STOCK-BASED COMPENSATION

2013 Equity Compensation Plan

On July 30, 2013, the Company’s stockholders approved the CSS Industries, Inc. 2013 Equity Compensation Plan (“2013 Plan”). Under the terms of the Company’s 2013 Plan, the Human Resources Committee of the Company’s Board of Directors (“Board”), or other committee appointed by the Board (collectively with the Human Resources Committee, the “2013 Equity Plan Committee”), may grant incentive stock options, non-qualified stock options, stock units, restricted stock grants, stock appreciation rights, stock bonus awards and dividend equivalents to officers and other employees. Grants under the 2013 Plan may be made through July 29, 2023. The term of each grant is at the discretion of the 2013 Equity Plan Committee, but in no event greater than ten years from the date of grant. The 2013 Equity Plan Committee has discretion to determine the date or dates on which granted options become exercisable. Service-based options outstanding as of September 30, 2015 become exercisable at the rate of 25% per year commencing one year after the date of grant. Market-based stock options outstanding as of September 30, 2015 will become exercisable only if certain market conditions and service requirements are satisfied, and the date(s) on which they become exercisable will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and exercisability are accelerated upon a change of control. Market-based restricted stock units (“RSUs”) outstanding at September 30, 2015 will vest only if certain market conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and redemption are accelerated upon a change of control. At September 30, 2015, there were 798,500 shares available for grant.

2011 Stock Option Plan for Non-Employee Directors

Under the terms of the CSS Industries, Inc. 2011 Stock Option Plan for Non-Employee Directors (“2011 Plan”), non-qualified stock options to purchase up to 150,000 shares of common stock are available for grant to non-employee directors at exercise prices of not less than fair market value of the underlying common stock on the date of grant. Under the 2011 Plan, options to purchase 4,000 shares of the Company’s common stock are granted automatically to each non-employee director on the last day that the Company’s common stock is traded in November of each year from 2011 to 2015. Each option will expire five years after the date the option is granted and options may be exercised at the rate of 25% per year commencing one year after the date of grant. At September 30, 2015, 91,000 shares were available for grant under the 2011 Plan.

The fair value of each stock option and RSU granted under the above plans was estimated on the date of grant using either a Black-Scholes option pricing model (service-based awards) or a Monte Carlo simulation model (market-based awards) with the following average assumptions:



	Stock Options				RSUs
	Six Months Ended September 30,				Six Months Ended September 30,
	2015		2014		2015		2014
Risk-free interest rate	1.96	%	1.44	%	1.29	%	1.17	%
Volatility	36.90	%	50.10	%	36.86	%	38.72	%
Dividend yield	2.59	%	2.38	%	2.60	%	2.38	%
Expected life of option (in years)	4.75		4.75

During the six months ended September 30, 2015 and 2014, the Company granted 134,100 and 110,975 stock options, respectively, with a weighted average fair value of $7.35 and $9.24, respectively. During the six months ended September 30, 2015 and 2014, the Company granted 44,100 and 47,385 RSUs, respectively, with a weighted average fair value of $18.46 and $17.82, respectively. As of September 30, 2015, there were 560,700 and 188,025 outstanding stock options and RSUs, respectively.

As of September 30, 2015, there was $1,707,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.8 years. As of September 30, 2015, there was $1,533,000 of total unrecognized compensation cost related to non-vested RSUs granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.4 years.

On August 11, 2015, the Company granted 10,000 RSUs to the new Chair of the Company's Board of Directors. On August 15, 2017, the RSUs will become vested and convertible into a lump sum cash payment equal to the then fair market value of corresponding shares of common stock of the Company if, and only to the extent that, certain service-based vesting conditions and other terms and conditions are satisfied, or upon occurrence of a change of control. The RSUs are classified as liability awards because they will be paid in cash upon vesting. The RSU award liability is measured at its fair market value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company's stock. The total amount accrued related to this grant as of September 30, 2015 was $17,000 and is included in long-term obligations in the condensed consolidated balance sheet. There were no such liability classified awards as of September 30, 2014. During the quarter ended September 30, 2015, dividend equivalent units of approximately $2,000 were paid related to these liability classified awards and were charged to selling, general and administrative expenses.

Compensation cost related to stock options and RSUs (inclusive of the liability classified awards described above) recognized in operating results (included in selling, general and administrative expenses) was $410,000 and $511,000 in the quarters ended September 30, 2015 and 2014, respectively, and $867,000 and $1,017,000 in the six months ended September 30, 2015 and 2014, respectively.