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Issue Date: Vol. 49, No.6, June 2009, Posted On: 6/8/2009


IALEI-IAAPA Merger Needs Supermajority Vote; Lewis, Sanfilippo Defend Proposal Process


Marcus Webb
International Association for the Leisure and Entertainment Industry, IALEI, International Association of Amusement Parks and Attractions, IAAPA, Dorothy Lewis, Richard Sanfilippo, Charlie Bray, George Keeley, Frank Seninsky, American Amusement Machine Association, Amusement and Music Operators Association, trade show, arcade, family entertainment center, coin-op, amusements industry

HERSHEY, PA -- Negotiators are finalizing the formal details of a proposed merger between the International Association for the Leisure and Entertainment Industry and the International Association of Amusement Parks and Attractions, IALEI officials have informed VENDING TIMES.

IALEI chairwoman Dorothy Lewis, Fun Station Associates (Danbury, CT), and Transition Committee chairman Richard Sanfilippo, Sam's Fun City (Pensacola, FL), said on June 5 that the official proposal might be ready for consideration mid-month by the boards of both associations. IAAPA's board is expected to vote the merger package up or down sometime around June 26-28.

"IALEI has provided us with more than 1,000 pages of legal documents and our counsel is reviewing those carefully to understand the details and implications of a potential agreement," said IAAPA president and chief executive Charlie Bray.

Assuming IAAPA's board votes in favor of the merger, IALEI's board will then assemble in Harahan, LA, on June 30 for two key votes. The first will be a retake of the IALEI board's original March 10 vote on whether or not to move forward with a possible merger with IAAPA.


CONFORMING TO STATE LAW

This formality was recommended by George Keeley, IALEI's outside counsel, in order to ensure that the merger process conforms unambiguously to state laws in Illinois, where IALEI is incorporated as a not-for-profit organization.

The original March 10 board vote on the question was recorded as passed with seven votes in favor of exploring a merger with IAAPA and five votes in favor of an alternative merger plan from the American Amusement Machine Association, Keeley said. At the time, one board member abstained and a second member recused himself.

Lewis and Sanfilippo said the IALEI board went forward in good faith with the merger process, believing that this outcome represented a majority vote in favor of the IAAPA merger. They said the March 10 vote of 7-5-1-1 did in fact represent a legitimate majority vote under IALEI bylaws.

After reviewing IALEI's actions the following month, Keeley said he realized the March 10 vote may not have been "sufficient" to meet the definition of a majority vote under Illinois statutes governing not-for-profit organizations. Hence, the planned revote on June 30.

Meanwhile, IALEI is looking toward a possible revision of its bylaws to bring them into clear conformity with relevant Illinois statutes, Sanfilippo said. As IALEI's immediate past-chairman, he serves as the current chair of the Bylaws Committee.

Assuming the revote on June 30 is affirmative, IALEI's board will then vote on whether or not to recommend the official merger package to the general membership. And if that vote is assenting, the FEC association will release written information to its general membership about the precise nature of the merger, including timing, benefits, costs, and leadership integration into IAAPA's committee and board structure, among other details.

IALEI members would probably have about 45 days to discuss and evaluate the merger proposal before returning their proxy votes to the board, Sanfilippo said. At the end of this period (around late August), under new bylaws adopted this month by IALEI, the board would then reconvene and use a proxy mechanism to vote on behalf of the membership to officially accept or reject the merger package.


SUPERMAJORITY VOTE

Lewis, Sanfilippo and Keeley stressed that the nature of this proxy mechanism will ensure that the members' will is faithfully reflected in any final vote. The proxy does not simply surrender power to the board to make the decision according to the board members' own judgment, acting on members' behalf.

On the contrary: Under the new proxy mechanism and its associated bylaws change, a supermajority (consisting of two-thirds of those IALEI members who cast a vote on the question) must vote in favor the merger in order for it to be approved and carried out, Keeley said. An independent third party -- perhaps an outside accounting firm -- will count the proxy ballots to certify this voting process and ensure its integrity, Lewis said.

Sanfilippo said a serious "misperception" has arisen that the change to bylaws, which allows a proxy vote by the board, was a strategy to prevent full member participation in deciding the fate of IALEI. The reason for adopting the proxy mechanism was "just the opposite," he said.

"We have annual membership meetings at our trade show and convention, but attendance is usually rather low," Sanfilippo said. "Our bylaws allow a vote with as little as 2.5% of the total membership, even for an important issue like this potential merger. So we felt this [proxy mechanism] would be appropriate and in the spirit of IALEI as a member-driven organization to make it easier for more people to participate in the final decision."

The bylaws change to enable the proxy mechanism was itself put to the general membership and carried with a 93% affirmative vote among those casting ballots, Lewis said.

Another widespread misperception, Sanfilippo pointed out, is that the board has attempted to suppress voting on the merger question by supplier members, or Fun Expo exhibitors. IALEI has always been an operator-run organization in which manufacturers have never had a vote on major policy issues, he said. Nothing has changed in this regard. He added that IALEI's Transition Committee is working closely with suppliers and others to answer their questions and address their concerns.


CAN IALEI SURVIVE ALONE?

If the planned merger with IAAPA fails to pass, Lewis and Sanfilippo said IALEI could survive. But they cautioned that continuing as an independent, standalone organization would almost certainly require significant cutbacks in member services and benefits.

"We're working on our backup plan, and discussing among the board and Transition Committee what our plan of action would be in case members reject a merger with IAAPA," said Lewis.

"Survive is the operative word," added Sanfilippo, indicating that a standalone future for IALEI would be difficult, but doable. At the same time, he said IALEI's current finances are "a little better than expected" due to a variety of factors, and that "a lot of discussion about bankruptcy of IALEI is seriously incorrect."

VT has learned that several factors have combined to put IALEI in a stronger-than-expected financial position. First, the association recently shifted to a "virtual office" concept with staff working from home, saving the association a reported $30,000 a year. In addition, IALEI's proceeds from insurance policies sold to its membership through an allied insurance firm, Sterling and Sterling, have added to its coffers. Finally, according to reliable sources, March 2009's Fun Expo -- of which IALEI is the plurality owner -- turned a very small profit rather than an expected loss.

Sanfilippo denied that IALEI has spent large sums of money on pursuing the possible merger with IAAPA. While conceding that all the legal and other bills have not yet been received and counted, known costs for related travel and certain other expenditures to date have probably amounted to less than $2,500, he reported.


FATE OF FUN EXPO?

Fun Expo's long-term fate remains unclear. The show is 50% owned by IALEI in joint partnership with both AAMA and the Amusement and Music Operators Association, which each own 25%. Ownership is vested in an umbrella organization called Leisure Entertainment Trade Shows.

Lewis said regardless of the outcome of the merger process, Fun Expo would be collocated with AAMA's Amusement Showcase International in March 2010, as stipulated by existing contracts. "Fun Expo is going to go forward no matter what," she insisted.

However, Lewis and Sanfilippo acknowledged that LETS has received offers to purchase Fun Expo. They did not say from whom, although Sanfilippo said IALEI itself had offered to buy out AMOA and AAMA in past years. For now, all parties are taking a "one thing at a time" stance, waiting to learn the outcome of the merger process before acting on any bids to sell Fun Expo, said Sanfilippo.

It is VT's understanding that if the IALEI-IAAPA merger goes through, IALEI would in effect be folded into IAAPA, which would become the owner of 50% of Fun Expo, through LETS, in partnership with AAMA and AMOA.


RESPONDING TO CRITICS

Lewis and Sanfilippo acknowledged that IALEI's board has come under heavy criticism from its past-chairman Frank Seninsky, Amusement Entertainment Management (E. Brunswick, NJ), over the merits and handling of the merger process, and also from former board member Bud Umbach of Recreation Solutions (Naples, FL), who resigned from the board over the issue.

The IALEI leaders said they had been slow to respond publicly to these criticisms in part because they are operating under a confidentiality agreement with IAAPA. Critics such as Seninsky and Umbach are not constrained by these requirements, Lewis and Sanfilippo explained. The pair admitted they felt "bombarded" and surprised by both the volume and vehemence of the public campaign against the merger and the resulting storm of controversy.

Sanfilippo said the IALEI staff has spent part of its time answering some questions from members about the merger process, although he said other staff responsibilities such as transitioning to the virtual office arrangement, handling member dues and renewals, and others have taken precedence. Accordingly, he added, the staff has been forwarding most inquiries about the possible merger to the Transition Committee for one-on-one replies. In addition, monthly advisories have been issued to keep the IALEI board informed of progress.

A full disclosure document -- including a statement of all expenses related to the merger process -- will be prepared for the general membership prior to any late August vote to approve or disapprove merging IALEI and IAAPA, the leaders said.


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