14. Commitments and Contingencies

Rocky Gap Lease Agreement

In connection with the closing of the acquisition of Rocky Gap, the Company entered into a 40-year operating ground lease (the “Lease Agreement”) with the Maryland Department of Natural Resources for approximately 268 acres in the Rocky Gap State Park on which Rocky Gap is situated. The Lease Agreement contains an option to renew for 20 years after the initial 40-year term.

From August 3, 2012 and until the casino opened for public play on May 22, 2013, rent in the form of surcharges was due and payable with a minimum annual payment of $150,000. From May 22, 2013 through the remaining term of the Lease Agreement, rent payments are due and payable annually in the amount of $275,000 plus 0.9% of any gross operator share of gaming revenue (as defined in the Lease Agreement) in excess of $275,000, and $150,000 plus any surcharge revenue in excess of $150,000. Surcharge revenue consists of amounts billed to and collected from guests equal to $3.00 per room per night and $1.00 per round of golf.

Other Operating Leases

The Company leases buildings, land and parking lot space, and equipment and vehicles under noncancelable operating leases. The original terms of the leases range from 1 to 15 years with various renewal options from 1 to 15 years. Operating lease rental expense, which is calculated on a straight-line basis, was approximately $2.3 million and $2.5 million for the three and nine months ended September 30, 2015, respectively. The Company has operating leases with related parties for certain of its tavern locations and its office headquarters building. See Note 16,

Related Party Transactions

, for more detail.

Rent expense related to Rocky Gap, net of surcharge revenue, and rent expense associated with all other operating leases for the three and nine months ended September 30, 2015 and September 28, 2014 was as follows:

	Three Months Ended				Nine Months Ended
	September 30,		September 28,		September 30,		September 28,
	2015		2014		2015		2014
	(In thousands)
Rent expense	$	2,329	$	70	$	2,505	$	241

Future minimum lease payments as of September 30, 2015 are as follows:

	Remainder of 2015		2016		2017		2018		2019		2020		Thereafter
	(In thousands)
Minimum lease payments	$	3,205	$	11,531	$	9,619	$	8,063	$	7,293	$	6,976	$	57,089

Employment Agreements

The Company previously entered into employment agreements with certain former executives. The agreements provided for certain benefits to the executives, as well as severance if the executives were terminated without cause or due to a “constructive termination” as defined in the agreements. The severance amounts depended upon the term of the agreement and were up to two years of base salary and two years of bonus calculated as the average bonus earned in the previous two years. If such termination occurred within three years of a change of control as defined in the agreements by the Company without cause or due to a constructive termination, the executive was entitled to receive a lump sum payment equal to two times the annual base salary and bonus/incentive compensation along with insurance costs, 401(k) matching contributions and certain other benefits. In the event the executive’s employment terminated for any reason, including death, disability, expiration of an initial term, non-renewal by the Company with or without cause, by the executive with notice, or due to constructive termination, all unvested stock options would vest at the date of termination and remain exercisable for three years. As a result of the Merger, a total of approximately $2.2 million was paid to Lyle A. Berman, the former Chairman of the Board and Chief Executive Officer of the Company, and Timothy J. Cope, the former President and Chief Financial Officer of the Company, during the third quarter of 2015 under these employment agreements. See Note 17,

Subsequent Events,

for discussion of the

Company’s employment agreements entered into with certain current executives of the Company.

Retention Bonus and Severance Agreements

On March 30, 2015, the Company provided Retention Bonus and Severance Agreements (“Severance Agreements”) to 14 of its employees. These Severance Agreements were contingent upon the closing of the Merger. Pursuant to these Severance Agreements and upon the closing of the Merger, the Company recognized a charge of $2.8 million, representing cash payments and non-cash expenses related to accelerated stock option vesting, during the third quarter of 2015.

Merger Costs

The Company incurred a total of approximately $10.9 million in transaction-related costs

associated with the Merger, which consist primarily of severance, financial advisor, legal, accounting and consulting costs

. The Company incurred approximately $9.3 million and $10.6 million of transaction-related costs associated with the Merger

during the three and nine months ended September 30, 2015, respectively.

Shareholder Class Action Lawsuits

On February 6, 2015, the Company, certain current and former members of the Company’s Board of Directors, LG Acquisition Corporation, Sartini Gaming and the Sartini Trust were named as defendants in three complaints filed in the District Court of the State of Minnesota, Fourth Judicial District in Hennepin County. The cases are captioned James Orr, individually and on behalf of all others similarly situated, as plaintiff, vs. Lakes Entertainment, Inc., LG Acquisition Corporation, Sartini Gaming, Inc., Lyle A. Berman, Timothy J. Cope, Larry C. Barenbaum, Neil I. Sell, Ray M. Moberg, and the Blake L. Sartini and Delise F. Sartini Family Trust, as defendants; Anthony Dacquisito, on behalf of himself and all others similarly situated, as plaintiff vs. Larry Barenbaum, Lyle Berman, Neil Sell, Ray Moberg, Timothy Cope, LG Acquisition Corporation, Sartini Gaming, Inc., and the Blake L. Sartini and Delise F. Sartini Family Trust, as defendants; and David Lehr and Pamela Lehr, as plaintiffs, individually and on behalf of all others similarly situated vs. Larry Barenbaum, Lyle Berman, Neil Sell, Ray Moberg, Timothy Cope, LG Acquisition Corporation, Sartini Gaming, Inc., and the Blake L. Sartini and Delise F. Sartini Family Trust, as defendants. These are purported shareholder class action lawsuits brought by certain of the Company’s shareholders on behalf of themselves and others similarly situated, alleging that in entering into the Merger, the defendants had breached their fiduciary duties of good faith, loyalty and due care, and/or have aided and abetted such breaches. The plaintiffs seek, among other things, attorney’s fees

. On April 20, 2015, the plaintiffs filed an Amended Consolidated Class Action Complaint consolidating all pending actions arising out of the Merger. In response to the lawsuits, the Board of Directors appointed a special litigation committee (the “SLC”) pursuant to Minnesota law to investigate the claims alleged by the plaintiffs. On June 8, 2015, the judge in the matter denied the plaintiffs’ request for expedited proceedings and stayed the lawsuit until the conclusion of the SLC investigation and the issuance of its determinations. The SLC issued its report on October 13, 2015, in which it determined, among other matters, that the members of the Company’s Board of Directors properly discharged their fiduciary duties under Minnesota law and that the shareholder claims were without merit. The SLC report has been submitted to the District Court with a motion requesting that the Court dismiss the litigation. An unfavorable outcome in this lawsuit could result in substantial costs to the Company. It is also possible that other lawsuits may yet be filed and the Company cannot estimate any possible loss from this or future litigation at this time

Argovitz Demand for Arbitration

On March 13, 2015, Jerry Argovitz (“Argovitz”) filed a Demand for Arbitration with the American Arbitration Association (“AAA”), alleging that the Company and/or its subsidiary Lakes Jamul, Inc. breached the terms of an agreement under which Argovitz retained certain rights to share in potential revenue from a gaming facility development project the Company (through its subsidiaries) pursued with the Jamul Indian Village (“JIV”). Argovitz alleges that the Company breached such agreement by failing to protect his alleged contractual rights when the Company restructured its contractual relationship with JIV over the course of its involvement in the project and/or by ultimately exercising its contractual right in March 2012 to terminate its involvement in the JIV project, which had not resulted in the successful opening of a gaming facility. Argovitz is seeking a declaration that

, if the Jamul Casino opens, then the Company has an obligation to pay him $1

.0 million per year for up to seven years of operation of the Jamul Casino

The Company denies Argovitz’s allegations and is vigorously defending the case. On September 2, 2015, the three-member AAA arbitration panel denied the parties’ cross-motions for summary judgment. A two-day arbitration hearing is scheduled for January 5 and 6, 2016.

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, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters. 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 other current pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors. 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