TV Games Network, a shareholder in Youbet.com with an option to buy a majority interest in the company, has filed a lawsuit against Youbet for proposed changes to voting and term limits for its board of directors.
In proxy material sent to shareholders, Youbet is hoping to pass staggered term-limits for its board and a new threshold of two-thirds majority to change the company's articles and by-laws. TVG has balked at the proposal because it could buy a majority interest in Youbet and would not have enough seats on the board to make changes.
Court documents filed by TVG contend the purpose of the proposals "is to frustrate TVG's contractual right to acquire control of UBET." Under the current language, "TVG immediately can remove all of UBET's directors without cause and fill the resulting vacancies...and change management."
Youbet general counsel Victor Gallo disagrees with TVG's objection because the changes to the board would be "substantially similar" to the structure used by TVG's parent company, Gemstar.
"[TVG] is perfectly free to vote as it sees fit and, in accordance with solicitation procedures, solicit other shareholder to vote accordingly," Gallo said.
TVG acquired a 16.6% interest (3.8 million shares) in Youbet in June of 2002 for 10 cents a share. It has an option to buy a 51% interest in the company (an additional 12.2 million shares) by May 18, 2004 for $41 million. It comes out to about $3.36 a share. Youbet stock opened at $3.35 a share Tuesday.
In a letter to TVG, Gallo said: "The Youbet management team has increased the value of TVG's investment in a very short period of time, including growth over the last 12 months of approximately 493% in stock price appreciation."