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, 2011, 2010 and 2009, as follows:


	Year Ended December 31,
	2011		2010		2009
	(In Thousands)
Product and content development	$	2,102	$	1,356	$	1,340
Sales and marketing		1,810		1,161		1,078
General and administrative		2,021		1,443		1,779
Total stock-based compensation	$	5,933	$	3,960	$	4,197

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 four years and have terms not to exceed ten years. Restricted stock awards vest over periods ranging from one to five years.

The 2000 Non-Officer Stock Incentive Plan (the “2000 Plan”) was approved by the Board of Directors in June 2000. Under the terms of the 2000 Plan, 435,000 shares of common stock of the Company have been reserved for nonqualified stock options, stock issuances (which may be restricted stock) or any combination thereof. Awards may be granted to employees (other than officers or directors of the Company) and consultants and other independent advisors who provide services to the Company. Options are granted at the fair market value of the stock on the date of grant. Generally, options vest over a four-year period and have terms not to exceed ten years. Currently, there are no unvested options outstanding under the 2000 Plan. The 2000 Plan expired as of June 30, 2010.

As of December 31, 2011, there were 2,842,472 shares available for future grants under the 2009 Plan.

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 years ended December 31, 2011, 2010 and 2009:


	Shares			Weighted Average Exercise Price
	(In Thousands)
Options outstanding at December 31, 2009		895		$	5.29
Options exercised		(506	)		2.04
Options forfeited		(2	)		3.72
Options outstanding at December 31, 2010		387		$	9.54
Options exercised		(20	)		2.00
Options forfeited		(5	)		0.76
Options outstanding at December 31, 2011		362		$	10.07

No options were granted in 2011, 2010 and 2009. No options vested in 2011. The fair value of options which vested during the years ended December 31, 2010 and 2009 was $5.95 and $5.95, respectively. The intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $167,000, $2.9 million and $2.0 million, respectively.

The following table summarizes information about options outstanding at December 31, 2011:


Range of Exercise Price	Number Outstanding and Exercisable as of December 31, 2011		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price
	(In Thousands)
$0.42 to $1.03		1		0.47	$	0.46
$1.37 to $4.10		201		2.16		3.60
$18.26		160		0.41		18.26
		362		1.38	$	10.07

The weighted average remaining contractual life of options exercisable as of December 31, 2011 was 1.38 years. The aggregate intrinsic value of stock options outstanding at December 31, 2011 was $963,000, 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, 2011.

Restricted Stock

The following table summarizes the restricted stock activity for the years ended December 31, 2011, 2010 and 2009:


	Restricted Stock			Weighted Average Grant Date Fair Value (per share)
	(In Thousands)
Unvested at December 31, 2009		1,459			8.11
Granted		253			8.06
Vested		(470	)		9.06
Forfeited		(138	)		7.66
Unvested at December 31, 2010		1,104			7.74
Granted		1,189			10.53
Vested		(409	)		8.25
Forfeited		(257	)		9.17
Unvested at December 31, 2011		1,627		$	9.43

During the years ended December 31, 2011 and 2010, 151,249 and 191,238 shares of 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 stock awards. The aggregate intrinsic value of unvested restricted shares as of December 31, 2011 was $13.6 million. The intrinsic value for 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, 2011.

As of December 31, 2011, there was $9.6 million of total unrecognized compensation cost related to non-vested restricted shares, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 2.54 years. During the years ended December 31, 2011, 2010 and 2009, the Company recorded $5.1 million, $3.7 million and $3.8 million, respectively, of compensation expense related to restricted shares.

Employee Stock Purchase Plan

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 each ESPP. The 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 each 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 each 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. The Company initially reserved 300,000 shares of common stock under the 1999 ESPP. The shares reserved under the 1999 ESPP automatically increased on the first trading day in January of each calendar year by the lesser of the (i) the number of shares of common stock issued under the 1999 ESPP in the immediately preceding calendar year, (ii) 300,000 shares or (iii) such other lesser amount approved by the Board of Directors. Through December 31, 2009, 483,861 shares were issued under the 1999 ESPP. There were no shares issued under this plan in 2010. There is no automatic increase for the shares reserved under the 2009 ESPP. For the year ended December 31, 2011, 89,567 shares were issued under the 2009 ESPP. For the year ended December 31, 2010, 49,527 shares were issued under the 2009 ESPP.

The weighted average grant-date fair value of ESPP rights arising from elections made by ESPP participants was $2.34, $1.96 and $1.98 during the years ended December 31, 2011, 2010 and 2009, respectively. The fair value of ESPP rights that vested during the years ended December 31, 2011, 2010 and 2009 was $1.31, $2.07 and $2.03, respectively. On January 31, 2011, the Company issued 22,119 shares at a weighted average price of $7.00 under the 2009 ESPP. On July 31, 2011, the Company issued 17,921 shares at a weighted average price of $7.95 under the 2009 ESPP. On January 31, 2010, the Company issued 26,612 shares at a weighted average price of $7.43 under the 2009 ESPP. On July 31, 2010, the Company issued 22,915 shares at a weighted average price of $7.00 under the 2009 ESPP.

The intrinsic value of shares purchased through the 2009 ESPP on January 31, 2011 and July 31, 2011 was $27,000 and $25,000, respectively. The intrinsic value of outstanding 2009 ESPP rights as of December 31, 2011 was $29,000. 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, 2011, there was $9,000 of unrecognized compensation cost related to 2009 ESPP rights, net of estimated forfeitures, which is expected to be recognized over a weighted average period of one month.

The fair value of 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,
	2011			2010			2009
	ESPP Rights			ESPP Rights			ESPP Rights
Weighted average expected option lives		6 months			6 months			6 months
Risk-free rate		0.16% – 0.18	%		0.17% – 0.20	%		0.26% – 0.36	%
Expected volatility		21.0% – 36.1	%		25.7% – 30.7	%		34.4% – 44.6	%
Dividend yield		0.0	%		0.0	%		0.0	%

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 analyses 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 ESPP rights includes the option exercise price discount from market value provided for under the ESPP.

During the years ended December 31, 2011, 2010 and 2009, the Company recorded $60,000, $246,000 and $408,000, respectively, of compensation expense related to options and ESPP rights. The Company received cash from the exercise of options and ESPP rights of $346,000, $1.2 million and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, for which the Company issued new shares of common stock.

The tax benefit attributable to all recorded stock-based compensation was $2.2 million, $1.5 million and $1.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. For the years ended December 31, 2011, 2010 and 2009, the Company also recorded $388,000, $1.1 million and $3.7 million, respectively, of 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, non-cash services expense and non-cash sales and marketing expense 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.