icahn's lawsuit against lions gate

8/9/2019 Icahn's Lawsuit Against Lions Gate

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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

Index No.:Date Purchased: 7/26/2010

SUMMONS

CARL C. ICAHN; ICAHN PARTNERS LP; ICAHN

PARTNERS MASTER FUND LP; ICAHN PARTNERSMASTER FUND II LP; ICAHN PARTNERS MASTERFUND III LP; ICAHN FUND S. R.L.; DAAZIHOLDING B.V.; HIGH RIVER LIMITEDPARTNERSHIP; and 7508921 CANADA INC.,

Plaintiffs,- against -

LIONS GATE ENTERTAINMENT CORP.; LIONSGATE ENTERTAINMENT INC.; NORMAN BACAL;

MICHAEL BURNS; ARTHUR EVRENSEL; JONFELTHEIMER; MORLEY KOFFMAN; HARALDLUDWIG; G. SCOTT PATERSON; MARK H.RACHESKY; DARYL SIMM; HARDWICKSIMMONS; BRIAN V. TOBIN; PHYLLIS YAFFE;MHR FUND MANAGEMENT LLC; MHRINSTITUTIONAL PARTNERS III LP; MHRINSTITUTIONAL ADVISORS II LLC; MHRINSTITUTIONAL ADVISORS III LLC; JOHN C.KORNITZER; and KORNITZER CAPITALMANAGEMENT, INC.,

Defendants.

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TO THE ABOVE-NAMED DEFENDANTS:

YOU ARE HEREBY SUMMONED to answer the complaint of Plaintiffs Carl C. Icahn,Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP, IcahnPartners Master Fund III LP, Icahn Fund S. r.l., Daazi Holding B.V., High River LimitedPartnership, and 7508921 Canada Inc., a copy of which is herewith served upon you, and toserve copies of your answer upon Plaintiffs attorneys at their address stated below.

If this summons was personally served upon you in the State of New York, your answermust be served within twenty (20) days after such service, excluding the date of service. If thissummons was not personally delivered to you within the State of New York, your answer mustbe served within thirty (30) days after service of the summons is complete as provided by law.

ILED: NEW YORK COUNTY CLERK 07/26/2010 INDEX NO. 651076/

YSCEF DOC. NO. 1 RECEIVED NYSCEF: 07/26/


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Arthur Evrensel2212 Edgemont BoulevardNorth Vancouver, BC V7P 2K9Canada

Jon Feltheimer628 N. Alta DriveBeverly Hills, CA 90210

Morley Koffman1660 Blanca StreetVancouver, BC V6R 4E3Canada

Harald Ludwig4371 Erwin Drive

West Vancouver, BC V7H 1H7Canada

G. Scott PatersonAddress Unknown

Mark H. Rachesky834 Fifth AvenueNew York, NY 10065

Daryl Simm10 Salem DriveScarsdale, NY 10583

Hardwick Simmons83 Hammetts Cove RoadMarion, MA 02738

Brian V. Tobin6029 Rideau Valley Drive NorthManotick, ON K4M 1B3Canada

Phyllis Yaffe70 Rosehill Avenue, Apt. 208Toronto, ON M4T 2W7Canada


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MHR Fund Management LLC40 West 57th Street24th FloorNew York, NY 10019

MHR Institutional Partners III LP40 West 57th Street24th FloorNew York, NY 10019

MHR Institutional Advisors II LLC40 West 57th Street24th FloorNew York, NY 10019

MHR Institutional Advisors III LLC

40 West 57

th

Street24th FloorNew York, NY 10019

John C. Kornitzer6045 Windsor DriveFairway, KS 66205

Kornitzer Capital Management, Inc.5420 West 61st PlaceShawnee Mission, KS 66205


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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

COMPLAINT

CARL C. ICAHN; ICAHN PARTNERS LP;

ICAHN PARTNERS MASTER FUND LP;ICAHN PARTNERS MASTER FUND II LP;ICAHN PARTNERS MASTER FUND III LP;ICAHN FUND S. R.L.; DAAZI HOLDINGB.V.; HIGH RIVER LIMITEDPARTNERSHIP; and 7508921 CANADA INC.,

Plaintiffs,- against -

LIONS GATE ENTERTAINMENT CORP.;

LIONS GATE ENTERTAINMENT INC.;NORMAN BACAL; MICHAEL BURNS;ARTHUR EVRENSEL; JON FELTHEIMER;MORLEY KOFFMAN; HARALD LUDWIG;G. SCOTT PATERSON; MARK H.RACHESKY; DARYL SIMM; HARDWICKSIMMONS; BRIAN V. TOBIN; PHYLLISYAFFE; MHR FUND MANAGEMENT LLC;MHR INSTITUTIONAL PARTNERS III LP;MHR INSTITUTIONAL ADVISORS II LLC;MHR INSTITUTIONAL ADVISORS III LLC;JOHN C. KORNITZER; and KORNITZERCAPITAL MANAGEMENT, INC.,

Defendants.

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Plaintiffs, as and for their Complaint against Defendants, allege as follows:

Nature of the Action

1. This case involves an unlawful sham transaction by which an incumbent Board ofDirectors, management and their co-conspirators sought to further entrench their own positions

and to protect their personal interests in compensation and perks at the sole expense of their

company, Lions Gate Entertainment Corp. (Lions Gate), and its shareholders. The Sham

Transaction (described below) involved a multi-step process consciously designed to obscure a


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direct, below-market issuance of millions of Lions Gate shares to Mark Rachesky, a member of

the Board and major shareholder supporting management, and involved breach of contract,

unlawful tortious activity, violation of stock exchange rules, and violations of law, including

federal securities laws. Defendants carried out the Sham Transaction in a desperate, last-ditch

effort to thwart the wholly proper and lawful efforts by plaintiffs Carl Icahn and his affiliates,

who together own the largest block of Lions Gates stock, to seek to elect their own directors to

the Board.

2. The Sham Transaction was funneled through John C. Kornitzer, a putativelydisinterested securities holder, to hide what it really was: the issuance at a below-market price ofa massive block of stock to a corporate insider, for purposes of diluting plaintiffs equity interest

and further entrenching the current Board members. The Sham Transaction is the antithesis of

responsible corporate governance; indeed, it belongs more properly in the script for a new reality

TV program, Mad Management.

3. The Sham Transaction is not the first time Rachesky has attempted to entrench hisown position at the expense of a corporations welfare. In In re Loral Space & Comms. Inc.

Consol. Litig., 2008 WL 4293781 (Del. Ch. Sept. 19, 2008), the Delaware Court of Chancery

invalidated a Finance Agreement entered into between Loral and MHR Fund Management LLC,

another Rachesky-affiliated entity, because the agreement was not the product of arms-length

negotiations and its terms were unfair. Rachesky and other principals and affiliates of MHR

dominated the Loral board, and Chancellor Strine noted that the terms of the Finance Agreement

gave MHR an iron grip on Loral and the ability to extract a control premium for itself in any

future Change of Control. As an experienced and sophisticated investor who has been held to

account for similar misconduct in the past, there is no question that Rachesky acted intentionally


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here, with full knowledge of the damage that his conduct would cause both to shareholders and

to plaintiffs contractual rights.

4. Plaintiffs are a group of investors who together own the largest block of shares ofdefendant Lions Gate, an independent film studio. But despite the fact that plaintiffs, prior to the

transactions at issue in this lawsuit, together owned approximately 37.9% of the outstanding

common stock of Lions Gate, the company refused to appoint any of plaintiffs nominees to its

Board of Directors.

5. Rather, the current Board, seeking to entrench itself and retain its valuable perks,has closed ranks and closely aligned itself with Lions Gate management. Management, in turn,has pursued a wasteful, expensive and risky business plan that has been consistently criticized by

plaintiff shareholders.

6. Beginning in early 2010, plaintiff shareholders began a series of tender offersaimed at increasing their ownership share and electing one or more representatives to the Board

of Directors. The current Board and management have responded by doing everything in their

power to prevent other shareholders from accepting plaintiffs bids for their sharesincluding

enacting a series of poison pills, one of which was recently invalidated by Canadian securities

regulators as contrary to the public interest, and the other of which is in the process of being

challenged.

7. Despite this stonewalling, plaintiffs continued discussions with management toidentify beneficial economic opportunities for the company. On July 9, 2010, plaintiffs and

Lions Gate entered into a Standstill Agreement, pursuant to which the parties agreed to jointly

discuss possible merger and acquisition opportunities over a ten-day period (the Standstill

Period). Lions Gate agreed that, during the Standstill Period, it would not issue, agree to issue,


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or authorize or propose the issuance of, any securities to any member of Lions Gates Board of

Directors, or enter into any agreement, contract or understanding with a director outside the

ordinary course of business. It further agreed that it would not engage in active negotiations

involving the issuance or agreement to issue common stock (or convertible securities) in excess

of 5% of Lions Gates outstanding common stock.

8. In blatant disregard of their Agreement, Lions Gate, acting in concert with itsindividual directors, affiliated entities and other defendants, spent the Standstill Period scheming

to insulate themselves from plaintiffs anticipated proxy challenge and to entrench their own

position by planning a collusive, multi-step transaction (the Sham Transaction) that wouldultimately result in the issuance of over 16 million new shares of common stock to Rachesky, a

friendly member of the Board of Directors, at a below-market and bargain price.

9. Indeed, the discount given to Rachesky may have been even deeper since there isreason to believe that the price of Lions Gates stock was manipulated downward during the

Standstill Period and immediately before the Sham Transaction.

10. By agreement dated as of July 20, 2010, the very day after the Standstill Periodended, defendants put their scheme into action. First, they refinanced and exchanged nearly

$100 million in notes held by defendant John C. Kornitzer, a staunch and vocal Board ally, into

new notes that were immediately convertible into Lions Gate stock at a price that was below the

then-current market price. Immediately after, Kornitzer sold the new notes to Board member

Mark H. Rachesky. Rachesky immediately exercised the notes conversion option and, as a

result, received over 16 million shares of new common stock at a price of $6.20 per share

substantially below both the $8.85 value estimate the Board had announced only months before

and the $6.50 being offered for shares at the time by plaintiffs.


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11. The effect of the Sham Transaction was to issue millions of shares of newcommon stock to a Board member and the second-largest shareholder, while simultaneously

diluting the ownership interest of every other shareholderincluding plaintiffs. Literally

overnight, Racheskys equity interest in Lions Gate increased from 19.8% to 28.9%, while

plaintiffs combined holdings fell from 37.9% to approximately 33.5%. In other words, the

incumbent directors were more entrenched than ever, while plaintiffs efforts to replace the

Board with their own nominees through a proxy battle were rendered nearly impossible.

12. Defendants were fully aware of the impropriety of the Sham Transactiona factborne out by their failure to disclose its most important features to either Lions Gatesshareholders or the public. Rather, the press release and securities filings issued by Lions Gate

in connection with the Sham Transaction contain glaring material omissions and

misrepresentations. Most dramatically, they failed even to mention that the Board approved the

transaction knowing that the more than 16 million new shares would be issued to Rachesky, one

of its own members. Rather, the deal was falsely painted as a routine deleveraging transaction

between the company and a disinterested bondholder.

13. Even apart from entrenching incumbent Board members and frustrating plaintiffstender offer, the Sham Transaction could have dire consequences for Lions Gate. Under New

York Stock Exchange rules, a company must obtain shareholder approval before it issues more

than 1% of common stock to a director. If the NYSE views the Sham Transaction as a de facto

issuance of stock to Racheskywhich, in fact, it wasthen Lions Gate faces severe penalties up

to and including delisting of its shares by the Exchange. In essence, the members of the current

Board of Directors risked Lions Gates financial well-being and its shareholders liquidity in

order to protect and entrench their own positions.


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14. The actions of defendants, which stretch back into the Standstill Period, representmaterial breaches of the Standstill Agreement and, in the case of those defendants who are non-

parties to the Agreement, tortious interference with plaintiffs contractual rights. Defendants

have also tortiously interfered with plaintiffs prospective business relationsincluding their

ability to successfully complete their tender offer and acquire sufficient stock and enlist

sufficient support from independent unaligned shareholders to elect a new Board of Directors.

15. It is for these wrongs that plaintiffs seek relief, including the reversal of the ShamTransaction, prohibiting the defendants from voting their shares in any election of directors or

other shareholder vote, and awarding compensatory and punitive damages.Jurisdiction & Venue

16. This Court has subject matter jurisdiction pursuant to 22 NYCRR 202.70.17. This Court has personal jurisdiction over defendants Mark H. Rachesky, Daryl

Simm, MHR Fund Management LLC, MHR Institutional Partners III LP, MHR Institutional

Advisors II LLC, and MHR Institutional Advisors III LLC pursuant to CPLR 301 because

each of these defendants resides in or has their principal place of business in New York.

18. This Court has personal jurisdiction over defendants Lions Gate EntertainmentCorp. and Lions Gate Entertainment Inc. pursuant to CPLR 302(1) because each of these

defendants transacts business in New York and contracts to supply goods and services in New

York.

19. This Court has personal jurisdiction over each defendant pursuant to CPLR 302(3) because each defendant committed a tortious act outside New York causing injury to

person or property within New York, and each expected or should reasonably have expected the

act to have consequences in the state and derives substantial revenue from interstate or

international commerce.


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20. Venue is proper in this County pursuant to CPLR 503 because plaintiff Carl C.Icahn and defendants Mark Rachesky, MHR Fund Management LLC, MHR Institutional

Partners III LP, MHR Institutional Advisors II LLC and MHR Institutional Advisors III LLC

each reside in New York County. A substantial portion of the events from which this action

arises also occurred in New York County.

Parties

21. Plaintiff Carl C. Icahn resides in New York, New York. All of the other plaintiffsare indirectly controlled by Mr. Icahn.

22. Plaintiff Icahn Partners LP is a limited partnership organized under the laws ofDelaware with its principal place of business in White Plains, New York.

23. Plaintiffs Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP andIcahn Partners Master Fund III LP are limited partnerships organized under the laws of the

Cayman Islands with its principal place of business in George Town, Cayman Islands.

24. Plaintiff High River Limited Partnership is a limited partnership organized underthe laws of Delaware with its principal place of business in White Plains, New York.

25. Plaintiff Icahn Fund S. r.l. is a limited liability company organized under thelaws of Luxembourg with its principal place of business in Luxembourg.

26. Plaintiff Daazi Holding B.V. is a limited liability company organized under thelaws of The Netherlands with its principal place of business in Amsterdam, The Netherlands.

27. Plaintiff 7508921 Canada Inc. is a corporation organized under the laws ofCanada with its principal place of business in Toronto, Ontario.

28. Defendant Lions Gate Entertainment Corp. (Lions Gate) is a corporationorganized under the laws of British Columbia, Canada, with its principal places of business in


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British Columbia, Canada and in Los Angeles, California. Lions Gates common stock is listed

and traded on the New York Stock Exchange.

29. Defendant Lions Gate Entertainment Inc. (LGEI) is a corporation organizedunder the laws of Delaware with its principal place of business in Los Angeles, California. LGEI

is a wholly-owned subsidiary of Lions Gate.

30. Defendant Norman Bacal is a director of Lions Gate. He resides in Toronto,Ontario.

31. Defendant Michael Burns is a director and Vice Chairman of Lions Gate. Heresides in Los Angeles, California.

32. Defendant Arthur Evrensel is a director of Lions Gate. He resides in NorthVancouver, British Columbia.

33. Defendant Jon Feltheimer is a director and Co-Chairman of Lions Gate. Heresides in Los Angeles, California.

34. Defendant Morley Koffman is a director of Lions Gate. He resides in Vancouver,British Columbia.

35. Defendant Harald Ludwig is a director of Lions Gate. He resides in WestVancouver, British Columbia.

36. Defendant G. Scott Paterson is a director of Lions Gate. He resides in Toronto,Ontario.

37. Defendant Mark H. Rachesky is a director of Lions Gate. He resides in NewYork, New York.

38. Defendant Daryl Simm is a director of Lions Gate. He resides in Scarsdale, NewYork.


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39. Defendant Hardwick Simmons is a director of Lions Gate. He resides in Marion,Massachusetts.

40. Defendant Brian V. Tobin is a director of Lions Gate. He resides in Manotick,Ontario.

41. Defendant Phyllis Yaffe is a director of Lions Gate. She resides in Toronto,Ontario.1

42. Defendant MHR Fund Management LLC is a limited liability company organizedunder the laws of Delaware with its principal place of business in New York, New York.

43.

Defendant MHR Institutional Partners III LP is a limited partnership organizedunder the laws of Delaware with its principal place of business in New York, New York.

44. Defendant MHR Institutional Advisors II LLC is a limited liability companyorganized under the laws of Delaware with its principal place of business in New York, New

York.

45. Defendant MHR Institutional Advisors III LLC is a limited liability companyorganized under the laws of Delaware with its principal place of business in New York, New

York.2

46. Defendant John C. Kornitzer is a shareholder of Lions Gate. He resides inFairway, Kansas.

47. Defendant Kornitzer Capital Management, Inc. is a corporation organized underthe laws of Kansas with its principal place of business in Shawnee Mission, Kansas.3

1 Defendants Bacal, Burns, Evrensel, Feltheimer, Koffman, Ludwig, Paterson, Rachesky, Simm,Simmons, Tobin and Yaffe are referred to herein as the Director Defendants.

2 Defendants Rachesky, MHR Fund Management LLC, MHR Institutional Partners III LP,MHR Institutional Advisors II LLC, and MHR Institutional Advisors III LLC are referred toherein as the Rachesky Defendants.


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Plaintiffs March 2010 Tender Offer

48. Plaintiffs are shareholders of Lions Gate. Together, plaintiffs hold 44,472,451shares of Lions Gate common stock which, prior to the transactions that form the basis of this

lawsuit, represented 37.9% of Lions Gates outstanding common stock.

49. Plaintiffs began acquiring Lions Gate shares in 2006 in the belief that the shareswere undervalued. In 2009 and 2010, plaintiffs had growing concerns about the management of

Lions Gate, including rapidly growing overhead expenses, increasing financial exposure to

internally-developed and risky theatrical releases, and the companys acquisition of high-priced

distressed assets. In short, plaintiffs believed that Lions Gates management and Board were

pursuing a misguided and destructive business strategy that was diminishing shareholder value.

50. Plaintiffs believed that, in order to have a voice in the companys finances andstrategy and protect the value of their investment, they should seek representation on the Lions

Gate Board of Directors. However, even though plaintiffs were substantial shareholders at the

time, talks with Lions Gate management about obtaining Board representation were unavailing.

51. On March 1, 2010, plaintiffs commenced a tender offer to purchase shares ofLions Gate at $6.00 per share; the price was subsequently increased to $7.00 per share. The offer

ended on June 30, 2010. The shares acquired by plaintiffs under the March tender offer

increased their shareholding in Lions Gate from approximately 18.6% of the common shares to

approximately 33.9%. Thereafter, plaintiffs purchased additional shares in the open market to

bring their total shareholdings to approximately 37.9% as of the time of the transactions that

form the basis of this lawsuit.

3 Defendants Kornitzer and Kornitzer Capital Management, Inc. are referred to herein as theKornitzer Defendants.


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52. The current members of the Lions Gate management and Boardincluding theDirector Defendantsopposed plaintiffs attempt to increase their equity holdings and obtain

Board representation. They sought to entrench and preserve their own positionsand the

valuable perquisites that came along with them, including compensation of over $4 million for

defendant Feltheimer, over $3.6 million for defendant Burns, and substantial fees, stock awards

and stock options for the other directorsby preventing plaintiffs from replacing the current

Board members with their own nominees through a shareholder vote.

53. To this end, the Board formally urged shareholders not to accept plaintiffs $7.00tender offer, claiming that the offer was financially inadequate. In communications withshareholders, Lions Gate opined that its true value exceeded $8 per share.

54. In a further attempt to discourage shareholders from accepting plaintiffs tenderoffer, the Lions Gate Board adopted a defensive poison pill on March 11, 2010 designed to

prevent a change of control.

55. On April 27, 2010, the British Columbia Securities Commission issued an orderinvalidating the March 11 poison pill on the ground that its continued operation would be

contrary to the public interest. The Commission emphasized that allowing the poison pill to

operate would frustrate the right of Lions Gates shareholders to decide whether or not to accept

or reject plaintiffs bid. The Commissions decision was upheld by the British Columbia Court

of Appeal, which dismissed Lions Gates appeal on May 7, 2010.

56. Notwithstanding these decisions, the Lions Gate Board unilaterally adopted a newpoison pill on July 1, 2010. Plaintiffs are in the process of preparing a formal application to

challenge the new poison pill before the British Columbia Securities Commission.


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The July 9 Standstill Agreement

57. Despite the Boards intransigent opposition to plaintiffs attempts to exercise theirshareholders rights and secure board representation, plaintiffs continued negotiating with the

Lions Gate Board and management to discuss certain possible merger or acquisition

opportunities with other film studios.

58. On July 9, plaintiffs entered into a written Standstill Agreement with Lions Gateand its subsidiaries (including LGEI), pursuant to which the parties agreed to work together on

certain acquisition opportunities. This agreement was approved by the Lions Gate Board of

Directors, which was composed of the Director Defendants. The Standstill Agreement was also

filed with the SEC on July 9, 2010 and its terms were known to each of the other defendants at

the time of the acts complained of here.

59. Pursuant to the Standstill Agreement, Lions Gate and its subsidiaries agreed that,from July 9, 2010 through midnight on July 19, 2010 (the Standstill Period), they would not:

(a)issue, agree to issue, or authorize or propose the issuance of, any securitiesto, or enter into any agreement, contract, or understanding outside the ordinary

course of business with, any member of [Lions Gates] board of directors or

their affiliates;

(b)engage in active negotiations for any transaction that would involve theissuance or agreement to issue common stock (or securities or instruments

convertible into common stock) of Lions Gate in excess of 5.0% of Lions

Gates currently outstanding common stock (other than any acquisition

opportunity that Icahn and Lions Gate are working on together as

contemplated above); or


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(c)arrange for, or encourage, any other person or entity to purchase, anysecurities of Lions Gate outside of the ordinary course of business.

60. The parties further agreed that, if any of them were to violate the StandstillAgreement or fail to perform any obligation under the Agreement, the other parties hereto

would suffer irreparable injury, for which there may be no adequate remedy at law.

Consequently, the parties agreed that, in the event of breach, the other parties shall be entitled

to equitable relief, including an injunction, to prevent any breaches and to enforce specifically

this Agreements terms and provisions.

61.

As set forth in detail below, despite their representations in, and in breach of theirobligations under, the Standstill Agreement, Lions Gate and LGEI were engaged in machinations

and negotiations throughout the Standstill Period to initiate a series of transactions that would

result in the issuance of more than 16 million shares of new common stockan amount in

excess of 5% of Lions Gates then-currently outstanding common stockto defendant Mark

Rachesky, a member of the Lions Gate Board of Directors.

Plaintiffs July 2010 Tender Offer

62. The Standstill Period expired at midnight on July 19, 2010.63. On the morning of July 20, 2010, plaintiffs commenced a tender offer to purchase

shares of Lions Gate at $6.50 per share. The offer is scheduled to expire on August 25, 2010.

64. Notice of the offer was published in The New York Times on the morning of July20, and was publicly filed with the SEC that same day.

The Sham Transaction and Lions Gates Unlawful Share Issuance To Rachesky

65. Later that same day, July 20, 2010, Lions Gate issued a press release announcingthat it had completed a deleveraging transaction pursuant to which nearly $100 million of


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outstanding debt was exchanged for new notes which were immediately convertible into

common stock. The press release stated that the new notes were converted into 16,236,305

common shares at a price of $6.20 per share.

66. The Lions Gate press release stated that the deleveraging transaction wascarried out by causing LGEI, a wholly-owned subsidiary of Lions Gate, to exchange

$36,009,000 of its 3.635% Convertible Senior Subordinated Notes due in 2025 and $63,709,000

of 2.9375% Convertible Senior Subordinated Notes due in 2024 for new notes that had an

extended maturity date, extended put rights by two years, and were (within a five-day conversion

window effective as of the date of the exchange) immediately convertible into Lions Gatecommon shares at a price of $6.20 per share.

67. On information and belief, this note exchange was approved by the Board ofDirectors of Lions Gate, as well as the Board of Directors of LGEI, which was also bound by the

Standstill Agreement.

68. The notes were held by defendant Kornitzer, a Lions Gate shareholder who hasbeen described in the national press as a vocal critic of plaintiffs tender offers and attempts to

gain representation on the Lions Gate Board, and his affiliate, defendant Kornitzer Capital

Management, Inc.

69. Lions Gates and LGEIs modification of the notes changed them radically infavor of the noteholder. For example, prior to the exchange, the conversion rate for both classes

of notes$11.50 for the 2024 Notes and $8.25 for the 2025 Noteswas significantly higher

than the market price of Lions Gate stock.

70. After the exchange, in contrast, the notes were immediately convertible at $6.20per sharea discount to market price, given that Lions Gate common stock traded at above


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$6.50 on July 20, the day of the exchange. Moreover, the immediate convertibility feature and

five-day conversion window not only permitted, but virtually ensured, immediate conversion of

the notes into stock.

71. The Wall Street Journal, reporting on July 22, recognized the windfallrepresented by the note exchange: . . . Mr. Kornitzer received exchangeable notes with a lower

strike price of $6.20. With Lions Gates shares trading above $6.50 Tuesday, rallying from

Monday's close of $6.03 after Mr. Icahn announced a new tender, Mr. Kornitzer had an

opportunity to lock in a profit by converting the notes to equity at a discount.

72.

The July 20 Lions Gate press release also disclosed that the new notes weresubsequently converted into 16,236,305 share of Lions Gate common stock. It deliberately

used the passive voice so as not to disclose that it was Rachesky who did the converting and who

obtained the new shares.

73. The press release did not come close to telling the real story. In fact, it omittedmaterial facts surrounding the exchange and conversion that reveal it to be a sham structured to

conceal a below-market-price share issuance to a corporate insider for the sole purpose of

diluting plaintiffs equity holdings and further entrenching Lions Gates current Board members.

The Sham Transaction was funneled through Kornitzer, a putatively disinterested securities

holder, to hide its true nature and effect: the below-market issuance of a massive block of stock

to a corporate insider in a related-party transaction.

74. In reality, the Sham Transaction consisted of three steps, each purportedly carriedout on July 20, 2010the day after the Standstill Agreement expired.

75. First, Lions Gate and LGEI exchanged Kornitzers notes for new, immediately-convertible notes with a strike price of $6.20 per share, as described above.


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76. Second, Kornitzer immediately sold his new convertible notes to defendant MHRInstitutional Partners III LP, an investment fund affiliated with defendant Rachesky, a director of

Lions Gate.

77. Third, MHR Institutional Partners III LP exercised the conversion option and wasissued 16,236,305 Lions Gate common shares at a price of $6.20 per share. In effect, the new

shares were issued without shareholder approval to Rachesky, a member of the Board of

Directors.

78. The Sham Transaction had the effect of increasing Racheskys holdings in LionsGate through his various entities from just under 20% to approximately 29%. After the issuanceof the new shares, Rachesky held close to a majority of all shares outstanding that were not

owned by plaintiffs.

79. At the same time, the holdings of all other Lions Gate shareholdersmostnotably, plaintiffswere severely diluted. As a result of the Sham Transaction, plaintiffs

holdings in Lions Gate were reduced from approximately 37.9% to approximately 33.5%.

80. By enabling Rachesky to convert the new notes into Lions Gate common stock ata strike price of $6.20well below the $6.50 that Icahn was offering for shares at the time of the

conversion, and dollars below the $8.85 value announced by the Lions Gate Board only months

beforethe Director Defendants wasted the corporate assets of Lions Gate and violated their

fiduciary duty to the company and its shareholders, including plaintiffs.

81. Had the true purpose of this transaction been deleveraging, as Lions Gatepublicly claimed, Lions Gate was under a fiduciary obligation to issue the bare minimum number

of shares necessary to retire LGEIs notes at the current market price. If the deleveraging had

been done at the Boards stated $8.85 value, or at the conversion price of the notes before they


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were changed to lower their conversion price, or even at the market price of $6.50 on July 20, far

fewer shares would have had to be issued. Instead, Lions Gate issued Rachesky 16,236,306

shares at a conversion price of $6.20 per sharea gratuitous windfall and far more than was

needed for an arms-length fair market transaction. The sole purpose of this windfall was to

further consolidate control in management-friendly hands.

82. Moreover, if defendants had truly been concerned with deleveraging LionsGate, they could have accomplished that goal by publicly selling stock at market prices, the

proceeds of which could have been used to buy back debt on the open market. There was no

need to enter into a private transaction with a single noteholder, the effect of which was to issuestock to a corporate insider at a bargain price.

83. In light of this sequence of events, it is apparent that Lions Gate, LGEI, Rachesky,Kornitzer and others engaged in negotiations and machinations during the Standstill Period to

engineer the ultimate issuance of shares to Rachesky. Specifically, the defendants entered into

agreements and understandings, and engaged in active negotiations, regarding the Sham

Transaction.

84. On information and belief, at some point prior to July 20, 2010, Lions Gate andKornitzer reached an understanding that if Kornitzer agreed to the proposed changes to the notes

he held, there was a ready and willing buyer available to purchase the notes for cashnamely,

Rachesky. Kornitzer agreed to the changes as a precondition of the sale to Rachesky. Indeed,

the debt purchase agreement between Kornitzer and Rachesky is dated as of July 20, strongly

suggesting that the purchase was negotiated and its terms agreed upon before that date.

85. Kornitzer had no intention to convert the notes into shares during the five-dayconversion window. But the changesespecially the feature of immediate convertibility at a


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strike price of $6.20were the lynchpin of Racheskys and Lions Gates scheme to issue

additional shares to a sympathetic corporate insider at a bargain price in order to dilute plaintiffs

holdings, frustrate their efforts to obtain representation on the Board of Directors, and further

entrench the existing directors positions. Kornitzer was a straw man whose involvement in the

Sham Transaction was designed to obscure the issuance of this massive block of stock to

Rachesky, a corporate insider.

86. Lions Gates and LGEIs actions in connection with the Sham Transactionbreached the Standstill Agreement because, among other things, Lions Gate and LGEI: (a)

entered into an agreement or understanding regarding the issuance of common stock toRachesky, a member of the Board of Directors, during the Standstill Period; (b) engaged in

active negotiations regarding the issuance of notes convertible into common stock in excess of

5% of Lions Gates then-currently outstanding common stock during the Standstill Period; and

(c) arranged for and encouraged Kornitzer, Rachesky and their related entities to purchase Lions

Gate securities outside the regular course of business during the Standstill Period.

87. By arranging for, entering into, facilitating, encouraging or approving the ShamTransaction during the Standstill Period, each defendant other than Lions Gate and LGEI

intentionally and tortiously interfered with plaintiffs contractual rights under the Standstill

Agreement.

88. Moreover, by arranging for, entering into, facilitating, encouraging or approvingthe Sham Transaction, each defendant employed wrongful meansincluding the Sham

Transaction and its attendant frauds, material misrepresentations and omissions, and other

wrongful conductto reduce plaintiffs relative stockholdings, and triggered key withdrawal

conditions of plaintiffs tender offer, thus tortiously interfering with plaintiffs legitimate attempt


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to (a) bid for outstanding shares held by Lions Gate shareholders and (b) replace the Board with

their own nominees through a proxy battle.

Lions Gates Deceptive SEC Filings and Other Unlawful Acts

89. From its inception, the Sham Transaction was, and continues to be, clothed infraudulent misstatements and omissions designed to conceal defendants true motives and

actions.

90. As described above, the July 20 press release issued by Lions Gate containedmaterial misrepresentations and omissions. It failed even to identify that the over 16 million new

shares would be issued to Lions Gate director Rachesky, and at a bargain price. And it

misdescribed the purpose of the note exchange and conversion as a deleveraging transaction,

when in fact the Sham Transaction was carried out to frustrate plaintiffs attempts to elect their

own nominees to the Board and to entrench the positions of Rachesky and the other current

Board members.

91. On July 21, 2010, Lions Gate filed a Form 8-K with the Securities and ExchangeCommission (SEC) purporting to describe the note exchange, which contained similar material

omissions and misrepresentations.

92. For example, the Form 8-K stated that on July 20, 2010, the New Notes wereconverted in full into 16,236,306 common shares of the Company. However, it entirely failed

to disclose that the new shares were issued to an entity controlled by Rachesky, a director of

Lions Gate.

93. The Form 8-K also included a copy of Lions Gates July 20, 2010 press release,which falsely stated that the note exchange was a deleveraging transaction that was a key part

of the Companys previously announced plan to reduce its total debt. It failed to disclose the


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true purpose of the transaction: to frustrate plaintiffs attempts to elect their own nominees to the

Board and to entrench the positions of Rachesky and the other current Board members.

94. On July 21, 2010, the Rachesky Defendants filed an amendment to their Schedule13D with the SEC. SEC rules require directors, officers and significant stockholders to file and

update their beneficial ownership reports periodically. Item 4 of Schedule 13D is required to set

forth the purpose or purposes of the acquisition of securities of the issuer. SEC Rule 13d-2

states, If any material change occurs in the facts set forth in the Schedule 13D required by Rule

13d-1(a), the person or persons who were required to file the statement shall promptly file or

cause to be filed with the Commission an amendment disclosing that change.95. The Schedule 13D amendment that the Rachesky Defendants filed on July 21,

2010 did not comply with SEC rules and was materially deficient, false and misleading. The

Schedule 13D amendment failed to disclose material terms of the transaction by which the

Rachesky Defendants increased their ownership stake in Lions Gate, including (i) the fact that

the new notes were issued on July 20, 2010 (the same day that the Rachesky Defendants

purchased them from an existing holder that is not named in the amendment), (ii) the fact that

the conversion price of the new notes of $6.20 per share was highly favorable to the Rachesky

Defendants, and much more favorable than the conversion price of the old notes, and (iii) the fact

that the entire transaction was part of a scheme to frustrate plaintiffs attempts to elect their own

nominees to the Board of Directors by increasing the shareholdings of an insider who is friendly

to existing Lions Gate management.

96. As the Sham Transaction clearly indicates, the Rachesky Defendants havecolluded with Lions Gate management to engage in transactions in Lions Gate common stock

that are specifically designed to influence control of Lions Gate and to impede the success of a


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public tender offer for Lions Gate common stock. These purposes are required to be disclosed

on Schedule 13D, but were not. Therefore, the Rachesky Defendants Schedule 13D amendment

is materially deficient and violates SEC rules. In fact, because the Rachesky Defendants

investment purpose changed prior to July 20, 2010, they were required to file promptly an

amendment to their Schedule 13D disclosing the change in their investment intent at that time.

Accordingly, the Rachesky Defendants were deficient in complying with their Schedule 13D

disclosure obligations before they engaged in the Sham Transaction with the specific purpose of

influencing control of the company and interfering with plaintiffs public tender offer. They

violated their federal disclosure obligations and misled the market by failing to disclose theirintentions.

97. Furthermore, the actions of defendants Kornitzer and Rachesky, and theirrespective affiliates, in conceiving, negotiating and consummating the Sham Transaction for the

purpose of diluting the interests of other shareholders, including plaintiffs, and entrenching

current Board members, constituted the formation of a group for the purpose of acquiring,

holding, voting or disposing of equity securities of Lions Gate, as defined in Securities Exchange

Act Section 13(d)(3) and SEC Rule 13d-5(b)(1) thereunder, no later than the time that they first

agreed to act together. Rachesky and his affiliates failed to file an amended Schedule 13D

reflecting the formation of such a group, as required by Section 13(d). In addition, although on

July 21, 2010, defendant Rachesky and his affiliates filed Amendment No. 4 to their Schedule

13D providing certain details of the Sham Transaction, they still failed to disclose the formation

and existence of the aforementioned group.

98. On January 22, 2010, defendants Kornitzer and Kornitzer Capital Management,Inc. filed a Schedule 13G indicating beneficial ownership of Lions Gate common stock, pursuant


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to SEC Rule 13d-1(b). As part of that filing, defendants Kornitzer and Kornitzer Capital

Management, Inc. certified that the securities referred to therein were held in the ordinary course

of their business and not for the purpose of or with the effect of changing or influencing the

control of the issuer of the securities or as a participant in any transaction having that purpose or

effect. However, from the moment that they first became involved in the conception,

negotiation and consummation of the Sham Transaction, defendants Kornitzer and Kornitzer

Capital Management, Inc. could no longer assert that the securities referred to in their filings

were held in the ordinary course of their business and not for the purpose of or with the effect of

changing or influencing control of the issuer of the securities, or as a participant in anytransaction having that purpose or effect. Nevertheless, defendants Kornitzer and Kornitzer

Capital Management, Inc. did not timely file the required Schedule 13D, violated their federal

disclosure obligations, and misled the market.

99. Each of the foregoing failures to file or amend filings constituted a violation ofSecurities Exchange Act Section 13(d) and SEC Rules 13d-1 and 13d-2 thereunder.

100. These misrepresentations and omissions were designed to conceal the true natureof the Sham Transaction.

101. By concealing the fact that the Sham Transaction was, in essence, a singletransaction designed to transfer shares to director Rachesky that was anticipated and negotiated

prior to the July 20 transaction date, defendants intended to conceal their breach of and

interference with the Standstill Agreement from plaintiffs and others.

102. Defendants misrepresentations also concealed the fact that the Sham Transactionsubjected Lions Gate to serious penaltiesup to and including the delisting of its shares by the


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New York Stock Exchangepursuant to section 312.03 of the New York Stock Exchange Listed

Company Manual (NYSE Listing Rule 312.03), which provides that:

[s]hareholder approval is required prior to the issuance of common stock, or of

securities convertible into or exercisable for common stock, in any transaction orseries of related transactions, to: (1) a director, officer or substantial securityholder of the company (each a Related Party); or (2) a subsidiary, affiliate orother closely-related person of a Related Party; or (3) any company or entity inwhich a Related Party has a substantial direct or indirect interest,

where the total number of shares to be issued exceeds one percent of common stock outstanding.

103. NYSE Listing Rule 312.03 is designed to prevent self-dealing by corporateinsiders. If Mr. Rachesky had sought to buy over 16 million shares on the open market, he

would have been forced to pay a significant premium over current market prices, and his buying

would have resulted in an increase in stock price benefitting all shareholders. Instead, through

the Sham Transaction, Mr. Rachesky was able to dramatically increase his holdings by paying

$0.30 per share (almost $5 million) less than current market prices, to say nothing of the

premium above market he would have otherwise had to pay. Mr. Rachesky was thus unjustly

enriched, at the expense of other shareholders.

104. Pursuant to NYSE Listing Rule 312.03, Lions Gates issuance of over 16 millionshares of common stock to director Rachesky without shareholder approval subjects the

companys stock to serious penalties, including potential delisting by the NYSE. If Lions Gates

stock were delisted, the companys shares would be limited to trading over the counter, resulting

in a loss of liquidity for shareholders and a diminution of value of the company.

105. Because of this risk of delisting, Lions Gates decision to issue this large block ofshares to Rachesky also violated SEC Rule 13e-3, that prohibits transactions which have a

reasonable likelihood of causing any class of equity securities to be delisted from a national


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securities exchange unless the issuer files additional extensive disclosure statements, which were

not filed here.

106. Had defendants disclosed the true nature of the Sham Transaction, they wouldhave been required to obtain shareholder approval of the transaction as required by NYSE

Listing Rule 312.03.

107. Moreover, by virtue of his position as director, Rachesky possessed materialnonpublic information when he engaged in the Sham Transaction. Indeed, in his purchase

agreement with Kornitzer, Rachesky acknowledged in a so-called big boy provision that he

possessed inside, non-public information. Although Rachesky apparently made theseacknowledgments in an attempt to insulate himself from charges of unfair dealing with

Kornitzer, such disclaimers cannot shield an individual from insider trading laws.

108. Each of the above material misrepresentations and omissions also constituted aseparate violation of federal securities laws, including section 10(b) of the Securities Exchange

Act and SEC Rule 10b-5 thereunder.

109. The unlawful conduct described above, which includes breach of fiduciary duty,corporate waste, numerous violations of applicable statutes and regulations, and fraud, was

essential to the completion of the Sham Transaction, and, singly and collectively, the means by

which defendants interfered with the Standstill Agreement and plaintiffs prospective business

relations with Lions Gate shareholders, including the July 20, 2010 tender offer. This illegal

conduct was performed by the defendants knowingly and intentionally with the sole purpose of

causing the breach of the Standstill Agreement and interfering with plaintiffs prospective

business relations.


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FIRST CAUSE OF ACTION

(against Defendants Lions Gate and LGEI)

Breach of Contract

110. Plaintiffs repeat the allegations set forth in paragraphs 1 - 109 above as if fully setforth herein.

111. The Standstill Agreement was a valid and binding agreement between Lions Gateand its subsidiaries (including LGEI), and Mr. Icahn and his affiliates (the plaintiffs).

112. Lions Gate and LGEI promised in the Standstill Agreement, for the StandstillPeriod from July 9, 2010 through midnight on July 19, 2010, not to:

(a)issue, agree to issue, or authorize or propose the issuance of, any securitiesto, or enter into any agreement, contract, or understanding outside the ordinary

course of business with, any member of [Lions Gates] board of directors or

their affiliates;

(b)engage in active negotiations for any transaction that would involve theissuance or agreement to issue common stock (or securities or instruments

convertible into common stock) of Lions Gate in excess of 5.0% of Lions

Gates currently outstanding common stock (other than any acquisition

opportunity that Icahn and Lions Gate are working on together as

contemplated above); or

(c)arrange for, or encourage, any other person or entity to purchase, anysecurities of Lions Gate outside of the ordinary course of business.

113. The parties further agreed that if any of them were to violate the StandstillAgreement or fail to perform any obligation under the Agreement, the other parties hereto

would suffer irreparable injury, for which there may be no adequate remedy at law.


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Consequently, the parties agreed that in the event of breach, the other parties shall be entitled

to equitable relief, including an injunction, to prevent any breaches and to enforce specifically

this Agreements terms and provisions.

114. Lions Gate and LGEI breached the above promises by encouraging, arranging,approving, planning and/or negotiating all three steps of the Sham Transaction during the

Standstill Period.

115. Plaintiffs were damaged and irreparably harmed by the foregoing breach.SECOND CAUSE OF ACTION

(against all Defendants except Lions Gate and LGEI)

Tortious Interference With Contract


117. The Director Defendants, the Rachesky Defendants and the Kornitzer Defendantseach knew about the Standstill Agreement at the time they negotiated and executed the Sham

Transaction. The Standstill Agreement was publicly filed with the SEC by both Lions Gate and

plaintiffs on July 9, 2010.

118. The Director Defendants, the Rachesky Defendants and the Kornitzer Defendantseach tortiously interfered with plaintiffs rights under the Standstill Agreement by inducing and

causing its breach, and by engaging in the unlawful, deceitful, illegal and wrongful conduct

described above.

119. Indeed, the personal profit of the Director Defendants was the motivating intentfor their unlawful conduct, and they were well aware they were acting maliciously and directly

contrary to Lions Gates own corporate interests. They also knew full well that if plaintiffs

succeeded they would have been ousted from Lions Gate management, ending their ability to

enrich themselves at the companys and plaintiffs expense.


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120. Plaintiffs were damaged and irreparably harmed by the foregoing breach.THIRD CAUSE OF ACTION

(against all Defendants)

Tortious Interference With Prospective Business Relationships


122. Each of the defendants was aware that, for over a year, the plaintiffs have beenpurchasing Lions Gate shares and communicating with its shareholders for the purpose of

acquiring additional stock, electing directors to its board, and changing the wasteful, expensive

and risky business plan the Board has pursued. Each of the defendants was also aware that

plaintiffs commenced a tender offer on the morning of July 20, 2010 seeking to purchase all

Lions Gate shares on the open market at $6.50 per share. Plaintiffs tender offer, prior stock

purchases, and attempts to elect new directors, were part and parcel of an expectant business

relationship with Lions Gates public shareholders, which would have provided a future

economic benefit to plaintiffs but for the defendants interference.

123. The defendants each intentionally and tortiously interfered with plaintiffsprospective business relationships by participating in the Sham Transaction, causing the breach

of the Standstill Agreement, and committing the other unlawful conduct described in this

Complaint.

124. Plaintiffs were damaged and irreparably harmed by the foregoing interference.


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icahn's lawsuit against lions gate

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