Note 8 – Share-Based Compensation

On August 27, 2015, the Board of Directors of the Company approved the Golden Entertainment, Inc. 2015 Incentive Award Plan (the “2015 Plan”), which was approved by the Company’s shareholders at the Company’s 2016 annual meeting. The 2015 Plan authorizes the issuance of stock options, restricted stock, restricted stock units, dividend equivalents, stock payment awards, stock appreciation rights, performance bonus awards and other incentive awards. The 2015 Plan authorizes the grant of awards to employees, non-employee directors and consultants of the Company and its subsidiaries. Options generally have a ten-year term. Except as provided in any employment agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested options as of the date of termination will be forfeited.

The maximum number of shares of the Company’s common stock for which grants may be made under the 2015 Plan is 2.25 million shares, plus an annual increase on each January 1 during the ten-year term of the 2015 Plan equal to the lesser of 1.8 million shares, 4% of the total shares of the Company’s common stock outstanding (on an as-converted basis) and such smaller amount as may be determined by the Board in its sole discretion. In addition, the maximum aggregate number of shares of common stock that may be subject to awards granted to any one participant during a calendar year is 2.0 million shares. The annual increase on January 1, 2016 was 874,709 shares.

The 2015 Plan provides that no stock option or stock appreciation right (even if vested) may be exercised prior to the earlier of August 1, 2018 or immediately prior to the consummation of a change in control of the Company that would result in an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended. There were 1,908,070 stock options outstanding under the 2015 Plan as of June 30, 2016, none of which have vested. As of June 30, 2016, a total of 1,216,639 shares of the Company’s common stock remained available for grants of awards under the 2015 Plan.

In June 2007, the Company’s shareholders approved the 2007 Lakes Stock Option and Compensation Plan (the “2007 Plan”), which is authorized to grant a total of 1.25 million shares of the Company’s common stock. Vested options are exercisable for ten years from the date of grant; however, if the employee is terminated (voluntarily or involuntarily), any unvested options as of the date of termination will be forfeited. There were 418,371 stock options outstanding under the 2007 Plan as of June 30, 2016, all of which were fully vested. As of June 30, 2016, a total of 282,635 shares of the Company’s common stock remained available for grants of awards under the 2007 Plan.

The Company also has a 1998 Stock Option and Compensation Plan (the “1998 Plan”). There were 11,202 stock options outstanding under this plan as of June 30, 2016, all of which were fully vested. No additional options will be granted under the 1998 Plan.

Share-based compensation expense related to stock options was $0.5 million and less than $0.1 million for the three months ended June 30, 2016 and June 28, 2015, respectively, and $0.9 million and $0.1 million for the six months ended June 30, 2016 and June 28, 2015, respectively.

The Company uses the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with employee incentive stock options, which requires the consideration of historical employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted-average risk-free interest rate and the weighted-average expected life of the options. There were 63,070 and 223,070 stock options granted under the 2015 Plan during the three and six months ended June 30, 2016, respectively, with a weighted-average grant date fair value of $4.99 per share and $4.24 per share, respectively. There were no options granted during the three and six months ended June 28, 2015.

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2016 and June 28, 2015:

	Number of Common Shares								Weighted-
	Options					Available			Average
	Outstanding			Exercisable		for Grant			Exercise Price
2016
Balance at December 31, 2015		2,419,529			724,529		837,635		$	8.16
Authorized		—					874,709			—
Granted		223,070					(223,070	)		11.19
Exercised		(294,956	)				—			11.21
Cancelled		(10,000	)				10,000			9.33
Balance at June 30, 2016		2,337,643			429,573		1,499,274		$	8.75

2015
Balance at December 28, 2014		755,617			616,792		276,635		$	6.09
Exercised		(2,500	)				—			6.14
Balance at June 28, 2015		753,117			677,870		276,635		$	6.09

As of June 30, 2016, the outstanding stock options had a weighted-average remaining contractual life of 8.0 years, weighted-average exercise price of $8.75 per share and an aggregate intrinsic value of $7.0 million. As of June 30, 2016, the outstanding exercisable stock options had a weighted-average remaining contractual life of 2.3 years, weighted-average exercise price of $6.22 per share and an aggregate intrinsic value of $2.4 million.

In connection with the Special Dividend discussed in Note 7, Shareholders’ Equity, and in accordance with the Company’s equity incentive plans approved by the Company’s shareholders, anti-dilutive adjustments were made to the exercise prices of outstanding stock options to purchase shares of Company common stock, in order to preserve the value of such stock options following the Special Dividend. Effective as of the close of business on July 14, 2016, the exercise price of each outstanding stock option under the 2015 Plan, the 2007 Plan and the 1998 Plan was reduced by $1.71 per share.

There were 135,330 and 294,956 options exercised during the three and six months ended June 30, 2016, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2016 was $0.9 million and $1.6 million, respectively. There were zero and 2,500 options exercised during the three and six months ended June 28, 2015, respectively. The total intrinsic value of options exercised during the six months ended June 28, 2015 was less than $0.1 million. The Company’s unrecognized share-based compensation expense related to stock options was approximately $5.8 million as of June 30, 2016, which is expected to be recognized over a weighted-average period of 3.1 years.

The Company issues new shares of common stock upon the exercise of stock options.