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 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. During the three months ended September 30, 2014 and 2013, the Company expensed $666,000 and $733,000, respectively, and for the six months ended September 30, 2014 and 2013, the Company expensed $1.5 million and $1.6 million, respectively, related to this plan.

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 September 30, 2014, and changes during the six months then ended is presented below (shares and intrinsic value in thousands):

	Six Months Ended September 30, 2014
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value
Options outstanding as of March 31, 2014		14,236		$	8.80
Granted		2,631			9.87
Exercised		(918	)		7.69			$	2,428
Forfeited		(92	)		9.99
Cancelled/expired		(85	)		9.65
Options outstanding as of September 30, 2014		15,772		$	9.03		6.67	$	26,278

Options vested and expected to vest, net of estimated forfeitures, as of September 30, 2014		15,167		$	8.99		6.58	$	25,907

Options exercisable as of September 30, 2014		10,860		$	8.59		5.70	$	22,848

The average fair value of stock options vested during the six months ending September 30, 2014 and 2013 was $3.50 and $3.98 per share, respectively.

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

As of September 30, 2014, 2.6 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 September 30, 2014, it is deemed probable that the performance targets for approximately 1.1 million of these options will be achieved. Expense totaling $205,000 and $323,000 was recorded in the condensed consolidated statement of operations related to these stock options during the three and six months ended September 30, 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 September 30, 2014, and changes during the six months then ended is presented below (shares and intrinsic value in thousands):

	Six Months Ended September 30, 2014
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value
Options outstanding as of March 31, 2014		2,150		$	10.07
Granted		1,116			10.11
Forfeited/Cancelled		(708	)		9.83
Options outstanding as of September 30, 2014		2,558		$	10.16		8.74	$	1,476

Options vested and expected to vest, net of estimated forfeitures, as of September 30, 2014		1,116		$	10.11		9.64	$	-

Options exercisable as of September 30, 2014		-		$	-		-	$	-

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:

	Six Months Ended September 30,
	2014			2013

Expected volatility		34.09	%		39.52	%
Risk-free interest rate		1.88	%		1.59	%
Expected lives at date of grant (in years)		5.7			6.3
Weighted-average fair value of the options granted	$	1.96		$	2.69
Dividend yield assumption		4.99	%		4.42	%

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 September 30, 2014, and changes during the six months then ended is presented below (shares and intrinsic value in thousands):

	Six Months Ended
	September 30, 2014
	Shares			Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value

Non-vested RSU outstanding as of March 31, 2014		2,124
Granted		1,416		$	10.10
Dividend Equivalents Issued		32			9.98
Released		(614	)			$	5,869
Forfeited		(38	)
Non-vested RSU outstanding as of September 30, 2014		2,920

Approximately 270,760 PSAs with performance conditions based on company-wide revenue and earnings targets were outstanding as of September 30, 2014. It is deemed probable that the targets will be achieved for 254,928 PSAs as of September 30, 2014.

During the six months ended September 30, 2014 and 2013, approximately 32,000 and 78,000 dividend equivalent shares were issued to participants holding non-vested RSUs as of each quarter’s respective dividend record date.

Covisint Corporation 2009 Long-Term Incentive Plan

As of September 30, 2014, there were 4.6 million stock options outstanding from the 2009 Covisint LTIP. The majority of these options vested upon the October 1, 2013 closing of Covisint’s IPO.

Stock Awards Compensation

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

	Three Months Ended September 30,				Six Months Ended September 30,
	2014		2013		2014		2013
Stock-based compensation classified as:

Cost of maintenance fees	$	78	$	169	$	171	$	348
Cost of subscription fees		4		1		32		30
Cost of services		22		21		31		41
Cost of application services		1,255		10,020		3,874		10,506
Technology development and support		256		528		523		1,100
Sales and marketing		1,888		803		3,782		3,573
Administrative and general		2,974		3,253		6,864		7,771
Restructuring costs		-		-		-		1,791
Discontinued operations		-		80		-		152

Total stock-based compensation expense before income tax provision	$	6,477	$	14,875	$	15,277	$	25,312

As of September 30, 2014, total unrecognized compensation cost of $33.6 million, net of estimated forfeitures is expected to be recognized over a weighted-average period of approximately 2.14 years. Unrecognized compensation cost includes $6.5 million, net of estimated forfeitures, related to nonvested Covisint stock options which is expected to be recognized over a weighted-average period of approximately 1.77 years.