Equity Based Employee Benefit Plans

Staples offers its associates share ownership through certain equity-based employee compensation and benefit plans. In connection with these plans, Staples recognized $13 million and $24 million in compensation expense for the second quarter and first half of 2017, respectively. Of the $24 million recorded in the first half of 2017, $26 million is included in continuing operations and a forfeiture adjustment of $2 million is included in discontinued operations.

The Company recognized $15 million and $33 million in compensation expense for the second quarter and first half of 2016, respectively. Of the amounts recorded in the second quarter and first half of 2016, $14 million and $31 million were included in continuing operations, respectively, and $1 million and $2 million were included in discontinued operations, respectively.

Under the 2014 Stock Incentive Plan, the Company may grant restricted stock and restricted stock units (collectively, “Restricted Shares”) and non-qualified stock options to associates. Pursuant to the terms of the Merger Agreement (see Note C - Acquisition by Funds Managed by Sycamore Partners), following the restricted stock unit grants made on July 3, 2017, the Company is restricted from making additional grants under the 2014 Stock Incentive Plan or otherwise until the earlier to occur of the effective time of the Merger and the termination of the Merger Agreement.

As of July 29, 2017, Staples had $74 million of unamortized stock compensation expense associated with these plans which is scheduled to be expensed over the period through June 2020. See Note C - Acquisition by Funds Managed by Sycamore Partners for information related to how the proposed Merger would impact unvested share-based payment awards.

Restricted shares

The following table summarizes the activity during the first half of 2017 related to Restricted Shares:



	Restricted Shares (1)
	Number of Shares (Millions)		Weighted Average Grant Date Fair Value per Share
Outstanding at January 28, 2017	9		$	10.04
Granted	2		9.00
Vested	(3	)	10.22
Canceled	(1	)	10.29
Outstanding at July 29, 2017	7		$	9.54


(1)	Excludes performance share awards.

Performance shares

The Company has entered into performance share arrangements with certain executives. Each arrangement covers a three year performance period. Payout under these arrangements may range from 25% to 200% of target for each performance metric, depending on actual performance. Any award earned based on performance achieved may be increased or decreased by 25% if the Company's cumulative total shareholder return ("TSR") over the three year performance period is in the top or bottom one-third of the S&P 500 TSR, respectively. Shares earned, if any, will be issued on a fully-vested basis at the conclusion of the three-year performance period only if the grantee is still actively employed by or serving as a consultant to the Company at that time, with certain exceptions for retirement, death, disability, and termination without cause.

For the arrangements entered into in March 2017, vesting is based on cumulative performance over a three year period comprising fiscal years 2017 to 2019, and is based on achieving certain sales growth targets in the North American Delivery segment, certain earnings per share targets and achieving certain return on net assets percentage targets. As of July 29, 2017, the aggregate target number of shares for this award is 1.9 million, net of forfeitures, with a grant-date fair value of $14 million.

For the arrangements entered into in April 2016, vesting is based on cumulative performance over a three year period comprising fiscal years 2016 to 2018, and is 50% based on achieving certain operating income growth targets and 50% based on achieving certain return on net assets percentage targets. As of July 29, 2017, the aggregate target number of shares for this award is 0.8 million, net of forfeitures, with a grant-date fair value of $8 million.

For the arrangements entered into in March of 2014 and March of 2015, vesting is based on performance achieved in each fiscal year, with metrics established at the beginning of each year, and is 50% based on satisfaction of certain sales growth metrics and 50% based on achievement of certain return on net assets percentage targets. The following summarizes activity related to these awards during the first half of 2017:


•	March 2014 award: Upon completion of the three-year performance period, in March 2017 a total of 0.9 million shares were issued on a fully vested basis, which reflects a 25% reduction related to the TSR multiplier.


•	March 2015 awards: For the tranches related to the fiscal 2017 performance period, the aggregate target number of shares is 0.2 million with a grant date fair value of $1 million, net of forfeitures, as of July 29, 2017.

Stock options

No stock options were granted or exercised during first half of 2017.

Employee Stock Purchase Plan

Staples offers its associates the opportunity for share ownership pursuant to the Amended and Restated Employee Stock Purchase Plan. During first half of 2017 and 2016, the Company issued 1.6 million shares and 2.1 million shares, respectively, pursuant to this plan. In connection with the Merger Agreement, the Company has suspended its employee stock purchase plan, effective as of July 1, 2017.