OTK Associates LLC, the largest stockholder of Morgans Hotel Group Co. (Nasdaq: MHGC) with 13.9% of the outstanding common stock of the company, today released the following open letter to Morgans stockholders.
Dear Fellow Stockholder:
We are pleased, as are many of you, that Morgans has delayed the closing of its rights offering at our urging. This decision, however, falls short of a total remedy for this troubling transaction. The board’s decision to retreat from its earlier announcement scheduling the rights offering subscription prior to the record date for the annual stockholders meeting only underscores the disingenuous nature of their initial proposal. OTK will continue to ask the Delaware Chancery Court to fully invalidate and rectify the Yucaipa transactions.
There is now no reason for the board to delay an immediate reinstatement of the original record date of March 22nd. By doing so it will:
|1)||Assure stockholders will be entitled to rightfully vote their shares held at the time a credible slate of nominees was put forward;|
|2)||Retire any concerns regarding its attempt to place shares in friendly hands prior to a vote; and|
|3)||Allow stockholders to know who will be serving their interests as directors before requiring them to spend money to avoid being coercively diluted.|
Additionally, we request that Mr. Burkle, as a director with fiduciary duties to the stockholders, waive the egregious $9 million break-up fee payable in the event the special committee changes its recommendation or the board withdraws approval of the transactions. We call on you, our fellow stockholders, to voice your similar expectations to the board and Yucaipa. The break-up penalty serves only to prevent the board, its special committee and all interested parties from pursuing a true market check. Further, voluntary removal of the break-up fee will allow the opportunity for a newly elected board to evaluate the transaction without being held hostage to previously negotiated insider dealings.
Stockholders should be aware that Morgan’s April 9, 2013, press release misrepresents a number of facts in what appears to us to be an increasingly desperate effort to grasp for any remaining public support. Sadly this effort, now involving the services of five separate law firms representing directors and management, is burning cash at an exorbitant rate. This waste of funds is of course especially painful for a small capitalization company like Morgans, already operating at a net loss due to outsized overhead. This will only be exacerbated by the swap of its two highest cash flowing assets. We call on the current board as fiduciaries to place stockholders’ interests ahead of their own ongoing attempts at self-preservation.
In an effort to keep this proxy process focused on facts, stockholders should be aware of the following:
OTK is a partnership of families deeply involved in the real estate and lodging sectors, with a demonstrated industry track record of creating value. OTK acquired its position in Morgans more than five years ago and has sold no shares since that time. Following this period of closely observing Morgans’ management, operations and board, OTK views it impossible to effect sweeping and necessary change at the company without replacing substantially all of the current board.
OTK calls on the board to put an end to its wasteful cash burn in pursuit of reelection by doing the following:
If elected, OTK’s slate will take immediate action to refocus the company on its core business, profitably extend its collection of world recognized brands and right-size its operating cost structure. Members of this slate of nominees possess the specific industry experience, financial sophistication and operating relationships to do what this management and board clearly cannot: turn Morgans into a growing cash flow generative hotel company.
We ask for your support in electing directors committed to stabilizing the company and maximizing its value.
If you have questions, we urge you to call our proxy solicitors, Okapi Partners LLC, toll-free at (877) 869-0171. You may also email questions to email@example.com
/s/ OTK Associates, LLC
OTK Associates, LLC
STOCKHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO SOLICITATION OF PROXIES BY OTK ASSOCIATES, LLC AND ITS AFFILIATES FROM THE STOCKHOLDERS OF MORGANS HOTEL GROUP CO. FOR USE AT THE 2013 ANNUAL MEETING OF MORGANS HOTEL GROUP CO. WHEN THEY ARE AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. WHEN COMPLETED, SUCH MATERIALS WILL, ALONG WITH OTHER RELEVANT DOCUMENTS, BE AVAILABLE AT NO CHARGE AT THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV OR BY CONTACTING THE PARTICIPANTS' PROXY SOLICITOR, OKAPI PARTNERS, TOLL FREE AT (877) 869-0171, OR BY EMAIL TO INFO@OKAPIPARTNERS.COM.
INFORMATION RELATING TO THE POTENTIAL PARTICIPANTS IN A POTENTIAL PROXY SOLICITATION IS CONTAINED IN EXHIBIT 1 TO THE SCHEDULE 14A FILED PURSUANT TO RULE 14A-12 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY OTK ASSOCIATES, LLC ON APRIL 15, 2013, AS IT MAY BE AMENDED FROM TIME TO TIME. THE SCHEDULE 14A AND ANY AMENDMENTS ARE AVAILABLE AT NO CHARGE ON THE SECURITIES AND EXCHANGE COMMISSION’S WEBSITE AT HTTP://WWW.SEC.GOV.