STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 8—STOCK-BASED COMPENSATION

Non-cash compensation expense related to equity awards is included in the following line items in the accompanying consolidated statements of operations for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31,
	2013		2012
Cost of revenue	$	2	$	3
Selling and marketing expense	217		157
General and administrative expense	1,030		875
Product development	184		149
Non-cash compensation expense	$	1,433	$	1,184

The forms of stock-based awards granted to Tree.com employees are principally RSUs, restricted stock and stock options. RSUs are awards in the form of units, denominated in a hypothetical equivalent number of shares of Tree.com common stock and with the value of each award equal to the fair value of Tree.com common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Compensation Committee at the time of grant. Each stock-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. Certain restricted stock awards also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. Tree.com recognizes expense for all stock-based awards for which vesting is considered probable. For stock-based awards, the accounting charge is measured at the grant date as the fair value of Tree.com common stock awarded and expensed ratably as non-cash compensation over the vesting term. For performance-based awards, the expense is measured at the grant date as the fair value of our common stock awarded and expensed as non-cash compensation using a graded vesting attribution model considering the probability of the targets being achieved.

The amount of stock-based compensation expense recognized in the consolidated statement of operations is reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the estimated rate.

During February 2013, our Chairman and CEO was granted 62,500 shares of restricted stock with a fair value of $1.1 million and a three year vesting period.  The fair value of the restricted stock is based upon the market price of the underlying common stock as of the date of grant.  Compensation expense is recognized on a straight-line basis over the vesting period.  He was also granted 62,500 shares of restricted stock which vest based on a market condition, but not earlier than one year from the grant date, and will be forfeited if the market-based performance target is not achieved within three years.  The fair value of the market-based performance restricted stock was determined to be $0.9 million using a Monte Carlo simulation model.  The fair value on grant date is recognized over the requisite service period and will not change regardless of the Company’s actual performance versus the market-based performance target.

A summary of changes in outstanding stock options for the three months ended March 31, 2013 is as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
					(In years)	(In thousands)
Outstanding at January 1, 2013	1,072,503		$	8.97
Granted	—		—
Exercised	(12,842	)	7.54
Forfeited	—		—
Expired	(676	)	9.15
Outstanding at March 31, 2013	1,058,985		8.99		5.5	$	10,144
Options exercisable at March 31, 2013	266,554		$	11.88	4.8	$	1,841

The following table summarizes the information about stock options outstanding and exercisable as of March 31, 2013:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Outstanding	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Exercisable	Weighted Average Exercise Price
$.01 to $4.99	914	0.51	$	2.54	914	$	2.54
$5.00 to $7.45	304,352	8.46	6.65		101,771	6.65
$7.46 to $9.99	614,075	4.77	8.44		24,225	7.53
$10.00 to $14.99	12,201	1.50	12.33		12,201	12.33
$15.00 to $19.99	80,780	2.17	15.02		80,780	15.02
$20.00 to $24.99	46,663	2.19	20.19		46,663	20.19
	1,058,985	5.48	$	8.99	266,554	$	11.88

Nonvested RSUs, restricted stock outstanding and performance stock shares as of March 31, 2013 and changes during the three months ended March 31, 2013 were as follows:

	RSUs				Restricted Stock				PSSs
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013	757,111		$	9.09	187,501		$	7.44	—	$	—
Granted	199,200		17.49		62,500		17.49		62,500	13.93
Vested	(133,181	)	7.45		(187,501	)	7.44		—	—
Forfeited	(44,148	)	8.32		—		—		—	—
Nonvested at March 31, 2013	778,982		$	11.64	62,500		$	17.49	62,500	$	13.93