We currently have one active plan ("Tree.com 2008 Stock and Annual Incentive Plan") under which future awards may be granted, which currently covers outstanding stock options to acquire shares of our common stock and restricted stock units ("RSUs"), and provides for the future grant of these and other equity awards. Under the Tree.com 2008 Stock and Annual Incentive Plan, we are authorized to grant stock options, RSUs and other equity based awards for up to 2.75 million shares of Tree.com common stock. Our board of directors has approved an amendment to the Tree.com 2008 Stock and Annual Incentive Plan to increase the number of authorized shares to 3.35 million shares, subject to approval of stockholders. The active plan described above authorizes us to grant awards to its employees, officers and directors. Finally, this active plan also governs certain equity awards of IAC that were converted into equity awards of Tree.com in connection with the spin-off.

In addition, the plan described above has a stated term of ten years and provides that the exercise price of stock options granted will not be less than the market price of our common stock on the grant date. The plan does not specify grant dates or vesting schedules as those determinations have been delegated to the Compensation Committee of our board of directors (the "Committee"). Each grant agreement reflects the vesting schedule for that particular grant as determined by the Committee.

Prior to the spin-off, our employees received equity awards that were granted under various IAC stock and annual incentive plans. Upon spin-off, these IAC awards were converted into awards of both Tree.com and other former IAC companies. We will continue to recognize non-cash compensation expense for all of these awards granted to our employees.

Non-cash stock-based compensation expense related to equity awards is included in the following line items in the accompanying consolidated statements of operations for the years ended December 31, 2011 and 2010 (in thousands):

	2011			2010

Cost of revenue	$	11		$	15
Selling and marketing expense		425			200
General and administrative expense		3,025			2,765
Product development		316			124

Non-cash stock-based compensation expense before income taxes		3,777			3,104
Income tax benefit		(1,492	)		(1,226	)

Non-cash stock-based compensation expense after income taxes	$	2,285		$	1,878

The forms of stock-based awards granted to Tree.com employees are principally RSUs, restricted stock and stock options. RSUs are awards in the form of units, denominated in a hypothetical equivalent number of shares of Tree.com common stock and with the value of each award equal to the fair value of Tree.com common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Committee at the time of grant. Each stock-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. Certain restricted stock awards also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. Tree.com recognizes expense for all stock-based awards for which vesting is considered probable. For stock-based awards, the accounting charge is measured at the grant date as the fair value of Tree.com common stock awarded and expensed ratably as non-cash compensation over the vesting term. For performance-based awards, the expense is measured at the grant date as the fair value of our common stock awarded and expensed as non-cash compensation over the vesting period if the performance targets are considered probable of being achieved.

The amount of stock-based compensation expense recognized in the consolidated statement of operations is reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the estimated rate.

Tax benefits resulting from tax deductions in excess of the stock-based compensation expense recognized in the consolidated statement of operations are reported as a component of financing cash flows. There were no excess tax benefits from stock-based compensation for the years ended December 31, 2011 or 2010.

As of December 31, 2011, there was approximately $1.0 million, $3.9 million and $1.1 million of unrecognized compensation cost, net of estimated forfeitures, related to stock options, RSUs and restricted stock, respectively. These costs are expected to be recognized over a weighted-average period of approximately 1.4 years for stock options, 2.1 years for RSUs and 1.1 years for restricted stock.

			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

					(In years)		(In thousands)
Outstanding at January 1, 2011	952,669		$	9.58
Granted	153,868			5.89
Exercised	(5,215	)		4.10
Forfeited	(7,758	)		7.46
Expired	(46,818	)		9.43

Outstanding at December 31, 2011	1,046,746		$	9.09		6.0	$	30

Options exercisable	272,997		$	12.39		4.0	$	17

Substantially all options outstanding at December 31, 2011 are vested or are expected to vest over a weighted-average period of approximately 1.4 years.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model. There were 153,868 stock options granted to the Chairman and CEO during the year ended December 31, 2011, which vest over a period of three years. The weighted average exercise price and the weighted average fair value related to these stock option grants were $5.89 and $2.60, respectively. There were no stock options granted during the year ended December 31, 2010.

The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. For purposes of this model, no dividends have been assumed. The risk-free interest rates are based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date. The expected term of options granted is based on analyses of historical employee termination rates and option exercise patterns, giving consideration to expectations of future employee behavior. The following are the weighted average assumptions used in the Black-Scholes option pricing model for years ended December 31, 2011: volatility factor of 44%, risk-free interest rate of 3.6%, expected term of 7.0 years, and a dividend yield of zero.

In connection with the spin-off, our Chairman and CEO was awarded two grants of 589,950 stock options, each of which represented the right to acquire 2.5% of the fully diluted equity at exercise prices representing total equity values of the Company of $100 million and $300 million. These stock options all cliff vest at the end of five years. The weighted average exercise price and the weighted average fair value related to these stock option grants were $16.95 and $4.19, respectively. In 2009, we entered into an Option Cancellation Agreement with the Chairman and CEO, in which he surrendered for cancellation in its entirety one stock option award to purchase 589,850 shares of the Company's common stock at an exercise price of $25.43 per share.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2011. This amount changes based on the fair market value of our common stock. The total intrinsic value of stock options exercised during the years ended December 31, 2011 and 2010 was $17,000 and $87,000, respectively.

Cash received from stock option exercises and the related actual tax benefit realized were $21,000 and $7,000 for the year ended December 31, 2011 and $302,000 and $36,000 for the year ended December 31, 2010, respectively.

The following table summarizes the information about stock options outstanding and exercisable as of December 31, 2011:

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Outstanding at December 31, 2011		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Exercisable at December 31, 2011		Weighted Average Exercise Price
$.01 to $4.99		6,477		1.60	$	2.94		6,477	$	2.94
$5.00 to $7.45		161,928		8.89		5.92		8,060		6.52
$7.46 to $9.99		719,166		5.99		8.31		99,285		7.56
$10.00 to $14.99		31,096		1.97		12.72		31,096		12.72
$15.00 to $19.99		81,416		3.40		15.03		81,416		15.03
$20.00 to $24.99		46,663		3.44		20.19		46,663		20.19

		1,046,746		6.00	$	9.09		272,997	$	12.39

Nonvested RSUs and restricted stock outstanding as of December 31, 2011 and changes during the year ended December 31, 2011 were as follows:

	RSUs					Restricted Stock

	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		634,771		$	7.53		412,500		$	6.80
Granted		771,912			6.17		24,642			5.55
Vested		(261,258	)		7.34		(137,500	)		6.80
Forfeited		(212,374	)		7.56		—			—

Nonvested at December 31, 2011		933,051		$	6.48		299,642		$	6.70

The weighted average grant date fair value of RSUs granted during the years ended December 31, 2011 and 2010 at market prices equal to Tree.com's common stock on the grant date was $6.17 and $8.09, respectively.

The total fair value of RSUs that vested during the years ended December 31, 2011 and 2010 was $1.9 million and $2.3 million, respectively.

Our Chairman and CEO was granted 350,000 shares of restricted stock in 2009, which was treated as a modification of the cancelled stock option award of 589,850 shares discussed above. These shares of restricted stock had a weighted average grant date fair value of $5.42. The incremental non-cash compensation expense for this modification is $0.7 million, which is being recognized over the vesting period of four years. During the year ended December 31, 2010, our Chairman and CEO was granted 150,000 shares of restricted stock. These shares of restricted stock had a weighted average grant date fair value of $9.21 and a total fair value of $1.4 million. During the year ended December 31, 2011, our Chairman and CEO was granted 24,642 shares of restricted stock. The shares of restricted stock had a weighted average grant date fair value of $5.55 and a total fair value of $0.1 million.

Subsequent to December 31, 2011, we granted common shares in an operating subsidiary to certain members of the subsidiary's management. These equity awards vest over a period of years or upon the occurrence of certain prescribed events. We have taken a preferred interest in the subsidiary with a face value equal to its investment cost or a certain other fixed amount. This preferred interest accretes with paid-in-kind dividends at a prescribed rate of return. The equity awards management receives as a whole generally represent a small minority of the total common stock outstanding of each subsidiary. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the preferred interest (including the accretion of dividends), our investment cost or other fixed amount. These interests can have significant value in the event of significant appreciation. The interests are ultimately settled in our common stock or cash at our sole option, with fair market value determined by negotiation or arbitration, at various dates through 2016. The expense associated with these equity awards is initially measured at fair value at the grant date and is amortized ratably as non-cash compensation over the vesting term. The aggregate number of our common shares that would be required to settle these interests at current estimated fair values, including vested and unvested interests, will be included in future calculations of diluted earnings per share if the effect is dilutive.

The operating subsidiary is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the relevant operating subsidiary to purchase their interests or allow the operating subsidiary to acquire such interests at fair value, respectively. These put and call arrangements become exercisable by the operating subsidiary and the counter-party at various dates through 2016. These put arrangements are exercisable by the counter-party outside the control of us. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal non-controlling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to additional paid-in capital. Non-controlling interests in our consolidated subsidiaries would typically be reported on our consolidated balance sheets within shareholders' equity, separately from equity. However, in accordance with Accounting Standards Update 2009-04, "Accounting for Redeemable Equity Investments-Amendment to ASC 480-10-599", securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders' equity. Since the redemption of the non-controlling interests is outside of our control, these interests will be included in the mezzanine section of future consolidated balance sheets, outside of shareholders' equity.