Opinion ID: 2402127
Heading Depth: 1
Heading Rank: 2

Heading: UA Holders' Investment in United Artists

Text: In 1999, United Artists became unable to service its debt. The next year, its senior creditors under a $450 million loan facility declared a default and blocked United Artists from making payments to holders of the company's subordinated notes. Negotiations then ensued between United Artists and the senior creditors. In that process, the Anschutz-controlled UA Holders acquired nearly $100 million worth of the claims under the loan facility. That process also resulted in an agreement between United Artists and the senior creditors on a restructuring of United Artists. Following that development, the UA Holders took the lead in negotiating with the subordinated noteholders and other subordinated creditors. These negotiations were not successful, and the subordinated noteholders filed an involuntary bankruptcy petition on behalf of United Artists. The bankruptcy filing inspired further negotiations which resulted in an agreement to allocate to the subordinated creditors 7% of the fully diluted equity of United Artists in the form of Warrants exercisable into United Artists common stock. The Warrants had a seven-year term and a strike price of $10 per share, and were covered by an anti-destruction clause that is the focal point of the present litigation. Under the overall restructuring plan as implemented, United Artists' capital structure consisted of the following classes of securities:  Common stock: 10,000,000 shares of common stock;  Preferred stock: 9,120,000 shares of preferred stock convertible into common shares at a conversion price of $6.25 per share:  Warrants: 5,600,000 Warrants to acquire common stock at a strike price of $10.00 per share;  Stock options: 2,746,666 options to be distributed according to the management stock option plan. Of this allocation, the UA Holders received 20% of the common stock (2 million shares), 100% of the preferred shares (9.12 million shares), and 67% of the Warrants (3.75 million Warrants). The remainder of the common stock went to other former senior lenders of United Artists. The remainder of the Warrants went to former subordinated lenders (including noteholders) of United Artists, a class that included the plaintiffs in this action. According to the plaintiffs, they and other subordinated creditors took comfort in the fact that the Warrants they received were identical to those received by the UA Holders, thereby guaranteeing that the plaintiffs' Warrants would receive the same protection as Anschutz had secured for himself.