Stock Options

The Company adopted, with stockholder approval, the Innodata Isogen, Inc. 2009 Stock Plan, as amended and restated (the “2009 Plan”). The maximum number of shares of common stock that may be delivered under the 2009 Plan is 2,270,118 shares, less one share for every share that becomes subject to an Option or Stock Appreciation Rights (SAR) granted after March 31, 2011 and two shares for every share that becomes subject to an Award other than an Option or SAR granted after March 31, 2011. If after March 31, 2011 (i) any shares subject to an award or portion of any award under the 2001 and 2002 Stock Option Plans (collectively, the “Prior Plans”) that expires or terminates unexercised, becomes unexercisable, or is forfeited, or is otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of Stock or (ii) shares subject to any Award or portion of an Award under the Plan that expires or terminates unexercised, becomes unexercisable, or is forfeited, or is otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of Stock, the applicable shares subject to such award under the Prior Plans or the Award shall thereafter be available for further Awards under the Plan. Shares that become available for Awards shall be added back as (i) one share for each such share subject to an option under the Prior Plans or an Option or SAR under the Plan, and (ii) as two shares for each such share subject to awards other than Options or SAR under the Plan.

All directors, officers and other employees, and other persons who provide services to the Company, are eligible to participate in the 2009 Plan. The 2009 Plan provides for the grants of stock options (which may be incentive stock options within the meaning of the Internal Revenue Code of 1986, as amended, or non-qualified stock options). The stock options granted may have a maximum term of up to ten years.

The Company’s Board of Directors may amend, alter, suspend, discontinue, or terminate the 2009 Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval, if such approval is necessary to comply with any tax or regulatory requirement applicable to the 2009 Plan; and provided further that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any participant or any holder or beneficiary of any award theretofore granted shall not to that extent be effective without the consent of the affected participant, holder or beneficiary. Notwithstanding the foregoing, the Board of Directors may unilaterally amend the 2009 Plan and outstanding awards without participant consent, as it deems necessary or appropriate, to ensure compliance with applicable securities laws and provisions of the Internal Revenue Code of 1986.

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted average fair values of the options granted and weighted average assumptions are as follows:

	For the Years Ended December 31,
	2011		2010			2009 ⁽¹⁾

Weighted average fair value of options granted	$	1.61	$	3.04		$	—

Risk-free interest rate		0.9%-2.8%		2.5%-3.2%			—
Expected life (years)		5-8		8			—
Expected volatility factor		68%-74%		90	%		—
Expected dividends		None		None			—

⁽¹⁾ There were no options granted in 2009.

The Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. The expected term of options granted is based on a combination of vesting schedules, term of the options and historical experience. Expected volatility is based on historical volatility of the Company’s common stock. The Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its capital stock.

A summary of option activity under the Plans as of December 31, 2011, and changes during the year then ended is presented below:

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at January 1, 2011		2,096,780		$	2.83
Granted		1,505,000		$	2.59
Exercised		—			—
Forfeited/Expired		(183,451	)	$	2.74
Outstanding at December 31, 2011		3,418,329		$	2.73		4.99	$	2,242,064
Exercisable at December 31, 2011		1,777,053		$	2.73		2.89	$	2,242,064
Vested and expected to vest at December 31, 2011		3,418,329		$	2.73		2.89	$	2,242,064

The total compensation cost related to non-vested stock options not yet recognized as of December 31, 2011 totaled approximately $2.4 million. The weighted-average period over which these costs will be recognized is thirty one months.

Because of the Company’s net operating loss carryforwards, no tax benefits resulting from the exercise of stock options have been recorded, thus there was no effect on cash flows from operating or financing activities.

No options were exercised during the year ended December 31, 2011 and 2010. The total intrinsic value of options exercised during the year ended December 31, 2009 was approximately $4.0 million. The total fair value of stock options vested during the year ended December 31, 2011 was approximately $0.3 million.

A summary of restricted shares under the Company’s stock option plans as of December 31, 2011, and changes during the period then ended, are presented below:

	Number of Shares			Weighted-Average Grant Date Fair Value

Unvested at January 1, 2011		40,000		$	4.39
Granted		30,000		$	2.59
Vested		(10,000	)	$	4.39
Forfeited/Expired		—		$	—
Unvested at December 31, 2011		60,000		$	3.49