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. As of September 30, 2011, approximately 105,000 shares remain available for grant under the 2008 Plan.

Options under the 2008 Plan 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 800,000 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 680,000 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.

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. The 2011 Plan provides for the issuance of an aggregate of 1,500,000 shares. As of September 30, 2011, no share-based awards had been granted under the 2011 Plan.

During the three month and nine month periods ended September 30, 2011, options for the purchase of 680,000 and 830,000 shares, respectively, were granted under the 2008 Plan. During the three and nine month periods ended September 30, 2010, options for the purchase of 1,000,000 and 1,135,000 shares, respectively, were granted under the 2008 Plan. The fair value of the stock options granted during the three and nine month periods ended September 30, 2011 and 2010 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2011		2010		2011		2010
Expected life (years)	5.4		5.6		5.4		5.4
Expected volatility	93.7	%	91.7	%	93.4	%	91.7	%
Expected dividend yield	—		—		—		—
Risk-free interest rate	1.5	%	1.5	%	1.6	%	1.6	%
Weighted average fair value of options
granted during the period	$0.78		$0.42		$0.74		$0.45

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 long-term historical volatility of the Company's stock. 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 nine month period ended September 30, 2011:



	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, 2010	6,370,150		$2.07
Granted	830,000		1.00
Exercised	—		—
Expired	(200,750	)	3.83
Forfeited	(562,500	)	1.03
Outstanding balance at September 30, 2011	6,436,900		$1.97	6.6	$187
Options exercisable at September 30, 2011	3,045,650		$3.24	4.3	$35

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, 2011 and the exercise price, multiplied by the number of in-the-money stock options.

No stock options were exercised during either of the nine month periods ended September 30, 2011 and 2010. Options for the purchase of 810,625 shares of common stock vested during the nine month period ended September 30, 2011, and the aggregate fair value at grant date of these options was $0.6 million. As of September 30, 2011, there was approximately $1.3 million of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 2.7 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, 2011, an aggregate of 300,000 shares of such non-vested stock were forfeited and 50,000 vested. In July 2011, an aggregate of 305,000 shares of non-vested stock were granted under the 2008 Plan. 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, 2011, no shares were forfeited and no shares were vested. The fair value of these stock awards was based on the grant date market value of $0.3 million. As of September 30, 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 2.8 years.

Employee Stock Purchase Plan - In February 2010, under the Stock Purchase Plan (2004) of Hooper Holmes, Inc. (the "2004 Plan"), purchase rights for up to 277,600 shares of the Company's stock were granted to eligible participating employees with an aggregate fair value of $0.1 million, based on the Black-Scholes pricing model. This offering period 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 280,800 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 September 30, 2011, there remain available for grant approximately 420,000 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 month periods ended September 30, 2011 and 2010, shares awarded under the 2007 Plan totaled 30,000 and 35,000, respectively.

The Company recorded $0.2 million and $0.5 million of share-based compensation expense in selling, general and administrative expenses for the three and nine month periods ended September 30, 2011, respectively, and $0.1 million and $0.5 million for the three and nine month periods ended September 30, 2010, respectively, related to stock options, non-vested stock, restricted stock awards and the 2004 Plan.