11. BENEFIT PLANS
Employee Stock Ownership Plan - In July 1986, the Company established an Employee Stock Ownership Plan (ESOP) and Trust. Under the terms of the ESOP, the Company makes annual contributions to the Plan for the benefit of substantially all employees of the Company. The contribution may be in the form of cash or common shares of the Company. The Board of Directors may authorize contributions between a maximum of 25% of eligible compensation and a minimum sufficient to cover current obligations of the Plan. The Company made contributions of $4,558,000, $3,500,000 and $2,330,000 in fiscal 1999, 1998 and 1997, respectively. This is a non-leveraged ESOP plan.

Employee Stock Purchase Plan - During fiscal 1997, the Company adopted the Global Employee Stock Purchase Plan (GESPP) under which the Company is authorized to issue up to eight million shares of common stock to eligible employees. Each offering period is limited to six months and a maximum number of 1,000,000 common shares. The Company's first offering period began January 1, 1997. Under the terms of the plan, employees elect to have up to 10% of their annual earnings withheld to purchase Company stock, with a value not to exceed $25,000, at the close of the offering period. The purchase price is 85% of the first or last day's closing market price for each offering period, whichever is lower. During fiscal 1999 and 1998, the Company sold approximately 1,177,000 and 1,250,000 shares, respectively, to eligible employees under the plan.

NuMega Technologies, Inc. 1996 Stock Option Plan - In connection with the NuMega acquisition (see Note 2 of Notes to Consolidated Financial Statements), options to acquire approximately 1,776,000 shares of the Company's common stock were exchanged for all outstanding NuMega incentive and nonqualified stock options, of which approximately 372,000 were outstanding at March 31, 1999. The option prices range from $1.32 to $11.83 and expire in 9 years.

Employee Stock Option Plans - The Company adopted five Employee Stock Option Plans dating back to 1991. These plans provide for grants of options to purchase up to 91,000,000 shares of the Company's common stock to employees of the Company, of which approximately 46,614,000 were outstanding at March 31, 1999. Under the terms of the plans, the Company may grant nonqualified options at the fair market value of the stock on the date of grant. During fiscal 1999, the Company granted approximately 11,840,000 options under the five different Employee Stock Option Plans.

Non-Employee Director Stock Option Plan - In July 1992, the Company adopted the Stock Option Plan for Non-Employee Directors. Under this plan, 2,400,000 shares of common stock are reserved for issuance to non-employee directors of the Company who have not been employees of the Company, any subsidiary of the Company or any entity which controls more than 10% of the total combined voting power of the Company's capital stock for at least one year prior to becoming director. Non-employee directors receive a one-time grant of options to purchase 20,000 shares of common stock and an annual grant of 40,000 option shares. Further, effective April 1, 1999, each non-employee director will receive options to purchase 2,000 option shares for each Board of Directors meeting attended in person, 1,000 option shares for each Board of Directors Committee meeting attended in person, 500 option shares for each Board of Directors meeting attended by telephone, and 250 option shares for each Board of Directors Committee meeting attended by telephone. All option shares become exercisable over a four-year period. During fiscal 1999, approximately 343,000 options were granted under the Non-Employee Director Stock Option Plan. Approximately 1,603,000 options were outstanding at March 31, 1999.

Options generally vest in cumulative annual installments over a three-to-five year period. All options were granted at fair market value and expire ten years from the date of grant.

At March 31, 1999, a total of 213,284 options were outstanding under plans that were terminated by the Company, all of which are fully vested. All outstanding options under the terminated plans remain in effect in accordance with the terms under which they were granted.

During fiscal 1999, the Company implemented a Replacement Stock Option Award program. The program allows selected participants to pay the option exercise price with shares of currently owned Company stock. The Company grants a new stock option award to replace the shares exchanged in the transaction. Approximately 2,538,000 shares were exercised under the Replacement Stock Option Award program for which approximately 1,069,000 replacement options were granted.

The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Stock options are granted at current market prices at the date of grant, therefore, no compensation cost has been recognized for its fixed stock option plans and its stock purchase plan.

If compensation cost for the Company's stock-based compensation plans had been determined based on the fair value at the grant dates for fiscal 1999, 1998 and 1997 consistent with the method prescribed by SFAS No. 123, Compuware's net earnings and earnings per share would have been adjusted to the pro forma amounts indicated in the following table.

The pro forma amounts for compensation cost may not be indicative of the effects on net earnings and earnings per share for future years.

Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1999, 1998 and 1997, respectively: expected volatility of 66.88, 51.50 and 55.22 percent; risk-free interest rates of 5.3, 5.7 and 6.6 percent; and expected lives at date of grant of 4.9, 4.9 and 4.3 years. Dividend yields were not a factor as the Company has never issued cash dividends and has no plans to do so in the future.

Under SFAS No. 123, the fair value of the employees' stock purchase rights were estimated using the Black-Scholes model with assumptions that, except for an expected life of six months and a risk-free interest rate of 4.93% for fiscal 1999, and expected volatilities of 54.25 and 66.21 for the first and second offering periods, respectively, were consistent with those used for the Company's stock option plans described above. The weighted-average fair value of those purchase rights granted in fiscal 1999 were $6.48.

A summary of the status of fixed stock option grants under Compuware's stock-based compensation plans as of March 31, 1999, 1998 and 1997, and changes during the years ending on those dates is as follows (shares in thousands):

The following table summarizes information about fixed stock options outstanding at March 31, 1999 (shares in thousands):

The maximum number of shares for which additional options may be granted was 13,306,421 at March 31, 1999, 13,401,204 at March 31,1998 and 5,440,736 at March 31, 1997. At March 31, 1999, a total of 62,107,843 shares of the Company's common stock are reserved for issuance under all option plans. Income tax benefits associated with the exercise of stock options are reflected as adjustments to additional paid-in capital.

  Annual Report 1999