Stock-Based Compensation

Dex Media Equity Compensation Plans

The Dex Media, Inc. Equity Incentive Plan and the Dex Media, Inc. Amended and Restated Long-Term Incentive Plan (the "Plans") provide for several forms of incentive awards to be granted to designated eligible employees, non-management directors, consultants and independent contractors providing services to the Company. The maximum number of shares of Dex Media common stock authorized for issuance under the Plans is 1,264,911. During 2014 and 2013, the Company granted equity awards under the Plans.

Restricted Stock

The Plans provide for grants of restricted stock. These awards are classified as equity awards based on the criteria established by the applicable accounting rules for stock-based compensation. The fair value of the restricted stock awards was determined based on the price of Dex Media common stock on the date of grant.

During 2014 and 2013, certain employees were granted restricted stock awards that cliff vest on December 31 of various years beginning 2015. Grant award recipients would receive all regular cash dividends if the Company were to declare dividends.

All unvested shares of restricted stock will immediately terminate upon the employee's termination of employment with the Company on or before the vesting date except that the Compensation and Benefits Committee of the Board of Directors, at its sole option and election, may permit the accelerated vesting of the award. In the event of the employee's termination of service by the Company without cause or by the employee for good reason within six months prior to or two years following a change in control, any unvested restricted stock will become fully vested on the date of such termination or the date of the change in control, if such termination occurs within six months prior to such change in control.

Changes in the Company's outstanding restricted stock awards were as follows for the nine months ended September 30, 2014.



	Restricted Stock Awards		Weighted-Average Grant Date Fair Value
Outstanding restricted stock at January 1, 2014	356,138		$	10.28
Granted	19,941		8.46
Vested	(28,252	)	10.91
Forfeitures	(7,196	)	10.54
Outstanding restricted stock at September 30, 2014	340,631		$	10.11

Stock Options

The Plans provide for grants of stock options. These awards are classified as equity awards based on the criteria established by the applicable accounting rules for stock-based compensation.

During 2014 and 2013 certain employees were granted stock option awards that vest over four years in equal annual installments beginning on March 31 following the grant date and have a 10 year term from the date of grant. Stock options granted on January 2, 2014 were priced at a premium, with an exercise price of $10.25 per share; other stock options had an exercise price equal to the market price of the Company's common stock on the date of grant.

A stock option holder may pay the option exercise price in cash, by delivering unrestricted shares to the Company having a value at the time of exercise equal to the exercise price, by a cashless broker-assisted exercise, by a combination of these methods or by any other method approved by the Compensation and Benefits Committee of the Company's Board of Directors. Stock options may not be re-priced without the approval of the Company's shareholders.

If the Company terminates the employee without cause or the employee resigns for good reason, then the employee is eligible to exercise the stock options that vested on or before the effective date of such termination or resignation. If the Company terminates the employee for cause, then the employee's stock options, whether or not vested, shall terminate immediately upon termination of employment. In the event the employee is terminated by the Company without cause or the employee resigns for good reason within six months prior to or two years following a change in control, any unvested portion of such employee's stock options shall become fully vested on the date of such termination or the date of the change in control, if such termination occurs within six months prior to such change in control.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model. The model incorporates assumptions regarding inputs as follows:


•	Expected volatility is a blend of the implied volatility of Dex Media common stock as of the grant date, the historical volatility of Dex Media common stock over its history, and the historical volatility of ten of Dex Media's peer companies;


•	Expected life is calculated based on the average life of the remaining vesting term and the remaining contractual life of each award; and


•	The risk-free interest rate is determined using the U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option.

Weighted average stock option fair values and assumptions for the nine months ended September 30, 2014 are disclosed in the following table.



	Nine Months Ended
	September 30, 2014
Weighted average fair value of grants	$4.13
Dividend yield	—
Volatility	58.04%
Risk-free interest rate	1.92%
Expected life (in years)	6.02

Changes in the Company's outstanding stock option awards were as follows for the nine months ended September 30, 2014.



	Number of Stock Option Awards		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding stock option awards at January 1, 2014	442,133		$	10.15	9.64	$	5,422
Granted	52,800		10.13		10.00	—
Exercises	(1,082	)	6.30		7.50	—
Forfeitures/expirations	(52,335	)	10.07		8.87	—
Outstanding stock option awards at September 30, 2014	441,516		$	10.16	8.97	$	26,459

Stock-Based Compensation Expense

The following table sets forth stock-based compensation expense recognized for the three and nine months ended September 30, 2014 and 2013. These costs were recorded as part of general and administrative expense on the Company's consolidated statements of comprehensive (loss).



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in millions)
Stock-based compensation expense	$	—	$	1	$	2	$	4

As of September 30, 2014, unrecognized stock-based compensation expense related to the unvested portion of the Company's restricted stock and stock option awards was approximately $3 million, and is expected to be recognized over a weighted-average period of approximately 1.9 years.