Stock Based Compensation

9 Months Ended

Sep. 30, 2011

Stock Based Compensation [Abstract]

STOCK BASED COMPENSATION

NOTE 5: STOCK-BASED COMPENSATION

Stock Options

     The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of its stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.

     There were 755,347 and 273,181 stock options granted and exercised, respectively, during the nine months ended September 30, 2011.

     The following table shows the assumptions used to value stock options on the date of grant, as follows:

	Nine Months Ended
	September 30,
	2011
Estimated dividend yield		0.0	%
Expected stock price volatility		80	%
Risk-free interest rate		0.79-2.24	%
Expected life of option (in years)		5.00
Weighted-average grant date fair value per share of options granted	$	3.87

     The Company has not paid and does not anticipate paying cash dividends; therefore, the expected dividend rate was assumed to be 0%. The expected stock price volatility was based on Critical Therapeutics’ (now the Company’s) historical volatility for the five year period preceding the grant date. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The expected life was estimated based on historical exercise patterns for previous grants, taking into account employee exercise strategy and cancellation behavior.

     As of September 30, 2011, the aggregate intrinsic value of options outstanding and exercisable was $4.7 million and $3.9 million, respectively.

     As of September 30, 2011, there was $3.9 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.63 years.

Restricted Stock

     During the nine months ended September 30, 2011, 105,000 shares of restricted stock were issued and 50,790 shares vested. As of September 30, 2011, there were 226,710 restricted common shares outstanding and $1.3 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 2.68 years.

Stock-Based Compensation Expense

     Total stock-based compensation expense recognized based on the total grant date fair value of shares vested was approximately $702,000 and $315,000 for the three months ended September 30, 2011 and 2010, respectively and $1.6 million and $970,000 for the nine months ended September 30, 2011 and 2010, respectively.