Share-based Compensation Plans and Awards
 9 Months Ended
Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-based Compensation Plans and Awards
Share-based Compensation Plans and Awards
 
Valuation of Stock Option Awards
 
The following table presents the weighted-average assumptions used to estimate the fair values of the employee stock options granted in the periods presented:
 
 
 
Nine months ended
 
 
September 30,
 
 
2011
 
2012
Expected life (in years)
 
5.50

 
NA

Risk-free interest rate
 
1.97
%
 
NA

Expected volatility
 
56
%
 
NA

Expected dividend yield
 
—
%
 
NA

Weighted-average estimated fair value of options granted during the period
 
$
16.64

 
—


 
The Company did not grant any stock options to employees during the nine months ended September 30, 2012.

Stock Options
 
Stock option activity (in thousands, except term, exercise price and per share data) for the nine months ended September 30, 2012 is as follows:
 
 
 
Number of
options
outstanding
 
Weighted
average
exercise
price
 
Weighted
average
remaining
contractual
term
(in years)
 
Aggregate
intrinsic
value
Outstanding at December 31, 2011
16,654

 
$
13.21

 
7.53
 
$
17,480

Options granted
 
—

 
$
—

 
—

 
—

Options exercised
 
(2,288
)
 
$
3.86

 
—

 
—

Options forfeited or canceled
(997
)
 
$
12.77

 
—

 
—

Outstanding at September 30, 2012
13,369

 
$
14.84

 
6.51
 
$
30,409

Exercisable at September 30, 2012
6,990

 
$
7.63

 
5.30
 
$
27,425

Vested and expected to vest after September 30, 2012
11,967

 
$
13.86

 
6.36
 
$
29,807


 
The pre-tax aggregate intrinsic value of outstanding and exercisable stock options is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $10.87 of the Company’s common stock on September 30, 2012 for all awards where that stock price exceeds the exercise price.  Options expected to vest reflect an estimated forfeiture rate.
 
The following table summarizes additional information concerning outstanding and exercisable options at September 30, 2012:
 
Range of Exercise
Prices
 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Weighted
Average
Exercise
Price
 
Number
Exercisable
 
Weighted
Average
Exercise
Price
$0.00 - 3.60
 
1,896

 
2.81
 
$
2.25

 
1,811

 
$
2.21

$3.61 - 7.20
 
1,205

 
5.11
 
$
5.17

 
1,061

 
$
5.06

$7.21 - 10.80
 
4,061

 
6.78
 
$
9.09

 
3,291

 
$
9.17

$10.81 - 14.40
 
220

 
6.78
 
$
13.18

 
113

 
$
13.12

$14.41 - 18.00
 
2,490

 
7.55
 
$
17.52

 
695

 
$
17.12

$18.01 - 21.60
 
47

 
8.37
 
$
21.42

 
19

 
$
21.41

$21.61 - 25.20
 
1,150

 
7.84
 
$
24.00

 
—

 
$
—

$28.81 - 32.40
 
1,150

 
7.84
 
$
30.00

 
—

 
$
—

$32.41 - 36.00
 
1,150

 
7.84
 
$
36.00

 
—

 
$
—

 
 
13,369

 
6.51
 
$
14.84

 
6,990

 
$
7.63



The total grant date fair value of stock options vested during the nine months ended September 30, 2011 and 2012 was $16,339 and $5,387, respectively.  The aggregate intrinsic value of all options exercised during the nine months ended September 30, 2011 and 2012 was $14,291 and $12,904 respectively.
 
As of September 30, 2012, there was $22,974 of unrecognized stock-based compensation expense related to the non-vested portion of stock options, which is expected to be recognized over a weighted average period of 3.0 years.  To the extent that the forfeiture rate is different from that anticipated, stock-based compensation expense related to these awards will be different.
 
Restricted stock units
 
The following table summarizes the activity of RSUs and other restricted shares for the nine months ended September 30, 2012 is as follows:
 
 
Shares
 
Weighted
average
grant date
fair value
Unvested at December 31, 2011
3,606

 
$
12.19

Granted
2,789

 
7.55

Vested
(1,257
)
 
10.83

Forfeited
(699
)
 
10.99

Unvested at September 30, 2012
4,439

 
$
9.75


 
As of September 30, 2012, there was approximately $35,646 of unrecognized compensation cost related to employee non-vested RSUs and restricted shares.  The amount is expected to be recognized over a weighted average period of 2.6 years.  To the extent that the forfeiture rate is different from that anticipated, stock-based compensation expense related to these awards will be different.

Included in the above is $423 of expense related to the issuance of 50 shares of common stock to a consultant during the nine months ended September 30, 2012 upon the fulfillment of certain performance conditions in that period. No additional stock is expected to be issued under this agreement.
 
Employee Stock Purchase Plan
 
In May 2011, the Company commenced its first offering under the Demand Media, Inc. 2010 Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase a limited amount of the Company's common stock at a 15% discount to the market price through payroll deductions. Participants can authorize payroll deductions for amounts up to the lesser of 15% of their qualifying wages or the statutory limit under the U.S. Internal Revenue Code. The ESPP provides for up to four concurrent offering periods of twenty-four, eighteen, twelve and six-month durations, which correspondingly have four, three, two and one, six-month purchase periods, respectively.  A maximum of one thousand two hundred fifty shares of common stock may be purchased by each participant at six-month intervals during each purchase period within an offering. The fair value of the ESPP options granted is determined using a Black-Scholes model and is amortized over the life of the 24-month offering period of the ESPP. The Black-Scholes model included an assumption for expected volatility of between 34% and 43% for each of the four purchase periods. During the three and nine months ended September 30, 2012, the Company recognized an expense of $455 and $1,395, respectively, in relation to the ESPP and there were 9,535 shares of common stock remaining authorized for issuance under the ESPP at September 30, 2012. As of September 30, 2012, there was approximately $2,400 of unrecognized compensation cost related to the ESPP which is expected to be recognized on a straight-line basis over the remainder of the offering period.

LIVESTRONG.com Warrants
 
In January 2008, the Company entered into a license agreement with the LIVESTRONG Foundation, Inc. (the “License Agreement”). The LIVESTRONG Foundation (“LF”) is a non-profit organization dedicated to uniting people to fight cancer.  In consideration for the License Agreement, the Company issued warrants to purchase an aggregate of 312 shares of the Company's common stock at an exercise price of $12.00 per share to the LF (the “LF Warrant”). The LF Warrant was automatically net exercised upon the closing date of the Company's IPO and as a result the Company issued 184 shares of common stock to LF in January 2011.

BEI Warrant
 
In June 2010, the Company entered into a website development, endorsement and license agreement with Bankable Enterprises, Inc. (“BEI”) (the “BEI Agreement”). BEI is wholly owned by Tyra Banks (“Ms. Banks”), a business woman and celebrity.
 
Under the terms of the BEI Agreement, which commenced on July 1, 2010 and ends on July 1, 2014, Ms. Banks provides certain services and endorsement rights to the Company, and licenses to the Company certain intellectual property. The Company used this intellectual property to build an owned and operated website on beauty and fashion, typeF.com, which was launched during the three months ended March 31, 2011. As consideration for Ms. Banks’ services, the Company issued a fully-vested four-year warrant to purchase 375 shares of the Company’s common stock at an exercise price of $12.00 per share. Effective October 2012, the BEI Agreement was terminated and the Company agreed to release BEI and Ms. Banks from future services and obligations in exchange for Ms. Banks surrendering the warrants in full.

Stock-based Compensation Expense
 
Stock-based compensation expense related to all employee and non-employee stock-based awards was as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2011
 
2012
 
2011
 
2012
Stock-based compensation included in
 

 
 

 
 
 
 
Service costs
$
757

 
$
672

 
$
1,341

 
$
2,141

Sales and marketing
1,405

 
1,400

 
3,441

 
4,521

Product development
1,403

 
1,396

 
3,649

 
5,169

General and administrative
4,190

 
4,578

 
13,671

 
12,155

Total stock-based compensation included in net loss
$
7,755

 
$
8,046

 
$
22,102

 
$
23,986


 
Stock-based compensation expense in the nine months ended September 30, 2011 includes $5,051 related to 1,625 performance and market-based stock options and 1,000 restricted stock awards granted to certain executive officers in prior years that vested in 2011 on the fulfillment of certain market and performance conditions: the completion of the Company’s initial public offering and the meeting of an average closing price of the Company’s stock for a stipulated period of time.