weighed down by debt it was no longer a viable business concern and the company was now considering its options.

Staples chairman Bill Midon stated the company had come to such dire straits because of the structure of the deal to buy competitor Chips Ltd. for about $7 million in 1995.

The Bank of Bermuda managed and structured the Chips purchase and the public offering of preferred shares to raise $5 million. The additional money was a loan from the Bank of Bermuda. Law firm Conyers, Dill & Pearman gave legal opinion on the initial public offering.

A total of 583,334 convertible redeemable voting ten percent preferred shares were sold at $9 each.

"The structure of the original acquisition of Chips Ltd. has hampered the ability of the company to successfully realise the value of its investment in Staples Ltd. and Chips Ltd.,'' Mr. Midon said. "Despite numerous efforts and initiatives, the cash outflow for debt repayment and to our preferred shareholders of approximately $4.4 million over 3.5 years has crippled the company and given them no resiliency.'' Mr. Midon blamed the problems on the subsequent start up of competitor Tops Ltd. four months after the purchase by two senior Chips managers.

"A number of challenges faced the company from its inception four years ago,'' a press release stated.

Staples no longer viable -- Midon "Chief among these were loss of the acquired company's senior management team and their subsequent start up of competitor Tops Ltd. within the first four months, resulting in some loss of established Chips business. The drain on financial resources from the capital structure and acquisition debt as well as people and systems problems were additional challenges the company has faced within the past 24 months.'' When the deal was done, Chips owner Bill Gresham signed a non-competing clause.

Yesterday's statement then went on to say no decision has been made in what the company was going to do. Options range from selling the office and medical supply subsidiaries or liquidating the company.

"We have relied on expert guidance at all stages of this process,'' Mr. Midon went on to state. "Despite this, we have never been able to achieve profit levels sufficient to support Staples Holdings' requirements, as evidenced by our annual audited statements, which show three years of declining performance.'' One shareholder who was present at the meeting said: "At the meeting, Mr.

Midon said the company, if it was liquidated, would only be able to pay the $2 million debt to the Bank of Bermuda. The preferred shareholders would be left with nothing.'' And the shareholder, who spoke on condition of anonymity, added that angry shareholders asked why a non-competing clause had not been signed with the management of Chips.

They also asked why Mr. Midon had not sought independent legal advice. A representative of Conyers Dill & Pearman was at the meeting. Mr. Midon reportedly said he would do so on Monday.

And Mr. Midon also reportedly admitted that "probably they had overpaid for the purchase of Chips''.

In the face of financial difficulties Staples earlier this month halted dividend payments to preferred shareholders. In a statement, the company said the suspension of the semi-annual dividend on the preferred shares -- adding up to $284,784 due March 31 -- was hurting the bottom line. Subsequent dividends were also on hold until further notice.

Trading on Staples shares on the Bermuda Stock Exchange had been suspended pending the announcement. The company requested that the suspension of trading remain in effect while it restructures its operations to deal with its cash flow crunch and loss of market share.

Staples continues to make monthly payments on its debt to the Bank of Bermuda and the Bank of N.T. Butterfield and Son Ltd.

Staples president Michael Johnson said the company has hired Ernst & Young to assist in the evaluation and re-engineering of the company. The consultants are also in "communication'' with the banks.

"The company is currently in the process of reviewing all its asset values and operational processes, and its financial condition and capital structure, in order to determine the best plan for a complete corporate re-engineering,'' he said.

Staples had $288,566 cash flow from operating activities in the 1998 financial year. The company declared a six month net loss of $236,019 to September 31 and forecast more losses were on the way.

After accounting for the semi-annual dividends to be paid by December 31 the company had a deficit of $477,815, or loss of 60 cents per common share for the six month period.