Equity Based Compensation

9 Months Ended

Sep. 30, 2011

Equity Based Compensation

Equity Based Compensation

NOTE 5—EQUITY BASED COMPENSATION

In March 2004, the Board of Directors adopted the Carmike Cinemas, Inc. 2004 Incentive Stock Plan (the "2004 Incentive Stock Plan"). The Company's Compensation and Nominating Committee (or similar committee) may grant stock options, stock grants, stock units, and stock appreciation rights under the 2004 Incentive Stock Plan to certain eligible employees and to outside directors. As of September 30, 2011, there were 1,410,275 shares available for future grants under the 2004 Incentive Stock Plan. The Company's policy is to issue new shares upon exercise of options and the issuance of stock grants.

The Company also issues restricted stock awards to certain key employees and directors. Generally, the restricted stock vests over a one to three year period and compensation expense is recognized over the one to three year period equal to the grant date fair value of the shares awarded to the employee. As of September 30, 2011, the Company also has 93,583 shares of performance-based awards outstanding which are dependent on the achievement of EBITDA targets that vest over a three-year period. As of September 30, 2011, 33,000 shares of these performance-based stock awards have been earned due to the achievement of EBITDA targets. Performance-based stock awards are recognized in compensation expense over the vesting period based on the fair value on the date of grant and the number of shares ultimately expected to vest. The Company has determined the achievement of the performance target for the unearned awards is probable.

The Company's total stock-based compensation expense was approximately $403 and $458 for the three months ended September 30, 2011 and 2010, respectively, and $1,590 and $1,680 for the nine months ended September 30, 2011 and 2010, respectively. Included in stock-based compensation expense for the three and nine months ended September 30, 2011, is $222 related to the accelerated vesting of stock-based awards to our former Senior Vice-President-General Counsel and Secretary (see Note 12). Stock-based compensation expense is included in general and administrative expenses in the consolidated statement of operations with the exception of the accelerated vested awards which are included in Severance Agreement Charges. As of September 30, 2011, the Company had approximately $2,411 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's plans. This cost is expected to be recognized as stock-based compensation expense over a weighted-average period of approximately 1.8 years. This expected cost does not include the impact of any future stock-based compensation awards.

Options – Service Condition Vesting

The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options for which vesting is dependent only on employees providing future service.

The following table sets forth information about the weighted-average fair value of options granted and the weighted-average assumptions for such options granted during the first nine months of 2011 and 2010:

	2011			2010
Fair value of options on grant date	$	4.87		$	6.84
Expected life (years)		6.0			6.0
Risk-free interest rate		2.3	%		2.6	%
Expected dividend yield		—	%		—	%
Expected volatility		76.2	%		71.1	%

The Company's stock-based compensation expense is recorded based on an estimated forfeiture rate of 5%.

The following table sets forth the summary of option activity for stock options with service vesting conditions as of September 30, 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at January 1, 2011		704,500		$	13.77		7.24
Granted		172,000			7.24		9.48		6
Exercised		—
Forfeited		(20,000	)		35.63
Outstanding at September 30, 2011		856,500		$	11.95		6.70	$	30
Exercisable on September 30, 2011		482,333		$	14.61		5.17	$	24
Expected to vest September 30, 2011		355,459		$	8.52		8.66	$	6

Restricted Stock

The following table sets forth the summary of activity for restricted stock grants, including performance based awards, for the nine months ended September 30, 2011:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		131,333		$	10.58
Granted		158,975			7.24
Vested		(43,167	)		10.47
Forfeited		(5,000	)		7.34
Nonvested at September 30, 2011		242,141			8.47