Common Stock

Stock-Based Plan Descriptions and Share Information

At December 31, 2012 and 2011, Cleco had two stock-based compensation plans, the ESPP and the LTICP.

Employee Stock Purchase Plan

Regular, full-time, and part-time employees of Cleco Corporation and its participating subsidiaries, except officers, general managers, and employees who own 5% or more of Cleco Corporation's stock, may participate in the ESPP. An eligible employee elects to participate in the ESPP by entering into an option agreement with Cleco Corporation or its affiliate authorizing payroll deductions to purchase stock at a discounted rate. The amount of payroll deductions required by the plan are to be no less than $10 but no more than $350 each pay period. The payroll deductions are accumulated during a calendar quarter, which is referred to as the “offering period,” and remain as general assets of Cleco pending the purchase of common stock by the plan administrator. No trust or other fiduciary account has been established in connection with the ESPP. At the end of each offering period, payroll deductions are automatically applied to the purchase of common stock. Shares of common stock are purchased at a 5% discount of the fair market value as of the last trading day of each offering period. The number of shares of common stock purchased is determined by dividing each participant's payroll deductions during the offering period by the option price of a share of common stock. A participant may purchase a maximum of 62 shares per offering period. Dividends received on shares are automatically reinvested as required by the dividend reinvestment plan (DRIP) provisions of the ESPP.

A maximum of 734,000 shares of common stock may be purchased under the ESPP, subject to adjustment for changes in the capitalization of Cleco Corporation. The Compensation Committee of Cleco Corporation's Board of Directors monitors the ESPP. The Compensation Committee and the Board of Directors possess the authority to amend the ESPP, but shareholder approval is required for any amendment that increases the number of shares covered by the ESPP. As of December 31, 2012, there were 418,527 shares of common stock available for purchase under the ESPP.

Long-Term Incentive Compensation Plan

Stock options, restricted stock, known as non-vested stock as defined by the authoritative guidance on stock-based compensation, common stock equivalent units, and stock appreciation rights may be granted or awarded to certain officers, key employees, or directors of Cleco Corporation and its affiliates under the LTICP. On December 31, 2009, the 2000 LTICP expired and no further grants or awards were made under this plan. The grants and awards that had been made under the 2000 LTICP are to remain outstanding and in effect until exercised, matured, expired, or forfeited in accordance with their existing terms. At December 31, 2012, 46,180 shares of non-vested Cleco Corporation common stock remained outstanding under the 2000 LTICP. There were no stock options or common stock equivalent units outstanding under this plan at December 31, 2012.

With shareholder approval, the 2010 LTICP became effective January 1, 2010. Under this plan, a maximum of 2,250,000 shares of Cleco Corporation common stock can be granted or awarded. At December 31, 2012, there were 1,635,384 shares available for future grants or awards under the 2010 LTICP. Equity instruments awarded to employees and directors historically have come from issuing new shares of common stock; however, future awards may come from purchasing outstanding shares of common stock through Cleco Corporation's common stock repurchase program.

Stock Options

Stock options are granted at an exercise price calculated by averaging the high and low stock price on the grant date rounded to the nearest one-eighth. Stock options granted to directors are immediately exercisable and expire after 10 years. Stock options granted to officers and employees vest one-third each year beginning on the third anniversary of the grant date and expire after 10 years. There were no stock options granted in 2012, 2011, or 2010.

A summary of LTICP stock option activity during the year ended December 31, 2012, is presented in the following table.



	SHARES		WEIGHTED- AVERAGE EXERCISE PRICE		WEIGHTED- AVERAGE REMAINING CONTRACTUAL TERM (YEARS)	AGGREGATE INTRINSIC VALUE (THOUSANDS)
Outstanding at January 1, 2012	94,070		$	21.12	14.92	$	1,597
Exercised	(94,070	)	$	21.12		$	1,765
Forfeited	—		$	—
Outstanding at December 31, 2012	—		$	—	—	$	—
Exercisable at December 31, 2012	—		$	—	—	$	—

The total intrinsic value of options exercised during the years ended December 31, 2012, 2011, and 2010 was $1.8 million, $0.5 million, and $1.1 million, respectively. Cash received from options exercised under all stock-based compensation plans for the years ended December 31, 2012, 2011, and 2010 was $2.0 million, $0.9 million, and $3.2 million, respectively. The associated tax benefit for options exercised for each of the years ended December 31, 2012, 2011, and 2010 was $0.7 million, $0.2 million, and $0.4 million, respectively. No cash was paid to settle equity instruments granted under the stock-based compensation plans for the years ended December 31, 2012, 2011, or 2010.

Non-Vested Stock and Common Stock Equivalent Units

In 2012, 2011, and 2010, Cleco granted non-vested stock to certain officers, key employees, and directors. In 2010, common stock equivalent units were granted to certain officers, and key employees. Because it can only be settled in shares of Cleco Corporation common stock, non-vested stock is classified as equity. Recipients of non-vested stock have full voting rights of a stockholder. At the time restrictions lapse, the accrued dividend equivalent units that are paid to the recipient are prorated based upon the percentage of vested stock to the total restricted stock awarded. Because they are settled in cash, awarded common stock equivalent units are

classified as a liability. Recipients of common stock equivalent

units receive dividend equivalent units under the same terms

as the dividends paid on non-vested stock. In order to vest, both instruments require the satisfaction of a service requirement and a market-based requirement. Recipients of both types of instruments are eligible to receive opportunity instruments if certain market-based measures are exceeded.

Cleco also awards employees and directors non-vested stock with only a service period requirement. These awards require the satisfaction of a pre-determined service period in order for the shares to vest. At December 31, 2012, the number of target and opportunity restricted shares and common stock equivalent units previously awarded for which restrictions had not lapsed totaled 683,318. At December 31, 2012, the number of shares of non-vested stock previously granted with only a service period requirement for which the period had not ended was 127,376.

During 2012, Cleco granted 148,186 shares of non-vested stock to certain officers, key employees, and directors of Cleco pursuant to the LTICP. Of the total shares of non-vested stock granted during 2012, 137,175 shares were granted from new shares of common stock and 11,011 shares were granted through Cleco's common stock repurchase program. There were no common stock equivalent units granted in 2012 or 2011.

A summary of non-vested stock activity during the year ended December 31, 2012, is presented in the following table.



	SHARES		WEIGHTED-AVERAGE GRANT-DATE FAIR VALUE		UNITS		WEIGHTED-AVERAGE FAIR VALUE
	NON-VESTED STOCK				COMMON STOCK EQUIVALENT UNITS
Non-vested at January 1, 2012	370,731		$	31.27	59,884		$	42.22
Granted	148,186		$	38.41	—		$	—
Vested	(114,061	)	$	26.97	(52,986	)	$	42.22
Forfeited	(55,081	)	$	34.93	(6,898	)	$	42.22
Non-vested at December 31, 2012	349,775		$	35.12	—		$	—

The fair value of shares of non-vested stock granted in 2012, 2011, and 2010 under the LTICP is estimated on the date of grant and the common stock equivalent units granted in 2010 under the LTICP are marked-to-market using the Monte Carlo simulation model with the assumptions listed in the following table.



													AT DEC. 31,
				2012						2011						2010
	NON-VESTED STOCK			COMMON STOCK EQUIVALENT UNITS			NON-VESTED STOCK			COMMON STOCK EQUIVALENT UNITS			NON-VESTED STOCK			COMMON STOCK EQUIVALENT UNITS
Expected term (in years) ⁽¹⁾	3.0			—			3.0			—			3.0			3.0
Volatility of Cleco stock ⁽²⁾	21.5		%	—		%	28.5		%	—		%	30.6		%	28.6		%
Correlation between Cleco stock volatility and peer group	66.0		%	—		%	63.2		%	—		%	60.6		%	62.5		%
Expected dividend yield	3.3		%	—		%	3.3		%	—		%	3.5		%	3.9		%
Weighted average fair value (Monte Carlo model)	$	41.56		$	—		$	34.88		$	—		$	27.92		$	32.81

⁽¹⁾ The expected term was based on the service period of the award.

⁽²⁾ The volatility rate is based on historical stock prices over an appropriate period, generally equal to the expected term.

The fair value of shares of non-vested stock which vested during the years ended December 31, 2012, 2011, and 2010 was $3.1 million, $4.0 million, and $2.4 million, respectively.

Stock-Based Compensation

During the years ended December 31, 2012, 2011, and 2010, Cleco did not modify any of the terms of outstanding awards. Cleco has recognized stock-based compensation expense for these provisions in accordance with the non-substantive vesting period approach.

Cleco recorded compensation expense for all non-vested options and non-vested stock during the years ended December 31, 2012, 2011, and 2010. Assuming achievement of vesting requirements is probable, stock-based compensation expense of non-vested stock is recorded during the service periods, which are generally three years, after which the restrictions lapse. All stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense in the income statement over the award's requisite service period. Awards that vest pro rata during the requisite service period that contain only a service condition are defined as having a graded vesting schedule and could be treated as multiple awards with separate vesting schedules. However, Cleco has elected to treat grants with graded vesting schedules as one award and recognize the related compensation expense on a straight-line basis over the requisite service period.

The ESPP does not contain optionality features beyond those listed by the authoritative guidance on stock-based compensation; therefore, Cleco is not required to recognize a fair-value expense related to the ESPP.

Pre-tax compensation expense reported by Cleco and Cleco Power relating to their share-based compensation plans is shown in the following table:



	CLECO						CLECO POWER
			FOR THE YEAR ENDED DEC. 31,						FOR THE YEAR ENDED DEC. 31,
(THOUSANDS)	2012		2011		2010		2012		2011		2010
Equity classification
Non-vested stock ⁽¹⁾	$	4,429	$	3,391	$	2,276	$	1,074	$	678	$	575
Stock options ⁽¹⁾	11		103		51		—		—		—
Total equity classification	$	4,440	$	3,494	$	2,327	$	1,074	$	678	$	575
Liability classification
Common stock equivalent units	$	1,506	$	3,509	$	2,812	$	609	$	1,118	$	1,271
Total pre-tax compensation expense	$	5,946	$	7,003	$	5,139	$	1,683	$	1,796	$	1,846
Tax benefit (excluding income tax gross-up)	$	2,288	$	2,695	$	1,977	$	648	$	691	$	710

⁽¹⁾ For each of the years ended December 31, 2012, 2011, and 2010, compensation expense included in Cleco’s Consolidated Statements of Income related to non-forfeitable dividends paid on non-vested stock that is not expected to vest and stock options was $0.1 million.

As required by the authoritative guidance on stock-based compensation, the amount of stock-based compensation capitalized in property, plant, and equipment on Cleco's consolidated balance sheets for the years ended December 31, 2012 and 2011, was $0.8 million and $1.0 million, respectively. The amount of stock-based compensation capitalized in property, plant, and equipment on Cleco Power's consolidated balance sheets for the years ended December 31, 2012 and 2011, was $0.6 million and $0.7 million, respectively.

As of December 31, 2012, there were 145,146 non-vested share-based compensation arrangements granted under the LTICP that are expected to vest over an average period of 1.6 years. The total unrecognized before-tax compensation cost was $4.9 million for non-vested stock-based compensation arrangements granted under the LTICP.

Common Stock Repurchase Program

In January 2011, Cleco Corporation’s Board of Directors approved the implementation of a new common stock repurchase program. This program authorizes management to repurchase, from time to time, shares of common stock so that Cleco’s diluted average shares of common stock outstanding remain approximately equal to its diluted average shares of common stock outstanding for 2010. Under this program, purchases may be made on a discretionary basis at times and in amounts as determined by management, subject to market conditions, legal requirements and other factors. Purchases under the program will not be announced in advance and may be made in the open market or through privately negotiated transactions. During 2012 and 2011, Cleco Corporation repurchased 200,000 shares and 400,000 shares of common stock, respectively.

Preferred Stock

On June 24, 2011, Cleco Corporation redeemed all 10,288 outstanding shares of its 4.5% preferred stock. The redemption price was $101 per share plus accrued and unpaid dividends to the redemption date, or $101.296 per share. As of the redemption date, no shares of 4.5% preferred stock were outstanding.