Note 12. Common Stock and Incentive Awards

Common Stock and Stock‑Based Awards

The Company has authorized common stock of 100,000,000 shares, par value $0.00001 per share.

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Total stock-based compensation expense recognized was $3.3 million and $1.5 million during the years ended December 31, 2016 and 2015, respectively. There was no stock based compensation expense in 2014. These amounts are included in corporate expenses in the Company’s consolidated statements of operations.

The Board of Directors (“BOD”) adopted the Eldorado Resorts, Inc. 2015 Equity Incentive Plan (“2015 Plan”) on January 23, 2015 and our stockholders subsequently approved the adoption of the 2015 Plan on June 23, 2015. The Plan permits the granting of stock options, including incentive stock options (“ERI Stock Options”), stock appreciation rights (“SARs”), restricted stock or restricted stock units (“RSUs”), performance awards, and other stock-based awards and dividend equivalents. ERI Stock Options primarily vest ratably over three years and RSUs granted to employees and executive officers primarily vest and become non-forfeitable upon the third anniversary of the date of grant. RSUs granted to non-employee directors vest immediately and are delivered upon the date that is the earlier of termination of service on the BOD or the consummation of a change of control of the Company. The performance awards relate to the achievement of defined levels of performance and are generally measured over a one or two-year performance period depending upon the award agreement. If the performance award levels are achieved, the awards earned will vest and become payable at the end of the vesting period, defined as either a one or two calendar year period following the performance period. Payout ranges are from 0% up to 200% of the award target. Other stock-based awards will consist of any right which is not an ERI Stock Option, SAR, RSU, or performance award, and an award based on shares of the Company’s common stock.

On January 22, 2016, the Compensation Committee of the BOD of the Company approved the grant of 367,519 RSUs and performance awards, to executive officers and certain key employees, and the grant of 34,920 RSUs to non-employee members of the BOD under the 2015 Plan. The RSUs had a fair value of $10.77 per unit which was the NASDAQ average price per share on that date. Throughout 2016, an additional 14,661 RSUs were granted to certain employees under the 2015 Plan.

On January 23, 2015, the Compensation Committee of the BOD of the Company approved the grant of 685,606 RSUs and performance awards with a fair value of $4.03 per unit, the NASDAQ average price per share on that date, to executive officers and certain key employees under the 2015 Plan, and the grant of 89,900 RSUs with a fair value of $4.03 per unit, the NASDAQ average price per share on that date, to non-employee members of the BOD under the 2015 Plan. Such awards became effective upon our stockholders’ approval of the 2015 Plan on June 23, 2015. Throughout 2015, an additional 9,171 RSUs were granted to certain employees under the 2015 Plan.

A summary of the RSU activity for the years ended December 31, 2014, 2015 and 2016 is as follows:

	Equity Awards						Weighted-Average Grant Date Fair Value			Weighted-Average Remaining Contractual Life			Aggregate Fair Value
										(in years)			(in millions)
Unvested outstanding as of December 31, 2014		—				$		—	$		—	$		—
Granted		917,283						4.08
Vested		(89,900	)					4.03
Unvested outstanding as of December 31, 2015		827,383		⁽¹	⁾	$		4.09	$		2.12	$		3.40
Granted		410,694		⁽²	⁾			10.81
Vested		(255,707	)					5.83
Unvested outstanding as of December 31, 2016		982,370				$		6.45	$		1.41	$		6.33

(1)	Includes 475,409 of performance awards at 135% of target and 351,974 time-based awards at 100% of target all of which were granted in 2015. There were no RSU grants in 2014.

(2)	Includes 176,632 of performance awards at 96.5% of target and 234,062 time-based awards at 100% of target.

As of December 31, 2016, the Company had $2.5 million of unrecognized compensation expense, including performance awards at the 96.5% target, related to unvested RSUs that is expected to be recognized over a weighted-average period of 1.41 years.

During the first quarter of 2016, the Company’s Chief Operating Officer terminated employment and the Chief Financial Officer retired. In conjunction with the termination and retirement, unvested RSUs totaling 167,511, which were outstanding as of December 31, 2015, immediately vested representing an additional $0.5 million included in stock compensation expense during the first quarter of 2016. Additionally, severance costs totaling $1.4 million were recognized during the first quarter of 2016.

On September 19, 2014, as a result of the MTR Merger, all MTR Gaming common stock, par value $0.00001 per share (“MTR Stock”), all options and rights to receive MTR Gaming Stock (each, a “Stock Option”) granted under the MTR Gaming 2010 Long Term Incentive Plan (the “MTR Plan”), and all restricted stock units in respect of shares of MTR Gaming Stock (each, an “MTR RSU”) that were outstanding immediately prior to the Effective Time were converted into a right to receive shares of ERI Stock, or options to acquire ERI Stock, as follows:

•

5,785,123 shares of MTR Stock converted into a right to receive $6.05 in cash per each share of MTR Stock, and the remaining 22,600,961 shares of MTR Stock converted into the right to receive one share of ERI Common Stock per each share of MTR Stock.

•

All outstanding MTR Gaming Stock options vested (to the extent not already vested) and converted into an option or right to purchase the same number of shares of ERI Common Stock (at the same exercise price per share as in effect prior to such conversion). All other terms, except vesting requirements, applicable to such stock options remain the same.

•

Each MTR RSU that was outstanding under the MTR Plan (including any such MTR RSUs held in participant accounts under any employee benefit or compensation plan or arrangement of MTR Gaming) were settled in the same number of shares of ERI stock as the number of shares of MTR Stock that were subject to such MTR RSU immediately prior to the Effective Time. No further vesting, lapse, or other restrictions under the terms of the prior award agreement applicable to such MTR RSU will apply.

Upon consummation of the MTR Merger, the Company assumed the MTR Plan from MTR Gaming in accordance with the Plan’s terms. No future equity awards will be made pursuant to the MTR Plan. However, outstanding awards granted under the MTR Plan will continue unaffected. Due to the MTR Gaming Stock Options being fully vested immediately prior to the MTR Merger and no additional equity awards being issued by the Company subsequent to the MTR Merger, the Company did not record any stock‑based compensation expense during the year ended December 31, 2014.

A summary of the ERI Stock Option activity for the years ended December 31, 2014, 2015 and 2016:

									Weighted-		Weighted-
									Average		Average
				Range of					Exercise		Remaining		Aggregate
	Options			Exercise Prices					Price		Contractual Life		Intrinsic Value
											(in years)		(in millions)
Outstanding as of MTR Merger Date		474,833		$	2.44	-	$	16.27	$	7.13
Exercised		(76,633	)	$	2.44	-	$	3.94	$	3.22
Outstanding and Exercisable as of December 31, 2014		398,200		$	2.44	-	$	16.27	$	7.88		4.54	$	0.2

Expired		(86,000	)				$	11.30	$	11.30
Outstanding and Exercisable as of December 31, 2015		312,200		$	2.44	-	$	16.27	$	6.94		3.47	$	1.3

Expired		(10,000	)				$	11.30	$	11.30
Exercised		(132,900	)	$	2.44	-	$	3.94	$	2.89
Outstanding and Exercisable as of December 31, 2016		169,300		$	2.44	-	$	16.27	$	9.94		0.86	$	1.2

There were 132,900 options exercised and 10,000 options expired in 2016. There were no options exercised in 2015. Cash received from the exercise of stock options was $0.4 million and $0.2 million for the years ended December 31, 2016 and 2014, respectively. The Company recognized a tax benefit from the stock option exercises of $0.8 million in 2016.