STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

STOCK-BASED COMPENSATION PLANS

12. 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.

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

	Year Ended December 31,
	2012		2011		2010
Direct costs of customer support	$	936	$	659	$	755
Sales and marketing		929		835		944
General and administrative		3,993		2,489		2,932
	$	5,858	$	3,983	$	4,631

We have not recognized any tax benefits associated with stock-based compensation due to our tax net operating losses.  During the three years ended December 31, 2012, 2011 and 2010, we capitalized $0.4 million, $0.5 million and $0.2 million, respectively, of stock-based compensation.

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, 2012, 2011 and 2010, were expected terms of 4.4, 4.2 and 4.2 years, respectively; historical volatilities of 78%, 78% and 80%, respectively; risk free interest rates of 0.7%, 1.6% and 1.9%, respectively and no dividend yield. The weighted average estimated fair value per share of our stock options at grant date was $4.51, $4.02 and $3.07 during the years ended December 31, 2012, 2011 and 2010, 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.

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, 2012, 3.8 million shares of stock were available for issuance.

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. 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. 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, except as described below for non-employee directors. 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 canceled 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.

During 2012 and 2011, the value of the equity grants received by non-employee directors was $77,000 and $75,000, respectively, in the form of restricted stock that vests on the date of our annual meeting of stockholders in the year following grant.  In 2010, the value of the equity grants received by non-employee directors was $37,500 in the form of fully vested options and $37,500 of restricted stock that vests in three annual installments on the anniversary of grant. As of December 31, 2012, 0.3 million stock options granted to non-employee directors were outstanding.

Stock option activity during the year ended December 31, 2012 under all of our stock-based compensation plans was as follows (shares in thousands):

	Shares			Weighted Average Exercise Price
Balance, December 31, 2011		4,643		$	6.13
Granted		1,632			7.64
Exercised		(516	)		4.79
Forfeitures and post-vesting cancellations		(1,058	)		7.09
Balance, December 31, 2012		4,701		$	6.57
Exercisable, December 31, 2012		2,532		$	6.31

Fully vested and exercisable stock options and stock options expected to vest as of December 31, 2012 are further summarized as follows (shares in thousands):

	Fully Vested and Exercisable		Expected to Vest
Total shares		2,532		4,376
Weighted-average exercise price	$	6.31	$	6.52
Aggregate intrinsic value	$	4,921,295	$	5,917,234
Weighted-average remaining contractual term (in years)		6.0		7.1

The total intrinsic value of stock options exercised was $1.2 million, $0.9 million and $1.2 million during the years ended December 31, 2012, 2011 and 2010, 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, 2012 was as follows (shares in thousands):

	Shares			Weighted- Average Grant Date Fair Value
Unvested balance, December 31, 2011		1,165		$	5.10
Granted		772			7.10
Vested		(520	)		3.85
Forfeited		(210	)		6.32
Unvested balance, December 31, 2012		1,207		$	4.96

The total fair value of restricted stock vested during the years ended December 31, 2012, 2011 and 2010 was $3.7 million, $2.5 million and $1.7 million, respectively. The total intrinsic value at December 31, 2012 of all unvested restricted stock was $8.3 million.

Total unrecognized compensation costs related to unvested stock-based compensation as of December 31, 2012 was as follows (dollars in thousands):

	Stock Options		Restricted Stock		Total
Unrecognized compensation	$	6,113	$	3,566	$	9,679
Weighted-average remaining recognition period (in years)		2.6		2.0		2.4