Share-Based Compensation

Employee Stock-Based Compensation Plan — On May 24, 2011, the Company's shareholders approved the Hooper Holmes, Inc. 2011 Omnibus Employee Incentive Plan (the "2011 Plan") providing for the grant of stock options and non-vested stock awards. The 2011 Plan provides for the issuance of an aggregate of 1,500,000 shares. As of December 31, 2011, the Company is authorized to grant share-based awards of approximately 1,425,000 shares under the 2011 Plan.

On May 29, 2008, the Company’s shareholders approved the Hooper Holmes, Inc. 2008 Omnibus Employee Incentive Plan (the “2008 Plan”) providing for the grant of stock options, stock appreciation rights, non-vested stock and performance shares. The 2008 Plan provides for the issuance of an aggregate total of 5,000,000 shares. As of December 31, 2011, the Company is authorized to grant share-based awards of approximately 240,000 shares under the 2008 Plan.

Prior to the 2008 Plan, the Company’s shareholders had approved stock option plans providing for the grant of options for up to 2,400,000 shares of common stock in 1997, 2,000,000 shares in 1999 and 3,000,000 shares in 2002. Upon the adoption of the 2008 Plan, no further awards could be granted under these prior stock option plans.

Options are granted at fair value on the date of grant and are exercisable in accordance with a vesting schedule specified in the grant agreement and have contractual lives of 10 years from the date of grant. Options to purchase 600,000 of the Company's stock granted to certain executives of the Company in December 2010 vest 50% on each of the first and second anniversaries of the grant. Options to purchase 650,000 of the Company's stock granted to certain executives of the Company in July 2011 vest one-third on each of the first, second and third anniversaries of the grant. All other options granted by the Company vest 25% on each of the second through fifth anniversaries of the grant.

During 2011, 2010 and 2009, the Company granted options to acquire 980,000, 1,935,000 and 725,000 shares, respectively, of the Company's stock. The fair value of each stock option granted during the year was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



	2011		2010		2009
Expected life (years)	5.5		5.4		5.4
Expected volatility	92.6	%	91.9	%	85.3	%
Expected dividend yield	—		—		—
Risk-free interest rate	1.6	%	1.7	%	2.5	%
Weighted average fair value of options granted during the year	$0.69		$0.49		$0.30

The expected life of options granted is derived from the Company’s historical experience and represents the period of time that options granted are expected to be outstanding. Expected volatility is based on the Company’s long-term historical volatility. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant.

The following table summarizes stock option activity for the year ended December 31, 2011:



				Weighted
			Weighted Average	Average Remaining		Aggregate Intrinsic
	Number of Shares		Exercise Price Per Share	Contractual Life		Value (in thousands)
Outstanding at December 31, 2010	6,370,150		$2.07
Granted	980,000		0.94
Exercised	—		—
Expired	(794,150	)	4.35
Forfeited	(567,500	)	1.03
Outstanding at December 31, 2011	5,988,500		$1.68	6.7	years	$101
Exercisable at December 31, 2011	2,752,250		$2.70	4.9	years	$26

The aggregate intrinsic value disclosed in the table above represents the difference between the Company’s closing stock price on the last trading day of 2011 (December 30, 2011) and the exercise price, multiplied by the number of in-the-money stock options for each category.

No stock options were exercised during the years ended December 31, 2011, 2010 and 2009.

Options for the purchase of 1,110,625, 789,375 and 309,375 shares of common stock vested during the years ended December 31, 2011, 2010 and 2009, respectively, and the fair value of these options was $0.8 million, $0.7 million and $0.5 million, respectively. As of December 31, 2011, there was approximately $1.1 million of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted average period of 2.6 years. Shares issued upon stock option exercises may be made available from authorized but unissued common stock or from treasury shares.

In July 2009, an aggregate of 500,000 shares of non-vested stock were granted under the 2008 Plan. The fair value of these non-vested stock awards was based on the grant date fair value and amounted to $0.45 per share. The shares vest as follows: 25% after two years and 25% on each of the next three anniversary dates thereafter. As of December 31, 2011, 300,000 shares of such non-vested stock were forfeited and 50,000 shares were vested. In July 2011, an aggregate of 305,000 shares of non-vested stock were granted under the 2008 Plan. The fair value of these non-vested stock awards was based on the grant date fair value and amounted to $1.06 per share. The shares vest as follows: 33% on each of the first and second anniversary dates and 34% on the third anniversary. As of December 31, 2011, no shares were forfeited and no shares were vested. As of December 31, 2011, there was approximately $0.3 million of total unrecognized compensation cost related to non-vested stock awards. The cost is expected to be recognized over 2.6 years.

The Company’s initial accruals for share-based compensation expense are based on the estimated number of instruments for which the requisite service is expected to be rendered. Therefore, the Company is required to incorporate the probability of pre-vesting forfeitures in determining the number of vested options and restricted stock. The forfeiture rate is based on historical forfeiture experience. The Company monitors employee termination patterns to estimate forfeiture rates.

Employee Stock Purchase Plan — The Company’s 2004 Employee Stock Purchase Plan (the "2004 Plan”) provides for the granting of purchase rights for up to 2,000,000 shares of Company stock to eligible employees of the Company. The 2004 Plan provides employees with the opportunity to purchase shares on the date 13 months from the grant date (“the purchase date”) at a purchase price equal to 95% of the closing price of the Company’s common stock on the NYSE Amex Stock Exchange on the grant date. During the period between the grant date and the purchase date, up to 10% of a participating employee's compensation, not to exceed $.025 million, is withheld to fund the purchase of shares. Employees can cancel their purchases at any time during the period without penalty. In February 2009, purchase rights for 850,000 shares were granted with an aggregate fair value of $0.08 million, based on the Black-Scholes pricing model. The February 2009 offering concluded in March 2010 and, in accordance with the 2004 Plan's provisions, a total of 850,000 shares were issued. In February 2010, purchase rights for approximately 277,600 shares were granted with an aggregate fair value of $0.1 million, based on the Black-Scholes pricing model. The February 2010 offering concluded in March 2011 and, in accordance with the 2004 Plan's automatic termination provision, no shares were issued. In February 2011, under the 2004 Plan, purchase rights for approximately 279,800 shares were granted with an aggregate fair value of $0.05 million, based on the Black Scholes option pricing model. The February 2011 offering period will conclude in March 2012.

Other Stock Awards — On May 30, 2007, the Company’s shareholders approved the Hooper Holmes, Inc. 2007 Non-Employee Director Restricted Stock Plan (the “2007 Plan”), which provides for the automatic grant, on an annual basis for 10 years, of shares of the Company’s stock to the Company's non-employee directors. The total number of shares that may be awarded under the 2007 Plan is 600,000. As of December 31, 2011, the Company is authorized to grant restricted stock awards of approximately 420,000 shares under the 2007 Plan. Effective June 1, 2007, each non-employee member of the Board other than the non-executive chair receives 5,000 shares annually and the non-executive chair receives 10,000 shares annually of the Company’s stock with such shares vesting immediately upon issuance. The Company believes that the shares awarded under the 2007 Plan are “restricted securities” as defined in SEC Rule 144 under the Securities Act of 1933, as amended. The Company filed a Registration Statement on Form S-8 with respect to the 2007 Plan on April 16, 2008. The directors who receive shares under the 2007 Plan are “affiliates” as defined in Rule 144 of the Securities Act of 1933, as amended, and thus remain subject to the applicable provisions of Rule 144. In addition, the terms of the awards (whether or not restricted) specify that the shares may not be sold or transferred by the recipient until the director ceases to serve on the Board or, if at that time the director has not served on the Board for at least four years, on the fourth anniversary of the date the director first became a Board member. For the years ended December 31, 2011, 2010 and 2009, shares awarded under the 2007 Plan totaled 30,000, 35,000 and 30,000, respectively. The fair value of these stock awards was based on the grant date market value and totaled $0.02 million, $0.03 million and $0.02 million, respectively.

The Company recorded $0.6 million, $0.6 million and $0.7 million of share-based compensation expense in selling, general and administrative expenses for each of the years ended December 31, 2011, 2010 and 2009, respectively, related to stock options, non-vested stock, restricted stock awards and the 2004 Plan. In connection with the resignation of former executive officers, the Company reversed previously recorded share-based compensation expense totaling $0.1 million during the year ended December 31, 2010. The reversals were recorded in restructuring and other charges (See Note 5).