14. Stockholders’ Equity

Treasury Stock

During fiscal 2016, our board of directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until June 23, 2017. During March 2017, we completed this stock repurchase program by repurchasing 2,604,240 shares of our common stock for $50.0 million utilizing a combination of cash on hand and borrowings under our Revolving Line. On March 27, 2017, our board of directors authorized the repurchase of an additional $50.0 million of our common stock in the open market or in privately negotiated transactions until March 28, 2019.

Incentive Stock and Employee Stock Purchase Plans

We have two stock plans, or SPs: the 2004 Incentive Stock Plan and the 2013 Incentive Stock Plan. We have not made new grants under the 2004 Incentive Stock Plan since the approval of the 2013 Incentive Stock Plan at our September 23, 2013 annual meeting of stockholders. All new grants covering all participants are issued under the 2013 Incentive Stock Plan.

The 2013 Incentive Stock Plan authorizes the issuance of 3,000,000 shares, plus any shares that were reserved and remained available for grant and delivery under the 2004 Incentive Stock Plan as of September 23, 2013, the effective date of the 2013 Incentive Stock Plan. The plan permits the grant of options to acquire common stock, restricted stock awards, RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our board of directors, or a committee established by our board, administers the SPs, selects recipients to whom awards are granted, and determines the grants to be awarded. Options granted under the SPs are exercisable at a price determined by our board or committee at the time of grant, but in no event, less than fair market value of our common stock on the date granted. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the SPs are generally nontransferable and subject to forfeiture.

Unless terminated earlier by our board of directors, the 2013 Incentive Stock Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of the 2013 Stock Plan, or (2) such time as no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the date upon which our board of directors or board committee authorizes the granting of such award.

Except in specific circumstances, grants vest over a period of three or four years and are exercisable for a period of 10 years. The plan also permits the grant of awards to non-employees, which our board of directors or committee has authorized in the past.

The number of shares and weighted average exercise prices of options for the fiscal years ended April 30, 2017, 2016, and 2015 are as follows:

	For the Years Ended April 30,
	2017					2016					2015
				Weighted					Weighted					Weighted
				Average					Average					Average
	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Options outstanding, beginning of year		389,360		$	6.16		1,879,630		$	6.37		2,258,349		$ 6.15
Exercised during the period		(54,200	)		3.57		(1,490,270	)		6.42		(365,719	)	4.96
Canceled/forfeited during period	—			—		—			—			(13,000	)	7.98
Options outstanding, end of year		335,160		$	6.58		389,360		$	6.16		1,879,630		$ 6.37
Weighted average remaining contractual life	4.01 years					5.04 years					5.02 years
Options exercisable, end of year		335,160		$	6.58		389,360		$	6.16		1,878,464		$ 6.36
Weighted average remaining contractual life	4.01 years					5.04 years					5.02 years

As of April 30, 2017, there were 4,954,883 shares available for grant under the 2013 Incentive Stock Plan. We use our unissued share pool for all shares issued for options, restricted stock awards, RSUs, performance share units, PSUs, and Employee Stock Purchase Plan, or ESPP, issuances.

The aggregate intrinsic value of outstanding options as of April 30, 2017, 2016, and 2015 was $5.2 million, $6.1 million, and $16.1 million, respectively. The aggregate intrinsic value of outstanding options that were exercisable as of April 30, 2017, 2016, and 2015 was $5.2 million, $6.1 million, and $16.0 million, respectively. The aggregate intrinsic value of the options exercised for the years ended April 30, 2017, 2016, and 2015 was $1.3 million, $27.2 million, and $2.9, respectively. At April 30, 2017, there was no unrecognized compensation cost of outstanding options.

The following table summarizes stock compensation expense by line item for the fiscal years ended April 30, 2017, 2016, and 2015 (in thousands):

	For the Years Ended April 30,
		2017		2016		2015
Cost of sales	$	1,139	$	564	$	520
Research and development		217		169		139
Selling and marketing		801		494		379
General and administrative		6,433		5,245		4,770
Total stock-based compensation	$	8,590	$	6,472	$	5,808

We grant service-based RSUs to employees, consultants, and directors. The awards are made at no cost to the recipient. An RSU represents the right to acquire one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees generally vest over a period of three or four years with one-third or one-fourth of the units vesting, respectively, on each anniversary date of the grant date. The aggregate fair value of our RSU grants is amortized to compensation expense over the vesting period.

We grant PSUs to our executive officers and our employees who are not executive officers. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. We incorporate the following variables into the valuation model:

	For the Years Ended April 30,
		2017		2016			2015
Grant date fair market value
American Outdoor Brands Corporation	$	21.89		$	21.93		$	14.90
Russell 2000 Index	$	1,417.13		$	1,140.40		$	1,246.95
Volatility (a)
American Outdoor Brands Corporation		41.67	%		39.93	%		44.51	%
Russell 2000 Index		16.77	%		16.75	%		15.76	%
Correlation coefficient (b)		0.22			0.32		0.32
Risk-free interest rate (c)		1.44	%		0.93	%		0.91	%
Dividend yield (d)		0	%		0	%		0	%

(a)	Expected volatility is calculated over the most recent period that represents the remaining term of the performance period as of the valuation date, or three years.

(b)	The correlation coefficient utilizes the same historical price data used to develop the volatility assumptions.

(c)	The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bill, commensurate with the three-year performance period.

(d)	We do not expect to pay dividends in the foreseeable future.

The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding three-year performance period. Our PSUs have a maximum aggregate award equal to 200% of the target amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by 5% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.

In certain circumstances, the vested awards will be delivered on the first anniversary of the applicable vesting date. We have applied a discount to the grant date fair value when determining the amount of compensation expense to be recorded for these RSUs and PSUs.

During the year ended April 30, 2017, we granted 153,100 PSUs to certain of our executive officers. We also granted 394,909 service-based RSUs during the year ended April 30, 2017, including 168,800 RSUs to certain of our executive officers, 24,896 RSUs to our directors, and 201,213 RSUs to non-executive officer employees. In addition, in connection with a 2013 grant of 118,500 PSUs (i.e., the target amount granted), which achieved 200.0% of the maximum aggregate award possible, we vested and delivered awards totaling 237,000 shares to certain of our executive officers. Compensation expense recognized related to grants of RSUs and PSUs was $7.8 million for the fiscal year ended April 30, 2017.

During the fiscal year ended April 30, 2017, we canceled 19,448 service-based RSUs as a result of the service period condition not being met and delivered 433,966 shares of common stock to current employees under vested RSUs and PSUs with a total market value of $11.7 million.

During the year ended April 30, 2016, we granted 137,775 PSUs to certain of our executive officers and 5,379 PSUs to non-executives officer employees. We also granted 321,692 service-based RSUs during the year ended April 30, 2016, including 117,100 RSUs to certain of our executive officers, 36,379 RSUs to our directors, and 168,213 RSUs to non-executive officer employees. In addition, in connection with a 2012 grant of 104,000 PSUs (i.e., the target amount granted), which achieved 173.3% of the maximum aggregate award possible, we vested and delivered awards totaling 180,231 shares to certain of our executive officers. Compensation expense recognized related to grants of RSUs and PSUs was $5.9 million for the fiscal year ended April 30, 2016.

During the fiscal year ended April 30, 2016, we canceled 66,185 service-based RSUs and 19,250 PSUs as a result of the service period condition not being met and delivered 430,768 shares of common stock to current employees under vested RSUs and PSUs with a total market value of $7.8 million.

During the fiscal year ended April 30, 2015, we granted 112,000 PSUs to certain of our executive officers. We also granted 554,933 service-based RSUs during the year ended April 30, 2015, including 125,000 RSUs to certain of our executive officers, 46,639 RSUs to our directors, and 379,433 RSUs to non-executive officer employees. In addition, in connection with a 2011 grant of 46,600 PSUs (i.e., the target amount granted), which achieved the maximum aggregate award possible, we vested and delivered awards totaling 93,200 shares to certain of our executive officers and a former executive officer. Compensation expense recognized related to grants of RSUs and PSUs was $5.1 million for the fiscal year ended April 30, 2015.

During the fiscal year ended April 30, 2015, we cancelled 57,752 service-based RSUs and 41,250 PSUs as a result of the service period condition not being met and delivered 433,266 shares of common stock to current employees under vested RSUs and PSUs with a total market value of $5.4 million.

The grant date fair value of RSUs and PSUs that vested in fiscal 2017, 2016, and 2015 was $5.0 million, $4.6 million, and $4.0 million, respectively.

A summary of activity for unvested RSUs and PSUs for fiscal years 2017, 2016, and 2015 is as follows:

	For the Years Ended April 30,
	2017					2016					2015
				Weighted					Weighted					Weighted
	Total # of			Average		Total # of			Average		Total # of			Average
	Restricted			Grant Date		Restricted			Grant Date		Restricted			Grant Date
	Stock Units			Fair Value		Stock Units			Fair Value		Stock Units			Fair Value
RSUs and PSUs outstanding, beginning of year		1,215,753		$	15.38		1,190,879		$	12.45		1,015,475		$	10.56
Awarded		666,509			19.85		541,077			17.72		709,672			11.82
Vested		(433,966	)		11.64		(430,768	)		10.57		(433,266	)		9.18
Forfeited		(19,448	)		17.19		(85,435	)		10.94		(101,002	)		11.93
RSUs and PSUs outstanding, end of period		1,428,848		$	18.58		1,215,753		$	15.38		1,190,879		$	12.45

As of April 30, 2017, there was $12.4 million of unrecognized compensation cost related to unvested RSUs and PSUs. This cost is expected to be recognized over a weighted average remaining contractual term of 1.8 years.

On September 26, 2011, our stockholders approved our 2011 ESPP, which authorizes the sale of up to 6,000,000 shares of our common stock to employees. All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines. Our current ESPP will be implemented in a series of successive offering periods, each with a maximum duration of 12 months. If the fair market value, or FMV, per share of our common stock on any purchase date is less than the FMV per share on the start date of a 12-month offering period, then that offering period will automatically terminate, and a new 12-month offering period will begin on the next business day. Each offering period will begin on April 1 or October 1, as applicable, immediately following the end of the previous offering period. Payroll deductions will be on an after-tax basis, in an amount of not less than 1% and not more than 20% (or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period) of a participant’s compensation on each payroll date. The option exercise price per share will equal 85% of the lower of the FMV on the first day of the offering period or the FMV on the exercise date. The maximum number of shares that a participant may purchase during any purchase period is 12,500 shares, or a total of $25,000 in shares, based on the FMV on the first day of the offering period. Our ESPP will remain in effect until the earliest of (a) the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP, (b) such date as is determined by our board of directors in its discretion, or (c) March 31, 2022. In the event of certain corporate transactions, each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation. During fiscal 2017, 2016, and 2015, 144,102, 157,674, and 161,456 shares, respectively, were purchased under our ESPP.

We measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. We calculate the fair value of our stock options issued to employees using the Black-Scholes model at the time the options were granted. That amount is then amortized over the vesting period of the option. With our ESPP, fair value is determined at the beginning of the purchase period and amortized over the term of each exercise period.

The following assumptions were used in valuing our ESPP purchases during the years ended April 30, 2017, 2016, and 2015:

	For the Years Ended April 30,
	2017			2016			2015
Risk-free interest rate	0.60%				0.19	%		0.07	%
Expected term	6 months			6 months			6 months
Expected volatility		45.3	%		40.9	%		38.2	%
Dividend yield	0%			0%				0	%

We estimate expected volatility using historical volatility for the expected term. The fair value of each stock option or ESPP purchase was estimated on the date of the grant using the Black-Scholes option pricing model (using the risk-free interest rate, expected term, expected volatility, and dividend yield variables, as noted in the above table). The total stock-based compensation expense, including stock options, purchases under our ESPP, and RSU and PSU awards, was $8.6 million, $6.5 million, and $5.8 million, for fiscal years 2017, 2016, and 2015, respectively.