4. Stock-Based Compensation

The Company maintains several stock-based compensation plans, which are more fully described below. The Company includes total stock-based compensation expense related to all its stock awards in various operating expense categories for the years ended December 31, 2013, 2012 and 2011, as follows:



	Year Ended December 31,
	2013		2012		2011
	(In Thousands)
Product and content development	$	2,391	$	2,084	$	2,102
Sales and marketing	1,591		2,036		1,810
General and administrative	2,715		2,268		2,021
Total stock-based compensation	$	6,697	$	6,388	$	5,933

XO Group Stock-Based Incentive Plans

The 2009 Stock Incentive Plan (the “2009 Plan”) was adopted by the Board of Directors, and became effective in May 2009 following approval by the stockholders, as a successor plan to the Company’s 1999 Stock Incentive Plan (the “1999 Plan”). All incentive stock options, nonqualified stock options (incentive and nonqualified stock options are collectively referred to as “options”), stock appreciation rights, stock issuances which may be subject to the attainment of designated performance goals or service requirements (“restricted stock”), or any combination thereof outstanding under the 1999 Plan have been incorporated into the 2009 Plan. Under the terms of the 2009 Plan, 1,000,000 shares of common stock of the Company were initially reserved for issuance in addition to the 3,190,737 shares that were incorporated from the 1999 Plan. The 2009 Plan provides that awards may be granted to such non-employee directors, officers, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall select in its discretion. Only employees of the Company are eligible to receive grants of incentive stock options. Options are granted at the fair market value of the stock on the date of grant. Options vest over periods up to 4 years and have terms not to exceed 10 years. Restricted stock awards vest over periods ranging from one to 5 years.

As of December 31, 2013, there were 524,719 shares available for future grants under the 2009 Plan. Increases to the number of shares available for future grants under the 2009 Plan require approval by the Board of Directors and the Company's stockholders.

Options

The following table represents a summary of the Company’s stock option activity under the 2009 and 2000 Plans and related information, without regard for estimated forfeitures, for the year ended December 31, 2013:



	Shares		Weighted Average Exercise Price
	(In Thousands)
Options outstanding at December 31, 2012	201		$	3.60
Options granted	150		12.97
Options exercised	(69	)	2.84
Options forfeited	(1	)	2.80
Options outstanding at December 31, 2013	281		$	8.79

The fair value of the options granted during the year ended December 31, 2013 have been estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	Year to date December 31, 2013
	2013	2012
Expected term	3.75 years	N/A
Risk-free rate	1.4% - 1.6%	N/A
Expected volatility	37.0% - 37.1%	N/A
Dividend yield	—%	N/A

The expected term of the options granted during the year ended December 31, 2013 was determined using the "simplified method" as prescribed by SAB Topic 14D.2, which is presumed to be the midpoint between the vesting date and the end of the contractual term. The simplified method was used to determine the expected term of the options granted during the year ended December 31, 2013, due to the extended period of time that has lapsed since the Company's last option grant, as well as differences in the contractual terms of the option awards compared to options granted in prior periods, such that our historical share option experience does not provide a reasonable basis to estimate the expected term. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the expected term of the options. Expected volatility is based on the historical volatility of the market price of the Company’s stock.

During the year ended December 31, 2013, the Company recorded $0.1 million of compensation expense related to options. The weighted average grant-date fair value of options granted during the year ended December 31, 2013 was $3.89. No options vested during the year ended December 31, 2013. The intrinsic value of options exercised during the year ended December 31, 2013 was $0.8 million. During the year ended December 31, 2012, the number of options exercised and the intrinsic value of those options exercised was not material. During the year ended December 31, 2012, 161,000 options, with a weighted average exercise price of $18.13, were forfeited.

The following table summarizes information about options outstanding and exercisable at December 31, 2013:



	Options Outstanding				Options Exercisable
Exercise Prices	Number Outstanding as of December 31, 2013	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price		Number Exercisable as of December 31, 2013	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price
	(In Thousands)				(In Thousands)
$4.00	131	0.49	$	4.00	131	0.49	$	4.00
$12.97	150	4.73	$	12.97	—	0.00	$	—
	281	2.76	$	8.79	131	0.49	$	4.00

The aggregate intrinsic value of stock options outstanding at December 31, 2013 was $1.7 million, all of which relates to vested awards. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted closing price of the Company’s common stock as of December 31, 2013.

Service-Based Restricted Stock Awards

The following table summarizes the activity for awards of restricted stock with service-based vesting terms for the year ended December 31, 2013:



	Restricted Stock		Weighted Average Grant Date Fair Value (per share)
	(In Thousands)
Unvested at December 31, 2012	1,539		$	9.38
Granted	1,620		10.21
Vested	(471	)	8.93
Forfeited	(378	)	9.62
Unvested at December 31, 2013	2,310		$	10.01

For the years ended December 31, 2013, 2012 and 2011, the weighted average grant date fair value for service-based restricted stock granted was $10.21, $9.19 and $10.53, respectively. The fair value of service-based restricted stock that vested during these periods was $4.8 million, $5.1 million and $3.4 million, respectively. During the years ended December 31, 2013, 2012 and 2011, 186,778, 211,000 and 151,249 shares of service-based restricted stock, respectively, were repurchased by the Company in connection with the surrender of these shares by employees to satisfy tax withholding obligations related to the vesting of the service-based stock awards. The aggregate intrinsic value of unvested service-based restricted shares as of December 31, 2013 was $34.3 million. The intrinsic value for service-based restricted shares is calculated based on the par value of the underlying shares and the quoted price of the Company’s common stock as of December 31, 2013.

As of December 31, 2013, there was $13.0 million of total unrecognized compensation cost related to non-vested service-based restricted shares, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 2.90 years. During the years ended December 31, 2013, 2012 and 2011, the Company recorded $6.0 million, $6.3 million and $5.1 million, respectively, of compensation expense related to service-based restricted shares.

Performance-Based Restricted Stock Awards

During the year ended December 31, 2013, the Company granted 31,250 restricted shares of common stock to its new President, pursuant to his employment agreement. Vesting of this award was based upon (1) the achievement of performance goals established by the Compensation Committee of the Board and (2) continued employment with the Company through the end of the performance period. The performance period for this award ended on December 31, 2013. The Compensation Committee of the Board determined that the performance goals were achieved and therefore the award vested. The grant date fair value of this performance-based restricted stock award was $12.97, which was determined using the fair market value of the Company's stock on the grant date. During the twelve months ended December 31, 2013, the Company incurred $0.5 million of stock-based compensation expense related to this performance-based restricted stock award. As of December 31, 2013, there was no unrecognized compensation cost related to this performance-based restricted stock award.

Employee Stock Purchase Plan ("ESPP")

The 2009 Employee Stock Purchase Plan (the “2009 ESPP”) was adopted by the Board of Directors, and was approved by the stockholders in May 2009, as a successor plan to the Company’s 1999 Employee Stock Purchase Plan (the “1999 ESPP”). The first offering period under the 2009 ESPP began August 1, 2009 and shares were first purchased under this plan on January 31, 2010. The Compensation Committee of the Board of Directors administers the ESPP. The 2009 ESPP permits a participating employee to make contributions to purchase shares of common stock by having withheld from his or her salary an amount between 1% and 15% of compensation. Under the 2009 ESPP, eligible employees of the Company may elect to participate before the start date of a semi-annual offering period. On each purchase date during an offering period, a participating employee’s contributions will be used to purchase up to 1,000 shares of the Company’s common stock for such participating employee at a 15% discount from the fair market value, as defined in the 2009 ESPP, of such stock. In addition to the 1,000 share purchase limit, the cost of shares purchased under the plan by a participating employee cannot exceed $25,000 in any plan year.

Under the terms of the 2009 ESPP, 300,000 shares of common stock of the Company were reserved for issuance. As of December 31, 2013, there were 130,432 shares available for future grants under the 2009 ESPP. Increases to the number of shares available for future grants under the 2009 ESPP require approval by the Board of Directors and the Company's stockholders.

During the years ended December 31, 2013 and 2012, the Company issued shares of common stock under the 2009 ESPP, as follows:



Offering Period Purchase Date	Number of Shares	Purchase Price
January 31, 2012	19,823	$	7.00
July 31, 2012	20,961	$	7.19
Total 2012	40,784
January 31, 2013	20,170	$	7.11
July 31, 2013	19,048	$	8.15
Total 2013	39,218

The fair value of 2009 ESPP rights have been estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	Year Ended December 31,
	2013	2012	2011
	ESPP Rights	ESPP Rights	ESPP Rights
Expected term	6 months	6 months	6 months
Risk-free rate	0.08% - 0.11%	0.14% - 0.15%	0.16% - 0.18%
Expected volatility	19.9% - 20.3%	8.3% - 29.4%	21.0% - 36.1%
Dividend yield	—%	—%	—%

Expected volatility is based on the historical volatility of the market price of the Company’s stock. The expected lives of options granted are based on analysis of historical employee termination rates and option exercises. The risk-free interest rates are based on the expected option lives and the corresponding U.S. treasury yields in effect at the time of grant. The fair value for 2009 ESPP rights includes the option exercise price discount from market value provided for under the 2009 ESPP.

During the years ended December 31, 2013, 2012 and 2011, the Company recorded $84,000, $66,000 and $60,000, respectively, of compensation expense related to 2009 ESPP rights. The weighted average grant-date fair value of 2009 ESPP rights arising from elections made by ESPP participants was $2.24, $1.70 and $2.34 during the years ended December 31, 2013, 2012 and 2011, respectively. The fair value of 2009 ESPP rights that vested during the years ended December 31, 2013, 2012 and 2011 was $67,000, $86,000 and $52,000, respectively.

The intrinsic value of shares purchased through the 2009 ESPP during the year ended December 31, 2013 was $86,000. The intrinsic value of outstanding 2009 ESPP rights as of December 31, 2013 was $45,000. The intrinsic value of the shares of 2009 ESPP rights is calculated as the discount from the quoted price of the Company’s common stock, as defined in the 2009 ESPP, which was available to employees as of the respective dates.

As of December 31, 2013, there was approximately $8,000 of unrecognized compensation cost related to 2009 ESPP rights, which is expected to be recognized over a period of one month.

The Company received cash from the exercise of options and 2009 ESPP rights of $496,000, $295,000 and $346,000 for the years ended December 31, 2013, 2012 and 2011, respectively, for which the Company issued new shares of common stock.

The tax benefit attributable to all recorded stock-based compensation was $3.0 million, $2.3 million and $2.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. For the years ended December 31, 2013, 2012 and 2011, the Company also recorded an increase of $305,000, a decrease of $386,000 and an increase of $388,000, respectively, to additional paid-in-capital, for tax benefits attributable to tax deductions generated from the exercise of employee stock options, vesting of restricted stock and the exercise of stock warrants in excess of related stock-based compensation recorded for financial reporting purposes. The tax benefits for these deductions are recognized when they result in a reduction to current taxes payable and are accounted for as additional paid-in-capital.