17. STOCK-BASED COMPENSATION PLANS

We have granted employees options to purchase shares of our common stock and issued shares of common stock subject to vesting. We measure stock-based compensation cost at the grant date based on the calculated fair value of the option or award. We recognize the expense over the employees’ requisite service period, generally the vesting period of the option or award. We estimate the fair value of stock options at the grant date using the Black-Scholes option pricing model. Stock option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate, impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.

Stock-Based Compensation

The following table summarizes the amount of stock-based compensation, net of estimated forfeitures, included in the consolidated statements of operations (in thousands):


	Year ended December 31,
	2011		2010		2009
Direct costs of customer support	$	659	$	755	$	974
Sales and marketing		835		944		1,395
General and administrative		2,489		2,932		3,244
	$	3,983	$	4,631	$	5,613

We have not recognized any tax benefits associated with stock-based compensation due to our tax net operating losses. We capitalized $0.5 million of stock-based compensation for the period ended December 31, 2011 and less than $0.2 million of stock-based compensation during each of the years ended December 31, 2010 and 2009.

The significant weighted average assumptions used for estimating the fair value of the option grants under our stock-based compensation plans during the years ended December 31, 2011, 2010 and 2009, were expected terms of 4.2, 4.2 and 4.3, respectively; historical volatilities of 78%, 80% and 82%, respectively; risk free interest rates of 1.6%, 1.9% and 1.8%, respectively and no dividend yield. The weighted average estimated fair value per share of our stock options at grant date was $4.02, $3.07 and $1.65 during the years ended December 31, 2011, 2010 and 2009, respectively. The expected term represents the weighted average period of time that the stock options are expected to be outstanding, giving consideration to the vesting schedules and our historical exercise patterns. Because our stock options are not publicly traded, assumed volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected term of the options. We have also used historical data to estimate stock option exercises, employee terminations and forfeiture rates.

Stock-Based Compensation Plans

Under our Amended and Restated 2005 Incentive Stock Plan (the “2005 Plan”), we may issue stock options, stock appreciation rights, restricted stock and stock unit grants to eligible employees and directors. Our historical practice has been to grant only stock options and restricted stock.

The compensation committee of our board of directors administers the 2005 Plan. As of December 31, 2011, 5.0 million shares of stock were available for issuance.

Under the 2005 Plan, we may not grant a stock option to any employee or director to purchase more than 1.4 million shares of stock or a stock appreciation right based on the appreciation with respect to more than 1.4 million shares of stock in any calendar year. Similarly, we may not make a stock grant or stock unit grant to any employee or director where the fair market value of the stock subject to such grant on the grant date exceeds $3.0 million in any calendar year. Furthermore, we may not issue more than 0.7 million non-forfeitable shares of stock pursuant to stock grants.

We previously granted non-qualified stock options to non-employee directors under the 1999 Non-Employee Directors’ Stock Option Plan (the “Director Plan”) and shares of restricted stock under the 2005 Plan. In 2009, the number of stock options and shares of restricted stock was determined using a total value of $55,000 and calculated by using the lesser of (i) the closing price of our common stock reported on Nasdaq on the grant date or (ii) three dollars per share. The stock options had an exercise price equal to 100% of the fair market value of our common stock on the grant date and were fully vested as of the grant date. The shares of restricted stock vested in three annual installments on the anniversary of grant.

Following expiration of the Director Plan in July 2009 by its terms, all grants of equity to directors began to be made from the 2005 Plan. In 2010, we increased the compensation of our non-employee directors such that each director received a number of options equal to $37,500 and a number of shares of restricted stock equal to $37,500. As with prior grants, all stock options were fully vested and had an exercise price equal to 100% of the fair market value on the grant date. Similarly, the shares of restricted stock vested in three annual installments on the anniversary of grant.

In 2011, the value of the grant of equity received by non-employee directors did not change ($75,000), but the form of equity received was 100% shares of restricted stock, whch vest on the date of our annual meeting of stockholders in the year following grant. As of December 31, 2011, 0.2 million stock options were outstanding.

For all stock-based compensation plans, the exercise price for each stock option may not be less than the fair market value of a share of our common stock on the grant date. Stock options generally have a maximum term of 10 years from the grant date. Incentive stock options, may be granted only to eligible employees and if granted to a 10% stockholder, the terms of the grant will be more restrictive than for other eligible employees. Stock options become exercisable as determined at the grant date by the compensation committee of our board of directors. Stock options generally vest 25% after one year and monthly or quarterly over the following three years, except for non-employee directors who have received immediately exercisable options. Conditions, if any, under which stock will be issued under stock grants or cash will be paid under stock unit grants and the conditions under which the interest in any stock that has been issued will become non-forfeitable are determined at the grant date by the compensation committee. All awards under the 2005 Plan are subject to minimum vesting requirements unless otherwise determined by the compensation committee: a minimum one-year vesting period for time-based stock option and stock appreciation rights and a minimum three-year vesting period for time-based stock grants. If awards are performance-based, then performance must be measured over a period of at least one year. The 2005 Plan limits the number of shares that may be granted as full value awards (that is, grants other than in the form of stock options or stock appreciate rights) to 50% of the total number of shares available for issuance. In general, when awards granted under the 2005 Plan expire or are cancled without having been fully exercised, the shares reserved for those awards will be returned to the share reserve and be available for future awards. However, shares of common stock that are delivered by the grantee or withheld by us as payment of the exercise price in connection with the exercise of an option or payment of the tax withholding obligation in connection with any award will not be returned to the share reserve. We have reserved sufficient common stock to satisfy stock option exercises with newly issued stock. However, we may also use treasury stock to satisfy stock option exercises.

Stock option activity during the year ended December 31, 2011 under all of our stock-based compensation plans was as follows (shares in thousands):


	Shares			Weighted Average Exercise Price
Balance, December 31, 2010		4,468		$	6.08
Granted		1,683			6.81
Exercised		(332	)		3.97
Forfeitures and post-vesting cancellations		(1,176	)		7.51
Balance, December 31, 2011		4,643		$	6.13
Exercisable, December 31, 2011		2,105		$	6.67

Fully vested and exercisable stock options and stock options expected to vest as of December 31, 2011 are further summarized as follows (shares in thousands):


	Fully Vested and Exercisable		Expected to Vest
Total shares		2,105		4,245
Weighted-average exercise price	$	6.67	$	6.13
Aggregate intrinsic value	$	2,828,900	$	4,701,402

Weighted-average remaining contractual term, in years		6.4		7.5

The total intrinsic value of stock options exercised was $0.9 million, $1.2 million and $0.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. None of our stock options or the underlying shares is subject to any right to repurchase by us.

Restricted stock activity during the year ended December 31, 2011 was as follows (shares in thousands):


	Shares			Weighted- Average Grant Date Fair Value
Unvested balance, December 31, 2010		1,259		$	4.25
Granted		503			6.31
Vested		(378	)		4.34
Forfeited		(219	)		4.42

Unvested balance, December 31, 2011		1,165		$	5.10

The total fair value of restricted stock vested during the years ended December 31, 2011, 2010 and 2009 was $2.5 million, $1.7 million and $1.1 million, respectively. The total intrinsic value at December 31, 2011 of all unvested restricted stock was $6.9 million.

Total unrecognized compensation costs related to unvested stock-based compensation as of December 31, 2011 was as follows (dollars in thousands):


	Stock Options		Restricted Stock			Total
Unrecognized compensation	$	5,898		$	2,556		$	8,454
Weighted-average remaining recognition period (in years)		2.7			2.2			2.5

Employee Stock Purchase Plan

Our 2004 Employee Stock Purchase Plan (the “ESPP”) permited eligible employees to purchase our common stock at a discount. Eligible employees could elect to participate in the ESPP for two consecutive calendar quarters, referred to as a “purchase period,” during a designated period immediately preceding the purchase period. Purchase periods were established as the six-month periods ending June 30 and December 31 of each year. The price for shares of common stock purchased under the ESPP was 95% of the closing sale price per share of common our stock on the last day of the purchase period. The ESPP was intended to be a non-compensatory plan for both tax and financial reporting purposes. We granted less than 0.1 million shares under the ESPP during each of the years during the three year period ended December 31, 2011. Cash received from participation in the ESPP was $0.1 million during each of the years during the three year period ended December 31, 2011. We suspended participation in the ESPP effective July 1, 2011.