Stock Incentive Plans

For the year ended December 31, 2011 and eleven months ended December 31, 2010, the Company recognized $4.8 million and $4.5 million, respectively, of stock-based compensation expense related to stock-based awards. Prior to the cancellation of its equity awards, the Predecessor Company recognized stock-based compensation expense related to stock-based awards of $0.6 million and $11.4 million during the one month ended January 31, 2010 and year ended December 31, 2009, respectively.

The fair value of the Company’s and the Predecessor Company’s stock options and SARs that do not have a market condition is calculated using the Black-Scholes model at the time the stock-based awards are granted. The fair value of the Company’s stock options and SARs that have a market condition is calculated using the Monte Carlo model at the time the stock-based awards are granted. The fair value, net of estimated forfeitures, is then amortized over the vesting period of the respective stock-based award.

Compensation expense related to restricted stock granted to employees, including executive officers, and non-employee directors is measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Company’s or Predecessor Company’s common stock at such time. The fair value, net of estimated forfeitures, is then amortized over the vesting period of the respective stock-based award.

The Company granted 1.8 million and 2.1 million stock options and SARs during the year ended December 31, 2011 and eleven months ended December 31, 2010, respectively. The Company granted 0.6 million and 0.2 million shares of restricted stock during the year ended December 31, 2011 and eleven months ended December 31, 2010, respectively. The Predecessor Company did not grant any stock options, SARs or restricted stock during the one month ended January 31, 2010 or year ended December 31, 2009. The weighted average fair value per share of stock options and SARs granted by the Company during the year ended December 31, 2011 and eleven months ended December 31, 2010 was $1.84 and $8.13, respectively.

The following assumptions were used in valuing stock-based awards and for recognition and allocation of stock-based compensation expense for the year ended December 31, 2011 and eleven months ended December 31, 2010, respectively:



	Year Ended December 31, 2011		Eleven Months Ended December 31, 2010
Expected volatility	43.0	%	37.3	%
Risk-free interest rate	2.9	%	2.6	%
Expected life	8.9 Years		7.1 Years
Derived service period (grants using Monte Carlo model)	3.6 Years		3.6 Years
Forfeiture rate	6.3	%	8.9	%
Dividend yield	—	%	—	%

Since the Company recently emerged from bankruptcy, we do not have sufficient Company-specific historical data in order to determine certain assumptions used for valuing stock-based awards. As such, the Company utilized data from industry sources and peer and competitive company data in order to estimate the expected volatility assumption used for valuing stock-based awards during the year ended December 31, 2011 and eleven months ended December 31, 2010. The expected life represents the period of time that stock-based awards granted are expected to be outstanding. The Company estimated the expected life by using the simplified method permitted by Staff Accounting Bulletin No. 110, Use of a Simplified Method in Developing Expected Term of Share Options, as these stock-based awards satisfied the “plain vanilla” criteria. The simplified method calculates the expected life as the average of the vesting and contractual terms of the award. The risk-free interest rate is based on applicable U.S. Treasury yields that approximate the expected life of stock-based awards granted by the Company. During the year ended December 31, 2011 and eleven months ended December 31, 2010, the Company used actual voluntary turnover data to estimate a weighted average forfeiture rate. The Predecessor Company used historical data to estimate a weighted average forfeiture rate for the one month ended January 31, 2010 and year ended December 31, 2009. Estimated forfeitures are adjusted to the extent actual forfeitures differ, or are expected to materially differ, from such estimates. Derived service periods associated with stock-based awards that have a market condition were calculated by determining the average time until the Company’s stock price reached the given exercise price across the Monte Carlo simulations. For simulations where the stock price did not reach the exercise price, the Company has excluded such paths.

The following table presents a summary of the Company’s stock options and SARs activity and related information for the year ended December 31, 2011:



	Shares		Weighted Average Exercise/Grant Price Per Share		Aggregate Intrinsic Value
Awards outstanding, January 1, 2011	1,665,681		$	24.48	$	—
Granted	1,756,301		3.96		203
Exercises	—		—		—
Forfeitures	(738,967	)	14.35		—
Awards outstanding, December 31, 2011	2,683,015		$	13.83	$	203

There are 2.3 million shares available for future grant under the EIP at December 31, 2011. Total intrinsic value of the Company’s stock options and SARs vested and expected to vest as of December 31, 2011 was $0.2 million. There was no intrinsic value of the Company's stock options and SARs vested and expected to vest as of December 31, 2010. There were no stock options or SARs exercised during the year ended December 31, 2011, eleven months ended December 31, 2010, one month ended January 31, 2010 or year ended December 31, 2009. The total fair value of the Company’s stock options and SARs vested during the year ended December 31, 2011 and eleven months ended December 31, 2010 was $3.0 million and $2.0 million, respectively. The total fair value of the Predecessor Company’s stock options and SARs vested during the one month ended January 31, 2010 was $3.7 million.

The following table summarizes information about the Company’s stock-based awards outstanding and exercisable at December 31, 2011:



	Stock Awards Outstanding				Stock Awards Exercisable
Range of Exercise/Grant Prices	Shares	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise/Grant Price Per Share		Shares	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise/Grant Price Per Share
$0.80 - $1.20	375,000	9.70	$	1.12	—	—	$	—
$2.04 - $2.04	15,000	9.45	2.04		—	—	—
$4.61 - $4.61	651,401	9.02	4.61		10,938	0.58	4.61
$4.96 - $6.97	275,000	9.21	5.33		—	—	—
$9.75 - $9.75	200,000	8.68	9.75		50,000	8.68	9.75
$15.00 - $15.00	200,000	8.68	15.00		200,000	8.68	15.00
$23.00 - $23.00	200,000	8.68	23.00		200,000	8.68	23.00
$28.68 - $28.68	566,614	6.51	28.68		248,805	5.03	28.68
$32.00 - $32.00	200,000	8.68	32.00		200,000	8.68	32.00
	2,683,015	8.51	$	13.83	909,743	7.58	$	23.82

There is no aggregate intrinsic value of the Company’s exercisable stock-based awards as of December 31, 2011.

The following table summarizes the status of the Company’s non-vested stock awards as of December 31, 2011 and changes during the year ended December 31, 2011:



	Non-Vested Stock Options and SARs		Weighted Average Grant Date Exercise Price Per Award		Non-Vested Restricted Stock		Weighted Average Grant Date Fair Value Per Award
Non-vested at January 1, 2011	1,065,681		$	25.12	200,000		$	9.62
Granted	1,756,301		3.96		633,416		3.95
Vested	(309,743	)	24.77		(208,366	)	5.80
Forfeitures	(738,967	)	14.35		(61,254	)	4.62
Non-vested at December 31, 2011	1,773,272		$	8.71	563,796		$	5.21

As of December 31, 2011, there was $7.5 million of total unrecognized compensation cost related to non-vested stock-based awards, which is expected to be recognized over a weighted average period of approximately 2.5 years.

Components of Successor Company Stock-Based Compensation Expense

The following table summarizes stock-based awards granted during the year ended December 31, 2011 and stock-based compensation expense recognized during the year ended December 31, 2011 related to these grants. Grant prices of stock-based awards are based on the closing market value of the Company’s common stock on the date of grant. All stock based awards are settled in our common stock.



Grant Date	Type of Award	Recipient	Number of Shares	Vesting Terms	Grant / Exercise Price	Expense Recognized During the Year Ended December 31, 2011
September 22, 2011	Stock options	Certain employees	0.1 million	Less than 0.1 million shares will become exercisable, if at all, in two 50% increments if the average daily closing price of our common stock during any 30 consecutive trading day period commencing on or after March 22, 2012 exceeds $2 with respect to the first increment and $3 with respect to the second increment. The remaining shares will vest ratably over four years.	$0.80	Less than $0.1 million
September 22, 2011	Restricted stock	Certain employees	Less than 0.1 million	Vest ratably over three years	$0.80	Less than $0.1 million
September 12, 2011	Stock options	Executive officers	0.3 million	0.2 million shares will become exercisable, if at all, in two 50% increments if the average daily closing price of our common stock during any 30 consecutive trading day period commencing on or after March 12, 2012 exceeds $3 with respect to the first increment and $4 with respect to the second increment. The remaining shares will vest ratably over four years.	$1.20	Less than $0.1 million
September 12, 2011	Restricted stock	Executive officers	0.1 million	Vest ratably over three years	$1.20	Less than $0.1 million
June 13, 2011	Stock options	Certain employees	Less than 0.1 million	Vest ratably over four years	$2.04	Less than $0.1 million
June 13, 2011	Restricted stock	Certain employees	Less than 0.1 million	Vest ratably over three years	$2.04	Less than $0.1 million
May 3, 2011	Common stock	Board of Directors	0.1 million	Vested immediately upon issuance	$3.75	$0.4 million
April 4, 2011	Stock options	Executive officers	0.2 million	0.1 million shares will become exercisable, if at all, in two 50% increments if the average daily closing price of our common stock during any 30 consecutive trading day period commencing on or after October 4, 2011 exceeds $10 with respect to the first increment and $15 with respect to the second increment. The remaining shares will vest ratably over four years.	$4.96	$0.1 million
April 4, 2011	Restricted stock	Executive officers	0.1 million	Vest ratably over three years	$4.96	Less than $0.1 million
March 2, 2011	Stock options	Executive officers	1.1 million	0.9 million shares will become exercisable, if at all, in two 50% increments if the average daily closing price of our common stock during any 30 consecutive trading day period commencing on or after September 2, 2011 exceeds $10 with respect to the first increment and $15 with respect to the second increment. The remaining shares will vest ratably over four years.	$4.61	$0.4 million
March 2, 2011	Restricted stock	Executive officers	0.2 million	Vest ratably over three years	$4.61	$0.2 million
March 2, 2011	Common stock	Board of Directors	Less than 0.1 million	Vested immediately upon issuance	$4.61	$0.1 million
January 18, 2011	Stock options	Executive officers	Less than 0.1 million	Vest ratably over four years	$6.97	Less than $0.1 million
January 18, 2011	Restricted stock	Executive officers	Less than 0.1 million	Vest ratably over three years	$6.97	$0.1 million

The following table summarizes stock-based awards granted during the eleven months ended December 31, 2010 and stock-based compensation expense recognized during the year ended December 31, 2011 and eleven months ended December 31, 2010 related to these grants. Grant prices of stock-based awards are based on the closing market value of the Company’s common stock on the date of grant, except where otherwise indicated. All stock based awards are settled in our common stock. All of the CEO Stock-Based Awards have a grant date for accounting and reporting purposes of September 13, 2010, which represents the date on which the grant date determination provisions outlined in FASB ASC 718, Compensation - Stock Compensation, were satisfied.



Grant Date	Type of Award	Recipient	Number of Shares	Vesting Terms	Grant / Exercise Price	Expense Recognized During the Year Ended December 31, 2011	Expense Recognized During the Eleven Months Ended December 31, 2010
September 13, 2010	Restricted Stock	CEO	0.2 million	Vest ratably over three years	$9.62	$0.7 million	$0.2 million
September 13, 2010	Stock options	CEO	0.2 million	Vest ratably over four years	$9.75: based on the closing market price of the Company’s common stock on September 3, 2010.	$0.2 million	Less than $0.1 million
September 13, 2010	Premium priced stock options	CEO	0.6 million	Vested immediately upon issuance	0.2 million shares at $15 per share 0.2 million shares at $23 per share 0.2 million shares at $32 per share	$0.7 million	$0.2 million
September 13, 2010	Common Stock	Executive Oversight Committee	Less than 0.1 million	Vested immediately upon issuance	$9.62	—	$0.2 million
March 1, 2010	SARs	Executive officers and certain employees	1.3 million	Vest ratably over three years	$28.68: based on the volume weighted average market value of the Company’s common stock during the first thirty calendar days upon emergence from Chapter 11.	$1.8 million	$3.5 million
March 1, 2010	Common Stock	Board of Directors	Less than 0.1 million	Vested immediately upon issuance	$29.60	—	$0.5 million

Components of Predecessor Company Stock-Based Compensation Expense

Upon emergence from Chapter 11 and pursuant to the Plan, all outstanding equity securities of the Predecessor Company including all stock options, SARs and restricted stock, were cancelled. As a result, the Predecessor Company recognized $1.9 million of remaining unrecognized compensation expense related to these stock-based awards as reorganization items, net during the one month ended January 31, 2010.

In April 2009, the Predecessor Company increased its estimated forfeiture rate in determining compensation expense from 8% to 10.2%. This adjustment was based on a review of historical forfeiture information and resulted in a reduction to compensation expense of $0.4 million during the year ended December 31, 2009.

On March 4, 2008, the Predecessor Company granted 2.2 million SARs to certain employees, including executive officers, in conjunction with its annual grant of stock incentive awards. These SARs were granted at a grant price of $7.11 per share, which was equal to the market value of the Predecessor Company’s common stock on the grant date, and vested ratably over three years. The Predecessor Company recognized compensation expense related to these SARs of $0.1 million and $2.2 million for the one month ended January 31, 2010 and year ended December 31, 2009, respectively.

On February 27, 2007, the Predecessor Company granted 1.1 million SARs to certain employees, including executive officers, in conjunction with its annual grant of stock incentive awards. These SARs were granted at a grant price of $74.31 per share, which was equal to the market value of the Predecessor Company’s common stock on the grant date, and vested ratably over three years. The Predecessor Company recognized compensation expense related to these SARs of $0.4 million and $5.2 million for the one month ended January 31, 2010 and year ended December 31, 2009, respectively.

In conjunction with RHD’s acquisition of Business.com, 4.2 million outstanding Business.com equity awards were converted into 0.2 million RHD equity awards on August 23, 2007. For the one month ended January 31, 2010 and year ended December 31, 2009, the Predecessor Company recognized compensation expense related to these converted equity awards of $0.1 million and $0.3 million, respectively.

In conjunction with RHD’s acquisition of Dex Media, a change in control provision was triggered under the Predecessor Company’s stock incentive plans. Accordingly, all awards granted to employees through January 31, 2006, with the exception of stock-based awards held by executive officers and members of the Board of Directors (who waived the change of control provisions of such awards), became fully vested. Stock-based compensation expense relating to existing stock options held by executive officers and members of the Predecessor Company’s Board of Directors as of January 1, 2006, which were not modified as a result of the change in control provision, as well as stock-based compensation expense from smaller grants issued during 2006, totaled $3.7 million for the year ended December 31, 2009.