Relevant Documents:AMC Reply BriefPlaintiffs’ Reply Brief
AMC Entertainment Holdings and the lead stockholder plaintiffs submitted reply briefs defending from certain shareholder objections the proposed
settlement related to the company’s pending
conversion of AMC preferred equity units, or APEs, into common stock.
In its reply brief, AMC provides additional arguments that the settlement is essential for the company to raise new equity capital in order to pay down debt. Absent the settlement and conversion, AMC says, it risks not being able to meet its financial obligations “beyond 2023.” Additionally, the lead plaintiffs argue that the court should ignore the “loud objections by a tiny minority” of AMC stockholders and approve the settlement without an opt-out mechanism.
Under the
terms of the settlement AMC, after giving effect to the 1-for-10 reverse stock split and conversion APEs into common stock, will issue one share of new common stock for every 7.5 shares of common stock held on the day prior to the conversion taking effect.
Vice Chancellor Morgan Zurn of the Delaware Court of Chancery is scheduled to preside over a final settlement hearing on June 29 and June 30.
AMC’s Brief
AMC reiterated claims set forth in its
opening brief that final approval of the settlement is essential for the company to raise additional equity capital “necessary for its business to survive.” The company says that absent the settlement it could be unable to meet its financial obligations “beyond 2023, which would likely result in a bankruptcy or financial restructuring.”
Additionally, the company rebuts claims from objectors who contend that AMC’s financial condition has improved since the company released its
first-quarter earnings results and that AMC and the plaintiffs “have overstated the financial risk to AMC if the Court does not approve the Settlement.”
Despite total revenue growing 21.5% year on year in the first quarter, AMC says that it still faces “significant financial challenges and continues to need to raise significant equity capital for its business to survive.” While “operating revenues in the first quarter of 2023 have improved relative to the first quarter of 2022, AMC’s revenues still have not increase[d] significantly to levels in line with pre-Covid operating revenues,” the company adds.
The company further asserts that its “current cash burn rates are not sustainable long-term” and that its “current assets, including $495.6 million in cash, were dwarfed by the Company’s $11.4 billion in total liabilities.” The company warns that “there can be no assurances that the Company will be successful in generating the additional liquidity necessary to meet the Company’s obligations beyond twelve months” absent additional equity capital issuances.
AMC argues that the “existence of AMC’s senior secured revolving credit facility … also does not change the nature of AMC’s financial condition.” The company maintains that it has sufficient cash to comply with “minimum liquidity and financial covenant requirements” under the covenants of its revolving credit facility “currently and through the next twelve months,” according to the brief. However, it notes that “there is no guarantee that AMC can comply with such covenants beyond that time period” and that the company may not be able to refinance its debt on “on terms favorable to [AMC] or at all” ahead of the facility maturing in April 2024.
Additionally, AMC urges the court to disregard stockholder arguments that the settlement should be rejected by the court on the basis of the merits of the plaintiffs’ original breach of fiduciary duty claims. AMC argues that such claims “likely would have failed on the merits because the creation of the APEs, the Antara Transaction, and the Charter Proposals were decisions by a non-conflicted, independent board that are protected by the business judgment rule.”
With respect to the plaintiffs’ claims seeking to invalidate the original issuance of the APEs, AMC notes that the “plaintiffs themselves acknowledged that recent Delaware law has ‘slammed the door’ on such a claim.”
Certain objectors’ requests to opt out from the settlement should also be rejected, AMC urges. The company notes that “the issue is binary” and that “an Objector cannot ‘opt out’ of having its Common Stock subject to the reverse stock split and/or combined with the APEs.”
Alternative settlement proposals offered by some objectors should be rejected because they “range from self-serving to punitive” and because the “role of the Court is not to measure the Settlement against competing proposals offered by Objectors,” AMC writes. Only the proposed settlement, which will effectuate the APE conversion
approved by shareholders on March 14, will resolve AMC’s need “to raise significant equity capital for its business to survive,” the company concludes.
Lead Stockholder Plaintiffs’ Brief
The lead stockholder plaintiffs argue that they are “completely aligned” with the stockholder class and that they “walked a tightrope to resolve this Action, leveraging the injunction threat to extract maximum value for the Class while avoiding a scenario where any victory proved Pyrrhic.” The lead plaintiffs acknowledge that “AMC will struggle to survive absent additional equity capital raises,” and they urge the court to approve the settlement.
Despite the “loud objections by a tiny minority” - totaling approximately 2,850 individuals that represent about 0.00075% of AMC’s estimated 3.8 million stockholders - the lead plaintiffs argue that the settlement consideration of 6.9 million additional shares to existing common stockholders is “not just reasonable under the circumstances, but a great result given the unusual pitfalls along the way.”
The lead plaintiffs argue that the settlement is “re-lutive” and would offset approximately $129 million of the dilution of common stock following the APE conversion based on May 3 trading prices. Additionally, the settlement and conversion will allow AMC to “address its equity financing needs at the pro forma stock price,” which offers “further upside to the Class if the market rewards AMC for the more streamlined pro forma capital structure and expected debt repayments.”
The court should also disregard the numerous objections that “express anger towards AMC and its fiduciaries on matters” that “stem from the belief that AMC’s securities are manipulated to protect hedge funds covering short positions,” because such matters are “beyond this Court’s purview,” the lead plaintiffs add. They also note that while they appreciate the frustrations of AMC investors who “overpaid for AMC stock” and saved the company “from short sellers betting that COVID would kill the Company,” the “same social-media engagement that once saved AMC is now a frenzy seeking to block the only avenue for Common Stockholders to receive consideration for the Conversion.”
Of the objectors who address the claims “actually at issue” in the dispute, none provide a strong basis to reject the settlement, the lead plaintiffs continue. The objectors “overestimate the vanishing likelihood” that the court would invalidate the original August 2022 APEs issuance, the lead plaintiffs add.
With respect to claims concerning AMC’s December 2022 transaction with Antara Capital, the lead plaintiffs contend that objectors “largely ignore” that AMC would have a “compelling justification” for entering the agreement with Antara, and that the transaction was “genuinely motivated” by concerns about AMC’s liquidity.
The lead plaintiffs, like AMC, urge the court to certify the class without the possibility for opt-outs. The lead plaintiffs acknowledge that ‘while this Court has some leeway to grant opt-outs,” doing so in this case “absent exceptional circumstances defeats the efficiency and purpose of the class action mechanism.”
The lead plaintiffs last month
argued in their opening brief in support of the settlement that allowing an opt-out process may further delay the conversion “for another 30-60 days beyond the currently scheduled final approval,” and that this could “cause serious prejudice” to plaintiffs and AMC when considering AMC’s stated need to raise additional equity capital as soon as possible.
The lead plaintiffs add in their reply brief that only about 312 objection submissions “can fairly be interpreted as an opt-out request,” and that “many may not appreciate that opting out involves giving up the benefits of the Settlement to preserve claims they do not intend to pursue, as the thrust seems to be objection to the lawsuit itself.” Accordingly, “the global settlement here far outweighs the concerns of less than 0.0001% of AMC stockholders who may wish to opt-out,” the plaintiffs conclude.
Upcoming Case Events
The settlement hearing is
scheduled to take place on June 29 and June 30. The special master has until June 21 to file a report summarizing objection letters and recommending “how the Submissions should inform the Court’s decision to approve or deny the proposed Settlement.” Parties will have until June 28 to file any exceptions to the special master’s report.
Vice Chancellor Morgan Zurn indicated in a
April 28 letter to the parties that she has “committed to delivering a written opinion on the settlement terms rather than a bench ruling at the hearing, so a June 28 deadline for exceptions should not meaningfully slow [her] ruling.”
AMC previously said in an April 3
court filing that the conversion and reverse stock split requires a 10-day notice period under NYSE rules. The
settlement notice filed by the parties on May 1 notes that “in order to effect the Conversion, Settlement Payment, and Reverse Stock Split at the earliest possible time, [AMC] may make conditional filings with the NYSE prior to the Settlement Hearing, so that if the proposed Settlement is approved, the Company can effect these transactions as promptly as possible thereafter.”