13. STOCK-BASED COMPENSATION

Stock-based compensation expense associated with awards made by CTI and its subsidiaries are included in the Company's condensed consolidated statements of operations as follows:


	Three Months Ended July 31,				Six Months Ended July 31,
	2010		2009		2010		2009
	(In thousands)				(In thousands)
Stock options:
Product costs	$	27	$	360	$	427	$	506
Service costs		344		1,024		1,523		1,702
Selling, general and administrative		995		4,077		8,217		5,638
Research and development		144		1,660		2,663		2,503

		1,510		7,121		12,830		10,349

Restricted/Deferred stock awards:
Product costs		221		168		460		275
Service costs		716		387		1,314		647
Selling, general and administrative		7,720		8,188		15,258		14,417
Research and development		829		875		1,891		1,467

		9,486		9,618		18,923		16,806

Total	$	10,996	$	16,739	$	31,753	$	27,155

CTI

CTI's Restricted Period

As a result of the delinquency in the filing of periodic reports under the Exchange Act since April 2006, CTI has been ineligible to use its registration statements on Form S-8 for the offer and sale of equity securities, including through the exercise of stock options by employees. Consequently, to ensure that it does not violate the federal securities laws, CTI prohibited the exercise of vested stock options from April 2006 until such time as it is determined that CTI has filed all periodic reports required in a 12-month period and has an effective registration statement on Form S-8 on file with the SEC. This period is referred to as the "restricted period."

Restricted Awards and Stock Options

CTI granted restricted stock, deferred stock units ("DSU") awards (collectively "Restricted Awards") and stock options under its various stock incentive plans.

During the three months and six months ended July 31, 2010, CTI granted DSU awards covering an aggregate of 366,000 shares and 1,379,000 shares, respectively, of CTI's common stock to certain executive officers and key employees. The aggregate number of shares underlying DSU awards granted during the six months ended July 31, 2010 includes a DSU award covering 300,000 shares of CTI's common stock granted to CTI's then-President and Chief Executive Officer and a DSU award covering 150,000 shares of CTI's common stock granted to CTI's then-Executive Vice President and Chief Financial Officer.

During the three and six months ended July 31, 2009, CTI granted DSU awards covering an aggregate of 230,000 shares and 1,182,200 shares of CTI's common stock, respectively, to certain executive officers and key employees.

As of July 31, 2010, stock options to purchase 12,528,431 shares of CTI's common stock and Restricted Awards with respect to 2,249,820 shares of CTI's common stock were outstanding and 5,531,162 shares of CTI's common stock were available for future grant under CTI's Stock Incentive Compensation Plans. In addition, as of July 31, 2010, CTI was committed to issue 983,281 shares of its common stock to holders of its vested Restricted Awards who had elected to defer delivery of such underlying shares.

The total fair value of Restricted Awards vested during the three and six months ended July 31, 2010 was $1.0 million and $7.3million, respectively. The total fair value of Restricted Awards vested during the three and six months ended July 31, 2009 was $1.5 million and $6.8 million, respectively. As of July 31, 2010, the unrecognized compensation expense related to unvested Restricted Awards was $16.3 million which is expected to be recognized over a weighted-average period of 2.3 years.

Outstanding stock options at July 31, 2010 include unvested stock options to purchase 458,602 shares of CTI's common stock with a weighted-average grant date fair value of $2.34, an expected term of 4.0 years and a total fair value of $1.1 million. The unrecognized compensation cost related to the remaining unvested stock options to purchase CTI's common stock was $0.9 million, which is expected to be recognized over a weighted-average period of 1.8 years.

The fair value of stock options to purchase CTI's common stock vested during the three and six months ended July 31, 2010 was $0.6 million. The fair value of stock options to purchase CTI's common stock vested during the three and six months ended July 31, 2009 was $0.7 million and $1.5 million, respectively.

Verint

Stock Options

Verint Systems has not granted stock options subsequent to January 31, 2006. However, in connection with Verint's acquisition of Witness on May 25, 2007, stock options to purchase Witness common stock were converted into stock options to purchase approximately 3.1 million shares of Verint Systems' common stock.

Stock option exercises had been suspended during Verint's extended filing delay period. Following the filing of certain delayed periodic reports with the SEC, Verint's stock option holders were permitted to resume exercising vested stock options. During the three months ended July 31, 2010, approximately 726,000 shares of Verint Systems' common stock were issued pursuant to stock option exercises, for total proceeds of $11.9 million. As of July 31, 2010, Verint Systems had approximately 3.2 million stock options outstanding, all of which were exercisable as of such date.

Restricted Stock Awards and Restricted Stock Units

Verint Systems periodically awards shares of restricted stock, as well as restricted stock units, to its directors, officers and other employees. These awards contain various vesting conditions, and are subject to certain restrictions and forfeiture provisions prior to vesting.

During the six months ended July 31, 2010, Verint Systems granted 1.0 million combined restricted stock awards and restricted stock units, all of which were granted during the three months ended April 30, 2010. During the three and six months ended July 31, 2009, Verint Systems granted 0.5 million and 1.8 million combined restricted stock awards and restricted stock units, respectively. An aggregate of 0.1 million of restricted stock awards and restricted stock units were forfeited during the six months ended July 31, 2009, and forfeitures of restricted stock awards and restricted stock units were not significant during the six months ended July 31, 2010. As of July 31, 2010 and 2009, Verint Systems had 2.9 million and 3.6 million of combined restricted stock awards and stock units outstanding, respectively.

As of July 31, 2010, there was approximately $21.0 million of total unrecognized compensation cost, net of estimated forfeitures related to unvested restricted stock awards and restricted stock units, which is expected to be recognized over weighted-average periods of 0.8 years for restricted stock awards and 0.9 years for restricted stock units.

Phantom Stock Units

Verint Systems liability-classified awards are primarily phantom stock units. Verint Systems has issued phantom stock units to certain non-officer employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded by Verint Systems with vesting conditions and are subject to certain forfeiture provisions prior to vesting.

During the six months ended July 31, 2010, Verint Systems granted 0.2 million phantom stock units, all of which were granted during the three months ended April 30, 2010. For the three and six months ended July 31, 2009, Verint Systems granted 0.1 million and 0.4 million phantom stock units, respectively. Forfeitures in each period were not significant. Total cash payments made by Verint Systems upon vesting of phantom stock units were $5.2 million and $15.8 million for the three and six months ended July 31, 2010, respectively. Total cash payments made by Verint Systems upon vesting of phantom stock units were $0.1 million and $2.3 million for the three and six months ended July 31, 2009, respectively. The total accrued liabilities for phantom stock units were $8.8 million and $14.5 million as of July 31, 2010 and January 31, 2010, respectively.