miami jai-alai lawsuit
DESCRIPTION
Miami Jai-Alai Investors sues owners to stop$129 million sale.TRANSCRIPT
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
HERBERT SILVERBERG, individually and
derivatively on behalf of Florida Gaming Corporation,
Plaintiff,
v.
W. BENNETT COLLETT, W. BENNETT
COLLETT, JR., GEORGE W. GALLOWAY, JR.,
SILVERMARK LLC, and FREEDOM HOLDING,
INC.,
Defendants,
and
FLORIDA GAMING CORPORATION,
Nominal Defendant.
C.A._____________________
SHAREHOLDER DERIVATIVE COMPLAINT
Plaintiff, by his attorneys, alleges on information and belief, except for those allegations
pertaining to himself, which are alleged on knowledge, as follows:
INTRODUCTION
1. This is a shareholder derivative action brought on behalf of Nominal Defendant
Florida Gaming Corporation (“Florida Gaming” or the “Company”) for a series of self-dealing
transactions culminating with a proposed sale (the “Proposed Sale”), by Florida Gaming of its
only operating asset and wholly-owned subsidiary Florida Gaming Centers, Inc. (“Centers”) to
Silvermark LLC (“Silvermark”).
EFiled: Feb 08 2013 10:08AM EST Transaction ID 49393057 Case No. 8292
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2. Defendant W. Bennett Collett (“Collett Senior”), an octogenarian, and his son, W.
Bennett Collett, Jr. (“Collett Junior” and with Collett Senior referred to herein as the “Colletts”),
have run the Company as a private fiefdom, failing to hold shareholder meetings in years and
causing Florida Gaming to engage in countless self-dealing transactions with entities owned and
controlled by the Colletts. The latest of these transactions involves the sale of Centers, the only
operating entity within the Company, in a flawed process that results in valuable separate
payments for the Colletts including change in control payments for Collett Junior and continued
payments going forward for both Collett Senior and Collett Junior.
3. Plaintiff brings this action derivatively on behalf of Florida Gaming in order to
obtain appropriate monetary and injunctive relief for the benefit of the Company. In addition,
Plaintiff sues individually, pursuant to 8 Del. C. §211(c), to compel Florida Gaming to hold an
annual shareholders meeting which the Company has failed to do so since 2008.
PARTIES
Plaintiff
4. Plaintiff Herbert Silverberg is, and has been at all relevant times, a shareholder of
Florida Gaming. Plaintiff currently owns approximately 4,000 shares of Florida Gaming
common stock.
Nominal Defendant
5. (a) Nominal Defendant Florida Gaming is a Delaware corporation which
maintains its corporate headquarters at 3500 N.W. 37th
Avenue, Miami, Florida 33142. Florida
Gaming is the operator of live jai-alai (pronounced high-lie) games in Miami and Fort Pierce. It
also began to operate casinos during the past year. The Company’s stock previously traded on
the NASDAQ stock exchange until it was delisted in 1998 and now trades on the over-the-
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counter bulletin board (“OTCBB”) stock market. On November 16, 1998, the Company filed a
Form 10-QSB with the U.S. Securities and Exchange Commission (“SEC”) disclosing that the
delisting was based on NASDAQ’s review of Florida Gaming’s public filings and the
Company’s responses to NASDAQ staff letters which were “critical of the transactions between
[Florida Gaming] and its affiliates.”
(b) Centers is a Florida corporation with an address of 3500 N.W. 37th
Avenue, Miami, Florida 33142. Centers is wholly owned by Florida Gaming and is the
Company’s only operating asset.
The Collett Defendants
6. Collett Senior is the Chairman of Florida Gaming’s board of directors (the
“Board”) and was the former Chief Executive Officer (“CEO”) until his retirement on April 25,
2011. Collett Senior beneficially owns approximately 2,180,203 shares or 44.6% of Florida
Gaming’s common stock. Collett Senior has a varied business background with much of his
experience being in financial related businesses, serving as a principle shareholder and director
of numerous banking entities.
7. Collett Junior is the CEO, President and a director of both Florida Gaming and
Centers. Collett Junior is the son of Collett Senior and was appointed to the Board in 1994.
8. Defendant George W. Galloway, Jr. (“Galloway”) has served as a director of
Florida Gaming since 1994 and together with the Colletts is collectively referred to herein as the
“Director Defendants.”
9. Defendant Freedom Holding, Inc. (“Freedom Holding”) is a Delaware corporation
which maintains its headquarters at 2669 Charleston N. Road, New Albany, Indiana 47150.
Freedom Holding through its wholly-owned subsidiary Freedom Financial Corporation
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(“Freedom Financial”), whose sole business is to hold shares of Florida Gaming securities, owns
1,325,869 shares of Florida Gaming stock and 706,000 options to purchase shares of the
Company’s common stock. Defendant Collet Senior owns 87.95% of Freedom Holding’s equity
and Collett Junior owns 9.21%. Freedom Holding also owns 1,000 shares of the Company’s
Series F Convertible Preferred stock with a purported liquidation value of $1,481,703 as of
December 31, 2012.
Silvermark
10. Defendant Silvermark is a Delaware limited liability company with an address of
430 Park Avenue, 5th Floor, New York, New York 10022. Silvermark is affiliated with Silver
Entertainment, a privately-owned company, which operates four-star hotels and resorts as well as
the Veneto Hotel and Casino located in Panama City.
SUBSTANTIVE ALLEGATIONS
Collett Senior’s History
15. Collett Senior has a varied background in businesses involving mining, insurance
and finance. A November 27, 1979, SEC litigation release announced that Collett Senior settled
claims that he had stripped companies he ran of valuable assets and stated that:
The complaint alleges that publicly held companies, namely
Pilgrim, Atia National Investments, and Tidewater were acquired
and thereafter caused to transfer valuable assets for inadequate
consideration; that the various publicly held defendant
corporations were caused to enter into agreements and
transactions contrary to their interests of their public
shareholders; and that the transfers, transactions and agreements
were not disclosed to shareholders, the Commission or the
investing public.
The individual defendants are also alleged to have sustained the
operation of insolvent upper tier companies, through a complex
series of intercompany transactions in which cash of the acquired
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companies was exchanged for mortgages, coal leases and other
property of dubious value. [Emphasis added.]
16. As a result of a consent decree Collett Senior entered into with the SEC in 1979,
Judge Orinda Evans of the United States District Court for the Northern District of Georgia
entered an Order permanently enjoining Collett Senior from violating the federal securities laws.
17. In 1979, the Indiana Department of Insurance forced Pilgrim Life Insurance, a
company run by Collett Senior, into liquidation. In 1981, the Department sued Collett Senior for
allegedly stripping the insurance company of its assets.
18. In 1990, a proposed public offering of Freedom Financial stock was scrapped by
state regulators in New Jersey, Indiana and Kentucky because of Collett Senior’s troubled past
and the failure to disclose that Collett Senior had been involved in at least six prior legal actions.
An article published by The Miami Herald on July 27, 1998 titled “Florida gaming Looks For
New Deal to Avert Trouble” quoted Mark Maddox, Indiana’s State Securities Commissioner at
the time, as reportedly stating that: “[Collett Senior] had a history of bad relations with people
who have invested in his entities. There’s just been a long history of disgruntled investors in this
person’s companies.”
19. Notwithstanding Collett Senior’s failed attempt to bring Freedom Financial
public, he soon found a backdoor to the public equity markets through Freedom Financial’s
acquisition of Lexicon Corporation (“Lexicon”) in 1993. Lexicon, a failed technology company
with no real business prospects, had nothing to offer Freedom Financial aside from its listing on
the NASDAQ stock exchange. Following the consummation of Freedom Financial’s purchase of
699,480 shares of common stock from Lexicon, the Company’s present management assumed
control of Lexicon in early 1994.
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The Company
20. In February 1994, Lexicon acquired its first jai-alai facility in Ft. Pierce Florida.
Jai-alai is a sport originating in the Basque regions of Spain and France involving a ball bounced
at high speeds off a walled in space. In March 1994, Lexicon changed its name to Florida
Gaming Corporation.
21. In 2007, Florida enacted a new gambling statute increasing the maximum poker
wager from $2 to $5 and allowing the game of dominoes to be played at existing gambling
facilities. In April 2008, Florida Gaming opened a card room at its Ft. Pierce facility.
22. On January 29, 2008, residents of Miami-Dade County passed a referendum
allowing Florida Gaming to install up to 2,000 slot machines at its Miami facility. Accordingly,
the Company recently added casino gaming to its mix of businesses. The Company’s Form 10-K
for the fiscal year ended December 31, 2011 filed with the SEC on March 30, 2012 states that:
On January 23, 2012, the company opened Casino Miami Jai-Alai
in Miami, Florida. Miami Jai-Alai added a 40,000 square foot state
of the art casino with 1035 Class III slot machines, an expanded
poker room, electronic blackjack, roulette, dominoes, live shows
such as concerts and boxing, a new restaurant and three full-
service bars, including one that will feature live music. The
Company also operates a fronton in Ft. Pierce, FL and an inactive
Jai-Alai pari-mutuel permit for Hillsborough County (Tampa),
Florida. The Company's business at this time consists primarily of
its operations at the frontons, which include casino gaming, card
rooms, live jai-alai performances, inter-track pari-mutuel wagering
("ITW") on jai-alai, horse racing (both thoroughbred and harness)
and dog racing, and the sale of food and alcoholic beverages. The
Fort Pierce location provides inter-track wagering on interstate
simulcasting of horse racing, dog racing, and jai-alai from various
tracks and frontons in the United States and within the State of
Florida. Jai-alai games are played live and simulcast year round
from the Miami facility via satellite to pari-mutuel wagering
locations in Florida, Connecticut, Rhode Island, as well as
locations in Mexico, Central America, and Austria. Poker and
dominoes are played at the Miami Jai-Alai Crystal Card Room and
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poker is played at the Ft. Pierce card room. It recently added poker
to its Florida facilities and is one of the largest poker operators in
the State of Florida.
The Credit Agreement
18. On April 25, 2011, the Company entered into a Credit Agreement (the “Credit
Agreement”) with a syndicate of unaffiliated third party lenders (the “Lenders”) to fund the
construction of a casino to be operated by Centers. The Credit Agreement provided for an
$87,000,000 senior secured term loan (the “Term Loan”) that was set to mature on April 25,
2016. The Term Loan was issued at a price of 98.0% with interest varying between 15.75% and
16.50%. The net proceeds of the Term Loan were $83,520,000, after deducting fees and
discounts to the Lenders related to the transaction. Among other things, collateral for the loan
includes all of the Company’s unencumbered real estate, receivables, intangible assets,
equipment, furniture and fixtures.
19. In connection with the Credit Agreement, the Company also issued the Lenders
warrants, with a $0.01 per share exercise price, to purchase up to 35% of Centers’ equity.
Should Centers be sold, it is required to repurchase the warrants for a purchase price determined
by multiplying the “net proceeds” to the Company from the sale transaction by the “base
percentage,” which is 35% subject to adjustment.
20. On April 25, 2011, as provided for in the Credit Agreement, Collett Senior was
required to retire as CEO of Florida Gaming. On that same day, Freedom Financial and the
Company entered into a consulting agreement, providing that Collett Senior would perform
consulting services for Florida Gaming with Collett Senior not being required to work for more
than 500 hours a year. Collett Senior was to be paid $300,000 per year in exchange for those
services, subject to an adjustment up to $450,000 per year if certain earnings figures were
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reached. The contract was for a term ending on December 31, 2017. The Company entered into
the consulting agreement despite Collett Senior having no experience in operating gaming
facilities and the Company having no other operating assets. That same day, Collett Junior was
promoted to CEO of Florida Gaming.
21. Also on April 25, 2011, in connection with the closing of the Credit Agreement,
the Company entered into a Promissory Note at a rate of 6% per annum with Freedom Financial
in the amount of $1,905,000 of which $1,755,000 was for purportedly accrued but unpaid
consulting fees and $150,000 in accounts receivables from Freedom Financial. As of December
31, 2012, the Company purportedly owed Freedom Financial $2,105,744 on this note. The
Company also purportedly owes Freedom Holding an additional $1,850,162 under a promissory
note issued by Centers to Freedom Holding on November 1, 2008 for a total of $1,322,573.73
which note was amended on April 25, 2011 to substitute the Company as the borrower.
22. On June 15, 2011, Centers distributed $54,835.61 to the Company (the “June 15th
Distribution”). The Board then allowed those funds to be loaned to Freedom Holding in order to
pay certain interest expenses on Freedom Holding’s own debt obligation. The Company
received no benefit from the loan transaction and the June 15th
Distribution was inconsistent with
the terms of the Credit Agreement. The Lenders took issue and obtained payment of a
$377,000.00 consent fee (the “Consent Fee”).
The Company Defaults on the Credit Agreement
23. On August 1, 2012, the Company informed the Lenders and ABC Funding, the
Lenders’ administrator, that it would be unable to timely pay a scheduled principal payment of
$2,362,408.45 due on July 31, 2012. On August 9, 2012, ABC Funding delivered an
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acceleration notice under the Credit Agreement citing the failure to remit the principal payment
as an event of default among others.
24. On August 24, 2012, the Lenders submitted a summary term sheet describing a
transaction by which they would acquire an 85% interest in Centers in exchange for a release of
certain of the Company’s obligations under the Credit Agreement.
25. On September 4, 2012, the Lenders sent a draft proposal (the “Lenders’
Proposal”) to the Company describing the issuance of warrants to purchase up to 85% of
Centers’ equity, pending their obtaining a Florida gaming license and appointment of a Chief
Restructuring Officer (“CRO”) to operate Centers. Importantly, pursuant to the Lenders’
Proposal the Company would have been released from any debt obligation under the Credit
Agreement and would have retained a 15% interest in Centers and would, therefore, continue to
share in any future proceeds generated by Centers.
26. On September 5, 2012, ABC Funding, on behalf of the Lenders, filed suit in
Florida Circuit Court seeking: (i) an award of damages in excess of $84,000,000; (ii)
enforcement of the Company’s guarantees made in connection with the Credit Agreement; (iii)
foreclosure on certain real estate provided as security by the Company under the Credit
Agreement; and (iv) the appointment of a receiver to operate Centers pending the litigation.
27. On September 25, 2012, while continuing to negotiate with ABC Funding and the
Lenders and at their insistence, Centers engaged David Jonas to act as Centers’ CRO with the
authority to manage all of Centers’ daily operations with the sole responsibility for all treasury
functions and day-to-day cash flow decisions.
28. On October 19, 2012, the Company terminated the engagement of Mr. Jonas as
CRO.
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29. On November 2, 2012, the Florida Circuit Court entered an emergency order
appointing Mr. Jonas as the temporary receiver of Centers’ assets effective as of October 25,
2012.
The Proposed Transaction
30. On November 26, 2012, the Company announced that it had entered into a Stock
Purchase Agreement, dated as of November 25, 2012 (the “SPA” or the “Agreement”) pursuant to
which Silvermark will acquire Centers, the Company’s only operating asset, for $115 million
together with the assumption of some of Centers’ liabilities, including a $14.4 million mortgage
debt owed to Miami-Dade County, for a total transaction value of approximately $129.4 million.
The SPA is included as an exhibit to a Form 8-K filed by the Company with the SEC on
November 29, 2012
31. The cash purchase price of $115 million is subject to certain adjustments and will
finance the repayment of Centers’ outstanding debt, including $88.9 million owed to the Lenders
and other debt totaling approximately $11.2 million.
32. As a condition to entering into the Proposed Sale, Silvermark required that the
Company would have to successfully repurchase the warrants issued to the Lenders in
connection with the Credit Agreement. Based on the repurchase formula provided in the warrant
agreement, Florida Gaming has estimated that the net proceeds to the Company will be
$12,581,902 and that the “base percentage” is equal to 35% and has, therefore, valued the cost to
repurchase the Centers’ warrants at $4,403,666, but the Lenders may seek more money for their
warrants.
33. Therefore, the Company, at most, will receive net proceeds of $8,178,236. Even
assuming the $129.4 million value placed on Centers by the Proposed Transaction is a fair one,
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the result is substantially worse than even the Lenders’ first proposal which would have
delivered a net value of $19,410,000 to the Company based upon the 15% of Centers which the
Lenders were willing to let the Company retain.
34. However, the result is even worse as an escrow fund totaling $7.5 million dollars
will be created by Silvermark and administered by its attorneys to indemnify it against any of the
Company’s liabilities or claims for indemnification. Should no such liabilities arise, the $7.5
million fund will be paid back to the Company at a rate of $70,000 per month and used to pay for
Florida Gaming’s purported continued operations despite the fact that the Company will no
longer possess any operating assets. The Board has approved the Company’s entry into a
consulting agreement following consummation of the Proposed Sale for up to $25,000 per
month.
35. Also, in connection with entering into the SPA, Collett Junior has signed a letter
agreement with Silvermark providing for a three year employment agreement with Centers
guaranteeing him an annual base salary of $300,000, plus bonus. Daniel Licciardi (“Licciardi”),
the current Chief Operating Officer of the Company and Centers, will also be given an
employment contract by Silvermark in connection with the Proposed Sale. Collett Junior and
Licciardi are also set to receive golden parachute payments of $900,000 and $675,000,
respectively, should the Proposed Sale be consummated.
36. The SPA provides that a majority vote of the common shareholders is needed for
the approval of the Proposed Sale. Such a vote is practically a foregone conclusion. Collett
Senior is the beneficial owner of 44.6% of the Company’s stock. In addition, Licciardi owns
1.3% of the Company’s stock, and given that he will be granted an employment contract as part
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of the SPA and a golden parachute payment of $675,000, he will unquestionably vote in favor of
the Proposed Sale, thus providing further assurance that it will likely be approved.
37. In order to further dissuade any potential competing bidder, the SPA contains a
strict “No Solicitation” provision prohibiting the Director Defendants from soliciting alternative
proposals and severely constraining their ability to communicate and negotiate with potential
buyers who wish to submit or have submitted unsolicited alternative proposals. Section 4.08(a)
of the SPA Agreement states, in relevant part:
No Solicitation
(a) Subject to Section 4.08(b), from and after the Effective Date
hereof and until any termination of this Agreement, none of the
Seller Parties nor any Affiliate thereof shall authorize or permit
any investment banker, financial advisor, attorney, accountant or
other Person retained by or acting on behalf of any of the Seller
Parties or any such Affiliate to, nor shall any of the Seller Parties
or any Affiliate directly or indirectly, through any officer, director,
employee, financial advisor, representative or agent of such party
or otherwise
(i) solicit, initiate, negotiate, assist, facilitate, or encourage
(including by way of furnishing information about or permitting
access to the Assets, Real Property and Books and Records) or take
any other action to facilitate any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or
offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including,
without limitation, by way of a tender or exchange offer), direct or
indirect acquisition of the Shares, the Assets or the Business or
similar transaction involving Company, the Shares, the Assets or
the Business, other than the transactions with Purchaser
contemplated by this Agreement (an “Acquisition Proposal”),
(ii) engage in negotiations or discussions with any Person or
group of Persons (including, without limitation, Summit or any of
the Summit Lenders or any of their respective Affiliates) (a “Third
Party”) concerning, or provide any non-public information to any
Person or entity relating to, any Acquisition Proposal, (iii) enter
into any merger agreement, letter of intent, agreement in principle,
stock purchase agreement, asset purchase agreement, share
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exchange agreement, option agreement or other similar agreement
relating to an Acquisition Proposal or enter into any agreement or
agreement in principle requiring Seller or Company to abandon,
terminate or fail to consummate the transactions contemplated
hereby or breach its obligations hereunder,
(iv) take any action to make the provisions of any “fair price,”
“moratorium,” “control share acquisition,” “business combination”
or other similar anti-takeover statute or regulation, or any
restrictive provision of any applicable anti-takeover provision in
either Seller Party’s articles of incorporation or bylaws,
inapplicable to any transactions contemplated by an Acquisition
Proposal (and, to the extent permitted thereunder, each Seller Party
shall promptly take all steps necessary to terminate any waiver that
may have been heretofore granted, to any Person other than
Purchaser or any of Purchaser’s Affiliates, under any such
provisions), (v) continue any prior discussions or negotiations with
any Third Party concerning any Acquisition Proposal or
(vi) resolve or agree to do any of the foregoing. The Seller Parties
shall immediately cease and promptly hereafter (but in no event
later than twenty-four (24) hours after the date hereof) cause to be
terminated any solicitation, discussion or negotiation with any
Persons conducted heretofore by any of the Seller Parties, or any of
the Seller Parties’ Representatives with respect to any Acquisition
Proposal and shall use its commercially reasonable efforts to cause
to be returned or destroyed all confidential information provided
by or on behalf of Seller or Company to such Person.
38. Section 4.08(d) of the SPA, however, provides that the Board may terminate the
Proposed Sale if after consulting with its advisors it determines that a superior proposal has been
made to the Company which the directors would be required to pursue according to their
fiduciary duties owed to the Company’s shareholders.
39. In addition to the no solicitation clause, Section 14.03 of the SPA, contains
provisions for payment of a “Termination Fee” of $4.6 million by the Company to Silvermark if
the Director Defendants cause the Company to terminate the SPA pursuant to the lawful exercise
of their fiduciary duties.
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40. These provisions, combined with other measures the Company has in place,
effectively preclude any other bidders that might be interested in paying more for its asset from
taking their bids directly to the Company’s public shareholders and allowing those shareholders
to decide for themselves whether they would prefer any offer other than the Proposed Sale.
41. At the same time, Centers is reporting steadily improving results. Thus, for the
first quarter of 2012, the Company’s revenue increased from $2.9 million in the first quarter of
2011 to $14.4 million in the first quarter ending March 31, 2012. For the second quarter of 2012,
the Company reported that revenue increased from $2.6 million in the second quarter of 2011 to
$18.7 million in the second quarter ending June 30, 2012. For the third quarter, the Company’s
revenue increased from $1.8 million in the third quarter of 2011 to $17.3 million in the third
quarter ending September 30, 2012.
DERIVATIVE ALLEGATIONS
42. Plaintiff has not made a demand on Florida Gaming’s Board to institute this
action against the Director Defendants. Such demand would be a futile and useless act because
the underlying conduct could not have resulted from a proper exercise of business judgment and
each of the Director Defendants has significant potential legal liability for the wrongful conduct
at issue in this action.
43. Demand is also excused because Defendants Collett Senior and Collett Junior
effectively control Florida Gaming and the Board through their ownership of Freedom Holding
which has a 44.6% interest in Florida Gaming’s outstanding common stock, Collett Senior’s
position as Chairman of the Board and Collett Junior’s positions as President, CEO and a
director of the Company.
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44. In addition, demand is excused because at the time this action was commenced,
there was not a majority of disinterested and independent directors capable of making an
independent and disinterested decision to institute and vigorously prosecute this action. At this
time, there are three (3) members of Florida Gaming’s Board, two (2) of whom are the Collets
and are incapable of acting in a disinterested fashion in the event a demand were to be made on
the Board:
a. Collett Senior is the Chairman of the Board and beneficially owns and/or
controls 44.6% of Florida Gaming’s common stock. He will reap substantial benefits if the
Proposed Sale is completed; and
b. Collett Junior, the son of Collett Senior, is the Company’s CEO, President
and a director. He stands to benefit if the Proposed Sale is completed as he will have a three-
year contract with the purchaser as part of the SPA.
45. The transactions at issue were not the proper product of business judgment and
constitute a waste of corporate assets.
46. Plaintiff will fairly and adequately represent the interests of Florida Gaming
shareholders in enforcing the rights of the Company in this action. This action is not a collusive
one to confer jurisdiction that the Court would otherwise lack.
FIRST CAUSE OF ACTION
Claims For Breach of Fiduciary Duties
Against the Director Defendants
47. Plaintiff repeats and realleges each allegation set forth hereinabove.
48. This claim is brought by Plaintiff derivatively on behalf of Florida Gaming.
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49. The Director Defendants have violated their fiduciary duties of good faith, fair
dealing, care and loyalty by engaging and acquiescing in the wrongful conduct alleged in this
Complaint.
50. The Colletts have caused the Company to engage in numerous self-dealing
transactions which were entered into for their own benefit and to the detriment of the Company
and its public shareholders. The Director Defendants have breached their fiduciary duties by
participating in and consenting to these self-dealing transactions which have drained the
Company of its valuable assets.
51. The Colletts seek to continue to serve their own interests in pursuing the Proposed
Sale to the detriment of the Company and its public shareholders. Indeed, the Director
Defendants have breached their fiduciary duties by agreeing to the Proposed Sale in which the
Company’s only operating asset will be sold, and by rejecting the Lenders’ Proposal pursuant to
which the Company would have retained a 15% interest in Centers going forward.
52. The Proposed Sale is structured to favor the interests of the Colletts who control
the Company and dominate its Board and is the product of a flawed process. The actions of
structuring and approving the Proposed Sale could not have been a good faith exercise of prudent
business judgment to protect and promote the Company’s interests.
53. The Director Defendants have also breached their fiduciary duties in connection
with a Proposed Sale because, among other reasons:
(a) they failed to properly value the assets being sold;
(b) they failed to take adequate steps to maximize the value of the assets being
sold;
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(c) they have agreed to terms in the SPA and other terms that favor
Silvermark and deter competing bids;
(d) they have stated their intention to use the $7.5 million escrow fund to pay
for the Company’s continued operations if the Proposed Sale is consummated despite the fact the
Company will have no operating assets;
(e) they have secured continued employment for Collett Junior and Licciardi
and golden parachute payments of $900,000 and $675,000, respectively, should the Proposed
Sale be consummated; and
(f) they have submitted to the interests of the Colletts and Silvermark rather
than the interests of Florida Gaming and its public shareholders.
54. Unless enjoined by this Court, the Director Defendants will continue to breach
their fiduciary duties, and may consummate the Proposed Sale, which will irreparably harm the
Company.
55. As a direct and proximate result of the Director Defendants’ breach of their
fiduciary obligations to the Company, Florida Gaming has sustained significant damages. As a
result of the misconduct alleged herein, the Director Defendants are liable to the Company.
SECOND CAUSE OF ACTION
Aiding & Abetting the Breach of Fiduciary Duties
Against Defendant Silvermark
56. Plaintiff repeats and realleges each allegation set forth herein.
57. This claim is brought by Plaintiff derivatively on behalf of Florida Gaming.
58. Defendant Silvermark, by reason of its status as a party to the SPA and/or
associated agreements, has aided and abetted the Director Defendants in the aforesaid breaches
of their fiduciary duties by knowingly providing substantial assistance to the Directors
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Defendants’ breaches of fiduciary duties. Such breaches of fiduciary duties could not and would
not have occurred but for the conduct of Defendant Silvermark, who, therefore, has aided and
abetted such breaches in the proposed sale of Florida Gaming’s asset.
59. As a result of the unlawful actions of Defendant Silvermark, the Company will be
irreparably harmed in that it will not receive fair value for the Company’s assets and business.
Unless the actions of Defendant Silvermark are enjoined by the Court, it will continue to aid and
abet the aforementioned breaches of fiduciary duties.
60. As a direct and proximate result of Defendant Silvermark substantially assisting
the Director Defendants’ breach of their fiduciary obligations to the Company, Florida Gaming
has sustained significant damages. As a result of the misconduct alleged herein, Defendant
Silvermark is liable to the Company.
THIRD CAUSE OF ACTION
Waste of Corporate Assets
Against the Director Defendants
61. Plaintiff repeats and realleges each allegation set forth herein.
62. This claim is brought by Plaintiff derivatively on behalf of the Company.
63. As a result of the Director Defendants’ improper conduct and by failing to
properly consider the interest of the Company and its public shareholders by failing to conduct
proper supervision, the Director Defendants have caused Florida Gaming to waste valuable
corporate assets by paying the Consent Fee as a result of the Colletts’ self-dealing and by
entering into and consenting to self-dealing transactions with related entities which had the effect
of transferring valuable corporate assets out of Florida Gaming without receiving adequate
consideration in return.
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64. As a result of the waste of corporate assets, Florida Gaming has suffered harm
and the Director Defendants are, therefore, liable to the Company.
FOURTH CAUSE OF ACTION
Failure to Hold Annual Meeting Pursuant to 8 Del. C. §211(c)
65. Plaintiff repeats and realleges each allegation set forth herein.
66. This claim is brought by Plaintiff in his individual capacity as a shareholder of
Florida Gaming.
67. Florida Gaming has failed to hold an annual meeting since 2008. The Schedule
14A filed with the SEC on January 31, 2013 states: “We have not held an Annual Meeting of
Stockholders since 2008.”
68. Plaintiff seeks an Order of the Court, pursuant to 8 Del. C. §211(c) directing the
Company to hold an annual meeting of stockholders as soon as practicable under law.
69. Plaintiff has no adequate remedy at law.
WHEREFORE, Plaintiff demands judgment, as follows:
A. Declaring that this action is properly maintainable as a derivative action and
certifying Plaintiff as the Company’s representative;
B. Enjoining Defendants and all those acting in concert with them from taking any
steps to consummate the Proposed Sale;
C. Enjoining Defendants from making any fraudulent transfers of the Company’s
assets without receiving fair value, including, but not limited to, the payment of consulting fees
to Freedom Financial, Collett Senior or any of his affiliates;
D. Directing the Director Defendants to exercise their fiduciary duties to maximize
value to the Company in any proposed sale of the Company or its assets;
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E. Imposing a constructive trust, in favor of Plaintiff, on behalf of the Company,
upon any benefits improperly received by Defendants as a result of their wrongful conduct;
F. Directing Defendants to account to the Company for all damages suffered by it as
a result of Defendants’ wrongful conduct, as alleged herein;
G. Directing the Company to hold an annual shareholders meeting;
H. Awarding Plaintiff the costs and disbursements of this action, including
reasonable attorneys’ and experts’ fees and costs; and
I. Granting such other and further relief as this Court may deem just and proper.
Dated: February 8, 2012
OF COUNSEL:
ABRAHAM, FRUCHTER & TWERSKY,
LLP
Jeffrey S. Abraham
Lawrence D. Levit
Philip T. Taylor
One Penn Plaza, Suite 2805
New York, N.Y. 10119
(212) 279-5050
ROSENTHAL, MONHAIT & GODDESS, P.A.
By: /s/ Carmella P. Keener
Carmella P. Keener (Del. Bar No. 2810)
919 N. Market Street, Suite 1401
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff