Youbet's annual shareholder's meeting was scheduled to for Friday, but was postponed by a court order.
Competing interactive race wagering service TVG Network sought injunctive action to delay the meeting, claiming that Youbet had not provided sufficient information in its proxy material. A three-hour hearing was held Wednesday before the Court of Chancery in Delaware, which eventually rendered its opinion on Thursday at 5 p.m. EST, the day before the meeting was scheduled to take place.
The court ordered Youbet to provide more information about both the positive and negative consequences that would occur if TVG's subsidiary, ODS Technologies, were to exercise a warrant that would entitle it to 51 percent board representation and voting control.
The proxy materials that had been issued for the meeting recommended that stockholders vote in favor of two proposals that would alter the company's charter. One amendment would classify the board, making members difficult to remove, and the other would require a supermajority (66-2/3 percent) vote to amend the company charter or bylaws any further.
TVG argued that the amendments would violate the terms of a warrant issuance agreement that the parties had made in 2001, whereby TVG has the right to purchase enough stock to bring its total to 51 percent of Youbet's common stock.
TVG has until May 2004 to purchase the shares, but if the Youbet proposals were to pass, TVG would no longer obtain control of the board by acquiring 51 percent of the shares because a 66-2/3 vote would be required to pass any motion. Also, TVG would not be able to appoint new board members because the classified board proposal would make it difficult to remove current board members.
TVG claimed that Youbet did not discuss the warrant issuance agreement in its proxy materials and did not explain what consequences could occur if the warrant were exercised or what effect the proposed amendments could have.
The court agreed with TVG and upheld the injunction. Youbet must now supply adequate information concerning Youbet's right's under the warrant issuance agreement and must explain what effect the charter amendments would have before it may hold its next meeting.
Youbet's chief counsel, Victor Gallo, said Youbet will issue new proxies, but will again propose the same key amendments at the next meeting.
"We do not agree with the court's decision, but we will use the court's analysis as a roadmap for the new proxy," Gallo said. "The Youbet.com board has elected to put the issue behind it so the company remains focused on building its business.
He added, "We know of TVG's extraordinary appetite for litigation and we have no interest in feeding it any more than necessary at the expense of our shareholders."
Arbitration between the parties is pending. Also, the parties have not agreed upon the price TVG would have to pay if it were to purchase shares under the warrant.
Click here to view the memorandum opinion.