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 applicable listing standards for companies traded on the NASDAQ Stock Market LLC.

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, 2017, there were 1,200 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 28, 2017, there were 447,137 shares of common stock subject to options outstanding under the plan.

Restricted Stock Awards (“RSAs”): RSAs were awarded to our former CEO that vested 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 2014 with a fair value at the date of the award of $67.10 per share, vested during fiscal 2015. In addition, during fiscal 2016, we issued an RSA that immediately vested 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 2017, 2016 and 2015, we granted RSUs that may be settled for up to 92,329, 29,932, and 28,937 shares of common stock, with weighted average grant date fair values of $96.74, $76.62 and $58.36, respectively, to the CEO and certain members of the management team. The awards vest over varying terms up to 4 years. 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 our Board of Directors. During fiscal 2017, 2016 and 2015, the Company granted PSUs that may be settled for up to 139,846, 130,608 and 178,101 shares of common stock with average fair values at the grant date of $97.12, $76.62 and $58.36, respectively, to the CEO and certain members of the management team. These awards have three year performance periods ending on the last day of fiscal 2019, 2018 and 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 shares available for issue under the 2008 stock incentive plan follows:

SUMMARY OF SHARES AVAILABLE FOR ISSUE UNDER THE 2008 STOCK INCENTIVE PLAN


Shares originally authorized														3,750,000
Less cumulative stock option grants issued, net of forfeitures														(1,182,894)
Less restricted share awards previously vested and settled														(439,613)
Subtotal														2,127,493
Less maximum RSUs issuable upon vesting (1)														(123,425)
Less maximum PSUs issuable upon vesting (1)														(396,312)
Shares available for issuance														1,607,756

(1)

RSUs and PSUs potentially issuable are estimated assuming the maximum payouts adjusted for 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 our Board of Directors. The plan will expire by its terms on August 19, 2018. As of February 28, 2017, 78,825 shares of restricted stock have been granted and 96,175 shares remained available for future issue under the plan. Under the 2008 Directors’ Plan for fiscal 2017, 2016 and 2015, the Company granted 5,285, 5,649 and 9,267 shares of restricted stock, respectively, to certain members of our Board of Directors having weighted average fair values at the date of grant of $92.98, $87.04 and $61.72 per share for each year, respectively. The restricted stock awards vested immediately, were valued at the fair value of our 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% 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% 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 2017, 2016 and 2015, plan participants acquired a total of 32,110, 28,433 and 31,128 shares of common stock at average prices of $76.77, $67.77 and $49.49 per share, respectively. As of February 28, 2017, there were 66,542 shares available for future issue under the plan.

We recorded share-based compensation expense in SG&A as follows:

SHARE-BASED PAYMENT EXPENSE


	Fiscal Years Ended the Last Day of February,
(in thousands, except per share data)	2017		2016		2015
Stock options	$	2,614	$	2,961	$	3,279
Directors stock compensation		700		700		816
Performance based and other stock awards		11,812		4,478		1,732
Employee stock purchase plan		580		552		391
Share-based payment expense		15,706		8,691		6,218
Less income tax benefits		(2,396)		(1,284)		(661)
Share-based payment expense, net of income tax benefits	$	13,310	$	7,407	$	5,557

Earnings per share impact of share based payment expense:
Basic	$	0.48	$	0.26	$	0.19
Diluted	$	0.48	$	0.26	$	0.19

The fair value of our stock option grants are estimated using a Black-Scholes option pricing model with the following assumptions:

ASSUMPTIONS USED FOR FAIR VALUE OF STOCK OPTION GRANTS


	Fiscal Years Ended the Last Day of February,
	2017	2016	2015
Range of risk free interest rates used	1.2%	0.9% - 1.5%	1.2% - 1.5%
Expected dividend rate	0.0%	0.0%	0.0%
Weighted average volatility rate	33.4%	39.1%	48.0%
Range of expected volatility rates used	33.4%	35.9% - 39.7%	35.3% - 50.5%
Range of expected terms used (in years)	4.1	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 stock option grants. The dividend yield is computed as zero because we have not historically paid dividends nor do we 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 stock option grants. We use our historical experience to estimate the expected term of each stock option grant.

A summary of stock option activity under all our share-based compensation plans follows:

SUMMARY OF STOCK OPTION ACTIVITY


						Weighted
		Weighted		Weighted		Average
		Average		Average		Remaining
		Exercise		Grant Date		Contractual
		Price		Fair Value		Term		Intrinsic
(in thousands, except contractual term and per share data)	Options	(per share)		(per share)		(in years)		Value
Outstanding at February 28, 2014	839		33.03		12.38		6.5		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		6.6		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		6.1	$	26,847
Grants	2		102.04		28.74
Exercises	(170)		43.07						9,152
Forfeitures / expirations	(33)		65.68
Outstanding at February 28, 2017	448	$	57.41	$	20.54		5.0	$	18,097

Exercisable at February 28, 2017	168	$	46.37	$	17.30		4.3	$	8,647

A summary of non-vested stock option activity and changes under all our share-based compensation plans follows:

NON-VESTED STOCK OPTION ACTIVITY


		Weighted
		Average
	Non-	Grant Date
	Vested	Fair Value
(in thousands, except per share data)	Options	(per share)
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
Grants	2		28.74
Vested or forfeited	(243)		18.95
Outstanding at February 28, 2017	280	$	22.48

A summary of restricted stock award activity under our 2008 Stock Incentive Plan follows:

SUMMARY OF RESTRICTED STOCK AWARD ACTIVITY


		Weighted
		Average
	Restricted	Grant Date
	Stock	Fair Value		Fair Value
(in thousands, except per share data)	Awards	(per share)		Outstanding
Due for Issue at February 28, 2014	62		67.10		4,073
Vested and issued (1)	(62)		67.10
Due for issue at February 28, 2015	-		-		-
Granted (2)	2		89.12
Vested and issued (2)	(2)		89.12
Due for issue at February 29, 2016	-	$	-	$	-
Granted	-		-
Vested and issued	-		-
Due for issue at February 28, 2017	-	$	-	$	-

(1)

Fiscal 2014 performance RSAs earned by our former CEO, which vested on April 22, 2014.

(2)

Fiscal 2016 RSA to our current CEO, which were granted and vested on May 8, 2015.

A summary of restricted stock unit activity and changes under our 2008 Stock Incentive Plan follows:

SUMMARY OF RESTRICTED STOCK UNIT ACTIVITY


			Weighted
			Average
	Restricted		Grant Date
	Stock		Fair Value		Fair Value
(in thousands, except per share data)	Units		(per share)		Outstanding
Outstanding at February 28, 2014 (1)	100		32.88		6,531
Granted (2)	118		58.35
Vested (1)	(100)		32.88
Outstanding at February 28, 2015	118		58.35		9,041
Granted (2)	95		76.62
Vested	-		-
Outstanding at February 29, 2016	213	$	66.50	$	20,311
Granted (2)	162		96.90
Vested or forfeited (3)	(53)		70.14
Outstanding at February 28, 2017	322	$	81.19	$	31,418

(1)

Fiscal 2014 PSUs earned by our former CEO, which vested and settled on April 22, 2014 at a fair value of $67.10 per share.

(2)

Includes target level RSUs and PSUs granted to our current CEO and members of management in connection with long-term incentive compensation for fiscal 2015, 2016 and 2017.

(3)

Includes 15,643 RSUs which vested and settled throughout the year at an weighted average fair value of $60.28 per share.

A summary of our total unrecognized share-based compensation expense as of February 28, 2017 is as follows:

UNRECOGNIZED SHARE-BASED COMPENSATION EXPENSE


			Weighted
			Average
	Unrecognized		Period of
	Compensation		Recognition
(in thousands, except weighted average expense period data)	Expense		(in months)
Stock options	$	3,578	25.4
Restricted stock units (RSUs and PSUs)		10,804	23.5