Stock-Based Compensation

The Company maintains several stock-based compensation plans, which are more fully described below. The Company included total stock-based compensation expense related to all its stock awards in various operating expense categories for the three months and six months ended June 30, 2012 and 2011, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in thousands)

Product and content development	$	651	$	473	$	1,485	$	946
Sales and marketing		531		390		1,411		992
General and administrative		713		421		1,573		861

Total stock-based compensation	$	1,895	$	1,284	$	4,469	$	2,799

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

As of June 30, 2012, there were 2,305,515 shares available for future grants under the 2009 Plan.

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.

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 six months ended June 30, 2012:

	Shares			Weighted Average Exercise Price
	(in thousands)

Options outstanding at December 31, 2011		362		$	10.07
Options granted		-			-
Options exercised		-			-
Options forfeited		(161	)		18.13
Options outstanding at June 30, 2012		201		$	3.60

During the three months and six months ended June 30, 2012, no options were exercised. The intrinsic value of options exercised during the three months and six months ended June 30, 2011 was $79,000 and $156,000, respectively.

The following table summarizes information about options outstanding at June 30, 2012:

Options Outstanding

Options Exercisable

Range of Exercise Price

Number
Outstanding as of
June 30, 2012

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise Price

Number
Exercisable as of
June 30, 2012

Weighted
Average
Exercise Price

(in thousands)

(in years)

(in thousands)

$1.37 to $4.10

201

1.66

3.60

201

3.60

The weighted average remaining contractual life of options exercisable as of June 30, 2012 was 1.66 years. The aggregate intrinsic value of stock options outstanding at June 30, 2012 was $1.2 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 June 30, 2012.

Restricted Stock

The following table summarizes the restricted stock activity for the six months ended June 30, 2012:

	Restricted Stock (in thousands)			Weighted Average Grant Date Fair Value (per share)

Unvested at December 31, 2011		1,627		$	9.43
Granted		594			9.01
Vested		(477	)		9.08
Forfeited		(77	)		9.61
Unvested at June 30, 2012		1,667		$	9.38

During the six months ended June 30, 2012 and 2011, 175,321 and 115,805 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 restricted shares as of June 30, 2012 and 2011 was $14.8 million and $17.6 million, respectively. 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 June 30, 2012.

As of June 30, 2012, there was $15.5 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 2.23 years. During the three months ended June 30, 2012 and 2011, the Company recorded $1.9 million and $1.3 million, respectively, of compensation expense related to restricted shares. During the six months ended June 30, 2012 and 2011, the Company recorded $4.5 million and $2.8 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 on 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 (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 June 30, 2012, 483,861 shares were issued under the 1999 ESPP. The Company initially reserved 300,000 shares of common stock under the 2009 ESPP. There is no automatic increase for the shares reserved under the 2009 ESPP. Through June 30, 2012, 109,390 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 $1.93 and $2.36 during the six months ended June 30, 2012 and 2011, respectively. The fair value of ESPP rights that vested during the three months and six months ended June 30, 2012 and 2011 were $1.24 and $1.23, respectively. On January 31, 2012, the Company issued 19,823 shares at a weighted average price of $7.00 under the 2009 ESPP.

The intrinsic value of shares purchased through the 2009 ESPP on June 30, 2012 was $25,000. The intrinsic value of outstanding 2009 ESPP rights as of June 30, 2012 was $28,000. 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 June 30, 2012, there was $6,000 of unrecognized compensation cost related to non-vested stock options and 2009 ESPP rights, net of estimated forfeitures, which is expected to be recognized over a weighted average period of four months.

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:

	Six Months Ended June 30,
	2012			2011
	ESPP Rights			ESPP Rights
Weighted average expected option lives		Six months			Six months
Risk-free rate		0.15	%		0.18	%
Expected volatility		29.40	%		21.00	%
Dividend yield		0.00	%		0.00	%

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 three months ended June 30, 2012 and 2011, the Company recorded $19,000 and $31,000, respectively, of compensation expense related to options and ESPP rights and received cash from the exercise of options and ESPP rights of $26,000 for the three months ended June 30, 2011, for which the Company issued new shares of common stock. During the six months ended June 30, 2012, the Company recorded $32,000 of compensation expense related to ESPP rights from 2012, offset by a net expense adjustment of $20,000 relating to ESPP rights from 2011. During the six months ended June 30, 2011, the Company recorded $40,000 of compensation expense related to options and ESPP rights. The Company received cash from the exercise of options and ESPP rights of $144,000 and $203,000 for the six months ended June 30, 2012 and 2011, respectively, for which the Company issued new shares of common stock.