(11) Stock-based Compensation

Warrants

As of December 31, 2011, warrants to purchase 2,750,151 shares of common stock were outstanding at exercise prices ranging from $1.485 to $19.48, with a weighted average exercise price per share of $2.65. These warrants, which were granted as part of various financing and business agreements, expire at various times between October 2013 and August 2018. Warrants were recorded in additional paid-in capital at their estimated fair market value at the date of grant using the Black-Scholes option-pricing model.

Stock Plans

The Company's equity incentive plan was amended, as approved by shareholders on June 25, 2009, to (i) change the name of the plan from the Amended and Restated Nuvelo, Inc. 2004 Equity Incentive Plan to the Amended and Restated ARCA biopharma, Inc. 2004 Equity Incentive Plan, or the Equity Plan, (ii) increase the maximum number of shares issuable under the plan, revise the formula for determining the maximum number of shares issuable under the plan and implement new share usage rules; and (iii) adjust the award limitations for stock options and stock appreciation rights. As a result of such amendment, the maximum number of shares issuable under the Equity Plan was increased by 326,323 shares.

The Equity Plan provides for the granting of stock options (including indexed options), stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units and deferred stock units. Under the Equity Plan, awards may be granted to employees, directors and consultants of ARCA, except for incentive stock options, which may be granted only to employees. As of December 31, 2011, options to purchase 393,345 shares were outstanding under the Equity Plan, and 506,908 shares were reserved for future awards.

In general, the Equity Plan authorizes the grant of stock options that vest at rates set by the Board of Directors or the Compensation Committee thereof. Generally, stock options granted by ARCA under the equity incentive plans become exercisable ratably for a period of three to four years from the date of grant and have a maximum term of ten years. The exercise prices of stock options under the equity incentive plan generally meet the following criteria: the exercise price of incentive stock options must be at least 100% of the fair market value on the grant date and exercise price of options granted to 10% (or greater) stockholders must be at least 110% of the fair market value on the grant date. ARCA's other stock plans under which options remained outstanding as of December 31, 2011 are the Non-Employee Director Stock Option Plan. As of December 31, 2011, options to purchase 914 shares were outstanding under this stock plan.

In conjunction with the Merger, the Company discontinued grants under its 2004 Stock Option Plan effective January 27, 2009. As of December 31, 2011, options to purchase 469,979 shares with a weighted average exercise price of $2.38 per share were outstanding under this plan. Options and awards outstanding under this plan will continue to vest according to the original terms of each grant. No new awards will be granted under this plan. Subsequent to the Merger, the Company has granted stock-based compensation awards under the Equity Plan.

The Company granted options to purchase 164,700 and 128,170 shares of common stock in the years ended December 31, 2011 and 2010, respectively. The fair values of employee stock options granted in the years ended December 31, 2011 and 2010 were estimated at the date of grant using the Black-Scholes model with the following assumptions and had the following estimated weighted average grant date fair value per share:


	Years Ended December 31,
	2011			2010
Expected term		5.8 years			5.7 years
Expected volatility		110	%		86	%
Risk-free interest rate		2.20	%		2.70	%
Expected dividend yield		0	%		0	%
Weighted-average grant date fair value per share	$	1.83		$	2.04

A summary of ARCA's stock option activities for the years ended December 31, 2011 and 2010, and related information as of December 31, 2011, is as follows:


	For the years ended December 31,
	2011					2010
	# of Options			Weighted Average Exercise Price		# of Options			Weighted Average Exercise Price
Options outstanding, beginning of period		953,238		$	31.87		921,104		$	69.60
Granted		164,700			2.24		128,170			2.95
Exercised		(1,126	)		1.31		(49,487	)		2.80
Forfeited and cancelled		(252,574	)		110.81		(46,549	)		729.70

Options outstanding, end of period		864,238		$	3.20		953,238		$	31.87

Options exercisable, end of period		616,148		$	3.35		676,972		$	43.49

Options vested and expected to vest		847,425		$	3.21

The total intrinsic value of options exercised for the years ended December 31, 2011 and 2010 was $1,000 and $208,000, respectively. As of December 31, 2011, the unrecognized compensation expense related to unvested options, excluding estimated forfeitures, was $ 464,000, which compensation expense is expected to be recognized over a weighted average period of 1.8 years. The Company recognizes compensation costs for its share-based awards on a straight-line basis over the requisite service period for the entire award, as adjusted for expected forfeitures.

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2011:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Term (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$ 0.06 - $ 0.60		7,488		3.42	$	0.52		7,488	$	0.52
0.90 - 0.90		203,065		4.83		0.90		203,065		0.90
1.68 - 1.86		100,093		5.90		1.83		95,829		1.83
2.24 - 2.24		164,700		9.38		2.24		32,017		2.24
2.69 - 2.90		167,895		6.93		2.82		109,765		2.83
2.97 - 5.57		217,208		7.26		4.63		164,195		4.74
14.58 - 318.00		3,789		4.00		143.19		3,789		143.19

		864,238		6.82	$	3.20		616,148	$	3.35

For the years ended December 31, 2011 and 2010 and for the period from Inception through December 31, 2011, the Company recognized the following non-cash, share-based compensation expense (in thousands):


	Years Ended December 31,				Period from December 17, 2001 (date of inception) to December 31,
	2011		2010		2011
Research and Development	$	117	$	128	$	496
Selling, General and Administrative		191		330		1,399
Restructuring Expense		—		—		387

Total	$	308	$	458	$	2,282

Stock-based compensation expense related to non-employees was negligible in 2011 and 2010. ARCA did not recognize any tax benefit related to employee stock-based compensation cost as a result of the full valuation allowance on its net deferred tax assets.