Vegas Judge Orders New Election for Private Board of Directors

LAS VEGAS—In an order issued yesterday by Nevada state judge Elizabeth Gonzalez in the Las Vegas version of Consipio v. Private, the saga-like lawsuit whose outcome will likely determine who controls the publicly traded adult brand going forward, the results of the Board of Directors election held late last year has been voided and the company has been instructed to “immediately notice a shareholder's meeting at which [Private] will elect a Board of Directors.” The order comes following several days of evidentiary hearings conducted between June 14 and 20. The order also comes on the heels of a months-long effort by the court to determine the whereabouts of 3,950,000 shares of common Private stock that were supposed to have been handed over to Consipio as collateral on a debt of at least $2 million that Private defaulted on in March 2008, according to the court. The total number of shares held as collateral by Gibraltar-based Slingsby Enterprises Ltd., which, according to the court’s findings of fact, is wholly owned and controlled by current Private CEO and Chairman of the Board Berth Milton, was 5,600,000. 1,650,000 shares already transferred to Consipio were voted on by the company during the annual shareholder meeting convened Nov. 18, 2010, to elect a new slate of directors. Two slates were in play; one put forth by Milton and the other by Consipio and other shareholders and creditors critical of the current management of the company. Preliminary results of the vote tallied by an independent inspector of elections determined that the Milton slate prevailed, but the results were put on hold by the court until the missing Consipio shares could be accounted for. The results of that process led to yesterday's order. According to an Oct. 21, 2010 order of the court, Private was directed to “[1] recognize the right of [Consipio] to vote 5,600,000 shares of [Private] common stock that are the subject of that certain Pledge Agreement dated December 21, 2001 from Slingsby Enterprises Limited and [2] shall allow Consipio to exercise its voting rights to the 5,600,000 shares at Private’s Annual Shareholders Meeting presently scheduled for November 18, 2010.” However, according to the court, though Consipio presented the inspector with a proxy purporting to vote its entire 5,600,000 million shares at the annual meeting, only 1,650,000 were counted. “The Inspector of Elections was unable to identify the remaining 3,950,000 shares pledged by Slingsby under the Pledge Agreement and purported to be voted by the Proxy,” the court declared. The inability of Consipio to vote all of its shares had a significant impact on the results of the November vote, according to the court. “The Final Report of the Inspector of Elections at [Private’s] 2010 annual shareholder meeting concluded that the slate of directors proposed by [Private’s] management (the 'Milton Slate') received the votes of a majority of [Private] shares voted. Out of a total of 16,040,170 shares voted at the 2010 annual meeting, the slate of directors proposed by Consipio (the "Consipio Slate") lost by less than 600,000 shares.” In other words, had Consipio been able to vote all of its shares, the Milton slate would have likely lost. The ramifications of that would have been profound in terms of the future management and direction of Private. Indeed, the order of the court emphasizes that Milton “wrongfully removed” the missing shares from Slingsby and had them “transferred to Cede & Co. and into street name on April 5, 2004.” Further, the court determined that the “3,950,000 shares were either voted by Milton or were concealed from Consipio by Milton, thereby preventing Consipio from voting those shares, in violation of this Court's October 21 Order." In addition to rendering the previous election results invalid and ordering a new vote, the court also ordered that “because of the prior difficulties in properly identifying the votes and the competing claimants to Milton's beneficial ownership of shares that [Private] through its inspector of elections may not accept any proxy of shares held in street name without the disclosure of the ultimate beneficial owner of the shares along with any voting instructions provided by that ultimate beneficial owner,” and that Private “may not accept any vote by Milton of shares beneficially owned by Milton in street name. AVN contacted Private for comment, and was told that a Form 8-K is being filed by the company this week and that Nasdaq and SEC rules prevent it from saying anything with respect to the court ruling prior to the filing.