The fighting over EMAK continues

In February, the fighting over control of California based marketing company EMAK Worldwide created a significant precedent in the courts of the state of Delaware, regarding vote buying claims in the context of consent solicitation campaigns, the mechanics of votes held in “street name,” given the federally mandated system of indirect ownership through the Depository Trust Company (DTC), and the absence of any provision in Delaware law that would a consent solicitation campaign to terminate the service of an incumbent director by reducing the number of seats.

Here's what the folks at Paul Weiss had to say about the result.

That decision put the former "outs" on the corporate "inside," but it didn't end the
fighting. EMAK has put out this statement that makes that clear.

The whole mess seems to have been catalyzed by the faling out between EMAK and its one-time prized client Burger King.

Kurtz v. Holbrook

The Delaware Court of Chancery recently issued a decision in the potentially important corporate-governance case of KURTZ v. HOLBROOK, on February 9.

You can read the decision here, or just accept the spoon-feeding below.

The case involved a contest for control of a microcap company named EMAK Worldwide. The Inspector of Elections had disallowed some 1 million voted shares held in their "street name" becaise they had not been accompanied by a DTC "universal proxy." Thus, the incumbents kept their control over EMAK. In the process, the incumbents also secured passage of a bylaw that reduced the size of the board, in effect pulling the chair out from under two of the incumbents who had been insufficiently responsive to the will of the one large preferred stockholder.

The dissidents sued, and the Court ruled in their favor on a range of issues.

1. Street name holders are shareholders of record for purposes of voting rights, even without a DTC "universal proxy"
2. The court invalidated the by-law amendment reducing the size of the board,
3. Any bylaw that sought to achieve the same effect by disqualifying a sitting director and this terminating his services will be invalid under Delaware law;
4. There was also a dispute in this case over the issue of "vote buying," a charge that the incumbents levelled against the dissidents. This is one form of a broader issue I've mentioned here before: how should courts respond as voting interests become severed from economic interests?

See the nice passage on pages 62-63 of the pdf. "'Vote buying' is an incendiary phrase...."