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Full House Resorts bylaws change makes special meetings more difficult

27 October 2014

LAS VEGAS -- A sudden bylaw revision by Full House Resorts, Inc. will make it difficult for shareholders seeking changes in the regional casino operator to call a special meeting before the end of the year.

In a filing with the Securities and Exchange Commission, the Las Vegas-based company’s board voted Tuesday to limit the number of special meetings called by stockholders and to delay any request.

“The company believes that it would be costly and disruptive to hold a special meeting only a few months before the company’s annual meeting,” Full House said in the SEC filing.

The company put itself up for sale Wednesday, almost two weeks after five investors — led by gaming executive Dan Lee — initiated a proxy fight. The investors want the company to hold a special meeting to vote on expanding the board from five members to 10.

Full House owns three casinos: one in Indiana, one in Mississippi and the Stockman’s Casino in Fallon. The company also manages the Grand Lodge Casino at Hyatt Lake Tahoe under a lease agreement. Full House directed management to begin the sales process following talks with various advisers.

In its SEC filing, Full House said the bylaw changes would “enable a more orderly sale process, and facilitate an open dialogue with stockholders and transparency regarding the company’s plans if a sale has not occurred prior to that time.”

Lee’s group holds 6.2 percent of Full House shares, which are traded on the Nasdaq. This week, a trust set up by the company’s late CEO that owns 9.4 percent of Full House sided with the shareholder group.

In a statement Friday, Lee’s group said the bylaw changes allow the Full House board to reject a special meeting, even if done so in accordance to company policy. Lee’s group had asked the SEC for permission to approach shareholders and would need 40 percent support from shareholders to call the special meeting.

“This is an outrageous action on the part of the Full House board,” said Lee, the former CEO of Pinnacle Entertainment, Inc. and chief financial officer of Steve Wynn’s Mirage Resorts, Inc.

“We believe this bylaw is invalid and unenforceable under Delaware law and its adoption was a breach of the directors’ fiduciary duties to stockholders,” Lee said.

Lee’s group has criticized the company’s management and cited a 59 percent drop in the company’s stock price. It also said executives are overcompensated and highlighted the failed acquisition of a casino in Tunica, Miss.

Full House, Lee said, had zero debt two years ago and now in default on its debt covenants for a portion of the company’s $65 million in debt.

In a statement, Lee’s group said the company’s management have “golden parachute” payments that could be triggered if a special shareholders meeting is not held prior to any sale of the company.

“This appears to us to be a blatant attempt to entrench and possibly enrich management at the expense of Full House stockholders,” said Bradley Tirpak, a shareholder who is part of Lee’s group. “We believe stockholders will see right through this ruse.”

Shares of Full House declined 3 cents, or 2.31 percent, on Friday to close at $1.27.