Employee Share-Based Plans

Liability Plans

Under our shareholder approved ICP, eligible officers and other participants are awarded units that pay out depending upon the level of performance achieved by Piedmont during three-year incentive plan performance periods. We have granted three series of awards, each with a three-year performance period ending October 31, 2016 (2016 plan), October 31, 2017 (2017 plan) and October 31, 2018 (2018 plan). Distribution of those awards may be made in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation. These plans require that a minimum threshold performance level be achieved in order for any award to be distributed. For the three months and nine months ended July 31, 2016 and 2015, we recorded compensation expense, and as of July 31, 2016 and October 31, 2015, we accrued a liability for these awards based on the fair market value of our stock at the end of each quarter. The liability is re-measured to market value each quarter and at the settlement date. The award with the performance period that ended October 31, 2015 was paid out to participants in December 2015. The 2016 plan and 2017 plan were accelerated as authorized by the Compensation Committee of our Board of Directors as discussed below.

The 2018 plan was approved subsequent to the execution of the Merger Agreement with Duke Energy. Under the Merger Agreement, the 2018 plan performance awards will be converted into Duke Energy restricted stock unit awards (Duke Energy RSU Award) upon consummation of the Acquisition. Vesting under the Duke Energy RSU Award will be subject to the participant remaining continuously employed by Duke Energy or its affiliates through the performance period ending October 31, 2018. The Duke Energy RSU Award will be subject to 100% accelerated vesting upon certain types of terminations of employment and prorated accelerated vesting upon retirement.

Also under our approved ICP, 64,700 nonvested restricted stock units (RSUs) were granted to our President and CEO in December 2011. During the five-year vesting period, any dividend equivalents accrue on these stock units and are converted into additional units at the same rate and based on the closing price on the same payment date as dividends on our common stock. The RSUs vest, payable in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation, over a five-year period only if he is an employee on each vesting date. In accordance with the vesting schedule, 20% of the units vested on December 15, 2014 and 30% of the units vested on December 15, 2015. The remaining 50% of the units that vest on December 15, 2016 (2016 RSU) were accelerated as authorized by the Compensation Committee of our Board of Directors as discussed below. For the three months and nine months ended July 31, 2016 and 2015, we recorded compensation expense, and as of July 31, 2016 and October 31, 2015, we accrued a liability for nonvested RSUs, as applicable, based on the fair market value of our stock at the end of the quarter. The liability is re-measured to market value each quarter and at the settlement date.

The December 15, 2015 vesting covered 30% of the grant, including accrued dividends, for a total of 22,434 shares of common stock. After withholdings of $.6 million for federal and state income taxes, our President and CEO received 11,732 shares of our common stock at the NYSE composite closing price on December 14, 2015 of $56.85 per share.

The compensation expense related to the incentive compensation plans for the three months and nine months ended July 31, 2016 and 2015, and the amounts recorded as liabilities in “Other noncurrent liabilities” in “Noncurrent Liabilities” with the current portion recorded in “Other current liabilities” in “Current Liabilities” in the Condensed Consolidated Balance Sheets as of July 31, 2016 and October 31, 2015 are presented below.



	Three Months				Nine Months
In thousands	2016		2015		2016		2015
Compensation expense	$	1,534	$	1,317	$	9,400	$	4,596



	July 31, 2016		October 31, 2015
Liability	$	12,895	$	22,037

The Merger Agreement provides for the conversion of the shares subject to the RSUs and ICP awards at the performance level specified in the Merger Agreement into the right to receive $60 cash per share upon the closing of the transactions contemplated in the Merger Agreement. In November and December 2015, the Compensation Committee of our Board of Directors authorized the accelerated vesting, payment and taxation of the 2016 RSU for our President and CEO (accelerated RSU) and the ICP awards under the 2016 plan and the 2017 plan (accelerated ICP awards) at the target level of performance to participants, at his and their elections to accelerate, in the form of restricted nonvested shares of our common stock, net of shares withheld for applicable taxes. The acceleration of the vesting and payment of these awards will mitigate the effects of Section 280G of the Internal Revenue Code of 1986, as amended, including increasing the deductibility of such payments for the Company. The acceleration and payout of the ICP awards, at a 96% election rate by the participants, and the 2016 RSU, per the election of our President and CEO, occurred on December 15, 2015.

In connection with the election to accelerate the ICP awards and the 2016 RSU, each respective participant executed a share repayment agreement dated December 15, 2015. Under the share repayment agreements, each participant agreed to repay to the Company the net after-tax shares of common stock issued to him/her in connection with the acceleration, as well as shares of common stock resulting from the reinvestment of dividends paid with respect to these shares of common stock that are required to be reinvested in additional shares of common stock, to the extent the shares of common stock would not otherwise have been earned or payable absent the acceleration. Under the share repayment agreements, the restricted nonvested shares of common stock delivered to the participants, including dividends paid by the Company and reinvested as discussed above, may not be transferred or encumbered until such shares of common stock are no longer subject to repayment under the applicable repayment agreement. The restricted nonvested shares of common stock and dividends earned on those shares of common stock are subject to full or partial cancellation if the Acquisition is not consummated or the participant leaves the Company prior to consummation of the Acquisition. In accordance with accounting guidance, we have not presented these restricted nonvested shares as shares outstanding or included them in our calculation of basic EPS as they are contingent shares until earned; as applicable, they are included in our calculation of diluted EPS in Note 4 to the condensed consolidated financial statements in this Form 10-Q. The participants otherwise have all rights of shareholders with respect to the restricted nonvested shares of common stock.

The accelerated ICP awards and the accelerated RSU were priced at the NYSE composite closing price of $56.85 on December 14, 2015. Under the accelerated ICP awards, 162,390 restricted nonvested shares of our common stock were issued to participants, net of shares withheld for applicable federal and state income taxes. The gross value of the shares issued for the accelerated ICP awards was $17.4 million, or $9.2 million net of federal and state tax withholdings.

Under the accelerated 2016 RSU, 19,554 restricted nonvested shares of our common stock were issued to our President and CEO, net of shares withheld for applicable federal and state income taxes. The gross value of the shares issued for the accelerated RSU was $2.1 million, or $1.1 million net of federal and state tax withholdings.

Equity Plan

On a quarterly basis, we issue shares of common stock under the ESPP and account for the issuance as an equity transaction. The exercise price is calculated as 95% of the fair market value on the purchase date of each quarter where fair market value is determined by calculating the average of the high and low trading prices on the purchase date.

In anticipation of the consummation of the Acquisition, we suspended new investments in the ESPP and resulting issuances of common stock under the ESPP, effective July 31, 2016. The ESPP will be terminated at or prior to the effective date of the Acquisition.