Struggle for Control of Maker Studios

     LOS ANGELES (CN) – A former principal of Maker Studios claims in court that the online content producer’s board of directors illegally ousted him from the company he helped form.
     Danny Zappin and three co-founders of the studio sued co-founders Ben Donovan and Lisa Donovan, and its current chairman Ynon Kreiz, in Superior Court, claiming they wrested control of Maker for themselves.
     Three other people are named as defendants, along with seven corporations or limited partnerships, including Maker Studios and several GRP Partners LPs.
     Plaintiffs include Scott Katz, Derek Jones and Will Watkins, all of whom are described as co-founders.
     Defendants include board members Mark Suster of venture capital firm GRP Partners, Dana Settle of Greycroft, Rachel Lam of Time Warner Investment, and Maker attorney Michael DiSanto of Bingham McCutchen.
     Time Warner invested $25 million in the company late last year, according to the Hollywood Reporter.
     Maker Studios partners with Internet celebrities to show their work on YouTube channels.
     The Maker stable includes Arab-American comedian KassemG, and Thai-American rapper-comedian Traphik. Maker also has signed established stars, such as rapper Snoop Lion (formerly Snoop Dogg), and filmmaker Kevin Smith. None are parties to the lawsuit.
     Zappin says in the complaint that from Maker’s inception the founders voted on the board’s composition as majority common stockholders. But he claims that that changed when Kreiz conspired with the Donovans and the venture capital board members to dilute the co-founders’ interest in Maker, strip them of their voting rights, and allow preferred stockholders to elect new members to the board.
     Kreiz, the former CEO of Netherlands-based production company Endemol, was “dissatisfied by just being a board member,” Zappin says in the complaint, and decided to oust Zappin by persuading the board’s venture capital board members that he could turn Maker into a $1 billion company.
     Claiming that Kreiz, the Donovans and DiSanto were motivated “by greed and unfazed by the either the illegality or repercussions of their actions,” Zappin says they “conspired and agreed to use their power to line their pockets with Maker’s assets.”
     Zappin claims that Kreiz and his co-conspirators entered into a series of mutually beneficial agreements allowing them to issue, sell and vest certain stock rights early, create a majority voting bloc, and diminish “common stock to minority status.”
     That let Kreiz and the venture capital board members assume control of Maker, elect directors to the board, and vote on their own employment agreements, according to the complaint.
     “By way of example, Lisa and Ben Donovan obtained lucrative employment agreements for themselves as well as other personal benefits in exchange for voting in favor on Kreiz’s employment agreement and selling their common stock shares in order to dilute the value purpose and intents of the common stock shareholders,” the complaint states. “In sum, Lisa and Ben Donovan effectively sold their board seats and the common stock for their own personal self interest and gain. Moreover, they did so in secret.”
     Zappin claims the Donovans made millions of dollars on May 3 by selling more than 2 million shares of common stock to defendant holding company Mida Holdings.
     “Specifically, the right to sell 2.1 million shares of common stock to Mida Holdings combined with the simultaneous immediate vesting of 50 percent of all unvested shares of stock ensured that significant control of the common stock remained in the hands of people adverse to Zappin, namely, Lisa Donovan, Ben Donovan, and Mida Holdings,” the complaint states.
     Zappin claims his separation agreement gave him the right to sell 1.6 million shares of common stock, but he resisted until DiSanto “forcefully” advised him to sell 600,000 shares to GRP Partners.
     All said and done, the defendants increased their holdings from roughly 39 percent of Maker’s shares to more than 58 percent, the complaint states.
     Zappin claims the defendants fraudulently amended the company’s articles of incorporation to tighten their hold on Maker.
     Defendants, “who represented a majority of the preferred stock shareholders and now purportedly represent a majority of the common stock shareholders, were not permitted by Maker’s governing documents or law. Even worse, they appear to have been directed by Mr. DiSanto, and Maker’s current purported ‘chairman of the board,’ Ynon Kreiz, for their own benefit and at the expense of Maker; Maker’s shareholders, and Mr. Zappin,” the complaint states.
     The 17-count complaint asks the court to void each vote taken by the board after April 20, and seeks a restraining order, an accounting, a constructive order over Maker and removal of the members of the board. The four executives also want compensatory, punitive and exemplary damages, and costs.
     They are represented by Sanford Michelman of Michelman & Robinson.
     Maker Studios did not immediately respond to an emailed request for comment.

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