5. STOCK-BASED COMPENSATION

Stock Plans

On June 7, 2006, the stockholders approved the QAD Inc. 2006 Stock Incentive Program (“2006 Program”). The 2006 Program replaced the QAD 1997 Stock Incentive Program (“1997 Program”). The 2006 Program allows for equity awards in the form of incentive stock options, non-statutory stock options, restricted shares, rights to purchase stock, stock appreciation rights (“SARs”) and other stock rights. The stockholders authorized a maximum of 4,150,000 shares to be issued under the 2006 Program, of which 3,320,000 are reserved for issuance as Class A Common Stock and 830,000 are reserved for issuance as Class B Common Stock. On June 12, 2012, the Company's stockholders approved an amendment to the 2006 Stock Incentive Program to provide for an increase in the number of shares of Class A Common Stock reserved for issuance by 2,000,000 shares. As of January 31, 2015, 1,670,000 Class A Common Shares and 345,000 Class B Common Shares were available for issuance.

After the 2006 Program was adopted, the Company began issuing equity awards in the form of stock-settled SARs. A SAR is a contractual right to receive value tied to the post-grant appreciation of the underlying stock. Although the Company has the ability to grant stock-settled or cash-settled SARs, the Company has only granted stock-settled SARs. Upon vesting, a holder of a stock-settled SAR receives shares in the Company’s common stock equal to the intrinsic value of the SAR at time of exercise. Under the 2006 Program, SARs have generally been granted for a term of eight years, they generally vest 25% after each year of service for four years and are contingent upon employment with the Company on the vesting date. Economically, a stock-settled SAR provides the same compensation value as a stock option, but the employee is not required to pay an exercise price upon exercise of the SAR. Stock compensation expense, as required under ASC 718, is the same for stock-settled SARs and stock options. At January 31, 2015, outstanding under the 2006 Program, there were 2,174,000 SARs to purchase Class A Common Stock and 325,000 SARs to purchase Class B Common Stock.

The Company also began issuing restricted stock units (“RSUs”) in fiscal 2008. RSUs granted to employees under the 2006 Program are generally released 25% after each year of service for four years and are contingent upon employment with the Company on the release date. Under the 2006 Program, RSUs granted to non-employee directors generally vest immediately and are contingent upon providing services to the Company. Stock based compensation is typically issued out of treasury shares. At January 31, 2015, outstanding under the 2006 Program, there were 503,000 RSUs to purchase Class A Common Stock.

Beginning in fiscal 2015 the Company began issuing only RSUs to employees with the exception of the CEO and President of the Company.

Under both programs, officers, directors, employees, consultants and other independent contractors or agents of the Company or subsidiaries of the Company who are responsible for or contribute to the management, growth or profitability of its business are eligible for selection by the program administrators to participate. However, incentive stock options granted under the programs may only be granted to a person who is an employee of the Company or one of its subsidiaries.

Stock- Based Compensation

The following table sets forth reported stock compensation expense included in the Company’s Consolidated Statements of Income and Comprehensive Income for the fiscal years ended January 31, 2015, 2014 and 2013:

		Years Ended January 31,
		2015		2014		2013
	(in thousands)
Stock-based compensation expense:
Cost of maintenance, subscription and other revenue		$	197	$	201	$	197
Cost of professional services			492		476		482
Sales and marketing			790		858		835
Research and development			518		628		658
General and administrative			2,996		2,517		2,436
Total stock-based compensation expense		$	4,993	$	4,680	$	4,608

The Company presents any benefits of realized tax deductions in excess of recognized compensation expense as cash flow from financing activities in the accompanying Consolidated Statement of Cash Flows. There were $266,000, $72,000 and $462,000 excess tax benefits recorded for equity awards exercised in the fiscal years ended January 31, 2015, 2014 and 2013, respectively.

SAR Information

The weighted average assumptions used to value SARs are shown in the following table.

	Years Ended January 31,
	2015			2014			2013
Expected life in years		4.98			4.57			4.61
Risk free interest rate		1.58	%		1.00	%		0.69	%
Volatility		47	%		53	%		61	%
Dividend rate		1.32	%		2.42	%		2.25	%

The following table summarizes the activity for outstanding options and SARs for the fiscal years ended January 31, 2015, 2014 and 2013:

	Options/ SARs (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 31, 2012		2,871		$	11.34
Granted		570			12.90
Exercised		(272	)		8.34
Expired		(222	)		22.26
Forfeited		(27	)		9.49
Outstanding at January 31, 2013		2,920		$	11.11
Granted		599			11.73
Exercised		(404	)		9.21
Expired		(230	)		15.16
Forfeited		(43	)		10.68
Outstanding at January 31, 2014		2,842		$	11.19
Granted		387			21.61
Exercised		(655	)		11.47
Expired		(22	)		12.68
Forfeited		(53	)		12.31
Outstanding at January 31, 2015		2,499		$	12.69	5.1	$	16,964
Vested and expected to vest at January 31, 2015 (1)		2,483		$	12.69	5.1	$	16,855
Vested and exercisable at January 31, 2015		1,323		$	10.55	4.0	$	11,246

(1)	The expected-to-vest options and SARs are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options and SARs.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock based on the last trading day as of January 31, 2015 and the exercise price for in-the-money stock options and SARs) that would have been received by the holders if all stock options and SARs had been exercised on January 31, 2015. The total intrinsic value of stock options or SARs exercised in the years ended January 31, 2015, 2014 and 2013 was $5.7 million, $2.1 million and $1.4 million, respectively. The weighted average grant date fair value per share of SARs granted in the years ended January 31, 2015, 2014 and 2013 was $8.18, $4.24 and $5.37, respectively.

The number of SARs exercised includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the fiscal years ended January 31, 2015, 2014 and 2013, the Company withheld 88,000 shares, 49,000 shares and 35,000 shares for payment of these taxes. The value of the withheld shares for the fiscal years ended January 31, 2015, 2014 and 2013 were $1.8 million, $0.7 million and $0.5 million, respectively.

At January 31, 2015, there was approximately $5.4 million of total unrecognized compensation cost related to unvested SARs. This cost is expected to be recognized over a weighted average period of approximately 2.6 years.

RSU Information

The following table summarizes the activity for RSUs for the fiscal years ended January 31, 2015, 2014 and 2013:

	RSUs			Weighted Average Grant Date Fair Value
	(in thousands)
Restricted stock at January 31, 2012		414		$	9.32
Granted		200			12.20
Released (1)		(223	)		9.84
Forfeited		(6	)		10.99
Restricted stock at January 31, 2013		385		$	10.49
Granted		231			11.20
Released (1)		(165	)		10.05
Forfeited		(21	)		11.14
Restricted stock at January 31, 2014		430		$	11.02
Granted		287			21.25
Released (1)		(167	)		11.92
Forfeited		(47	)		14.00
Restricted stock at January 31, 2015		503		$	16.27

(1)

The number of RSUs released includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the fiscal years ended January 31, 2015, 2014 and 2013, the Company withheld 45,000 shares, 47,000 shares and 57,000 shares, respectively, for payment of these taxes. The value of the withheld shares for the fiscal years ended January 31, 2015, 2014 and 2013 were $1.0 million, $0.6 million and $0.7 million, respectively.

Total unrecognized compensation cost related to RSUs was approximately $6.2 million as of January 31, 2015. This cost is expected to be recognized over a period of approximately 2.9 years.