Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

14. Stock-Based Compensation

Stock Options

Pursuant to the Capital Bank Corporation Equity Incentive Plan (“Equity Incentive Plan”), the Company had a stock option plan providing for the issuance of up to 1,150,000 options to purchase shares of the Company’s stock to officers and directors. As of December 31, 2011 (Successor), options for 193,600 shares of common stock were outstanding and options for 698,859 shares of common stock remained available for future issuance; however, pursuant to the Equity Incentive Plan, no option may be granted after February 21, 2012 and the Equity Incentive Plan has expired. In addition, there were 566,071 options which were assumed under various plans from previously acquired financial institutions, none of which remain outstanding. Grants of options were made by the Board of Directors or the Compensation/Human Resources Committee of the Board. All grants were made with an exercise price at no less than fair market value on the date of grant and must be exercised no later than 10 years from the date of grant.

A summary of the activity of the Company’s stock option plans, including the weighted average exercise price (“WAEP”), for each period is presented below:

	Successor Company					Predecessor Company
	Period of Jan. 29 to Dec. 31, 2011					Period of Jan. 1 to Jan. 28, 2011				Year Ended Dec. 31, 2010					Year Ended Dec. 31, 2009
	Shares			WAEP		Shares		WAEP		Shares			WAEP		Shares			WAEP

Outstanding options, beginning of period		297,880		$	12.11		297,880	$	12.11		366,583		$	11.76		377,083		$	11.71
Granted		–			–		–		–		19,250			4.38		–			–
Exercised		–			–		–		–		–			–		–			–
Forfeited and expired		(104,280	)		10.26		–		–		(87,953	)		8.93		(10,500	)		10.09
Outstanding options, end of period		193,600		$	13.11		297,880	$	12.11		297,880		$	12.11		366,583		$	11.76

Options exercisable at end of period		180,000		$	13.59		226,430	$	13.53		226,430		$	13.53		285,983		$	12.33

The following table summarizes information about the Company’s stock options as of December 31, 2011 (Successor):

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life in Years		Number Exercisable		Intrinsic Value

$3.85 – $6.00		59,850		7.39		47,850	$	–
$6.01 – $9.00		–		–		–		–
$9.01 – $12.00		2,500		6.15		2,500		–
$12.01 – $15.00		16,000		5.76		14,400		–
$15.01 – $18.00		64,000		3.10		64,000		–
$18.01 – $18.37		51,250		2.99		51,250		–
		193,600		4.66		180,000	$	–

The fair values of options granted are estimated on the date of the grants using the Black-Scholes option pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The expected life of the options used in this calculation is the period the options are expected to be outstanding. Expected stock price volatility is based on the historical volatility of the Company’s common stock for a period approximating the expected life; the expected dividend yield is based on the Company’s historical annual dividend payout; and the risk-free rate is based on the implied yield available on U.S. Treasury issues. The following weighted-average assumptions were used in determining fair value for options granted for each period presented:

Assumptions	2011	2010	2009

Dividend yield	–	–	–
Expected volatility	–	33.0%	–
Risk-free interest rate	–	3.1%	–
Expected life	–	7 years	–

The weighted average fair value of options granted for the year ended December 31, 2010 (Predecessor) was $1.80. There were no options granted in the period from January 29, 2011 to December 31, 2011 (Successor), the period from January 1, 2011 to January 28, 2011 (Predecessor) or the year ended December 31, 2009 (Predecessor).

For the period from January 29, 2011 to December 31, 2011 (Successor), the period from January 1, 2011 to January 28, 2011 (Predecessor) and the years ended December 31, 2010 and 2009 (Predecessor), the Company recorded total compensation expense related to stock options of $78,000, $5,000, $54,000 and $50,000, respectively, related to stock options. On January 28, 2011, vesting was accelerated on certain outstanding stock options in connection with the controlling investment in the Company made by CBF. See Note 2 (CBF Investment) for more details.

Restricted Stock

Pursuant to the Equity Incentive Plan, the Board of Directors may grant restricted stock to certain employees and Board members at its discretion. There have been no restricted stock grants since 2008, and the Equity Incentive Plan expired on February 21, 2012. Nonvested shares were subject to forfeiture if employment was terminated prior to the vesting dates. The Company expensed the cost of the stock awards, determined to be the fair value of the shares at the date of grant, ratably over the period of the vesting.

Nonvested restricted stock activity for the year ended December 31, 2011 is summarized in the following table:

	Shares			Weighted Avg. Grant Date Fair Value

Nonvested at beginning of period		11,700		$	6.00
Granted		–			–
Vested		(11,700	)		6.00
Nonvested at end of period		–		$	–

Total compensation expense related to these restricted stock awards for the period of January 29 to December 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the years ended December 31, 2010 and 2009 (Predecessor) totaled $68,000, $2,000, $106,000 and $109,000, respectively. On January 28, 2011, vesting was accelerated on certain outstanding nonvested restricted shares in connection with the controlling investment in the Company made by CBF. See Note 2 (CBF Investment) for more details.

Deferred Compensation for Non-employee Directors

The Company administered the Capital Bank Corporation Deferred Compensation Plan for Outside Directors (“Deferred Compensation Plan”). Eligible directors may have elected to participate in the Deferred Compensation Plan by deferring all or part of their directors’ fees for at least one calendar year, in exchange for common stock of the Company. If a director did not elect to defer all or part of his fees, then he was not considered a participant in the Deferred Compensation Plan. The amount deferred was equal to 125 percent of total director fees. Each participant was fully vested in his account balance. The Deferred Compensation Plan provides for payment of share units in shares of common stock of the Company after the participant ceased to serve as a director for any reason.

Upon closing of the CBF Investment, the Deferred Compensation Plan was terminated and all phantom shares in the Plan were distributed to the participants. For the period of January 29, 2011 to December 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the years ended December 31, 2010 and 2009 (Predecessor), the Company recognized stock-based compensation expense of $0, $35 thousand, $576 thousand and $543 thousand, respectively, related to the Deferred Compensation Plan.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

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+ Details

CAPITAL BANK CORP 10-K