STOCK INCENTIVE PLANS

Under the C

ompany’s stock incentive plan, stock options, restricted stock, stock-settled stock appreciation rights, performance share units and other awards

may

be granted to officers, employees, consultants, and non-employee directors.

Prior to

2017,

the Company

’s stock-based compensation expense reflected an estimate of forfeited share-based awards. Upon the adoption of ASU

2016

effective

January 1, 2017,

the Company elected to account for forfeitures when they occur. This standard was adopted on a modified retrospective basis and stock-based compensation expense for the

three

and

nine

-month periods ended

September 30, 2016

have

not

be restated for this change. Adoption did

not

have a material effect on the Company’s stock-based compensation expense. See Note

“

Summary of Significant Accounting Policies

” for additional information.

2011

Incentive Award Plan

June 10, 2011,

Alaska Communications shareholders approved the

2011

Incentive Award Plan, which was amended and restated on

June 30, 2014

and which terminates in

2021.

Following termination, all shares granted under this plan, prior to termination, will continue to vest under the terms of the grant when awarded. All remaining unencumbered shares of common stock previously allocated to the Prior Plans were transferred to the

2011

Incentive Award Plan. In addition, to the extent that any outstanding awards under the Prior Plans are forfeited or expire or such awards are settled in cash, such shares will again be available for future grants under the

2011

Incentive Award Plan.

The Company grants Restricted Stock Units (“RSU’s”) and Performance Stock Units (“PSUs”) as the primary equity based incentive for executive and certain non union-represented employees.

Restricted Stock Units

The Company measures the fair value of RSUs based on the number of shares granted and the quoted closing market price of the Company

’s common stock on the date of grant. RSUs granted in

2017

vest ratably over

three

years.

he following table summarizes the RSU, LTIP and non-employee director stock compensation activity for the

nine

-month period ended

September 30, 2017:

				Weighted
				Average
				Grant Date
	Number			Fair
	of Units			Value
Nonvested at December 31, 2016		1,414		$	1.79
Granted		618			2.25
Vested		(773	)		1.85
Canceled or expired		(64	)		1.74
Nonvested at September 30, 2017		1,195		$	1.99

Performance Stock Units

The Company measures the fair value of

2017

PSUs with service and performance conditions based on the closing price of the underlying shares at the grant date. The amount of expense recognized each reporting period is based on changes to the expected achi

evement of the performance conditions, or actual value if the PSUs otherwise vest or are determined by the Compensation Committee of the Company’s Board of Directors to be unlikely to vest prior to expiration. For

2017

PSUs that include a market condition such as the Company achieving a specified stock price or a specified return on the stock price, the Company measures the fair value of PSUs using a Monte Carlo simulation model as more fully described below. Share-based compensation expense related to market conditions will be recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

The following table summarizes the

PSU activity for the

nine

-month period ended

September 30, 2017.

				Weighted
				Average
				Grant Date
	Number			Fair
	of Units			Value
Nonvested at December 31, 2016		1,334		$	1.77
Granted (1)		615			2.27
Vested		(532	)		1.78
Canceled or expired		(86	)		1.76
Nonvested at September 30, 2017		1,331		$	2.00

(

)

Granted units include

307

PSUs for which the performance targets have

not

been established. Accordingly, the grant date fair value has

not

been calculated.

PSUs

granted prior to

2017

vest ratably over

three

years beginning at the grant date, while PSUs granted in

2017

vest at the end of the

2.5

year performance period, subject to achievement of certain performance conditions and a market condition and approval of the Compensation and Personnel Committee of the Board of Directors. As of

September 30, 2017,

certain of the Company performance targets were deemed probable of achievement and expensed accordingly based on the authoritative accounting guidance on share-based payments.

All

2017

PSUs granted are based on achievement of an initial performance condition with

percent based on achievement of a secondary performance condition and

percent based on achievement of a market condition. The targets for the secondary performan

ce condition were only partially established and will be finalized for fiscal years

2018

and

2019

in the

first

quarter of those respective fiscal years. The performance targets and actual achievement for this secondary performance condition will be averaged over the performance period and vesting will be determined in

March 2020

after certification of the Company’s fiscal

2019

financial results. As a result, the valuation for the secondary performance condition is expected to be based on the quoted closing price of the Company’s common stock in fiscal

2019

when the performance targets are established. Expense will be attributed to earnings over the requisite service period to the extent the Company’s achievement of the secondary performance condition is probable of being met.

The market condition is

based on the Company’s specified return on its stock price compared to the specified return of an index over the performance period. The market condition valuation was based on a Monte Carlo simulation model. The table below sets forth the weighted average grant date fair value assumptions used in the Monte Carlo simulation model:

Valuation (grant) date	September 28, 2017
Fair market value of the Company's Common Stock	$	2.28
Risk-free interest rate		1.5	%
Expected dividend yield		0	%
Expected volatility		42.7	%
Remaining performance period (in years)		2.3
Estimated fair value per share	$	2.27

●

Fair Market Value

- based on the quoted closing price of the Company’s common stock.

●

Risk-free interest rate

- based on the U.S. Treasury’s rates for U.S. Treasury

zero

-coupon bonds with maturities similar to the remaining performance period.

●

Dividend Yield

- based on the fact that the Company has

not

paid cash dividends since

2012

and does

not

anticipate paying cash dividends in the foreseeable future.

●

Expected Volatility

based on the weighted average historical volatilities of the Company’s common stock and companies in the specified index.

●

Remaining Performance Period

- based on the period of time from the valuation date through the end of the performance period.

Vesting of all

2017

PSUs are subject to approval of the Compensation and Personnel Committee of the Board of Directors. Additional information on these

2017

PSU awards will be disclosed in the Company’s

2018

Annual Proxy Statement.

The following table provides selected information about the Company

’s share-based compensation as of and for the

three

and

nine

-month periods ended

September 30, 2017

and

2016:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Total compensation cost for share-based payments	$	261	$	700	$	842	$	2,147
Weighted average grant-date fair value of equity instruments granted (per share)	$	2.27	$	1.72	$	2.26	$	1.74
Total fair value of shares vested during the period	$	83	$	70	$	2,369	$	1,954

At September 30:
Unamortized share-based payments					$	2,276	$	2,092
Weighted average period (in years) to be recognized as expense						1.7		1.4