By Jody Godoy

(Reuters) – An AMC Entertainment Holdings shareholder who objected to a settlement over the theater chain’s controversial stock conversion plan told a Delaware court on Thursday that some investors felt the company “stabbed them in the back.”

The deal would provide holders of AMC common stock with shares worth an estimated $129 million to resolve allegations the company rigged a shareholder vote against them.

More than 2,800 people objected to the settlement, which requires approval by Delaware Vice Chancellor Morgan Zurn to move forward.

AMC has said it is burning cash at an unsustainable rate and cautioned that an inability to raise capital could force the company into bankruptcy.

Rose Izzo, a Delaware resident who first invested in AMC in 2021, objected to the deal.

Theodore Kittila, an attorney for Izzo, said at the hearing that the objectors believe the company “stabbed them in the back” by controlling a vote that shifted the balance of ownership to holders of preferred stock.

“Why are people angry right now? Because they feel like they are not being heard,” he said.

AMC raised $2 billion off a wild rally in 2021, as retail investors banded together online and piled into “meme” stocks such as GameStop which hedge funds had bet against during the pandemic.

But the stock selling spree left AMC with little equity to raise cash, and an investor base uninterested in proposals that would dilute their holdings by issuing more shares.

The company’s answer was to create preferred stock, which has traded at a steep discount to AMC’s common stock. In February, AMC proposed a vote that would allow it to convert preferred stock to common stock and issue hundreds of millions of new shares.

A Pennsylvania pension fund and an individual shareholder sued on behalf of common stockholders soon after, saying the vote had been stacked against them and seeking an injunction to block it.

The investors’ attorney Mark Lebovitch said at the hearing that after receiving more information about AMC’s financial status, the investors were convinced the company could successfully argue the injunction would drive it into bankruptcy.

“We leveraged, I don’t want to say a bluff, but a situation where we had a real risk of getting a zero,” Lebovitch said.The case is In re: AMC Entertainment Holdings Inc. Stockholder Litigation, No. 2023-0215, in the Delaware Court of Chancery.

(Reporting by Jody Godoy in New York; Editing by Matthew Lewis)

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