Bloomberg Law
Aug. 16, 2023, 3:29 PM

AMC Investor Challenges Court-Approved APE Stock Conversion Plan

Jennifer Kay
Jennifer Kay
Staff Correspondent

AMC Entertainment Holdings Inc. faces a new challenge to its stock conversion plan, this time from a preferred shareholder who claims the hard-won deal shortchanges investors like him.

The movie theater chain just last week got approval from Delaware’s Court of Chancery to convert its preferred stock, known as APEs, to common shares. That settlement included extra shares for individual investors, though thousands of them opposed it due to concerns that their shares would be diluted.

Now one APE holder, Michael Simons, is asking the Chancery Court to declare the deal invalid, alleging it violates the rights of APE holders to have the amount of common stock they receive in the conversion adjusted for any dilution to the pool.

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AMC should have to give the same amount of new stock to APE holders as it’s giving to common shareholders under the terms of the settlement, the lawsuit said. Otherwise, the distribution to preferred shareholders of 7.5 shares of common stock for each APE will dilute their ownership interest in AMC and violate the rights of preferred stock investors to receive the “same distributions” as commonshareholders.

“The contractual rights of the APE unitholders are clearly breached by the Settlement,” the Aug. 14 lawsuit said.

The settlement approved Aug. 11 capped a wild legal ride for AMC, with droves of the chain’s retail investors deluging the court with letters pleading with it to block the stock conversion plan.

Individual investors typically have little influence over corporate actions, but in this case, they slowed down and complicated the settlement process with their claims that AMC owed them more for how their meme stock rally saved the chain from bankruptcy amid the pandemic.

The dispute began in February when a pension fund sued AMC, claiming it was sidelining small investors by empowering APE holders who would support its share conversion plan to secure new financing.

The settlement includes extra shares for individual investors, but thousands of them still opposed it due to concerns that their shares would be diluted.

In a 110-page opinion approving the settlement, Vice Chancellor Morgan Zurn said revisions to the deal included “additional shares of common stock awarded to current common stockholders to offset the dilutive effects.”

Zurn’s approval cleared the way for AMC to enact the conversion plan, though it wasn’t clear when that would happen. The company has said it hoped to raise new financing by mid-August.

Separately, AMC has sued its insurers for refusing to fund the settlement, and another holder of the common stock seeks a court order requiring the company to hold its first annual meeting and board election in more than 13 months.

Berger Montague PC represents Simons.

The case is Simons v. AMC Entertainment Holdings Inc., Del. Ch., No. 2023-0835, 8/14/23.

To contact the reporter on this story: Jennifer Kay in Philadelphia at jkay@bloomberglaw.com

To contact the editor responsible for this story: Andrew Childers at achilders@bloomberglaw.com

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