INCENTIVE PLANS AND STOCK-BASED COMPENSATION

On March 25, 2014, the shareholders of CLARCOR approved the 2014 Incentive Plan, which replaced the 2009 Incentive Plan. The 2014 Incentive Plan allows the Company to grant stock options, restricted stock unit awards, restricted stock, performance awards and other awards to officers, directors and key employees of up to 6,600,000 shares during a ten-year period that ends in April 2024. Upon share option exercise or restricted stock unit award conversion, the Company issues new shares unless treasury shares are available. The key provisions of the Company’s stock-based incentive plans are described in Note M of the Company’s Consolidated Financial Statements included in the 2014 Form 10-K.

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, however, beginning in 2013 stock-based compensation for the Company's Board of Directors has been in the form of restricted stock, rather than stock options. 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 three and six months ended May 30, 2015 and May 31, 2014.



	Quarter Ended						Six Months Ended
	May 30, 2015			May 31, 2014			May 30, 2015			May 31, 2014
Pre-tax compensation expense	$	1,716		$	921		$	3,564		$	2,032
Deferred tax benefits	(624		)	(328		)	(1,296		)	(723		)
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated condensed financial statements	392			88			784			250
Fair value of stock options on date of grant	—			96			3,196			4,650
Total intrinsic value of stock options exercised	1,413			398			3,164			1,156
Cash received upon exercise of stock options	1,485			582			4,596			1,824
Addition to capital in excess of par value due to exercise of stock options	1,831			653			5,249			2,016

The following table summarizes activity for the six months ended May 30, 2015 with respect to stock options granted by the Company and includes options granted under the 1994 Incentive Plan, the 2004 Incentive Plan, the 2009 Incentive Plan and the 2014 Incentive Plan.



	Options Granted Under Incentive Plans	Weighted Average Exercise Price
Outstanding at beginning of year	2,310,720	$	45.71
Granted	311,500	$	63.22
Exercised	(120,922)	$	39.61
Surrendered	(3,263)	$	42.93
Outstanding at end of period	2,498,035	$	48.19

Exercisable at end of period	1,616,304	$	42.90

At May 30, 2015, there was $4,364 of unrecognized compensation cost related to option awards which the Company expects to recognize over a weighted-average period of 2.28 years.

The following table summarizes information about the Company’s outstanding and exercisable options at May 30, 2015.



	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
$25.31 - $28.79	47,325	$	26.28	$	1,672	2.92	47,325	$	26.28	$	1,672	2.92
$31.96 - $36.48	486,059	$	33.66	13,584		3.18	486,059	$	33.66	13,584		3.18
$42.86 - $49.91	1,216,251	$	46.24	18,697		6.68	968,570	$	46.16	14,967		6.47
$55.01 - $61.57	436,900	$	61.46	66		8.55	114,350	$	61.49	14		8.55
$63.22	311,500	$	63.22	—		9.63	—	$	—	—		—
	2,498,035	$	48.19	$	34,019	6.62	1,616,304	$	42.90	$	30,237	5.52

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.



	Six Months Ended
	May 30, 2015			May 31, 2014
Weighted average fair value per option at the date of grant for options granted	$	10.26		$	11.50
Risk-free interest rate	1.31		%	1.55		%
Expected dividend yield	1.27		%	1.10		%
Expected volatility factor	19.50		%	21.38		%
Expected option term in years	5.0			5.0

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 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 7,997 and 19,457 vested and deferred shares at May 30, 2015 and November 29, 2014, respectively.

The following table summarizes information related to restricted stock unit awards during the three and six months ended May 30, 2015 and May 31, 2014.



	Quarter Ended						Six Months Ended
	May 30, 2015			May 31, 2014			May 30, 2015			May 31, 2014
Pre-tax compensation expense	$	788		$	338		$	1,623		$	742
Deferred tax benefits	(286		)	(120		)	(590		)	(264		)
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated condensed financial statements	3			—			211			101
Fair value of restricted stock unit awards on date of grant	3			58			3,183			1,524
Fair value of restricted stock unit awards vested	—			—			979			765

The following table summarizes activity for the six months ended May 30, 2015 with respect to the restricted stock unit awards.



	Units	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	51,012	$	53.12
Granted	50,345	$	63.23
Vested	(19,223)	$	50.91
Nonvested at end of period	82,134	$	59.83

As of May 30, 2015, there was $1,687 of total unrecognized compensation cost related to restricted stock unit awards which the Company expects to recognize over a weighted-average period of 3.10 years.

Restricted Stock Unit Awards with Performance Conditions

Beginning in 2015, performance awards were issued to officers and certain key employees as an incentive to achieve revenue growth and operating profit margin goals over a three-year period. The awards are in the form of restricted stock units, which vest at the end of the three-year period if the specified sales growth and operating margin goals are achieved. These restricted stock unit awards are considered nonvested share awards. The restricted stock unit awards require no payment from the employee. Fair value of the restricted stock units is determined based on the market price of the stock on the grant date. Compensation cost is recorded equally over the three-year period in which the stock units are earned, based on a periodic determination of the probable performance outcome. There were no vested shares at May 30, 2015 and November 29, 2014, respectively.

The following table summarizes information related to restricted stock unit awards with performance conditions during the three and six months ended May 30, 2015 and May 31, 2014.



	Quarter Ended					Six Months Ended
	May 30, 2015			May 31, 2014		May 30, 2015			May 31, 2014
Pre-tax compensation expense	$	463		$	—	$	927		$	—
Deferred tax benefits	(168		)	—		(337		)	—
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated condensed financial statements	—			—		—			—
Fair value of restricted stock unit awards on date of grant	—			—		5,857			—
Fair value of restricted stock unit awards vested	—			—		—			—

The following table summarizes activity for the three months ended May 30, 2015 with respect to the restricted stock unit awards with performance conditions.



	Units	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	—	$	—
Granted	92,650	$	63.22
Vested	—	$	—
Nonvested at end of period	92,650	$	63.22

As of May 30, 2015, there was $4,637 of total unrecognized compensation cost related to restricted stock unit awards with performance conditions, which the Company expects to recognize over a weighted-average period of 2.50 years.

Directors' Restricted Stock Compensation

The incentive plans provide for grants of shares of common stock to all non-employee directors for annual incentive awards, and 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, shares issued on annual retainer fees cannot be sold for a six-month period from the date of grant. The following table summarizes information related to directors' stock compensation during the three and six months ended May 30, 2015 and May 31, 2014, respectively.



	Quarter Ended				Six Months Ended
	May 30, 2015		May 31, 2014		May 30, 2015		May 31, 2014
Pre-tax compensation expense	$	880	$	880	$	880	$	880
Shares of Company common stock issued under the plans	13,352		15,400		13,352		15,400