Harbert Discovery Fund Files Lawsuit Seeking to Hold Enzo Board Accountable for Acts of Entrenchment and Illegal Maneuvers
February 06 2020 - 2:07PM
Business Wire
Details Enzo’s Efforts to Manipulate Corporate
Machinery to Disenfranchise Shareholders
Harbert Discovery Fund, LP and Harbert Discovery Co-Investment
Fund I, LP (collectively “HDF”), the beneficial owners of more than
11.8% of the outstanding shares of Enzo Biochem, Inc. (NYSE: ENZ)
(“Enzo” or the “Company”), today announced that it has filed a
complaint in the U.S. District Court for the Southern District of
New York asserting direct claims against Enzo and asserting both
direct and derivative claims against members of its Board of
Directors (the “Board”) (Case 1:20-cv-01021). The complaint alleges
that Enzo has engaged in brazen acts of entrenchment and misuse of
the corporate machinery in an effort to keep Barry Weiner on the
Board after most of Enzo’s shareholders had voted and it had become
clear that Weiner would be removed.
Commenting on the complaint, Kenan Lucas, Managing Director and
Portfolio Manager of HDF, stated: “Enzo’s refusal to accept the
will of its shareholders is highly unfortunate. With this misguided
and illegal attempt to disenfranchise shareholders, the Board has
proven a willingness to go to any extreme, including violating
their own Charter, in an attempt to further entrench themselves.
Enzo has turned what should be a fair and equitable process on its
head by changing the rules of the game in the final seconds of the
fourth quarter. The Company’s actions have left us with no choice
but to bring this litigation and seek to defend the rights of
shareholders.”
HDF’s complaint details the following:
- By January 28, 2020, three days before the election, with most
of the expected votes cast, it was clear that HDF would
prevail.
- Unbending to the will of its shareholders – the owners of the
Company – the Board took decisive but illegal action.
- Three days before facing imminent defeat at Enzo’s annual
shareholder (the “Annual Meeting” or “Meeting”) scheduled for
January 31, 2020, the Director Defendants made false and misleading
statements in violation of Section 14(a) and Rule 14a-9 of the
Securities and Exchange Act (the "Exchange Act"), which were
deliberately designed to enable them to change the rules of
election and nullify the will of the shareholders so that Defendant
Weiner might have a chance to remain on the Company’s board of
directors (the “Board”).
- Defendants issued a press release (“January 28 Enzo Press
Release”) falsely stating that the Annual Meeting had been delayed
for three weeks, until February 25, 2020, purportedly so that
shareholders could vote on a proposed By-Law amendment to expand
the Board from five to up to seven members. Notwithstanding that
announcement, on the morning of January 31, the Company disclosed
that the Annual Meeting would be held less than two hours
later.
- At 7:07 a.m. on January 31, 2020, Enzo filed a supplement to
its proxy statement with the SEC (“January 31 Enzo Proxy”)
revealing it had one more trick up its sleeve. Contrary to the
announcement in the January 28 Enzo Press Release that the Annual
Meeting was delayed, Enzo declared in the January 31 Enzo Proxy
that it would in fact convene the Annual Meeting as originally
scheduled, less than two hours later, at 9:00 a.m., in New York
City (HDF is based in Alabama) and then adjourn and reconvene it on
February 25, 2020. This was the first and only notice Enzo
shareholders received stating that a meeting would in fact be
convened on January 31, 2020 after the previous announcement that
the Meeting would be “delayed.”
- Believing that no meeting was to be held on January 31, 2020,
HDF did not send a representative to the Yale Club, where the
Annual Meeting was held. Had HDF been in attendance, it would have
voted the shares and proxies it held to defeat any motion to
adjourn and forced the Company to hold the Meeting as planned that
day, ensuring the election of its nominees to a five person Board
and the defeat of Defendant Weiner.
- In addition to deceiving HDF and other shareholders into not
attending the Annual Meeting, the Board engaged in a further act of
entrenchment with respect to its proposed By-Law amendment. Article
II, Section 2 of the By-Laws fixes the number of board seats at
five and the Charter requires a supermajority vote to amend that
provision. Notwithstanding that, the Company declared in the
January 31 Enzo Proxy that the By-Law provision fixing the number
of board seats at five had been – at some point in the past –
“inadvertently” placed in the wrong section of the By-Laws and,
instead, should have been included in another By-Law provision that
required only a majority vote to amend. For reasons explained
further in HDF’s complaint, the convenient discovery of this
purported mistake in the midst of this contest is another obvious,
blatant entrenchment tactic.
- HDF has filed this action to hold the Director Defendants fully
accountable for their acts of entrenchment and violation of the
federal securities laws, to seek recompense for those actions which
have caused HDF hundreds of thousands of dollars in additional,
unnecessary legal, proxy and other advisory fees, and to lay a
marker so that the Director Defendants’ gamesmanship stops. Should
Defendants again seek to manipulate the election, HDF will promptly
move this Court to prevent them from doing so.
The full text of Enzo’s complaint is available at:
https://cureenzo.com/wp-content/uploads/2020/02/HDF-Complaint-2-6-20.pdf
Please visit our website at www.cureenzo.com to learn more.
Important Information about Participants in a Proxy
Solicitation:
Harbert Discovery Fund, LP (“Harbert Discovery”), Harbert
Discovery Fund GP, LLC (“Harbert Discovery GP”), Harbert Discovery
Co-Investment Fund I, LP (“Harbert Discovery Co-Investment” and
together with Harbert Discovery, the “Discovery Funds”), Harbert
Discovery Co-Investment Fund I GP, LLC (“Harbert Discovery
Co-Investment GP”), Harbert Fund Advisors, Inc. (“HFA”), Harbert
Management Corporation (“HMC”), Jack Bryant (“Mr. Bryant”), Raymond
Harbert (“Mr. Harbert”) and Kenan Lucas (“Mr. Lucas” and together
with Harbert Discovery, Harbert Discovery GP, Harbert Discovery
Co-Investment, Harbert Discovery Co-Investment GP, HFA, HMC and
Messrs. Bryant and Harbert, the “Harbert Discovery Parties”)
(collectively, the “Participants”) have filed with the Securities
and Exchange Commission (the “SEC”) a definitive proxy statement
and accompanying form of proxy to be used in connection with the
solicitation of proxies from the shareholders of Enzo Biochem, Inc.
(the “Company”) in connection with the annual meeting of
shareholders of the Company (the “Annual Meeting”). All
shareholders of the Company are advised to read the definitive
proxy statement and other documents related to the solicitation of
proxies by the Participants in respect of the Annual Meeting, as
they contain important information, including additional
information related to the Participants, their nominees for
election to the board of directors of the Company and the Annual
Meeting. The definitive proxy statement and an accompanying proxy
card will be furnished to some or all of the Company’s shareholders
and are, along with other relevant documents, available at no
charge on the SEC website at http://www.sec.gov/ and are available
upon request from the Participants’ proxy solicitor, Okapi
Partners, by calling (888) 758-6707 (banks and brokers call collect
(212) 297-0720).
Additional information about the Participants can be found on
the Definitive Proxy Statement filed by the Participants on
December 6, 2019.
About Harbert Discovery Fund (HDF)
HDF invests in a concentrated portfolio of publicly traded small
capitalization companies in the US and Canada. We perform
significant due diligence on each portfolio company prior to
investing. In addition to researching all publicly available
information and meeting with management, our diligence includes
substantial primary research with industry experts, consultants,
bankers, customers and competitors. We often spend months or years
researching ideas before making an investment decision and we only
invest in companies that we believe are significantly undervalued,
and where there is the potential for change to enhance or
accelerate value creation. In an effort to unlock this potential
value, we seek to work directly with the boards and management
teams of our portfolio companies privately and collaboratively,
engaging with them on a range of factors including governance,
board composition, corporate strategy, capital allocation,
strategic alternatives and operations. We have effected positive,
fundamental changes at our current and past investments through
this behind-the-scenes, constructive approach. HDF currently has
board representation at three of our portfolio companies. In each
case, changes to the board were agreed upon privately and it is our
strong preference in every investment to avoid the unnecessary
distractions and costs of a public proxy campaign.
About Harbert Management Corporation (HMC)
HMC is an alternative asset management firm with approximately
$7.0 billion in regulatory assets under management as of December
31, 2019. HMC currently sponsors nine distinct investment
strategies with dedicated investment teams. Additional information
about HMC can be found at www.harbert.net.
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version on businesswire.com: https://www.businesswire.com/news/home/20200206005895/en/
Investor Contact Okapi Partners LLC Bruce Goldfarb /
Chuck Garske / Jason Alexander, 212-297-0720
info@okapipartners.com
Media Contact Sloane & Company Dan Zacchei / Joe
Germani, 212-486-9500 dzacchei@sloanepr.com /
jgermani@sloanepr.com
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