STOCK-BASED COMPENSATION PLANS

On December 31, 2016, we have stock-based employee compensation plans as described below. Our total compensation expense, which includes expense related to restricted stock awards, restricted stock unit awards, restricted performance units awards, stock option awards, and stock options associated with our employee stock purchase plan was $18.9 million in 2016, $13.8 million in 2015 and $11.9 million in 2014.

Retirement of Executive Chairman of the Board of Directors

Our former Executive Chairman of the Board of Directors and Chief Executive Officer, Robert L. Evans, retired effective September 30, 2015. Mr. Evans continues as a member of the Board of Directors. In conjunction with Mr. Evans' retirement, we amended his previous Change in Control, Severance, and Indemnity Agreement and upon his retirement, we accelerated vesting on 29,218 shares of restricted stock which were previously awarded and recognized compensation expense of $1.3 million in 2015 for the acceleration of the restricted stock awards.

2016 Omnibus Stock Incentive Plan

On February 24, 2016, we replaced our previous stock compensation program, the Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan (the "2007 Incentive Plan") with a new program, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan ("the 2016 Incentive Plan"). The 2016 Incentive Plan is intended to advance our long-term success by encouraging stock ownership among key employees and the Board of Directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units or performance cash. The 2016 Incentive Plan has a minimum vesting period of one year for awards granted. During 2016, we awarded stock compensation under both the 2007 Incentive Plan and the 2016 Incentive Plan.

Employee Stock Options

We have stock options outstanding under the 2007 Incentive Plan. The 2007 Incentive Plan provides that the exercise price of any incentive stock option may not be less than the fair market value of the common stock on the date of grant. Outstanding stock options under the 2007 Incentive Plan have contractual terms of ten years and generally vest ratably on each anniversary of the grant date over a three year period. No stock options have been awarded under the 2016 Incentive Plan.

Activity for our stock options outstanding is presented below:



(in thousands, except per average exercise price)	Number of Shares Under Option		Weighted Average Exercise Price
Balance as of December 31, 2013	193		$	36.04
Granted	—		$	—
Exercises	(182	)	$	35.26
Canceled/forfeited	(1	)	$	49.95
Balance as of December 31, 2014	10		$	48.63
Granted	—		$	—
Exercises	(1	)	$	49.95
Canceled/forfeited	—		$	—
Balance as of December 31, 2015	9		$	48.37
Granted	—
Exercises	(5	)	$	52.58
Canceled/forfeited	—
Balance as of December 31, 2016	4		$	43.74

During 2014, Mr. Evans, our non-executive Chairman of the Board of Directors, exercised options for 180,000 shares of our common stock which were granted at $35.19 per share, for common stock prices ranging from $85.00 to $91.33 per share.

On December 31, 2016, all outstanding options were vested and exercisable. The following table summarizes information about stock options outstanding on December 31, 2016:



(in thousands, except contractual life and per share data)	Shares Under Option	Remaining Contractual Life (Years)	Average Exercise Price Per Share		Intrinsic Value per Share⁽¹⁾		Aggregate Intrinsic Value
Options exercisable and vested at December 31, 2016	4	1.8	$	43.74	$	106.71	$	437


(1)	Computed based upon the amount by which the fair market value of our common stock on December 31, 2016 of $150.45 per share exceeded the weighted average exercise price.

The total intrinsic value of stock options exercised was $0.4 million in 2016, $0.1 million in 2015 and $9.6 million in 2014. Cash received from stock option exercises totaled $0.2 million in 2016, $0.1 million in 2015 and $6.4 million in 2014.

Restricted Shares and Restricted Stock Units

The 2016 Incentive Plan and the 2007 Incentive Plan (collectively "the 2016 and 2007 Plans") permit the award of restricted shares or restricted stock units to directors and key employees, including our officers who are from time to time responsible for the management, growth and protection of our business. Restricted shares granted under the 2016 and 2007 Plans generally vest either in full upon three years from the date of grant, on a pro-rata basis over a three year term or upon retirement at or after age 60. The fair value of restricted shares that vest solely based on continued service under the 2016 and 2007 Plans is determined by the product of the number of shares granted and the grant date market price of our common stock.

On September 22, 2015, the Board of Directors approved the adoption of the Executive Long-Term Incentive Compensation Plan (the "ELTI Plan"), pursuant to which certain named executive officers ("NEOs") and other key executives ("Grantees") may earn variable equity payouts based upon us achieving certain key performance metrics over a specified period. The ELTI Plan was adopted pursuant to 2016 and 2007 Plans, which were previously approved by our shareholders.

2016 Awards

On February 23, 2016, certain NEOs received the following:


•	24,677 restricted stock units ("RSU") vesting equally over three service periods ending December 31, 2016, December 31, 2017 and December 31, 2018; and


•	29,633 performance share units ("PSU") with vesting contingent on financial performance measures at the end of a 34-month performance period ending December 31, 2018.

The performance criteria for the 2016 PSU awards are a cumulative Adjusted EBITDA target that was set at the beginning of the plan performance period for the entire three year period, and a cash flow metric that is the aggregate of the cash flow targets for the three individual years that is set annually at the beginning of each year. The cash flow metric is defined as cash flow from operating activities plus distributions of capital from equity investments less capital maintenance expenditures. The Compensation Committee can make adjustments as it may deem appropriate to these metrics. Measurement against these criteria will be determined against a payout curve which provides up to 200% of performance share units based on the original award.

The performance criteria also includes a relative total shareholder return ("TSR") component. Our TSR will be ranked versus the companies in the Russell 2000 index and will be calculated based on our relative placement within the Russell 2000 index. The PSU awards may be adjusted based on the Company’s TSR, by increasing the PSU awards by 25% if the Company’s TSR is in the top quartile, decreasing the PSU awards by 25% if the Company’s TSR is in the bottom quartile, and providing no change to the PSU awards if the Company’s TSR is in the middle two quartiles.

The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology and will be based upon an equal performance weighting for the two financial measures and then adjusted based on the Company’s TSR performance within the Russell 2000 index. The maximum number of PSUs that can be earned for a performance period is 250% of the original award.

In 2016, we recognized compensation expense of $7.7 million related to the 2016 grants for RSUs, PSUs and other employee grants made during 2016. At December 31, 2016, compensation expense that has not been amortized attributable to unvested 2016 RSU and PSU awards was $4.3 million and $4.9 million for 2016 other awards.

2015 Awards

On September 22, 2015, certain NEOs received the following:


•	22,142 RSUs vesting equally over two service periods ending December 31, 2016 and December 31, 2017; and


•	27,282 PSUs with vesting contingent on financial performance measures at the end of a 30-month performance period ending December 31, 2017.

The performance criteria for the 2015 PSUs are consistent with the 2016 Awards described above.

In 2016, we recognized compensation expense of $3.8 million related to the 2015 RSU and PSU grants and at December 31, 2016, unrecognized compensation expense related to these awards was $2.6 million. In 2015, we recognized compensation expense of $0.9 million related to the 2015 grants for RSUs and PSUs.

Other Awards

In 2016, we awarded 72,529 of restricted stock shares to other employees, the majority of which vest equally over three service periods ending in the first quarter of 2019. In 2016, we recognized $4.4 million of compensation expense related to these awards. On December 31, 2016, unrecognized compensation expense attributable to all unvested service period awards was $7.7 million. The weighted average period over which we expect to recognize the remaining compensation expense under the service period awards approximates 1.3 years.

In 2015, we awarded NEOs, Grantees and certain other employees 167,800 restricted shares of our common stock vesting over service periods ranging from seven months to three years. In 2016, we recognized $4.7 million of compensation expense and in 2015, we recognized $6.2 million of compensation expense related to these awards. On December 31, 2016, unrecognized compensation expense attributable to all unvested service period awards was $3.0 million. The weighted average period over which we expect to recognize the remaining compensation expense under the service period awards approximates 13 months.

Activity for the ELTI Plan, the 2013 New Company LTIP, the 2016 and 2007 Plans and awards made outside of stock-based compensation plans is presented below:



	Market Condition & Performance-Based Awards				Service Period Awards				Total
(in thousands, except grant date values)	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Balance as of December 31, 2013	324		$	53.71	349		$	53.58	673		$	53.64
Granted	—		$	—	26		$	88.58	26		$	88.58
Vested	(239	)	$	53.49	(107	)	$	54.15	(346	)	$	53.70
Canceled/forfeited	—		$	—	(12	)	$	60.41	(12	)	$	60.41
Balance as of December 31, 2014	85		$	54.32	256		$	56.24	341		$	55.77
Granted	27		$	154.90	190		$	102.09	217		$	108.73
Vested	(85	)	$	48.31	(150	)	$	64.87	(235	)	$	58.91
Canceled/forfeited	—		$	—	(9	)	$	93.04	(9	)	$	93.04
Balance as of December 31, 2015	27		$	154.90	287		$	80.90	314		$	87.31
Granted	30		$	141.02	97		$	132.64	127		$	134.60
Vested	—		$	—	(186	)	$	70.81	(186	)	$	70.81
Canceled/forfeited	—		$	—	(6	)	$	100.31	(6	)	$	100.31
Balance as of December 31, 2016	57		$	147.67	192		$	114.33	249		$	121.95

On December 31, 2016, there was $15.6 million of unrecognized stock-based compensation expense related to nonvested restricted share awards, RSU and PSU awards that we expect to recognize over a weighted average period of 1.3 years.

On December 31, 2016, NEOs held 56,915 restricted shares subject to performance-based vesting criteria (all of which are considered performance based restricted shares), which were issued during 2016 and 2015. The number of these shares that vest is based upon established performance-based targets that will be assessed on an ongoing basis.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (the "ESP Plan"), we are authorized to sell, pursuant to short-term stock options, shares of our common stock to our full-time and qualifying part-time employees at a discount from our common stock’s fair market value. The ESP Plan operates on the basis of recurring, consecutive one-year periods. Each period commences on August 1 and ends on the following July 31.

Each August 1, we offer eligible employees the opportunity to purchase common stock. Employees who elect to participate for each period have a designated percentage of their after-tax compensation withheld and applied to the purchase of shares of common stock on the last day of the period, July 31. The ESP Plan allows withdrawals, terminations and reductions on the amounts being deducted. The purchase price for the common stock is 85% of the lesser of the fair market value of the common stock on (i) the first day of the period, or (ii) the last day of the period. No employee may purchase common stock under the ESP Plan valued at more than $25 thousand for each calendar year.

On July 31, 2016, employees purchased approximately 18 thousand shares of common stock pursuant to options granted on August 1, 2015. Because the plan year overlaps our fiscal year, the number of shares to be sold pursuant to options granted on August 1, 2016, can only be estimated because the 2016 plan year is not yet complete. Our estimate of options granted in 2016 under the ESP Plan is based on the number of shares sold to employees under the ESP Plan for the 2015 plan year, adjusted to reflect the change in the number of employees participating in the ESP Plan in 2016. We recognized compensation expense related to the ESP Plan of $0.7 million in 2016, $0.6 million in 2015 and $0.4 million in 2014.