Share-Based Compensation

Employee Share-Based Compensation Plans - On May 29, 2008, the Company's shareholders approved the 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 of 5,000,000 shares. For the three and nine months ended September 30, 2013, the Company granted 325,000 options to purchase shares under the 2008 Plan. For the nine months ended September 30, 2012, 900,000 options for the purchase of shares were granted under the 2008 Plan as well as 205,332 shares of restricted stock granted to the Company's Chief Executive Officer as settlement for a discretionary bonus of $0.1 million. As of September 30, 2013, approximately 1,479,900 shares remain available for grant under the 2008 Plan.

On May 24, 2011, the Company's shareholders approved the 2011 Omnibus Employee Incentive Plan (the "2011 Plan") providing for the grant of stock options and non-vested stock awards. On May 29, 2013, the Company's shareholders approved an amendment and restatement of the 2011 Plan which increased the number of shares of the Company's common stock available for issuance from 1,500,000 shares to 3,500,000 shares (subject to adjustment as provided in the Amended and Restated Omnibus Plan). The 2011 Plan is to remain in effect until the earlier of (i) the 10th anniversary of the plan's original effective date (May 24, 2011), or (ii) the date all shares of stock available for issuance have been issued. During the three and nine months ended September 30, 2013, an aggregate of 2,000,000 options for the purchase of shares were granted under the 2011 Plan. During the three and nine months ended September 30, 2012, an aggregate of 1,225,000 options for the purchase of shares were granted under the 2011 Plan. As of September 30, 2013, approximately 1,092,500 shares remain available for grant under the 2011 Plan as amended.

Options awarded under the 2008 and 2011 Plans (as amended) are granted at fair value on the date of grant, 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 an aggregate of 500,000 shares of the Company's stock granted to certain executives of the Company in December 2010 vested 50% on each of the first and second anniversaries of the grant. Options to purchase an aggregate of 325,000, 1,277,500 and 337,600 shares of the Company's stock granted to certain executives of the Company in September 2013, July 2012 and July 2011, respectively, vest one-third on each of the first, second and third anniversaries of the grant. Options to purchase 2,000,000 shares of the Company's stock granted to the Chief Executive Officer of the Company in September 2013, vest 25% upon receipt of the grant and 25% on the first, second and third anniversary of the grant. All other options granted by the Company vest 25% on each of the second through fifth anniversaries of the grant.

The fair value of the stock options granted during the three and nine month periods ended September 30, 2013 and 2012 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013		2012
Expected life (years)	5.4	5.5	5.4		5.5
Expected volatility	89.6%	92.4%	89.6	%	92.4%
Expected dividend yield	—%	—%	—%		—%
Risk-free interest rate	1.5%	0.7%	1.5%		0.7%
Weighted average fair value of options granted during the period	$0.34	$0.47	$0.34		$0.47

The following table summarizes stock option activity for the nine month period ended September 30, 2013:



	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding balance at December 31, 2012	6,429,250		$	1.28
Granted	2,325,000		0.47
Exercised	(60,550	)	0.24
Expired	(1,016,950	)	2.67
Forfeited	(1,371,650	)	0.63
Outstanding balance at September 30, 2013	6,305,100		0.91		7.7	$4
Options exercisable at September 30, 2013	3,526,850		$	1.20	6.3	$4

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 the quarter ended September 30, 2013 and the exercise price, multiplied by the number of in-the-money stock options.

Under the 2008 Plan, during the three and nine months ended September 30, 2013, an aggregate of 60,550 stock options valued at $0.24 were exercised. No stock options were exercised during the nine months ended September 30, 2012. Options for the purchase of an aggregate of 1,498,850 shares of common stock vested during the nine month period ended September 30, 2013, and the aggregate fair value at grant date of these options was $0.7 million. As of September 30, 2013, there was approximately $0.9 million of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 2.5 years.

In July 2009, an aggregate of 500,000 shares of non-vested stock were granted under the 2008 Plan. The shares vest as follows: 25% after two years and 25% on each of the next three anniversary dates thereafter. As of September 30, 2013, an aggregate of 337,500 shares of such non-vested stock were forfeited and 150,000 were vested. In July 2011, an aggregate of 305,000 shares of non-vested stock were granted under the 2008 Plan. As of September 30, 2013, an aggregate of 112,500 shares of such non-vested stock were forfeited and 155,100 were vested. The shares vest as follows: 33% on each of the first and second anniversary dates and 34% on the third anniversary. As of September 30, 2013, there was approximately $0.03 million of total unrecognized compensation cost related to non-vested stock awards. The cost is expected to be recognized over a weighted average period of 0.8 years.

Employee Stock Purchase Plan - In February 2012, under the Stock Purchase Plan (2004) of Hooper Holmes, Inc. (the "2004 Plan"), purchase rights for approximately 273,000 shares of the Company's stock were granted to eligible participating employees with an aggregate grant date fair value of $0.05 million, based on the Black-Scholes pricing model. This offering period concluded in March 2013 and, in accordance with the 2004 Plan's automatic termination provision, no shares were issued. In February 2013, under the 2004 Plan, purchase rights for approximately 233,000 shares were granted with an aggregate fair value of $0.03 million, based on the Black-Scholes option pricing model. The February 2013 offering period will conclude in March 2014. On May 29, 2013, the Company's shareholders approved an amendment and restatement of the Employee Stock Purchase Plan (2004), to be effective January 1, 2014 (as amended and restated, the "2014 Plan"). The aggregate number of shares of the Company's common stock available for purchase under the 2014 Plan is 2,000,000. Unless terminated earlier by the Board of Directors, the 2014 Plan will terminate December 31, 2024.

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 September 30, 2013, there remain available for grant approximately 360,000 shares under the 2007 Plan. Effective June 1, 2007, each non-employee member of the Board of Directors 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 "Securities Act"). 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 under the Securities Act 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. During the nine months ended September 30, 2013 and 2012, shares awarded under the 2007 Plan totaled 30,000 and 30,000, respectively.

The Company recorded $0.4 million and $0.8 million of share-based compensation expense in selling, general and administrative expenses for the three and nine month periods ended September 30, 2013, respectively, and $0.2 million and $0.5 million for the three and nine month periods ended September 30, 2012, respectively, related to stock options, non-vested stock, restricted stock awards and the 2004 Plan. In connection with resignations of former members of management, the Company reversed previously recorded share-based compensation expense totaling $0.1 million and $0.2 million during the three and nine month periods ended September 30, 2013 and $0.0 million for the three and nine month periods ended September 30, 2012. The reversal was recorded in restructuring charges on the Company's consolidated statement of operations (See note 8).