Note 6 – Stock Benefit Plans and Stock-Based Compensation

Stock Benefit Plans

The Company has the following stock benefit plans: (1) the Amended and Restated 2007 Long Term Incentive Plan ("2007 LTIP") allows the Company's Compensation Committee to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and cash incentive awards to employees and directors of the Company; (2) the Employee Stock Purchase Plan allows participating U.S. and Canadian employees the right to have up to 10% of their compensation withheld to purchase Company common stock at a 5% discount; and (3) the Employee Stock Ownership Plan and Trust/401(k) Plan ("ESOP/401(k)"), which includes a qualified cash or deferred arrangement as described under Section 401(k) of the Internal Revenue Code, allows the Company to make contributions to the ESOP/401(k) for the benefit of substantially all U.S. employees.

Covisint Corporation ("Covisint"), a subsidiary of the Company, maintains a stock benefit plan referred to as the 2009 Long-Term Incentive Plan ("2009 Covisint LTIP") allowing the board of directors of Covisint to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and cash incentive awards to employees and directors of Covisint and the Company.

ESOP/401(k)

The Company provides a matching program for the 401(k) component of the ESOP/401(k). The Company matches 33% of employees' 401(k) contributions up to 2% of eligible earnings. Matching contributions by the Company vest 100% when an employee attains three years of service with the Company. The Company expensed $1.3 million related to this program during both the first quarter of 2014 and the first quarter of 2013.

Stock Option Activity

Options that Vest Based on Service Conditions Only

A summary of activity for options that vest based on service conditions only under the Company's stock-based compensation plans as of June 30, 2013, and changes during the three months then ended is presented below (shares and intrinsic value in thousands):

	Three Months Ended
	June 30, 2013
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term in Years		Value
Options outstanding as of March 31, 2013		19,076		$	8.44
Granted		117			10.73
Exercised		(885	)		7.46			$	3,363
Forfeited		(74	)		11.33
Cancelled/expired		(68	)		10.04
Options outstanding as of June 30, 2013		18,166		$	8.48		6.38	$	36,724

Options vested and expected to vest, net of
estimated forfeitures, as of June 30, 2013		17,574		$	8.45		6.30	$	36,021

Options exercisable as of June 30, 2013		11,903		$	8.22		5.36	$	26,944

The average fair value of stock options vested during the three months ending June 30, 2013 and 2012 was $4.19 and $4.21 per share, respectively.

Options that Vest Based on both Performance and Service Conditions ("Performance Options")

As of June 30, 2013, 3.3 million stock options that vest based on both service and performance conditions were outstanding. The performance vesting conditions for these options are based on company-wide revenue and earnings targets. As of June 30, 2013, it is deemed probable that the performance targets for approximately 479,000 of these options will be achieved. Expense totaling $327,000 was recorded in the condensed consolidated statement of comprehensive income related to these stock options during the first quarter of 2014.

A summary of activity for options that vest based on the achievement of both service and performance conditions under the Company's stock-based compensation plans as of June 30, 2013, and changes during the three months then ended is presented below (shares and intrinsic value in thousands):

	Three Months Ended
	June 30, 2013
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term in Years		Value
Options outstanding as of March 31, 2013		3,648		$	9.79
Granted		594			11.30
Forfeited/cancelled		(926	)		9.92
Options outstanding as of June 30, 2013		3,316		$	10.02		9.33	$	1,800

Options vested and expected to vest, net of
estimated forfeitures, as of June 30, 2013		479		$	11.30		9.88	$	-

Options exercisable as of June 30, 2013		-		$	-		-	$	-

The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using the Black-Scholes option pricing model were as follows:

	Three Months Ended
	June 30,
	2013			2012

Expected volatility		39.24	%		41.27	%
Risk-free interest rate		1.54	%		1.01	%
Expected lives at date of grant (in years)		7.5			6.1
Weighted-average fair value of the options granted	$	2.82		$	3.58
Dividend yield assumption (1)		4.41	%		0.00	%

(1) In January 2013, our Board of Directors announced its intention to begin paying cash dividends totaling $0.50 per share annually, to be paid quarterly beginning in the first quarter of fiscal 2014. Prior to that, the Company had never paid a dividend or announced any intentions to pay a dividend.

Restricted Stock Units and Performance-Based Stock Awards Activity

A summary of non-vested restricted stock units ("RSUs") and performance-based stock awards ("PSAs" and collectively "Non-vested RSU") activity under the Company's LTIP as of June 30, 2013, and changes during the three months then ended is presented below (shares and intrinsic value in thousands):

	Three Months Ended
	June 30, 2013
				Weighted
				Average		Aggregate
				Grant-Date		Intrinsic
	Shares			Fair Value		Value

Non-vested RSU outstanding as of March 31, 2013		4,850
Granted		327		$	11.60
Dividend Equivalents Issued		45			10.93
Released		(354	)			$	4,039
Forfeited		(45	)
Non-vested RSU outstanding as of June 30, 2013		4,823

Approximately 31,000 PSAs with performance conditions based on company-wide revenue and earnings targets were outstanding as of June 30, 2013. It is not deemed probable that these targets will be achieved as of June 30, 2013.

During the first quarter of 2014, the Company paid its first quarterly dividend of $0.125 per share. In connection with this, approximately 45,000 dividend equivalent shares were issued to participants holding non-vested RSUs as of the dividend record date.

Stock Awards Compensation

Stock award compensation expense was allocated as follows (in thousands):

	Three Months Ended
	June 30,
	2013		2012
Stock-based compensation classified as:

Cost of maintenance fees	$	178	$	217
Cost of subscription fees		29		35
Cost of professional services		84		92
Cost of application services		486		322
Technology development and support		575		644
Sales and marketing		2,776		1,784
Administrative and general		4,518		5,195
Restructuring costs		1,791

Total stock-based compensation expense
before income tax provision	$	10,437	$	8,289

As of June 30, 2013, it is expected that total unrecognized compensation cost of $27.4 million, net of estimated forfeitures, related to nonvested equity awards that are expected to vest will be recognized over a weighted-average period of approximately 1.90 years.

Covisint Corporation 2009 Long-Term Incentive Plan

As of June 30, 2013, there were 4.3 million stock options outstanding from the 2009 Covisint LTIP, which reflects the Covisint board of directors approved 30-for-1 stock split on May 23, 2013. The majority of these options will vest only if, prior to August 26, 2015, Covisint completes an initial public offering ("IPO") or if there is a change in control of the Covisint segment ("Covisint").

Certain employees who received stock options from the 2009 Covisint LTIP were also awarded PSAs from the Company's 2007 LTIP. As of June 30, 2013, there were 1.5 million PSAs outstanding. Approximately 1.1 million of these PSAs will vest only if Covisint does not complete an IPO or a change in control transaction by August 25, 2015 and the Covisint business meets a pre-defined revenue target for any four consecutive calendar quarters ending prior to August 26, 2015 or upon a change in control of Compuware. The remaining PSAs will vest only if Covisint completes an IPO or change in control by August 25, 2015.

As of June 30, 2013, unrecognized compensation cost related to Covisint options totaled approximately $24.7 million. This expense will become recognizable upon an IPO or change in control of Covisint, with a cumulative catch-up in the period in which the IPO occurs. It is expected that approximately 70 percent of this expense will be incurred in the fiscal year in which an IPO or change in control of Covisint occurs. If an IPO or change of control occurs prior to August 26, 2015, the PSAs granted to employees with Covisint stock options will be cancelled. As a result, expense will be recognized for the Covisint stock options, but all prior expense taken for the PSAs for employees with Covisint stock options will be reversed.