Stock-Based Compensation

We currently have one shareholder-approved stock plan from which we can issue stock-based awards, which was approved by our shareholders in fiscal year 2008 (2008 Plan). The 2008 Plan replaced the 1992 Incentive and Nonqualified Stock Option Plan, the 1994 Stock Incentive Plan and the 1997 Stock Incentive Plan (collectively, the “Previous Plans”). The Previous Plans solely exist to satisfy outstanding options previously granted under those plans. The 2008 Plan permits the granting of stock awards to officers, members of the Board of Directors, employees and consultants. Awards under the 2008 Plan may include nonqualified stock options, incentive stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals, deferred stock units and stock appreciation rights. A total of 47,010,000 shares are issuable under these plans, of which 9,703,158 shares were available for grant as of November 30, 2013.

We have adopted two stock plans for which the approval of shareholders was not required: the 2002 Nonqualified Stock Plan (2002 Plan) and the 2004 Inducement Stock Plan (2004 Plan). The 2002 Plan permits the granting of stock awards to non-executive officer employees and consultants. Executive officers and members of the Board of Directors are not eligible for awards under the 2002 Plan. Awards under the 2002 Plan may include nonqualified stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals and stock appreciation rights. A total of 9,750,000 shares are issuable under the 2002 Plan, of which 797,910 shares were available for grant as of November 30, 2013.

The 2004 Plan is reserved for persons to whom we may issue securities as an inducement to become employed by us pursuant to the rules and regulations of the NASDAQ Stock Market. Awards under the 2004 Plan may include nonqualified stock options, grants of conditioned or restricted stock, unrestricted grants of stock, grants of stock contingent upon the attainment of performance goals and stock appreciation rights. A total of 1,500,000 shares are issuable under the 2004 Plan, of which 583,021 shares were available for grant as of November 30, 2013.

Under all of our plans, the options granted prior to fiscal year 2005 generally vest over five years and have terms of ten years. The options granted from fiscal year 2005 through fiscal year 2010 generally vest over five years and have terms of seven years, and the options granted in fiscal year 2011 and 2012 vest over four years and have a term of seven years.

A summary of stock option activity under all the plans is as follows:



	Shares		Weighted Average		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value⁽¹⁾
	(in thousands)		Exercise Price		(in years)	(in thousands)
Options outstanding, December 1, 2012	5,204		$	19.99
Granted	41		21.46
Exercised ⁽²⁾	(2,763	)	18.61
Canceled	(493	)	26.10
Options outstanding, November 30, 2013	1,989		$	20.43	2.79	$	12,780
Exercisable, November 30, 2013	1,669		$	19.95	2.50	$	11,407
Vested or expected to vest, November 30, 2013	1,989		$	20.43	2.79	$	12,780


(1)	The aggregate intrinsic value was calculated based on the difference between the closing price of our stock on November 30, 2013 of $26.34 and the exercise prices for all in-the-money options outstanding.


(2)	Includes 41,000 options included in a stock-swap, which allowed optionees to pay the exercise price by surrendering shares already owned. The net shares of common stock resulting from option exercises is 2,722,000 as reflected in the statement of shareholders' equity.

A summary of the status of our restricted stock units as of November 30, 2013 is as follows (in thousands, except per share data):



	Number of Shares		Weighted Average Grant Date Fair Value
Restricted stock units outstanding, December 1, 2012	984		$	20.60
Granted	1,055		23.70
Issued	(697	)	21.87
Canceled	(225	)	20.89
Restricted stock units outstanding, November 30, 2013	1,117		$	22.67

Each restricted stock unit represents one share of common stock. The restricted stock units generally vest semi-annually over a three year period.

The fair value of outright stock awards, restricted stock awards, restricted stock units and DSUs is equal to the closing price of our common stock on the date of grant.

The 1991 Employee Stock Purchase Plan (ESPP) permits eligible employees to purchase up to an aggregate of 8,650,000 shares of our common stock through accumulated payroll deductions. The ESPP has a 27 month offering period comprised of nine three month purchase periods. The purchase price of the stock is equal to 85% of the lesser of the market value of such shares at the beginning of a 27 month offering period or the end of each three month segment within such offering period. If the market price at any of the nine purchase periods is less than the market price on the first date of the 27 month offering period, subsequent to the purchase, the offering period is canceled and the employee is entered into a new 27 month offering period with the then current market price as the new base price. We issued 281,000 shares, 376,000 shares and 594,000 shares with weighted average purchase prices of $15.28, $15.04 and $11.52 per share, respectively, in fiscal years 2013, 2012 and 2011, respectively. At November 30, 2013, approximately 930,000 shares were available and reserved for issuance under the ESPP.

We estimated the fair value of stock options and ESPP awards granted in fiscal years 2013, 2012 and 2011 on the measurement dates using the Black-Scholes option valuation model with the following weighted average assumptions:



	Fiscal Year Ended
	November 30, 2013		November 30, 2012		November 30, 2011
Stock options:
Expected volatility	31.9	%	30.0	%	27.3	%
Risk-free interest rate	0.7	%	0.8	%	1.7	%
Expected life (in years)	4.8		4.8		4.8
Expected dividend yield	—		—		—
Employee stock purchase plan:
Expected volatility	31.8	%	34.1	%	25.8	%
Risk-free interest rate	0.2	%	0.2	%	0.4	%
Expected life (in years)	1.5		1.5		1.6
Expected dividend yield	—		—		—

For each stock option award, the expected life in years is based on historical exercise patterns and post-vesting termination behavior. Expected volatility is based on historical volatility of our stock, and the risk-free interest rate is based on the U.S. Treasury yield curve for the period that is commensurate with the expected life at the time of grant. We currently do not pay cash dividends on our common stock and do not anticipate doing so for the foreseeable future. Accordingly, our expected dividend yield is zero.

For each ESPP award, the expected life in years is based on the period of time between the beginning of the offering period and the date of purchase, plus an additional holding period of three months. Expected volatility is based on historical volatility of the our stock, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at each purchase period.

Based on the above assumptions, the weighted average estimated fair value of stock options granted in fiscal years 2013, 2012 and 2011 was $6.08, $5.66 and $7.31 per share, respectively. We amortize the estimated fair value of stock options to expense over the vesting period using the straight-line method. The weighted average estimated fair value for shares issued under our ESPP in fiscal years 2013, 2012 and 2011 was $6.88, $6.53 and $6.44 per share, respectively. We amortize the estimated fair value of shares issued under the ESPP to expense over the vesting period using a graded vesting model.

Other reasonable assumptions about these factors could provide different estimates of fair value. Future changes in stock price volatility, life of options, interest rates and dividend practices, if any, may require changes in our assumptions, which could materially affect the calculation of fair value.

Total unrecognized stock-based compensation expense, net of expected forfeitures, related to unvested stock options and unvested restricted stock awards amounted to $22.0 million at November 30, 2013. These costs are expected to be recognized over a weighted average period of 2.0 years.

The following additional activity occurred under our plans (in thousands):



	Fiscal Year Ended
	November 30, 2013		November 30, 2012		November 30, 2011
Total intrinsic value of stock options on date exercised	$	14,009	$	9,601	$	31,566
Total fair value of deferred stock units on date vested	127		114		40
Total fair value of restricted stock units on date vested	16,631		13,772		9,120

The following table provides the classification of stock-based compensation as reflected in our consolidated statements of income (in thousands):



	Fiscal Year Ended
	November 30, 2013		November 30, 2012		November 30, 2011
Cost of software licenses	$	—	$	9	$	9
Cost of maintenance and services	601		725		643
Sales and marketing	3,599		3,274		2,648
Product development	4,723		3,170		2,708
General and administrative	10,186		10,983		12,888
Stock-based compensation from continuing operations	19,109		18,161		18,896
Loss from discontinued operations	2,290		10,072		7,103
Total stock-based compensation	$	21,399	$	28,233	$	25,999
Income tax benefit included in the provision for income taxes from continuing operations	$	5,146	$	4,491	$	4,742

Separation and Divestiture Arrangements

During fiscal year 2011, we entered into an amendment to the existing severance agreement with Richard D. Reidy, our former President and Chief Executive Officer. The amendment was entered into in connection with the announcement that Mr. Reidy would terminate employment when his successor was named. Mr. Reidy continued as our President and Chief Executive Officer until his successor commenced employment on December 5, 2011.

The amendment entitled Mr. Reidy to severance and acceleration of vesting of Mr. Reidy’s unvested equity to the extent such equity would have vested during the twenty-four months following termination of employment. The amendment also provided for an extension of the period of time during which Mr. Reidy may exercise his vested stock options following his termination from three months to a total of fifteen months.

We recognized $4.6 million of stock-based compensation expense in fiscal year 2011 as a result of this arrangement. The expense was recorded in general and administrative expense on the consolidated statement of income.

During fiscal year 2012, the employment of three of our executives terminated, including our former Chief Financial Officer, Charles F. Wagner, Jr. As part of the separation agreements, the executives were entitled to accelerated vesting of certain stock-based awards. Due to the separation and accelerated vesting, we recognized additional stock-based compensation of $1.8 million, of which $0.9 million was recorded as general and administrative expense and $0.9 million was recorded as sales and marketing expense, in the consolidated statement of income.

During fiscal year 2012, we entered into transition agreements with certain employees of our non-Core product lines. As part of the transition agreements, the employees are entitled to accelerated vesting of stock-based awards if the employees remain employees of the company through the date their non-Core product line is divested. We recognized additional stock-based compensation of $1.3 million in the consolidated statement of income as a result of these agreements.

During fiscal year 2013, in connection with the divestiture of the Apama product line, we entered into transition agreements with five executives. As part of the agreements, the executives were entitled to accelerated vesting of certain stock-based awards upon the completion of the divestiture. All employees associated with the Apama product line were also entitled to accelerated vesting of certain stock-based awards upon the completion of the divestiture. Due to the accelerated vesting, we recognized additional stock-based compensation of $1.4 million.