

Note 7 — Common Stock

Stock-Based Plan Descriptions and Share Information

At December 31, 2014 and 2013, Cleco had two stock-based compensation plans: the ESPP and the LTICP. In accordance with the Merger Agreement, the ESPP has been suspended pending the completion of the Merger. Effective upon the completion of the Merger, the ESPP will be cancelled. Upon the completion of the Merger, unvested shares outstanding under the LTICP will vest at target and be paid out in cash to plan participants in accordance with the terms of the Merger Agreement. Any shares issued in 2015 will be prorated to the target amount. For more information about the Merger, see Note 20 — “Agreement and Plan of Merger.”

Employee Stock Purchase Plan

Prior to October 17, 2014, regular, full-time, and part-time employees of Cleco Corporation and its participating subsidiaries, except officers, general managers, and employees who owned 5% or more of Cleco Corporation’s stock, were eligible to participate in the ESPP. An eligible employee elected 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 were to be no less than $10 but no more than $350 each pay period. The payroll deductions were accumulated during a calendar quarter, which was referred to as the “offering period,” and remained as general assets of Cleco pending the purchase of common stock by the plan administrator. No trust or other fiduciary account was established in connection with the ESPP. At the end of each offering period, payroll deductions were automatically applied to the purchase of common stock. Shares of common stock were 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 was determined by dividing each participant's payroll deductions during the offering period by the option price of a share of common stock. A participant could purchase a maximum of 62 shares per offering period. Dividends received on shares were 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, 2014, there were 396,910 shares of common stock available for purchase under the ESPP. As stated above, the ESPP plan has been suspended pending the completion of the Merger.

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, 2014, 12,720 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, 2014.

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, 2014, there were 1,316,285 shares available for future grants or awards under the 2010 LTICP.

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 during the years ended December 31, 2014, 2013, or 2012. All remaining stock options granted in prior years were exercised during 2012.

The total intrinsic value of options exercised during the year ended December 31, 2012, was $1.8 million. Cash received from options exercised under all stock-based compensation plans for the year ended December 31, 2012, was $2.0 million. The associated tax benefit for options exercised for the year ended December 31, 2012, was $0.7 million. No cash was paid to settle equity instruments granted under the stock-based compensation plans for the year ended December 31, 2012.

Non-Vested Stock and Common Stock Equivalent Units

In 2014, 2013, and 2012, Cleco granted non-vested stock to certain officers, key employees, and directors. 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 are paid to the recipient only to the extent that target shares vest.

In order to vest, the non-vested stock requires the satisfaction of a service requirement and a market-based requirement. Recipients of non-vested stock are eligible to receive opportunity instruments if certain market-based measures are exceeded. Cleco also awards non-vested stock with only a service period requirement to employees and directors. These awards require the satisfaction of a pre-determined service period in order for the shares to vest.

During 2014, Cleco granted 135,379 shares of non-vested stock to certain officers, key employees, and directors of Cleco pursuant to the LTICP. All of these shares of non-vested stock were granted through Cleco's common stock repurchase program.

At December 31, 2014, there were 570,622 non-vested target and opportunity shares for which restrictions had not lapsed. At December 31, 2014, there were 85,187 shares of non-vested stock granted with only a service period requirement that had not yet been completed.

Under the 2010 LTICP plan, common stock equivalent units are also available to be 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. Also like non-vested stock, common stock equivalent units require the satisfaction of a service requirement and a market-based requirement. Recipients of common stock equivalent units are eligible to receive opportunity instruments if certain market-based measures are exceeded.

During January 2013, restrictions on all previously awarded common stock equivalent units had lapsed. There were no common stock equivalent units granted in 2014, 2013, or 2012.

A summary of non-vested stock activity during the year ended December 31, 2014, is presented in the following table:



	SHARES		WEIGHTED -AVERAGE GRANT-DATE FAIR VALUE
Non-vested at January 1, 2014	340,998		$	38.26
Granted	135,379		$	48.65
Vested	(155,310	)	$	37.66
Forfeited	(9,350	)	$	44.16
Non-vested at December 31, 2014	311,717		$	42.90

The fair value of shares of non-vested stock which vested during the years ended December 31, 2014, 2013, and 2012 was $5.8 million, $5.2 million, and $3.1 million, respectively.

The fair value of shares of non-vested stock granted during 2014, 2013, and 2012 under the LTICP is estimated on the date of grant and is marked-to-market using the Monte

Carlo simulation model with the assumptions listed in the following table:



							AT DEC. 31,
	2014			2013			2012
Expected term (in years) ⁽¹⁾	3.0			3.0			3.0
Volatility of Cleco stock ⁽²⁾	17.3		%	18.1		%	21.5		%
Correlation between Cleco stock volatility and peer group	66.5		%	69.7		%	66.0		%
Expected dividend yield	3.0		%	3.2		%	3.3		%
Weighted average fair value (Monte Carlo model)	$	54.58		$	42.66		$	41.56

⁽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.

Stock-Based Compensation

During the years ended December 31, 2014, 2013, and 2012, 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, 2014, 2013, and 2012. 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)	2014		2013		2012		2014		2013		2012
Equity classification
Non-vested stock ⁽¹⁾	$	6,308	$	6,147	$	4,429	$	2,004	$	1,754	$	1,074
Stock options ⁽¹⁾	—		—		11		—		—		—
Total equity classification	$	6,308	$	6,147	$	4,440	$	2,004	$	1,754	$	1,074
Liability classification
Common stock equivalent units	$	—	$	1	$	1,506	$	—	$	—	$	609
Total pre-tax compensation expense	$	6,308	$	6,148	$	5,946	$	2,004	$	1,754	$	1,683
Tax benefit (excluding income tax gross-up)	$	2,427	$	2,366	$	2,288	$	771	$	675	$	648

⁽¹⁾ For each of the years ended December 31, 2014, 2013, and 2012, 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.

The amount of stock-based compensation capitalized in property, plant, and equipment on Cleco's Consolidated Balance Sheets for the years ended December 31, 2014 and 2013, was $0.8 million and $0.9 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, 2014 and 2013, was $0.8 million and $0.7 million, respectively.

At December 31, 2014, there were 154,047 non-vested share-based compensation arrangements granted under the LTICP that were expected to vest over an average period of 1.5 years. The total unrecognized before-tax compensation cost was $6.2 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 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 are not announced in advance and may be made in the open market or through privately negotiated transactions. During the year ended December 31, 2014, 250,000 shares of common stock were repurchased by Cleco Corporation. During the year ended December 31, 2013, no shares of common stock were repurchased by Cleco Corporation. During the year ended December 31, 2012, 200,000 shares of common stock were repurchased by Cleco Corporation. In accordance with the Merger Agreement, until the completion of the Merger, no additional common stock will be repurchased under this program without the prior written consent of Cleco Partners. For more information about the Merger, see Note 20 — “Agreement and Plan of Merger.”