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Share Capital, Option Plans And Share-Based Payments | 12 Months Ended
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Jun. 30, 2011
Share Capital, Option Plans And Share-Based Payments |
Share Capital, Option Plans And Share-Based Payments | NOTE 12—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS Share Capital Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of preference shares. No preference shares have been issued. Treasury Stock During Fiscal 2011, we repurchased 264,834 OpenText Common Shares, in the amount of $12.5 million for the purpose of future reissuance under our Fiscal 2011 Long Term Incentive Plan (LTIP 4). During Fiscal 2010, we repurchased 307,579 OpenText Common Shares, in the amount of $14.0 million for the purpose of future reissuance under our Fiscal 2010 Long Term Incentive Plan (LTIP 3). No such purchases were made during Fiscal 2009. As of June 30, 2011 we have not reissued any shares from treasury (June 30, 2010—nil). Option Plans A summary of stock options outstanding under our various Stock Option Plans is set forth below. All numbers shown in the chart below have been adjusted, where applicable, to account for the two-for-one stock split that occurred on October 22, 2003.
|  | 1998 Stock Option Plan |  | 2004 Stock Option Plan |  | Artesia Stock Option Plan |  | Centrinity Stock Option Plan |  | Gauss Stock Option Plan |  | Hummingbird Option Plan |  | IXOS Stock Option Plan |  | Vista Stock Option Plan
Date of inception |  | Jun-98 |  | Oct-04 |  | Sep-04 |  | Jan-03 |  | Jan-04 |  | Oct-06 |  | Mar-04 |  | Sep-04
Eligibility |  | Eligible employees and directors, as determined by the Board of Directors |  | Eligible employees, as determined by the Board of Directors |  | Eligible employees, and consultants of Artesia Technologies Inc. |  | Eligible employees, consultants and directors, as determined by the Board of Directors |  | Eligible employees as determined by the Board of Directors |  | Eligible employees, and consultants of Hummingbird Inc. |  | Eligible employees as determined by the Board of Directors |  | Former employees, and consultants of Vista Inc.
Options granted to date |  | 7,914,290 |  | 3,200,900 |  | 20,000 |  | 414,968 |  | 51,000 |  | 355,675 |  | 210,000 |  | 43,500
Options exercised to date |  | (4,504,680) |  | (1,341,000) |  | (2,500) |  | (400,968) |  | (13,000) |  | (22,923) |  | (59,250) |  | (21,000)
Options cancelled to date |  | (2,555,110) |  | (491,125) |  | (12,500) |  | (13,500) |  | (13,000) |  | (318,919) |  | (144,750) |  | (18,375)
Options outstanding |  | 854,500 |  | 1,368,775 |  | 5,000 |  | 500 |  | 25,000 |  | 13,833 |  | 6,000 |  | 4,125
Termination grace periods |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death |  | Immediately "for cause"; 90 days for any other reason; 180 days due to death
Vesting schedule |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified |  | 25% per year, unless other- wise specified
Exercise price range |  | $10.39 – $31.35 |  | $14.02 – $61.63 |  | $17.99 – $17.99 |  | $13.50 – $13.50 |  | $26.24 – $26.24 |  | $18.36 – $27.75 |  | $26.24 – $26.24 |  | $17.99 – $17.99
Expiration dates |  | 8/14/2011 to 2/3/2016 |  | 12/9/2011 to 4/29/2018 |  | 9/3/2012 to 9/3/2013 |  | 1/28/2013 to 1/28/2013 |  | 1/27/2014 to 1/27/2014 |  | 10/2/2013 to 10/2/2013 |  | 1/27/2014 to 1/27/2014 |  | 9/3/2011 to 9/3/2013
The following table summarizes information regarding stock options outstanding at June 30, 2011:
|  | Options Outstanding |  |  | Options Exercisable |
Range of Exercise Prices |  | Number of options Outstanding as of June 30, 2011 |  |  | Weighted Average Remaining Contractual Life (years) |  |  | Weighted Average Exercise Price |  |  | Number of options Exercisable as of June 30, 2011 |  |  | Weighted Average Exercise Price |
$10.39 – $13.50 |  |  | 242,000 |  |  |  | 1.09 |  |  | $ | 10.72 |  |  |  | 242,000 |  |  | $ | 10.72 |
$13.50 – $14.94 |  |  | 552,500 |  |  |  | 1.10 |  |  |  | 14.08 |  |  |  | 552,500 |  |  |  | 14.08 |
$14.94 – $17.41 |  |  | 230,500 |  |  |  | 1.12 |  |  |  | 16.87 |  |  |  | 230,500 |  |  |  | 16.87 |
$17.41 – $24.87 |  |  | 267,377 |  |  |  | 2.74 |  |  |  | 20.77 |  |  |  | 261,127 |  |  |  | 20.67 |
$24.87 – $34.50 |  |  | 577,931 |  |  |  | 3.74 |  |  |  | 32.01 |  |  |  | 325,931 |  |  |  | 31.28 |
$34.50 – $43.51 |  |  | 334,925 |  |  |  | 5.32 |  |  |  | 40.57 |  |  |  | 58,750 |  |  |  | 39.99 |
$43.51 – $61.63 |  |  | 72,500 |  |  |  | 6.26 |  |  |  | 54.06 |  |  |  | 30,500 |  |  |  | 48.39 |
$10.39 – $61.63 |  |  | 2,277,733 |  |  |  | 2.75 |  |  | $ | 24.51 |  |  |  | 1,701,308 |  |  | $ | 19.80 |
Share-Based Payments Total share-based compensation cost for the periods indicated below is detailed as follows:
|  | Year ended June 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Stock options |  | $ | 3,546 |  |  | $ | 7,293 |  |  | $ | 5,032 |
Restricted stock units (legacy Vignette employees) |  |  | 124 |  |  |  | 869 |  |  |  | — |
Deferred stock units (Directors) |  |  | 295 |  |  |  | 127 |  |  |  | — |
Performance stock units (LTIP 3 and LTIP 4) |  |  | 7,343 |  |  |  | 1,476 |  |  |  | — |
Total share-based compensation expense |  | $ | 11,308 |  |  | $ | 9,765 |  |  | $ | 5,032 |
Summary of Outstanding Stock Options As of June 30, 2011, options to purchase an aggregate of 2,277,733 Common Shares were outstanding and 1,331,045 Common Shares were available for issuance under our stock option plans. Our stock options generally vest over four years and expire between seven and ten years from the date of the grant. The exercise price of the options we grant is set at an amount that is not less than the closing price of our Common Shares on NASDAQ on the trading day immediately preceding the applicable grant date. A summary of option activity under our stock option plans for the year ended June 30, 2011 and 2010 is as follows:
|  | Options |  |  | Weighted- Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value ($'000s) |
Outstanding at June 30, 2010 |  |  | 2,669,142 |  |  | $ | 23.55 |  |  |  |  |  |  |  |  |
Granted |  |  | 78,800 |  |  |  | 51.24 |  |  |  |  |  |  |  |  |
Exercised |  |  | (439,071 | ) |  |  | 22.98 |  |  |  |  |  |  |  |  |
Forfeited or expired |  |  | (31,138 | ) |  |  | 31.75 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2011 |  |  | 2,277,733 |  |  | $ | 24.51 |  |  |  | 2.75 |  |  | $ | 89,998 |
Exercisable at June 30, 2011 |  |  | 1,701,308 |  |  | $ | 19.80 |  |  |  | 2.06 |  |  | $ | 75,234 |
|  | Options |  |  | Weighted- Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value ($'000s) |
Outstanding at June 30, 2009 |  |  | 2,828,989 |  |  | $ | 20.71 |  |  |  |  |  |  |  |  |
Granted |  |  | 328,000 |  |  |  | 41.29 |  |  |  |  |  |  |  |  |
Exercised |  |  | (474,444 | ) |  |  | 18.86 |  |  |  |  |  |  |  |  |
Forfeited or expired |  |  | (13,403 | ) |  |  | 24.61 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2010 |  |  | 2,669,142 |  |  | $ | 23.55 |  |  |  | 3.43 |  |  | $ | 38,589 |
Exercisable at June 30, 2010 |  |  | 1,658,391 |  |  | $ | 18.20 |  |  |  | 2.75 |  |  | $ | 32,073 |
We estimate the fair value of stock options using the Black-Scholes option pricing model, consistent with the provisions of ASC Topic 718, "Compensation—Stock Compensation" (ASC Topic 718), and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards. For the periods indicated, the following weighted-average fair value of options and weighted-average assumptions used were as follows:
|  | Year ended June 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Weighted—average fair value of options granted |  | $ | 17.89 |  |  | $ | 14.26 |  |  | $ | 12.47 |
Weighted-average assumptions used: |  |  |  |  |  |  |  |  |  |  |  |
Expected volatility |  |  | 40 | % |  |  | 39 | % |  |  | 42 | %
Risk-free interest rate |  |  | 1.7 | % |  |  | 2.2 | % |  |  | 2.9 | %
Expected dividend yield |  |  | 0 | % |  |  | 0 | % |  |  | 0 | %
Expected life (in years) |  |  | 4.3 |  |  |  | 4.3 |  |  |  | 4.4 |
Forfeiture rate (based on historical rates) |  |  | 5 | % |  |  | 5 | % |  |  | 5 | %
As of June 30, 2011, the total compensation cost related to the unvested stock awards not yet recognized was $5.2 million, which will be recognized over a weighted average period of approximately 2 years. No cash was used by us to settle equity instruments granted under share-based compensation arrangements. We have not capitalized any share-based compensation costs as part of the cost of an asset in any of the periods presented. For the year ended June 30, 2011, cash in the amount of $10.1 million was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2011 from the exercise of options eligible for a tax deduction was $2.8 million. For the year ended June 30, 2010, cash in the amount of $8.9 million was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2010 from the exercise of options eligible for a tax deduction was $1.9 million. For the year ended June 30, 2009, cash in the amount of $18.7 million was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2009 from the exercise of options eligible for a tax deduction was $8.6 million. Deferred Stock Units (DSUs) and Performance Stock Units (PSUs) During the year ended June 30, 2011, we granted 6,606 deferred stock units (DSUs) to certain nonemployee directors (June 30, 2010 – 4,299, June 30, 2009 – nil). The DSUs were issued under the Company's Deferred Share Unit Plan that came into effect on February 2, 2010 and will vest at the Company's next annual general meeting following the granting of the DSUs. On October 29, 2010, we granted 264,834 performance stock units (PSUs) under the Fiscal 2011 Long Term Incentive Plan (LTIP 4). We did not grant any other PSUs under LTIP 4 or the Fiscal 2010 Long Term Incentive Plan (LTIP 3) during Fiscal 2011. During the year ended June 30, 2010, we granted 307,579 PSUs under LTIP 3. Awards achieved under the LTIP 3 and LTIP 4 will be settled over the three year period ending June 30, 2012 and June 30, 2013, respectively. Restricted Stock Awards (RSAs) On July 21, 2009, we granted, as part of our acquisition of Vignette, 574,767 OpenText restricted stock awards (RSAs) to certain legacy Vignette employees and directors as replacement for similar restricted stock awards held by these employees and directors when they were employed by Vignette. These awards were valued at $13.33 per RSA on July 21, 2009, and a portion has been allocated to the purchase price of Vignette. The remaining portion is amortized, as part of share-based compensation expense, over the vesting period of these awards. Long Term Incentive Plans On September 10, 2007, our Board of Directors approved the implementation of an incentive plan called the "Open Text Corporation Long-Term Incentive Plan" (LTIP). The LTIP is a rolling three-year program whereby we make a series of annual grants, each of which covers a three-year performance period, to certain of our employees, and which vests upon the employee and/or the Company meeting pre-determined performance and market-based criteria. Grants made in Fiscal 2008 under the LTIP (LTIP 1) took effect in Fiscal 2008, starting on July 1, 2007. Awards under LTIP 1 have been settled in cash in the aggregate amount of $14.4 million. Grants made in Fiscal 2009 under the LTIP (LTIP 2) took effect in Fiscal 2009 starting on July 1, 2008. Awards under LTIP 2 equals to 100% of the target. We will settle LTIP 2 awards in cash. Grants made in Fiscal 2010 under the LTIP (LTIP 3) took effect in Fiscal 2010 starting on July 1, 2009. Awards under LTIP 3 may be equal to 50%, 100% or 150% of the target. We expect to settle LTIP 3 awards in stock. Grants made in Fiscal 2011 under the LTIP (LTIP 4) took effect in Fiscal 2011 starting on July 1, 2010. Awards under LTIP 4 may be equal to 50%, 100% or 150% of the target. We expect to settle LTIP 4 awards in stock. Consistent with the provisions of ASC Topic 718, we have measured the fair value of the liability under LTIP 2 as of June 30, 2011 and recorded an expense relating to such liability to compensation cost in the amount of $5.6 million for the year ended June 30, 2011 (June 30, 2010—$14.2 million, inclusive of the compensation costs under LTIPs 1 and 2; June 30, 2009—$3.9 million inclusive of compensation costs under LTIP 1 only). The outstanding liability under LTIP 2 as of June 30, 2011 was $10.9 million (June 30, 2010—$15.4 million—inclusive of the liability under LTIPs 1 and 2). PSUs granted under the LTIP equity plans (LTIPs 3 and 4) have been measured at fair value as of the effective date, consistent with ASC Topic 718 and will be charged to share-based compensation expense over the remaining life of the plan. During the year ended June 30, 2011, $7.3 million, has been charged to share-based compensation expense on account of the LTIP equity plans (June 30, 2010—$1.5 million on account of LTIP 3 only).

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