16.	STOCK INCENTIVE PLANS

Under the Company’s stock incentive plan, Alaska Communications, through the Compensation and Personnel Committee of its Board of Directors,

may

grant stock options, restricted stock, stock-settled stock appreciation rights, performance share units and other awards to officers, employees, consultants, and non-employee directors. Upon the effective date of the Alaska Communications Systems Group, Inc.

2011

Incentive Award Plan, as amended and restated on

June 30, 2014, (

“2011

Incentive Award Plan”), the Alaska Communications Systems Group, Inc.

1999

Stock Incentive Plan and the ACS Group, Inc.

1999

Non-Employee Director Stock Compensation Plan, (together the “Prior Plans”) were retired. All future awards will be granted from the

2011

Incentive Award Plan. The Alaska Communications Systems Group, Inc.

2012

ESPP was approved by the Company’s shareholders in

June 2012

and the ACS

1999

Employee Stock Purchase Plan (

“1999

ESPP”) was retired on

June 30, 2012.

References to “stock incentive plans” include, as applicable, the

2011

Incentive Award Plan, the

2012

ESPP, the

1999

ESPP and the Prior Plans. On

June 25, 2018,

the Company increased the number of shares reserved for issuance under the

2011

Incentive Award Plan by

3,000

shares. An aggregate of

22,210

shares of the Company’s common stock have been authorized for issuance under its stock incentive plans. At

December 31, 2018,

a total of

2,370

shares remain available for future issuance under the Company’s equity compensation plans, including the

2011

Incentive Award Plan and

2012

Employee Stock Purchase Plan. Stock-based compensation expense reflects forfeitures of share-based awards when they occur.

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 and Performance Stock Units as the primary equity based incentive for executive and certain non union-represented employees.

Restricted Stock Units, Long

-term Incentive Awards and Non-E

mployee Director Stock Compensation

RSUs issued prior to

December 31, 2010

vested ratably over three,

four

five

years, RSUs issued in

2011

vested ratably over

three

years, RSUs granted in

2012

vested in

one

year or ratably over

three

years, RSU’s granted in

2017

vest ratably over

three

years, and RSUs granted in

2018

vest ratably over

three

years or cliff vest in

one

year. Long-term incentive awards (“LTIP”) were granted to executive management annually through

2010.

The LTIP awards cliff vested in

five

years with accelerated vesting in

three

years if cumulative

three

-year profitability criteria were met. Since

January 2008,

the Company has maintained a policy which requires that non-employee directors receive a portion of their annual retainer in the form of Alaska Communications stock. This requirement

may

be suspended for specified periods. Non-employee director stock compensation vests when granted. The directors make an annual election on whether to have the stock issued or to have it deferred.

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

December 31, 2018:

				Weighted
				Average
				Grant-Date
	Number of			Fair
	Shares			Value
Nonvested at December 31, 2017		1,223		$	2.00
Granted		695		$	1.72
Vested		(682	)	$	1.91
Canceled or expired		(51	)	$	1.85
Nonvested at December 31, 2018		1,185		$	1.88

Performance Based Units

The following table summarizes PSU activity for the year ended

December 31, 2018:

				Weighted
				Average
				Grant-Date
	Number of			Fair
	Shares			Value
Nonvested at December 31, 2017		1,331		$	1.47
Granted		1,243		$	0.55
Vested		(126	)	$	1.77
Canceled or expired		(378	)	$	1.73
Nonvested at December 31, 2018		2,070		$	0.85

The PSUs granted in

2018

will vest in

three

equal installments, or tranches, if certain stock price thresholds and service thresholds are achieved.

The Company measured the fair value of the

2018

PSUs using a Monte Carlo simulation model as more fully described below. Share-based compensation expense subject to a market condition is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

The table below sets forth the average grant date fair value assumptions used in the Monte Carlo simulation model for the

2018

PSUs.

Valuation (grant) date	July 20, 2018			July 23, 2018
Number of units granted		1,118			125
Fair market value of the Company's Common Stock	$	1.68		$	1.67
Risk-free interest rate		2.66	%		2.70	%
Expected dividend yield		0	%		0	%
Expected volatility		37.08	%		36.89	%
Simulation period (in years)		3			3

Estimated fair value per award:
Vesting Tranche 1	$	0.37		$	0.35
Vesting Tranche 2	$	0.59		$	0.58
Vesting Tranche 3	$	0.71		$	0.70

●

Fair Market Value

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

●

Risk-free interest rate

– based on the rates for U.S. Treasury

zero

-coupon bonds with a maturity of

years, which is the longest performance period of the PSUs.

●

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 historical volatility of the Company’s common stock over the

three

-year period preceding the grant date.

●

Performance Period

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

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, achievement of a market condition and approval of the Compensation and Personnel Committee of the Board of Directors. As of

December 31, 2018,

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

Selected Information on Equity Instruments and Share-Based Compensation

Selected information on equity instruments and share-based compensation under the plan for the years ended

December 31, 2018

and

2017

is as follows:

	Years Ended
	December 31,
	2018		2017
Total compensation cost for share-based payments	$	1,757	$	1,509
Weighted average grant-date fair value of equity instruments granted	$	0.97	$	1.73
Total fair value of shares vested during the period	$	1,534	$	2,455
Unamortized share-based payments	$	1,438	$	1,784
Weighted average period in years to be recognized as expense		1.06		1.61

Share-based compensation expense is classified as “Selling, general and administrative expense” in the Company’s Consolidated Statements of Comprehensive Income (Loss).

The Company purchases, from shares authorized under the

2011

Incentive Award Plan, sufficient vested shares to cover minimum employee payroll tax withholding requirements upon the vesting of restricted stock. The Company expects to repurchase approximately

100

shares in

2019.

This amount is based upon an estimation of the number of shares of restricted stock awards expected to vest during

2019.

December 31, 2018,

2,030

shares remain available for future issuance under the Company’s

2011

Incentive Award Plan.

Alaska Communications Systems Group, Inc.

2012

Employee Stock Purchase Plan

The Alaska Communications Systems Group, Inc.

2012

Employee Stock Purchase Plan was approved by the Company’s shareholders in

June 2012.

The

2012

ESPP will terminate upon the earlier of (i) the last exercise date prior to the

tenth

anniversary of the adoption date, unless sooner terminated in accordance with the

2012

ESPP; or (ii) the date on which all purchase rights are exercised in connection with a change in ownership of the Company. A participant in the

2012

ESPP will be granted a purchase right to acquire shares of common stock at

six

-month intervals on an ongoing basis, subject to the continuing availability of shares under the

2012

ESPP. Each participant

may

authorize periodic payroll deductions in any multiple of

(up to a maximum of

15%

) of eligible compensation to be applied to the acquisition of common stock at semiannual intervals. The

2012

ESPP imposes certain limitations upon a participant’s rights to acquire common stock.

participant will have any shareholder rights with respect to the shares covered by their purchase rights until the shares are actually purchased on the participant’s behalf.

adjustments will be made for dividends, distributions or other rights for which the record date is prior to the date of the actual purchase.

The Company reserved

1,500

shares of its common stock for issuance under the

2012

ESPP. The fair value of each purchase right under the

2012

ESPP is charged to compensation expense over the offering period to which the right pertains, and is reflected in total compensation cost for share-based payments in the above table. Shares purchased by employees and the associated compensation expense under the

2012

ESPP, which is reflected in the preceding table, were

not

material in the years ended

December 31, 2018

and

2017.

December 31, 2018,

340

shares remain available for future issuance under the Company’s

2012

ESPP.