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, performance awards and other 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. The key provisions of the Company’s stock-based incentive plans are described in Note N of the Company’s Consolidated Financial Statements included in the 2010 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. All options expire ten years from the date of grant unless otherwise terminated.

The following table summarizes information related to stock options during the quarter and six months ended May 28, 2011 and May 29, 2010.



	Quarter Ended						Six Months Ended
	May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Pre-tax compensation expense	$	977		$	752		$	2,850		$	2,530
Deferred tax benefits	(359		)	(249		)	(1,047		)	(851		)
Excess tax benefits associated with tax deductions over the amount of compensation expense recognized in the consolidated condensed financial statements	1,384			1,631			2,041			1,783

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



	Shares Granted Under Incentive Plans		Weighted Average Exercise Price
Outstanding at beginning of year	3,229,410		$	29.07
Granted	492,250		$	43.01
Exercised	(322,872	)	$	24.35
Surrendered	(9,475	)	$	36.24
Outstanding at May 28, 2011	3,389,313		$	31.52

Options exercisable at May 28, 2011	2,425,351		$	29.18

At May 28, 2011, there was $5,589 of unrecognized compensation cost related to option awards which the Company expects to recognize over a weighted-average period of 2.61 years.

The following table summarizes information about the Company’s outstanding and exercisable options at May 28, 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
$11.50 - $13.75	32,300	$	13.05	$	943	0.48	32,300	$	13.05	$	943	0.48
$16.01 - $22.80	465,434	$	19.74	10,475		2.05	465,434	$	19.74	10,475		2.05
$25.31 - $34.40	1,916,307	$	30.59	22,354		5.95	1,457,200	$	29.98	17,874		5.26
$35.11 - $38.23	486,322	$	36.18	2,953		6.54	410,067	$	36.12	2,512		6.54
$42.86 - $44.07	488,950	$	43.01	—		9.58	60,350	$	44.06	—		9.83
	3,389,313	$	31.52	$	36,725	5.97	2,425,351	$	29.18	$	31,804	4.91

The following table summarizes information about stock option exercises during the quarter and six months ended May 28, 2011 and May 29, 2010.



	Quarter Ended				Six Months Ended
	May 28, 2011		May 29, 2010		May 28, 2011		May 29, 2010
Fair value at issuance of options exercised	$	1,495	$	1,671	$	2,111	$	1,742
Total intrinsic value of options exercised	4,510		4,474		6,558		4,893
Cash received upon exercise of options	3,046		3,184		5,237		3,424
Tax benefit realized from exercise of options, net	1,380		1,624		2,035		1,776
Addition to capital in excess of par value due to exercise of stock options	3,244		4,035		5,994		4,407

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 28, 2011			May 29, 2010
Weighted average fair value per option at the date of grant for options granted	$	11.73		$	8.72
Risk-free interest rate	2.52		%	2.76		%
Expected dividend yield	0.95		%	1.25		%
Expected volatility factor	25.53		%	26.28		%
Expected option term in years	6.4			5.7

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 103,390 and 108,800 vested and deferred shares at May 28, 2011 and November 27, 2010, respectively.

The following table summarizes information related to restricted stock unit awards during the quarter and six months ended May 28, 2011 and May 29, 2010.



	Quarter Ended						Six Months Ended
	May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Pre-tax compensation expense	$	118		$	99		$	850		$	832
Deferred tax benefits	(43		)	(32		)	(312		)	(280		)
Excess tax (expense) benefit associated with tax deductions under the amount of compensation expense recognized in the consolidated condensed financial statements	(44		)	(36		)	83			(61		)
Fair value of shares vested	7			—			905			742

The following table summarizes the restricted stock unit awards.



	Units		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	70,894		$	33.23
Granted	29,467		$	42.86
Vested	(26,937	)	$	33.60
Nonvested at May 28, 2011	73,424		$	36.96

The Company has recognized $1,640 of compensation cost prior to May 28, 2011 related to nonvested restricted stock unit awards. As of May 28, 2011, there was $1,085 of total unrecognized compensation cost related to nonvested restricted stock unit awards that the Company expects to recognize during fiscal years 2011 through 2014