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October 24, 2014

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Lady Luck chief executive set for $74 million payday after merger

Lady Luck Gaming Corp.

Las Vegas

$144.1 million

8.4 percent

2,500

Two barge casinos in Coahoma County; a dockside casino/hotel in Natchez, Miss.; 50-percent stake in the riverboat casino Lady Luck in Bettendorf, Iowa. Agreement pending to buy downtown Las Vegas Lady Luck hotel-casino.

Isle of Capri Casino, Inc.

Biloxi

$480.4 million

9 percent

6,000

Three Mississippi casinos, in Biloxi, Vicksburg, Tunica; two in Bossier City and Lake Charles, La.; and a gambling cruise ship that operates out of New Orleans. The company also owns a 57 percent interest in a Black Hawk, Colo., casino and owns a harness race track in Pompano Beach, Fla.

Andrew Tompkins, chairman and chief executive of Lady Luck Gaming Corp., will net $74.1 million from the pending sale of his assets to Mississippi riverboat operator Isle of Capri Inc.

The newest element of his compensation, first disclosed in a Thursday proxy filing with the Securities and Exchange Commission, is a four-year, $2 million consulting agreement with Isle of Capri. As a condition of this agreement, Tompkins signed an agreement barring him from competing with Isle of Capri.

The largest chunk of Tompkins' compensation will be the $45.5 million Tompkins will receive from the sale of his rights to the Lady Luck trademark and the Lady Luck hotel-casino in downtown Las Vegas. Lady Luck announced it was buying those assets prior to the announcement of the Isle of Capri acquisition, and Isle of Capri has agreed to honor that agreement.

These assets will likely be sold in separate chunks to Isle of Capri. The "Lady Luck" trademark, now leased to Lady Luck Gaming, will be purchased for $31 million at the time the Isle of Capri acquisition closes. An additional $14.5 million will be paid for the hotel-casino, but this transaction requires the approval of the Nevada Gaming Control Board, and it isn't expected to close at the same time as the remaining acquisition.

The $2 million consulting agreement prohibits Tompkins from participation in any gaming property located within 75 miles of an Isle of Capri property, or within 25 miles of downtown Las Vegas.

Tompkins is the owner of 2.23 million shares of Lady Luck stock, or 45.6 percent of the company -- though he's agreed to transfer 11,739 shares to Alain Uboldi, president and chief operating officer of Lady Luck Gaming. At a cash price of $12 per share, Tompkins would receive $26.6 million. The Uboldi shares carry a value of $141,000.

By comparison, the rest of Lady Luck's executives hold only 70,471 shares, about 1 percent of the company's stock. That's valued at about $850,000.

Several top executives at Lady Luck have golden parachutes that Isle of Capri will assume, though there's no indication any executives other than Tompkins will be leaving the company. Uboldi's parachute is valued at $2.11 million, while Rory Reid, senior vice president and general counsel, has a parachute valued at $1 million.

In its proxy statement, Lady Luck Gaming said Tompkins' sale of the trademark and the Las Vegas casino first attracted Isle of Capri to the bargaining table.

Lady Luck said it first received an unsolicited takeover offer from Isle of Capri in August 1999, when it offered $12 in cash for each share of Lady Luck.

"Lady Luck was informed by Isle of Capri that the Isle proposal was a result of Lady Luck's announcement that it intended to purchase the Las Vegas hotel and the trademark assets (from Tompkins)," the proxy stated. "Isle of Capri indicated that it was attracted to the resulting ability of Lady Luck to control its trademarks and its name and the cessation of payment of royalties and transaction fees by Lady Luck for the use of the trademark assets."

At the time, Lady Luck was attempting to refinance its debt in order to complete the purchases of the Tompkins assets and the Miss Marquette riverboat in Iowa. However, the proxy said, financial advisers expressed doubt Lady Luck would be able to float new bonds at an acceptable cost -- and therefore, its ability to complete the planned acquisitions was in jeopardy.

Lady Luck said it was also concerned about Isle of Capri's plans to build a casino near its existing casino in Mississippi -- something Lady Luck said could hurt the company's cash flow.

Lady Luck's financial advisory firm, New York-based Wasserstein Perella, then said it didn't expect another company would attempt to top Isle of Capri's $12 per share offer, which represented an 80 percent premium over Lady Luck's average price of $6.66 per share over the 12 weeks prior to the merger announcement.

Based on these recommendations, the board voted unanimously to accept Isle of Capri's offer on Oct. 4 -- and found Wasserstein Perella's arguments so compelling that it didn't ask Onyx Partners, its other financial adviser, to review the tender price.

At that time, Tompkins granted Isle of Capri the right to vote 39.9 percent of the company's stock in favor of the merger -- and the right to buy his entire stake of 46.5 percent if he failed to vote for the acquisition.

The agreement must be approved by 75 percent of Lady Luck's shareholders to become effective. Lady Luck has yet to set a date for a shareholders' meeting, though it plans to hold the meeting at the Lady Luck in downtown Las Vegas.

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