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 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. Subsequent to the end of fiscal year 2012, the Company issued 385,000 options under the 2009 Incentive Plan with exercise prices of $45.19.

The following table summarizes information related to stock options and stock option exercises during the years ended November 30, 2012, 2011 and 2010.



	2012			2011			2010
Pre-tax compensation expense	$	4,997		$	4,397		$	3,632
Deferred tax benefits	(1,836		)	(1,616		)	(1,335		)
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated financial statements	2,007			5,100			2,457
Fair value of options granted	6,407			5,803			4,213
Total intrinsic value of options exercised	8,793			16,732			7,547
Cash received upon exercise of options	5,170			7,233			5,703
Addition to capital in excess of par value due to exercise of stock options	5,440			8,045			7,313

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.



	2012			2011			2010
	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	2,907,533	$	32.39	3,229,410	$	29.07	3,229,187	$	27.43
Granted	512,850	$	49.84	494,750	$	43.00	482,510	$	32.69
Exercised	(353,793)	$	25.28	(774,661)	$	25.12	(443,810)	$	20.76
Surrendered	(29,439)	$	40.17	(41,966)	$	36.06	(38,477)	$	33.02
Outstanding at end of year	3,037,151	$	36.09	2,907,533	$	32.39	3,229,410	$	29.07

Exercisable at end of year	2,035,267	$	32.54	1,971,197	$	30.00	2,347,852	$	27.48

At November 30, 2012, there was $5,075 of unrecognized compensation cost related to nonvested option awards which the Company expects to recognize over a weighted-average period of 2.41 years.

The following table summarizes information about the Company’s outstanding and exercisable options at November 30, 2012.



	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
$16.15 - $22.80	136,825	$	21.60	$	3,390	1.00	136,825	$	21.60	$	3,390	1.00
$25.31 - $38.06	1,931,340	$	31.86	28,042		4.72	1,674,783	$	31.77	24,473		4.41
$40.73 - $44.07	463,686	$	43.01	1,564		8.08	160,409	$	43.30	493		8.15
$49.35 - $49.91	505,300	$	49.84	—		9.33	63,250	$	49.38	—		9.57
	3,037,151	$	36.09	$	32,996	5.83	2,035,267	$	32.54	$	28,356	4.63

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.



	2012			2011			2010
Weighted average fair value per option at the date of grant for options granted	$	12.49		$	11.73		$	8.73
Risk-free interest rate	1.38		%	2.52		%	2.84		%
Expected dividend yield	0.96		%	0.98		%	1.02		%
Expected volatility factor	26.52		%	25.54		%	26.00		%
Expected option term in years	6.10			6.40			6.20

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.

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 cash 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 131,197 and 103,390 shares which were vested and deferred at November 30, 2012 and 2011. Subsequent to the end of fiscal year 2012, the Company issued 23,624 restricted stock unit awards, each with a fair value of $45.19 at the date of grant.

The following table summarizes information related to restricted stock unit awards during the years ended November 30, 2012, 2011 and 2010.



	2012			2011			2010
Pre-tax compensation expense	$	1,229		$	1,079		$	970
Deferred tax benefits	(451		)	(396		)	(357		)
Excess tax (expense) benefit associated with tax deductions (under) over the amount of compensation expense recognized in the consolidated financial statements	(88		)	3			(111		)
Fair value of restricted stock unit awards on date of grant	1,489			1,263			1,102
Fair value of restricted stock unit awards vested	2,359			905			983

The following table summarizes the restricted stock unit awards.



	2012			2011			2010
	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	71,545	$	36.95	70,894	$	33.23	67,476	$	34.01
Granted	29,839	$	49.91	29,467	$	42.86	34,128	$	32.30
Vested	(60,320)	$	39.11	(26,937)	$	33.61	(28,898)	$	34.01
Surrendered	(1,119)	$	44.15	(1,879)	$	37.18	(1,812)	32.30
Nonvested at end of year	39,945	$	43.16	71,545	$	36.95	70,894	$	33.23

As of November 30, 2012, there was $997 of total unrecognized compensation cost related to restricted stock unit awards that the Company expects to recognize over a weighted-average period of 2.40 years.

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, 2012, 2011 and 2010.



	2012		2011		2010
Pre-tax compensation expense	$	200	$	200	$	240
Shares of Company common stock issued under the plans	4,055		4,540		6,760

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 with fair value upon issuance as follows during the years ended November 30, 2012, 2011 and 2010.



	2012		2011		2010
Company stock issued under the plan	$	1,244	$	1,216	$	1,096