Exhibit 10.1
DEEPHAVEN
CAPITAL MANAGEMENT

March 15, 2006
Mr. Lyle Berman
Lakes Entertainment, Inc.
130 Cheshire Lane, Suite 101
Minnetonka, Minnesota 55305
     Re:       Trading in Lakes Entertainment, Inc.
Dear Mr. Berman:
     Deephaven Capital Management LLC (“Deephaven”) hereby offers to resolve the
question of its disgorgement liability to Lakes Entertainment, Inc. (“Lakes”),
arising from and in relation to the Trading Matter, as defined herein, through
execution of this release (the “Release”) by both Deephaven and Lakes, and the
payment by Deephaven to Lakes in fully available funds, as more specifically set
forth below.
     1. For the consideration of two million, eight hundred five thousand, four
hundred five dollars and no cents ($2,805,405.00) (the “Consideration”) paid by
Deephaven, Lakes, for itself, its employees, officers, directors, agents,
representatives, successors and assigns, releases and forever discharges
Deephaven and its current and former officers, employees, directors, agents,
representatives, affiliates (including, without limitation, any entity under
common control with or by Deephaven), and each of their respective successors
and assigns (collectively, the “Deephaven Parties”), of and from any and all
claims, demands, damages, actions, causes of action, or suits at law or in
equity, of whatever kind or nature, for or because of any matter or thing done,
omitted or caused to be done by any of the Deephaven Parties on or before
February 14, 2006 relating to or in connection with the trading of Lakes’ stock
by one or more funds managed by Deephaven while Deephaven, as investment adviser
to such funds, was in aggregate the beneficial owner of ten percent (10%) or
more of the shares of common stock of Lakes and subject to Section 16(b) of the
Securities Exchange Act of 1934 (the “Trading Matter”).
     2. Deephaven represents and warrants that all of its trades of Lakes’ stock
required to be disclosed on SEC Form 5 by SEC rules and/or Section 16 of the
Securities Exchange Act were in fact disclosed by Deephaven in the Form 5’s that
it filed with the SEC.
     3. It is specifically understood and agreed by Lakes that the payment by
Deephaven and acceptance of the Consideration is in full, final, and complete
compromise, settlement and satisfaction of any claim, dispute, or action as
between the parties relating to the Trading Matter. It is further understood
that by executing this Release, Deephaven does not admit any liability, fault,
or violation of law by Deephaven or by any Deephaven Party, and there are no
covenants, promises, undertakings, or understandings outside of this Release.
     4. Lakes agrees to keep the terms of this Release confidential and
non-public except to the extent disclosure may be required by law, subpoena,
court order or upon inquiry by any securities regulatory body, self-regulatory
organization, or tax authority.

 

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     5. This Release may be amended, or its requirements waived, only by a
writing signed by the parties.
     6. This Release embodies the entire understanding and agreement between the
parties with respect to the subject matter hereof and supersedes any prior
understandings and agreements relating thereto. No other contract or agreement
among the parties hereto relating to the subject matter hereof exists. No
contract or agreement providing for the release of claims by Lakes, and no legal
obligation of any kind whatsoever relating to the Trading Matter or the Release,
will be deemed to exist other than as set forth herein.
     7. This Release will be governed by and construed in accordance with the
internal laws of the State of Minnesota, without giving effect to the principles
of conflict of laws thereof. Each party consents to the personal jurisdiction in
such state and voluntarily submits to the jurisdiction of the federal courts of
such state in any action or proceeding with respect to this Release, and
specifically agrees that any action or suit related to this Release or the
subject matter hereof shall be brought in the federal courts sitting in
Minneapolis, Minnesota.
     8. Lakes, by execution of this document, states that the terms of this
Release have been completely read and are fully understood and voluntarily
accepted.
     If Lakes is in agreement with and accepts these terms, then please indicate
its acceptance by signing in the space below. If you have any questions
concerning the foregoing, please do not hesitate to contact the undersigned at
(952) 249-5519.

            Sincerely,

DEEPHAVEN CAPITAL MANAGEMENT, LLC
      By:   /s/Colin Smith         Its: Chief Executive Officer             

            AGREED AND ACCEPTED:

LAKES ENTERTAINMENT, INC.
      By:   /s/Timothy Cope         Its: President/CFO