Lakes Entertainment, Inc. (“Lakes”) (NASDAQ: LACO) announced that it terminated the Pre-Development, Development and Financing Arrangement Agreement (the “Agreement”) by and between Lakes Jamul Development, LLC, a wholly owned subsidiary of Lakes, and the Jamul Indian Village (“Tribe”). While this Agreement was executed on November 22, 2011, Lakes has been working with the Jamul Tribe under various other previous agreements since 1999 to assist with the development of a casino on the Tribe’s reservation outside of San Diego, California.
Due to Lakes’ corporate strategic objectives, Lakes determined that it would not continue to move forward with the project with the Tribe and terminated the Agreement, effective March 13, 2012. Lakes has a continuing obligation to fund Tribal support payments equal to approximately $0.6 million subsequent to the termination date and provide funding of certain professional fees for a period of thirty days from the termination date.
As of the date of termination, Lakes has advanced approximately $57.5 million including accrued interest to the Tribe related to casino development efforts. As a result of the termination of the Agreement, Lakes has determined the fair value of the notes receivable from the Tribe to be zero which were previously recorded at their fair value of $9.6 million as of October 2, 2011. Although the Agreement provides that the Tribe commence repayment of all outstanding amounts within 30 days of such termination, it is not contemplated that the Tribe will have sufficient funds to make such payments unless it opens a gaming facility on its reservation in the future. The Tribe remains obligated to repay the advances and accrued interest, and Lakes continues to have collateral in all revenues from any future casino owned by the Tribe, and the casino’s furnishings and equipment.
Tim Cope, President and Chief Financial Officer of Lakes stated, “We believe that the Jamul Indian Village casino project continues to have great merit. However, this project does not fit with our current business plan for the future of Lakes. We wish the Jamul Tribe much success with its continued progress toward development of their casino project.”