Tuesday, July 1, 2003 | 11:17 a.m.
A shareholder has filed a lawsuit against Station Casinos Inc., saying its directors signed off on a "sweetheart deal" in 2001 to sell a company subsidiary to a former Station executive and that a 2002 plan to extend the expiration date of executive stock options misled investors.
Shareholder Bernardo Castillo filed the suit seeking class-action in Clark County District Court in May on behalf of all shareholders of record on March 25, 2002, the date of the Las Vegas company's annual shareholder meeting last year. Investors were informed of both the terms of the sale and the executive stock plan in a proxy statement prior to the meeting, the suit said.
The suit names Station Casinos Chief Operating Officer Stephen Cavallaro, Chief Financial Officer Glenn Christenson, Chief Executive Officer Frank Fertitta III, President Lorenzo Fertitta, Chief Legal Officer Scott Nielson and current and former directors James Nave, Timothy Poster, Lowell Lebermann Jr., Blake Sartini, Delise Sartini and William Warner.
Delise Sartini is the sister of brothers Frank and Lorenzo Fertitta. Blake Sartini is the husband of Delise Sartini. As of March, Christenson, Nave, Poster, Lebermann, Frank and Lorenzo Fertitta and Blake and Delise Sartini were directors of the company.
Poster resigned from the board last month after announcing an agreement with a business partner to purchase the Golden Nugget casino in downtown Las Vegas from MGM MIRAGE.
Station Casinos Inc. has not yet filed a response to the suit.
The company doesn't comment on pending litigation, Chief Financial Officer Glenn Christenson said. Castillo's Las Vegas attorney, G. Mark Albright, could not be reached for comment. The shareholder's East Coast attorney was out of the office Monday and could not be reached.
Terms of the Southwest Gaming sale to former chief operating officer Blake Sartini were "far less favorable to the company than could be obtained from an independent third party," the suit said.
The company's 2002 proxy statement, issued prior to the shareholder meeting, said the terms of the sale were fair. The stock deal transferred Southwest Gaming stock to Sartini in exchange for Station shares valued at about $8.4 million. Station recorded a gain of about $1.7 million on the sale.
"Because of his close familial and business relationships with the director defendants, particularly his brothers-in-law Frank Fertitta III and Lorenzo Fertitta, his wife Delise Sartini and his subordinate officer (Glenn) Christenson, Blake Sartini received a 'sweetheart deal' on his purchase of (Southwest Gaming) that would not have been available to an independent third party," the suit said. "(Defendants) are legally incapable of disinterestedly and independently considering a demand to commence and vigorously prosecute this action against each other," it said.
Station Casinos failed to negotiate the sale of Southwest Gaming to Sartini at arm's length, according to the suit. The company also failed to appoint a committee of independent directors to negotiate the deal or retain a financial valuation expert to determine whether the terms of the sale were fair to the company, the suit said. The board also failed to seek independent, third-party bidders for Southwest Gaming or otherwise shop around the company for the highest possible price, it said.
The suit also claims that a proposal in the 2002 proxy to extend the expiration date on stock options issued to executives by an additional 10 years was aimed at benefiting option holders by allowing them to delay exercising their options until Station's stock price went up.
The proxy statement, by contrast, said the extension was aimed at avoiding "unfavorable accounting consequences for the company," the suit said.
Directors knew but didn't disclose that "Station's business prospects were diminishing and the company expected to report decreasing revenues and earnings in the second half of 2002," the suit continued. That prospect would likely cause Station stock to decline, reducing the potential value of the more than 6 million stock options with exercise prices of more than $11 per share at the time, it said.
The company's stock was trading at about $17 per share on July 1, 2002, just slightly below the company's share price at the end of that year. Station's stock has about doubled in the past year, resting at $25.25 Monday.
Albright has initiated several class-action lawsuits against local companies on behalf of disgruntled investors. They include a suit brought by Mirage Resorts Inc. shareholders prior to the mega-merger of Mirage and MGM Grand Inc. in 2000 and a suit last fall against Sierra Pacific Resources aimed at prodding the company to consider an offer from the Southern Nevada Water Authority to buy Sierra's Nevada Power Co. subsidiary.