6. SHARE-BASED COMPENSATION

The Compensation Committee (the “Committee”) of the Board of Directors of PTGi administers PTGi’s Management Compensation Plan, as amended (the “Management Compensation Plan”). The Committee has broad authority to administer, construe and interpret the Management Compensation Plan; however, except in connection with certain Corporate Transactions (as defined in the Management Compensation Plan), it may not take any action with respect to an award that would be treated, for accounting purposes, as a “repricing” of an award unless the action is approved by the shareholders of PTGi.

The Management Compensation Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, and other stock-based or cash-based performance awards (collectively, “awards”). PTGi typically issues new shares of common stock upon the exercise of stock options, as opposed to using treasury shares.

The Company follows guidance which addresses the accounting for share-based payment transactions whereby an entity receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The guidance generally requires that such transactions be accounted for using a fair-value based method and share-based compensation expense be recorded, based on the grant date fair value, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.

There were 690,948 options granted during the nine months ended September 30, 2013, while 216,993 options were granted during the nine months ended September 30, 2012.

Total share-based compensation expense recognized by the Company in the three months ended September 30, 2013 and 2012 was $0.2 million and $0.9 million, respectively, compared to $1.7 million and $5.0 million, respectively, for the nine months ended September 30, 2013 and 2012. Most of PTGi’s stock awards vest ratably during the vesting period. The Company recognizes compensation expense for equity awards, reduced by estimated forfeitures, using the straight-line basis.

Restricted Stock Units (RSUs)

A summary of PTGi’s RSU activity during the nine months ended September 30, 2013 is as follows:


	Shares			Weighted Average Grant Date Fair Value
Unvested—December 31, 2012		286,208		$	12.91
Granted		20,000		$	11.89
Vested		(239,740	)	$	12.44
Forfeitures		(82	)	$	15.60

Unvested—September 30, 2013		66,386		$	14.30

As of September 30, 2013, PTGi had 66 thousand unvested RSUs outstanding with respect to $0.6 million of compensation expense that is expected to be recognized over the weighted average remaining vesting period of 1.1 years. The number of unvested RSUs expected to vest is 66 thousand.

On July 31, 2013 and August 30, 2013, the Board of Directors of the Company accelerated the vesting of 17,368 and 22,334 RSUs, respectively, awarded to certain employees as part of severance agreements.

Stock Options and Stock Appreciation Rights

A summary of PTGi’s stock option and stock appreciation rights activity during the nine months ended September 30, 2013 is as follows:


	Shares			Weighted Average Exercise Price
Outstanding—December 31, 2012		212,244		$	9.24
Granted		690,948		$	3.64
Exercised		(70,657	)	$	6.15
Forfeitures		(205,636	)	$	10.01

Outstanding—September 30, 2013		626,899		$	3.16

Eligible for exercise		483,175		$	2.98

As discussed in Note 7—“Stockholders’ Equity,” as a result of the Dividends, the Company reduced the exercise price and increased the number of shares of common stock issuable upon exercise of such options. The Company has evaluated the accounting impact of modification accounting under ASC 718 and concluded that the modification of the terms of such instruments did not result in a significant change in fair value before and after the modification date. There were 650,948 options granted (with a weighted average exercise price of $3.13) and 203,654 options forfeited (with a weighted average exercise price of $10.02) included in the chart above related to these adjustments.

The following table summarizes the intrinsic values and remaining contractual terms of PTGi’s stock options and stock appreciation rights:


	Intrinsic Value		Weighted Average Remaining Life in Years
Options outstanding—September 30, 2013	$	315,083		8.2
Options exercisable—September 30, 2013	$	—		7.8

During the nine months ended September 30, 2013, 71 thousand options were exercised with an intrinsic value of $0.2 million. As of September 30, 2013, PTGi had approximately 144 thousand unvested stock options and stock appreciation rights outstanding of which $0.2 million of compensation expense is expected to be recognized over the weighted average remaining period of 1.2 years. The number of unvested stock options and stock appreciation rights expected to vest is approximately 144 thousand shares, with a weighted average remaining life of 9.3 years, a weighted average exercise price of $3.79, and an intrinsic value of approximately $0.3 million.