NEWS3 November 2009

Emak fights second lawsuit from former CEO

Legal North America

US— Marketing services group Emak Worldwide is facing a fresh lawsuit from former CEO Donald Kurz – this time over the right of preferred stockholder Crown Investments to vote in the election of new board directors.

Kurz is seeking to block Crown from voting with common stockholders, alleging that it now has effective control over Emak with a voting block of 28%.

The suit also alleges that a “stealth poison pill” is in place to trigger a payment of $25m to Crown if Kurz or his associates buy further shares in the group.

Crown recently exchanged its preferred stock for a new series of preferred stock that would permit it to vote on an as-converted basis on all matters, but in return the shareholder gave up its two appointed board seats.

Emak disputes Kurz’s claim that Crown now has effective control of the company, stating that: “Emak has a majority voting provision (rather than a plurality provision) in its by-laws for the election of directors, thus a 28% voting block is not controlling. Only a majority of voting securities are entitled to control Emak.”

It also denies the existence of a “poison pill” provision, though it says there is a ‘change of control’ payment that would be triggered if a person or group purchases more than 20% of shares outstanding and if one or more of their representatives or nominees are elected or appointed to the board without Crown’s consent. “This is a standard preferred stock provision,” said Emak.

The company says Kurz’s latest lawsuit is without merit. In September Kurz sued the firm for damages, alleging that current CEO Jim Holbrook had driven “one of the best marketing services agencies in the world to the brink of financial ruin” and that the company had rejected a $15-per-share takeover offer before the price of the company’s stock fell to 8 cents. Emak has said that that lawsuit is also without merit.

In response to both suits, Emak says it plans to pursue damages against Kurz “at the appropriate time” based on his alleged “misuse of confidential information received as a board member”.

Holbrook (pictured) said: “Yet again, Kurz has presented Emak with a costly lawsuit at a time when management and the board are focused on delivering positive business results.” He accused Kurz of orchestrating a campaign “to get his old job back” and claimed Kurz refuses to recognise “the accomplishments made by current management and the board, not the least of which is returning the company to profitability”.

Emak has reported an 11% rise in revenue to $33.9m for the third quarter of 2009. Net income for the quarter was up to $893,000 from $503,000 in the same period last year. The group owns the agencies Equity Marketing, Logistix, Mega and Upshot, who between them offer a range of market research, consumer insight development and strategic planning services.