INCENTIVE PLANS AND STOCK-BASED COMPENSATION

On March 23, 2009, the shareholders of CLARCOR approved the 2009 Incentive Plan, which replaced the 2004 Incentive Plan. The 2009 Incentive Plan allows the Company to grant stock options, restricted stock unit awards, restricted stock and performance awards to officers, directors and key employees of up to 3,800,000 shares during a ten-year period that ends in December 2019. Upon share option exercise or restricted stock unit award conversion, the Company issues new shares unless treasury shares are available.

Stock Options

Nonqualified stock options are granted at exercise prices equal to the market price of CLARCOR common stock at the date of grant, which is the date the Company’s Board of Directors approves the grant and the participants receive it. The Company’s Board of Directors determines the vesting requirements for stock options at the time of grant and may accelerate vesting. In general, options granted to key employees vest 25% per year beginning at the end of the first year; therefore, they become fully exercisable at the end of four years. Vesting may be accelerated in the event of retirement, disability or death of a participant or change in control of the Company. Options granted to non-employee directors vest immediately. All options expire ten years from the date of grant unless otherwise terminated.

The following table summarizes information related to stock options and stock option exercises during the years ended November 30, 2011, 2010 and 2009.



	2011			2010			2009
Pre-tax compensation expense	$	4,397		$	3,632		$	3,027
Deferred tax benefits	(1,616		)	(1,335		)	(969		)
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated financial statements	5,100			2,500			1,881
Fair value of options granted	5,803			4,213			3,551
Total intrinsic value of options exercised	16,732			7,547			4,975
Cash received upon exercise of options	7,233			5,703			2,479
Tax benefit realized from exercise of options	5,100			2,457			1,809
Addition to capital in excess of par value due to exercise of stock options	8,045			7,313			3,164

The following table summarizes activity with respect to nonqualified stock options granted by the Company and includes options granted under the 2009, 2004 and 1994 Incentive Plans.



	2011				2010				2009
	Options Granted under Incentive Plans		Weighted Average Exercise Price		Options Granted under Incentive Plans		Weighted Average Exercise Price		Options Granted under Incentive Plans		Weighted Average Exercise Price
Outstanding at beginning of year	3,229,410		$	29.07	3,229,187		$	27.43	3,132,111		$	25.75
Granted	494,750		$	43.00	482,510		$	32.69	466,025		$	31.94
Exercised	(774,661	)	$	25.12	(443,810	)	$	20.76	(322,236	)	$	16.40
Surrendered	(41,966	)	$	36.06	(38,477	)	$	33.02	(46,713	)	$	35.45
Outstanding at end of year	2,907,533		$	32.39	3,229,410		$	29.07	3,229,187		$	27.43

Exercisable at end of year	1,971,197		$	30.00	2,347,852		$	27.48	2,372,757		$	25.02

At November 30, 2011, there was $4,068 of unrecognized compensation cost related to nonvested option awards which the Company expects to recognize over a weighted-average period of 2.44 years.

The following table summarizes information about the Company’s outstanding and exercisable options at November 30, 2011.



	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number	Weighted Average Exercise Price		Intrinsic Value		Weighted Average Remaining Life in Years	Number	Weighted Average Exercise Price		Intrinsic Value		Weighted Average Remaining Life in Years
$13.75 - $18.13	98,100	$	16.72	$	3,145	1.02	98,100	$	16.72	$	3,145	1.02
$20.57 - $28.96	880,272	$	25.96	20,084		3.34	880,272	$	25.96	20,084		3.34
$31.96 - $38.23	1,449,961	$	33.85	21,650		6.49	931,725	$	34.28	13,509		5.98
$40.73 - $44.07	479,200	$	43.00	2,770		9.08	61,100	$	44.05	289		9.33
	2,907,533	$	32.39	$	47,649	5.78	1,971,197	$	30.00	$	37,027	4.66

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions by grant year.



	2011			2010			2009
Weighted average fair value per option at the date of grant for options granted	$	11.73		$	8.73		$	7.62
Risk-free interest rate	2.52		%	2.84		%	1.91		%
Expected dividend yield	0.98		%	1.02		%	1.25		%
Expected volatility factor	25.54		%	26.00		%	24.16		%
Expected option term in years	6.4			6.2			6.1

The expected option term in years selected for options granted during each period presented represents the period of time that the options are expected to be outstanding based on historical data of option holder exercise and termination behavior. Expected volatilities are based upon historical volatility of the Company’s monthly stock closing prices over a period equal to the expected life of each option grant. The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected term of the options being valued. Expected dividend yield is based on the estimated dividend yield determined on the date of issuance.

Subsequent to the end of fiscal year 2011, the Company issued 453,350 options under the 2009 Incentive Plan with exercise prices of $49.91.

Restricted Stock Unit Awards

The Company’s restricted stock unit awards are considered nonvested share awards. The restricted stock unit awards require no payment from the employee. Compensation cost is recorded based on the market price of the stock on the grant date and is recorded equally over the vesting period of four years. During the vesting period, officers and key employees receive compensation equal to the amount of dividends declared on common shares they would have been entitled to receive had the shares been issued. Upon vesting, employees may elect to defer receipt of their shares. There were 103,390 and 108,800 shares which were vested and deferred at November 30, 2011 and 2010.

The following table summarizes information related to restricted stock unit awards during the years ended November 30, 2011, 2010 and 2009.



	2011			2010			2009
Pre-tax compensation expense	$	1,079		$	970		$	1,061
Deferred tax benefits	(396		)	(357		)	(339		)
Excess tax benefit (expense) associated with tax deductions under the amount of compensation expense recognized in the consolidated condensed financial statements	3			(111		)	(27		)
Fair value of restricted stock unit awards on date of grant	1,263			1,102			1,192
Fair value of restricted stock unit awards vested	905			983			790

The following table summarizes the restricted stock unit awards.



	2011				2010				2009
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	70,894		$	33.23	67,476		$	34.01	57,724		$	33.66
Granted	29,467		$	42.86	34,128		$	32.30	36,368		$	32.78
Vested	(26,937	)	$	33.61	(28,898	)	$	34.01	(25,135	)	$	31.42
Surrendered	(1,879	)	$	37.18	(1,812	)	$	32.30	(1,481	)	34.19
Nonvested at end of year	71,545		$	36.95	70,894		$	33.23	67,476		$	34.01

As of November 30, 2011, there was $786 of total unrecognized compensation cost related to restricted stock unit awards that the Company expects to recognize over a weighted-average period of 2.4 years.

Subsequent to the end of fiscal year 2011, the Company issued 29,839 restricted stock unit awards, each with a fair value of $49.91 at the date of grant.

Directors' Restricted Stock Compensation

The incentive plans provide for grants of shares of common stock to all non-employee directors equal to a one-year annual retainer in lieu of cash at the directors’ option. The directors’ rights to the shares vest immediately on the date of grant; however, the shares cannot be sold for a six-month period from the date of grant. The following table summarizes compensation expense related to directors’ restricted stock and the number of shares issued under the plans during the years ended November 30, 2011, 2010 and 2009.



	2011		2010		2009
Pre-tax compensation expense	$	200	$	240	$	210
Shares of Company common stock issued under the plans	4,540		6,760		8,298

Employee Stock Purchase Plan

The Company sponsors an employee stock purchase plan which allows employees to purchase stock at a discount of 5%. Effective January 1, 2006, the plan was amended to be in compliance with safe harbor rules so that the plan is not compensatory, and no expense is recognized related to the plan. The Company issued stock under this plan as follows during the years ended November 30, 2011, 2010 and 2009.



	2011		2010		2009
Company stock issued under the plan	$	1,216	$	1,096	$	1,138