critical IT systems and
full "end to end" testing of our most critical systems was completed during the
third quarter of 1999, with the exception of "end to end" testing of leap year
dating which is expected to be completed in the fourth quarter.
Staples has also finished the assessment of non-IT-related systems and
applications. The non-IT related systems and applications include but are not
limited to telephone systems, store security systems and electrical systems. The
remediation of these systems was completed during the first quarter of 1999,
with testing being completed in the third quarter of 1999. Assessment regarding
the status of third parties' Year 2000 compliance continues and may carry into
early 2000. Staples is also working with third parties, primarily major vendors
but also customers, to ensure that they will be Year 2000 compliant as Staples'
schedule requires. The majority of vendors, but not all vendors have assured us
that they will be compliant in time. As a contingency, alternative lists of
third party vendors have been created in case a critical third party does not
achieve compliance.
Staples has completed an enterprise wide inventory review and has completed a
comprehensive risk assessment relative to vendor provided products, devices
and/or services. Due diligence and monitoring with respect to vendors with the
greatest impact on Staples is scheduled to be performed on a continuous basis
throughout 1999.
Staples has estimated that the total cost of Year 2000 compliance will be
between $25 and $30 million, $26 million of which had been spent as of October
30, 1999. Most of the costs to be incurred are related to remediation and
testing of software using outside contracted services. The costs of compliance
have been included in the 1999 IT budgets. The inclusion of Year 2000
compliance has not caused any critical IT projects to be delayed or eliminated.
Staples has completed a "what steps to follow" contingency plan in the event
that an area of operations is impacted by the Year 2000 issue. A formal plan
will be adopted if it becomes more evident that there will be an area of
non-compliance in the systems or at a critical third party. We are developing
these procedures for all Staples' sites and listing those to contact in the
event a "Year 2000 suspected" issue is encountered. Although Staples expects to
achieve Year 2000 compliance as scheduled, there are potential risks if Staples
does not become, or is late in becoming, Year 2000 compliant. Such risks include
impairing the ability to process and deliver customer orders and payments,
procure saleable merchandise, and perform other critical business functions
which could have a material impact on financial performance. Staples has yet to
analyze the effect that an instance of critical non-compliance by us or a third
party would have on revenues and expenses since a worst case scenario has not
been identified. Further, there is also the risk that claims may be made against
Staples in the event of non-compliance or the non-compliance of the products and
services which Staples sells. The costs of defending and settling such claims
could have a material impact on Staples' financial statements. Each Staples
point of customer contact (stores, call centers and customer service) has access
to a "Year 2000 Preparedness Guide" for its customers so Staples can be
proactive in assisting them with vendor contacts to answer their Year 2000
questions.
Page 18
<PAGE> 19
STAPLES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The information presented above is based on management's estimates, which were
made using assumptions of future events. Uncontrollable factors such as the
compliance of the systems of third parties and the availability of resources
could materially increase the cost or delay the estimated date of Year 2000
compliance. All Year 2000 statements contained herein are designated as "Year
2000 Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosures Act (P.L. 105-271).
EURO CURRENCY
On January 1, 1999, participating member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency ("the euro"). The former currencies of the
participating countries are scheduled to remain legal tender as denominations of
the euro until January 1, 2002 when the euro will be adopted as the sole legal
currency.
Staples has evaluated the potential impact of the conversion to the euro on its
business, including the ability of the information systems to handle
euro-denominated transactions, the impact on exchange costs and currency
exchange rate risks. Based on the results of this evaluation, Staples does not
expect the conversion to the euro to have a material impact on its operations or
financial position.
Page 19
<PAGE> 20
STAPLES, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Staples is exposed to market risk from changes in interest rates and foreign
exchange rates. Staples initiated a risk management control process to monitor
the foreign exchange and interest rate risks. The risk management process uses
analytical techniques including market value, sensitivity analysis, and value at
risk estimates. Staples does not believe that the potential exposure is
significant in light of our size and our business.
On May 11, 1999 and August 3, 1999, Staples entered into interest rate swaps,
each for an aggregate notional amount of $100,000,000, in order to minimize
financing costs associated with our $200,000,000 of 7.125% senior notes due
August 15, 2007. The swap agreements are both scheduled to terminate on August
15, 2007. Under the interest rate swap agreements, Staples is entitled to
receive semi-annual interest payments at a fixed rate of approximately 7.125%
and is obligated to pay interest based on 30-day US non-financial commercial
paper rates. The interest rate swap is being accounted for as a hedge and the
differential to be paid or received on the interest rate swap agreements is
accrued and recognized as an adjustment to interest rate expense over the life
of the agreements. If Staples and the counterparty to the agreements terminate
the swaps prior to their original maturity, any gain or loss upon termination
will be amortized to interest expense over the remaining original life of the
agreements.
On July 2, 1999, Staples entered into an equity forward purchase agreement to
hedge against stock price fluctuations for the repurchase of Staples common
stock in connection with the annual stock option grant to employees and
directors. Under the agreement Staples may purchase 2,600,000 shares at an
average price of $30.263 or elect to settle the contract on a net share basis in
lieu of physical settlement.
On November 15, 1999, Staples entered into an interest rate swap for an
aggregate notional amount of 150,000,000 Euro in order to minimize financing
costs on the notes issued the same date. The swap agreement is scheduled to
terminate on November 15, 2004. Under the interest rate swap agreement, Staples
is entitled to receive annual interest payments at a fixed rate of approximately
5.875% and is required to make quarterly interest payments at a floating rate of
the one month EURIBOR plus 1.1175%, currently approximately 4.1475%. Staples has
designated its 150,000,000 Euro notes and its interest rate swap agreement to be
an integrated transactions. Accordingly, the interest rate swap agreement is
being accounted for as a hedge and the differential to be paid or received on
the interest rate swap agreements is accrued and recognized as an adjustment to
interest expense over the life of the agreement.
Staples is exposed to foreign exchange risks through subsidiaries in Canada, the
United Kingdom, Germany, the Netherlands and Portugal. Staples has not entered
into any derivative financial instruments to hedge this exposure, and Staples
believes that the potential exposure is not material to our overall financial
position or our results of operations.
This risk management discussion and discussion of the effects of changes in
interest rates and foreign exchange rates, are forward-looking statements.
Actual future results may differ materially from these projected results due to
developments in the global financial markets. The analytical methods used by
Staples to assess and mitigate risk discussed above should not be considered
projections of future events or losses.
Page 20
<PAGE> 21
STAPLES RETAIL AND DELIVERY
COMBINED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
OCTOBER 30,
1999 JANUARY 30,
(UNAUDITED) 1999
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 90,164 $ 357,993
Short-term investments............................ 1,211 17,428
Merchandise inventories........................... 1,534,439 1,340,432
Receivables, net.................................. 433,123 221,836
Inter-business receivable from Staples.com........ 4,281 --
Deferred income taxes............................. 47,374 75,261
Prepaid expenses and other current assets......... 67,192 50,117
---------- ----------
TOTAL CURRENT ASSETS............................ 2,177,784 2,063,067
PROPERTY AND EQUIPMENT:
Land and buildings................................ 309,326 231,378
Leasehold improvements............................ 427,329 372,451
Equipment......................................... 491,096 399,153
Furniture and fixtures............................ 288,219 239,755
---------- ----------
TOTAL PROPERTY AND EQUIPMENT.................... 1,515,970 1,242,737
Less accumulated depreciation and amortization.... 491,591 403,462
---------- ----------
NET PROPERTY AND EQUIPMENT...................... 1,024,379 839,275
OTHER ASSETS:
Retained interest in Staples.com.................. 26,497 1,962
Lease acquisition costs, net of amortization...... 70,613 75,127
Goodwill, net of amortization..................... 378,093 148,201
Deferred income taxes............................. 31,335 28,735
Other............................................. 25,265 22,814
---------- ----------
TOTAL OTHER ASSETS.............................. 531,803 276,839
---------- ----------
$3,733,966 $3,179,181
========== ==========
LIABILITIES AND GROUP EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 935,855 $ 794,427
Accrued expenses and other current liabilities.... 537,114 438,226
Debt maturing within one year..................... 21,832 32,594
---------- ----------
TOTAL CURRENT LIABILITIES....................... 1,494,801 1,265,247
LONG-TERM DEBT ..................................... 492,910 205,015
OTHER LONG-TERM OBLIGATIONS......................... 58,515 52,033
GROUP EQUITY........................................ 1,687,740 1,656,886
---------- ----------
$3,733,966 $3,179,181
========== ==========
See notes to combined interim financial statements.
Page 21
<PAGE> 22
STAPLES RETAIL AND DELIVERY
COMBINED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
13 WEEKS ENDED 39 WEEKS ENDED
-------------------------- --------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales....................................................... $2,369,832 $1,895,724 $6,254,706 $5,036,982
Cost of goods sold and occupancy costs...................... 1,781,090 1,428,627 4,722,957 3,842,532
---------- ---------- ---------- ----------
GROSS PROFIT............................................ 588,742 467,097 1,531,749 1,194,450
OPERATING AND OTHER EXPENSES:
Operating and selling..................................... 333,879 264,129 912,850 718,899
Pre-opening............................................... 4,570 4,011 13,977 11,595
General and administrative................................ 85,777 79,173 254,784 216,456
Amortization of goodwill.................................. 3,060 901 8,318 2,752
Merger-related and integration costs...................... -- -- -- 41,000
Interest and other expense, net........................... 5,098 4,363 10,439 14,951
---------- ---------- ---------- ----------
TOTAL OPERATING AND OTHER EXPENSES...................... 432,384 352,577 1,200,368 1,005,653
---------- ---------- ---------- ----------
INCOME BEFORE EQUITY IN LOSS OF AFFILIATES,
RETAINED INTEREST AND INCOME TAXES.................... 156,358 114,520 331,381 188,797
Loss related to the retained interest in Staples.com...... (2,844) (99) (6,550) (203)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES .............................. 153,514 114,421 324,831 188,594
Income tax expense.......................................... 60,980 45,235 129,239 74,619
---------- ---------- ---------- ----------
NET INCOME BEFORE MINORITY INTEREST..................... 92,534 69,186 195,592 113,975
Minority interest......................................... -- -- -- 135
---------- ---------- ---------- ----------
NET INCOME.............................................. $ 92,534 $ 69,186 $ 195,592 $ 114,110
========== ========== ========== ==========
PRO FORMA:
Historical net income ................................... $ 114,110
Provision for income taxes on
previously untaxed earnings of
pooled S-Corporation income........................ 1,814
----------
PRO FORMA NET INCOME.................................... $ 112,296
==========
</TABLE>
See notes to combined interim financial statements.
Page 22
<PAGE> 23
STAPLES RETAIL AND DELIVERY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
39 WEEKS ENDED
------------------------
OCTOBER 30, OCTOBER 31,
1999 1998
-------- --------
Operating Activities:
Net income .......................................... $195,592 $114,110
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest................................... -- (135)
Retained interest in loss of Staples.com............ 6,550 203
Depreciation and amortization....................... 125,633 89,682
Merger-related and integration costs................ -- 41,000
Expense from 401K and PARS stock contribution....... 13,633 6,351
Deferred income tax benefit......................... 24,630 (23,388)
Change in assets and liabilities, net of companies
acquired using purchase
accounting:
Increase in merchandise inventories ................ (150,260) (177,353)
Increase in receivables ............................ (184,997) (74,394)
(Increase)/Decrease in prepaid expenses and other
assets............................................. (31,307) 5,351
Increase in accounts payable, accrued
expenses and other current liabilities........... 158,581 150,227
Increase in other long-term obligations............. 5,146 7,267
-------- --------
(32,391) 24,811
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 163,201 138,921
INVESTING ACTIVITIES:
Acquisition of property and equipment................ (244,949) (253,428)
Acquisition of businesses, net of cash acquired...... (241,940) --
Proceeds from sales and maturities of short-term
investments......................................... 32,836 11,356
Purchase of short-term investments................... (16,651) (6,899)
Proceeds from sales and maturities of long-term
investments......................................... -- 18,995
Purchase of long-term investments.................... -- (2,545)
Capital contributions to Staples.com................. (29,921) (712)
Inter-business revolver advances to Staples.com...... (3,536) (1,052)
Acquisition of lease rights.......................... (130) (37,705)
Other ............................................... 2,170 2,994
-------- --------
NET CASH USED IN INVESTING ACTIVITIES................ (502,121) (268,996)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock.................. 30,191 41,997
Proceeds from borrowings............................. 745,501 26,171
Payments on borrowings............................... (470,164) (53,598)
Purchase of dissenting shareholder S-Corporation
stock............................................... -- (48,101)
Purchase of treasury stock........................... (234,446) (8,057)
Dividends to shareholders of acquired S-Corp......... -- (15,904)
-------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES.. 71,082 (57,492)
Effect of exchange rate changes on cash.............. 9 124
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (267,829) (187,443)
Cash and cash equivalents at beginning of period....... 357,993 381,088
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $ 90,164 $193,645
======== ========
See notes to combined interim financial statements.
Page 23
<PAGE> 24
STAPLES RETAIL AND DELIVERY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The stockholders of Staples approved a proposal (the "Tracking Stock Proposal")
which amended the Company's certificate of incorporation to (i) authorize the
issuance of a new series of common stock, to be designated as Staples.com common
stock ("Staples.com Stock"), intended to reflect the performance of Staples.com,
the Company's e-commerce business, (ii) increase the aggregate number of
authorized shares of common stock that the Company may issue from 1,500,000,000
to 2,100,000,000, initially comprised of 1,500,000,000 shares of Staples Retail
and Delivery common stock ("Staples Stock") and 600,000,000 shares of
Staples.com Stock, and (iii) re-classify Staples existing common stock as
Staples Stock, intended to reflect the performance of Staples Retail and
Delivery ("Staples RD"), which consists of all of the Company's other businesses
and a retained interest in Staples.com.
The accompanying interim unaudited combined financial statements include the
accounts of Staples RD. All intercompany accounts and transactions are
eliminated in consolidation. In order to prepare separate financial statements
for Staples RD and Staples.com, the Company has allocated, for financial
reporting purposes, all of its consolidated assets, liabilities, revenue,
expenses and cash flow between Staples RD and Staples.com. These financial
statements of Staples RD and Staples.com, taken together, comprise all of the
accounts included in the corresponding consolidated financial statements of
Staples. Staples RD's financial statements reflect the application of certain
cash management and allocation policies adopted by the Board of Directors of
Staples (the "Board"). Staples RD's financial statements include the financial
position, results of operations and cash flows of Staples RD and the effects of
a 100 percent retained interest in Staples.com on the statements of income,
balance sheets and cash flows. 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 only of normal recurring accruals) necessary to be
expected for the full fiscal year. These interim financial statements should be
read in conjunction with the audited combined financial statements and footnotes
of Staples RD included in the Company's Proxy Statement dated October 12, 1999.
Financial impacts which occur that affect Staples' consolidated results of
operations or financial position could affect the results of operations or
financial condition of Staples RD or the market price of Staples Stock. In
addition, the net losses of Staples.com, and any dividends or distributions on,
or repurchases of Staples.com Stock, will reduce the assets of Staples legally
available for dividends on shares of Staples Stock. Accordingly, these financial
statements should be read in conjunction with the financial information for
Staples.com and financial information for Staples.
NOTE 2 - COMPREHENSIVE INCOME
Staples RD calculates comprehensive income in accordance with SFAS No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components. The
adoption of SFAS 130 had no impact on Staples RD's net income or stockholders'
equity. SFAS 130 requires Staples RD to report comprehensive income which
includes net income, foreign currency translation adjustments and unrealized
gains and losses on short-term investments, which are included in group equity,
in the notes to the financial statements for interim periods. During the three
and nine months ended October 30, 1999, total comprehensive income amounted to
approximately $96,684,000 and $198,604,000, respectively, compared to
$68,315,000 and $109,708,000, for the corresponding periods ended October 31,
1998.
Page 24
<PAGE> 25
STAPLES RETAIL AND DELIVERY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH
REPORTABLE SEGMENT DERIVES ITS REVENUES
Staples RD has three reportable segments: North America Retail, North America
Delivery Operations, and European Operations. Staples RD's North America Retail
segment consists of two operating units that operate stores throughout the US
and Canada. Staples RD's North America Delivery Operations segment consists of
five operating units that sell office products and supplies directly to
businesses throughout the US and Canada. The European Operations segment
consists of six operating units that operate office supply stores and sell
office products and supplies directly to businesses throughout the United
Kingdom, Germany, the Netherlands and Portugal.
Measurement of Segment Profit or Loss and Segment Assets
Staples RD evaluates performance and allocates resources based on profit or loss
from operations before income taxes, not including gains and losses on Staples
RD's investment portfolio. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies. Intersegment sales and transfers are recorded at Staples RD's cost,
therefore, there is no intercompany profit or loss recognized on these
transactions.
Factors Management Used to Identify the Enterprise's Reportable Segments
Staples RD's reportable segments are business units that distribute office
products and supplies in different manners. The reportable segments are each
managed separately because they distribute products to different classes of
customers with different distribution methods. The European Operations are
considered a separate operating segment because of the significant difference in
the operating environment from the North American operations.
The following is a summary of significant accounts and balances by reportable
segment for the thirteen and thirty-nine weeks ended October 30, 1999 and
October 31, 1998:
<TABLE>
<CAPTION>
Thirteen weeks ended October 30, 1999:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers................... $1,627,065 $617,389 $125,378 $ -- $2,369,832
Depreciation and
amortization expense........ $ 31,697 $ 9,114 $ 3,412 $ -- $ 44,223
Segment profit (loss)....... $ 154,496 $ 63,651 $ (9,557) $(53,232) $ 156,358
Segment assets.............. $3,158,055 $690,284 $299,035 $ -- $4,147,374
Expenditures for long-lived
assets...................... $ 210,349 $186,700 $119,891 $ -- $ 516,940
Thirteen weeks ended October 31, 1998:
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ---------- ---------- ------------ ----------
Revenues from external
customers................... $1,313,216 $492,676 $ 89,832 $ -- $1,895,724
Depreciation and
amortization expense........ $ 23,811 $ 5,079 $ 2,144 $ -- $ 31,034
Segment profit (loss)....... $ 121,515 $ 46,394 $ (2,152) $(51,237) $ 114,520
Expenditures for long-lived
assets $ 252,858 $ 26,202 $ 12,785 $ -- $ 291,845
Segment assets, at January
30, 1999 $2,866,114 $448,367 $162,693 $ -- $3,497,174
</TABLE>
Page 25
<PAGE> 26
STAPLES RETAIL AND DELIVERY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Thirty-nine weeks ended October 30, 1999:
<TABLE>
<CAPTION>
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ------------------- --------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers ............................... $4,218,054 $1,744,384 $ 292,268 $ -- $6,254,706
Depreciation and
amortization expense .................... $ 92,200 $ 24,785 $ 8,648 $ -- $ 125,633
Segment profit (loss) ................... $ 361,035 $ 151,965 $ (28,912) $ (152,707) $ 331,381
</TABLE>
Thirty-nine weeks ended October 31, 1998:
<TABLE>
<CAPTION>
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ------------------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers ..................... $3,401,693 $1,393,776 $ 241,513 $ -- $5,036,982
Merger and integration
costs ......................... $ -- $ 41,000 $ -- $ -- $ 41,000
Depreciation and
amortization expense .......... $ 68,667 $ 15,085 $ 5,930 $ -- $ 89,682
Segment profit (loss).......... $ 267,294 $ 67,019 $ (12,783) $ (132,733) $ 188,797
</TABLE>
(1) All other is composed of corporate general and administrative expenses.
<TABLE>
<CAPTION>
Asset Reconciliation: October 30, January 30,
1999 1999
----------- -----------
<S> <C> <C>
Total assets for reportable segments............................................ $4,147,374 $3,497,174
Elimination of intercompany receivables......................................... (120,677) (89,664)
Elimination of intercompany investments......................................... (292,731) (228,329)
---------- ----------
Total consolidated assets......................................... $3,733,966 $3,179,266
========== ==========
</TABLE>
Geographic Information:
<TABLE>
<CAPTION>
REVENUES FROM EXTERNAL CUSTOMERS ($ IN 000'S)
---------------------------------------------------------------------------
13 WEEKS ENDED 39 WEEKS ENDED
--------------------------------------------- -----------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
N. America ............................................. $2,244,454 $1,805,892 $5,962,438 $4,795,469
European ............................................... 125,378 89,832 292,268 241,513
---------- ---------- ---------- ----------
Totals ................................................. $2,369,832 $1,895,724 $6,254,706 $5,036,982
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Long-lived Assets ($ in 000's)
----------------------------------------
OCTOBER 30, 1999 JANUARY 30, 1999
<S> <C> <C>
N. America...................................................................... $1,410,346 $1,028,652
European ....................................................................... 89,236 35,913
---------- ----------
Totals ......................................................................... $1,499,582 $1,064,565
========== ==========
</TABLE>
NOTE 4 - ACQUISITIONS
On February 26, 1999, Staples completed the acquisition of Claricom Holdings,
Inc. and certain related entities, now referred to as Staples Communications,
for a purchase price of approximately $137,900,000. The acquisition has been
accounted for using the purchase method of accounting and accordingly Staples RD
has recognized goodwill of approximately $158,400,000, including a provision for
merger related and integration costs of approximately $7,000,000. Staples
Communications is a full-service supplier of telecommunications services to
small and medium sized businesses in the United States.
Page 26
<PAGE> 27
STAPLES RETAIL AND DELIVERY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - ACQUISITIONS (CONTINUED)
On October 7, 1999, Staples completed the acquisition of European office supply
companies: Sigma Burowelt in Germany, Office Centre in the Netherlands and
Office Centre in Portugal, for a purchase price of approximately $117,600,000.
The acquisitions have been accounted for using the purchase method of accounting
and accordingly Staples RD has recognized goodwill of approximately $82,000,000,
including a provision for merger related and integration costs of approximately
$15,000,000. The acquisition includes 42 office supply superstores, with 15
stores in Germany, 21 stores in the Netherlands and 6 stores in Portugal.
NOTE 5 - EQUITY FORWARD PURCHASE AGREEMENT
On July 1, 1999, Staples entered into an equity forward purchase to hedge
against stock price fluctuations for the repurchase of Staples common stock in
connection with the annual stock option grant to employees and directors. Under
the agreement, Staples may purchase 2,600,000 shares of Staples Stock at an
average price of $30.263 or may elect to settle the contract on a net share
basis in lieu of physical settlement.
NOTE 6 - SUBSEQUENT EVENTS
On November 9, 1999, at a special stockholder meeting, the stockholders of
Staples, Inc. approved the Tracking Stock Proposal and the Stock Plan Proposals
as described in the Proxy Statement dated October 12, 1999.
On November 15, 1999, Staples issued notes in the aggregate principal amount of
150,000,000 Euro. The notes bear interest at a rate of 5.875 per cent per annum
and are due on November 15, 2004.
Also on November 15, 1999, Staples entered into an interest rate swap for an
aggregate notional amount of 150,000,000 Euro in order to minimize financing
costs on the notes issued the same date. The swap agreement is scheduled to
terminate on November 15, 2004. Under the interest rate swap agreement, Staples
is entitled to receive annual interest payments at a fixed rate of approximately
5.875% and is required to make quarterly interest payments at a floating rate of
the one month EURIBOR plus 1.1175%, currently approximately 4.1475%. Staples has
designated its 150,000,000 Euro notes and its interest rate swap agreement to be
an integrated transactions. Accordingly, the interest rate swap agreement is
being accounted for as a hedge and the differential to be paid or received on
the interest rate swap agreements is accrued and recognized as an adjustment to
interest expense over the life of the agreement.
Page 27
<PAGE> 28
STAPLES RETAIL AND DELIVERY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this discussion along with the Staples.com Combined Financial
Statements included in this Form 10-Q for the period ended October 30, 1999.
Historical results and percentage relationships may not necessarily be
indicative of operating results for any future periods. The combined financial
statements of Staples RD include the balance sheets, statements of operations,
cash flows and group equity of Staples' retail stores, catalog businesses and
contract stationer businesses. The Staples RD combined financial statements also
include its retained interest in Staples.com, which was 100 percent during the
three and nine months ended October 31, 1998 and October 30, 1999.
Financial effects from one business that affect the Company's consolidated
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other businesses and the
market price of the stock relating to the other businesses. In addition, net
losses of either business and dividends and distributions on, or repurchases of,
either class of common stock or repurchases of common stock at a price per share
greater than par value will reduce the funds we can pay on each class of common
stock under Delaware Law. Accordingly, the Staples RD combined financial
statements should be read in conjunction with the Company's audited consolidated
financial information and Annual Report on Form 10-K, and the combined financial
information of Staples RD and Staples.com contained in the Company's Proxy
Statement dated October 12, 1999.
RESULTS OF OPERATIONS
SALES. Sales increased 25.0% to $2,369,832,000 in the quarter ended October 30,
1999 from $1,895,724,000 in the quarter ended October 31, 1998 and increased
24.2% to $6,254,706,000 for the nine months ended October 30, 1999 compared to
$5,036,982,000 for the nine months ended October 31, 1998. This growth was
attributable to an increased number of open stores and increased sales in
existing stores and in the delivery and contract stationer segments. The Company
had 1,107 stores open as of October 30, 1999 compared to 878 stores as of
October 31, 1998 and 913 stores as of January 30, 1999; this total includes 56
stores opened and 42 stores acquired during the quarter ended October 30, 1999.
GROSS PROFIT. Gross profit as a percentage of sales was 24.8% and 24.5% for the
three and nine months ended October 30, 1999, as compared to 24.6% and 23.7% for
the same periods in the prior year. The gross profit rate was increased by
continually improving margins in the retail and delivery segments due to lower
product costs from vendors and improved worldwide buying as well as the
leveraging of fixed distribution center and delivery costs over a larger sales
base. Furthermore, the addition of Staples Communications, which has higher
gross profit margins than Staples' traditional business units, contributed to
the increase in gross profit over the prior year. These increases were partially
offset by continued price reductions and decreased margins on computer hardware
sales such as CPUs, laptops and printers.
OPERATING AND SELLING EXPENSES. Operating and selling expenses, which consist of
payroll, advertising and other operating expenses, increased as a percentage of
sales in the three and nine months ended October 30, 1999 to 14.1% and 14.6%, as
compared to 13.9% and 14.3% for the same periods in the prior year. The increase
was primarily due to increased costs of investing in our selling operations,
primarily retail and call center personnel, increased marketing costs in our
delivery operations and the addition of Staples Communications. Staples
Communications has higher operating and selling expenses as a percentage of
sales than Staples RD's other units. These increases were partially offset by
the continued leveraging of fixed store and delivery operating costs as sales
have increased.
PRE-OPENING EXPENSES. Pre-opening expenses relating to new store openings,
consisting primarily of salaries, supplies, marketing and occupancy costs, are
expensed as incurred and therefore fluctuate from period to period
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
depending on the timing and number of new store openings. Pre-opening expenses
averaged $82,000 and $92,000 per store for the three and nine months ended
October 30, 1999, as compared to $85,000 and $83,000 per store for the same
periods in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of sales were 3.6% and 4.1% for the three and nine months ended
October 30, 1999, respectively, as compared to 4.2% and 4.3% for the same
periods in the prior year. The decrease was primarily due to decreased Year 2000
compliance and other information systems ("IS") costs, synergies realized from
the Quill integration as well as Staples' ability to increase sales without
proportionately increasing overhead expenses in its core retail and direct
business. These decreases were partially offset by the addition of Staples
Communications, which has higher general and administrative expenses as a
percentage of sales than Staples RD's other units.
AMORTIZATION OF GOODWILL. Amortization of goodwill for the three and nine months
ended October 30, 1999 was $3,060,000 and $8,318,000 as compared to $901,000 and
$2,752,000 for the same periods in the prior year. The increase in amortization
is due to the goodwill from the acquisitions of Ivan Allen Corporation on
November 1, 1998 and Claricom Holdings, Inc., now referred to as Staples
Communications, on February 26, 1999.
MERGER-RELATED AND INTEGRATION COSTS. In connection with the acquisition of
Quill, we recorded a charge to operating expense of $41,000,000 during the nine
months ended October 31, 1998. These costs consist of direct merger-related and
integration costs from the transaction.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense for the three
and nine months ended October 30, 1999 was $5,098,000 and $10,439,000,
respectively, as compared to $4,363,000 and $14,951,000 for the same periods in
the prior year. The interest expense relates primarily to existing borrowings.
The increase in net interest expense during the three months ended October 30,
1999 was primarily due to interest expense related to increased borrowings on
lines of credit which was partially offset by the conversion of Staples'
$300,000,000 of 4 1/2% Debentures into common stock in December 1998. The
decrease in the net interest expense during the nine months ended October 30,
1999 was primarily due to the conversion of Staples' $300,000,000 of 4 1/2%
Debentures into common stock in December 1998.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
was 39% for both the three and nine months ended October 30, 1999 and 39.5% for
the same periods ended October 31, 1998. On a pro forma basis, to reflect a
provision for income taxes on previously untaxed earnings of Quill, Staples RD's
effective tax rate would have been 40.5% for the nine months ended October 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Staples manages most finance activities on a centralized, consolidated basis.
These activities include the investment of surplus cash, the issuance, repayment
and repurchase of short-term and long-term debt, and the issuance and repurchase
of common stock. Staples currently attributes each incurrence or issuance of
external debt, and the proceeds thereof, to Staples RD and will continue to do
so in the future unless the Board determines otherwise. Whenever Staples.com
holds cash, Staples.com will normally, but will not be obligated to, transfer
that cash to Staples RD. Conversely, whenever Staples.com has a cash need,
Staples RD will normally, but not be obligated to, fund that cash need. The
Board will determine, in its sole discretion, whether either business will
provide any particular funds on any particular occasion to the other business,
but will not be obligated to cause such cash transfers.
All cash transfers from one business to or for the account of the other business
(other than transfers in return of assets or services rendered or transfers in
respect of Staples RD's retained interest that correspond to dividends paid on
Staples.com Stock), are accounted for as inter-business revolving credit
advances unless:
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a long-term loan,
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a capital contribution increasing
Staples RD's retained interest in Staples.com.
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a return of capital reducing Staples RD's
retained interest in Staples.com.
There are no specific criteria to determine when Staples RD will account for a
cash transfer as a long-term loan, a capital contribution or a return of capital
rather than an inter-business revolving credit advance. The Board will make
such a determination based on its judgement at the time of such transfer, or at
the time of the first of such type of transfer, based upon all relevant
circumstances. Factors the Board will consider include:
- the current and projected capital structure of each business,
- the relative levels of internally generated funds of each business,
- the financing needs and objectives of the recipient business,
- the investment objectives of the transferring business, the
availability, cost and time associated with the alternative financing
sources and prevailing interest rates and general economic conditions.
Any cash transfer accounted for as an inter-business revolving credit advance
will bear interest at a rate at which the Board, in its sole discretion,
determines Staples could borrow such funds on a revolving credit basis. Any cash
transfer accounted for as a long-term loan will have interest rate,
amortization, maturity, redemption and other terms that generally reflect the
then prevailing terms on which the Board, in its sole discretion, determines
Staples could borrow such funds.
Any cash transfer from Staples RD to Staples.com, or for Staples.com's account,
accounted for as a capital contribution will correspondingly increase
Staples.com equity and Staples RD's retained interest in Staples.com. As a
result, the number of shares issuable with respect to Staples RD's retained
interest in Staples.com will increase by the amount of such capital contribution
divided by the market value of Staples.com Stock on the date of transfer. Any
cash transfer from Staples.com to Staples RD, or for Staples RD's account,
accounted for as a return of capital will correspondingly reduce Staples.com's
equity and Staples RD's retained interest in Staples.com. As a result, the
number of shares issuable with respect to Staples RD's retained interest in
Staples.com will decrease by the amount of such return of capital divided by the
market value of Staples.com Stock on the date of transfer.
As a result of the cash management policies in place between Staples RD and
Staples.com, Staples.com is heavily dependent on Staples RD for its continued
funding. Accordingly, Staples RD's liquidity could be adversely affected by the
liquidity needs of Staples.com.
Staples RD has traditionally used a combination of cash generated from
operations and debt or equity offerings to fund its expansion and acquisition
activities. Staples RD has also utilized its revolving credit facility to
support various growth initiatives.
Staples RD opened 152 stores and 139 stores during the nine months ended October
30, 1999 and October 31, 1998, respectively. Forty-two stores were added through
acquisitions during the nine months ended October 30, 1999. To the extent that
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 and certain direct mail customers are made
under regular credit terms, which requires that Staples RD carry its own
receivables from these sales. As Staples RD expands its contract and direct mail
businesses worldwide, it anticipates that its accounts receivable portfolio will
grow. Receivables from Staples RD's vendors under rebate, cooperative
advertising and marketing programs are a significant percentage of its total
receivables and tend to fluctuate somewhat seasonally. Staples RD also utilized
capital equipment financings to fund current working capital requirements.
Staples RD expects to open approximately 18 stores during the last quarter of
fiscal 1999. Staples RD estimates that its cash requirements, including
pre-opening expenses, inventory, leasehold improvements and fixtures, will be
approximately $1,500,000 for each new store (excluding the cost of any
acquisitions of lease rights). Accordingly, Staples RD expects to use
approximately $27,000,000 for store openings during this period.
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In December 1998, Staples RD committed to a plan to close and relocate stores,
which cannot be expanded and upgraded, to its current store model. We expect to
complete the lease agreements for the relocation sites during fiscal year 1999
and the stores will be closed and relocated during fiscal years 1999 and 2000.
During the nine months ended October 30, 1999, cash and cash equivalents
decreased by $267,829,000. This decrease was primarily attributable to cash used
in investing activities of $502,121,000, including cash used in the acquisition
of businesses of $241,940,000 and the acquisition of property and equipment of
$244,949,000, primarily for the 152 new stores opened. This decrease was
partially offset by cash provided by operating activities of $163,201,000. Cash
provided by operating activities was comprised primarily of net income and an
increase in accounts payable, accrued expenses and other current liabilities of
$158,581,000, which was partially offset by an increase in merchandise
inventories of $150,260,000 and an increase in accounts receivables of
$184,997,000. Cash provided by financing activities of $71,082,000 includes
$275,337,000 of net borrowings and $30,191,000 of proceeds from sales of capital
stock for the exercise of stock options and the employee stock purchase plan
offset by treasury stock purchases of $234,446,000.
During the quarter ended May 1, 1999, Staples began a stock repurchase program
intended to provide shares for employee stock programs. The Board has authorized
up to $400,000,000 to be used in fiscal 1999 for these repurchases. During the
nine months ended October 30, 1999, Staples repurchased 9,471,000 shares for
approximately $225,161,000 under this program and 309,000 shares for
approximately $9,284,000 from employees upon exercise of PARS. In addition, on
July 2, 1999, Staples entered into an equity forward purchase agreement to hedge
against stock price fluctuations for the repurchase of our common stock in
connection with the annual stock option grant to employees and directors. Under
the agreement, we may purchase 2,600,000 shares at an average price of $30.263
or may elect to settle the contract on a net share basis in lieu of physical
settlement.
Staples RD also plans to continue to make investments in information systems,
distribution centers and store remodels to improve operational efficiencies and
customer service, and may expend additional funds to acquire businesses or lease
rights from tenants occupying retail space that is suitable for a Staples store.
Staples RD expects to meet these cash requirements through a combination of
operating cash flow and borrowings from our existing revolving lines of credit.
On August 12, 1997, Staples RD issued $200,000,000 of 7.125% senior notes with
interest 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 senior notes were used for repayment of indebtedness under our
revolving credit agreement and for general working capital purposes, including
the financing of new store openings, distribution facilities and corporate
offices.
Staples RD also maintains a 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 and sales of assets.
As of October 30, 1999, $290,000,000 of borrowings was outstanding under the
revolving credit agreement. Staples RD also has available $110,000,000 in other
uncommitted, short-term bank credit lines, of which no borrowings were
outstanding as of October 30, 1999. Staples UK has a $50,000,000 line of credit
which had an outstanding balance of $19,675,000 at October 30, 1999 and Business
Depot has a $17,000,000 line of credit which had no outstanding balance at
October 30, 1999. Total short-term investments and available revolving credit
amounts totaled $338,021,000 as of October 30, 1999.
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In a subsequent event on November 15, 1999 Staples RD issued notes in the
aggregate principal amount of 150,000,000 Euro. The notes bear interest at a
rate of 5.875 per cent per annum and are due on November 15, 2004.
Staples RD expects that income from operations, together with its current
short-term investments, funds available under our revolving credit facility and
the funds to be received through the issuance of the Euro Bond will be
sufficient to fund our planned store openings and other recurring operating cash
needs for at least the next 12 to 18 months. Staples RD continually evaluates
financing possibilities, and it may seek to raise additional funds through any
one or a combination of public or private debt or equity-related offerings,
depending upon market conditions, or through an additional commercial bank debt
arrangement.
INFLATION AND SEASONALITY
While neither inflation nor deflation has had, and Staples RD does not expect
either to have, a material impact upon operating results, there can be no
assurance that its business will not be affected by inflation or deflation in
the future. Staples RD believes that its business is somewhat seasonal, with
sales and profitability slightly lower during the first and second quarters of
its fiscal year.
FUTURE OPERATING RESULTS
This quarterly report on Form 10-Q includes or incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify these
forward-looking statements by the use of the words "believes", "anticipates",
"plans", "expects", "may", "will", "would", "intends", "estimates" and other
similar expressions, whether in the negative or affirmative. Staples RD cannot
guarantee that it actually will achieve these plans, intentions or expectations
disclosed in the forward looking statements it makes. Staples RD has included
important factors in the cautionary statements below that it believes could
cause its actual results to differ materially from the forward-looking
statements contained herein. The forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers or dispositions. Staples RD
does not assume any obligation to update any forward-looking statement it makes.
Staples RD's market is highly competitive and Staples RD may not continue to
compete successfully. Staples RD competes in a highly competitive marketplace
with a variety of retailers, dealers and distributors. In most of Staples RD's
geographic markets, it competes with other high-volume office supply chains,
such as Office Depot, OfficeMax and Office World, that have store formats,
pricing strategies and product selections that are similar to Staples RD.
Staples RD also competes with mass merchants, such as Wal-Mart, warehouse clubs,
computer and electronic superstores, and other discount retailers. In addition,
Staples RD's retail stores and delivery and contract businesses compete with
numerous mail order firms, contract stationer businesses and direct
manufacturers. Many of Staples RD's competitors, including Office Depot,
OfficeMax and Wal-Mart, have in recent years significantly increased the number
of stores they operate within Staples RD's markets. Some of Staples RD's current
and potential competitors are larger than Staples RD and have substantially
greater financial resources. It is possible that increased competition or
improved performance by Staples RD's competitors may reduce Staples RD's market
share, may force Staples RD to charge lower prices than it otherwise would, and
may adversely affect our business and financial performance in other ways.
Staples RD may be unable to continue to successfully open new stores. An
important part of Staples RD's business plan is to aggressively increase our
number of stores. Staples RD opened 174 stores in the United States, Canada and
Europe in fiscal 1998 and plans to open approximately 170 new stores in fiscal
1999. For Staples RD's growth strategy to be successful, it must identify and
lease favorable store sites, hire and train employees and adapt its management
and operational systems to meet the needs of its expanded operations. These
tasks may be difficult to accomplish successfully. If Staples RD is unable to
open new stores as quickly as planned, its future sales and
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
profits could be materially adversely affected. Even if Staples RD succeeds in
opening new stores, these new stores may not achieve the same sales or profit
levels as Staples RD's existing stores. Also, Staples RD's expansion strategy
includes opening new stores in markets where it already has a presence so it can
take advantage of economies of scale in marketing, distribution and supervision
costs. However, these new stores may result in the loss of sales in existing
stores in nearby areas.
Staples RD's quarterly operating results are subject to significant fluctuation.
Staples RD's operating results have fluctuated from quarter to quarter in the
past, and it expects that they will continue to do so in the future. Staples
RD's earnings may not continue to grow at rates similar to the growth rates
achieved in recent years and may fall short of either a prior fiscal period or
investors' expectations. Factors that could cause these quarterly fluctuations
include the following:
- the number of new store openings, primarily because Staples RD
expenses pre-opening expenses as they are incurred and newer stores
are less profitable than mature stores;
- the extent to which sales in new stores result in the loss of sales in
existing stores;
- the mix of products sold;
- pricing actions of competitors;
- the level of advertising and promotional expenses;
- seasonality, primarily because the sales and profitability of our
stores are typically slightly lower in the first and second quarter of
our fiscal year than in other quarters; and
- charges associated with acquisitions.
Most of Staples RD's operating expenses, such as rent expense, advertising
expense and employee salaries, do not vary directly with the amount of Staples
RD's sales and are difficult to adjust in the short term. As a result, if sales
in a particular quarter are below Staples RD's expectations for that quarter, it
may not be able to proportionately reduce operating expenses for that quarter,
and therefore this sales shortfall would have a disproportionate effect on
Staples RD's net income for the quarter.
The market price of Staples Stock is based in large part on professional
securities analysts' expectations that its business will continue to grow and
that it will achieve certain levels of net income. If Staples RD's financial
performance in a particular quarter does not meet the expectations of securities
analysts, this may adversely affect the views of those securities analysts
concerning Staples RD's growth potential and future financial performance. If
the securities analysts that regularly follow Staples Stock lower their rating
of the common stock or lower their projections for Staples RD's future growth
and financial performance, the market price of Staples Stock is likely to drop
significantly. In addition, in those circumstances, the decrease in Staples
Stock price would probably be disproportionate to the shortfall in financial
performance.
Staples RD's rapid growth may continue to strain its operations, which could
adversely affect its business and financial results. Staples RD's business,
including sales, number of stores and number of employees, has grown
dramatically over the past several years. In addition, Staples RD has acquired a
number of significant companies in the last few years and may make additional
acquisitions in the future. This growth has placed significant demands on
Staples RD's management and operational systems. If Staples RD is not successful
in upgrading its operational and financial systems, expanding its management
team and increasing and effectively managing its employee base, this growth is
likely to result in operational inefficiencies and ineffective management of
Staples RD's business and employees, which will in turn adversely affect Staples
RD's business and financial performance.
Staples RD's international operations may not become profitable. Staples RD
currently operates in international markets through The Business Depot Ltd. in
Canada, Staples UK in the United Kingdom, Staples Deutschland and Sigma Burowelt
in Germany and Office Centre in the Netherlands and Portugal. Staples RD's
consolidated European operations are currently unprofitable and Staples RD
cannot guarantee that they will become profitable.
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Staples RD may seek to expand further into other international markets in the
future. Staples RD's foreign operations encounter risks similar to those faced
by its US stores, as well as risks inherent in foreign operations, such as local
customs and competitive conditions and foreign currency fluctuations.
Staples RD may be unable to obtain adequate future financing. It is possible
that Staples RD will require additional sources of financing earlier than it
anticipates, as a result of unexpected cash needs or opportunities, and expanded
growth strategy or disappointing operating results. Additional funds may not be
available on satisfactory terms when needed, or at all, whether in the next 12
to 18 months or thereafter.
YEAR 2000 READINESS DISCLOSURE
Staples RD has completed a comprehensive assessment of its internal computer
systems and applications, including those used in the Staples.com business, to
identify those that might be affected by computer programs using two digits
rather than four to define the applicable year (the "Year 2000 issue"). Staples
RD has used internal personnel as well as external contractors and consultants
to identify those systems and applications which are affected by the Year 2000
issue. Those systems and applications identified as needing remediation have
been or will be replaced or modified and tested for compliance. Remediation of
the most critical Information Technology (IT) related systems and applications
was completed on schedule during the first quarter of 1999, and anticipated
individual application testing was completed during the second quarter of 1999.
These systems include Merchandising/Logistics, Distribution, Store Point of
Sale, and Corporate Finance. The remediation of the less critical IT systems was
also completed during the second quarter of 1999. These systems and applications
include Marketing Systems and Non-Mission Critical Desktop Applications. Testing
of these less critical IT systems and full "end to end" testing of Staples RD's
most critical systems was completed during the third quarter of 1999, with the
exception of "end to end" testing of leap year dating which is expected to be
completed in the fourth quarter.
Staples RD has also finished its assessment of non-IT related systems and
applications. The non-IT related systems and applications include but are not
limited to telephone systems, store security systems and electrical systems. The
remediation of these systems was completed during the first quarter of 1999,
with testing being completed in the third quarter of 1999. Staples RD is also
working with third parties, primarily major vendors but also customers, to
ensure that they will be Year 2000 compliant as Staples RD's schedule requires.
Responses have been received from the majority of vendors, but not all vendors
have assured Staples RD that they will be compliant in time. As a contingency,
alternative lists of third party vendors have been created in case a critical
third party does not achieve compliance. Assessment regarding the status of
third parties' Year 2000 compliance continues to be ongoing and may carry into
early 2000.
Staples RD has completed its enterprise wide inventory review and has completed
a comprehensive risk assessment relative to vendor provided products, devices
and/or services. Due diligence and monitoring with respect to vendors with the
greatest impact on Staples RD is scheduled to be performed on a continuous basis
throughout 1999.
Staples RD has estimated that the total cost of Year 2000 compliance will be
between $25 and $30 million, $26 million of which had been spent as of October
30, 1999. Most of the costs to be incurred are related to remediation and
testing of software using outside contracted services. The costs of compliance
have been included in Staples RD's current 1999 IT budgets. The inclusion of
Year 2000 compliance has not caused any critical IT projects to be delayed or
eliminated.
Staples RD has completed a "what steps to follow" contingency plan in the event
that an area of its operations is impacted by the Year 2000 issue. A formal plan
will be adopted if it becomes more evident that there will be an area of
non-compliance in Staples RD's systems or at a critical third party. Staples RD
is developing these procedures for all of its sites and listing those to contact
in the event a "Year 2000 suspected" issue is encountered. Although Staples RD
expects to achieve Year 2000 compliance as scheduled, there are potential risks
if it does not
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STAPLES RETAIL AND DELIVERY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
become, or is late in becoming, Year 2000 compliant. Such risks include
impairing Staples RD's ability to process and deliver customer orders and
payments, procure saleable merchandise, and perform other critical business
functions which could have a material impact on financial performance. Staples
RD has yet to analyze the effect that an instance of critical non-compliance by
it or a third party would have on revenues and expenses since a worst case
scenario has not been identified. Further, there is also the risk that claims
may be made against Staples RD in the event of its non-compliance or the
non-compliance of the products and services which it sells. The costs of
defending and settling such claims could have a material impact on Staples RD's
financial statements. Each Staples RD point of customer contact (stores, call
centers and customer service) has access to a "Year 2000 Preparedness Guide" for
its customers so Staples RD can be proactive in assisting them with vendor
contacts to answer their Year 2000 questions.
The information presented above is based on management's estimates, which were
made using assumptions of future events. Uncontrollable factors such as the
compliance of the systems of third parties and the availability of resources
could materially increase the cost or delay the estimated date of Year 2000
compliance. All Year 2000 statements contained herein are designated as "Year
2000 Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosures Act (P.L. 105-271).
EURO CURRENCY
On January 1, 1999, participating member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency ("the euro"). The former currencies of the
participating countries are scheduled to remain legal tender as denominations of
the euro until January 1, 2002 when the euro will be adopted as the sole legal
currency.
Staples RD has evaluated the potential impact of the conversion to the euro on
its business, including the ability of our information systems to handle
euro-denominated transactions, the impact on exchange costs and currency
exchange rate risks. Based on the results of this evaluation, Staples RD does
not expect the conversion to the euro to have a material impact on its
operations or financial position.
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STAPLES.COM
COMBINED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 30,
1999 JANUARY 30,
(UNAUDITED) 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ -- $ --
Prepaid expenses and other current assets .... -- 1,033
------- -------
TOTAL CURRENT ASSETS ........................ -- 1,033
EQUIPMENT:
Equipment .................................... 7,237 1,072
Less accumulated depreciation ................ 445 58
------- -------
NET EQUIPMENT .................................. 6,792 1,014
OTHER ASSETS:
Investments .................................. 25,665 --
------- -------
TOTAL OTHER ASSETS .......................... 25,665 --
------- -------
$32,457 $ 2,047
======= =======
LIABILITIES AND GROUP EQUITY
CURRENT LIABILITIES:
Inter-group payable to Staples Group ......... $ 4,281 $ --
Accrued expenses and other current liabilities 1,679 85
------- -------
TOTAL CURRENT LIABILITIES ................... 5,960 85
26,497 1,962
======= =======
GROUP EQUITY ................................... $32,457 $ 2,047
======= =======
</TABLE>
See notes to interim financial statements.
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STAPLES.COM
COMBINED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------ ------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales .................................... $ 23,979 $ 4,046 $ 51,281 $ 9,104
Cost of goods sold and occupancy costs.... 18,474 2,969 39,471 6,675
-------- -------- -------- --------
GROSS PROFIT ......................... 5,505 1,077 11,810 2,429
OPERATING AND OTHER EXPENSES:
Operating and selling .................. 6,384 446 13,470 1,057
General and administrative ............. 3,720 785 8,963 1,682
Interest and other expense, net ........ 64 9 115 10
-------- -------- -------- --------
TOTAL OPERATING AND OTHER EXPENSES.... 10,168 1,240 22,548 2,749
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES .............. (4,663) (163) (10,738) (320)
Income tax benefit ....................... (1,819) (64) (4,188) (117)
-------- -------- -------- --------
NET LOSS ............................. $ (2,844) $ (99) $ (6,550) $ (203)
======== ======== ======== ========
PRO FORMA:
Historical net loss ................... $ (203)
Provision for income taxes on
previously untaxed earnings of
pooled S-Corporation income ..... (12)
--------
PRO FORMA NET LOSS ................... $ (191)
========
</TABLE>
See notes to group interim financial statements.
Page 37
<PAGE> 38
STAPLES.COM
COMBINED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
39 WEEKS ENDED
------------------------------
OCTOBER 30, OCTOBER 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ......................................................... $ (6,550) $ (203)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .................................. 387 --
Change in assets and liabilities:
(Increase)/Decrease in prepaid expenses and other assets....... 1,033 (850)
Increase in inter-group payable ............................... -- --
Increase in accounts payable, accrued
expenses and other current liabilities ..................... 1,594 1
-------- --------
3,014 (849)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES ............................ (3,536) (1,052)
INVESTING ACTIVITIES:
Acquisition of property and equipment ............................ (6,165) (712)
Purchase of long-term investments ................................ (23,756) --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ............................ (29,921) (712)
FINANCING ACTIVITIES:
Proceeds from borrowings ......................................... 3,536 1,052
Capital contributions from Staples RD ............................ 29,921 712
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 33,457 1,764
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ............. -- --
Cash and cash equivalents at beginning of period ................. -- --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ -- $ --
======== ========
</TABLE>
See notes to group interim financial statements.
Page 38
<PAGE> 39
STAPLES.COM
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The stockholders of Staples approved the Tracking Stock Proposal which amended
the Company's certificate of incorporation to (i) authorize the issuance of a
new series of common stock, to be designated as Staples.com Stock, intended to
reflect the performance of Staples.com, the Company's e-commerce business, (ii)
increase the aggregate number of authorized shares of common stock that the
Company may issue from 1,500,000,000 to 2,100,000,000, initially comprised of
1,500,000,000 shares of Staples Stock and 600,000,000 shares of Staples.com
Stock, and (iii) re-classify Staples existing common stock as Staples Stock,
intended to reflect the performance of Staples RD, which consists of all of the
Company's other businesses and a retained interest in Staples.com.
The accompanying interim unaudited combined financial statements include the
accounts of our three e-commerce businesses, Staples.com, Quillcorp.com and
StaplesLink.com ("Staples.com"). All intercompany accounts and transactions are
eliminated in consolidation. In order to prepare separate financial statements
for Staples RD and Staples.com, the Company has allocated, for financial
reporting purposes, all of its consolidated assets, liabilities, revenue,
expenses and cash flow between Staples RD and Staples.com. These financial
statements of Staples RD and Staples.com, taken together, comprise all of the
accounts included in the corresponding consolidated financial statements of
Staples. Staples.com's financial statements reflect the application of certain
cash management and allocation policies adopted by the Board of Directors of
Staples (the "Board").
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 only 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 fiscal year.
Financial impacts which occur that affect Staples' consolidated results of
operations or financial position could affect the results of operations or
financial condition of Staples.com. In addition, the net losses of Staples.com,
and any dividends or distributions on, or repurchases of Staples.com Stock will
reduce the assets of Staples legally available for dividends on shares of
Staples.com Common Stock. Accordingly, these financial statements should be read
in conjunction with the financial information for Staples RD and financial
information for Staples.
NOTE 2 - COMPREHENSIVE INCOME
Staples.com calculates comprehensive income in accordance with SFAS No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components. SFAS
130 requires Staples.com to report comprehensive income which includes net
income, foreign currency translation adjustments and unrealized gains and losses
on short-term investments, which are reported separately in stockholders'
equity, in the notes to the financial statements for interim periods. During the
three and nine months ended October 30, 1999, total comprehensive loss amounted
to approximately $935,000 and $4,641,000, respectively, compared to $99,000 and
$203,000, for the corresponding periods ended October 31, 1998.
NOTE 3 - INVESTMENTS
Investments consist of stock purchased in internet related companies. These
investments have been accounted for on a cost basis as each investment
represents an interest of no greater than fifteen percent of the outstanding
capital stock of that company.
Page 39
<PAGE> 40
STAPLES.COM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SUBSEQUENT EVENTS
On November 9, 1999, at a special stockholders meeting, the stockholders of
Staples, Inc. approved the Tracking Stock Proposal and the Stock Plan Proposals
as described in the Proxy Statement dated October 12, 1999.
On November 12, 1999, approximately 5% of Staples.com Stock (including shares
allocable to Staples RD's retained interest) was sold to several investors
through a private placement.
Page 40
<PAGE> 41
STAPLES.COM
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES. Our sales increased 492.7% to $23,979,000 in the quarter ended October
30, 1999 from $4,046,000 in the quarter ended October 31, 1998 and increased
463.3% to $51,281,000 for the nine months ended October 30, 1999 compared to
$9,104,000 for the nine months ended October 31, 1998. This growth was
attributable to the continued rollout of the e-commerce business. The results
for the nine months ended October 30, 1999 include all three of Staples.com's
internet channels, Staples.com, Quillcorp.com, and StaplesLink.com, while the
results for the same period in the prior year only include the operations of
Quillcorp.com and StaplesLink.com. Staples.com was launched in the quarter ended
January 31, 1999.
GROSS PROFIT. Our gross profit as a percentage of sales was 23.0% for the three
and nine months ended October 30, 1999 as compared to 26.6% and 26.7%,
respectively, for the same periods in the prior year. The decrease is
attributable to changes in product and customer mix during the continued rollout
of e-commerce activities. This decrease was partially offset by the benefit
provided by the inter-business allocation principles, which passed on the
benefit of lower product costs from vendors.
OPERATING AND SELLING EXPENSES. Our operating and selling expenses, which
consist of payroll, advertising and other operating expenses, increased as a
percentage of sales in the three and nine months ended October 30, 1999 to 26.6%
and 26.3%, respectively, as compared to 11.0% and 11.6% for the same periods in
the prior year. The increase was primarily due to increased marketing expenses
which represented 18.7% and 18.9% of sales for the three months and nine months
ended October 30, 1999, respectively, as compared to 6.5% and 7.1% for the same
periods in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses as
a percentage of sales were 15.5% and 17.5% for the three and nine months ended
October 30, 1999, respectively, as compared to 19.4% and 18.5% for the same
periods in the prior year. The decrease in general and administrative costs as a
percentage of sales reflects the leveraging of infrastructure as sales increase.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense for the three
and nine months ended October 30, 1999 was $64,000 and $115,000, respectively,
as compared to $9,000 and $10,000 for the same periods in the prior year. The
interest expense relates to the inter-business revolving credit advances from
Staples RD to fund the operating needs of Staples.com as most treasury
activities are managed on a centralized basis and are attributed to Staples RD
unless the Board determines otherwise. These advances were funded as a capital
contribution by Staples RD at the end of each fiscal year.
INCOME TAXES. Our provision for income taxes as a percentage of pre-tax income
was 39% for both the three and nine months ended October 30, 1999 as compared to
39.3% and 36.6%, respectively, for the same periods in the prior year. On a pro
forma basis, to reflect a provision for income taxes on previously untaxed
earnings of Quill, Staples' effective tax rate would have been 40.3% for the
nine months ended October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Staples manages most finance activities on a centralized, consolidated basis.
These activities include the investment of surplus cash, the issuance, repayment
and repurchase of short-term and long-term debt, and the issuance and repurchase
of common stock. Staples currently attributes each incurrence or issuance of
external debt, and the proceeds thereof, to Staples RD and will continue to do
so in the future unless the Board determines otherwise. Whenever Staples.com
holds cash, Staples.com will normally, but will not be obligated to, transfer
that cash to Staples RD. Conversely, whenever Staples.com has a cash need,
Staples RD will normally, but will not be obligated to, fund that cash need. The
Board will determine, in its sole discretion, whether either business will
provide any particular funds on any particular occasion to the other business,
but will not be obligated to cause such cash transfers.
Page 41
<PAGE> 42
STAPLES.COM
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
All cash transfers from one business to or for the account of the other business
(other than transfers in return of assets or services rendered or transfers in
respect of Staples RD's retained interest that correspond to dividends paid on
Staples.com Stock), will be accounted for as inter-business revolving credit
advances unless:
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a long-term loan,
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a capital contribution increasing Staples
RD's retained interest in Staples.com.
- the Board determines that a given transfer, or type of transfer,
should be accounted for as a return of capital reducing Staples RD's
retained interest in Staples.com.
There are no specific criteria to determine when Staples RD will account for a
cash transfer as a long-term loan, a capital contribution or a return of capital
rather than an inter-business revolving credit advance. The Board would make
such a determination based on its judgement at the time of such transfer, or at
the time of the first of such type of transfer, based upon all relevant
circumstances. Factors the Board would consider include:
- the current and projected capital structure of each business,
- the relative levels of internally generated funds of each business,
- the financing needs and objectives of the recipient business,
- the investment objectives of the transferring business, the
availability, cost and time associated with the alternative financing
sources and prevailing interest rates and general economic conditions.
Any cash transfer accounted for as an inter-business revolving credit advance
will bear interest at a rate at which the Board, in its sole discretion,
determines Staples could borrow such funds on a revolving credit basis. Any cash
transfer accounted for as a long-term loan will have interest rate,
amortization, maturity, redemption and other terms that generally reflect the
then prevailing terms on which the Board, in its sole discretion, determines
Staples could borrow such funds.
Any cash transfer from Staples RD to Staples.com, or for Staples.com's account,
accounted for as a capital contribution will correspondingly increase
Staples.com's group equity and Staples RD's retained interest in Staples.com. As
a result, the number of shares issuable with respect to Staples RD's retained
interest in Staples.com will increase by the amount of such capital contribution
divided by the market value of Staples.com Stock on the date of transfer. Any
cash transfer from Staples.com to Staples RD, or for Staples RD's account,
accounted for as a return of capital will correspondingly reduce Staples.com's
group equity and Staples RD's retained interest in Staples.com. As a result, the
number of shares issuable with respect to Staples RD's retained interest in
Staples.com will decrease by the amount of such return of capital divided by the
market value of Staples.com Stock on the date of transfer.
As a result of the cash management policies in place between Staples RD and
Staples.com, Staples.com is heavily dependent on Staples RD for its continued
funding. Accordingly, Staples.com's liquidity could be adversely affected by the
liquidity needs of Staples RD.
During the nine months ended October 30, 1999, cash used in operations was
$3,536,000, primarily due to the net loss from operations of $6,550,000,
partially offset by the decrease in prepaid expenses and other current assets of
$1,033,000 and an increase in accounts payable, accrued expenses and other
liabilities of $1,594,000. Cash used in investing activities of $29,921,000
represents investments made in internet related companies of $23,756,000 and
acquisitions of property and equipment of $6,165,000. Cash provided by financing
activities of $33,457,000 represents capital contributions from Staples RD of
$29,921,000 and proceeds from borrowings under the inter-business revolver of
$3,536,000.
Page 42
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STAPLES.COM
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
INFLATION AND SEASONALITY
While neither inflation nor deflation has had, and Staples.com does not expect
either to have, a material impact upon operating results, there can be no
assurance that Staples.com's business will not be affected by inflation or
deflation in the future. Staples.com believes that its business is somewhat
seasonal, with sales and profitability slightly lower during the first and
second quarters of its fiscal year.
FUTURE OPERATING RESULTS
This quarterly report on Form 10-Q includes or incorporates forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify these
forward-looking statements by our use of the words "believes", "anticipates",
"plans", "expects", "may", "will", "would", "intends", "estimates" and other
similar expressions, whether in the negative or affirmative. Staples.com cannot
guarantee that it actually will achieve these plans, intentions or expectations
disclosed in the forward-looking statements it makes. Staples.com has included
important factors in the cautionary statements below that it believes could
cause its actual results to differ materially from the forward-looking
statements that it makes. The forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers or dispositions.
Staples.com does not assume any obligation to update any forward-looking
statement contained herein.
Staples.com has a limited operating history on which to assess its future
prospects. Staples.com has a limited history upon which to base an evaluation of
its prospects. Staples.com's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by start-up companies in the
new and rapidly evolving e-commerce market. Staples.com's sales and cost of
operations have grown substantially and Staples.com has incurred cumulative net
losses since inception. These losses reflect expenditures necessary to develop,
launch and acquire Staples.com's site and services. Staples.com believes that
newly launched sites and services require a certain period of growth before they
begin to achieve adequate sales to support their operations. There can be no
assurance that Staples.com's sales will increase or even continue at its current
level, or that Staples.com will achieve or maintain profitability or generate
cash from operations in future periods. .
Staples.com's market is highly competitive and it may not continue to compete
successfully. Staples.com competes in a highly competitive marketplace with a
variety of retailers, dealers, distributors and other e-commerce operations.
These include other high-volume office supply chains, such as Office Depot,
OfficeMax and Office World, that have pricing strategies and product selections
that are similar to Staples.com. Staples.com also competes with online and other
mass merchants, such as Wal-Mart, warehouse clubs, computer and electronic
superstores, and other discount retailers. In addition, Staples.com competes
with numerous mail order firms, contract stationer businesses and direct
manufacturers. Some of Staples.com's current and potential competitors are
larger and have substantially greater financial resources than Staples.com. It
is possible that increased competition or improved performance by competitors
may reduce Staples.com's market share, may force Staples.com to charge lower
prices than it otherwise would, and may adversely affect its business and
financial performance in other ways.
Staples.com's quarterly operating results are subject to significant
fluctuation. Staples.com's operating results have fluctuated from quarter to
quarter in the past, and it expects that they will continue to do so in the
future. Staples.com's earnings may fall short of either a prior fiscal period or
investors' expectations. Factors that could cause these quarterly fluctuations
include the following:
- the mix of products sold;
- pricing actions of competitors;
- the level of advertising and promotional expenses;
Page 43
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STAPLES.COM
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
- seasonality, primarily because sales and profitability is typically
slightly lower in the first and second quarter of our fiscal year than
in other quarters; and
- charges associated with acquisitions.
Most of Staples.com's operating expenses, such as rent expense, advertising
expense and employee salaries, do not vary directly with the amount of sales and
are difficult to adjust in the short term. As a result, if sales in a particular
quarter are below expectations for that quarter, Staples.com may not
proportionately reduce operating expenses for that quarter, and therefore this
sales shortfall would have a disproportionate effect on Staples.com's net income
for the quarter.
The market price of Staples.com Stock in the event of, and following, a public
offering will be based in large part on professional securities analysts'
expectations that its business will continue to grow and that it will achieve
certain levels of net income. If Staples.com's financial performance in a
particular quarter does not meet the expectations of securities analysts, this
may adversely affect the views of those securities analysts concerning
Staples.com's growth potential and future financial performance. If the
securities analysts that regularly follow Staples.com Stock lower their rating
of the common stock or lower their projections for Staples.com's future growth
and financial performance, the market price of Staples.com Stock is likely to
drop significantly. In addition, in those circumstances, the decrease in
Staples.com Stock price would probably be disproportionate to the shortfall in
financial performance.
Staples.com's rapid growth may continue to strain its operations, which could
adversely affect its business and financial results. Staples.com's business,
including sales and number of employees, has grown dramatically since its
inception. This growth has placed significant demands on its management and
operational systems. If Staples.com is not successful in upgrading its
operational and financial systems, expanding its management team and increasing
and effectively managing its employee base, this growth is likely to result in
operational inefficiencies and ineffective management of Staples.com's business
and employees, which will in turn adversely affect its business and financial
performance.
Staples.com as a new business enterprise may not be able to manage many general
business risks faced by other more mature e-commerce businesses. Staples.com
must, among other things, effectively develop new relationships and maintain
existing relationships with its customers, advertisers, and other on-line
partners; provide a wide variety of products, services, and content; develop and
upgrade its technology; respond to competitive developments; and attract, retain
and motivate qualified personnel. There can be no assurance that Staples.com
will succeed in addressing such risks and the failure to do so could have a
material adverse effect on Staples.com's business, financial condition or
results of operations.
YEAR 2000 READINESS DISCLOSURE
Staples RD has completed an assessment of the internal computer systems and
applications of Staples.com. Because these systems were developed recently,
Staples RD does not believe that these systems will be directly impacted by the
"Year 2000 issue" as described below. The operations of Staples.com as a whole,
however, are directly reliant upon the compliance of the systems and
applications of Staples RD. Staples.com's operations could also be affected by
the compliance of various third parties, including internet hosting and routing
services, vendors, telephone providers and the systems of their customers who
must use their systems to place orders on Staples.com's various e-commerce
platforms. For a discussion of Year 2000 compliance activities of Staples RD,
which are being managed on a corporate wide basis, see the "Year 2000 Readiness
Disclosure" for Staples RD contained within this document.
Page 44
<PAGE> 45
STAPLES, INC. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEMS 1, 3, 4 AND 5 - NOT APPLICABLE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company amended its Certificate of Incorporation on November 9, 1999 to (1)
create a new series of common stock called Staples.com common stock, (2)
increase the aggregate number of authorized shares of common stock from
1,500,000,000 to 2,100,000,000, initially comprised of 1,500,000,000 shares of
Staples Stock and 600,000,000 shares of Staples.com Stock, and (3) reclassify
each outstanding share of existing common stock into a share of Staples Stock.
Information concerning this amendment is contained in the Company's Proxy
Statement dated October 12, 1999.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a). Exhibits
4.1 Indenture, dated as of November 15, 1999, for the $150,000,000 5.875% Notes
due November 15, 2004, by and among the Company, Staples the Office
Superstore, Inc., Staples the Office Superstore East, Inc., Staples
Contract & Commercial, Inc. and the Chase Manhattan Bank.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
Not Applicable
Page 45
<PAGE> 46
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAPLES, INC.
Date: DECEMBER 14, 1999 By: /s/ John J. Mahoney
-------------------- -----------------------------
John J. Mahoney
Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Page 46
<PAGE> 47
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
4.1 Indenture, dated as of November 15, 1999, for the $150,000,000
5.875% Notes due November 15, 2004, by and among the Company,
Staples the Office Superstore, Inc., Staples the Office
Superstore East, Inc., Staples Contract & Commercial, Inc.
and the Chase Manhattan Bank.
27.1 Financial Data Schedule
Page 47
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
STAPLES, INC.,
As Issuer,
----------
and
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
As Subsidiary Guarantors,
-------------------------
TO
THE CHASE MANHATTAN BANK,
As Trustee
----------
----------------
Indenture
Dated as of November 15, 1999
----------------
5.875 per cent Notes due November 15, 2004
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties..................................................................................................1
Recitals of the Company and the Subsidiary Guarantors....................................................1
ARTICLE ONE -- Definitions and Other Provisions of General Application
SECTION 101. Definitions................................................................................1
Act.............................................................................................2
Additional Amounts..............................................................................2
Additional Securities...........................................................................2
Affiliate.......................................................................................2
Agent Member....................................................................................2
Applicable Procedures...........................................................................2
Attributable Value..............................................................................2
Authenticating Agent............................................................................3
Board of Directors..............................................................................3
Board Resolution................................................................................3
Business Day....................................................................................3
Cedelbank.......................................................................................3
Common Depositary...............................................................................3
Company.........................................................................................3
Company Request.................................................................................3
Company Order...................................................................................3
Consolidated Net Tangible Assets................................................................3
Corporate Trust Office..........................................................................4
corporation.....................................................................................4
Default.........................................................................................4
Defaulted Interest..............................................................................4
Distribution Compliance Period..................................................................4
Euroclear.......................................................................................4
Event of Default................................................................................4
Exchange Act....................................................................................4
Expiration Date.................................................................................4
GAAP............................................................................................4
Global Security.................................................................................4
Holder..........................................................................................4
Indebtedness....................................................................................4
</TABLE>
- -----------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-i-
<PAGE> 3
<TABLE>
<S> <C>
Indenture.......................................................................................5
Interest Payment Date...........................................................................5
Issue Date......................................................................................5
Lien............................................................................................5
Maturity........................................................................................5
Net Available Proceeds..........................................................................5
Notice of Default...............................................................................5
Officers' Certificate...........................................................................6
Opinion of Counsel..............................................................................6
Outstanding.....................................................................................6
Paying Agent....................................................................................6
Person..........................................................................................7
Predecessor Security............................................................................7
Principal Property..............................................................................7
Principal Subsidiary............................................................................7
Quotation Agent.................................................................................7
Redemption Date.................................................................................7
Redemption Price................................................................................7
Reference Dealer................................................................................7
Reference Dealer Rate...........................................................................7
Regular Record Date.............................................................................7
Regulation S....................................................................................7
Regulation S Global Security....................................................................7
Responsible Officer.............................................................................8
Restricted Global Security......................................................................8
Restricted Securities...........................................................................8
Rule 144........................................................................................8
Rule 144A.......................................................................................8
Sale and Lease-Back Transaction.................................................................8
Securities......................................................................................8
Securities Act..................................................................................8
Security Register...............................................................................8
Security Registrar..............................................................................8
Special Record Date.............................................................................8
Stated Maturity.................................................................................9
Subsidiary......................................................................................9
Subsidiary Guarantees...........................................................................9
Subsidiary Guarantors...........................................................................9
Successor Security..............................................................................9
Tax Affected Security...........................................................................9
Tax Law Change..................................................................................9
Temporary Regulation S Global Security...........................................................
Trust Indenture Act.............................................................................9
</TABLE>
- -----------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Trustee.........................................................................................9
United States..................................................................................10
Vice President.................................................................................10
Voting Stock...................................................................................10
Wholly Owned...................................................................................10
SECTION 102. Compliance Certificates and Opinions......................................................10
SECTION 103. Form of Documents Delivered to Trustee....................................................11
SECTION 104. Acts of Holders; Record Dates.............................................................11
SECTION 105. Notices, Etc., to Trustee, Company and Subsidiary Guarantors..............................13
SECTION 106. Notice to Holders; Waiver.................................................................14
SECTION 107. Conflict with Trust Indenture Act.........................................................14
SECTION 108. Effect of Headings and Table of Contents..................................................14
SECTION 109. Successors and Assigns....................................................................15
SECTION 110. Separability Clause.......................................................................15
SECTION 111. Benefits of Indenture.....................................................................15
SECTION 112. Governing Law.............................................................................15
SECTION 113. Legal Holidays............................................................................15
SECTION 114. Agent for Service; Submission to Jurisdiction; Waiver of Immunities.......................15
SECTION 115. Conversion of Currency....................................................................16
ARTICLE TWO -- Security Forms
SECTION 201. Forms Generally...........................................................................17
SECTION 202. Form of Face of Security..................................................................18
SECTION 203. Form of Reverse of Security...............................................................23
SECTION 204. Form of Trustee's Certificate of Authentication...........................................27
SECTION 205. Form of Subsidiary Guarantee..............................................................28
ARTICLE THREE -- The Securities
SECTION 301. Title and Terms...........................................................................30
SECTION 302. Denominations.............................................................................31
SECTION 303. Execution, Authentication, Delivery and Dating............................................31
SECTION 304. Temporary Securities......................................................................33
SECTION 305. Registration, Registration of Transfer and Exchange.......................................33
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities..........................................39
SECTION 307. Payment of Interest; Interest Rights Preserved............................................41
SECTION 308. Persons Deemed Owners.....................................................................41
SECTION 309. Cancellation..............................................................................41
</TABLE>
- -----------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-iii-
<PAGE> 5
<TABLE>
<S> <C>
SECTION 310. Computation of Interest...................................................................42
SECTION 311. CUSIP/Common Code/ISIN Number.............................................................42
SECTION 312. Prescription..............................................................................42
ARTICLE FOUR -- Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture...................................................42
SECTION 402. Application of Trust Money................................................................43
ARTICLE FIVE -- Default and Remedies
SECTION 501. Events of Default.........................................................................4
SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................45
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................46
SECTION 504. Trustee May File Proofs of Claim..........................................................46
SECTION 505. Trustee May Enforce Claims Without Possession of Securities
or Subsidiary Guarantees...........................................................47
SECTION 506. Application of Money Collected............................................................47
SECTION 507. Limitation on Suits.......................................................................48
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest.................48
SECTION 509. Restoration of Rights and Remedies........................................................49
SECTION 510. Rights and Remedies Cumulative............................................................49
SECTION 511. Delay or Omission Not Waiver..............................................................49
SECTION 512. Control by Holders........................................................................49
SECTION 513. Waiver of Past Defaults...................................................................50
SECTION 514. Undertaking for Costs.....................................................................50
SECTION 515. Waiver of Stay or Extension Laws..........................................................50
ARTICLE SIX -- The Trustee
SECTION 601. Certain Duties and Responsibilities of the Trustee........................................51
SECTION 602. Notice of Defaults........................................................................51
SECTION 603. Certain Rights of Trustee.................................................................51
SECTION 604. Not Responsible for Recitals or Issuance of Securities....................................53
SECTION 605. May Hold Securities.......................................................................53
SECTION 606. Money Held in Trust.......................................................................53
SECTION 607. Compensation and Reimbursement............................................................53
</TABLE>
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Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
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<TABLE>
<S> <C>
SECTION 608. Disqualification; Conflicting Interests...................................................54
SECTION 609. Corporate Trustee Required; Eligibility...................................................54
SECTION 610. Resignation and Removal; Appointment of Successor.........................................54
SECTION 611. Acceptance of Appointment by Successor....................................................55
SECTION 612. Merger, Conversion, Consolidation or Succession to Business...............................56
SECTION 613. Preferential Collection of Claims Against Company
and Subsidiary Guarantors .........................................................56
SECTION 614. Appointment of Authenticating Agent.......................................................56
ARTICLE SEVEN -- Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.................................58
SECTION 702. Preservation of Information; Communications to Holders....................................58
SECTION 703. Reports by Trustee........................................................................59
SECTION 704. Reports by Company........................................................................59
ARTICLE EIGHT -- Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company and Subsidiary Guarantors May Consolidate, Etc. Only
on Certain Terms...................................................................59
SECTION 802. Successor Substituted.....................................................................60
ARTICLE NINE -- Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders........................................61
SECTION 902. Supplemental Indentures with Consent of Holders...........................................61
SECTION 903. Execution of Supplemental Indentures......................................................62
SECTION 904. Effect of Supplemental Indentures.........................................................63
SECTION 905. Conformity with Trust Indenture Act.......................................................63
SECTION 906. Reference in Securities to Supplemental Indentures........................................63
ARTICLE TEN -- Covenants
SECTION 1001. Payment of Principal, Premium and Interest...............................................63
SECTION 1002. Maintenance of Office or Agency..........................................................63
SECTION 1003. Money for Security Payments to be Held in Trust..........................................64
</TABLE>
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Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
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<TABLE>
<S> <C>
SECTION 1004. Existence................................................................................65
SECTION 1005. Maintenance of Properties................................................................65
SECTION 1006. Payment of Taxes and Other Claims........................................................66
SECTION 1007. Limitation on Liens......................................................................66
SECTION 1008. Limitation on Sale and Lease-Back Transactions...........................................68
SECTION 1009. Statement by Officers as to Default; Compliance Certificates.............................68
SECTION 1010. Waiver of Certain Covenants..............................................................69
SECTION 1011. Available Information....................................................................69
SECTION 1012. Acquisition of Securities................................................................69
ARTICLE ELEVEN -- Redemption of Securities
SECTION 1101. Right of Redemption......................................................................69
SECTION 1102. Applicability of Article.................................................................70
SECTION 1103. [Reserved.]..............................................................................70
SECTION 1104. [Reserved.]..............................................................................70
SECTION 1105. Notice of Redemption.....................................................................70
SECTION 1106. Deposit of Redemption Price..............................................................70
SECTION 1107. Securities Payable on Redemption Date....................................................71
ARTICLE TWELVE -- Subsidiary Guarantee
SECTION 1201. Subsidiary Guarantee.....................................................................71
SECTION 1202. Execution and Delivery of Subsidiary Guarantees..........................................73
SECTION 1203. Release of Subsidiary Guarantors.........................................................74
ARTICLE THIRTEEN -- Meetings of Holders of Securities
SECTION 1301. Purposes for Which Meetings May Be Called................................................74
SECTION 1302. Call, Notice and Place of Meetings.......................................................74
SECTION 1303. Persons Entitled to Vote at Meetings.....................................................75
SECTION 1304. Quorum; Action...........................................................................75
SECTION 1305. Determination of Voting Rights; Conduct and Adjournment of Meetings......................76
SECTION 1306. Counting Votes and Recording Action of Meetings..........................................77
</TABLE>
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Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
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Annex A-1 - Form of Transfer Certificate
- Restricted Global Security to Temporary Regulation S Global
Security
Annex A-2 - Form of Transfer Certificate
- Restricted Global Security to Regulation S Global Security
Annex B - Form of Transfer Certificate
- Temporary Regulation S Global Security or Regulation S Global
Security to Restricted Global Security
Annex C-1 - Form of Certification to be Given by Holders of Beneficial
Interests in a Temporary Regulation S Global Security to
Euroclear or Cedelbank
Annex C-2 - Form of Certification to be Given by the Euroclear Operator or
Cedelbank, Societe Anonyme
Annex C-3 - Form of Certification to be Given by Transferee of Beneficial
Interest in a Temporary Regulation S Global Security After the
Restricted Period
Annex D-1 - Form of Transfer Certificate
- Non-Global Restricted Security to Restricted Global Security
Annex D-2 - Form of Certificate
- Non-Global Restricted Security to Regulation S Global Security or
Temporary Regulation S Global Security
<PAGE> 9
INDENTURE, dated as of November 15, 1999, among Staples, Inc., a
corporation duly organized and existing under the laws of Delaware (herein
called the "Company"), having its principal office at 500 Staples Drive,
Framingham, Massachusetts 01702, each of the Subsidiary Guarantors (as
hereinafter defined) and The Chase Manhattan Bank, a banking corporation duly
organized and existing under the laws of New York, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY AND THE SUBSIDIARY GUARANTORS
The Company has duly authorized the creation of an issue of its 5.875 per
cent Notes due November 15, 2004 of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
The Company and the presently existing Subsidiary Guarantors are members of
the same consolidated group of companies and are engaged in related businesses;
the presently existing Subsidiary Guarantors will derive direct and indirect
economic benefit from the issuance of the Securities; accordingly, each
presently existing Subsidiary Guarantor has duly authorized the execution and
delivery of this Indenture to provide for its full, unconditional, irrevocable
and joint and several guarantee of the Securities.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, to make the Subsidiary Guarantees (as
hereinafter defined) of each of the Subsidiary Guarantors, when executed by the
respective Subsidiary Guarantors and endorsed on the Securities, the valid
obligations of the respective Subsidiary Guarantors, and to make this Indenture
a valid agreement of the Company and each of the Subsidiary Guarantors in
accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
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(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(3) unless the context otherwise requires, any reference to an
"Article" or a "Section", or to an "Annex", refers to an Article or Section
of, or to an Annex attached to, this Indenture, as the case may be;
(4) unless the context otherwise requires, any reference to a statute,
rule or regulation refers to the same (including any successor statute,
rule or regulation thereto) as it may be amended from time to time; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Amounts" has the meaning specified in Section 202(a).
"Additional Securities" means Securities, which shall be considered to
be of the same series as the Securities issued hereunder, that are issued from
time to time after the Issue Date under the terms of this Indenture, subject to
prior authorization by a Board Resolution (except for Securities authenticated
and delivered upon registration of transfer of, or in lieu of, other Securities
pursuant to Sections 304, 305, 306 or 906).
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, Euroclear or
Cedelbank.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of Euroclear and Cedelbank, and of any Common Depositary
for such Security, in each case to the extent applicable to such transaction and
as in effect from time to time.
"Attributable Value" in respect of any Sale and Lease-Back Transaction
means, as of the time of determination, the lesser of (i) the sale price of the
Principal Property so leased
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<PAGE> 11
multiplied by a fraction the numerator of which is the remaining portion of the
base term of the lease included in such Sale and Lease-Back Transaction and the
denominator of which is the base term of such lease, and (ii) the total
obligation (discounted to present value at the highest rate of interest
specified by the terms of Securities then Outstanding compounded semi-annually)
of the lessee for rental payments (other than amounts required to be paid on
account of property taxes as well as maintenance, repairs, insurance, water
rates and other items which do not constitute payments for property rights)
during the remaining portion of the base term of the lease included in such Sale
and Lease-Back Transaction.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means, with respect to the Company, either the board
of directors of the Company or any committee of that board duly authorized to
act for it in respect hereof, and with respect to any Subsidiary Guarantor,
either the board of directors of such Subsidiary Guarantor or any committee of
that board duly authorized to act for it in respect hereof.
"Board Resolution" means, with respect to the Company or a Subsidiary
Guarantor, a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company or such Subsidiary Guarantor, as the case may be, to
have been duly adopted by its Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Business Day" means, with respect to any particular place, (i) each
Monday, Tuesday, Wednesday, Thursday and Friday, other than any such day on
which banking institutions in The City of New York, New York or London, England
are authorized or obligated by law or executive order to close and (ii) with
respect to any due date for the payment of principal or interest in respect of
any Security, a day on which commercial banks and foreign exchange markets are
open for general business in the place of presentation and a day on which the
TARGET system is open.
"Cedelbank" means Cedelbank, societe anonyme.
"Common Depositary" means Chase Nominees Limited, in its capacity as
depository of Global Securities on behalf of Euroclear or Cedelbank or both,
until a successor Common Depositary shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter, "Common Depositary"
shall mean such successor Common Depositary.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
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<PAGE> 12
"Consolidated Net Tangible Assets" of the Company means the aggregate
amount of assets (less applicable reserves and other properly deductible items)
after deducting therefrom (a) all current liabilities (excluding any
indebtedness for money borrowed having a maturity of less than 12 months from
the date of the most recent consolidated balance sheet of the Company but which
by its terms is renewable or extendable beyond 12 months from such date at the
option of the borrower) and (b) all goodwill, trade names, patents, unamortized
debt discount and expense and any other like intangibles, all as set forth on
the most recent consolidated balance sheet of the Company and computed in
accordance with GAAP.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at the date of the execution of this Indenture is located at 450 West
33rd Street, New York, New York 10001, Attention: Capital Markets Fiduciary
Services, or at any other time at such other address as the Trustee may
designate from time to time by notice to the Holders.
"corporation" means a corporation, association, company, joint stock
company, limited liability company, partnership or business trust.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Distribution Compliance Period" has the meaning specified in Section 201.
"euro" and "_" means the single currency introduced at the start of the
third stage of economic and monetary union pursuant to the Treaty establishing
the European Community, as amended by the treaty on European Union.
"Euroclear" means the Euroclear Clearance System.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 (including any
successor act thereto), as it may be amended from time to time, and (unless the
context otherwise requires) includes the rules and regulations of the Commission
promulgated thereunder.
"Expiration Date" has the meaning specified in Section 104.
"GAAP" means generally accepted accounting principles in the United States
consistently applied as in effect on the date of this Indenture.
"Global Security" means a Security that is registered in the Security
Register in the name of the Common Depositary.
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<PAGE> 13
"Holder" means, with respect to any Security, a Person in whose name such
Security is registered in the Security Register.
"Indebtedness" of any Person means (without duplication), with respect to
any Person, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person and (iv) every obligation of the type referred to in
clauses (i) through (iii) of another Person the payment of which such Person has
guaranteed or is responsible or liable for, directly or indirectly, as obligor,
guarantor or otherwise (but only, in the case of clause (iv), to the extent such
Person has guaranteed or is responsible or liable for such obligations).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the Annexes
attached to this instrument.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Issue Date" means the date on which the Securities are originally issued.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien,
encumbrance, or other security arrangement of any kind or nature whatsoever on
or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, exercise of the repurchase right or otherwise.
"Net Available Proceeds" from any Sale and Lease-Back Transaction by any
Person means cash or readily marketable cash equivalents received (including by
way of sale or discounting of a note, installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiree of Indebtedness or obligations relating to the
properties or assets that are the subject of such Sale and Lease-Back
Transaction or received in any other noncash form) therefrom by such Person, net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability as a consequence of such Sale and
Lease-Back Transaction; (ii) all payments made by such Person or its
Subsidiaries on any Indebtedness which is secured in whole or in part by any
such properties and assets in accordance with the terms of any Lien upon or with
respect to any such properties and assets or which must, by the terms of such
Lien, or in order to obtain a necessary consent to such Sale and Lease-Back
Transaction or by applicable law, be repaid out of the proceeds from such Sale
and Lease-Back Transaction; and (iii) all distributions and other payments made
to
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<PAGE> 14
minority interest holders in Subsidiaries of such Person or joint ventures as a
result of such Sale and Lease-Back Transaction; provided, however, that for
purposes of clause (ii) of Section 1008 hereof the amount of Net Available
Proceeds to be applied to any acquisition of Principal Properties or retirement
of Securities or other Indebtedness shall be reduced by an amount equal to the
sum of (A) an amount equal to the redemption price with respect to such
Securities delivered within 180 days after the effective date of such Sales and
Lease-Back Transaction to the Trustee for retirement and cancellation and (B)
the principal amount, plus any premium or fee paid in connection with a
redemption in accordance with the terms, of such other Indebtedness voluntarily
retired by the Company within such 180-day period, excluding in each case
retirements pursuant to mandatory sinking fund or prepayment provisions and
payments at maturity.
"Notice of Default" means a written notice of the kind specified in
Section 501(3).
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, of the Company or a Subsidiary
Guarantor, as the case may be, and delivered to the Trustee.
"Opinion of Counsel" means, as to the Company or a Subsidiary
Guarantor, a written opinion of counsel, who may be counsel for the Company or
such Subsidiary Guarantor, as the case may be, and who shall be acceptable to
the Trustee, delivered to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company or any Subsidiary Guarantor) in trust or set aside
and segregated in trust by the Company or a Subsidiary Guarantor (if the
Company or a Subsidiary Guarantor shall act as a Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption shall have been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee shall have
been made; and
(iii) Securities that have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, Securities owned by the Company,
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<PAGE> 15
any Subsidiary Guarantor or any other obligor upon the Securities or any
Affiliate of the Company, of any Subsidiary Guarantor or of such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent, waiver or other
action, only Securities that a responsible officer of the Trustee actually knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company, a Subsidiary Guarantor
or any other obligor upon the Securities or any Affiliate of the Company, of any
Subsidiary Guarantor or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company and, as of
the date of this Indenture, shall include (i) the Corporate Trust Office of the
Trustee in the Borough of Manhattan, The City of New York and (ii) The Chase
Manhattan Bank, London Branch, which as of the date of this Indenture is located
at Trinity Tower, 9 Thomas More Street, London E1 9YT England.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means any real property or any permanent
improvement thereon owned by the Company or any of its Subsidiaries including,
without limitation, any office, store, warehouse, manufacturing facility or
plant or any portion thereof, and any equipment located at or comprising a part
of any such property, having a net book value, as of the date of determination,
in excess of 1% of Consolidated Net Tangible Assets of the Company.
"Principal Subsidiary" means any Subsidiary which owns any Principal
Property.
"Quotation Agent" means the Reference Dealer.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed as set forth in the
Securities.
"Reference Dealer" means Goldman Sachs International or its successor.
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<PAGE> 16
"Reference Dealer Rate" means, with respect to the Reference Dealer
and any redemption date, the midmarket annual yield to maturity, as determined
by the Trustee, of the French Treasury Note 3 1/2% due July 2004, or, if that
security is no longer outstanding, a similar security in the reasonable judgment
of the Reference Dealer, at 11:00 a.m. (London time) on the third Business Day
in London preceding such redemption date quoted in writing to the Trustee by
such Reference Dealer.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the fifteenth day (regardless of whether a Business Day) next
preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" has the meaning specified in
Section 201.
"Responsible Officer" shall mean, when used with respect to the
Trustee, any officer within the Corporate Trust Office, including any Vice
President, Managing Director, Assistant Vice President, Secretary, Assistant
Secretary or Assistant Treasurer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers, and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge and familiarity
with the particular subject.
"Restricted Global Security" has the meaning specified in Section 201.
"Restricted Securities" means all Securities required pursuant to
Section 305(c) to bear a Restricted Securities Legend. Such term includes the
Restricted Global Security.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Lease-Back Transaction" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any Principal Property that, more
than 12 months after (i) the completion of the acquisition, construction,
development or improvement of such Principal Property or (ii) the placing in
operation of such Principal Property or of such Principal Property as so
constructed, developed or improved, has been or is being sold, conveyed,
transferred or otherwise disposed of by such Person to such lender or investor
or to any Person to whom funds have been or are to be advanced by such lender on
the security of such Principal Property. The term of such arrangement, as of any
date (the "measurement date"), shall end on the date of the last payment of rent
or any other amount due under such arrangement on or prior to the first date
after the measurement date on which such arrangement may be terminated by the
lessee, at its sole option, without payment of a penalty.
"Securities" means the securities described in the recitals hereof.
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<PAGE> 17
"Securities Act" means the United States Securities Act of 1933
(including any successor act thereto), as it may be amended from time to time,
and (unless the context otherwise requires) includes the rules and regulations
of the Securities and Exchange Commission promulgated thereunder.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or a
Person or by one or more other Subsidiaries of the Company or that Person, or by
the Company or a Person and one or more other Subsidiaries of the Company or
that Person. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Subsidiary Guarantees" means the Guarantees of each Subsidiary
Guarantor in the form of Section 205 and as provided in Article Twelve.
"Subsidiary Guarantors" means (i) Staples the Office Superstore, Inc.,
a Delaware corporation, Staples the Office Superstore East, Inc., a Delaware
corporation, and Staples Contract & Commercial, Inc., a Delaware corporation,
and (ii) any successor of the foregoing; in each case (i) and (ii) until such
Subsidiary Guarantor ceases to be such in accordance with Section 1203 hereof.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Affected Security" means any Security held by a United States
Alien to whom Additional Amounts have or will become payable.
"Tax Law Change" means (i)any change in, or amendment to, the laws (or
any regulations or rulings promulgated thereunder) of the United States (or any
political subdivision or taxing authority thereof or therein), or any change in
official position regarding the application or interpretation of such laws,
regulations or rulings, (ii) any action taken by a taxing authority of the
United States (or any political subdivision thereof or therein) affecting
taxation, which action is generally applied or is taken with respect to the
Company, or (iii) a decision rendered by a court of
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<PAGE> 18
competent jurisdiction in the United States (or any political subdivision
thereof or therein), whether or not such decision was rendered with respect to
the Company.
"Temporary Regulation S Global Security" has the meaning specified in
Section 201.
"Trust Indenture Act" means the United States Trust Indenture Act of
1939 as in force at the date as of which this instrument was executed, except as
provided in Section 905; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means,
to the extent required by any such amendment, the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States" means the United States of America (including the
States thereof and the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
"Vice President", when used with respect to the Company, each
Subsidiary Guarantor or the Trustee, means any vice president, regardless of
whether designated by a number or a word or words added before or after the
title "vice president".
"Voting Stock" of a Person means all classes of capital stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned" means, when used in connection with any Subsidiary, a
Subsidiary of which all of the issued and outstanding shares of Voting Stock
(except shares required as directors' qualifying shares) are owned by the
Company and/or one or more Wholly Owned Subsidiaries.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any Subsidiary
Guarantor and any other obligor on the Securities, as appropriate, shall each
furnish to the Trustee such certificates and opinions as may be required
hereunder or under the Trust Indenture Act. Each such certificate or opinion
shall be given in the form of an Officers' Certificate, if to be given by an
officer of the Company, or an Opinion of Counsel if to be given by counsel and
shall comply with the requirements of the Trust Indenture Act and any other
requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
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<PAGE> 19
(1) a statement that each individual or firm signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual
or firm, he or it has made such examination or investigation as is
necessary to enable him or it to express an informed opinion as to
whether such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such individual or firm, such condition or covenant has been complied
with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Subsidiary Guarantor or other obligor, as applicable, may be based, insofar as
it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
Any request, demand, authorization, direction, notice,
consent, waiver or other action permitted or required by this Indenture to be
given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent of such Holders duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are received by the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or instruments
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<PAGE> 20
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Paying Agent,
any Subsidiary Guarantor or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.
The Company may set any day as a record date, written notice of which
will be sent to the Trustee, for the purpose of determining the Holders of
Outstanding Securities entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders of Securities,
provided that the Company may not set a record date for, and the provisions of
this paragraph shall not apply with respect to, the giving or making of any
notice, declaration, request or direction referred to in the next paragraph. If
not set by the Company prior to the first solicitation of a Holder made by any
Person in respect of any such matter referred to in the foregoing sentence, the
record date for any such matter shall be the 30th day (or, if later, the date of
the most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation. If any record date is set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to take the relevant action, whether or not
such Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
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<PAGE> 21
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities in the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 502, (iii) any request to institute proceedings referred
to in Section 507(2) or (iv) any direction referred to in Section 512. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in Section 106.
With respect to any record date set pursuant to this Section, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities in the manner set forth in Section
106, on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE, COMPANY AND SUBSIDIARY GUARANTORS.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
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<PAGE> 22
(1) the Trustee by any Holder or by the Company or any
Subsidiary Guarantor shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with the Trustee at
its Corporate Trust Office, or
(2) the Company or any Subsidiary Guarantor by the Trustee or
by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first
class postage prepaid, in the case of the Company addressed to it at
the address of its principal office specified in the first paragraph of
this instrument, Attention: Chief Financial Officer, or at any other
address previously furnished in writing to the Trustee by the Company
and, in the case of any Subsidiary Guarantor, to it at the address of
the Company's principal office specified in the first paragraph of this
instrument, Attention Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by such Subsidiary
Guarantor.
The Company and any Subsidiary Guarantor shall promptly
transmit to the Trustee any request, demand, authorization, direction, notice,
consent, waiver or Act received from any Holder.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first class postage prepaid, to
each Holder affected by such event, at his address as it appears in the Security
Register on the date such notice is mailed not later than the latest date (if
any), and not earlier than the earliest date (if any), prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
Except as otherwise provided herein, all notices to Holders
will be valid if published in a leading English language daily newspaper or
newspapers published in New York City and in London or such other English
language daily newspaper with general circulation in Europe and the United
States, as the case may be, as the Trustee may approve. Any notice will be
deemed to have been given on the date of publication or, if so published more
than once or on different dates, on the date of the first publication. It is
expected that publication will normally be made in the Wall Street Journal (New
York edition) and the Financial Times (London edition). If publication as
provided above is not practicable, notice will be given in such other manner,
and will be deemed to have been given on such date, as the Trustee may approve.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
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<PAGE> 23
This Indenture, the Company, the Subsidiary Guarantors and the Trustee
shall be deemed for all purposes hereof to be subject to and governed by the
Trust Indenture Act to the same extent as would be the case if this Indenture
were so qualified on the date hereof. If any provision hereof limits, qualifies
or conflicts with a provision of the Trust Indenture Act that is required under
such Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction of any provision
hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and any
Subsidiary Guarantor shall bind their successors and assigns, regardless of
whether so expressed.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture, the Securities or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities or the Subsidiary
Guarantees, express or implied, shall give to any Person, other than the parties
hereto, the Holders of Securities and their respective successors hereunder any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES ENDORSED
THEREON SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 113. LEGAL HOLIDAYS.
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<PAGE> 24
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date or Redemption Date, or at the Stated Maturity of such
Security, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
SECTION 114. AGENT FOR SERVICE; SUBMISSION TO JURISDICTION; WAIVER OF
IMMUNITIES.
By the execution and delivery of this Indenture, the Company (i)
acknowledges that it has, by separate written instrument, irrevocably designated
and appointed CT Corporation System as its authorized agent upon which process
may be served in any suit or proceeding arising out of or relating to the
Securities or this Indenture that may be instituted in any Federal or State
court in the Borough of Manhattan, The City of New York or brought under Federal
or State securities laws or brought by the Trustee in its capacity as a trustee
hereunder, and acknowledges that CT Corporation System has accepted such
designation, (ii) submits to the jurisdiction of any such court in any such suit
or proceeding and waives, to the extent possible, any objection which it may now
or hereafter have to the laying of venue of any such proceeding or any claim of
inconvenient forum, and (iii) agrees that service of process upon CT Corporation
System shall be deemed in every respect effective service of process upon it in
any such suit or proceeding. The Company further agrees to take any and all
action, including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and appointment of
CT Corporation System in full force and effect so long as this Indenture shall
be in full force and effect and for the continuous period from the date hereof
through and including the date which is 550 calendar days after the date upon
which the last of the Securities shall be outstanding. The Trustee agrees to
mail or deliver a copy of any service referred to in (iii) above to the Chairman
and Chief Executive Officer of the Company at its principal office at the
address set out on page 1 of this Indenture or at any other address previously
notified in writing to the Trustee.
To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment before judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of its respective obligations under
this Indenture and the Securities to the fullest extent permitted by law.
SECTION 115. CONVERSION OF CURRENCY.
The Company covenants and agrees that the following provisions shall
apply to conversion of currency in the case of the Securities and this
Indenture:
(a (i) If for the purpose of obtaining judgment in, or
enforcing the judgment of, any court in any country, it becomes
necessary to convert into any other currency (the "judgment currency")
an amount due in euros, then the conversion shall be made at the rate
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<PAGE> 25
of exchange prevailing on the Business Day before the day on which the
judgment is given or the order of enforcement is made, as the case may
be (unless a court shall otherwise determine).
(ii) If there is a change in the rate of exchange
prevailing between the Business Day before the day on which the
judgment is given or an order of enforcement is made, as the case may
be (or such other date as a court shall determine), and the date of
receipt of the amount due, the Company will pay such additional (or, as
the case may be, such lesser) amount, if any, as may be necessary so
that the amount paid in the judgment currency when converted at the
rate of exchange prevailing on the date of receipt will produce the
amount in euros originally due.
(b The term "rate(s) of exchange" shall mean the rate(s) of
exchange quoted by the Trustee at its foreign exchange desk in its
office in London, England at 12:00 noon (London time) for purchases of
euros with the judgment currency other than euros referred to in
Subsection (a) above and includes any premiums and costs of exchange
payable.
ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities, the Subsidiary Guarantees to be endorsed
thereon and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or depositary
thereof or as may, consistently herewith, be determined by the officers
executing such Securities or Subsidiary Guarantees, as the case may be, as
evidenced by their execution of such Securities or Subsidiary Guarantees, as the
case may be.
The definitive Securities and Subsidiary Guarantees shall be
printed, lithographed or engraved on steel engraved borders or may be produced
in any other manner, all as determined by the officers executing such Securities
or Subsidiary Guarantees, as the case may be, as evidenced by their execution of
such Securities or Subsidiary Guarantees, as the case may be.
In certain cases described elsewhere herein, the legends set
forth in the first four paragraphs of Section 202 may be omitted from Securities
issued hereunder.
Securities offered and sold in their initial distribution in
reliance on Regulation S shall be initially issued in the form of one or more
temporary Global Securities, in fully registered form without interest coupons,
substantially in the form of Security set forth in Sections 202 and 203, as the
case may be, with such applicable legends as are provided for in Section 202, as
the case may be. Such Global Securities shall be registered in the name of a
nominee or nominees for Euroclear or Cedelbank or both and deposited with the
Common Depositary, as custodian for Euroclear and
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Cedelbank, duly executed by the Company and authenticated by the Trustee as
hereinafter provided, for credit to the respective accounts of Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear and for the
account of Cedelbank, for credit to the respective accounts of owners of
beneficial interests in such Securities or to such other accounts as they may
direct. Until such time as the Distribution Compliance Period (as defined below)
shall have terminated, such temporary Global Securities shall be referred to
herein as "Temporary Regulation S Global Securities." On or after the
termination of the Distribution Compliance Period, interests in any Temporary
Regulation S Global Security will be exchangeable for corresponding interests in
an unrestricted Regulation S Global Security (each a "Regulation S Global
Security") in fully registered form without interest coupons, substantially in
the form set forth in Sections 202 and 203, with such applicable legends as are
provided for in Section 202 and in accordance with the immediately following
paragraph. As used herein, the term "Distribution Compliance Period" means the
period up to (but not including) the 40th day following the later of (i) the day
that Goldman Sachs International, as representative of the several Managers as
initial purchasers of the Securities, advises the Company and the Trustee of the
day on which the Securities are first offered to persons other than distributors
(as defined in Regulation S) in reliance on Regulation S and (ii) November 15,
1999.
Interests in a Temporary Regulation S Global Security may be exchanged
for interests in a Regulation S Global Security only on or after the termination
of the Distribution Compliance Period after delivery by a beneficial owner of an
interest therein to Euroclear or Cedelbank of a written certification (an "Owner
Securities Certification") substantially in the form of Annex C-1 hereto, and
upon delivery by Euroclear or Cedelbank to the Trustee of a written
certification (a "Depository Securities Certification") substantially in the
form attached hereto as Annex C-2. Upon receipt of such certification, the
Trustee will exchange the portion of the Temporary Regulation S Global Security
covered by such certification for interests in a Regulation S Global Security.
No interest shall be paid to any holder of a beneficial interest in a Temporary
Regulation S Global Security until the foregoing Owners Securities Certification
has been provided to Euroclear or Cedelbank, as the case may be, by such holder
and no interest shall be paid to Euroclear or Cedelbank on such holder's
interest in a Temporary Regulation S Global Security unless Euroclear and
Cedelbank, as the case may be, has provided a Depositary Securities
Certification to the Trustee or principal Paying Agent with respect to such
interest.
Securities offered and sold in their initial distribution in reliance
on Rule 144A shall be issued in the form of one or more Global Securities (each,
a "Restricted Global Security"), in fully registered form without interest
coupons, substantially in the form of Security set forth in Sections 202 and 203
with such applicable legends as are provided for in Section 202, except as
otherwise permitted herein. Such Global Securities shall be registered in the
name of a nominee or nominees for Euroclear and deposited with the Common
Depositary, as custodian for Euroclear, duly executed by the Company and
authenticated by the Trustee as hereinafter provided for credit to the account
of Morgan Guaranty Trust of New York, Brussels office, as operator of Euroclear,
for credit to the respective accounts of owners of beneficial interests in such
Securities or to such other accounts as they may direct. The aggregate principal
amount of a Restricted Global Security may be increased or decreased from time
to time by adjustments made on the records of the Trustee, in connection with a
corresponding decrease or increase in the aggregate principal amount of the
Temporary Regulation S Global Security or Regulation S Global Security, as
hereinafter provided. The Restricted Global Securities and all other Securities
evidencing the debt, or any portion of the debt,
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<PAGE> 27
initially evidenced by such Global Securities, other than Securities transferred
or exchanged upon certification as provided in Section 305, shall collectively
be referred to herein as the "Restricted Securities."
SECTION 202. FORM OF FACE OF SECURITY.
[INCLUDE IF SECURITY IS A RESTRICTED SECURITY - THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933
(THE "SECURITIES ACT") AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO A PERSON IT
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT (A "QIB") THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION COMPLYING WITH THE REQUIREMENTS OF
RULE 144A, (B) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS
OF THE STATES OF THE UNITED STATES.]
[INCLUDE IF SECURITY IS A TEMPORARY REGULATION S GLOBAL SECURITY -
THIS SECURITY IS A TEMPORARY REGULATION S GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN
SECTION 305(b) OF THE INDENTURE, NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS
TEMPORARY GLOBAL SECURITY MAY BE MADE FOR AN INTEREST IN THE RESTRICTED GLOBAL
SECURITY. NO EXCHANGE OF AN INTEREST IN THIS TEMPORARY GLOBAL SECURITY MAY BE
MADE FOR AN INTEREST IN THE REGULATION S GLOBAL SECURITY EXCEPT ON OR AFTER THE
TERMINATION OF THE DISTRIBUTION COMPLIANCE PERIOD AND UPON DELIVERY OF THE OWNER
SECURITIES CERTIFICATION AND THE DEPOSITORY SECURITIES CERTIFICATION RELATING TO
SUCH INTEREST IN ACCORDANCE WITH THE TERMS OF THE INDENTURE.]
[INCLUDE IF SECURITY IS A REGULATION S SECURITY - THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS SECURITY IS REGISTERED
UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF IS AVAILABLE.]
[INCLUDE IF SECURITY IS A GLOBAL SECURITY - THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
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<PAGE> 28
AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS
SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND
NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED IN THE NAME
OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
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<PAGE> 29
STAPLES, INC.
5.875 per cent Notes due November 15, 2004
Common Code No. __________
ISIN No. __________
No. __________ _________
STAPLES, INC., a corporation organized and existing under the laws of
Delaware (herein called the "Company", which term includes any successor Person
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to __________________, or registered assigns, the principal sum
of ________________ Euros [IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT --,
or such other principal amount (which, when taken together with the principal
amounts of all other Outstanding Securities, shall not exceed in the aggregate
at any time _150,000,000 as may be set forth in the records of the Trustee
hereinafter referred to in accordance with the Indenture,] on November 15, 2004
and to pay interest thereon from November 15, 1999 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
annually on November 15th in each year, commencing November 15, 2000, at the
rate of 5.875 per cent per annum, until the principal hereof is paid or made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of 5.875 per cent per annum on any
overdue principal and premium and on any overdue installment of interest until
paid. The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the fifteenth day (regardless of whether a Business
Day), next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
The Company will pay to the Holder of this Security who is a United
States Alien (as defined below) such additional amounts ("Additional Amounts")
as may be necessary in order that every net payment of the principal of,
premium, if any, and interest on this Security (including payment on redemption
or repurchase), after deduction or withholding for or on account of any present
or future tax, assessment or governmental charge imposed upon or as a result of
such payment by the United States or any political subdivision or taxing
authority thereof or therein, will not be less than the amount provided for in
this Security to be then due and payable; PROVIDED, HOWEVER, that the foregoing
obligation to pay Additional Amounts will not apply to:
(a any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such
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<PAGE> 30
Holder or a beneficial owner of a security (or between a fiduciary,
settlor, beneficiary, member, shareholder of or possessor of a power
over such Holder, if such Holder is an estate, a trust, a partnership
or a corporation) and the United States or any political subdivision
or taxing authority thereof or therein, including, without limitation,
such Holder or beneficial owner (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident of the United States or treated as a resident
thereof, or being or having been engaged in trade or business or
present therein, or having or having had a permanent establishment
therein, or (ii) the presentation by the Holder or beneficial owner of
this Security for payment on a date more than 15 days after the date
on which such payment became due and payable or the date on which
payment thereof is duly provided for, whichever occurs later;
(b any estate, inheritance, gift, sales, transfer, personal property or
any similar tax, assessment or other governmental charge;
(c any tax, assessment or other governmental charge that would not have
been imposed but for such Holder's or beneficial owner's past or
present status as a personal holding company, foreign personal holding
company, controlled foreign corporation, passive foreign investment
company, or foreign private foundation or other tax exempt
organization with respect to the United States or as a corporation
that accumulates earnings to avoid United States Federal income tax;
(d any tax, assessment or other governmental charge that is payable
otherwise than by deduction or withholding from a payment on a
Security;
(e any tax, assessment or other governmental charge required to be
deducted or withheld by any Paying Agent from any payment on a
Security, if such payment can be made without such deduction or
withholding by any other Paying Agent;
(f any tax, assessment or other governmental charge that would not have
been imposed but for the failure to comply with any applicable
certification, documentation, information or other reporting
requirement concerning the nationality, residence, identity or
connection with the United States of a Holder or beneficial owner of a
Security if, without regard to any tax treaty, such compliance is
required by statute or regulation of the United States as a
precondition to relief or exemption from such tax, assessment or other
governmental charge;
(g any tax, assessment or other governmental charge imposed by reason of
a Holder or beneficial owner of a Security (i) owning or having owned,
directly or indirectly, actually or constructively, 10 per cent or
more of the total combined voting power of all classes of stock of the
Issuer entitled to vote or (ii) being a controlled foreign corporation
with respect to the United States that is related to the Issuer by
actual or constructive stock ownership; or
(h any combination of items (a), (b), (c), (d), (e), (f) and (g);
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<PAGE> 31
nor shall such Additional Amounts be paid with respect to any payment on a
Security to a holder or beneficial owner that is a fiduciary or partnership or
other than the sole beneficial owner of such payment to the extent a beneficiary
or settlor with respect to such fiduciary or a member of such partnership or a
sole beneficial owner would not have been entitled to the Additional Amounts had
such beneficiary, settlor, member or sole beneficial owner been the holder or
beneficial owner of such a Security.
For purposes of this Security, "United States" means the United States
of America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (its "possessions"
including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Mariana Islands), and "United States Alien" means any
person who, for United States federal income tax purposes, is a foreign
corporation, a non-resident alien individual, a non-resident alien fiduciary of
a foreign estate or trust, or a foreign partnership one or more of the members
of which is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual or a non-resident alien fiduciary
of a foreign estate or trust.
Except as specifically provided herein and in the Indenture, the
Company shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authority thereof or therein. Whenever in this
Security there is a reference, in any context, to the payment of the principal
of, premium, if any, or interest on, or in respect of, any Security such mention
shall be deemed to include mention of the payment of Additional Amounts payable
as described in the second preceding paragraph to the extent that, in such
context, Additional Amounts are, were or would be payable in respect of such
Security and express mention of the payment of Additional Amounts (if
applicable) in any provisions of this Security shall not be construed as
excluding Additional Amounts in those provisions of this Security where such
express mention is not made.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Trustee or any Paying Agent
maintained for that purpose in The City of New York, New York and London,
England, in such coin or currency of the European Union as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that, at the option of the Company payment of interest may be made by
euro check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE> 32
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
[Seal] STAPLES, INC.
Attest: By__________________________
Name:
Title:
_______________________________
Name:
Title:
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 5.875 per cent Notes due November 15, 2004 (herein
called the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to _150,000,000, issued and to
be issued under an Indenture, dated as of November 15, 1999 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), among the Company, the Subsidiary Guarantors named therein and The
Chase Manhattan Bank, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Subsidiary Guarantors, the Trustee and the Holders and of the
terms upon which the Securities are, and are to be, authenticated and delivered.
The Securities are subject to redemption, in whole but not in part,
upon not less than 30 nor more than 60 days' notice, at any time at a redemption
price equal to the greater of (i) 100 per cent of the principal amount of such
Securities or (ii) as determined by the Quotation Agent, the sums of the present
values of the remaining scheduled payments of principal and interest thereon
(not including any portion of such payments of interest accrued as of the date
of redemption) discounted to the redemption date on an annual basis (based on
the actual number of days elapsed divided by 365 (or, if any of those days
elapsed fall in a leap year, the sum of (x) the number of those days falling in
a leap year divided by 366 and (y) the number of those days falling in a
non-leap year divided by 365)) at the Reference Dealer Rate, plus, in each case,
accrued interest thereon to the date of redemption.
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<PAGE> 33
If as a result of a Tax Law Change, there is substantial probability
that the Company will become obligated to pay to the Holder of any Security or
Additional Amounts, as described in the second paragraph of the face of this
Security, and such obligation cannot be avoided by the Company taking reasonable
measures available to it, then the Company may, at its option, redeem the Tax
Affected Securities as a whole, but not in part, upon not less than 30 nor more
than 60 days' notice to the Holders prior to the Redemption Date, at a
Redemption Price equal to 100 per cent of the principal amount plus interest
accrued to the Redemption Date, and any Additional Amounts then payable;
PROVIDED, that (i) no such notice of redemption shall be given earlier than 90
days prior to the earliest date on which the Company would be obligated to pay
any such Additional Amounts were a payment in respect of the Tax Affected
Securities then due and (ii) at the time such notice of redemption is given,
such obligation to pay such Additional Amounts remains in effect. Prior to the
publication of any notice of redemption pursuant to this paragraph, the Company
shall deliver to the Trustee (a) an Officers' Certificate stating that the
Company is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right of the Company so to
redeem have occurred and (b) an Opinion of Counsel selected by the Company to
the effect that the Company has or will become obligated to pay such Additional
Amounts as a result of such Tax Law Change. The Company's right to redeem the
Tax Affected Securities shall continue as long as the Company is obligated to
pay such Additional Amounts, notwithstanding that the Company shall have made
payments of Additional Amounts specified in such second paragraph.
No sinking fund is provided for the Securities.
[IF A GLOBAL SECURITY INSERT -- In the event of a deposit or
withdrawal of an interest in this Security (including upon an exchange,
transfer, or redemption of this Security in part only) effected in accordance
with the Applicable Procedures, the Security Registrar, upon receipt of notice
of such event from the Common Depositary's custodian for this Security, shall
make an adjustment on its records to reflect an increase or decrease of the
Outstanding principal amount of this Security resulting from such deposit or
withdrawal, as the case may be.]
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the
request of a Holder of a Restricted Security, the Company will promptly furnish
or cause to be furnished Rule 144A Information (as defined below) to such Holder
of Restricted Securities, or to a prospective purchaser of any such security
designated by any such Holder or holder, as the case may be, to the extent
required to permit compliance by any such holder with Rule 144A under the
Securities Act. "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Company under the Indenture and this
Security are guaranteed pursuant to Subsidiary Guarantees endorsed hereon as
provided in the Indenture. Each Holder, by holding this Security, agrees to all
of the terms and provisions of said Subsidiary Guarantees. The Indenture
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<PAGE> 34
provides that a Subsidiary Guarantor shall be released from its Subsidiary
Guarantee upon compliance with certain conditions.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Subsidiary Guarantors and the rights of the Holders of the
Securities under the Indenture at any time by the Company, the Subsidiary
Guarantors and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company or the Subsidiary Guarantors with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Trustee, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of _1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent of
the Company, the Subsidiary Guarantors or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
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<PAGE> 35
THE INDENTURE, THIS SECURITY AND THE SUBSIDIARY GUARANTEE ENDORSED
HEREON SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
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<PAGE> 36
[Attach the following Schedule A in the case of a Global Security:]
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Global Security shall
be _________. The following decreases/increases in the principal amount at
maturity of this Global Security have been made:
Decrease in Increase in Total Principal
Date of Principal Principal Amount at Maturity Notation Made by
Decrease/ Amount at Amount at Following such or on Behalf of
Increase Maturity Maturity Decrease/Increase Trustee
- -------- -------- -------- ----------------- -------
- --------- ----------- ------------ ----------------- ---------------
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- --------- ----------- ------------ ----------------- ---------------
- --------- ----------- ------------ ----------------- ---------------
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SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within mentioned
Indenture.
The Chase Manhattan Bank,
as Trustee
By ________________________
Authorized Officer
SECTION 205. FORM OF SUBSIDIARY GUARANTEE.
SUBSIDIARY GUARANTEE
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<PAGE> 37
For value received, each of the Subsidiary Guarantors named below
hereby jointly and severally fully and unconditionally guarantees to the Holder
of the Security upon which this Subsidiary Guarantee is endorsed, and to the
Trustee on behalf of such Holder, pursuant to this Indenture and to the Trustee
and its successors and assigns, regardless of the validity and enforceability of
the Indenture, the Securities or the obligations of the Company under the
Indenture or the Securities, that:
(i) the principal of, premium, if any, and interest on, and
any Additional Amounts in respect of, the Securities will be promptly
paid in full when due, whether at maturity, by acceleration, redemption
or otherwise, and interest on the overdue principal of, premium, if
any, and interest on, and any Additional Amounts in respect of, the
Securities, to the extent lawful, and all other payment obligations of
the Company to the Holders or the Trustee thereunder or under this
Indenture will be promptly paid in full, all in accordance with the
terms thereof and of the Indenture; and
(ii) in case of any extension of time for payment or renewal
of any Securities, that the same will be promptly paid in full when due
in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the liability of each
Subsidiary Guarantor under the Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or
similar law.
If the Company shall default in the due and punctual payment of any
obligation under this Indenture including under the Securities, without the
necessity of action by the Trustee or any Holder of Securities, the Subsidiary
Guarantor will promptly and fully make such payments in the same manner as
required to have been made by the Company.
To the extent permitted by law, the obligations of each Subsidiary
Guarantor hereunder shall be continuing, absolute and unconditional, and shall
not be impaired, modified, released or limited by any occurrence or condition
whatsoever, including, without limitation, (i) any compromise, settlement,
release, waiver, renewal, extension, indulgence or modification of, or any
change in, any of the obligations and liabilities of the Company contained in
the Securities or in this Indenture or of any other Subsidiary Guarantor
contained in the Indenture, (ii) any impairment, modification, release or
limitation of the liability of the Company or of any other Subsidiary Guarantor
in bankruptcy, or any remedy for the enforcement thereof, resulting from the
operation of any present or future provision of any applicable federal or state
bankruptcy, insolvency, reorganization or other similar laws or from the
decision of any court, (iii) the assertion or exercise by the Company, any other
Subsidiary Guarantor, or the Trustee of any rights or remedies under the
Securities or this Indenture or their delay in or failure to assert or exercise
any such rights or remedies, (iv) the voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshaling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or
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<PAGE> 38
readjustment of, or other similar proceeding affecting, the Company or any other
Subsidiary Guarantor or any of their assets, or the disaffirmance of this
Indenture or the Securities in any such proceeding, (v) the release or discharge
of the Company or any other Subsidiary Guarantor from the performance or
observance of any agreement, covenant, term or condition contained in any of
such instruments by operation of law, (vi) the unenforceability of the
Securities or this Indenture or (vii) any other circumstance which might
otherwise constitute a legal or equitable discharge of a surety or guarantor.
Each Subsidiary Guarantor hereby (i) waives diligence, presentment,
demand for payment, filing of claims with a court in the event of the merger or
bankruptcy of the Company, any right to require a proceeding first against the
Company or to realize on any collateral, protest, notice and all demands
whatsoever with respect to the payment obligations of the Company under this
Indenture, (ii) agrees that its obligations hereunder constitute a guarantee of
payment and not of collection and are not in any way conditional or contingent
upon any attempt to collect from or enforce against the Company or upon any
other condition or contingency, (iii) acknowledges that any agreement,
instrument or document evidencing the obligations of the Company under this
Indenture may be transferred and that the benefit of its obligations hereunder
shall extend to each holder of any agreement, instrument or document evidencing
such obligations without notice to them and (iv) covenants that its Subsidiary
Guarantee will not be discharged except by complete performance of the payment
obligations under the Securities and this Indenture.
Each Subsidiary Guarantor further agrees that if at any time all or
any part of any payment therefore applied by any person to any payment
obligation is, or must be, rescinded or returned for any reason whatsoever,
including, without limitation, the insolvency, bankruptcy or reorganization of
the Company or any other Subsidiary Guarantor, such obligation shall for the
purposes of the Subsidiary Guarantee, to the extent that such payment is or must
be rescinded or returned, be deemed to have continued in existence
notwithstanding such application, and the Subsidiary Guarantee made pursuant to
this Indenture shall continue to be effective or be reinstated, as the case may
be, as to such payment obligation as though such application had not been made.
Each Subsidiary Guarantor shall, to the extent of any payment made by
it pursuant to this Indenture, be subrogated to all rights of the Trustee and
the Holders of the Securities as to all payments and damages payable by the
Company with respect to which payments have been made by such Subsidiary
Guarantor, but, so long as any payment obligation remains outstanding, such
right of subrogation on the part of such Subsidiary Guarantor shall be subject
to the payment in full or discharge of all such payment obligations.
Each of the Subsidiary Guarantors shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor so long as the
exercise of such right does not impair the rights of the Holders or the Trustee
under the Subsidiary Guarantees made pursuant to this Indenture.
The Subsidiary Guarantors or any particular Subsidiary Guarantor shall
be released from this Subsidiary Guarantee upon the terms and subject to certain
conditions provided in the Indenture.
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<PAGE> 39
By delivery of a Supplemental Indenture to the Trustee in accordance
with the terms of the Indenture, each Person that becomes a Subsidiary Guarantor
after the date of the Indenture will be deemed to have executed and delivered
this Subsidiary Guarantee for the benefit of the Holder of the Security upon
which this Subsidiary Guarantee is endorsed with the same effect as if such
Subsidiary Guarantor was named below and has executed and delivered this
Subsidiary Guarantee.
All terms used in this Subsidiary Guarantee which are defined in the
Indenture referred to in the Security upon which this Subsidiary Guarantee is
endorsed shall have the meanings assigned to them in such Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Security upon which this
Subsidiary Guarantee is endorsed shall have been executed by the Trustee under
the Indenture by manual signature.
Reference is made to the Indenture for further provisions with respect
to this Subsidiary Guarantee.
THIS SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this
Subsidiary Guarantee to be duly executed.
[Insert Names of Subsidiary Guarantors]
By________________________
Name:
Title:
ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to _150,000,000,
and, subject to prior authorization by a Board Resolution, Additional Notes of
the same series which may be issued subsequently except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 304, 305, 306 or 906.
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<PAGE> 40
The Securities shall be known and designated as the "5.875 per cent
Notes due November 15, 2004" of the Company. Their Stated Maturity shall be
November 15, 2004 and they shall bear interest at the rate of 5.875 per cent per
annum, from November 15, 1999 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, payable
annually on November 15, commencing November 15, 2000, until the principal
thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Trustee or any Paying Agent in
The City of New York, New York or London, England maintained for such purpose
and at any other office or agency maintained by the Company for such purpose;
provided, however, that at the option of the Company payment of interest may be
made by euro check drawn on a bank in The City of New York, New York or London,
England mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register, or if a Holder has given transfer
instructions to the Company, in euro by credit or transfer to a euro-denominated
account (or any other account to which euro may be credited or transferred)
specified by the payee in a city in which banks have access to the TARGET
System. "TARGET System" means the Trans-European Automated Real-Time Gross
Settlement Express Transfer (TARGET) System.
The Company will pay principal on any Security upon presentation and
surrender of the Security at the specified office of the Paying Agent or any
additional or substitute paying agent by a euro check drawn on a bank in the
City of New York, New York or London, England.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be guaranteed by the Subsidiary Guarantors as
provided in Article Twelve.
The Company will pay all stamp taxes and other duties, if any, which
may be imposed by the Unites States or any political subdivision thereof or
taxing authority thereof or therein with respect to the execution or delivery of
this Indenture, the issuance of the Global Securities or the exchange from time
to time of Global Securities.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without
coupons and only in denominations of _1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President, its Chief
Financial Officer or one of its Vice Presidents, under a facsimile of its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries.
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<PAGE> 41
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company and
having endorsed thereon the Subsidiary Guarantees executed as provided in
Section 1202 by the Subsidiary Guarantors to the Trustee for authentication,
together with a Company Order for the authentication and delivery of such
Securities with such Subsidiary Guarantees endorsed thereon; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities with such Subsidiary Guarantees endorsed thereon as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Subsidiary Guarantee shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
The Company shall be entitled, subject to Section 301, to issue
Additional Securities under this Indenture which shall have identical terms as
the Securities issued on the Issue Date, other than with respect to the date of
issuance, issue price and amount of interest payable on the first payment date
applicable to such series. The Securities issued on the Issue Date and any
Additional Securities shall be treated as a single class for all purposes under
this Indenture.
With respect to any Additional Securities, the Company shall provide
the Trustee with appropriate evidence that the Additional Securities have been
duly authorized and issued and set forth in a Board Resolution and an Officer's
Certificate or such other appropriate evidence that the Additional Securities
have been duly authorized and issued, a copy of each of which shall be delivered
to the Trustee, containing the following information:
(1 the aggregate principal amount of such Additional Securities to be
authenticated and delivered pursuant to this Indenture; and
(2 the issue price, the issue date and the common code and ISIN numbers
of such Additional Securities and the amount of interest payable on
the first payment date applicable thereto; provided, however, that no
Additional Securities may be issued at a price that would cause such
Additional Notes to have "original issue discount" within the meaning
of Section 1273 of the U.S. Internal Revenue Code of 1986, as amended.
SECTION 304. TEMPORARY SECURITIES.
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Pending the preparation of definitive Securities, the Company may
execute, and upon receipt of a Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and having endorsed thereon the Subsidiary Guarantees substantially
of the tenor of the definitive Subsidiary Guarantees in lieu of which they are
issued duly executed by the Subsidiary Guarantors and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities and Subsidiary Guarantees may determine, as evidenced
by their execution of such Securities and Subsidiary Guarantees.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations and like tenor having endorsed thereon Subsidiary
Guarantees executed by the Subsidiary Guarantors. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee or the Paying Agent in London, England a register (the register
maintained in such office and in any other office or agency designated pursuant
to Section 1002 being herein sometimes collectively referred to as the "Security
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee is hereby appointed "Security Registrar" for the purpose
of registering Securities and transfers of Securities as herein provided. Upon
surrender for registration of transfer of any Security at an office or agency of
the Company designated pursuant to Section 1002 for such purpose, and subject to
the other provisions of this Section 305, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of any authorized denominations and
of a like aggregate principal amount.
At the option of the Holder, and subject to the other provisions of
this Section 305, Securities may be exchanged for other Securities of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or agency. Whenever
any Securities are so surrendered for exchange, and subject to the other
provisions of this Section 305, the Company shall execute, the Subsidiary
Guarantors shall execute the Subsidiary Guarantees endorsed thereon and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
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All Securities and the Subsidiary Guarantees endorsed thereon issued
upon any registration of transfer or exchange of Securities shall be the valid
obligations of the Company and the respective Subsidiary Guarantors, evidencing
the same debt and Subsidiary Guarantees, and subject to the other provisions of
this Section 305, entitled to the same benefits under this Indenture, as the
Securities and Subsidiary Guarantees surrendered upon such registration of
transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304 or 906 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
under Section 1105 and ending at the close of business on the day of such
mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption.
(b) Notwithstanding any other provisions of this Indenture or the
Securities, transfers and exchanges of Securities and beneficial interests
therein of the kinds specified in this Section 305(b) shall be made only in
accordance with this Section 305(b). Transfers and exchanges subject to this
Section 305(b) shall also be subject to the other provisions of this Indenture
that are not inconsistent with this Section 305(b).
(1) LIMITATION ON TRANSFERS OF A GLOBAL SECURITY. A Global Security
may not be transferred, in whole or in part, to any Person other than
Euroclear or Cedelbank or a depositary or nominee or nominees for Euroclear
or Cedelbank or both, and no such transfer to any such other Person may be
registered; provided that this clause (1) shall not prohibit any transfer
of a Security that is issued in exchange for a Global Security but is not
itself a Global Security. No transfer of a Security to any Person shall be
effective under this Indenture or the Securities unless and until such
Security has been registered in the name of such Person. Nothing in this
Section 305(b)(1) shall prohibit or render ineffective any transfer of a
beneficial interest in a Global Security effected in accordance with the
other provisions of this Section 305(b).
(2) TEMPORARY REGULATION S GLOBAL SECURITY. If the owner of a
beneficial interest in a Temporary Regulation S Global Security wishes at
any time to transfer such interest to a Person who wishes to take delivery
thereof in the form of a beneficial interest in such Temporary Regulation S
Global Security, such transfer may be effected, subject to the rules and
procedures of the Common Depositary, Euroclear and Cedelbank, in each case
to the extent applicable and as in effect from time to time (the
"Applicable Procedures"), only
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in accordance with this Section 305(b)(2). Upon delivery (a) by a
beneficial owner of an interest in a Temporary Regulation S Global Security
to Euroclear or Cedelbank, as the case may be, of an Owner Securities
Certification, (b) by the transferee of such beneficial interest in the
Temporary Regulation S Global Security to Euroclear or Cedelbank, as the
case may be, of a written certification (a "Transferee Securities
Certification") substantially in the form of Annex C-3 hereto and (c) by
Euroclear or Cedelbank, as the case may be, to the Trustee, as Security
Registrar, of a Depository Securities Certification, the Trustee may direct
either Euroclear or Cedelbank, as the case may be, to reflect on its
records the transfer of a beneficial interest in the Temporary Regulation S
Global Security from the beneficial owner providing the Owner Securities
Certification to the Person providing the Transferee Securities
Certification.
(3) RESTRICTED GLOBAL SECURITY TO TEMPORARY REGULATION S GLOBAL
SECURITY. If the holder of a beneficial interest in the Restricted Global
Security wishes at any time to transfer such interest to a Person who
wishes to take delivery thereof in the form of a beneficial interest in the
Temporary Regulation S Global Security, such transfer may be effected,
subject to the Applicable Procedures, only in accordance with the
provisions of this Section 305(b)(3). Upon receipt by the Trustee, as
Security Registrar, of (A) written instructions given in accordance with
the Applicable Procedures from a Agent Member directing the Trustee to
credit or cause to be credited to a specified Agent Member's account a
beneficial interest in the Temporary Regulation S Global Security in a
principal amount equal to that of the beneficial interest in the Restricted
Global Security to be so transferred, (B) a written order given in
accordance with the Applicable Procedures containing information regarding
the account of the Agent Member (and the Euroclear or Cedelbank account, as
the case may be) to be credited with, and the account of the Agent Member
to be debited for, such beneficial interest and (C) a certificate in
substantially the form set forth in Annex A-1 given by the holder of such
beneficial interest, the Trustee, as Security Registrar, shall instruct the
Common Depositary to reduce the principal amount of the applicable
Restricted Global Security, and to increase the principal amount of the
Temporary Regulation S Global Security, by the principal amount of the
beneficial interest in the Restricted Global Security to be so transferred,
and to credit or cause to be credited to the account of the Person
specified in such instructions (which shall be the Agent Member for
Euroclear or Cedelbank or both, as the case may be) a beneficial interest
in the Temporary Regulation S Global Security having a principal amount
equal to the amount by which the principal amount of the Restricted Global
Security was reduced upon such transfer.
(4) RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY. If the
holder of a beneficial interest in a Restricted Global Security wishes at
any time to transfer such interest to a Person who wishes to take delivery
thereof in the form of a beneficial interest in the Regulation S Global
Security, such transfer may be effected, subject to the Applicable
Procedures, only in accordance with this Section 305(b)(4). Upon receipt by
the Trustee, as Security Registrar, of (A) written instructions given in
accordance with the Applicable Procedures from an Agent Member directing
the Trustee to credit or cause to be credited to a specified Agent Member's
account a beneficial interest in a Regulation S Global Security in a
principal amount equal to that of the beneficial interest in the Restricted
Global Security to be so transferred, (B) a written order given in
accordance with the Applicable Procedures
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containing information regarding the account of the Agent Member (and, if
applicable, the Euroclear or Cedelbank account, as the case may be) to be
credited with, and the account of the Agent Member to be debited for, such
beneficial interest and (C) a certificate in substantially the form set
forth in Annex A-2 given by the holder of such beneficial interest, the
Trustee, as Security Registrar, shall instruct the Common Depositary to
reduce the principal amount of the applicable Restricted Global Security,
and to increase the principal amount of the Regulation S Global Security,
by the principal amount of the beneficial interest in the Restricted Global
Security to be so transferred, and to credit or cause to be credited to the
account of the Person specified in such instructions (which during the
Distribution Compliance Period shall be the Agent Member for Euroclear or
Cedelbank or both, as the case may be) a beneficial interest in the
Regulation S Global Security having a principal amount equal to the amount
by which the principal amount of the Restricted Global Security was reduced
upon such transfer.
(5) TEMPORARY REGULATION S GLOBAL SECURITY OR REGULATION S GLOBAL
SECURITY TO RESTRICTED GLOBAL Security. If the holder of a beneficial
interest in a Temporary Regulation S Global Security or a Regulation S
Global Security wishes at any time to transfer such interest to a Person
who wishes to take delivery thereof in the form of a beneficial interest in
the Restricted Global Security, such transfer may be effected, subject to
the Applicable Procedures, only in accordance with this Section 305(b)(5).
Upon receipt by the Trustee, as Security Registrar, of (A) written
instructions given in accordance with the Applicable Procedures from an
Agent Member directing the Trustee to credit or cause to be credited to a
specified Agent Member's account a beneficial interest in a Restricted
Global Security in a principal amount equal to that of the beneficial
interest in the Temporary Regulation S Global Security or the Regulation S
Global Security to be so transferred, (B) a written order given in
accordance with the Applicable Procedures containing information regarding
the account of the Agent Member to be credited with, and the account of the
Agent Member (and, if applicable, the Euroclear or Cedelbank account, as
the case may be) to be debited for, such beneficial interest and (C) a
certificate in substantially the form set forth in Annex B given by the
owner of such beneficial interest, the Trustee, as Security Registrar,
shall instruct the Common Depositary to reduce the principal amount of the
applicable Temporary Regulation S Global Security or the Regulation S
Global Security, as the case may be, and to increase the principal amount
of the Restricted Global Security, by the principal amount of the
beneficial interest in the Temporary Regulation S Global Security or the
Regulation S Global Security to be so transferred, and to credit or cause
to be credited to the account of the Person specified in such instructions
a beneficial interest in the Restricted Global Security having a principal
amount equal to the amount by which the principal amount of the Temporary
Regulation S Global Security or the Regulation S Global Security, as the
case may be, was reduced upon such transfer.
(6) NON-GLOBAL RESTRICTED SECURITY TO GLOBAL SECURITY. If the Holder
of a Restricted Security (other than a Global Security) wishes at any time
to transfer all or a portion of such Security to a Person who wishes to
take delivery thereof in the form of a beneficial interest in the
Restricted Global Security, the Temporary Regulation S Global Security or
the Regulation S Global Security, in each case, such transfer may be
effected, subject to the Applicable Procedures, only in accordance with
this Section 305(b)(6). Upon
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receipt by the Trustee, as Security Registrar, of (A) such Security and
written instructions given in accordance with the Applicable Procedures
from an Agent Member directing the Trustee to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in the
Restricted Global Security, the Temporary Regulation S Global Security or
the Regulation S Global Security, as the case may be, in a specified
principal amount equal to the principal amount of the Restricted Security
(or portion thereof) to be so transferred, and (B) an appropriately
completed certificate substantially in the form set forth in Annex D-1
hereto, if the specified account is to be credited with a beneficial
interest in a Restricted Global Security, or Annex D-2 hereto, if the
specified account is to be credited with a beneficial interest in the
Temporary Regulation S Global Security or the Regulation S Global Security,
given by the holder of such beneficial interest, the Trustee, as Security
Registrar, shall cancel such Restricted Security (and issue a new Security
in respect of any untransferred portion thereof) as provided in Section
305(a) and increase the principal amount of the Restricted Global Security,
Temporary Regulation S Global Security or Regulation S Global Security, as
the case may be, by the specified principal amount as provided in Section
305(d)(3).
(7) EXCHANGES. In the event that a Restricted Global Security or any
portion thereof is exchanged for Securities other than Global Securities,
such other Securities may in turn be exchanged (on transfer or otherwise)
for Securities that are not Global Securities or for beneficial interests
in a Global Security (if any is then outstanding) only in accordance with
such procedures, which shall be substantially consistent with the
provisions of clauses (1) through (6) above and (8) below (including the
certification requirements intended to insure that transfers and exchanges
of beneficial interests in a Global Security comply with Rule 144A, Rule
144 or Regulation S, as the case may be) and any Applicable Procedures, as
may be from time to time adopted by the Company and the Trustee; provided
that except as permitted in Section 305(d)(2) hereof, no beneficial
interest in a Temporary Regulation S Global Security shall be exchangeable
for a definitive Security until the expiration of the Distribution
Compliance Period and then only if the certifications described in Section
201 shall have been provided in respect of such interest.
(8) INTERESTS IN TEMPORARY REGULATION S GLOBAL SECURITY TO BE HELD
THROUGH EUROCLEAR OR CEDELBANK. Until the termination of the Distribution
Compliance Period, interests in the Temporary Regulation S Global
Securities may be held only through Agent Members acting for and on behalf
of Euroclear and Cedelbank, provided that this clause (8) shall not
prohibit any transfer in accordance with Section 305(b)(5) hereof.
(c) Each Restricted Security and Global Security issued hereunder
shall, upon issuance, bear the legends required by Section 202 to be applied to
such a Security and such required legends shall not be removed from such
Security except as provided in the next sentence or paragraph (d) of this
Section 305. The legend required for a Restricted Security may be removed from a
Security if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel, as may be reasonably required by
the Company that neither such legend nor the restrictions on transfer set forth
therein are required to ensure that transfers of such Security will not violate
the registration requirements of the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, at the written direction of the Company,
shall authenticate and
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deliver in exchange for such Security another Security or Securities having an
equal aggregate principal amount that does not bear such legend. If such a
legend required for a Restricted Security has been removed from a Security as
provided above, no other Security issued in exchange for all or any part of such
Security shall bear such legend, unless the Company has reasonable cause to
believe that such other Security is a "restricted security" within the meaning
of Rule 144 and instructs the Trustee in writing to cause a legend to appear
thereon.
(d) The provisions of clauses (1), (2), (3) and (4) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of a depositary for such Global Security or a
nominee thereof and delivered to such depositary or a nominee thereof or to
the Common Depositary or other custodian therefor, and each such Global
Security shall constitute a single Security for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture or the
Securities, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than a depositary
for such Global Security or a nominee thereof unless (A) Euroclear or
Cedelbank, as the case may be, has notified the Company that it is
unwilling or unable to continue as depository for such Global Security, (B)
Euroclear or Cedelbank, as the case may be, (i) is closed for business for
a continuous period of 14 days (other than by reason of statutory or other
holidays) or (ii) announces an intention permanently to cease business or
does in fact do so, (C) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of certificated Securities or
(D) there shall have occurred and be continuing an Event of Default with
respect to such Global Security. Any Global Security exchanged pursuant to
clause (A) or (B) above shall be so exchanged in whole and not in part and
any Global Security exchanged pursuant to clause (C) or (D) above may be
exchanged in whole or from time to time in part as directed by the Company
or the Trustee. In addition, beneficial interests in the Global Notes may
be exchanged for non-global, certificated Securities upon request by or on
behalf of Euroclear and Cedelbank upon not less than 60 days' prior written
notice to the Trustee, with a copy of such notice delivered to the Company.
Any Security issued in exchange for a Global Security or any portion
thereof shall be a Global Security, provided that any such Security so
issued that is registered in the name of a Person other than Euroclear or
Cedelbank or a nominee thereof shall not be a Global Security.
(3) Securities issued in exchange for a Global Security or any portion
thereof pursuant to clause (2) above shall be issued in definitive, fully
registered form, without interest coupons, shall have an aggregate
principal amount equal to that of such Global Security or portion thereof
to be so exchanged, shall be registered in such names and be in such
authorized denominations as the Common Depositary shall designate and shall
bear any legends required hereunder. Any Global Security to be exchanged in
whole shall be surrendered by the Common Depositary to the Trustee, as
Security Registrar. With regard to any Global Security to be exchanged in
part, either such Global Security shall be so
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surrendered for exchange or, if the Trustee is acting as custodian for the
Common Depositary or its nominee with respect to such Global Security, the
principal amount thereof shall be reduced, by an amount equal to the
portion thereof to be so exchanged, by means of an appropriate adjustment
made on the records of the Trustee. Upon any such surrender or adjustment,
the Trustee shall authenticate and make available for delivery the Security
issuable on such exchange to or upon the written order of the Common
Depositary or an authorized representative thereof.
(4) In the event of the occurrence of any of the events specified in
clause (2) above, the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully
registered form, without interest coupons.
(5) No Agent Members nor any other Persons on whose behalf Agent
Members may act shall have any rights under this Indenture with respect to
any Global Security (including Euroclear and Cedelbank and account holders
and participants therein unless Euroclear or Cedelbank, as the case may be,
or its nominee is the registered holder of such Global Security), or under
any Global Security, and the registered holder thereof may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner and holder of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished
by the Common Depositary or Euroclear or Cedelbank or a nominee thereof, as
the case may be, or impair, as between Euroclear or Cedelbank, their Agent
Members and any other person on whose behalf an Agent Member may act, the
operation of customary practices of such Persons governing the exercise of
the rights of a holder of any Security.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute, the Subsidiary Guarantors shall execute the Subsidiary Guarantees
endorsed thereon, and the Trustee shall authenticate and deliver in exchange
therefor, a new Security of like tenor and principal amount having endorsed
thereon the Subsidiary Guarantees executed by the Subsidiary Guarantors and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount having endorsed
thereon the Subsidiary Guarantees executed by the Subsidiary Guarantors and
bearing a number not contemporaneously outstanding.
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In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security, and the Subsidiary Guarantees endorsed
thereon, shall constitute an original additional contractual obligation of the
Company and the respective Subsidiary Guarantors, whether or not the destroyed,
lost or stolen Security and the Subsidiary Guarantees endorsed thereon shall be
at any time enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities
duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the
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date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder at his address as it
appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid by the Trustee from the funds deposited by
the Company as herein above provided to the Persons in whose names the
Securities (or their respective Predecessor Securities) are registered at
the close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Subsidiary Guarantors, the Trustee and any agent of the
Company, the Subsidiary Guarantors or the Trustee may treat the Person in whose
name such Security is registered as the owner of such Security for the purpose
of receiving payment of principal of (and premium, if any) and (subject to
Section 307) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Subsidiary
Guarantors, the Trustee nor any agent of the Company, the Subsidiary Guarantors
or the Trustee shall be affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order.
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SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of the
actual number of days elapsed divided by 365 (or, if any of those days elapsed
fall in a leap year, the sum of (i) the number of those days falling in a leap
year divided by 366 and (ii) the number of those days falling in a non-leap year
divided by 365).
SECTION 311. CUSIP/COMMON CODE/ISIN NUMBER.
The Company in issuing the Securities may use "CUSIP", "common code"
and/or "ISIN" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP", "common code" and/or "ISIN" numbers in notices of redemption as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the "CUSIP", "common code" or "ISIN" numbers.
SECTION 312. PRESCRIPTION.
Claims against the Company for the payment of principal of, or
interest, or premium, if any, on, the Notes will become void unless presentation
for payment is made as required in this Indenture within a period of six years.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall, upon request by the Company, cease to be of
further effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
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(B) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company or a Subsidiary Guarantor, in the case of (i), (ii) or
(iii) above, has deposited or caused to be deposited with the Trustee
as trust funds in trust for such purpose an amount sufficient to pay
and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any) and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company or a Subsidiary Guarantor has paid or caused to be
paid all other sums payable hereunder by the Company and the Subsidiary
Guarantors; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the obligations of the Trustee to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
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Default and Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of (or premium, if
any, on), or the redemption price of, any Security at its Maturity; or
(2) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company or the Subsidiary Guarantors in this Indenture
(other than a covenant or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90 days after
there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(4) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Subsidiary Guarantor in an involuntary case or proceeding under any
applicable United States Federal or State or other applicable
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Subsidiary Guarantor
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary Guarantor under any applicable
Federal or State or other applicable law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary Guarantor or of any
substantial part of the property of the Company or any Subsidiary
Guarantor, or ordering the winding up or liquidation of the affairs of
the Company or any Subsidiary Guarantor, and the continuance of any
such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(5) the commencement by the Company or any Subsidiary
Guarantor of a voluntary case or proceeding under any applicable United
States Federal or State or other applicable bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by the
Company or any Subsidiary Guarantor to the entry of a decree or order
for relief in respect of the Company or any Subsidiary Guarantor in an
involuntary case or proceeding under any applicable Federal or State or
other applicable bankruptcy, insolvency, reorganization or other
similar law or to the
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commencement of any bankruptcy or insolvency case or proceeding against the
Company or any Subsidiary Guarantor, or the filing by the Company or any
Subsidiary Guarantor of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State or other
applicable law, or the consent by the Company or any Subsidiary Guarantor
to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Subsidiary Guarantor
or of any substantial part of the property of the Company or Subsidiary
Guarantor, or the making by the Company or any Subsidiary Guarantor of an
assignment for the benefit of creditors, or the admission by the Company or
any Subsidiary Guarantor in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company or any Subsidiary Guarantor in furtherance of any such action.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(4) or (5)) occurs and is continuing, then and in every such case the
Trustee or any Holder of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal and
any accrued interest shall become immediately due and payable. If an Event of
Default specified in Section 501(4) or (5) occurs, the principal of and any
accrued interest on the Securities then Outstanding shall become immediately due
and payable without any declaration or other Act on the part of the Trustee or
any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company or any Subsidiary Guarantor has paid or deposited with
the Trustee a sum sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of
acceleration and, to the extent that payment of such interest is
lawful, interest thereon at the rate provided by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate provided by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
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and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
provided by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all amounts due to the Trustee under Section 607.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company, any
Subsidiary Guarantor or any other obligor upon the Securities, or the property
of the Company or its creditors or of any Subsidiary Guarantor and its
creditors, the Trustee shall be entitled and empowered, by intervention in such
proceeding or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have claims of the Holders and the Trustee allowed in
any such proceeding. In particular, the Trustee shall be authorized to collect
and receive any moneys or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any
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amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and may be a member of the
creditors' committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES OR
SUBSIDIARY GUARANTEES.
All rights of action and claims under this Indenture or the Securities
or any Subsidiary Guarantee may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of costs and expenses of collection, including
all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses and disbursements of the Trustee, its agents and
counsel, and all other amounts due the Trustee under Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively.
SECTION 507. LIMITATION ON SUITS.
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No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, any Security or any Subsidiary
Guarantee, except in the manner herein provided and for the equal and ratable
benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and
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thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. CONTROL BY HOLDERS.
Subject to Article Six, the Holders of a majority in principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or any Subsidiary Guarantee,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders of Securities
not joining therein, it being understood that the Trustee shall have no
duty to ascertain whether or not such actions or forbearances are unduly
prejudicial to such holders.
SECTION 513. WAIVER OF PAST DEFAULTS.
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The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on, or any Additional Amounts on, any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, and the Company, any Subsidiary Guarantor, the
Trustee and any Holder shall be restored to their former position and rights
hereunder, but no such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or any Subsidiary
Guarantor.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
Each of the Company and the Subsidiary Guarantors covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
each of the Company and the Subsidiary Guarantors (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.
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Except during the continuance of an Event of Default, (1) the Trustee
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and (2) in the absence of bad faith on
its part, the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or indemnity satisfactory to
it against such risk or liability is not reasonably assured to it. Whether or
not therein expressly so provided, every provision of this Indenture relating to
the conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section 601.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default actually
known to a Responsible Officer of the Trustee hereunder as and to the extent
provided by the Trust Indenture Act; provided, however, that in the case of any
default of the character specified in Section 501(3), no such notice to Holders
shall be given until at least 90 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
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(d) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity satisfactory
to it against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
attorneys, custodians or nominees and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights of powers conferred upon it by this Indenture or
any action taken, suffered or omitted by it pursuant to a direction of the
Company or any Holders pursuant to the provisions of this Indenture; and
(i) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities and the Subsidiary
Guarantees, except the Trustee's certificates of authentication, shall be taken
as the statements of the Company or the Subsidiary Guarantors, as the case may
be, and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities or the Subsidiary Guarantees endorsed thereon. The Trustee
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
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The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company or any Subsidiary Guarantor, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to Sections 608 and 613, may otherwise deal with the Company and
any Subsidiary Guarantor with the same rights it would have if it were not
Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other
agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company or any Subsidiary Guarantor, as the case may
be.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company and each Subsidiary Guarantor jointly and severally
unconditionally agree
(1) to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or willful
misconduct; and
(3) to indemnify the Trustee, its officers, directors, agents and
employees for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or willful misconduct on its part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. This Section 607
shall survive the termination of the Indenture or the earlier resignation
or removal of the Trustee.
To secure the Company's and each Subsidiary Guarantor's payment obligations in
this Section 607, the Trustee shall have a lien prior to the Securities on all
money or property held or collected by the Trustee, in its capacity as Trustee,
except money or property held in trust to pay principal of, and interest on,
particular Securities.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
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If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus (or the parent holding company of which has a
combined capital and surplus) of at least $50,000,000. If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person (or parent holding
company thereof) shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company, the Subsidiary Guarantors and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder. Upon request of any
such successor Trustee, the Company and the Subsidiary Guarantors shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to
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which the Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
AND SUBSIDIARY GUARANTORS.
If and when the Trustee shall be or become a creditor of the Company,
any Subsidiary Guarantor or any other obligor upon the Securities or any
Subsidiary Guarantor, the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Company, such
Subsidiary Guarantor or any such other obligor.
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated, and the Subsidiary Guarantees endorsed thereon, shall be entitled
to the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent, except for authentication of original
issues or lost, stolen or mutilated securities. Each Authenticating Agent shall
be acceptable to the Company and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any State
thereof or the District of Columbia, or authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to
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the corporate agency or corporate trust business of an Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the
within-mentioned Indenture.
The Chase Manhattan Bank,
As Trustee
By___________________________,
As Authenticating Agent
By___________________________
Authorized Officer
ARTICLE SEVEN
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Holders' Lists and Reports by Trustee and Company
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee:
(a) annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities and the
corresponding rights and duties of the Trustee, shall be provided by the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company, the Subsidiary Guarantors and the Trustee that neither
the Company, the Subsidiary Guarantors nor the Trustee nor any agent of any of
them shall be held accountable by reason of any disclosure of information as to
the names and addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
(a) Within 60 days after November 30 of each year, commencing with
November 30, 2000, the Trustee shall transmit to Holders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto.
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(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission, with the Company and with the
Subsidiary Guarantors. The Company will notify the Trustee when the Securities
are listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company and each of the Subsidiary Guarantors shall file with the
Trustee and the Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant to such
Act; provided that any such information, documents or reports required to be
filed with Commission pursuant to Section 13 or 15(d) of the Exchange Act shall
be filed with the Trustee within 15 days after the same is so required to be
filed with the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. COMPANY AND SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC. ONLY ON
CERTAIN TERMS.
Neither the Company nor a Subsidiary Guarantor shall consolidate with
or merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person and neither the Company nor a
Subsidiary Guarantor shall permit any Person to consolidate with or merge into
the Company or such Subsidiary Guarantor or convey, transfer or lease its
properties and assets substantially as an entirety to the Company or such
Subsidiary Guarantor, unless:
(1) in case the Company or such Subsidiary Guarantor shall consolidate
with or merge into another Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, the
Person formed by such consolidation or into which the Company or such
Subsidiary Guarantor is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company or
such Subsidiary Guarantor substantially as an entirety shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of and any premium and interest on all the Securities or
the obligation under the Subsidiary Guarantee, as the case may be, and the
performance or observance of every covenant of this Indenture on the part
of the Company or such Subsidiary Guarantor, as the case may be, to be
performed or observed;
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(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company or any
Principal Subsidiary would become subject to a mortgage, pledge, lien,
security interest or other encumbrance which would not be permitted by this
Indenture, the Company or such successor Person, as the case may be, shall
take such steps as shall be necessary effectively to secure the Securities
equally and ratably with (or prior to) all indebtedness secured thereby;
and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
(a) Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer, conveyance, sale, lease or other
disposition of the properties and assets of the Company substantially as an
entirety in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
(b) Upon any consolidation of a Subsidiary Guarantor with, or merger of
such Subsidiary Guarantor into, any other Person or any transfer, conveyance,
sale, lease or other disposition of all or substantially all of the properties
and assets of such Subsidiary Guarantor in accordance with Section 801, the
Successor Subsidiary Guarantor shall succeed to, and be substituted for, and may
exercise every right and power of, such Subsidiary Guarantor under this
Indenture with the same effect as if such successor Person had been named as a
Subsidiary Guarantor herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and its Subsidiary Guarantee.
ARTICLE NINE
Supplemental Indentures
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, the Subsidiary Guarantors, when authorized by their respective
Board Resolutions, and
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the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company or any
Subsidiary Guarantor and the assumption by any such successor of the
covenants of the Company or any Subsidiary Guarantor herein and in the
Securities or Subsidiary Guarantee, as the case may be; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities pursuant to the requirements of Section
1007 or otherwise; or
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this Clause (4) shall not
adversely affect the interests of the Holders in any material respect.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company, the Subsidiary Guarantors and the Trustee, the Company, when
authorized by a Board Resolution, the Subsidiary Guarantors, when authorized by
their respective Board Resolutions, and the Trustee may enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable thereon or
the amount payable upon redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date), or permit
the Company to redeem the Securities if, prior to such action, the Company
is not permitted to do so, or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or reduce the percentage in principal amount of the Outstanding Securities
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required for the adoption of a resolution or the quorum required at any
meeting of Holders at which a resolution is adopted, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1010, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, or
(4) impair the unconditional nature of the Subsidiary Guarantees, or
(5) modify the obligation of the Company to deliver information as
set forth in Section 1011.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise. No
supplemental indenture shall modify this Section 903 without the prior consent
of the Trustee.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. Promptly after execution by the Company of any
supplemental indenture, the Company shall transmit to the Holders a notice
setting forth the substance of the supplemental indenture.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
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Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company and the Subsidiary
Guarantors shall so determine, new Securities so modified as to conform, in the
opinion of the Company and the Subsidiary Guarantors, to any such supplemental
indenture may be prepared and executed by the Company, the Subsidiary Guarantees
may be endorsed thereon and such new Securities and authenticated and delivered
by the Trustee in exchange for Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, The City of New
York, and in the city of London, England an office or agency where Securities
may be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company or any Subsidiary Guarantor in respect of the Securities, any
Subsidiary Guarantee endorsed thereon and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company and each Subsidiary Guarantor hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York and the city of London, England) where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York and the city of London,
England, for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
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If the Company or any Subsidiary Guarantor shall at any time act as
its own Paying Agent, it will, on or before each due date of the principal of
(and premium, if any) or interest on any of the Securities, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent,
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before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, New York (which is expected to be the Wall Street
Journal) and a newspaper published in the English language, customarily
published on each Business Day and of general circulation in London, England
(which is expected to be the Financial Times), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 1004. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the existence,
rights (charter and statutory) and franchises of the Company and each Subsidiary
Guarantor; provided, however, that the Company shall not be required to preserve
any such right or franchise if the Board of Directors in good faith shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary of the Company to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Board of Directors in good faith,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company or
any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
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SECTION 1007. LIMITATION ON LIENS.
The Company will not, and will not permit any Principal Subsidiary to,
create or suffer to exist any Lien to secure any Indebtedness of the Company or
any Subsidiary upon any Principal Property, or upon shares of capital stock or
evidences of Indebtedness issued by any Principal Subsidiary and owned by the
Company or any Principal Subsidiary, whether owned at the date of this Indenture
or thereafter acquired, without making, or causing such Principal Subsidiary to
make, effective provision to secure all of the Securities from time to time
Outstanding by such Lien, equally and ratably with any and all other
Indebtedness thereby secured, so long as such Indebtedness shall be so secured.
The foregoing restrictions shall not apply to Indebtedness secured by
Liens existing on the date of this Indenture or to any of the following:
(1) Liens on any property existing at the time of the acquisition
thereof;
(2) Liens on property of a corporation existing at the time such
corporation is merged into, consolidated with or acquired by the Company or
a Principal Subsidiary or at the time of a sale, lease or other disposition
of the properties of such corporation (or a division thereof) as an
entirety or substantially as an entirety to the Company or a Principal
Subsidiary, provided that such Lien as a result of such merger,
consolidation, acquisition, sale, lease or other disposition is not
extended to property owned by the Company or such Principal Subsidiary
immediately prior thereto;
(3) Liens on property of a corporation existing at the time such
corporation becomes a Principal Subsidiary;
(4) Liens securing Indebtedness of a Principal Subsidiary to the
Company or to another Principal Subsidiary;
(5) Liens to secure all or part of the cost of acquisition,
construction, development or improvement of the underlying property, or to
secure Indebtedness incurred to provide funds for any such purpose
(including purchase money security interest or money mortgage on real or
personal property), provided that the commitment of the creditor to extend
the credit secured by any such Liens shall have been obtained not later
than twenty-four months after the later of (a) the completion of the
acquisition, construction, development or improvement of such property or
(b) the placing in operation of such property or of such property as so
construed, developed or improved;
(6) Liens on any property created, assumed or otherwise brought into
existence in contemplation of the sale or other disposition of the
underlying property, whether directly or indirectly, by way of share
disposition or otherwise; provided that the Company must have disposed of
such property within 180 days from the creation of such Liens and any
Indebtedness secured by such Liens shall be without recourse to the Company
or any Subsidiary;
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(7) Liens in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political
subdivision thereof, to secure partial, progress, advance or other
payments;
(8) Liens to secure Indebtedness on any Principal Property of joint
ventures which constitute Principal Subsidiaries in which the Company or a
Principal Subsidiary has an interest, to the extent such Liens are on
property or assets of, or equity interests in, such joint ventures; and
(9) any extension, renewal or replacement or refunding of any Lien
existing on the date of the Indenture or referred to in clauses (1) to (3)
or (5); provided, however, that the principal amount of Indebtedness
secured thereby and not otherwise authorized by clauses (1) to (3) or (5),
shall not exceed the principal amount of Indebtedness, plus any premium or
fee payable in connection with any such extension, renewal, replacement, or
refunding, so secured at the time such extension, renewal, replacement or
refunding.
Notwithstanding the foregoing, the Company and its Principal
Subsidiaries may create or suffer to exist Liens which would otherwise be
prohibited by this Section 1007 securing Indebtedness in an aggregate amount
which, together with all outstanding Attributable Value of all Sale and
Lease-Back Transactions permitted by the last paragraph of Section 1008 and all
Indebtedness secured by Liens permitted pursuant to this paragraph, does not
exceed 10% of Consolidated Net Tangible Assets of the Company.
SECTION 1008. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS.
The Company will not, nor will it permit any Principal Subsidiary to,
enter into any Sale and Lease-Back Transaction with respect to any Principal
Property (except for (x) a transaction providing for a lease for a term,
including any renewal thereof, of not more than three years, by the end of which
term it is intended that the use of such Principal Property by the lessee will
be discontinued, (y) a transaction between the Company and a Principal
Subsidiary or between Principal Subsidiaries, and (z) a transaction between the
Company or a Principal Subsidiary and a joint venture in which the Company or a
Principal Subsidiary has an interest), unless either (i) the Company or such
Principal Subsidiary would be entitled pursuant to Section 1007 to issue, assume
or guarantee Indebtedness secured by a Lien on such Principal Property without
equally and ratably securing the Securities or (ii) the Company or such
Principal Subsidiary shall apply or cause to be applied within 180 days after
the effective date of such Sale and Lease-Back Transaction, an amount equal to
the Net Available Proceeds therefrom to (A) the acquisition of one or more
Principal Properties or (B) to the retirement of Securities or the repayment of
other Indebtedness of the Company or a Principal Subsidiary (other than such
Indebtedness owned by the Company or a Principal Subsidiary) which, in the case
of such Indebtedness of the Company, is not subordinate and junior in right of
payment to the prior payment of the Securities, provided, however, that any such
retirement of Securities shall be in accordance with Article Eleven and any
other terms and provisions of this Indenture and the Securities applicable to
optional redemption of Securities.
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Notwithstanding the foregoing, the Company or any Principal
Subsidiary may enter into a Sale and Lease-Back Transaction which would
otherwise be prohibited by this Section 1008 to the extent that the Attributable
Value thereof, together with all indebtedness secured by Liens permitted
pursuant to the last paragraph of Section 1007 and the Attributable Value of all
other Sale and Lease-Back Transactions permitted by this paragraph, does not
exceed 10% of Consolidated Net Tangible Assets of the Company.
SECTION 1009. STATEMENT BY OFFICERS AS TO DEFAULT; COMPLIANCE CERTIFICATES.
(a) The Company and the Subsidiary Guarantors will deliver to
the Trustee, within 120 days after the end of their respective fiscal years,
ending after the date hereof an Officers' Certificate, stating whether or not to
the best knowledge of the signers thereof the Company or such Subsidiary
Guarantor, as the case may be, has fulfilled all its obligations hereunder or is
in default in the performance and observance of any of the terms, provisions and
conditions of Section 801 or Sections 1004 to 1008, inclusive, and if the
Company or any Subsidiary Guarantor, as the case may be, shall be in default,
specifying all such defaults and the nature and status thereof of which they may
have knowledge.
(b) The Company and each Subsidiary Guarantor shall deliver to
the Trustee, as soon as possible and in any event within five days after the
Company or such Subsidiary Guarantor becomes aware or should reasonably become
aware of the occurrence of an Event of Default or a Default, an Officers'
Certificate setting forth the details of such Event of Default or default, and
the action which the Company or such Subsidiary Guarantor proposes to take with
respect thereto.
SECTION 1010. WAIVER OF CERTAIN COVENANTS.
The Company or any Subsidiary Guarantor may omit in any
particular instance to comply with any covenant or condition set forth in
Section 801, 802 and Sections 1004 to 1008, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and such Subsidiary Guarantor
and the duties of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
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SECTION 1011. AVAILABLE INFORMATION.
Until such time as all Outstanding Securities are freely transferable
without restriction under the Securities Act, the Company (i) will use its best
efforts to be subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act and to file in a timely manner all reports and other
documents required to be filed pursuant thereto or in connection therewith and
(ii) will take, and will cause the Subsidiary Guarantors to take, all actions
necessary to permit resales of the Securities and the Subsidiary Guarantees
endorsed thereon pursuant to Rule 144A, including furnishing to any Holder (or
of a beneficial interest in a Security), or to any prospective purchaser
designated by such a Holder or beneficial owner, upon request of such Holder or
beneficial owner, financial and other information required to be delivered under
paragraph (d)(4) of Rule 144A.
SECTION 1012. ACQUISITION OF SECURITIES.
The Company shall not, and shall cause its Affiliates not to, resell
or otherwise dispose of any Securities acquired by them, in the open market or
otherwise, and shall, and shall cause its Affiliates to, surrender all such
Securities acquired to the Trustee for cancellation.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed in accordance with the provisions of
the forms of Securities set forth in Sections 202 and 203.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted
by any provision of this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 1103. [Reserved.]
SECTION 1104. [Reserved.]
SECTION 1105. NOTICE OF REDEMPTION.
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Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register or provided to the Trustee by such Holder.
In addition, the Company shall, at least 30 and not more than 60 days
before the Redemption Date, cause notice of such redemption to be published in a
leading newspaper having a general circulation in The City of New York, New York
(which is expected to be the Wall Street Journal) and a leading newspaper having
a general circulation in London, England (which is expected to be the Financial
Times), with a copy to the Trustee.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date, and
(4) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price together with
accrued interest, if any, to the Redemption Date) such Securities shall cease to
bear interest. Upon surrender of any such Security for redemption in accordance
with said notice, such Security shall be paid by the Company at the Redemption
Price, together with accrued interest to the Redemption Date; provided, however,
that installments of interest whose Stated
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Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate provided by the
Security.
ARTICLE TWELVE
Subsidiary Guarantee
SECTION 1201. SUBSIDIARY GUARANTEE.
Each Subsidiary Guarantor hereby absolutely and unconditionally
guarantees, jointly and severally with each other Subsidiary Guarantor, to each
Holder of a Security authenticated and delivered by the Trustee pursuant to this
Indenture and to the Trustee and its successors and assigns, regardless of the
validity and enforceability of the Indenture, the Securities or the obligations
of the Company under the Indenture or the Securities, that:
(i) the principal of, premium, if any, and interest on the Securities
will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue
principal of, premium, if any, and interest on the Securities, to the
extent lawful, and all other payment obligations of the Company to the
Holders or the Trustee thereunder or under this Indenture will be promptly
paid in full, all in accordance with the terms thereof and of the
Indenture; and
(ii) in case of any extension of time for payment or renewal of any
Securities, that the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the liability of each
Subsidiary Guarantor under the Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or
similar law.
If the Company shall default in the due and punctual payment of any
obligation under this Indenture including under the Securities, without the
necessity of action by the Trustee or any Holder of Securities, the Subsidiary
Guarantor will promptly and fully make such payments in the same manner as
required to have been made by the Company.
To the extent permitted by law, the obligations of each Subsidiary
Guarantor hereunder shall be continuing, absolute and unconditional, and shall
not be impaired, modified, released or limited by an occurrence or condition
whatsoever, including, without limitation, (i) any
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compromise, settlement, release, waiver, renewal, extension, indulgence or
modification of, or any change in, any of the obligations and liabilities of the
Company contained in the Securities or in this Indenture or of any other
Subsidiary Guarantor contained in the Indenture, (ii) any impairment,
modification, release or limitation of the liability of the Company or of any
other Subsidiary Guarantor in bankruptcy, or any remedy for the enforcement
thereof, resulting from the operation of any present or future provision of any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar laws or from the decision of any court, (iii) the assertion or exercise
by the Company, any other Subsidiary Guarantor, or the Trustee of any rights or
remedies under the Securities or this Indenture or their delay in or failure to
assert or exercise any such rights or remedies, (iv) the voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
proceeding affecting, the Company or any other Subsidiary Guarantor or any of
their assets, or the disaffirmance of this Indenture or the Securities in any
such proceeding, (v) the release or discharge of the Company or any other
Subsidiary Guarantor from the performance or observance of any agreement,
covenant, term of condition contained in any of such instruments by operation of
law, (vi) the unenforceability of the Securities or this Indenture or (vii) any
other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor.
Each Subsidiary Guarantor hereby (i) waives diligence, presentment,
demand for payment, filing of claims with a court in the event of the merger or
bankruptcy of the Company, any right to require a proceeding first against the
Company or to realize on any collateral, protest, notice and all demands
whatsoever with respect to the payment obligations of the Company under this
Indenture, (ii) agrees that its obligations hereunder constitute a guarantee of
payment and not of collection and are not in any way conditional or contingent
upon any attempt to collect from or enforce against the Company or upon any
other condition or contingency, (iii) acknowledges that any agreement,
instrument or document evidencing the obligations of the Company under this
Indenture may be transferred and that the benefit of its obligations hereunder
shall extend to each holder of any agreement, instrument or document evidencing
such obligations without notice to them and (iv) covenants that its Subsidiary
Guarantee will not be discharged except by complete performance of the payment
obligations under the Securities and this Indenture.
Each Subsidiary Guarantor further agrees that if at any time all or
any part of any payment therefore applied by any person to any payment
obligation is, or must be, rescinded or returned for any reason whatsoever,
including, without limitation, the insolvency, bankruptcy or reorganization of
the Company or any other Subsidiary Guarantor, such obligation shall for the
purposes of the Subsidiary Guarantee, to the extent that such payment is or must
be rescinded or returned, be deemed to have continued in existence
notwithstanding such application, and the Subsidiary Guarantee made pursuant to
this Indenture shall continue to be effective or be reinstated, as the case may
be, as to such payment obligation as though such application had not been made.
Each Subsidiary Guarantor shall, to the extent of any payment made by
it pursuant to this Indenture, be subrogated to all rights of the Trustee and
the Holders of the Securities as to all payments and damages payable by the
Company with respect to which payments have been made by such Subsidiary
Guarantor, but, so long as any payment obligation remains outstanding, such
right
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of subrogation on the part of such Subsidiary Guarantor shall be subject to the
payment in full or discharge of all such payment obligations.
Each of the Subsidiary Guarantors shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor so long as the
exercise of such right does not impair the rights of the Holders or the Trustee
under the Subsidiary Guarantees made pursuant to this Indenture.
SECTION 1202. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
The Subsidiary Guarantees to be endorsed on the Securities shall
include the terms of the Subsidiary Guarantee set forth in Section 1201 and any
other terms that may be set forth in the form established pursuant to Section
205. Each of the Subsidiary Guarantors hereby agrees to execute its Subsidiary
Guarantee, in a form established pursuant to Section 205, to be endorsed on each
Security authenticated and delivered by the Trustee.
The Subsidiary Guarantee shall be executed on behalf of each
respective Subsidiary Guarantor by any of such Subsidiary Guarantor's Chairman
of the Board, Vice Chairman of the Board, Chief Executive Officer, President,
one of its Vice Presidents, or its Secretary. The signature of any or all of
these persons on the Subsidiary Guarantee may be manual or facsimile.
A Subsidiary Guarantee bearing the manual or facsimile signature of
individuals who were at any time the proper officers of a Subsidiary Guarantor
shall bind such Subsidiary Guarantor, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of the Security on which such Subsidiary Guarantee is endorsed or did
not hold such offices at the date of such Subsidiary Guarantee.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee
endorsed thereon on behalf of the Subsidiary Guarantors and shall bind each
Subsidiary Guarantor notwithstanding the fact that Subsidiary Guarantee does not
bear the signature of such Subsidiary Guarantor. Each of the Subsidiary
Guarantors hereby jointly and severally agrees that its Subsidiary Guarantee set
forth in Section 1201 and in the form of Subsidiary Guarantee established
pursuant to Section 205 shall remain in full force and effect notwithstanding
any failure to endorse a Subsidiary Guarantee on any Security.
SECTION 1203. RELEASE OF SUBSIDIARY GUARANTORS.
Each Subsidiary Guarantee will remain in effect with respect to the
respective Subsidiary Guarantor until the entire principal of, premium, if any,
and interest on the Securities shall have been paid in full or otherwise
discharged in accordance with the provisions of the Securities and this
Indenture and all amounts owing to the Trustee hereunder have been paid;
provided, however, that if all of the issued and outstanding shares of Voting
Stock of such Subsidiary Guarantor are sold, directly or indirectly, by the
Company or another Wholly Owned Subsidiary of the Company to any Person (other
than the Company or another Wholly Owned Subsidiary of the Company), then, upon
delivery by the Company of an Officers' Certificate and an Opinion of Counsel
stating that all
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conditions precedent, if any, herein provided for relating to the release of
such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee
and this Article Twelve have been complied with, such Subsidiary Guarantor shall
be released and discharged of its obligations under its Subsidiary Guarantee and
under this Article Twelve without any action on the part of the Trustee or any
Holder, and the Trustee shall execute any documents reasonably required in order
to acknowledge the release of such Subsidiary Guarantor from its obligations
under its Subsidiary Guarantee endorsed on the Securities and under this Article
Twelve.
ARTICLE THIRTEEN
Meetings of Holders of Securities
SECTION 1301. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.
SECTION 1302. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities for any purpose specified in Section 1301, to be held at such
time and at such place in The City of New York, New York or in London,
England as the Trustee shall determine. Notice of every meeting of Holders
of Securities, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 105, not less than 21 nor more
than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities shall have requested the Trustee to call a meeting
of the Holders of Securities for any purpose specified in Section 1301, by
written request setting forth in reasonable detail the action proposed to
be taken at the meeting, and the Trustee shall not have made the first
publication of the notice of such meeting within 21 days after receipt of
such request or shall not thereafter proceed to cause the meeting to be
held as provided herein, then the Company or the Holders of Securities in
the amount specified, as the case may be, may determine the time and the
place in The City of New York, New York or in London, England for such
meeting and may call such meeting for such purposes by giving notice
thereof as provided in paragraph (a) of this Section.
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SECTION 1303. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a
Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Holders shall
be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 1304. QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting (subject to repeated applications of this sentence). Notice of
the reconvening of any adjourned meeting shall be given as provided in Section
1302(a), except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage of
the principal amount of the Outstanding Securities which shall constitute a
quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned
for a lack of a quorum, the persons entitled to vote 25% in aggregate principal
amount of the Outstanding Securities at the time shall constitute a quorum for
the taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any resolution and all matters (except as
limited by the proviso to Section 902) shall be effectively passed and decided
if passed or decided by the Persons entitled to vote not less than 66 2/3% in
aggregate principal amount of Outstanding Securities represented and voting at
such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.
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SECTION 1305. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT
OF MEETINGS.
(a) Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders of Securities in regard to proof
of the holding of Securities and of the appointment of proxies and in
regard to the appointment and duties of inspectors of votes, the
submission and examination of proxies, certificates and other evidence
of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted
or required by any such regulations, the holding of Securities shall be
proved in the manner specified in Section 104 and the appointment of
any proxy shall be proved in the manner specified in Section 104. Such
regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the
proof specified in Section 104 or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a
temporary chairman (which may be the Trustee) of the meeting, unless
the meeting shall have been called by the Company or by Holders of
Securities as provided in Section 1302(b), in which case the Company or
the Holders of Securities calling the meeting, as the case may be,
shall in like manner appoint a temporary chairman. A permanent chairman
and a permanent secretary of the meeting shall be elected by vote of
the Persons entitled to vote a majority in principal amount of the
Outstanding Securities represented at the meeting.
(c) At any meeting, each Holder of a Security or proxy shall
be entitled to one vote for each _1,000 principal amount of Securities
held or represented by him; PROVIDED, HOWEVER, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as
not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote,
except as a Holder of a Security or proxy.
(d) Any meeting of Holders of Securities duly called pursuant
to Section 1302 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of
the Outstanding Securities represented at the meeting, and the meeting
may be held as so adjourned without further notice.
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SECTION 1306. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1302 and, if
applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
--------------------
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
[Signature pages begin on page 81.]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
Attest: STAPLES, INC.
__________________________ By __________________________
Name: Name:
Title: Title:
STAPLES THE OFFICE SUPERSTORE, INC.,
as Subsidiary Guarantor
By __________________________
Name:
Title:
STAPLES THE OFFICE SUPERSTORE EAST, INC.,
as Subsidiary Guarantor
By __________________________
Name:
Title:
STAPLES CONTRACT &COMMERCIAL, INC.,
as Subsidiary Guarantor
By __________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
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as Trustee
By __________________________
By __________________________
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TOWN OF FRAMINGHAM )
) ss.:
COUNTY OF MIDDLESEX )
On the _____ day of November, 1999, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is _______________________________ of _____________________, one of the
corporations described in and which executed the foregoing instrument and that
the foregoing instrument was executed by authority of the Board of Directors of
said corporation.
TOWN OF FRAMINGHAM )
) ss.:
COUNTY OF MIDDLESEX )
On the _____ day of November, 1999, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he is _______________________________ of _____________________, one of the
corporations described in and which executed the foregoing instrument and that
the foregoing instrument was executed by authority of the Board of Directors of
said corporation.
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CITY OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of November, 1999, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that [he - she] is _______________________________ of _____________________, one
of the corporations described in and which executed the foregoing instrument and
that the foregoing instrument was executed by authority of the Board of
Directors of said corporation.
CITY OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of November, 1999, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that [he - she] is _______________________________ of _____________________, one
of the corporations described in and which executed the foregoing instrument and
that the foregoing instrument was executed by authority of the Board of
Directors of said corporation.
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ANNEX A-1
FORM OF TRANSFER CERTIFICATE --
RESTRICTED GLOBAL SECURITY TO
TEMPORARY REGULATION S GLOBAL SECURITY
REGULATION S GLOBAL NOTE CERTIFICATE
(for transfers pursuant to Section 305(b)(3)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
The Chase Manhattan Bank, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
named therein and The Chase Manhattan Bank, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This certificate relates to ______________ aggregate principal amount of
Notes which are evidenced by the Restricted Global Security (Common Code No.
____________, ISIN No. ____________) and held with the Common Depository through
Euroclear in the name of [insert name of transferor] (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Notes to
a Person who will take delivery thereof in the form of an equal aggregate
principal amount of Securities evidenced by the Temporary Regulation S Global
Security (Common Code No. __________, ISIN No. _____________), which amount,
immediately after such transfer, is to be held with the Common Depository
through Euroclear or Cedelbank or both.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
does hereby further certify that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either:
A-1
<PAGE> 92
(A) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting
on its behalf reasonably believed that the transferee was outside
the United States, or
(B) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above was held with the Common Depository
through Euroclear or Cedelbank or both.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Issuer, the Subsidiary Guarantors and Goldman, Sachs & Co., and Salomon
Smith Barney Inc. as initial purchasers of the Notes. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.
Dated: [Insert Name of Transferor]
By:__________________________________________
Name:
Title:
(If the registered owner is a corporation,
partnership or fiduciary, the title of the
Person signing on behalf of such registered
owner must be stated.)
A-1-2
<PAGE> 93
ANNEX A-2
FORM OF TRANSFER CERTIFICATE --
RESTRICTED GLOBAL SECURITY TO
REGULATION S GLOBAL SECURITY
REGULATION S GLOBAL NOTE CERTIFICATE
(for transfers pursuant to Section 305(b)(4)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Chase Manhattan Bank Limited, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, through Euroclear and The
Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This certificate relates to ______________ aggregate principal amount of
Notes which are evidenced by the Restricted Global Security (Common Code No.
_________, ISIN No. ____________) and held with the Common Depository through
Euroclear in the name of [insert name of transferor] (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Notes to
a Person who will take delivery thereof in the form of an equal aggregate
principal amount of Notes evidenced by the Regulation S Global Security (Common
Code No. ___________, ISIN No. ___________).
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that:
(1) with respect to transfers made in reliance on Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"):
(A) the offer of the Notes was not made to a person in the United
States;
(B) either:
A-2-1
<PAGE> 94
(i) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person
acting on its behalf reasonably believed that the transferee
was outside the United States, or
(ii) the transaction was executed in, on or through the
facilities of a designated offshore securities market and
neither the Transferor nor any person acting on its behalf
knows that the transaction was prearranged with a buyer in
the United States;
(C) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable; and
(D) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; or
(2) with respect to transfers made in reliance on Rule 144 under the
Securities Act, the Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Issuer, the Subsidiary Guarantors and Goldman, Sachs & Co. and Salomon Smith
Barney Inc. as initial purchasers of the Notes. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
Dated: [Insert Name of Transferor]
By:_________________________________________
Name:
Title:
(If the registered owner is a corporation,
partnership or fiduciary, the title of the
Person signing on behalf of such registered
owner must be stated.)
A-2-2
<PAGE> 95
ANNEX B
FORM OF TRANSFER CERTIFICATE --
TEMPORARY REGULATION S GLOBAL SECURITY OR
REGULATION S GLOBAL SECURITY TO RESTRICTED
GLOBAL SECURITY
RESTRICTED GLOBAL NOTE CERTIFICATE
(for transfers pursuant to Section 305(b)(5)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Chase Manhattan Bank Limited, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, and The Chase Manhattan
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This certificate relates to __________________ aggregate principal amount
of Notes which are evidenced by the Temporary Regulation S Global Security or
the Regulation S Global Security (Common Code No. ___________, ISIN No.
___________) and held with the Common Depository through Euroclear or Cedelbank
or both in the name of [insert name of transferor] (the "Transferor") during the
Restricted Period. The Transferor has requested a transfer of such beneficial
interest in the Notes to a Person that will take delivery thereof in the form of
an equal principal amount of Notes evidenced by the Restricted Global Security
(Common Code No. ___________, ISIN No. ___________).
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 144A under the United States Securities Act of 1933,
as amended, and accordingly the Transferor does hereby further certify that the
Notes are being transferred to a person that the Transferor reasonably believes
is purchasing the Notes for its own account, or for one or more accounts with
respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A and the Notes have been transferred in a transaction
meeting the requirements of Rule 144A and in accordance with any applicable
securities laws of any state of the United States.
B-1
<PAGE> 96
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Issuer, the Subsidiary Guarantors and Goldman, Sachs & Co., and Salomon
Smith Barney Inc. as initial purchasers of the Notes.
Dated: [Insert Name of Transferor]
By:________________________________________
Name:
Title:
(If the registered owner is a corporation,
partnership or fiduciary, the title of the
Person signing on behalf of such registered
owner must be stated.)
B-2
<PAGE> 97
ANNEX C-1
FORM OF CERTIFICATION TO BE GIVEN BY HOLDERS OF
BENEFICIAL INTEREST IN A TEMPORARY REGULATION S
GLOBAL SECURITY TO EUROCLEAR OR CEDELBANK
OWNER SECURITIES CERTIFICATION
[MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, BRUSSELS OFFICE,
as Operator of the Euroclear
Clearance System] [or] [CEDELBANK,
SOCIETE ANONYME]
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
named therein and The Chase Manhattan Bank, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This certificate relates to __________________ aggregate principal amount
of Notes which are evidenced by the Temporary Regulation S Global Security
(Common Code No. ___________, ISIN No. ___________) and held with the Common
Depository through Euroclear or Cedelbank or both in the name of [insert name of
holder] (the "Holder").
In respect of such Notes, the Holder does hereby certify that as of the
date hereof, the above-captioned Notes are beneficially owned by non-U.S.
Persons and are not held for purposes of resale directly or indirectly to a U.S.
Person or to a person within the United States or its possessions.
As used herein, "United States" means the United States of America, its
territories and possessions, any state of the United States, and the District of
Columbia. As used herein, U.S. Person has the meaning assigned to it in Rule 902
under the Securities Act of 1933, as amended.
We undertake to advise you immediately by tested telex on or prior to the
date on which you intend to submit your certification relating to the Notes held
by you for our account in accordance with your operating procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
We understand that this certification is required in connection with
certain securities laws in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings. This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer, the Subsidiary Guarantors and
Goldman, Sachs & Co. and Salomon Smith Barney Inc. as the initial purchasers of
the Notes.
C-1-1
<PAGE> 98
Date: ___________, ____*
------------------------------------
[Name of Person Making Certification]
- ----------------
* To be dated no earlier than 15 days prior to the transfer or exchange date to
which the certification relates.
C-1-2
<PAGE> 99
ANNEX C-2
FORM OF CERTIFICATION TO BE GIVEN
BY THE EUROCLEAR OPERATOR OR CEDELBANK,
SOCIETE ANONYME
DEPOSITORY SECURITIES CERTIFICATION
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Chase Manhattan Bank Limited, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
named therein and The Chase Manhattan Bank, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This is to certify that, based solely on certifications we have received in
writing, by tested telex or by electronic transmission from member organizations
appearing in our records as persons being entitled to a portion of the principal
amount set forth below (our "Member Organizations") substantially to the effect
set forth in the Indenture, as of the date hereof, ___________ aggregate
principal amount of the above-captioned Notes are beneficially owned by non-U.S.
Persons and are not held for purposes of resale directly or indirectly to a U.S.
Person or to a person within the United States or its possessions.
As used herein, "United States" means the United States of America, its
territories and possessions, any state of the United States, and the District of
Columbia. As used herein, U.S. Person has the meaning assigned to it in Rule 902
under the Securities Act of 1933, as amended.
We further certify (i) that we are not making available herewith for
exchange any portion of the Temporary Regulation S Global Security excepted in
such certifications and (ii) that as of the date hereof we have not received any
notification from any of our Member Organizations to the effect that the
statements made by such Member Organizations with respect to any portion of the
part submitted herewith for exchange are no longer true and cannot be relied
upon as of the date hereof.
C-2-1
<PAGE> 100
We understand that this certification is required in connection with
certain securities laws of the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings. This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer, the Subsidiary Guarantors and
Goldman, Sachs & Co. and Salomon Smith Barney Inc. as the initial purchasers of
the Notes.
Date:______________, ____
By:__________________________________________
[MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, BRUSSELS OFFICE,
as Operator of the Euroclear Clearance
System] [or] [CEDELBANK, SOCIETE ANONYME]
C-2-2
<PAGE> 101
ANNEX C-3
FORM OF CERTIFICATION TO BE GIVEN BY
TRANSFEREE OF BENEFICIAL INTEREST IN A
TEMPORARY REGULATION S GLOBAL SECURITY
TRANSFEREE SECURITIES CERTIFICATION
[MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, BRUSSELS OFFICE,
as Operator of the Euroclear
Clearance system] [or] [CEDELBANK,
SOCIETE ANONYME]
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
For purposes of acquiring a beneficial interest in the Temporary Regulation
S Global Security, the undersigned certifies that it is not a U.S. Person as
defined by Regulation S under the Securities Act of 1933, as amended.
We undertake to advise you promptly by tested telex on or prior to the date
on which you intend to submit your certification relating to the Notes held by
you in which we intend to acquire a beneficial interest in accordance with your
operating procedures if any applicable statement herein is not correct on such
date, and in the absence of any such notification it may be assumed that this
certification applies as of such date.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Issuer, the Subsidiary Guarantors and Goldman, Sachs & Co. and Salomon Smith
Barney Inc. as initial purchasers of the Notes.
Dated:________________, ____
By:___________________________________
As, or as agent for, the beneficial
acquiror of the Notes to which
this certificate relates.
C-3-1
<PAGE> 102
ANNEX D-1
FORM OF TRANSFER CERTIFICATE --
NON-GLOBAL RESTRICTED SECURITY TO
RESTRICTED GLOBAL SECURITY
RESTRICTED GLOBAL NOTE CERTIFICATE
(for transfers pursuant to Section 305(b)(6)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Chase Manhattan Bank Limited, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
named therein and The Chase Manhattan Bank, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This certificate relates to ______________ aggregate principal amount of
Notes held in definitive form (Common Code No. _______, ISIN No. _______) by
[insert name of transferor] (the "Transferor"). The Transferor has requested a
transfer of such Notes to a Person that will take delivery in the form of an
equal principal amount of Notes evidenced by the Restricted Global Security
(Common Code No. _______, ISIN No. _______).
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with Rule 144A under the United States Securities Act of 1933,
as amended, and accordingly the Transferor does hereby further certify that the
Notes are being transferred to a person that the Transferor reasonably believes
is purchasing the Notes for its own account, or for one or more accounts with
respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A and the Notes have been transferred in a transaction
meeting the requirements of Rule 144A and in accordance with any applicable
securities laws of any state of the United States.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably
D-1-1
<PAGE> 103
authorize you to produce this certificate to any interested party in such
proceeding. This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer, the Subsidiary Guarantors and
Goldman, Sachs & Co. and Salomon Smith Barney Inc. as the initial purchasers of
the Notes.
Dated: [Insert Name of Transferor]
By:_____________________________________
Name:
Title:
D-1-2
<PAGE> 104
ANNEX D-2
FORM OF CERTIFICATE -- NON-GLOBAL
RESTRICTED SECURITY TO REGULATION S GLOBAL
SECURITY OR TEMPORARY REGULATION S
GLOBAL SECURITY
REGULATION S GLOBAL NOTE CERTIFICATE
(for transfers pursuant to Section 305(b)(6)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Chase Manhattan Bank Limited, London Branch
Trinity Tower
9 Thomas More Street
London E1 9YT
England
Re: Staples, Inc.
5.875 per cent Notes
due November 15, 2004 (the "Notes")
-----------------------------------
Reference is hereby made to the Indenture, dated as of November 15, 1999
(the "Indenture"), between Staples, Inc., as Issuer, the Subsidiary Guarantors
and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
This certificate relates to _____________ aggregate principal amount of
Notes held in definitive form (Common Code No. _______, ISIN No. _______) by
[insert name of transferor] (the "Transferor"). The Transferor has requested an
exchange or transfer of such Notes to a Person that will take delivery in the
form of an equal principal amount of Notes evidenced by the Regulation S Global
Security or the Temporary Regulation S Global Security (Common Code No. _______,
ISIN No. _______)
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected pursuant to
and in accordance with (a) Rule 903 or Rule 904 under the Securities Act of
1933, as amended (the "Act"), or (b) Rule 144 under the Act, and accordingly the
Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule 903 or Rule 904:
(A) the offer of the Notes was not made to a person in the United
States;
D-2-1
<PAGE> 105
(B) either:
(i) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person
acting on its behalf reasonably believed that the transferee
was outside the United States, or
(ii) the transaction was executed in, on or through the
facilities of a designated offshore securities market and
neither the Transferor nor any person acting on its behalf
knows that the transaction was pre-arranged with a buyer in
the United States;
(C) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable;
(D) the transaction is not part of a plan or scheme to evade the
registration requirements of the Act; and
(E) if such transfer is to occur during the Restricted Period, upon
completion of the transaction, the beneficial interest being
transferred as described above was held with the Common
Depositary through [Euroclear] [Cedelbank]; or
(2) if the transfer has been effected pursuant to Rule 144:
(A) more than two years has elapsed since the date of the closing of
the initial placement of the Notes pursuant to the Subscription
Agreement, dated November 15, 1999, between the Issuer and the
several Managers named therein; and
(B) the Notes have been transferred in a transaction permitted by
Rule 144 and made in accordance with any applicable securities
laws of any state of the United States.
We understand that this certificate is required in connection with certain
securities laws of the United States. In connection therewith, if administrative
or legal proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate to any interested party in such proceeding. This certificate
and the statements contained herein are made for your benefit and the benefit of
the Issuer, the Subsidiary Guarantors and Goldman, Sachs & Co. and Salomon Smith
Barney Inc. as initial purchasers of the Notes.
Dated: [Insert Name of Transferor]
By:_______________________________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STAPLES, INC. FOR THE NINE MONTHS ENDED OCTOBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 90,164
<SECURITIES> 1,211
<RECEIVABLES> 436,787
<ALLOWANCES> 3,664
<INVENTORY> 1,534,439
<CURRENT-ASSETS> 2,173,503
<PP&E> 1,523,207
<DEPRECIATION> 492,036
<TOTAL-ASSETS> 3,735,645
<CURRENT-LIABILITIES> 1,496,480
<BONDS> 202,910
0
0
<COMMON> 280
<OTHER-SE> 1,687,460
<TOTAL-LIABILITY-AND-EQUITY> 3,735,645
<SALES> 6,305,987
<TOTAL-REVENUES> 6,305,987
<CGS> 4,762,428
<TOTAL-COSTS> 5,688,748
<OTHER-EXPENSES> 286,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,554
<INCOME-PRETAX> 320,643
<INCOME-TAX> 125,051
<INCOME-CONTINUING> 195,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,592
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.41
<FN>
<F1>
<INCOME-BEFORE MINORITY INTEREST> 195,592
<MINORITY INTEREST> 0
</FN>
</TABLE>
