(9) Stock-based Compensation

Stock Plans

The Company’s new equity incentive plan, the 2013 Equity Incentive Plan (the Equity Plan), was approved by stockholders on September 17, 2013. The maximum number of shares issuable under this plan is 2,250,000 shares.

The Equity Plan provides for the granting of stock options (including indexed options), restricted stock units, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, 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, 2013, options and awards for 1,156,869 shares were outstanding under the Equity Plan, and 1,093,131 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.

In conjunction with the adoption of the new Equity Plan, the Company discontinued grants under its previous plan, the Amended and Restated ARCA biopharma, Inc. 2004 Equity Incentive Plan (the 2004 Plan), effective September 17, 2013. Options outstanding under the 2004 plan will continue to vest according to the original terms of each grant. As of December 31, 2013, options to purchase 63,255 shares with a weighted average exercise price of $21.25 per share were outstanding under this plan. Other stock plans that were assumed by ARCA in the Merger still have options outstanding that will continue to vest according to the original terms of each grant, but no new options can be granted under these plans. As of December 31, 2013, options to purchase 42,318 shares with a weighted average exercise price of $18.98 were outstanding under these plans.

The Company granted options and awards for 1,160,535 and 5,833 shares of common stock in the years ended December 31, 2013 and 2012, respectively. The fair values of the majority of employee stock options granted in the years ended December 31, 2013 and 2012 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,
	2013			2012
Expected term		5.8 years			5.3 years
Expected volatility		96	%		108	%
Risk-free interest rate		1.62	%		0.15	%
Expected dividend yield		0	%		0	%
Weighted-average grant date fair value per share	$	1.05		$	4.68

A summary of ARCA’s stock option activities for the years ended December 31, 2013 and 2012, and related information as of December 31, 2013, is as follows:

	For the years ended December 31,
	2013					2012
	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Options outstanding, beginning of period		144,019		$	18.28		144,039		$	19.20
Granted		741,535			1.38		5,833			6.00
Exercised		—			—		—			—
Forfeited and cancelled		(42,112	)		11.62		(5,853	)		27.96
Options outstanding, end of period		843,442		$	3.76		144,019		$	18.28
Options exercisable, end of period		194,550		$	11.14		125,666		$	18.77
Options vested and expected to vest		832,941		$	3.78

The total intrinsic value of options exercised for the years ended December 31, 2013 and 2012 was $0 and $0, respectively. As of December 31, 2013, the unrecognized compensation expense related to unvested options, excluding estimated forfeitures, was $701,000 which is expected to be recognized over a weighted average period of 2.6 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, 2013:

					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
$	0.36	—	$	1.33		1,433		8.56	$	1.21		286	$	0.71
	1.38	—		1.38		727,869		9.46		1.38		98,233		1.38
	1.40	—		22.98		96,465		5.85		12.04		78,356		13.18
	22.98	—		33.42		17,168		4.42		32.78		17,168		32.78
	33.42	—		440.40		250		0.33		263.94		250		263.94
	440.40	—		1,908.00		257		0.30		1,443.56		257		1,443.56
						843,442		8.94	$	3.76		194,550	$	11.14

Restricted Stock Units

The Company began granting restricted stock units (RSUs) to employees during 2013 in conjunction with the adoption of its 2013 Equity Incentive Plan. The fair value of RSU awards is the closing price of the Company’s common stock on the date of grant and is recognized as compensation expense on a straight-line basis over the respective vesting period. The stock awards granted have a requisite service period of three years with annual vesting on the grant anniversary date.

A summary of RSU activity for the year ended December 31, 2013 is presented below:

Restricted Stock Awards	Number of Shares	Weighted- Average Grant Date Fair Value
Unvested RSUs at December 31, 2012	—	$	—
Granted	419,000		1.39
Vested	—		—
Forfeited and cancelled	—		—
Unvested RSUs at December 31, 2013	419,000	$	1.39

As of December 31, 2013, the total unrecognized compensation cost related to unvested stock awards was approximately $529,000. This cost will be recognized on a straight-line basis over the next 2.7 years and will be adjusted for estimated forfeitures.

Non-cash Stock-based Compensation

For the years ended December 31, 2013 and 2012 and for the period from Inception through December 31, 2013, 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,
	2013		2012		2013
Research and Development	$	77	$	94	$	667
Selling, General and Administrative		206		212		1,817
Restructuring Expense		—		—		387
Total	$	283	$	306	$	2,871

Stock-based compensation expense related to non-employees was negligible in 2013 and 2012. 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.