AMC Entertainment (NYSE: AMC) finally formally filed its settlement documents with the Delaware Court of Chancery, offering to settle the class action lawsuit filed by shareholders that would allow it to issue stock, raise capital, convert its APE units and go ahead with a 10-for-1 reverse stock split.
The settlement offer was put forth earlier this month as AMC entered into a binding agreement with the class that would see the suit dropped in exchange for about 6.9 million shares, or 4.4% of the company’s outstanding common stock pro forma.
The settlement payment came down to one share of common stock for every 7.5 shares of common stock owned by shareholders on record. The new shares might be valued up to $118 million, according to the plaintiffs’ lawyers who struck the proposed settlement with AMC.
“This Stipulation and Agreement of Compromise, Settlement, and Release in the above-captioned action, filed in the Delaware Court of Chancery, is made and entered into as of April 27, 2023… to fully, finally, and forever compromise, resolve, discharge, and settle the Released Claims, with the resulting dismissal of the Action with prejudice,” the AMC settlement filing said.
As part of the settlement, the defendants–led by CEO Adam Aron–“deny any and all allegations of wrongdoing, fault, liability, or damages with respect to Plaintiffs’ Released Claims.” This includes denying any allegations that defendants have committed any violations of law or breach of any duty and any assertions that the company’s stockholders were harmed by any conduct of defendants pertaining to the suit.
“Nevertheless, Defendants have determined to enter into the Settlement on the terms and conditions set forth in this Stipulation solely to put Plaintiffs’ Released Claims to rest, finally and forever, without in any way acknowledging any wrongdoing, fault, liability, or damages,” the filing added.
Going ape on APE
The whole lawsuit rests upon AMC’s proposals to increase AMC’s authorized common stock so that AMC Preferred Equity (APE) units can be converted into common shares, to affect a reverse split of the company’s common shares at a ratio of 1:10, and to give AMC more flexibility to issue additional common equity in the future.
These ideas were approved by an 87% majority, and AMC rejoiced. But, the measures have yet to be carried out due to the class action lawsuit.
Representing the plaintiffs in the suit is one of AMC’s shareholders, pension fund Allegheny County Employees’ Retirement System, claiming that the board members “breach[ed] their fiduciary duties by carrying out a strategy to dilute the voting power of AMC’s Class A stockholders.”
AMC has been asking the status quo order be lifted to move ahead with the shareholder-approved measures while the case is being settled. However, due to exceptionally significant investor interest in the matter, Delaware Chancery Court Vice Chancellor Morgan T. Zurn has pushed back the hearing.
“I’m open to getting this wrapped up by the end of June [but] I think it’s going to be almost impossible to do this in less than 60 days, given the stockholder interest that we anticipate,” she said.
The two parties arranged a settlement meeting in early April, agreeing to a set of parameters outlined in a term sheet. This includes the aforementioned payment in shares equivalent to 4.4% of the company’s outstanding common stock pro forma.
The road to settlement, however, took a lot of turns. Upon hearing the settlement agreement between two parties, Zurn initially refused to go along with a plan.
Zurn stated that AMC and the shareholders who sued the business but are now willing to settle had not persuaded her to abandon the procedural safeguards for class action settlements.
According to her, Delaware’s statutes and case law compel judges to assess proposed shareholder class action settlements to ensure they are equitable to all investors, not just the stockholders who filed the case. In nearly every case, both parties are eager to complete settlements once they’ve reached an agreement, according to Zurn.
However, she believes that the unique circumstances of the AMC proposed settlement do not warrant deviating from the standard procedure for authorizing class action settlements.
Both parties desired to proceed quickly. AMC is rushing to finish the stock reorganization so that it may obtain funds and pay down debt. Meanwhile, plaintiffs’ attorneys told Zurn in a motion filed on Monday that issuing new stock to pre-convergence common shareholders quickly would lock in the value of those new shares.
Shareholders asked Zurn to lift the status quo order so that the share conversion and new share issuing may take place immediately in Monday’s motion. On Wednesday, the court refused that motion.
Moreover, Zurn castigated the parties for the delay in filing the settlement documents, given that the second proposed settlement was already announced by the parties in April 14.
“The settlement documents must be filed by the close of business today in order for the Court to continue to hold June 29 and 30 as potential hearing dates. If counsel does not file the settlement documents by close of business today, they should contact Chambers for new hearing dates,” Zurn admonished the parties in a letter, prompting AMC to file its settlement documents.
The settlement documents still needs to be approved by the court but Zurn seemingly has already provided her verbal approval earlier. She also stated that “Court would provide AMC stockholders with specific instructions about when and how to respond to the settlement terms,” exacerbating her disappointment on the delay in filing the settlement documents.
AMC Entertainment last traded at $5.44 while APE last traded at $1.47 on the NYSE.
Information for this briefing was found via Reuters, Deadline, The Street, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
