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 October 31,				Nine Months Ended October 31,
	2010		2009		2010		2009
	(In thousands)
Stock options:
Product costs	$	271	$	174	$	698	$	680
Service costs		742		969		2,265		2,671
Selling, general and administrative		4,743		4,231		12,960		9,869
Research and development		1,241		1,483		3,904		3,986

		6,997		6,857		19,827		17,206
Restricted/Deferred stock awards:
Product costs		234		240		694		515
Service costs		550		436		1,864		1,083
Selling, general and administrative		7,389		6,184		22,647		20,601
Research and development		664		1,094		2,555		2,561

		8,837		7,954		27,760		24,760

Total	$	15,834	$	14,811	$	47,587	$	41,966

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 nine months ended October 31, 2010, CTI granted DSU awards covering an aggregate of 223,607 shares and 1,602,607 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 nine months ended October 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 nine months ended October 31, 2009, CTI granted DSU awards covering an aggregate of 38,000 shares and 1,220,200 shares of CTI's common stock, respectively, to certain executive officers and key employees.

As of October 31, 2010, stock options to purchase 12,482,916 shares of CTI's common stock and Restricted Awards with respect to 2,467,427 shares of CTI's common stock were outstanding and 4,043,733 shares of CTI's common stock were available for future grant under CTI's Stock Incentive Compensation Plans. In addition, as of October 31, 2010, CTI was committed to issue 975,493 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 nine months ended October 31, 2010 was $51 thousand and $7.3 million, respectively. The total fair value of Restricted Awards vested during the three and nine months ended October 31, 2009 was $0.2 million and $7.0 million, respectively. As of October 31, 2010, the unrecognized compensation expense related to unvested Restricted Awards was $14.3 million which is expected to be recognized over a weighted-average period of 2.1 years.

Outstanding stock options at October 31, 2010 include unvested stock options to purchase 418,268 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 $1.0 million. The unrecognized compensation cost related to the remaining unvested stock options to purchase CTI's common stock was $0.8 million, which is expected to be recognized over a weighted-average period of 1.6 years.

The fair value of stock options to purchase CTI's common stock vested during the three and nine months ended October 31, 2010 was $10 thousand and $0.6 million, respectively. The fair value of stock options to purchase CTI's common stock vested during the three and nine months ended October 31, 2009 was $0.8 million and $2.3 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 and nine months ended October 31, 2010, approximately 969,000 and 1,695,000 shares of Verint Systems' common stock were issued pursuant to stock option exercises, respectively, for total proceeds of $19.0 million and $30.9 million, respectively. As of October 31, 2010, Verint Systems had approximately 2.3 million stock options outstanding, of which 2.2 million 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 nine months ended October 31, 2010, Verint Systems granted 1.0 million combined restricted stock awards and restricted stock units, none of which were granted during the three months ended October 31, 2010. During the nine months ended October 31, 2009, Verint Systems granted 1.8 million combined restricted stock awards and restricted stock units, none of which were granted during the three months ended October 31, 2009. An aggregate of 0.1 million of restricted stock awards and restricted stock units were forfeited during the nine months ended October 31, 2009, and forfeitures of restricted stock awards and restricted stock units were not significant during the nine months ended October 31, 2010. As of October 31, 2010 and 2009, Verint Systems had 1.9 million and 3.5 million of combined restricted stock awards and stock units outstanding, respectively.

As of October 31, 2010, there was approximately $15.5 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 0.5 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 three months ended October 31, 2010 or 2009, Verint Systems did not grant phantom stock units. During the nine months ended October 31, 2010 and 2009, Verint Systems granted 0.2 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 $6.6 million for the three months ended October 31, 2010. Verint Systems did not make cash payments for the three months ended October 31, 2009. Total cash payments made by Verint Systems upon vesting of phantom stock units were $22.4 million and $2.3 million for the nine months ended October 31, 2010 and 2009, respectively. The total accrued liabilities for phantom stock units were $8.2 million and $14.5 million as of October 31, 2010 and January 31, 2010, respectively.