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OTK Associates LLC, the largest stockholder of Morgans Hotel Group Co.
with 13.9% of the outstanding common stock of the company,
today disclosed that it has filed a motion to join a derivative lawsuit filed
in Delaware Chancery Court to stop a self-serving recapitalization that the
company is rushing to consummate in advance of a stockholder meeting initially
scheduled for May 15, 2013.
OTK Associates also issued the following letter to MHGC stockholders:
April 5, 2013
Dear Fellow Stockholders,
We are writing to inform you that we have filed a motion to join the recently
filed derivative lawsuit against Morgans Hotel Group that seeks to stop a
series of transactions with the Yucaipa Companies which the company's
directors are rushing to consummate. The board's actions are invalid under
applicable Delaware law, and will further disenfranchise stockholders while
thoroughly entrenching the current board and management.
As the company's largest stockholder, we are deeply concerned by actions of
this nature deliberately undertaken during an ongoing proxy process. The
board's move to effectuate a coercively dilutive recapitalization is an
obvious attempt to place a large block of stock in friendly hands prior to the
annual meeting in order to preserve the positions of its incumbent directors
and avoid review of the transaction by a truly independent board.
Similarly, the board's retroactive decision to postpone the previously
scheduled annual meeting to July 10, 2013 from May 15, 2013, and to reset the
meeting's record date to May 29, 2013 from March 22, 2013, serves only to
ensure stockholders will be denied the benefit of reviewing the transaction.
Existing stockholders of record will effectively lose their right to cast
votes at the May 15^th meeting, where we believe the company's incumbent
directors would likely be replaced by OTK's proposed nominees. This attempt to
both rig an election and defend a self-dealing transaction will further burn
the funds of a company already operating at a loss.
To preserve stockholders' rights and the integrity of the corporate
decision-making process we are seeking the following:
* An injunction against the recapitalization plan until after the company's
2013 annual meeting and the anticipated election of a new board, as
proposed by OTK Associates;
* To invalidate the board's decision to retroactively postpone the 2013
annual meeting and reset the corresponding record date; and,
* A declaration that the directors have breached their duties of loyalty to
the company and its stockholders.
Without significant change at the board level, we fear that Morgans will
continue its pattern of impairing shareholder value, engaging in self-serving
transactions,operating at meaningful losses and damaging the tremendous
potential of the company's brands and existing assets.
While the litigation is ongoing, we will continue to exercise total
transparency and keep you updated as appropriate. We look forward to pursuing
a proxy campaign that ensures all stockholders are afforded the rights that
they deserve and the leadership the company so desperately needs. Members of
our slate possess the specific industry experience, financial sophistication
and operating relationships to immediately begin repositioning the company.
If you have questions, we urge you to call our proxy solicitor, Okapi Partners
LLC, toll-free at (877) 869-0171. You may also email questions to
info@okapipartners.com
Sincerely,
/s/ OTK Associates, LLC
OTK Associates, LLC
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