OTK Associates LLC, the largest shareholder of Morgans Hotel Group Co. is evaluating all legal rights and remedies over the Morgans' agreements with The Yucaipa Companies.
OTK Associates, which has 13.9% of the outstanding common stock of the company, is questioning several moves of Morgans, including its announcement of a material transaction with an insider and major creditor during a proxy process, which it said is indicative of a type of insider dealings which may affect shareholders without representation.
OTK Associates also wants to know if the board's special committee had tried to find other alternatives to another untimely transaction with an interested party, considering that two of Morgans' directors have financial interests in the transaction
It also questioned the attempt to alter the shareholder record date for the Annual Meeting of Stockholders, which was intended to circumvent the proxy process and disenfranchise shareholders of record as it happened at a time when an alternative board slate had been proposed.
According to OTK Associates, the rights offering would favor The Yucaipa Companies compared to other stockholders as it retroactively and purposely delays the shareholder vote allowing Yucaipa to gather significant voting equity position.
OTK Associates added that the proposed transaction does not address fundamental issues affecting company's operations, misalignment of interest and bloated overhead.
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