Kurz v. Emak Worldwide

Summary

Common shareholders attempt to redress an effort to thwart a consent solicitation by granting voting rights to preferred shareholders by marketing services provider EMAK Worldwide.

According to the complaint, EMAK'ss share price dropped from over $10 to less than $1 in less than four-and-a-half years, and its common stock was delisted and deregistered. Plaintiff Donald A. Kurz, a former Chief Executive Officer of EMAK, had led an effort to oust management. "Knowing that they could not hope to persuade outside common stockholders to support them," the complaint alleges, "EMAK's board stuffed the ballot box."

The plaintiffs assert that the bulk of EMAK's diminished enterprise value rested in its preferred stock, which carried a $25 million liquidation preference, but had no power to effect the election of a majority of the directors. However, one week after the initiation of the consent solicitation, EMAK's Board granted the preferred stockholder new preferred stock that carried the new right to vote with the common stock, giving the preferred shareholder a 28% blocking position.

The plaintiffs assert that the board effected this transaction without proper analysis; that its purported justification for the exchange was a pretext; that the common shareholders received nothing in exchange for the dilution of their voting rights; and that the distributed materials failed to disclose a stealth poison pill.

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Defense Attorney, Kenneth Nachbar -- Clip 1