9. Common Stock

Pending Merger with Emera

On Sept. 4, 2015, TECO Energy and Emera entered into the Merger Agreement. Upon closing of the Merger, which is expected to occur in the summer of 2016, each issued and outstanding share of TECO Energy common stock will be cancelled and converted automatically into the right to receive $27.55 in cash, without interest.

The Merger Agreement with Emera restricts TECO Energy and its subsidiaries, without Emera’s prior written consent, from issuing equity or equity equivalents and from paying quarterly cash dividends in excess of levels agreed upon in the Merger Agreement until the Merger occurs or the Merger Agreement is terminated.

See Note 21 for additional information regarding the pending Merger.

Public Offering of 15.5 million in Common Shares

On July 1, 2014, the company entered into an underwriting agreement with Morgan Stanley & Co. LLC, as representative of the several underwriters named therein, pursuant to which the company agreed to offer and sell 15.5 million shares of its common stock in an underwritten public offering at a public offering price of $18.10 per share. The company received approximately $271 million in net proceeds from the offering after underwriting fees and offering expenses. The shares were delivered to the underwriters on July 8, 2014.

Pursuant to the terms of the underwriting agreement, the company granted the underwriters a 30-day option to purchase up to an additional 2.3 million shares. The company received approximately $21 million of net proceeds when the underwriters exercised this option for an additional 1.2 million shares.

The company used the net proceeds from the offering to fund, in part, the acquisition of NMGI and for general corporate purposes.

Stock-Based Compensation

On May 5, 2010, the shareholders approved the 2010 Equity Incentive Plan (2010 Plan) as an amendment and restatement of both the company’s 2004 Equity Incentive Plan (2004 Plan) and the 1997 Director Equity Plan (1997 Plan, and together with the 2004 Plan, the Old Plans). The 2010 Plan superseded the Old Plans and no additional grants will be made under the Old Plans. The rights of the holders of outstanding options, unvested restricted stock or other outstanding awards under the Old Plans were not affected. The purpose of the 2010 Plan is to attract and retain key employees and non-employee directors, to enable the company to provide equity-based incentives relating to achieving long-range performance goals and to enable award recipients to participate in the long-term growth of the company. The 2010 Plan is administered by the Compensation Committee of the Board of Directors (Committee), which may grant awards to any employee of the company who is capable of contributing significantly to the successful performance of the company. Only the Board of Directors may grant awards to any non-employee members of the Board of Directors.

The 2010 Plan amended the 2004 Plan. The amendment reduced the number of shares of common stock subject to grants to 4.0 million shares (a reduction of 3.0 million shares), removed the cap on shares available for stock grant, placed various limitations on the terms of awards granted under the 2010 Plan, removed the ability to make awards to consultants of the company and reapproved the business criteria upon which objective performance goals may be established by the Committee to continue to permit the company to take federal tax deductions for performance-based awards made to certain senior officers under Section 162(m) of the tax code.

The types of awards that can be granted under the 2010 Plan include stock options, stock grants and stock equivalents. Stock options were last awarded in 2006 under the Old Plans. Stock grants and time-vested restricted stock are valued at the fair market value on the date of grant, with expense recognized over the vesting period, which is normally three years. Time-vested restricted stock granted to directors vest in one year. Performance-based restricted stock has been granted to officers and employees, with shares potentially vesting after three years. The total awards for performance-based restricted stock vest based on the total return of TECO Energy common stock compared to a peer group of utility stocks. The performance-based grants can vest in amounts ranging between 0% and 150% of the original grant. Beginning in 2015, the total awards for performance-based restricted stock vest based on achievement of earnings growth, with the ability to earn more shares based on total return of TECO Energy common stock compared to a peer group of utility stocks. The 2015 performance-based grants can vest in amounts ranging between 0% and 200% of the original grant. Dividends are paid on all time-vested stock grants during the vesting period. Dividends are accrued during the vesting period on all performance stock granted and paid at vesting date on the shares that vest. The value of time-vested restricted stock and stock grants are based on the fair market value of TECO Energy common stock at the time of grant. The Merger Agreement with Emera contains provisions regarding the vesting of outstanding grants which would apply upon closing of the Merger.

The fair market value of stock options is determined using the Black-Scholes valuation model, and the company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatilities; the expected term of options granted is based on accounting guidance for the simplified method of averaging the vesting term and the original contractual term; the risk-free interest rate is based on the U.S. Treasury implied yield on zero-coupon issues (with a remaining term equal to the expected term of the option); and the expected dividend yield is based on the current annual dividend amount divided by the stock price on the date of grant.

The fair market value of performance-based restricted stock awards is determined using the Monte-Carlo valuation model, and the company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatilities; the expected term of the awards is based on the performance measurement period (which is generally three years); the risk-free interest rate is based on the U.S. Treasury implied yield on zero-coupon issues (with a remaining term equal to the expected term of the award); and the expected dividend yield is based on the current annual dividend amount divided by the stock price on the date of grant, with continuous compounding.

Assumptions	2015			2014			2013
Assumptions applicable to performance-based restricted stock
Risk-free interest rate		0.83	%		0.68	%		0.41	%
Expected lives (in years)		3			3			3
Expected stock volatility		14.78	%		17.36	%		19.04	%
Dividend yield		3.98	%		5.13	%		4.83	%

In 2015, 2014 and 2013, 0.7 million, 0.8 million and 0.7 million shares of restricted stock were granted, respectively, with weighted-average fair value per share of $22.96, $14.69 and $17.21, respectively. The total fair market value of awards vesting during 2015, 2014 and 2013 was $7.5 million, $3.6 million and $3.5 million, respectively, which includes stock grants, time-vested restricted stock and performance-based restricted stock. As of Dec. 31, 2015, there was $13.2 million of unrecognized compensation cost related to all non-vested awards that is expected to be recognized over a weighted-average period of two years.

The following table provides additional information on compensation costs and income tax benefits and excess tax benefits related to the stock-based compensation awards.

(millions)	2015		2014		2013
Compensation costs ⁽¹⁾	$	13.1	$	12.7	$	13.5
Income tax benefits ⁽¹⁾		5.1		4.9		5.2
Excess tax benefits ⁽²⁾		0.0		0.4		0.0

(1)	Reflected on the Consolidated Statements of Income.

(2)	Reflected as financing activities on the Consolidated Statements of Cash Flows.

The aggregate intrinsic value of stock options exercised was $2.9 million, $2.7 million and $2.4 million for the periods ended Dec. 31, 2015, 2014 and 2013, respectively. Cash received from option exercises under all share-based payment arrangements was $9.4 million, $10.8 million and $6.7 million for the periods ended Dec. 31, 2015, 2014 and 2013, respectively. The income tax benefit realized from stock option exercises was $1.1 million, $1.0 million and $0.8 million for the periods ended Dec. 31, 2015, 2014 and 2013, respectively.

A summary of non-vested shares of restricted stock is shown as follows:

Nonvested Restricted Stock

	Time-Based Restricted					Performance-Based
	Stock ⁽¹⁾					Restricted Stock ⁽¹⁾
				Weighted -					Weighted-
				Avg. Grant					Avg. Grant
	Number of			Date		Number of			Date
	Shares			Fair Value		Shares			Fair Value
	(thousands)			(per share)		(thousands)			(per share)
Nonvested balance at Dec. 31, 2014		668		$	17.56		1,515		$	15.44
Granted		213		$	21.34		445		$	23.72
Vested		(273	)	$	17.96		(626	)	$	15.94
Forfeited		(19	)	$	17.78		(43	)	$	16.05
Nonvested balance at Dec. 31, 2015		589		$	18.74		1,291		$	18.06

(1)	The weighted-average remaining contractual term of restricted stock is two years.

Stock option transactions are summarized as follows:

Stock Options

						Weighted-Avg.		Aggregate
	Number of			Weighted-Avg.		Remaining		Intrinsic
	Shares			Option Price		Contractual		Value
	(thousands)			(per share)		Term (years)		(millions)
Outstanding balance at Dec. 31, 2014		840		$	16.32
Granted		0		$	0.00
Exercised		(580	)	$	16.30
Cancelled		(6	)	$	18.87
Outstanding balance at Dec. 31, 2015 ⁽¹⁾		254		$	16.30		1	$	2.6
Exercisable at Dec. 31, 2015 ⁽¹⁾		254		$	16.30		1	$	2.6
Available for future grant at Dec. 31, 2015		2,429

(1)	Option prices are $16.30 per share.

Direct Stock Purchase and Dividend Reinvestment Plan

In September 2014, the Direct Stock Purchase and Dividend Plan amended and restated the 1992 Dividend Reinvestment and Common Stock Purchase Plan. TECO Energy purchased shares on the open market for this plan in 2015, 2014 and 2013, resulting in no increase in shares outstanding.