NOTE 16 – 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 28, 2015, 16,350 shares of common stock subject to options were 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 28, 2015, 751,665 shares of common stock subject to options were outstanding.

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 159,666 shares of common stock for fiscal year 2013 with a fair value at the date of the award of $35.55 per share, vested and settled on February 28, 2014. 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.

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 year 2015, the Company granted RSUs that may be settled for up to 28,937 shares of common stock with an average fair value at the grant dates of $58.36, 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 years 2014 and 2013, respectively, 100,000 PSUs each, having a fair value at the date of grant of $32.88 were awarded in accordance with the terms of our former CEO’s employment agreement. During fiscal year 2015, the Company granted PSUs that may be settled for up to 178,101 shares of common stock with an average fair value at the grant date of $58.34, to the CEO and certain members of the management team. These awards have a three year performance period ending February 28, 2017. 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														(1,154,860)
Less restricted share awards previously vested and settled														(421,970)
Subtotal														2,173,170
Less maximum RSUs issuable upon vesting (1)														(28,937)
Less estimated maximum PSUs issuable upon vesting (1)														(178,101)
Shares available for issuance														1,966,132

(1)

RSUs and PSUs potentially issuable are estimated by dividing the maximum payouts of $1.69 and $10.39 million, respectively (assuming no forfeitures), by grant date weighted average fair values of $58.36 and $58.34 per share, respectively.

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 28, 2015, 67,891 shares of restricted stock have been granted and 107,109 shares remained available for future issue under the plan. Under the 2008 Directors’ Plan, for the fiscal years ended 2015, 2014 and 2013, the Company granted 9,267, 10,512 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 $61.72, $41.26 and $31.54 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 2015, 2014 and 2013, plan participants acquired a total of 31,128, 41,328 and 39,728 shares of common stock at average prices of $49.49, $32.66 and $26.68 per share, respectively. As of February 28, 2015, 127,085 shares remained available for future issue under this 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,
	2015		2014		2013
Stock options	$	3,279	$	2,380	$	2,298
Directors stock compensation		816		619		473
Performance based and other stock awards (1)		1,732		13,446		2,988
CEO separation compensation (2)		-		15,000		-
Employee stock purchase plan		391		424		296
Share-based payment expense		6,218		31,869		6,055
Less income tax benefits		(661)		(5,709)		(858)
Share-based payment expense, net of income tax benefits	$	5,557	$	26,160	$	5,197

Earnings per share impact of share based payment expense:
Basic	$	0.19	$	0.82	$	0.16
Diluted	$	0.19	$	0.81	$	0.16

The table above includes the following awards recognized in accordance with the terms of our former CEO’s Employment and Separation Agreements:

(1)

Includes RSAs for 159,666 shares of common stock for fiscal year 2013 with a fair value at the date of the award of $35.55 per share, vested and settled at the end of February 2014, and 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 in April 2014. For both fiscal years 2014 and 2013, PSUs for 100,000 shares of common stock having a fair value at the date of grant of $32.88 were awarded in accordance with the terms of our former CEO’s employment agreement. PSUs for 166,600 and 34,400 shares of common stock vested and settled in April 2014 and April 2013, respectively.

(2)

$15 million in aggregate fair value of shares of common stock, awarded under the terms of the employment agreement 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 2015, 2014 and 2013

ASSUMPTIONS USED FOR FAIR VALUE OF STOCK OPTION GRANTS


	Fiscal Years Ended the Last Day of February
	2015	2014	2013
Range of risk free interest rates used	1.2% - 1.5%	0.6% - 1.3%	0.1% - 0.9%
Expected dividend rate	0.0%	0.0%	0.0%
Weighted average volatility rate	48.0%	38.8%	51.4%
Range of expected volatility rates used	35.3% - 50.5%	34.0% - 41.7%	45.7% - 55.3%
Range of expected terms used (in years)	4.1 - 4.4	4.1 - 4.4	4.1 - 4.4

The following describes how certain assumptions above are determined and affect the estimated fair value of options or discounted employee share purchases (“share-based payments”). 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, 2012	871	$	26.26	$	10.31		5.78	$	5,570
Grants	309		34.57		14.09
Exercises	(248)		22.88						2,634
Forfeitures / expirations	(68)		30.23
Outstanding at February 28, 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

Exercisable at February 28, 2015	94	$	28.32	$	11.23		4.72	$	4,523

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, 2012	617	$	10.99
Grants	309		14.09
Vested or forfeited	(237)		10.29
Outstanding at February 28, 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

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, 2012	-	$	-	$	-
Earned (1)	160		35.55
Vested and issued	-		-
Due for Issue at February 28, 2013 (2)	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	-	$	-	$	-

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.

For further information regarding the former CEO’s employment agreement, see Note (14) to these consolidated financial statements under the subheading “Employment Contracts.”

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, 2012	-	$	-	$	-
Granted	700		32.88
Vested	-		-
Outstanding at February 28, 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

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. 33,400 vested and settled on April 22, 2013 at a fair value of $35.55 per share and 66,600 vested and settled on February 28, 2014 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.

(4)

Includes target level RSUs and PSUs granted to its current CEO and certain members of the management team in connection with new long-term incentive compensation instituted by the Company in fiscal year 2015.

A summary of our total unrecognized share-based compensation expense as of February 28, 2015 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	$	6,405	35.0
Restricted Stock Units (RSUs and PSUs)		3,585	22.1