Note 22 — Stock Options

On June 4, 2008, the Company’s stockholders approved the adoption of the 2008 Stock Incentive Plan (the “2008 Plan”), which replaced the 2001 Stock Incentive Plan, as amended. The 2008 Plan provided that up to 280,000 shares of the Company’s common stock could be delivered under the Plan to certain employees of the Company or any of its subsidiaries and to consultants and directors who are not employees. In addition, the 2008 Plan originally provided for an additional number of shares of the Company’s common stock to be reserved for issuance under the plan on January 1st of each succeeding year, beginning January 1, 2009, in an amount equal to 100,000 shares. On November 26, 2008, the Company’s Compensation Committee approved amendments the 2008 Plan to i) increase the maximum number of shares of Common Stock authorized for issuance under the 2008 Plan by 350,000 shares, from 280,000 shares to 630,000 shares, and (ii) raise the automatic increases in the number of shares available for awards by 150,000 shares, from 100,000 to 250,000, each year beginning in 2009. The holders of a majority of the Company’s outstanding capital stock approved the Plan Amendment pursuant to a consent dated November 26, 2008. On March 25, 2010, the Compensation Committee approved a second amendment to the 2008 Plan to increase the shares available under the plan by an additional 1,720,000 shares, from 1,130,000 shares to 2,850,000 shares. The second amendment was approved by the Company’s stockholders on June 3, 2010.

Awards granted under the 2008 Plan may be incentive stock options or non-qualified stock options. The exercise price for any incentive stock option (“ISO”) may not be less than 100% of the fair market value of the stock on the date the option is granted, except that with respect to a participant who owns more than 10% of the common stock the exercise price must be not less than 110% of fair market value. The exercise price of any non-qualified option shall be in the sole discretion of the Compensation Committee or the Board. To qualify as an ISO the aggregate fair market value of the shares (determined on the grant date) under options granted to any participant may not exceed $100,000 in the first year that they can be exercised. There is no comparable limitation with respect to non-qualified stock options. The term of all options granted under the 2008 Plan will be determined by the Compensation Committee or the Board in their sole discretion, provided, however, that the term of each ISO shall not exceed 10 years from the date of grant thereof.

In addition to the ISOs and non-qualified options, the 2008 Plan permits the Compensation Committee, consistent with the purposes of the Plan, to grant stock appreciation rights and/or shares of Common Stock to non-employee directors and such employees (including officers and directors who are employees) of, or consultants to, the Company or any of its Subsidiaries, as the Committee may determine, in its sole discretion. Under applicable tax laws, however, ISO’s may only be granted to employees.

The 2008 Plan is administered by the Board, which is authorized to interpret the 2008 Plan, to prescribe, amend and rescind rules and regulations relating to the 2008 Plan and to determine the individuals to whom, and the time, terms and conditions under which, options and awards are granted. The Board may also amend, suspend or terminate the 2008 Plan in any respect at any time. However, no amendment may (i) adversely affect the rights of a participant under an award theretofore granted without the consent of such participant, (ii) increase the number of shares reserved under the 2008 Plan, (iii) modify the requirements for participation in the 2008 Plan, or (iv) modify the 2008 Plan in any way that would require stockholder approval under the rules and regulations under the Exchange Act or the rules of any stock exchange or market on which the Common Stock is listed (unless such stockholder approval is obtained).

As of December 31, 2012, there were approximately 245 employees of the Company eligible to participate in the 2008 Plan, and 1,991,731 shares of common stock reserved for issuance under the 2008 Plan.

Effective April 1, 2000, the Company adopted a stock option plan for all independent directors, which is separate and distinct from the 2008 Stock Incentive Plan described above. The Directors’ Plan was replaced during 2010 by the 2010 Non-Employee Directors’ Stock Plan, which is described in Note 23.

The following table summarizes the options granted, exercised, forfeited and outstanding through December 31, 2012:

	Shares		Exercise Price Per Share	Weighted Average Exercise Price

Outstanding at December 31, 2010	3,374,045		$3.04 - $1,363.95	$	7.07

Granted	915,536		$4.04 - $4.74	$	4.17
Exercised	(53,949	)	$3.30 - $4.65	$	3.77
Forfeited	(95,548	)	$3.50 - $1,363.95	$	38.16

Outstanding at December 31, 2011	4,140,084		$3.04 - $263.55	$	5.83

Granted	576,249		$0.52 – $3.54	$	2.58
Exercised	—
Forfeited	(1,157,075	)	$3.04 - $140.70	$	5.91

Outstanding at December 31, 2012	3,559,258		$0.52 - $263.55	$	5.28

Options exercisable at December 31, 2012	2,463,646		$3.26 – $263.55	$	6.00
Options exercisable at December 31, 2011	2,548,936		$3.04 – $263.55	$	6.76
Options exercisable at December 31, 2010	2,303,152		$3.30 – $1,363.95	$	8.32

The intrinsic value of options exercised was $6,000 and $67,000 during the years ended December 31, 2012 and 2011, respectively.

The following table summarizes information about stock options outstanding at December 31, 2012:

	Options Outstanding				Options Exercisable
Exercise Price	Number Outstanding at December 31, 2012	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at December 31, 2012	Weighted Average Exercise Price

$.52 - $1.00	150,000	9.8 years	$	0.60	—	$	0.00
$1.01 - $4.00	784,266	6.5 years	$	3.37	598,413	$	3.39
$4.01 - $6.00	1,650,066	7.2 years	$	4.38	890,307	$	4.39
$6.01 - $7.00	85,714	3.5 years	$	6.79	85,714	$	6.79
$7.01 - $8.00	507,132	3.9 years	$	7.28	507,132	$	7.28
$8.01 - $12.00	379,210	4.1 years	$	10.69	379,210	$	10.69
$12.01 - $263.55	2,870	1.0 years	$	179.25	2,870	$	179.25

$3.04 - $263.55	3,559,258	6.3 years	$	5.28	2,463,646	$	6.00

The aggregate intrinsic value of the outstanding options (the difference between the closing stock price on the last trading day of 2012 of $0.58 per share and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012 was $6,000. The aggregate intrinsic value of the exercisable options as of December 31, 2012 was $0. These amounts will change based on changes in the fair market value of the Company’s common stock.

The Company uses an Enhanced Hull-White Trinomial model to value its employee options. The weighted-average, grant-date fair value of stock options granted to employees during the year, and the weighted-average significant assumptions used to determine those fair values, using the Enhanced Hull-White Trinomial model for stock options under ASC 718, are as follows:

Year ended December 31,	2012			2011

Weighted average fair value per options granted	$	1.60		$	2.24

Significant assumptions (weighted average):
Risk-free interest rate at grant date	0.02		%	0.09		%
Expected stock price volatility	71		%	82		%
Expected dividend payout	—			—
Expected option life (years) (1)	6.0			6.0
Expected turn-over rate	5.0		%	5.90		%
Expected exercise multiple	2.2			2.2

(1) The Company continues to use the simplified method to estimate expected term due to the historical structural changes to its business such that historical exercise data may no longer provide a reasonable basis on which to estimate expected term.

The risk-free interest rate is based on the U.S. Treasury Bill rates at the time of grant. The dividend reflects the fact that the Company has never paid a dividend on its common stock and does not expect to in the foreseeable future. The Company estimated the volatility of its common stock at the date of grant based on the historical volatility of its stock. The expected term of the options is based on the simplified method as described in a Staff Accounting Bulletin. The expected turn-over rate represents the expected forfeitures due to employee turnover and is based on historical rates experienced by the Company. The expected exercise multiple represents the mean ratio of the stock price to the exercise price at which employees are expected to exercise their options and is based on an empirical study completed by S. Huddart and M. Lang (1996).

The Company recognizes compensation expense for stock options on a straight-line basis over the requisite service period, which is generally equal to the vesting period of the option. The subject stock options expire ten years after the date of grant. The Company recognized stock compensation expense for stock options of $1,322,000 and $1,501,000 during the years ended December 31, 2012, and 2011, respectively.

As of December 31, 2012, $477,000 of total unrecognized compensation cost related to outstanding stock options, unadjusted for potential forfeitures, is expected to be recognized as follows:

Year ending December 31,
2013	$	373,000
2014	103,000
2015	1,000
Total	$	477,000

In addition, there was approximately $778 thousand of unrecognized expense related to the Cliff Options that vest based on the occurrence of certain events which may be recognized over the next 2.3 years if the requirements for vesting are met.