Stock Options

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Note 14 - Stock Options

In our stock option plans, the exercise price of the awards are established by the administrator of the plan and, in the case of incentive stock options (“ISOs”) issued to employees who are less than 10% stockholders, the per share exercise price must be equal to at least 100% of the fair market value of a share of the common stock on the date of grant or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% stockholder. The administrator of the plan determines the terms and provisions of each award granted, including the vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment, payment contingencies and satisfaction of any performance criteria.

The weighted average fair value of each option granted is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions during the years ended December 31, 2011 and 2010:

	2011			2010
Risk free interest rate		2.0	%		2.3	%
Expected option lives	5 Years			5 Years
Expected volatility		117.3	%		112.3	%
Estimated forfeiture rate		10	%		10	%
Expected dividend yields	None			None
Weighted average exercise price	$	2.25		$	2.42
Weighted average grant date fair value of options	$	1.84		$	1.91

The Company calculates expected volatility for a stock-based grant based on historic daily stock price observations of its common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. The expected term of the options and forfeiture rates are estimated based on the Company’s exercise and employment termination experience. The risk free interest rate is based on U.S. Treasury yields for securities in effect at the time of grants with terms approximating the expected life of the grants. The assumptions used in the Black-Scholes option valuation model are highly subjective and can materially affect the resulting valuations.

Glowpoint 2007 Stock Incentive Plan

Pursuant to the Glowpoint 2007 Stock Incentive Plan (as amended ,the “2007 Plan”), 3,010,000 shares of common stock have been reserved for issuance thereunder. The 2007 Plan permits the grant of ISOs to employees. Non-qualified stock options (“NQSOs”) may be granted to employees, directors and consultants.  As of December 31, 2011, options to purchase a total of 296,000 shares of common stock were outstanding and 1,808,000 shares of common stock remained available for future issuance under the 2007 Plan.

Glowpoint 2000 Stock Incentive Plan

Pursuant to the Glowpoint 2000 Stock Incentive Plan (as amended, the “2000 Plan”), that was terminated in June 2010, 1,100,000 shares of common stock had been reserved for issuance thereunder. The 2000 Plan provided for the grant of ISOs to employees or employees of our subsidiaries. NQSOs could have been granted to employees, directors and consultants.  As of December 31, 2011, options to purchase a total of 453,000 shares of common stock were outstanding under the 2000 Plan.

Other Option Information

A summary of options granted, exercised, expired and forfeited under our plans and options outstanding as of December 31, 2011 and 2010, is presented below (options in thousands):

	Outstanding					Exercisable
	Number of Options			Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Options outstanding, January 1, 2010		1,177		$	3.36		728	$	4.32
Granted		303			2.42
Exercised		(11	)		1.52
Expired		(4	)		22.00
Forfeited		(205	)		2.68
Options outstanding, December 31, 2011		1,260		$	3.19		848	$	3.72
Granted		14			2.25
Exercised (Note A)		(154	)		1.62
Expired		(31	)		16.29
Forfeited		(339	)		3.30
Options outstanding, December 31, 2011		750		$	2.90		570	$	3.12
Shares of common stock available for future grant under Company plans		1,808

Note A –Due to cashless exercises, 39,000 common shares were received from the exercise of 154,000 options.

Additional information as of December 31, 2011 was as follows (options in thousands):

		Outstanding						Exercisable
Range of price		Number of Options		Weighted Average Remaining Contractual Life (In Years)		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
$	0.80 – 1.60		165		6.0	$	1.44		118	$	1.39
	1.64 – 2.00		168		6.7		1.84		142		1.84
	2.04 – 2.60		232		6.7		2.39		146		2.32
	2.64 – 4.76		128		3.9		4.29		107		4.59
	5.08 – 22.00		57		2.3		9.21		57		9.21
$	0.80 – 22.00		750		5.7	$	2.90		570	$	3.12

A summary of nonvested options as of, and changes during the years ended December 31, 2011 and 2010, is presented below (options in thousands):

	Options			Weighted Average Grant Date Fair Value
Nonvested options outstanding, January 1, 2010		449		$	1.35
Granted		303			1.91
Vested		(186	)		1.42
Forfeited		(154	)		1.56
Nonvested options outstanding, December 31, 2011		412		$	1.65
Granted		14			1.84
Vested		(139	)		1.38
Forfeited		(107	)		1.90
Nonvested options outstanding, December 31, 2011		180		$	1.72

Stock option compensation expense was allocated as follows for the years ended December 31, 2011 and 2010 (in thousands):

	2011		2010
Global managed services	$	36	$	103
Sales and marketing		9		41
General and administrative		21		72
	$	66	$	216

The intrinsic value of vested options at December 31, 2011 and 2010 was $205,000 and $350,000, respectively.  The intrinsic value of unvested options at December 31, 2011 and 2010 was $50,000 and $176,000, respectively.

The remaining unrecognized stock-based compensation expense for options at December 31, 2011 was $217,000, of which $197,000, representing 95,000 shares, will only be expensed upon a “change in control” and the remaining $20,000 will be amortized over a weighted average period of six months.

The tax benefit recognized for stock-based compensation for the year ended December 31, 2011 was diminimus.  There was no tax benefit recognized for stock-based compensation for the year ended December 31, 2010.  No compensation costs were capitalized as part of the cost of an asset.