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 the three and six months ended December 31, 2012 and 2011, we did not repurchase any of our Common Shares for potential future reissuance under our Long Term Incentive Plans (LTIP) or otherwise.

On November 23, 2012, we issued 182,616 Common Shares from treasury stock in connection with the settlement of awards granted under our Fiscal 2012 LTIP (three and six months ended December 31, 2011—nil). See below for more details regarding this settlement.

Share-Based Payments

Total share-based compensation expense for the periods indicated below is detailed as follows:



	Three Months Ended December 31,				Six Months Ended December 31,
	2012		2011		2012		2011
Stock options	$	1,228	$	974	$	2,567	$	1,772
Performance stock units (issued under LTIP)	1,246		2,350		2,660		6,320
Restricted stock units (issued under LTIP)	377		—		377		—
Restricted stock units (other)	151		—		302		—
Deferred stock units (directors)	172		64		360		129
Restricted stock awards (legacy Vignette employees)	—		9		10		20
Total share-based compensation expense	$	3,174	$	3,397	$	6,276	$	8,241

Summary of Outstanding Stock Options

As of December 31, 2012, options to purchase an aggregate of 2,088,946 Common Shares were outstanding and 2,806,000 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 is set at an amount that is not less than the closing price of our Common Shares on the NASDAQ on the trading day immediately preceding the applicable grant date.

A summary of activity under our stock option plans for the six months ended December 31, 2012 is as follows:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value ($’000s)
Outstanding at June 30, 2012	2,147,151		$	40.07
Granted	252,545		53.20
Exercised	(190,000	)	28.12
Forfeited or expired	(120,750	)	45.70
Outstanding at December 31, 2012	2,088,946		$	42.42	4.41	$	30,040
Exercisable at December 31, 2012	898,276		$	27.32	2.11	$	25,674

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:



	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Weighted–average fair value of options granted	$	16.28		$	17.99		$	16.78		$	17.71
Weighted-average assumptions used:
Expected volatility	37		%	41		%	38		%	41		%
Risk–free interest rate	0.64		%	0.74		%	0.64		%	0.79		%
Expected dividend yield	—		%	—		%	—		%	—		%
Expected life (in years)	4.35			4.30			4.35			4.30
Forfeiture rate (based on historical rates)	5		%	5		%	5		%	5		%

As of December 31, 2012, the total compensation cost related to the unvested stock option awards not yet recognized was $17.5 million, which will be recognized over a weighted-average period of approximately 3.5 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 three and six months ended December 31, 2012, cash in the amount of $2.0 million and $5.4 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and six months ended December 31, 2012 from the exercise of options eligible for a tax deduction was nil and $0.8 million, respectively.

For the three and six months ended December 31, 2011, cash in the amount of $3.0 million and $10.2 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and six months ended December 31, 2011 from the exercise of options eligible for a tax deduction was $0.4 million and $0.8 million, respectively.

Long-Term Incentive Plans

On September 10, 2007, our Board of Directors (the Board) 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 the respective 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. One criterion we use to measure performance is, if over the three year period the relative cumulative total shareholder return (TSR) of our Company, compared to the cumulative TSR of companies comprising a peer index group, is higher than a pre-determined target percentile (that is set at the date of grant), then a payout will be made. Depending on whether this target is met or exceeded with respect to the stipulations of the individual LTIPs, the amount of payout would be determined. In calculating the TSR achievement we use the average closing price of our Common Stock, as it trades over the last 30 days ending September 15th (following the third year in the LTIPs rolling three year program). LTIPs will be referred to in this document based upon the year in which the grants are expected to be settled.

Grants made in Fiscal 2010 under the LTIP (Fiscal 2012 LTIP) took effect in Fiscal 2010 starting on July 1, 2009. We met some of the performance conditions and settled the Fiscal 2012 LTIP by issuing 182,616 Common Shares from our treasury stock, with a cost of approximately $8.3 million.

Grants made in Fiscal 2011 under the LTIP (Fiscal 2013 LTIP) took effect in Fiscal 2011 starting on July 1, 2010. Vesting of Performance Stock Units (PSUs) granted under the Fiscal 2013 LTIP are based upon market and performance-based conditions and may be equal to 50%, 100% or 150% of the target payment. We expect to settle the Fiscal 2013 LTIP awards in stock.

Grants made in Fiscal 2012 under the LTIP (Fiscal 2014 LTIP) took effect in Fiscal 2012 starting on February 3, 2012. Vesting of PSUs granted under the Fiscal 2014 LTIP are based upon market-based conditions and will be interpolated between 0% and 150% of the target payment. We expect to settle the Fiscal 2014 LTIP awards in stock.

Grants made in Fiscal 2013 under the LTIP (Fiscal 2015 LTIP) took effect in Fiscal 2013 starting on November 2, 2012 for the Restricted Stock Units (RSUs) and December 3, 2012 for the PSUs. Vesting of PSUs granted under the Fiscal 2015 LTIP are based upon market-based conditions and will be interpolated between 0% and 150% of the target payment. RSUs granted are service-based awards and vest over the life of the LTIP. Subject to certain terms and conditions, if an eligible employee remains employed throughout the vesting period, all RSUs shall become vested RSUs at the end of the vesting period. We expect to settle the Fiscal 2015 LTIP awards in stock

PSUs and RSUs granted under the LTIPs 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. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value.

Expected and actual stock compensation expense for each of the above mentioned LTIP plans is as follows:



					Three Months ended December 31,		Six Months ended December 31,
Grants Made Under LTIP	Equity Instrument	Start Date	End Date	Expected Total LTIP Expense	2012	2011	2012	2011
Fiscal 2012 LTIP	PSU	3/31/2010	9/15/2012	17,314	—	1,830	579	5,280
Fiscal 2013 LTIP	PSU	10/29/2010	9/15/2013	4,707	298	520	598	1,040
Fiscal 2014 LTIP	PSU	2/3/2012	9/15/2014	8,898	862	—	1,397	—
Fiscal 2015 LTIP	PSU	12/3/2012	9/15/2015	3,132	86	—	86	—
Fiscal 2015 LTIP	RSU	11/2/2012	9/15/2015	6,699	377	—	377	—
				40,750	1,623	2,350	3,037	6,320

Of the total compensation cost of $40.8 million noted in the table above , $24.8 million has been recognized to date and the remaining expected total compensation cost of $16.0 million is expected to be recognized over a weighted average period of 2.3 years.

Employee Share Purchase Plan (ESPP)

During the three and six months ended December 31, 2012, cash in the amount of approximately $0.4 million and $1.0 million, respectively, was received from employees that will be used to purchase Common Shares in future periods (three and six months ended December 31, 2011— $0.4 million and $1.0 million).