NOTE 15 – SHARE-BASED COMPENSATION PLANS

We have equity awards outstanding under an expired employee stock option and restricted stock plan adopted in 1998 (the “1998 Plan”). We also have equity awards outstanding under three active share-based compensation plans. The plans consist of the Helen of Troy Limited 2008 Stock Incentive Plan, an employee stock option and restricted stock plan (the “2008 Stock Incentive Plan”), the Helen of Troy Limited 2008 Non-Employee Directors Stock Incentive Plan, a non-employee director restricted stock plan (the “2008 Directors’ Plan”), and the Helen of Troy Limited 2008 Employee Stock Purchase Plan (the “2008 Stock Purchase Plan”). These plans are described below. The plans are administered by the Compensation Committee of the Board of Directors, which consists of non-employee directors who are independent under the NASDAQ Stock Market listing standards.

Expired Plan

The 1998 Plan – The plan covered a total of 6,750,000 shares of common stock for issuance to key officers and employees. The 1998 Plan provided for the grant of options to purchase our common stock at a price equal to or greater than the fair market value on the grant date. The 1998 Plan contained provisions for incentive stock options, non-qualified stock options and restricted share grants. Generally, options granted under the 1998 Plan become exercisable over four- or five-year vesting periods and expire on dates ranging from seven to ten years from the date of grant. The 1998 Plan expired by its terms on August 25, 2008. As of February 29, 2016, there were 2,100 shares of common stock subject to options outstanding under the plan.

Active Plans

The 2008 Stock Incentive Plan – The plan covers a total of 3,750,000 shares of common stock for issuance to key officers, employees and consultants of the Company. Under this plan, the Company offers stock-based compensation that includes stock options, annual restricted share awards, time-vested restricted stock units and performance-based restricted stock units. The plan will expire by its terms on August 19, 2018.

Stock Options

Generally, options granted under the 2008 Stock Incentive Plan will become exercisable over four- or five-year vesting periods and will expire on dates ranging from seven to ten years from the date of grant. These stock options are expensed ratably over their vesting terms. As of February 29, 2016, there were 646,775 shares of common stock subject to options outstanding under the plan.

Restricted Stock Awards (“RSAs”)

RSAs were awarded in settlement of our former CEO’s annual bonus as a result of the achievement of certain performance targets specified in his employment agreement. RSAs for 62,304 shares of common stock for fiscal year 2014 with a fair value at the date of the award of $67.10 per share, vested during fiscal year 2015. In addition, during fiscal year 2016, we issued an RSA for 2,000 shares of common stock to our current CEO at a fair value of $89.12 per share.

Restricted Stock Units (“RSUs”)

RSUs are awards of time-vested restricted stock units that are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to vesting. During fiscal years 2016 and 2015, the Company granted RSUs that may be settled for up to 29,932 and 28,937 shares of common stock, with average fair values at the grant dates of $76.62 and $58.36 respectively, to the CEO and certain members of the management team. The awards vest 50 percent on the second anniversary of the grant date and 50 percent on the third anniversary of the grant date. The Company expenses the cost of restricted stock units ratably over their vesting periods.

Performance Restricted Stock Units (“PSUs”)

PSUs are performance-based restricted stock unit awards that represent the right to receive unrestricted shares of stock based on the achievement of Company performance goals over the performance period established by the Compensation Committee of the Company’s Board of Directors. In fiscal year 2014, 100,000 PSUs having a fair value at the date of grant of $32.88 were earned in accordance with the terms of our former CEO’s employment agreement. During fiscal years 2016 and 2015, the Company granted PSUs that may be settled for up to 130,608 and 178,101 shares of common stock with average fair values at the grant date of $76.62 and $58.36, respectively, to the CEO and certain members of the management team. These awards have three year performance periods ending February 28, 2018 and February 28, 2017, respectively. The awards will vest and settle on the date the Compensation Committee certifies that the performance goals have been achieved. Expense for the new plan must be estimated until earned, subject to a probability assessment of achieving the various performance goals and payout levels.

A summary of activity under the 2008 stock incentive plan follows:

SUMMARY OF ACTIVITY UNDER THE 2008 STOCK INCENTIVE PLAN


Shares originally authorized														3,750,000
Less cumulative stock option grants issued, net of forfeitures														(1,213,822)
Less restricted share awards previously vested and settled														(423,970)
Subtotal														2,112,208
Less maximum RSUs issuable upon vesting (1)														(57,364)
Less estimated maximum PSUs issuable upon vesting (1)														(306,206)
Shares available for issuance														1,748,638

(1)

RSUs and PSUs potentially issuable are estimated assuming the maximum payouts adjusted for known actual forfeitures to date.

The 2008 Directors’ Plan – The plan covers a total of 175,000 shares of common stock for issuance of restricted stock, restricted stock units or other stock-based awards to non-employee members of our Board of Directors. Awards granted under the 2008 Directors' Plan will be subject to vesting schedules and other terms and conditions as determined by the Compensation Committee of the Company’s Board of Directors. The plan will expire by its terms on August 19, 2018. As of February 29, 2016, 73,540 shares of restricted stock have been granted and 101,460 shares remained available for future issue under the plan. Under the 2008 Directors’ Plan for the fiscal years ended 2016, 2015 and 2014, the Company granted 5,649, 9,267 and 10,512 shares of restricted stock, respectively, to certain members of our Board of Directors having weighted average fair values at the date of grant of $87.04, $61.72 and $41.26 per share for each year, respectively. The restricted stock awards vested immediately, were valued at the fair value of the Company’s common stock at the date of the grant and accordingly, were expensed at the time of the grants.

The 2008 Stock Purchase Plan – The plan covers a total of 350,000 shares of common stock for issuance to our employees. Under the terms of the plan, employees may authorize the withholding of up to 15 percent of their wages or salaries to purchase our shares of common stock. The purchase price for shares acquired under the 2008 Stock Purchase Plan is equal to the lower of 85 percent of the share’s fair market value on either the first day of each option period or the last day of each period. The plan will expire by its terms on September 1, 2018. Shares of common stock purchased under the 2008 Stock Purchase Plan vest immediately at the time of purchase. Accordingly, the fair value award associated with their discounted purchase price is expensed at the time of purchase. During fiscal years 2016, 2015 and 2014, plan participants acquired a total of 28,433, 31,128 and 41,328 shares of common stock at average prices of $67.77, $49.49 and $32.66 per share, respectively. As of February 29, 2016, there were 98,652 shares available for future issue under the plan.

The Company recorded share-based compensation expense in SG&A for each of the fiscal years covered by our consolidated statements of income as follows:

SHARE-BASED PAYMENT EXPENSE

(in thousands, except per share data)


	Fiscal Years Ended the Last Day of February,
	2016		2015		2014
Stock options	$	2,961	$	3,279	$	2,380
Directors stock compensation		700		816		619
Performance based and other stock awards (1)		4,478		1,732		13,446
CEO separation compensation (2)		-		-		15,000
Employee stock purchase plan		552		391		424
Share-based payment expense		8,691		6,218		31,869
Less income tax benefits		(1,284)		(661)		(5,709)
Share-based payment expense, net of income tax benefits	$	7,407	$	5,557	$	26,160

Earnings per share impact of share based payment expense:
Basic	$	0.26	$	0.19	$	0.82
Diluted	$	0.26	$	0.19	$	0.81

(1)

Fiscal year 2014 includes RSAs for 62,304 shares of common stock with a fair value at the date of the award of $67.10 per share and PSUs for 100,000 shares of common stock having a fair value at the date of grant of $32.88. These awards, which were granted in accordance with the terms of our former CEO’s employment agreement, vested and settled in April 2014.

(2)

$15 million in aggregate fair value of shares of common stock, awarded under the terms of the employment and separation agreements with our former CEO.

The fair value of all share-based payment awards are estimated using a Black-Scholes option pricing model with the following assumptions for fiscal years 2016, 2015 and 2014:

ASSUMPTIONS USED FOR FAIR VALUE OF STOCK OPTION GRANTS


	Fiscal Years Ended the Last Day of February,
	2016	2015	2014
Range of risk free interest rates used	0.9% - 1.5%	1.2% - 1.5%	0.6% - 1.3%
Expected dividend rate	0.0%	0.0%	0.0%
Weighted average volatility rate	39.1%	48.0%	38.8%
Range of expected volatility rates used	35.9% - 39.7%	35.3% - 50.5%	34.0% - 41.7%
Range of expected terms used (in years)	4.1 - 4.4	4.1 - 4.4	4.1 - 4.4

The risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the share-based payments. The dividend yield is computed as zero because the Company has not historically paid dividends nor does it expect to do so at this time. Expected volatility is based on a weighted average of the market implied volatility and historical volatility over the expected life of the underlying share-based payments. The Company uses its historical experience to estimate the expected life of each stock-option grant and also to estimate the impact of exercise, forfeitures, termination, and holding period behavior for fair value expensing purposes.

A summary of stock option activity under all the Company’s share-based compensation plans follows:

SUMMARY OF STOCK OPTION ACTIVITY

(in thousands, except contractual term and per share data)


						Weighted
		Weighted		Weighted		Average
		Average		Average		Remaining
		Exercise		Grant Date		Contractual
		Price		Fair Value		Term		Intrinsic
	Options	(per share)		(per share)		(in years)		Value
Outstanding at March 1, 2013	864	$	29.89	$	11.98		6.26	$	6,209
Grants	264		36.45		11.61
Exercises	(239)		25.36						4,663
Forfeitures / expirations	(50)		33.55
Outstanding at February 28, 2014	839		33.03		12.38		6.48		27,081
Grants	257		63.84		25.22
Exercises	(187)		29.70						6,498
Forfeitures / expirations	(141)		40.67
Outstanding at February 28, 2015	768		42.76		16.28		6.59		26,008
Grants	186		88.17		28.82
Exercises	(178)		37.86						9,480
Forfeitures / expirations	(127)		59.01
Outstanding at February 29, 2016	649	$	53.94	$	19.52		6.13	$	26,847

Exercisable at February 29, 2016	128	$	36.26	$	14.27		5.04	$	7,563

A summary of non-vested stock option activity and changes under all the Company’s share-based compensation plans follows:

NON-VESTED STOCK OPTION ACTIVITY

(in thousands, except per share data)


		Weighted
		Average
	Non-	Grant Date
	Vested	Fair Value
	Options	(per share)
Outstanding at March 1, 2013	689	$	12.62
Grants	264		11.61
Vested or forfeited	(225)		11.06
Outstanding at February 28, 2014	728		12.74
Grants	257		25.22
Vested or forfeited	(311)		13.87
Outstanding at February 28, 2015	674		16.98
Grants	186		28.82
Vested or forfeited	(339)		17.59
Outstanding at February 29, 2016	521	$	20.81

A summary of restricted stock award activity under the Company’s 2008 Stock Incentive Plan follows:

SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY

(in thousands, except per share data)


		Weighted
		Average
	Restricted	Grant Date
	Stock	Fair Value		Fair Value
	Awards	(per share)		Outstanding
Due for issue at March 1, 2013 (1)	160	$	35.55	$	5,920
Earned (2)	62		67.10
Vested and issued (1)	(160)		35.55
Due for Issue at February 28, 2014	62		67.10		4,073
Vested and issued (2)	(62)		67.10
Due for issue at February 28, 2015	-		-		-
Granted (3)	2		89.12
Vested and issued (3)	(2)		89.12
Due for issue at February 29, 2016	-	$	-	$	-

The schedule above includes the following awards earned based on fiscal years 2013 and 2014 performance and vested in accordance with the terms of our former CEO’s employment agreement:

(1)

Fiscal year 2013 RSAs, which vested on February 28, 2014.

(2)

Fiscal year 2014 RSAs, which vested on April 22, 2014.

In addition, the following award was granted to our current CEO:

(3)

Fiscal year 2016 RSA, which was granted and vested on May 8, 2015.

For further information regarding the former CEO’s employment agreement, see Note (13) to these consolidated financial statements under the subheading “Employment Contracts and Related Matters.”

A summary of restricted stock unit activity and changes under the Company’s 2008 Stock Incentive Plan follows:

SUMMARY OF RESTRICTED STOCK UNIT ACTIVITY

(in thousands, except per share data)


			Weighted
			Average
	Restricted		Grant Date
	Stock		Fair Value		Fair Value
	Units		(per share)		Outstanding
Outstanding at March 1, 2013	700	$	32.88	$	25,956
Vested (1)	(100)		32.88
Forfeited (2)	(500)		32.88
Outstanding at February 28, 2014 (3)	100		32.88		6,531
Granted (4)	118		58.35
Vested (3)	(100)		32.88
Outstanding at February 28, 2015	118		58.35		9,041
Granted (4)	95		76.62
Vested	-		-
Outstanding at February 29, 2016	213	$	66.50	$	20,311

The schedule above includes the following awards and forfeitures recognized in accordance with the terms of our former CEO’s employment agreement:

(1)

Includes fiscal year 2013 PSUs for 100,000 shares of common stock. On April 22, 2013, PSUs for 33,400 shares of common stock vested and settled at a fair value of $35.55 per share. On February 28, 2014, PSUs for 66,600 shares of common stock vested and settled at a fair value of $65.31 per share.

(2)

PSUs for 500,000 shares of common stock were forfeited.

(3)

Includes fiscal year 2014 PSUs for 100,000 shares of common stock, which were vested and settled on April 22, 2014 at a fair value of $67.10 per share.

In addition, the following awards were granted to our current CEO and members of management:

(4)

Includes target level RSUs and PSUs granted in connection with long-term incentive compensation for fiscal years 2015 and 2016.

A summary of our total unrecognized share-based compensation expense as of February 29, 2016 is as follows:

UNRECOGNIZED SHARE-BASED COMPENSATION EXPENSE

(in thousands, except weighted average expense period data)


			Weighted
			Average
	Unrecognized		Period of
	Compensation		Recognition
	Expense		(in months)
Stock options	$	5,670	33.8
Restricted stock units (RSUs and PSUs)		7,470	16.9