12915_GoldenGaminglogo_300Lakes Entertainment, Inc. and Sartini Gaming, Inc. which owns and operates Golden Gaming, LLC, announced that they have entered into a definitive stock merger agreement. Golden Gaming is a leading owner and operator of distributed gaming, taverns and casinos, all of which are focused on the Nevada local gaming market. At closing, Golden Gaming will combine with a wholly owned subsidiary of Lakes Entertainment, Inc. and receive Lakes common shares. Lakes will remain publicly traded and be renamed Golden Entertainment, Inc. upon closing.

Under the terms of the merger agreement, Lakes will be valued at $9.57 per share, subject to certain adjustments at close, representing an approximate 37% premium to the closing price of Lakes on January 23, 2015. The transaction value of Golden Gaming at close will be determined by multiplying 7.5 times trailing twelve months earnings before interest, taxes, depreciation and amortization, less net debt andother adjustments, determined at closing. Based on current September 30, 2015 financial estimates,

Golden Gaming would be issued approximately 7,858,145 shares of Lakes common stock upon the closing of the merger transaction, which would represent approximately 35.7% of the total post-merger shares plus options in the combined company. Lakes current shareholders and option holders would retain approximately 64.3% of the total post-merger shares in the combined company.

In addition, Lakes will seek to monetize non-core assets prior to closing. Lakes has entered into an agreement with an unrelated third party to sell its interest in Rock Ohio Ventures to such party for $750,000. Additionally, all shareholders except Golden Gaming will be entitled to a possible cash dividend related to any amounts the combined company receives from monetizing Lakes’ existing note receivable from the Jamul Indian Village, provided that the combined company enters into an agreement to monetize the note within three years after the merger closes, and receives any amounts due thereunderno later than three years after the Jamul casino opens.

Contemporaneous with entering into the merger agreement, Lakes has also amended and restated its Rights Agreement dated as of December 12, 2013, to preserve its ability to utilize approximately $89 million of federal operating tax loss carry-forwards by, among other things, lowering the voting securities
ownership threshold of an acquiring person from 15% to 4.99%, and making such other changes which Lakes deemed necessary to effectuate the purposes of the rights agreement in light of the transactions contemplated by the merger agreement.

Blake L. Sartini, currently Chief Executive Officer of Golden Gaming, will be named the Chairman and Chief Executive Officer of the combined company at closing. Lyle Berman, currently Chairman and Chief Executive Officer of Lakes, will continue as a board member of, and will sign a three-year consulting agreement with, the combined company. Tim Cope, currently President and Chief Financial Officer of Lakes, will also continue as a board member of, and consultant to, the combined company.

“We are excited to announce this transaction, and are thrilled to partner with Golden Gaming, which has done an outstanding job of building a premier diversified gaming company in the state of Nevada,” said Mr. Berman. “The combination of our strong balance sheet and Rocky Gap asset, and Golden Gaming’s
casinos and distributed gaming platform, makes the combined company truly unique in the marketplace. Lakes’ cash on hand will facilitate Golden Gaming’s pursuit of growth opportunities and the refinancing of its debt. We believe the combined company will be well positioned to expand not only in Nevada, which has the most stable tax and regulatory record in the country, but also into other jurisdictions.”

“We believe that this transaction establishes a truly diversified gaming company, uniquely positioned to capitalize on a wide spectrum of opportunities,” added Mr. Sartini. “Golden Gaming is the market leader in distributed gaming as well as tavern operations throughout Nevada, and is well positioned with our market leading casino resorts in Nye County. As a result, this merger with Lakes provides the opportunity to expand our business dramatically, both in and outside of Nevada, with the support of a strong balance sheet, the Rocky Gap asset in Maryland and an aggressive and experienced management team.”

Together, the combined company will operate approximately 9,250 slot machines and video lottery terminals in Nevada and Maryland across four casino properties, 48 taverns and over 600 route locations. Lakes and Golden Gaming estimate that on a combined pro forma basis 2015 annual net revenues, adjusted EBITDA will be $337.4 million and $42.5 million, respectively, including $3.0 million of anticipated cost synergies. Additionally, it is estimated that combined pro forma 2015 operating free cash flow and adjusted net income will be $33.7 million and $13.3 million, respectively, including a full year of the anticipated benefit of refinancing Lakes and Golden Gaming indebtedness.

The merger is anticipated to close by year-end 2015 and is subject to customary regulatory and other closing conditions being satisfied, including approval by Lakes’ shareholders.

Macquarie Capital is serving as Lakes’ exclusive financial advisor. Gray Plant Mooty Mooty & Bennett is serving as legal counsel to Lakes. Latham & Watkins is serving as legal counsel to Golden Gaming.