Argosy Gaming Company's directors and officers, who stand to reap enormous profits as a result of a proposed sale to Penn Gaming Co., is unfair because gains will not be equal among shareholders, according to another class action lawsuit filed against the casino owner.
“Historically, when companies are taken private, shareholders receive a substantial premium to market price,” the complaint states.
According to a class action suit filed in Madison County Circuit Court Dec. 10 by Lemon Bay Partners, Argosy and its directors breached their fiduciary duty by not representing the full value of Argosy, which is currently trading at $46.70 a share.
A transaction of all outstanding Argosy shares at $47 per share would have an aggregate value of $2.2 billion, including $805 million of debt.
On Nov. 24, a similar class action lawsuit was filed against Argosy in Madison County Circuit Court by Judi Ann Ringhofer of Vernon Hills.
Argosy chairman William Cellini, the largest Argosy insider shareholder, owns 499,622 shares. A sale at $47 per share would generate $23,482,234 for Cellini.
In 2004, Cellini sold 260,000 shares to earn $9,731,556.
Director Lance Callis, a Granite City personal injury attorney, is the third largest insider shareholder, owning 385,836 shares. He bought 189,829 of them Nov. 18, 2004, for $46.58 per share or
$8,842,234 but didn't sell any in 2004.
Cellini, 69, a politically-powerful Springfield real estate developer and top Republican fundraiser, has been at the head of Arogsy since February 1993.
Cellini drew criticism from then Illinois Treasurer and now Lt. Gov. Patrick Quinn when he sold 277,778 shares to net $4.9 million after Argosy's February 1993 initial public offering.
Callis, 68, has been a member of the board of directors since February 1993.
Other board members include Edward Brennan, a Belleville lawyer with Brennan, Jones, & Brennan, and John B. Pratt, Sr., a Whitehall attorney.
Lemon Bay also claims the consideration of $47 to be paid to class members is unfair and inadequate. The intrinsic value of the company’s stock is materially in excess of $47 per share offered by Penn, considering "the company’s prospects for growth and profitability in light of its business, earning power, present and future," according to the suit.
Financial advisor Morgan Stanley, which stood to gain millions of dollars from Penn's acquisition of Argosy, did not give impartial advice on Argosy's value, the complaint states.
“The people who were primarily involved in negotiations with Penn (Cellini and Glasier) stand to gain additional cash payments upon the consummation of the sale of Argosy to Penn," the complaint states.
Under the terms of the sale agreement, unvested options held by all directors of Argosy will be accelerated so that they will be fully vested immediately prior to the effective time and consequently converted into the right to receive cash.
While the individual defendants have not disclosed the amount they will receive as a result from unvested stock options, they have disclosed the amount they will receive from all stock options (vested and unvested).
Lemon Bay alleges that Glasier, who was principally involved in negotiations, will receive compensation of $10,000 per month as a result of a consulting agreement with Penn.
The complaint claims Cellini has also negotiated to be named to Penn's board of directors.
Glasier is entitled to receive severance payments equivalent to three years of his base salary, or $1.8 million, plus an accelerated cash payment of more than $500,000 in bonuses, which he would not otherwise receive until March and July 2005.
“By causing Argosy to enter into the sale agreement with Penn because of the personal benefits they will receive, the individual defendants have deprived plaintiff and the class of the opportunity to realize the higher price other buyers might be willing to pay for Argosy shares, or the value that their shares would have if the company remains independent,” the complaint states.
Lemon Bay claims the defendants failed to make an informed decision, as no market check of Argosy’s value was obtained.
“In agreeing to the sale agreement, the individual defendants failed to properly inform themselves of Argosy’s highest transactional value and failed to do so because of their hurry to sign the sale agreement and thereby obtain the personal benefits they will receive thereunder,” the complaint states.
The defendants violated the fiduciary duties they owe to the shareholders of Argosy, and their agreement to the terms of the sale agreement demonstrate a clear absence of the exercise of due care and of loyalty to Argosy’s public shareholders, the suit claims.