F. Stock Arrangements

The Company records stock-based compensation expense for the cost of stock options and stock grants as well as shares issued under the Company’s 1999 Employee Stock Purchase Plan, as amended (the “ESPP”). The fair value of each option awarded is calculated on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation recognized in selling and administrative expenses in the accompanying financial statements, and the related tax benefit, were as follows:

	(000’s omitted)
	2013			2012			2011

Stock-based compensation expense	$	1,348		$	1,429		$	1,440
Related tax benefit	(476		)	(519		)	(517		)
Stock-based compensation, net of tax	$	872		$	910		$	923

Unrecognized stock-based compensation cost at September 28, 2013 was $1.5 million to be recognized over a weighted-average period of 2.1 years.

Stock Incentive Plan: In January 2011, stockholders approved the adoption of the Courier Corporation 2011 Stock Option and Incentive Plan (the “2011 Plan”). Under the 2011 Plan provisions, stock grants as well as both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees up to a total of 600,000 shares. The 2011 Plan replaced the Company’s Amended and Restated 1993 Stock Incentive Plan (the “1993 Plan”). No further options will be granted under the 1993 Plan. Under the 2011 Plan, the option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant. The Company annually issues a combination of stock options and stock grants to its key employees. Such options and grants were issued in November of 2013 and 2012 for fiscal years 2013 and 2012 and previously had historically been issued in September of each fiscal year. As such, no annual awards were issued during the fiscal year ended September 29, 2012. Stock options and stock grants generally vest over three years.

The following is a summary of all option activity for these plans:

			Weighted Average
					Remaining
	Shares		Exercise Price		Term (Years)
Outstanding at September 25, 2010	518,437		$	21.94
Issued	97,540		7.40
Expired	(28,281	)	27.35
Outstanding at September 24, 2011	587,696		$	19.27
Issued	1,575		8.47
Cancelled	(62,732	)	11.91
Expired	(154,864	)	32.70
Outstanding at September 29, 2012	371,675		$	14.86
Issued	80,870		11.96
Exercised	(521	)	7.40
Expired	(108,230	)	20.10
Outstanding at September 28, 2013	343,794		$	12.54	3.7

Exercisable at September 28, 2013	237,369		$	13.29	1.8
Available for future grants	269,009

The aggregate intrinsic value for options outstanding at September 28, 2013 was $1,133,000. There were 115,080 non-vested stock grants outstanding at the beginning of fiscal 2013 with a weighted-average fair value of $9.26 per share. During 2013, 75,828 stock grants were awarded with a weighted-average fair value of $11.47 per share. There were 30,553 stock grants that vested in 2013 with a weighted-average fair value of $14.32 per share. During 2013, there were 100 stock grants forfeited, which had a weighted-average fair value of $8.47 per share. At September 28, 2013, there were 160,255 non-vested stock grants outstanding with a weighted-average fair value of $9.34.

Directors’ Stock Equity Plans: In January 2010, stockholders approved the Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”). On January 22, 2013, stockholders approved an amendment to the 2010 Plan increasing the shares authorized under the plan by 300,000 to an aggregate of 600,000 shares of Company common stock available for issuance under the plan. Under the plan provisions, stock grants as well as non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors. The 2010 Plan replaced the previous non-employee directors’ plan, which had been adopted in 2005 (the “2005 Plan”). No further options will be granted under the 2005 Plan. Under the 2010 Plan, the option price per share is the fair market value of stock at the time the option is granted and options must expire not later than ten years from the date of grant. Stock options and stock grants generally vest over three years.

The following is a summary of all option activity for these plans:

			Weighted Average
					Remaining
	Shares		Exercise Price		Term (Years)
Outstanding at September 25, 2010	206,866		$	24.39
Issued	43,477		14.76
Expired	(49,572	)	32.89
Outstanding at September 24, 2011	200,771		$	20.20
Issued	67,697		11.50
Expired	(28,548	)	39.18
Outstanding at September 29, 2012	239,920		$	15.49
Issued	85,498		11.77
Expired	(36,000	)	26.86
Outstanding at September 28, 2013	289,418		$	12.98	2.7

Exercisable at September 28, 2013	144,301		$	13.97	1.6
Available for future grants	243,646

The aggregate intrinsic value for options outstanding at September 28, 2013 was $829,000. Under the 2010 Plan, there were 27,832 non-vested stock grants outstanding at the beginning of fiscal 2013 with a weighted-average fair value of $12.77 per share. During 2013, 14,931 stock grants were awarded with a weighted-average fair value of $11.77 per share. There were 13,517 stock grants that vested in 2013 with a weighted-average fair value of $13.16 per share. At September 28, 2013, there were 29,246 non-vested stock grants outstanding with a weighted-average fair value of $12.07.

Directors may also elect to receive their annual retainer and committee chair fees as shares of stock in lieu of cash. Such shares issued in 2013, 2012 and 2011 were 12,320 shares, 14,784 shares, and 11,520 shares at a fair market value of $11.77, $11.50 and $14.76, respectively.

Employee Stock Purchase Plan: The ESPP allows eligible employees to purchase shares of Company common stock at not less than 85% of fair market value at the end of the grant period. On January 20, 2010, stockholders approved an amendment to the ESPP increasing the shares authorized under the plan by 300,000 to an aggregate of 637,500 shares of Company common stock available for issuance under the plan. During 2013, 2012, and 2011, 28,322 shares, 36,808 shares, and 48,774 shares, respectively, were issued under the plan at an average price of $11.84 per share, $9.35 per share, and $8.46 per share, respectively. Since inception, 478,901 shares have been issued. At September 28, 2013, an additional 158,599 shares were reserved for future issuances.

Stockholders’ Rights Plan: On March 18, 2009, the Board of Directors renewed its ten-year stockholders’ rights plan. Under the plan, the Company’s stockholders of record at March 19, 2009 received a right to purchase a unit (“Unit”) comprised of one one-thousandth of a share of preferred stock for each share of common stock held on that date at a price of $100, subject to adjustment. Until such rights become exercisable, one such right will also attach to subsequently issued shares of common stock. The rights become exercisable if a person or group acquires 15% or more of the Company’s common stock or after commencement of a tender or exchange offer which would result in a person or group beneficially owning 15% or more of the Company’s common stock. When exercisable, under certain conditions, each right entitles the holder thereof to purchase Units or shares of common stock of the acquirer, in each case having a market value at that time of twice the right’s exercise price. The Board of Directors will be entitled to redeem the rights at one cent per right, under certain circumstances. The rights expire in 2019.

Stock-Based Compensation: The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Expected volatility was calculated primarily based on the historical volatility of the Company’s stock. The average estimated life was based on the contractual term of the option and historic exercise experience. The following key assumptions were used to value options issued:

	2013	2012	2011
Risk-free interest rate	1.7%–2.0%	0.9%–1.0%	1.0%–2.0%
Expected volatility	41%–42%	49%–50%	48%–49%
Expected dividend yield	7.1%–7.6%	7.3%–11.4%	5.7%–11.4%
Estimated life for grants under:
Stock Incentive Plan	10 years	5 years	5 years
Directors’ Stock Equity Plans	10 years	5 years	5 years
ESPP	0.5 years	0.5 years	0.5 years

The weighted average fair value per share of options granted during fiscal years 2013, 2012 and 2011 were $2.10, $1.12 and $1.12, respectively, under the Company’s Employee 2011 Plan and $2.05, $2.70 and $3.98, respectively, under the Directors’ 2010 Plan. For all options issued, the exercise price was equal to the stock price on the grant date.