NOTE 9—STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

Stock-Based Compensation Plans

On June 26, 2013, the Board of Directors and shareholders of Holdings approved the HD Supply Holdings, Inc. 2013 Omnibus Incentive Plan (the "Plan"). The Plan provides for stock-based awards to employees, consultants and directors, including stock options, stock purchase rights, restricted stock, restricted stock units, deferred stock units, performance shares, performance units, stock appreciation rights, dividend equivalents and other stock-based awards. The Plan replaces and succeeds the HDS Investment Holding, Inc. Stock Incentive Plan, as amended effective April 11, 2011 (the "Stock Incentive Plan"), and, from and after June 26, 2013, no further awards will be made under the Stock Incentive Plan. On July 2, 2013, HD Supply registered 12.5 million shares for issuance pursuant to awards under the Plan and registered 14.8 million shares for issuance pursuant to outstanding awards under the Stock Incentive Plan as of June 26, 2013. As of January 31, 2016, approximately 9 million registered shares were available for issuance under the Plan.

On June 26, 2013, the Board of Directors and shareholders of Holdings approved the HD Supply Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"), which permits HD Supply's eligible associates to purchase Holdings common stock at a 5% discount on the closing stock price at the end of each offering period. There are two six-month offering periods during a calendar year beginning each January and July, with the first offering period commenced on January 1, 2014. Two million shares are authorized for issuance under the ESPP, and these shares were registered on July 2, 2013. During fiscal 2015 and fiscal 2014, eligible associates purchased approximately 117,000 shares and 114,000 shares, respectively, under the ESPP. As of January 31, 2016, approximately 1.8 million registered shares were available for issuance under the ESPP.

Stock Options

Under the terms of the Plan and the Stock Incentive Plan (collectively, the "HDS Plans"), non-qualified stock options are to carry exercise prices at, or above, the fair market value of Holdings' stock on the date of the grant. Prior to Holdings' initial public offering, the fair market value of the stock was determined by the Board of Directors of Holdings based on such factors as it deemed appropriate, including but not limited to the earnings and other financial and operating information of the Company in recent periods, the potential value of the Company as a whole, the future prospects of the Company and the industries in which it competes, the history and management of the Company, the general condition of the securities markets, the fair market value of securities of companies engaged in businesses similar to those of the Company, and any recent valuation of the common stock of Holdings that was performed by an independent valuation firm (although the Board of Directors of Holdings was not obligated to obtain such a valuation).

The non-qualified stock options under the HDS Plans generally vest at the rate of 20% per year commencing on the first anniversary date of the grant or 100% on the third anniversary of the grant and expire on the tenth anniversary date of the grant.

A summary of option activity under the HDS Plans is presented below (shares in thousands):

	Number of Shares			Weighted Average Option Price
Outstanding at February 3, 2013		14,818		$	13.00
Granted		930			18.00
Exercised		(312	)		12.02
Forfeited		(426	)		13.91

Outstanding at February 2, 2014		15,010		$	13.30

Granted		—			—
Exercised		(4,076	)		10.97
Forfeited		(495	)		15.94

Outstanding at February 1, 2015		10,439		$	14.08

Granted		—			—
Exercised		(5,647	)		12.50
Forfeited		(55	)		15.28

Outstanding at January 31, 2016		4,737		$	15.95

The total intrinsic value of options exercised was approximately $110 million, $65 million, and $4 million in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. As of January 31, 2016, there were approximately 4.7 million stock options outstanding with a weighted average remaining life of 4.8 years and an aggregate intrinsic value of approximately $49 million. As of January 31, 2016, there were approximately 3.7 million options exercisable with a weighted average exercise price of $15.62, a weighted average remaining life of 4.4 years and an aggregate intrinsic value of approximately $40 million. As of January 31, 2016, there were approximately 4.5 million options vested or expected to ultimately vest with a weighted average exercise price of $15.87, a weighted average remaining life of 4.7 years, and an aggregate intrinsic value of approximately $47 million.

The estimated fair value of the options when granted is amortized to expense over the options' vesting or required service period. The fair value for these options was estimated by management, after considering a third-party valuation specialist's assessment, at the date of grant based on the expected life of the option and historical exercise experience, using a Black-Scholes option pricing model with the following weighted-average assumptions:

	Fiscal Year Ended
	January 31, 2016		February 1, 2015		February 2, 2014
Risk-free interest rate		—		—		1.8	%
Dividend yield		—		—		0.0	%
Expected volatility factor		—		—		58.3	%
Expected option life in years		—		—		6.5

The risk free interest rate was determined based on an analysis of U.S. Treasury zero-coupon market yields as of the date of the option grant for issues having expiration lives similar to the expected option life. The expected volatility was based on an analysis of the historical volatility of HD Supply's competitors over the expected life of the HD Supply options. These volatilities were weighted by the respective HD Supply segment against which they compete, resulting in an overall industry-based volatility for HD Supply and then adjusted to reflect the leverage of HD Supply. As insufficient data exists to determine the historical life of options issued under the HDS Plans, the expected option life was determined based on the vesting schedule of the options and their contractual life taking into consideration the expected time in which the share price of Holdings would exceed the exercise price of the option. No options were granted during fiscal 2015 or fiscal 2014. The weighted-average fair value of each option granted during fiscal 2013 was $10.25. HD Supply recognized $5 million, $8 million, and $16 million of stock-based compensation expense related to stock options during fiscal 2015, fiscal 2014, and fiscal 2013, respectively. As of January 31, 2016 the unamortized compensation expense related to stock options was $2 million, which is expected to be recognized over a weighted-average period of 1.1 years.

Restricted Stock and Restricted Stock Units

Restricted stock awards ("RSAs") and restricted stock unit awards ("RSUs") granted under the Plan are settled by issuing shares of common stock at the vesting date. Generally, the RSAs and RSUs granted to employees vest on a pro rata basis on each of the first four or five anniversaries of the grant, except in the case of death or disability, in which case the RSAs and RSUs vest as of the date of the event. Generally, the RSAs granted to members of the Company's Board of Directors vest on the earliest of the one-year anniversary of the grant date, the next annual meeting after the grant date, or a change in control. The grant date fair value of the RSAs and RSUs is expensed over the vesting period. The shares represented by restricted stock awards are considered outstanding at the grant date, as the recipients are entitled to dividends and voting rights, which are subject to the same restrictions (including the risk of forfeiture) as the restricted stock awards.

A summary of RSA and RSU activity under the HDS Plans is presented below (shares in thousands):

	Number of Shares			Weighted Average Grant Date Fair Value
Non-vested at February 3, 2013		—		$	—
Granted		353			18.18
Vested		—			—
Forfeited		—			—

Non-vested at February 2, 2014		353		$	18.18

Granted		1,508			24.32
Vested		(131	)		20.04
Forfeited		(125	)		24.40

Non-vested at February 1, 2015		1,605		$	23.32

Granted		1,147			29.05
Vested		(440	)		23.59
Forfeited		(581	)		26.02

Non-vested at January 31, 2016		1,731		$	26.08

HD Supply recognized $11 million, $9 million, and $1 million of stock-based compensation expense related to RSAs and RSUs during fiscal 2015, fiscal 2014, and fiscal 2013, respectively. As of January 31, 2016 the unamortized compensation expense related to RSAs and RSUs was $30 million, which is expected to be recognized over a weighted-average period of 2.7 years.

Employee Benefit Plans

HD Supply offers a comprehensive Health & Welfare Benefits Program which allows employees who satisfy certain eligibility requirements to choose among different levels and types of coverage. The Health & Welfare Benefits program provides employees healthcare coverage in which the employer and employee share costs. In addition, the program offers employees the opportunity to participate in various voluntary coverages, including flexible spending accounts.

HD Supply maintains a 401(k) defined contribution plan that is qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. Employees who satisfy the plan's eligibility requirements may elect to contribute a portion of their compensation to the plan on a pre-tax basis. HD Supply may match a percentage of the employees' contributions to the plan based on approval from the Board of Directors. Matching contributions are generally made shortly after the end of each pay period or after the Company's fiscal year-end if an additional annual matching contribution based on the Company's fiscal-year financial results is approved. HD Supply paid matching contributions of $19 million, $19 million, and $17 million during fiscal 2015, fiscal 2014, and fiscal 2013, respectively.