Share-Based and Long-Term Compensation Plans

The Company grants share-based awards under the Parkway Properties, Inc. and Parkway Properties LP 2013 Omnibus Equity Incentive Plan (the "2013 Equity Plan"). Effective May 16, 2013, the stockholders of the Company approved the 2013 Equity Plan. The 2013 Equity Plan replaced the 2010 Equity Plan. Outstanding awards granted under the 2010 Equity Plan continue to be governed by the 2010 Equity Plan. All of the employees of the Company and the operating partnership, employees of certain subsidiaries of the Company, non-employee directors, and any consultants or advisors to the Company and the operating partnership are eligible to participate in the 2013 Equity Plan.

The 2013 Equity Plan authorizes the following types of awards: (1) stock options, including nonstatutory stock options and incentive stock options ("ISOs"); (2) stock appreciation rights; (3) restricted shares; (4) restricted share units; (5) profits interest units ("LTIP units"); (6) dividend equivalent rights; and (7) other forms of awards payable in or denominated by reference to shares of Common Stock. Full value awards, i.e., awards other than options and stock appreciation rights, vest over a period of three years or longer, except that any full value awards subject to performance-based vesting must become vested over a period of one year or longer. The Compensation Committee may waive vesting requirements upon a participant’s death, disability, retirement, or other specified termination of service or upon a change in control.

The aggregate number of shares of the Company's common stock available for awards pursuant to the Plan is 3,250,000, including a maximum of 2,000,000 shares that may be granted pursuant to stock options or stock appreciation rights and a maximum of 1,250,000 shares that may be granted pursuant to other awards.

If an award is cancelled, forfeited, or expires unvested or unexercised, or is settled in cash rather than in shares of Common Stock, then the shares covered by the portion of the award that is so cancelled, forfeited, expired, or settled will again become available for award under the plan. Shares repurchased by the Company at the same price paid by a participant will also become available for award under the plan, and the payment of dividend equivalents in cash in conjunction with any outstanding awards will not count against the share limit. Shares tendered in payment of an exercise or purchase price, tendered or retained to satisfy the Company’s tax withholding obligation, not issued upon exercise of a stock appreciation right to which they are subject and shares purchased in the open market with cash proceeds of option exercises will not be available for re-issuance under the plan. No shares may be made subject to a grant if that would cause an incentive stock option to fail to qualify as such under the tax code.

Through March 31, 2014, the Company has granted stock options, LTIP units and RSUs (including time-vesting RSUs and performance-vesting RSUs) under the 2013 Equity Plan. As of March 31, 2014, the Company has restricted shares and deferred incentive share units outstanding under the 2010 Equity Plan. The Company has also previously awarded long-term equity incentive awards and long-term cash incentives.

Long-Term Equity Incentives

At March 31, 2014, a total of 1,850,000 stock options had been granted to officers of the Company under the 2013 Equity Plan. Each stock option will vest in increments of 25% per year on each of the first, second, third and fourth anniversaries of the grant date, subject to the grantee's continued service. During the three months ended March 31, 2014, 462,500 options vested, none of which had been exercised as of March 31, 2014. As of March 31, 2014, 1,387,500 options remain unvested. The stock options are valued at $5.8 million, which equates to an average price per option of $4.17.

At March 31, 2014, a total of 538,950 time-vesting RSUs had been granted to officers of the Company and remain outstanding. The time-vesting RSUs are valued at $10.0 million, which equates to an average price per share of $18.55. A total of 438,950 time-vesting RSU awards will vest in increments of 25% per year on each of the first, second, third and fourth anniversaries of the grant date and 100,000 time-vesting RSU awards will vest in increments of 33% per year on each of the first, second, and third anniversaries of the grant date, in each case subject to the grantee's continued service.

At March 31, 2014, a total of 330,557 LTIP units had been granted to officers of the Company and remain outstanding under the 2013 Equity Plan. The LTIP units are valued at $3.1 million, which equates to an average price per share of $9.34. At March 31, 2014, a total of 144,858 performance-vesting RSUs had been granted to officers of the Company and remain outstanding under the 2013 Equity Plan. The performance-vesting RSUs are valued at $1.3 million, which equates to an average price per share of $8.97. Each LTIP unit and performance-vesting RSU will vest based on the attainment of total stockholder return targets during the applicable performance period, subject to the grantee's continued service.

At March 31, 2014, a total of 16,928 restricted shares had been granted to officers of the Company and remain outstanding under the 2010 Equity Plan. The restricted shares vest ratably over four years from the date of grant, with the last restricted shares vesting in January 2016. The restricted shares are valued at $252,397, which equates to an average price per share of $15.62.

At March 31, 2014, a total of 14,255 deferred incentive share units had been granted to employees of the Company and remain outstanding under the 2010 Equity Plan. The deferred incentive share units are valued at $223,000, which equates to an average price per share of $15.66. The deferred incentive share units vest ratably over four years from the date of grant, with the last deferred incentive share units vesting in December 2015.

Total compensation expense related to restricted shares, deferred incentive share units, stock options, RSUs, and LTIP units of $2.5 million and $89,000 was recognized in general and administrative expenses on the Company's consolidated statements of operations and comprehensive income (loss) during the three months ended March 31, 2014 and 2013, respectively. Total compensation expense related to non-vested awards not yet recognized was $14.6 million at March 31, 2014. The weighted average period over which this expense is expected to be recognized is approximately two years.

A summary of the Company's restricted shares, deferred incentive share units, stock options, RSUs, and LTIP unit activity for the three months ended March 31, 2014 is as follows:



	Restricted Shares				Deferred Incentive Share Units				Stock Options				Restricted Stock Units				LTIP Units
	# of Shares		Weighted Average Grant-Date Fair Value		# of Share Units		Weighted Average Grant-Date Fair Value		# of Options		Weighted Average Grant-Date Fair Value		# of Stock Units		Weighted Average Grant-Date Fair Value		# of LTIP Units	Weighted Average Grant-Date Fair Value
Balance at 12/31/2013	27,391		$	15.04	14,880		$	15.67	1,850,000		$	4.17	449,787		$	17.65	214,443	$	9.79
Granted	—		—		—		—		—		—		234,021		14.34		116,134	8.50
Vested	(10,463	)	15.25		—		—		(462,500	)	4.17		(27,150	)	19.25		—	—
Forfeited	—		—		(625	)	16.37		—		—		(4,016	)	12.15		—	—
Balance at 03/31/2014	16,928		$	15.62	14,255		$	15.66	1,387,500		$	4.17	652,642		$	18.55	330,577	$	9.34