Staples 2004 Annual Report Download - page 24

As more fully described below, the Restated Plan provides for a variety of types of equity awards, including stock
options, restricted stock, restricted stock units and performance accelerated restricted stock, or PARS. This range of
available types of awards provides the Compensation Committee with flexibility to determine the appropriate mix of
awards for different groups of plan participants and for individuals within those groups. Staples is committed to using
a mix of equity compensation that most effectively aligns the interests of our associates, officers, directors, consultants,
advisors and other service providers with the interests of our stockholders. Our Compensation Committee considers a
variety of factors when determining what type of equity award to grant including, among others, dilution to our
stockholders, creation of long-term incentives for the award recipient and accounting and tax consequences to Staples.
At the time we sought stockholder approval of the Existing Plan, our Board believed that the total number of
shares authorized for issuance thereunder would be sufficient to cover awards through the end of fiscal 2006. This
belief was based on a number of assumptions and expectations, including the anticipated impact that proposed
changes in accounting rules would have on the accounting treatment of stock options, and current and evolving
practices of other companies, including our competitors, with respect to equity compensation. Specifically, we
expected that the Financial Accounting Standards Board’s Statement of Accounting Standards No. 123 (revised 2004)
(‘‘FAS 123r’’) could become effective in 2004 and would become effective for Staples in 2005. Based on this timing, we
decided to accelerate the shift in our mix of long-term incentive compensation in 2005 toward greater use of restricted
stock and reduced emphasis on the use of stock options, since we believe that we can deliver the same economic value
to plan participants with fewer shares of restricted stock (resulting in less dilution to our stockholders) as compared to
option shares.
However, since we submitted the Existing Plan to our stockholders for approval in 2004, there has been
continuing uncertainty surrounding the implementation and timing of these proposed accounting changes. In
particular, the required implementation dates for FAS 123r by publicly traded companies have been delayed by the
SEC. The accounting consequences of restricted stock awards compared to stock options continue to be an important
factor in the Compensation Committee’s decision regarding the appropriate mix of restricted stock and stock options
to use to compensate and motivate Staples’ associates. In light of this continuing uncertainty and current and evolving
practices of other companies, including our competitors, the Compensation Committee and our Board has
determined (1) that it would not be in Staples’ best interest to proceed with the transition away from stock option
grants on the timetable previously intended and (2) to delay such transition until the accounting regulations and
actions of our competitors are more certain so that we can determine the appropriate mix of restricted stock and stock
options.
Our mix of long-term incentive compensation has for some time included restricted stock awards, and we
anticipate shifting more heavily toward use of restricted stock in 2006 assuming that FAS 123r is implemented on the
timetable currently proposed by the SEC. We believe that the Restated Plan is necessary to ensure that our
Compensation Committee has the flexibility it needs to make, in addition to other types of awards, stock option grants
as and to the extent appropriate over the next two to three years, depending on numerous factors, some of which are
outside of Staples’ control.
In addition, the Restated Plan does not permit the return of shares for reuse pursuant to new awards under a
variety of circumstances, as more fully described below. The Restated Plan also modifies the restrictions on
transferability of awards and requires that awards comply with new Section 409A of the Code unless the Board
specifically authorizes otherwise at the time of grant. We believe these additional changes to the Existing Plan reflect
evolving best practices in corporate governance as they relate to equity compensation plans.
Description of the Restated Plan
The following summary is qualified in its entirety by reference to the Restated Plan, a copy of which is attached to the
electronic copy of this proxy statement filed with the SEC and may be accessed from the SEC’s Internet home page
(www.sec.gov). In addition, a copy of the Restated Plan may be obtained from our Corporate Secretary.
Types of Awards.
The Restated Plan provides for the grant of non-statutory stock options, restricted stock, restricted stock units,
stock appreciation rights, incentive stock options intended to qualify under Section 422 of the Internal Revenue Code
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