Note 10 – Commitments and Contingencies

Agreement to Acquire American Casino & Entertainment Properties, LLC

On June 10, 2017, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) to acquire all of the outstanding equity interest of American Casino & Entertainment Properties, LLC (“American”) (the “Transaction”). The selling members include W2007/ACEP Managers Voteco, LLC (“ACEP Voteco”) and W2007/ACEP Holdings, LLC (“ACEP Holdings” and, together with ACEP Voteco, the “Sellers”), affiliates of Whitehall Street Real Estate Fund 2007, a real estate private equity fund managed by the Merchant Banking Division of Goldman Sachs & Co. LLC. The aggregate consideration to be paid by the Company under the Purchase Agreement is $850 million, consisting of $781 million in cash and 4,046,494 shares of Golden common stock, subject to customary adjustments relating to the net working capital and indebtedness of American as of the closing of the Transaction.

The Company also entered into a debt financing commitment letter (the “Debt Commitment Letter”) and obtained financing commitments (the “Debt Commitments”) that includes senior secured first and second lien credit facilities in the amount of $900 million and $200 million, respectively. The first lien facility includes an $800 million term loan and a $100 million unfunded revolving credit facility. The availability of the borrowing under the Debt Commitments is subject to the satisfaction of certain customary conditions. The use of the aggregate proceeds includes paying the cash portion of the purchase price, fees and expenses incurred by the Company in connection with the Transaction, and refinancing of the Company’s existing senior credit facility. The consortium of lenders includes JPMorgan Chase Bank, N.A. (“JPMorgan”), Credit Suisse AG and Credit Suisse Securities (USA) LLC (together, “Credit Suisse”), Macquarie Capital (USA) Inc. and Macquarie Capital Funding LLC (together, “Macquarie”), and Morgan Stanley Senior Funding, Inc. (“Morgan Stanley” and together with JPMorgan, Credit Suisse and Macquarie, the “Financing Sources”).

American owns and operates four casino hotel properties in Nevada, comprising the Stratosphere Casino, Hotel & Tower, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, and the Aquarius Casino Resort in Laughlin. Upon completion of the Transaction, the Company will operate over 15,800 slot machines, 114 table games and more than 5,100 hotel rooms across eight casino properties and almost 1,000 distributed gaming locations.

The consummation of the Transaction is subject to customary closing conditions, including, among others, the expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, obtaining applicable gaming authority regulatory approvals, the absence of a material adverse effect regarding American and performance and compliance in all material respects with agreements and covenants contained in the Purchase Agreement. The obligation of the Company to consummate the Transaction is not subject to a financing condition. The Transaction is expected to close in the fourth quarter of 2017.

The Purchase Agreement includes customary termination provisions for both the Company and the Sellers. The Sellers will be entitled to receive a termination fee from the Company equal to $20 million under certain circumstances. In addition, following a termination each party will remain liable to the other for any willful material breach of the provisions of the Purchase Agreement. Both the Company and the Sellers have the right to terminate the Purchase Agreement if the closing has not occurred by January 10, 2018, subject to the right of either party to extend such date to March 10, 2018 if all of the conditions to closing the Transaction have been satisfied other than the required approvals of gaming authorities and/or the expiration of the waiting period under the Hart-Scott-Rodino Act.

In connection with the closing of the Transaction, the Company and ACEP Holdings will enter into certain additional ancillary agreements which are attached as exhibits to the Purchase Agreement, including a stockholder’s agreement that will provide for, among other things, a 90-day restriction on sales of Golden common stock by the Sellers (subject to certain exceptions) and a standstill agreement, and a registration rights agreement with respect to the shares of Golden common stock to be issued at the closing and certain other customary agreements.

The foregoing descriptions of the Purchase Agreement and the Debt Commitment Letter are not complete and are qualified in their entirety by reference to the full text of the Purchase Agreement and the Debt Commitment Letter.

Rent Expense and Future Minimum Lease Payments

The Company leases its branded tavern locations, office headquarters building, equipment and vehicles under noncancelable operating leases that are not subject to contingent rents. The original terms of the current branded tavern location leases range from one to 15 years with various renewal options from one to 15 years. The Company has operating leases with related parties for certain of its tavern locations and its office headquarters building. See Note 12, Related Party Transactions, for more detail. Gaming device placement contracts in the form of space lease agreements are also accounted for as operating leases. Under space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its gaming devices at business locations, which are recorded in gaming expenses.

Operating lease rental expense, which is calculated on a straight-line basis, net of surcharge revenue, associated with all operating leases was as follows:

	Three Months Ended				Six Months Ended
(In thousands)	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Rent expense
Space lease agreements	$	9,112	$	10,309	$	18,639	$	20,446
Related party leases		505		703		1,081		1,405
Other operating leases		3,343		2,814		6,528		5,541
	$	12,960	$	13,826	$	26,248	$	27,392

As of June 30, 2017, future minimum operating lease payments, excluding contingent rents, were as follows:

	Remainder of
(In thousands)	2017		2018		2019		2020		2021		Thereafter		Total
Minimum operating lease payments
Space lease agreements	$	14,111	$	27,304	$	26,282	$	6,648	$	2,966	$	1,820	$	79,131
Related party leases		939		1,890		1,902		1,914		1,927		9,109		17,681
Other operating leases		5,972		11,087		10,472		10,322		9,687		86,153		133,693
	$	21,022	$	40,281	$	38,656	$	18,884	$	14,580	$	97,082	$	230,505

The current and long-term obligations under capital leases are included in “Current portion of long-term debt, net” and “Long-term debt, net,” respectively. The majority of the capital leases relate to vehicles with minimum lease payment terms of three to four years. During the first quarter of 2017, the Company entered into a capital lease agreement with a related party for one of its tavern locations. See Note 12, Related Party Transactions, for more detail.

As of June 30, 2017, future minimum capital lease payments, excluding contingent rents, were as follows:

	Remainder of
(In thousands)	2017		2018		2019		2020		2021		Thereafter		Total
Minimum capital lease payments
Furniture and equipment	$	368	$	786	$	775	$	717	$	332	$	–	$	2,978
Related party property leases		75		150		150		150		150		1,751		2,426
Less: Amounts representing interest														(884	)
Total obligations under capital leases													$	4,520

Participation and Revenue Share Agreements

The Company also enters into gaming device placement contracts in the form of participation and revenue share agreements. Under revenue share agreements, the Company pays the business location a percentage of the gaming revenue generated from the Company’s gaming devices placed at the location, rather than a fixed monthly rental fee. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s gaming devices. During the three and six months ended June 30, 2017, the total contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements were $36.7 million and $71.5 million, respectively, including $0.3 million and $0.6 million, respectively, under revenue share and participation agreements with related parties, as described in Note 12, Related Party Transactions. During the three and six months ended June 30, 2016, the total contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements were $32.7 million and $60.9 million, respectively, including $0.3 million and $0.8 million, respectively, under revenue share and participation agreements with related parties.

The Company also enters into amusement device and ATM placement contracts in the form of revenue share agreements. Under these revenue share agreements, the Company pays the business location a percentage of the non-gaming revenue generated from the Company’s amusement devices and ATMs placed at the location. During the three months ended June 30, 2017 and 2016, the total contingent payments recognized by the Company (recorded in other operating expenses) for amusement devices and ATMs under such agreements were $0.4 million and $0.3 million, respectively. During the six months ended June 30, 2017 and 2016, the total contingent payments recognized by the Company (recorded in other operating expenses) for amusement devices and ATMs under such agreements were $0.8 million and $0.3 million, respectively.

Employment Agreements

The Company has entered into at-will employment agreements with each of the Company’s executive officers. Under each employment agreement, in addition to the executive’s annual base salary, the executive is entitled to participate in the Company’s incentive compensation programs applicable to executive officers of the Company. The executives are also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements. Each executive is also provided with other benefits as set forth in his employment agreement. In the event of a termination without “cause” or a “constructive termination” of the Company’s executive officers (as defined in their respective employment agreements), the Company could be liable for estimated severance payments of up to $6.1 million for Mr. Sartini, $1.9 million for Stephen A. Arcana, $1.9 million for Charles H. Protell, $1.6 million for Sean T. Higgins, $0.7 million for Blake L. Sartini II, and $0.4 million for Gary A. Vecchiarelli (assuming each officer’s respective annual salary and health benefit costs as of June 30, 2017 are the amounts in effect at the time of termination and excluding potential expense related to acceleration of stock options).

Miscellaneous Legal Matters

From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its currently pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect the Company’s business, financial condition, results of operations or liquidity in a particular period.

In February and April 2017, several former employees filed two separate purported class action lawsuits against the Company in the District Court of Clark County, Nevada, and on behalf of similarly situated individuals employed by the Company in the State of Nevada. The lawsuits allege the Company violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. These cases are at an early stage in the proceedings, and the Company is therefore unable to make a reasonable estimate of the probable loss or range of losses, if any, that might arise from these matters. Therefore, the Company has not recorded any amount for the claims as of the date of this filing. While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of these matters, based on management’s current understanding of the relevant facts and circumstances, the Company believes that these proceedings should not have a material adverse effect on the Company’s financial position, results of operations or cash flows.