STOCK-BASED COMPENSATION

A summary of the Company's stock-based compensation plans can be found in Note 21 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Employee Stock Purchase Plan

The Company historically granted stock-based compensation to employees under The Dow Chemical Company 2012 Employee Stock Purchase Plan (the "2012 ESPP"). Under the 2017 annual offering of the 2012 ESPP, most employees were eligible to purchase shares of common stock of the Company valued at up to 10 percent of their annual base salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan price of the stock is set at an amount equal to at least 85 percent of the fair market value (closing price) of the common stock on a date during the fourth quarter of the year prior to the offering, or the average fair market value (closing price) of the common stock over a period during the fourth quarter of the year prior to the offering, in each case, specified by the Executive Vice President of Human Resources. The most recent offering of the 2012 ESPP closed on July 15, 2017 and no current offerings remain outstanding.

In the first quarter of 2017, employees subscribed to the right to purchase 3.6 million shares of the Company's common stock with a weighted-average exercise price of $50.22 per share and a weighted-average fair value of $10.70 per share under the 2012 ESPP.

Stock Incentive Plan

The Company also grants stock-based compensation to employees and non-employee directors under The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Plan"). Most of the Company's stock-based compensation awards are granted in the first quarter of each year. There was minimal employee grant activity in the second and third quarters of 2017.

In the first quarter of 2017, the Company granted the following stock-based compensation awards to employees under the 2012 Plan:


•	2.2 million stock options with a weighted-average exercise price of $61.19 per share and a weighted-average fair value of $14.44 per share;


•	1.6 million shares of deferred stock with a weighted-average fair value of $61.13 per share; and


•	1.7 million shares of performance deferred stock with a weighted-average fair value of $81.99 per share.

In the second quarter of 2017, the Company granted the following stock-based compensation awards to non-employee directors under the 2012 Plan:


•	33,000 shares of restricted stock with a weighted-average fair value of $62.04 per share.

In connection with the Merger, on August 31, 2017 ("Conversion Date") all outstanding Dow stock options and deferred stock awards were converted into stock options and deferred stock awards with respect to DowDuPont common stock. The stock options and deferred stock awards have the same terms and conditions under the applicable plans and award agreements prior to the Merger. All outstanding and nonvested performance deferred stock awards were converted into deferred stock awards with respect to DowDuPont common stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger. Changes in the fair value of liability instruments are recognized as compensation expense each quarter. Dow and DuPont did not merge their stock-based compensation plans as a result of the Merger. The Dow and DuPont stock-based compensation plans were assumed by DowDuPont and continue in place with the ability to grant and issue DowDuPont common stock.

A summary of performance deferred stock awards converted into deferred stock awards is provided in the following tables:



Performance Deferred Stock	Shares Granted
Shares in thousands	Shares Granted
Nonvested at Jan 1, 2017	4,454
Granted	1,728
Canceled	(131	)
Impact of actual performance on shares granted through Conversion Date	2,120
Converted to deferred stock awards	(8,171	)
Nonvested at Sep 30, 2017	—



Deferred Stock	Shares Granted
Shares in thousands	Shares Granted
Nonvested at Jan 1, 2017	6,382
Granted	1,702
Vested	(2,180	)
Canceled	(124	)
Conversion of performance deferred stock awards at Conversion Date	8,171
Nonvested at Sep 30, 2017	13,951

Total incremental compensation expense resulting from the conversion of performance deferred stock awards was $25 million ($15 million recognized in the third quarter of 2017 and $10 million to be recognized over the remaining service period). Approximately 5,000 employees were impacted by the conversion.