Lakes Entertainment and Golden Gaming announce Merger Agreement

Golden Gaming is an 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. (“Lakes”) with Golden Gaming surviving as a wholly-owned subsidiary of Lakes. Lakes will remain a publicly traded company and be renamed Golden Entertainment, Inc. upon closing.

Under the terms of the Merger Agreement, Lakes is valued at $9.57 per share (representing an approximate 37% premium to the closing share price for Lakes common stock on January 23, 2015), subject to working capital and various other adjustments under the Merger Agreement. The value of Golden Gaming under the Merger Agreement will be determined by multiplying, by 7.5, times Golden Gaming’s trailing twelve-month consolidated earnings before interest, taxes, depreciation and amortization;, less debt and subject to working capital and various other adjustments. Based on current September 30, 2015 financial estimates and assumptions, the legacy Golden Gaming shareholder would be issued 7,858,145 shares of Lakes common stock under the Merger Agreement, which would represent approximately 35.7% of the total fully diluted post-merger shares of Lakes common stock. Lakes’ current shareholders (assuming the exercise of all outstanding options to acquire Lakes common stock) would retain approximately 64.3% of the total post-merger shares of Lakes common stock.

In addition, Lakes will seek to monetize non-core assets prior to closing. Lakes sold all of its interest in Rock Ohio Ventures, LLC to an unrelated third party pursuant to a Membership Interest Purchase Agreement, dated effective as of January 25, 2015, between Lakes and DG Ohio Ventures, LLC for $750,000. Additionally, Lakes shareholders (other than the legacy Golden Gaming shareholder, except with respect to taxes) will be entitled to a possible cash dividend related to any net proceeds 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 thusereunder no 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 net operating tax loss carried yforwards 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 that 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,” 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 and adjusted EBITDA will be $348.1 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 of the issuance of the Lakes shares in connection with the merger.

Macquarie Capital is serving as Lakes’ exclusive financial advisor. Gray, Plant, Mooty, Mooty & Bennett, P.A. is serving as legal counsel to Lakes. Union Gaming Advisors, LLC is serving as Golden Gaming’s financial advisor. Latham & Watkins LLP is serving as legal counsel to Golden Gaming.