STOCK-BASED COMPENSATION

Stock-based compensation cost recognized in operating results (included in selling, general, and administrative expenses) for the three and nine months ended September 27, 2015 was $1.1 million and $4.1 million ($1.2 million and $4.1 million, net of tax), respectively. For the three and nine months ended September 28, 2014, the total compensation expense was $1.4 million and $4.3 million ($1.4 million and $4.2 million, net of tax), respectively. The associated actual tax benefit realized for the tax deduction from option exercises of share-based payment units and awards released equaled $0.1 million and $0.1 million for the nine months ended September 27, 2015 and September 28, 2014, respectively.

Stock Options

Option activity under the principal option plans as of September 27, 2015 and changes during the nine months ended September 27, 2015 were as follows:



	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 28, 2014	2,349,447		$	17.77	3.98	$	2,716
Granted	266,080		13.40
Exercised	(15,430	)	8.98
Forfeited or expired	(436,542	)	18.76
Outstanding at September 27, 2015	2,163,555		$	17.10	4.51	$	—
Vested and expected to vest at September 27, 2015	2,145,409		$	17.12	4.47	$	—
Exercisable at September 27, 2015	1,748,868		$	17.89	3.45	$	—

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the third quarter of fiscal 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 27, 2015. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised for the nine months ended September 27, 2015 and September 28, 2014 was $45 thousand and $0.3 million, respectively.

As of September 27, 2015, $1.4 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.0 years.

The fair value of share-based payment units was estimated using the Black-Scholes option pricing model. The table below presents the weighted-average expected life in years. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. The expected dividend yield is based on the estimate of annual dividends expected to be paid at the time of the grant. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average fair values and assumptions were as follows:



Nine months ended	September 27, 2015			September 28, 2014
Weighted-average fair value of grants	$	5.48		$	6.41
Valuation assumptions:
Expected life (in years)	5.51			7.68
Expected dividend yield	0.00		%	0.00		%
Expected volatility	45.95		%	48.09		%
Risk-free interest rate	1.541		%	1.465		%

Restricted Stock Units

Nonvested restricted stock units as of September 27, 2015 and changes during the nine months ended September 27, 2015 were as follows:



	Number of Shares		Weighted- Average Vest Date (in years)	Weighted- Average Grant Date Fair Value
Nonvested at December 28, 2014	940,857		0.56	$	17.11
Granted	331,000			$	12.61
Vested	(290,938	)		$	12.93
Forfeited	(38,563	)		$	14.61
Nonvested at September 27, 2015	942,356		0.98	$	16.92
Vested and expected to vest at September 27, 2015	926,720		0.96
Vested and deferred at September 27, 2015	424,375		—

The total fair value of restricted stock awards vested during the first nine months of 2015 was $3.8 million as compared to $2.9 million in the first nine months of 2014. As of September 27, 2015, there was $4.1 million of unrecognized stock-based compensation expense related to nonvested restricted stock units (RSUs). That cost is expected to be recognized over a weighted-average period of 1.7 years.

Long-Term Incentive Plans (LTIPs)

The following awards of restricted stock units (RSUs) with a performance or market condition are excluded from the balance of nonvested RSUs at September 27, 2015 in the table above. There were no new LTIP awards in the first nine months of 2015.

On February 27, 2014, RSUs were awarded to certain key employees as part of the LTIP 2014 plan. The number of shares for these units varies based on the growth of our earnings before interest, taxes, depreciation, and amortization (EBITDA) during the January 2014 to December 2016 performance period. The value of these units was charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeitures rates. As of September 27, 2015, we assessed the performance of our LTIP 2014 plan. Due to current and projected shortfalls in our EBIDTA growth compared to the LTIP 2014 plan requirements, we concluded that it was probable that these performance conditions would not be met. We therefore reversed $0.5 million of previously recognized compensation cost during the third quarter of 2015.

On February 27, 2013, RSUs were awarded to certain key employees as part of the LTIP 2013 plan. These awards have a market condition. The number of shares for these units varies based on the relative ranking of our total shareholder return (TSR) against the TSRs of the constituents of the Russell 2000 Index during the January 2013 to December 2015 performance period. The final value of these units will be determined by the number of shares earned. The value of these units is charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeitures rates. The grant date fair value for these RSUs was $11.91 per share. Additional RSUs related to the LTIP 2013 plan were awarded on May 28, 2013, with a grant date fair value of $11.56 per share. Compensation expense of $41 thousand and $63 thousand was recognized in connection with these RSUs for the nine months ended September 27, 2015 and September 28, 2014, respectively. As of September 27, 2015, total unamortized compensation expense for these grants was $16 thousand. As of September 27, 2015, the maximum achievable RSUs outstanding under this plan are 22,500 units. Due to our performance under the LTIP 2013 Plan, we do not expect these outstanding RSUs to vest. These RSUs reduce the shares available to grant under the 2004 Plan.

On May 2, 2013 a cash-based performance award was awarded to our CEO under the terms of our LTIP 2013 plan. Our relative TSR performance determines the payout as a percentage of an established target cash amount of $0.4 million. Because the final payout of the award is made in cash, the award is classified as a liability and the fair value is marked-to-market each reporting period. The value of this award was charged to compensation expense on a straight-line basis over the vesting period which ends December 31, 2015. As of September 27, 2015, due to the Company’s low ranking among peers and short remaining period, the fair value of the award has been reduced to zero. Compensation expense of $0.1 million was fully reversed in the first nine months of 2015. For the first nine months of 2014, $31 thousand was charged to compensation expense.

2015 Incentive Award Plan

In April 2015, the Board of Directors adopted the Checkpoint Systems, Inc. 2015 Incentive Award Plan (the 2015 Plan), with shareholder approval obtained at the annual meeting of shareholders held on June 3, 2015. Upon approval of the 2015 Plan, no additional awards are to be made under the 2004 Plan. All awards previously granted under the 2004 Plan will remain subject to the terms of the 2004 Plan. The 2015 Plan authorizes the issuance of a total of 3,877,777 shares of common stock, which will be reduced by any shares issued pursuant to awards granted under the 2004 Plan after December 28, 2014. This represents an increase of 1,252,766 shares over the current reserve in the 2004 Plan. In addition, subject to certain limitations, shares covered by an award granted under the 2015 Plan or shares covered by an award previously granted under the 2004 Plan which expire or are canceled without having been exercised in full or that are forfeited or repurchased shall be added to the shares of Common Stock authorized for issuance under the 2015 Plan.

2015 Employee Stock Purchase Plan

In April 2015, the Board of Directors adopted the 2015 Employee Stock Purchase Plan (the 2015 ESPP), with shareholder approval obtained at the annual meeting of shareholders held on June 3, 2015. The 2015 ESPP is designed to replace the Checkpoint Systems, Inc. 423 Employee Stock Purchase Plan (the Prior ESPP). We exhausted the number of shares available for issuance under the Prior ESPP at the end of March 2015. In connection with the adoption of the 2015 ESPP, we registered an additional 600,000 shares of common stock in a Registration Statement on Form S-8 under the Securities Act of 1933, as amended, on March 31, 2015.

Other Compensation Arrangements

On March 15, 2010, we initiated a plan in which time-vested cash unit awards were granted to eligible employees. The time-vested cash unit awards under this plan vest evenly over two or three years from the date of grant. The total amount accrued related to the plan equaled $0.7 million as of September 27, 2015, of which $0.3 million and $0.8 million was expensed for the three and nine months ended September 27, 2015. The total amount accrued related to the plan equaled $0.6 million as of September 28, 2014, of which $0.3 million and $0.9 million was expensed for the three and nine months ended September 28, 2014. The associated liability is included in Accrued Compensation and Related Taxes in the accompanying Consolidated Balance Sheets.