5. Stock-Based Compensation

We provide stock-based awards under the AAR CORP. Stock Benefit Plan ("Stock Benefit Plan") and the AAR CORP. 2013 Stock Plan (the "2013 Stock Plan"), each of which has been approved by our stockholders. Under the Stock Benefit Plan and the 2013 Stock Plan, we are authorized to issue stock options to employees and non-employee directors that allow the grant recipients to purchase shares of common stock at a price not less than the fair market value of the common stock on the date of grant. Generally, stock options awarded expire ten years from the date of grant and are exercisable in three, four or five equal annual increments commencing one year after the date of grant. In addition to stock options, the Stock Benefit Plan and the 2013 Stock Plan also provide for the grant of restricted stock awards and performance-based restricted stock awards. The number of performance-based awards earned, subject to vesting, is based on achievement of certain Company-wide financial goals or stock price targets. The Stock Benefit Plan and the 2013 Stock Plan also provide for the grant of stock appreciation units and restricted stock units; however, to date, no such awards have been granted.

Restricted stock grants are designed, among other things, to align employee interests with the interests of stockholders and to encourage the recipient to build a career with us. Restricted stock typically vests over periods of one to five years from date of grant. Restricted stock grants may be performance-based with vesting to occur over periods of three to six years. All restricted stock that has been granted and earned according to performance criteria carries full dividend and voting rights, regardless of whether it has vested.

Substantially all stock options and restricted stock are subject to forfeiture prior to vesting if the employee's employment terminates for any reason other than death, disability or retirement. Since inception, a total of 11,149,000 shares have been granted under the Stock Benefit Plan. With the stockholder approval of the 2013 Stock Plan, we granted a total of 331,000 shares in fiscal 2015 under the 2013 Stock Plan and plan to make all future stock awards under the 2013 Stock Plan rather than the Stock Benefit Plan. There are 2,180,000 shares available for grant under the 2013 Stock Plan as of May 31, 2015.

Stock Options

No stock options were granted during fiscal 2015. During fiscal 2014 and 2013, we granted stock options representing 1,033,015 shares and 972,180 shares, respectively. The weighted average fair value per share of stock options granted during fiscal 2014 and 2013 was $10.24 and $4.85, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Stock Options Granted In Fiscal Year
	2014			2013
Risk-free interest rate		1.4	%		0.6	%
Expected volatility of common stock		49.1	%		51.4	%
Dividend yield		1.2	%		2.3	%
Expected option term in years		5.2			5.4

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatility of our common stock, and the expected option term represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The dividend yield represents our anticipated cash dividends at the grant date over the expected option term.

A summary of stock option activity for the three years ended May 31, 2015 consisted of the following (shares in thousands):

	2015					2014					2013
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		2,753		$	19.59		2,300		$	16.22		1,703		$	17.96
Granted		—		$	—		1,033		$	25.43		972		$	12.95
Exercised		(793	)	$	15.98		(473	)	$	16.20		(124	)	$	13.72
Cancelled		(103	)	$	21.03		(107	)	$	18.48		(251	)	$	15.82

Outstanding at end of year		1,857		$	21.05		2,753		$	19.59		2,300		$	16.22


Options exercisable at end of year		627		$	21.78		1,019		$	17.88		1,089		$	17.73

The total fair value of stock options that vested during fiscal 2015, 2014, and 2013 was $3.1 million, $2.0 million, and $3.6 million, respectively. The total intrinsic value of stock options exercised during fiscal 2015, 2014, and 2013 was $11.1 million, $4.3 million, and $0.5 million, respectively. The aggregate intrinsic value of options outstanding was $16.0 million and $15.2 million as of May 31, 2015 and 2014, respectively. The tax benefit realized from stock options exercised during fiscal 2015, 2014, and 2013 was $2.4 million, $1.0 million, and zero, respectively. Expense charged to operations for stock options during fiscal 2015, 2014, and 2013 was $2.9 million, $3.8 million, and $3.5 million, respectively, recorded in selling, general and administrative expenses. As of May 31, 2015, we had $6.7 million of unrecognized compensation expense related to stock options that will be amortized over an average period of 1.4 years.

The following table provides additional information regarding stock options outstanding as of May 31, 2015 (shares in thousands):

	Options Outstanding						Options Exercisable
Option Exercise Price Range	Number Outstanding as of 5/31/15		Weighted-Average Remaining Contractual Life in Years		Weighted- Average Exercise Price		Number Exercisable as of 5/31/15		Weighted- Average Exercise Price
$10.00 - $15.00		564		7.1	$	12.90		94	$	12.90
$15.01 - $20.00		226		4.7	$	16.79		220	$	16.81
$20.01 - $34.50		1,067		7.5	$	26.26		313	$	27.94

		1,857		7.1	$	21.05		627	$	21.78

Restricted Stock

We provide executives and other key employees an opportunity to be awarded performance-based and time-based restricted stock. The performance-based awards are contingent upon the achievement of certain performance objectives, including net income and return on capital. During fiscal 2015, 2014, and 2013, we granted 188,125, 60,808, and 53,280 of performance-based restricted shares, respectively. Time-based restricted shares of 97,581, 60,808, and 65,780 were granted to executives and key employees during fiscal 2015, 2014, and 2013, respectively. We also award time-based restricted stock to our non-employee directors as part of their annual compensation. Time-based restricted shares of 45,000, 45,000, and 48,333 were granted to members of the Board of Directors during fiscal 2015, 2014, and 2013, respectively.

The fair value of restricted shares is the market value of our common stock on the date of grant. Expense related to all restricted share programs during fiscal 2015, 2014, and 2013 was $4.9 million, $4.9 million, and $7.6 million, respectively, and recorded in selling, general and administrative expenses.

Restricted share activity during the fiscal year ended May 31, 2015 was as follows (shares in thousands):

	Number of Shares			Weighted Average Fair Value on Grant Date
Nonvested at May 31, 2014		990		$	22.49
Granted		331		$	25.86
Vested		(178	)	$	19.20
Forfeited		(89	)	$	20.21

Nonvested at May 31, 2015		1,054		$	24.38

As of May 31, 2015, we had $8.5 million of unearned compensation related to restricted shares that will be amortized to expense over a weighted average period of 1.3 years.

Shareholders' Rights Plan

Pursuant to a shareholder rights plan adopted in 2007, each outstanding share of our common stock carries with it a Right to purchase one share at a price of $140 per share. The Rights become exercisable (and separate from the shares) when certain specified events occur, including the acquisition of 15% or more of the common stock by a person or group (an "Acquiring Person") or the commencement of a tender or exchange offer for 15% or more of the common stock.

In the event that an Acquiring Person acquires 15% or more of the common stock, or if we are the surviving corporation in a merger involving an Acquiring Person or if the Acquiring Person engages in certain types of self-dealing transactions, each Right entitles the holder to purchase for $140 per share (or the then-current exercise price), shares of our common stock having a market value of $280 (or two times the exercise price), subject to certain exceptions. Similarly, if we are acquired in a merger or other business combination or 50% or more of our assets or earning power is sold, each Right entitles the holder to purchase at the then-current exercise price that number of shares of common stock of the surviving corporation having a market value of two times the exercise price. The Rights do not entitle the holder thereof to vote or to receive dividends. The Rights will expire on August 6, 2017, and may be redeemed by us for $.01 per Right under certain circumstances.