(6) Stockholders' Equity

(a) Common Stock and Authorized Capital

The authorized capital stock of the Company consisted of 1,000,000 shares of undesignated preferred stock and 125,000,000 shares of Class B common stock. The Company's board of directors has the authority to issue up to 1,000,000 shares of preferred stock, $0.01 par value in one or more series and has the authority to designate rights, privileges and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series.

The Company has two classes of authorized common stock: Class A common stock and Class B common stock. Except with respect to voting rights, the Class A and Class B shares have identical rights. Each share of Class A common stock is entitled to twenty-five votes per share, and each share of Class B common stock is entitled to one vote per share. Each share of Class A common stock is convertible at the holder's option into one share of Class B common stock.

In accordance with the stockholders' agreement signed by Class A and the founding Class B common stockholders, the following provisions survived the Company's initial public offering: Class A stockholders other than Russell C. Horowitz may only sell, assign or transfer their Class A stock to existing Class A stockholders or to the Company and in the event of transfers of Class A stock not expressly permitted by the stockholders' agreement, such shares of Class A stock shall be converted into shares of Class B common stock.

In November 2006, the Company's board of directors authorized a share repurchase program for the Company to repurchase up to 3 million shares of the Company's Class B common stock as well as the initiation of a quarterly cash dividend for the holders of the Class A and Class B common stock. In 2008 and 2009, the Company's board of directors authorized various increases in the share repurchase program for the Company to repurchase up to 11 million shares in the aggregate (less shares previously repurchased under the share repurchase program) of the Company's Class B common stock. In December 2011, the Company's board of directors authorized an increase in the share repurchase program for the Company to repurchase up to 12 million shares in the aggregate (less shares previously repurchased under the share repurchase program) of the Company's Class B common stock. Under the share repurchase program, repurchases may take place in the open market and in privately negotiated transactions and at times and in such amounts as the Company deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. This stock repurchase program does not have an expiration date and may be expanded, limited or terminated at any time without prior notice. During the year ended December 31, 2009, the Company repurchased approximately 2.8 million shares of Class B common stock for $10.7 million under this repurchase program. During the year ended December 31, 2010, the Company repurchased approximately 1.2 million shares of Class B common stock for $6.5 million under this repurchase program. During the year ended December 31, 2011, the Company repurchased approximately 883,000 shares of Class B common stock for $6.2 million under this repurchase program. In 2012, the Company has repurchased 136,000 shares of Class B common stock for a total cash expenditure of approximately $682,000.

During the years ended December 31, 2010 and 2011, the Company's board of directors authorized the retirement of 1.8 million and 1.0 million shares, respectively, of the Company's Class B common stock, all of which had been repurchased by the Company and had been classified as treasury stock on the consolidated balance sheet before retirement. During 2009, 2010 and 2011, the Company's board of directors declared the following quarterly dividends on the Company's Class A common stock and Class B common stock:


Approval Date	Per share dividend		Date of record	Total amount (in thousands)		Payment date
January 2009	$	0.02	February 6, 2009	$	741	February 17, 2009
April 2009	$	0.02	May 4, 2009	$	716	May 15, 2009
July 2009	$	0.02	August 7, 2009	$	724	August 17, 2009
October 2009	$	0.02	November 6, 2009	$	721	November 16, 2009
January 2010	$	0.02	February 4, 2010	$	706	February 15, 2010
April 2010	$	0.02	May 5, 2010	$	704	May 17, 2010
July 2010	$	0.02	August 6, 2010	$	705	August 16, 2010
October 2010	$	0.02	November 5, 2010	$	701	November 15, 2010
January 2011	$	0.02	February 4, 2011	$	712	February 15, 2011
April 2011	$	0.02	May 6, 2011	$	743	May 16, 2011
July 2011	$	0.02	August 5, 2011	$	738	August 15, 2011
October 2011	$	0.02	November 5, 2011	$	745	November 15, 2011

In January 2012, the Company's board of directors declared a quarterly dividend in the amount of $0.02 per share on its Class A common stock and Class B common stock which was paid on February 15, 2012 to the holders of record as of the close of business on February 3, 2012. This quarterly dividend totaled approximately $751,000.

(b) Stock Option Plan

The Company's stock incentive plan (the "Plan") allows for grants of both stock option and restricted stock awards to employees, officers, non-employee directors, and consultants and such options may be designated as incentive or non-qualified stock options at the discretion of the Plan's Administrative Committee. In May 2010, the Company's Board of Directors approved an amendment to the Company's 2003 Amended and Restated Stock Incentive Plan (the "Plan") which provides for the grant of restricted stock units to eligible participants under the Plan. The Plan authorizes grants of options to purchase up to 4,000,000 shares of authorized but unissued Class B common stock and provides for the total number of shares of Class B common stock for which options designated as incentive stock options may be granted shall not exceed 8,000,000 shares. Annual increases are to be added on the first day of each fiscal year beginning on January 1, 2004 equal to 5% of the outstanding common stock (including for this purpose any shares of common stock issuable upon conversion of any outstanding capital stock of the Company). As a result of this provision, the authorized number of shares available under this Plan was increased by 1,852,653 to 14,133,174 on January 1, 2009 and by 1,768,421 to 15,901,595 on January 1, 2010 and by 1,774,752 to 17,676,347 on January 1, 2011 and by 1,877,411 to 19,553,758 on January 1, 2012. The Company may issue new shares or reissue treasury shares for stock option exercises and restricted stock grants. Generally, stock options have 10-year terms and vest 25% each year either annually or quarterly, over a 4 year period.

The Company did not grant any options with exercise prices less than the then current market value during 2009, 2010 and 2011.

The Company follows FASB ASC 718 and accounts for stock-based compensation for employees and non-employees under the fair value method and over the requisite service periods for the individual awards, which generally equals the vesting period. The vesting period of the stock-based award grants may be based on time or combination of time and market conditions. As a result, stock-based compensation consists of the following:

•

all share-based compensation arrangements granted after January 1, 2006 (adoption date of FASB ASC 718) and for any such arrangements that are modified, cancelled, or repurchased after that date; and

•

the portion of previous share-based awards for which the requisite service was not rendered as of January 1, 2006.

Stock-based compensation expense has been included in the same lines as compensation paid to the same employees in the consolidated statement of operations in accordance with SEC Accounting Bulletin No. 107, Share-based Payment. Stock-based compensation expense was included in the following operating expense categories as follows (in thousands):


	Twelve months ended December 31,
	2009		2010		2011
Service costs	$	474	$	805	$	1,291
Sales and marketing		1,400		799		1,505
Product development		592		1,015		1,416
General and administrative		7,131		8,213		10,931

Total stock-based compensation	$	9,597	$	10,832	$	15,143

FASB ASC 718 requires the benefits of tax deductions in excess of the stock-based compensation cost to be classified as financing cash inflows rather than operating cash inflows. This amount is shown as "Excess tax benefit related to stock-based compensation" on the consolidated statement of cash flows.

During 2011, the Company's Compensation Committee of the Board of Directors (the "Compensation Committee") approved stock option grants of 213,000 and restricted stock grants of 326,000 to certain executive officers. The stock options vest 25% on the first annual anniversary of the grant date and 1/12^th of the remainder will vest quarterly thereafter for the following three years. The restricted shares will vest 25% on each of the first, second, third and fourth annual anniversaries of the grant date. The fair value of these awards is $2.9 million and is being recognized over their respective vesting periods.

During 2011, the Compensation Committee also approved equity awards with service and market vesting conditions to certain executive officers which included 270,000 stock option grants and grants of 90,000 restricted stock units. Each restricted stock unit represents the right to receive one share of the Company's Class B common stock upon satisfaction of certain vesting considerations. These equity awards were issued in three separate tranches and each successive tranche will vest on the later of (a) the 12, 21, or 30 month anniversary of the grant date, respectively, and (b) the Company's Class B common stock upon reaching certain average stock price targets for each tranche. The fair value of these equity awards is $1.1 million and is being recognized over their requisite service periods.

The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. For years ended December 31, 2009, 2010 and 2011, the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, vesting schedules and forfeitures. Expected volatility is based on historical volatility levels of the Company's Class B common stock and the expected volatility of companies in similar industries that have similar vesting and contractual terms. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company uses an expected annual dividend yield in consideration of the Company's common stock dividend payments which commenced in 2007.

The following weighted average assumptions were used in determining the fair value of time-vested stock option grants for the periods presented:


	Years ended December 31,
	2009	2010	2011
Expected life (in years)	3.5 – 4.0	3.5 – 6.25	4.0 – 6.25
Risk-free interest rate	1.41% to 2.20%	1.00% to 2.08%	0.60% to 1.77%
Expected volatility	64% to 66%	66% to 68%	68% to 71%
Weighted average expected volatility	65%	67%	70%
Expected dividend yield	1.10%	0.91% to 1.10%	0.91%

During 2011, the Company issued equity awards which include stock options and restricted stock units that have vesting based on a combination of certain service and market conditions. The compensation costs and derived service periods for stock option grants with vesting based on a combination of service and market conditions are estimated using the binomial lattice model to determine the fair value for each tranche and a Monte Carlo simulation to determine the derived service period for each tranche. The risk-free interest rate is based on the on 10 year bond rate as of the valuation date based on the contractual life of the option.

The following weighted average assumptions were used in determining the fair value for option grants with vesting based on a combination of certain service and market conditions for the periods presented:


	Years ended December 31,
	2010	2011
Expected life (in years)	1.2 – 5.9	1.97 – 4.54
Risk-free interest rate	3.36% to 3.56%	1.94%
Expected volatility	61%	57%
Weighted average expected volatility	61%	57%
Expected dividend yield	0.91% to 1.63%	1.26%

Stock option and restricted stock award activity during the period indicated is as follows:


	Options and Restricted Stock available for grant			Number of options outstanding			Weighted average exercise price of options and restricted stock outstanding		Weighted average remaining contractual term (in years)		Aggregate intrinsic value (in thousands)
Balance at December 31, 2008		2,866,863			4,517,154		$	12.21		6.79
Increase to option pool January 1, 2009		1,852,653			—
Options granted ⁽¹⁾		(1,533,300	)		1,533,300			4.39
Restricted stock granted		(1,178,100	)		—
Restricted stock forfeited		157,688			—
Options exercised		—			(36,600	)		2.23
Options expired		815,388			(815,388	)		13.96
Options forfeited		497,315			(497,315	)		10.69

Balance at December 31, 2009		3,478,507			4,701,151		$	9.59		5.61
Increase to option pool January 1, 2010		1,768,421
Options granted ⁽²⁾		(2,376,450	)		2,376,450			6.62
Restricted stock granted		(1,613,000	)		—
Restricted stock forfeited		82,250			—
Options exercised		—			(81,974	)		4.54
Options expired		296,214			(296,214	)		13.49
Options forfeited		288,824			(288,824	)		7.12

Balance at December 31, 2010		1,924,766			6,410,589		$	8.48		7.20
Increase to option pool January 1, 2011		1,774,752
Options granted ⁽²⁾		(1,735,950	)		1,735,950			7.28
Restricted stock granted		(1,603,899	)		—
Restricted stock forfeited		62,125			—
Options exercised		—			(410,662	)		4.28
Options expired		277,775			(277,775	)		14.47
Options forfeited		254,318			(254,318	)		6.70

Balance at December 31, 2011		953,887			7,203,784		$	8.24		6.81	$	5,971

Options exercisable at December 31, 2011⁽³ ⁾					3,771,796		$	9.42		5.28	$	2,715

(1)	Includes 880,000 stock options which vest over 2 years.

(2)	Includes 765,000 and 313,400 stock options issued in 2010 and 2011, respectively, which have vesting based on a combination of certain service and market conditions.

(3)	Includes 195,000 stock options which have vested based on meeting a combination of certain service and market conditions.

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2011:


Options Outstanding							Options Exercisable
Range of exercise prices per share	Number Outstanding		Average remaining contractual life (in years)		Weighted Average Exercise price per share		Number exercisable		Weighted average exercise price per share
$ 3.00 – $ 4.52		439,671		3.75	$	3.33		353,937		3.19
$ 4.53 – $ 4.63		714,056		7.59		4.63		706,743		4.63
$ 4.64 – $ 4.89		845,394		8.03		4.85		252,404		4.83
$ 4.90 – $ 5.63		416,335		7.47		5.41		156,538		5.44
$ 5.66 – $ 6.35		1,095,100		9.44		6.34		8,149		5.96
$ 6.38 – $ 8.76		608,175		5.43		7.21		299,611		6.73
$ 8.77 – $ 8.77		891,000		8.46		8.77		209,037		8.77
$ 8.81 – $11.01		744,067		6.39		9.89		346,963		10.20
$11.02 – $12.93		789,786		4.70		12.02		778,214		12.02
$12.94 – $24.54		660,200		3.62		18.57		660,200		18.57

		7,203,784		6.81	$	8.24		3,771,796	$	9.42

Information related to stock compensation activity during the period indicated is as follows:


	Years ended December 31,
	2009		2010		2011
Weighted average fair value of options granted	$	4.39	$	6.62	$	3.54
Intrinsic value of options exercised (in thousands)	$	79	$	293	$	1,885
Total grant date fair value of restricted stock vested (in thousands)	$	9,898	$	5,023	$	4,056

At December 31, 2011, there was $7.9 million of stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.6 years

During the years ended December 31, 2009, 2010 and 2011 gross proceeds recognized from the exercise of stock options was approximately $82,000, $372,000 and $1.8 million, respectively. The net excess tax benefit (shortfall) on stock option exercises, restricted stock vesting, and dividends paid on unvested restricted stock during the years ended December 31, 2009, 2010 and 2011, of approximately ($1.8) million, ($537,000) and $913,000, respectively, were recorded to additional paid in capital.

Restricted stock awards and restricted stock unit activity for the years ended December 31, 2009, 2010 and 2011 is summarized as follows:


	Shares/ Units			Weighted Average Grant Date Fair Value
Unvested at December 31, 2008		2,348,968		$	12.55
Granted		1,178,100			3.86
Vested		(827,578	)		11.96
Forfeited		(157,688	)		7.95

Unvested at December 31, 2009		2,541,802		$	8.99
Granted ⁽¹⁾		1,613,000			6.67
Vested		(603,802	)		8.32
Forfeited		(82,250	)		4.52

Unvested at December 31, 2010		3,468,750		$	8.13
Granted ⁽¹⁾		1,603,899			7.20
Vested		(721,500	)		5.63
Forfeited		(62,125	)		6.42

Unvested at December 31, 2011		4,289,024		$	8.23

(1)	Includes 255,000 and 104,100 restricted stock units issued in 2010 and 2011, respectively, which entitle the holder to receive one share of the Company's Class B common stock upon satisfaction of certain service and market conditions.

The Company issues restricted stock to employees for future services and in connection with acquisitions. Restricted stock awards grants are generally measured at fair value on the date of grant based on the number of awards granted and the quoted price of the Company's common stock. Restricted shares issued are accounted for under FASB ASC 718 using the straight-line method net of estimated forfeitures.

During the year ended December 31, 2011, the Company issued equity awards which include stock options and restricted stock units that have vesting based on a combination of certain service and market conditions. The compensation costs and derived service periods for restricted stock units with vesting based on a combination of service and market conditions are estimated using the binomial lattice model to determine the fair value for each tranche and a Monte Carlo simulation to determine the derived service period for each tranche. As of December 31, 2011, there was $19.5 million of total restricted stock compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.2 years. The total grant date fair value of restricted stock awards vested during years ended December 31, 2009, 2010 and 2011 was $9.9 million, $5.0 million and $4.1 million, respectively. The Company realized a tax benefit in the years ended December 31, 2009, 2010 and 2011 related to the vesting of restricted shares of approximately $1.2 million, $640,000 and $544,000, respectively.

The following table summarizes stock-based compensation expense related to all stock-based awards (in thousands):


	Years ended December 31,
	2009		2010		2011
Stock-based compensation:
Total stock-based compensation included in net income (loss)	$	9,597	$	10,832	$	15,143
Income tax benefit related to stock-based compensation included in net income (loss)	$	2,723	$	3,012	$	5,048

In August 2009, vesting of approximately 118,000 restricted shares were fully accelerated in connection with separation agreements.

(c) Employee Stock Purchase Plan

On February 15, 2004, the Company's board of directors and stockholders approved the 2004 Employee Stock Purchase Plan, which became effective on March 30, 2004. The Company has authorized an aggregate of 300,000 shares of Class B common stock for issuance under the plan to participating employees.

The original plan provided eligible employees the opportunity to purchase the Company's Class B common stock for amounts up to 15% of their compensation during offering periods. Under the plan, no employee was permitted to purchase stock worth more than $25,000 in any calendar year, valued as of the first day of each offering period.

In December 2005, the compensation committee of the Company's board of directors amended the 2004 Employee Stock Purchase Plan to provide that effective January 1, 2006 eligible participants may purchase the Company's Class B common stock under the purchase plan at a price equal to 95% of the fair value on the last day of an offering period. During the year ended December 31, 2009, 10,638 shares were purchased at prices ranging from $3.22 to $4.83 per share. During the year ended December 31, 2010, 3,304 shares were purchased at prices ranging from $3.66 to $9.06 per share. During the year ended December 31, 2011, 3,637 shares were purchased at prices ranging from $5.94 to $8.44 per share. At December 31, 2011, approximately 224,000 shares were available under the purchase plan for future issuance.