Member Info for HNS_77

Photos of Conway in party mode and Phyllis at the same event

Some will argue these photos are from 2017 so what’s the big deal - they clearly move in the same social circles should have been flagged for possible bias

https://www.patrickmcmullan.com/photo/3454687
https://www.patrickmcmullan.com/events/5b3ef4dd9f92906676444a8b

@mountainous, I read this article too in my background checks on Conway, alongside the cosy photos of Conway at social fundraising events attended by Cineplex’s board chair.

@mountainous that’s the dream scenario spelled out right there. Either way it’s going to make history. Barbara wants to be the first judge in the history of M&A expectation damages to ever allow forecast synergies to be a valid way of costing an award …crazy

Thanks Bonkers with the amount I have sunk into this share I have to! this is just my understanding but the logic does seem to stack up. The upshot of all this to me if we continue to see a box office recovery and that given that all the rest of the market does is see the court case hanging over Cine are we plucky retails able to arbitrage that lack of awareness of the situation and finally make a decent wedge out of this share even in the event we lose the case?

Scenario 1- Cine wins appeal i.e. complete reversal or tiny damages - happy days share price rockets we are all winners
Scenario 2 - Cine loses appeal - big sell off and further pain for us holders for a while until it becomes clear to the wider market that no damages can be collected by Cineplex and speculation about a settlement deal begins

In scenario 2 we have short term pain as the share price dips but then press reports etc begin to pick up about the reality of the situation - again assuming box office is doing its thing the share price could again rapidly rise as other catch on as to what a bargain the share actually is

Of course I have no way of knowing any of this but I have had some fun speculating at least!

Perhaps this is wishful thinking but

This refers to individuals but you wonder if same principals apply to companies as a “judgement proof debtor”

https://www.investopedia.com/terms/j/judgment-proof.asp

@mountainous so here is what understand from my research

To enforce a judgement it has to be via a U.K. court and there a treaty between U.K./ Canada to recognise each other rulings unless there disputes about the process (which is rare)

That Cine stand to gain nothing from enforcing the judgement due to reasons in my previous post

That using your bailiff analogy corporate entities who owe money can have legal sanctions put on them eg they can have assets seized or accounts frozen/ scrutinised etc so they can’t plead poverty and take cash out of the business

The bit that I am unclear about is this : knowledge of Cine debt is in the public domain it’s no secret. So in this instance what leverage does Cineplex actually have - do they have the right to be vindictive and say “sod it we are putting you out of business even if we don’t see a penny” from a corporate governance perspective that seems untenable politically also as it would out thousands of jobs at risk which isn’t something either the US or U.K. would tolerate

So that leads me back to some kind of deal (assuming they lose) to pay a small sum of x over for y years or have a lump some of z and we go out seperate ways. But that these sums need to be so small that they do not cause problems for Cine in servicing their secured debt commitments

I’ve discussed this with my wife on a few occasions and we always end up at the same place - this situation I expect the market will poo the bed but is actually survivable on the assumption we trade to our target base case

Mooky has openly stated Cine do not have the funds to pay damages as they stand

IF Mooky has had legal advice that confirms what we have read in reliable news outlets like the FT which is that Cineplex CANNOT enforce this payment or that they can enforce it but they would not be a beneficiary of this as an UNSECURED CREDITOR ahead of any secured lenders then it would make sense to hold off on any settlement discussions unless it was for a trifling sum in the low millions for them to bugger off which I doubt Cineplex would agree to anyway.

So what that means (unless I am reading the situation completely wrong which I don't think I am) is that Cineplex will be looking at £0 of the award if they win and £0 of it if they lose the appeal due to being at the back of a queue that stretches about £4.6bn

Therefore it is in Cineplex's best interest to accept a deal with Cine even in the event of a win for the reasons above.

What I do not know is what leverage does Cineplex have to compel Cine to take any action to dismantel the company in order to pay an award which it wouldn't realise even if they had the power to compel such a thing- again for the reasons stated above that they are unsecured and this we know is a fact.

I know this is more convoluted then a multiverse plot and is actually very absurd but If that is indeed the position I feel Mooky and co would possibly see the appeal through and not settle (unless it was a negligible sum) or negotiate post decision if it comes out against Cine.

5. In the further alternative, damages should be awarded to Cineplex to compensate it for liabilities that would have been discharged, had Cineworld completed the transaction. Those liabilities are comprised of:
(a) Cineplex’s liability in respect of having to pay for the redemption of certain incentive securities, when they ultimately vest (with a total liability of $6.4 million); and
(b) Cineplex’s liability in respect of its bank debt outstanding on the date of Cineworld’s breach (which totalled $663 million), plus increased interest that Cineplex had to pay in respect of that bank debt and other loans after the date of breach (which totalled $45 million, as at the start of trial).
6. In the still further alternative, if this Honourable Court should hold that Cineplex is not entitled to meaningful damages, then disgorgement of the benefits realized by Cineworld through its breach should be ordered to prevent Cineworld from profiting through its wrongdoing while Cineplex is left without a sufficient remedy. The benefits realized by Cineworld as a result of its breach total $1.1 billion.
7. If this Honourable Court should hold that Cineplex breached the terms of the Arrangement Agreement in any respect, then Cineplex asks that this Honourable Court hold that Cineworld was not entitled to rely upon such breaches in purporting to terminate the Arrangement Agreement, as a result of Cineworld’s own breach of its duty of good faith and honesty.

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8. Should this Honourable Court hold that the trial judge erred in dismissing Cineworld’s
counterclaim and that Cineworld has proven its counterclaim, then the damages payable in respect of Cineworld’s counterclaim should be limited to an amount in Canadian dollars sufficient to purchase GBP266,696, as that is the sum of the costs that were demonstrably attributable to the transaction, and that were incurred by either of the appellants/respondents by cross-appeal (as opposed to some other entity that is not a party to this litigation).
THE BASIS OF THE APPELLATE COURT'S JURISDICTION IS:
1. Sections 6(1)(b) and 134(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43.
2. Rule 61.07 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
3. The portions of the Judgment appealed from constitute final orders of a judge of the Superior Court of Justice. Accordingly, leave to appeal is not required.

THE GROUNDS OF CROSS-APPEAL are as follows:
1. If necessary, this Honourable Court should hold the trial judge erred in law in holding that Cineplex could not, as a matter of law, recover for the consideration that would have been payable to its shareholders had the transaction been completed, less the residual value of the shares on the termination date.
2. Because the trial judge held that Cineplex was entitled to $1.2366 billion in respect of lost synergies, the trial judge did not need to consider Cineplex’s alternative remedy claims, namely:
(a) Cineplex’s claim for $807.8 million in damages in respect of the diminished value of business that Cineplex was left with, as a result of Cineworld’s repudiation of the Arrangement Agreement;
(b) Cineplex’s claim for $714.4 million in damages in respect of liabilities ($6.4 million in respect of incentive securities and $708 million in respect of Cineplex’s bank debt and carrying costs) that would have been discharged by Cineworld, had the transaction been completed; and
(c) Cineplex’s claim for disgorgement of the benefit Cineworld received as a result of its wrongful breach of its obligations under the Arrangement Agreement, in the amount of $1.1 billion.
3. If this Honourable Court should hold that the trial judge erred in awarding $1.2366 billion in damages to Cineplex in respect of lost synergies, then $1.3157 billion in damages should be awarded to Cineplex in respect of the loss of the value of the promised performance.

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4. In the alternative, $807.8 million in damages should be awarded to Cineplex in respect of
the diminished value of Cineplex’s business.

NOTICE OF CROSS-APPEAL
THE RESPONDENT, CINEPLEX INC. (“Cineplex”), CROSS-APPEALS to the Court of Appeal from the Judgment of the Honourable Justice Conway dated December 14, 2021, made at Toronto.
CINEPLEX ASKS:
1. if this Honourable Court should hold that the trial judge erred in awarding $1.2366 billion
in damages to Cineplex in respect of lost synergies:
(a) that an Order be made awarding $1.3157 billion in damages to Cineplex in respect of the loss of the value of the promised performance, measured by the consideration that the appellants (referred to collectively as “Cineworld”) would have paid to

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Cineplex’s security holders had the transaction been completed less the value of the
securities retained;
(b) in the alternative, that an Order be made awarding $807.8 million in damages to Cineplex in respect of the diminished value of the business that Cineplex was left with, as a result of Cineworld’s repudiation of the Arrangement Agreement;
(c) in the further alternative, that an Order be made awarding $714.4 million in damages to Cineplex in respect of liabilities ($6.4 million in respect of incentive securities and $708 million in respect of Cineplex’s bank debt and carrying costs) that would have been discharged by Cineworld, had the transaction been completed;
(d) in the still further alternative, that an Order be made that Cineworld disgorge the benefit it received as a result of its wrongful breach of its obligations under the Arrangement Agreement, in the amount of $1.1 billion;
2. if this Honourable Court should hold that the trial judge erred in dismissing Cineworld’s counterclaim and that Cineworld has proven its counterclaim, that the damages payable in respect of Cineworld’s counterclaim be limited to an amount in Canadian dollars sufficient to purchase GBP266,696;
3. for an Order awarding Cineplex its costs of this cross-appeal; and
4. for an Order granting such further and other relief as this Honourable Court deems just.

I don’t hear anyone saying a Cine win is a foregone conclusion - I think there is a strong argument to overturn but in the end the 3 appeal judges can chose to side with cineplex. I plan to hold simply because I think the upside of a Cine win outweighs the downside of losing for the reasons that have already been discussed i.e it’s impossible for cineplex to enforce the judgment and receive any damages due to their status as an unsecured creditor

Settling the case at this stage doesn’t really make sense for either party - Cine have a chance of getting this reversed and thus paying nothing at all, on the flip side Cineplex already have a judgement in their favour - if the appeal fails they have even more leverage to get a better settlement deal ( given then know that They will see 0 of their 1bn damages due to being an unsecured creditor)

That is why I see this going right to the wire and everything rests on the post appeal result

If you look at the Ontario court of appeal website there are lists of decisions - I looked through about 5-6 decisions and the time between hearing days and decision being reached looks like between 10-14 days.

If that is anything to go by we should know the outcome possibly by the end of October/ 1st week of November

@BlueBuxton

I can’t find exactly how many cases he has won of those tried but looks like he has been on the winning side of many prominent appeals which is very encouraging

Furthermore this lists names of who are regarded as the best litigators in Canada- both he and Paul Steep are in the list - sufficed to say no one from Goodmans (cineplex) made the list. CINE are clearly throwing the kitchen sink at this to get a result

https://www.lexpert.ca/features/ontarios-best-corporate-and-commercial-litigation-lawyers-in-2021/356385

To support with the appeal CINE have drafted this firm and this particular lawyer in to execute for - makes good reading on paper let’s hope they can live up to their reputation on this case

https://lolg.ca/people/bio/jonathan-lisus#News

@lat it is all posted in black and white - for all to see personally reading it gives comfort there are enough holes in the original judgement for the appeal team to turn this around

20. In the further alternative, when she assessed lost synergy damages, the Trial Judge erred in principle by failing to assume that Cineworld would opt for the least onerous performance available to it post closing. The premium purchase price to be paid by Cineworld was only justified if Cineworld and its stakeholders were the beneficiaries of any synergies achieved. It was an error in principle to assess damages as if the benefits of synergies would have been left stranded in the subsidiary so they could not be enjoyed by Cineworld and its stakeholders, but would only accrue to its wholly owned subsidiary, Cineplex.

26. Leave to appeal is not required. January 12, 2022
McCARTHY TÉTRAULT LLP
Suite 5300, Toronto Dominion Bank Tower Toronto ON M5K 1E6
R. Paul Steep LSO#: 21869L psteep@mccarthy.ca
Tel: 416-601-7998
Shane D’Souza LSO#: 58241G sdsouza@mccarthy.ca
Tel: 416-601-8196
Kosta Kalogiros LSO#: 59839A kkalogiros@mccarthy.ca
Tel: 416-601-7861
Brandon Kain LS# 49339U bkain@mccarthy.ca
Tel: 416-601-7821
LAX O’SULLIVAN LISUS GOTTLIEB
Suite 2750, 145 King St W Toronto ON M5H 1J8 Canada
Jonathan Lisus LS# 32952H jlisus@lolg.ca
Tel: 416-598-7873
Lawyers for the Appellants
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21. The Trial Judge also made an extricable error of law in failing to discount the damages award for lost synergies to take account of the contingencies that may have prevented Cineworld from realizing the synergies.
22. Such further and other grounds as counsel may advise and this Honourable Court may permit.

The Trial Judge Erred in Awarding Damages to Cineplex For Lost Synergies
17. The Trial Judge made an extricable error of law in awarding damages for lost synergies as if those synergies were benefits Cineplex was entitled to under the Arrangement Agreement had it been performed. Any synergies achieved post closing belonged exclusively to the Purchaser, Cineworld. No term of the Arrangement Agreement entitled Cineplex to synergies, or created an expectation that Cineplex would receive the benefit of synergies, had the contract

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been performed. The Trial Judge erred by treating these synergies as if they were expectation damages flowing to Cineplex had the Arrangement Agreement been performed.
18. The Arrangement Agreement did not provide Cineplex with any promises or expectations of post-closing benefits of any sort. The Arrangement Agreement provided that if Cineplex’s shareholders voted to accept the Arrangement Agreement, which they did on February 11, 2020, its shareholders would receive a premium payment of $34 per share for each Cineplex share. On paying that price to Cineplex shareholders, Cineworld, through its wholly owned subsidiary, 1232743 B.C. Ltd would become the sole owner of Cineplex and could operate Cineplex to achieve, or not achieve synergies as it saw fit. Its absolute ownership of Cineplex was the very thing Cineworld bargained for and accordingly Cineplex had no expectation of any post closing benefits of any sort, including synergies.
19. Alternatively, the Trial Judge made a palpable and overriding error in holding that the lost synergies she allocated to Cineplex would not have been offset by the additional purchase price debt that would have been imposed on Cineplex after the closing. Had the transaction closed, Cineworld would have required Cineplex to incur $2.1 billion in acquisition financing debt, as well as provide a further $3.5 billion guarantee for the debt of other entities in the Cineworld group. This debt was not uncertain and speculative as the Trial Judge held. The Trial Judge was therefore required to offset any synergies Cineplex lost by the amount of this purchase price debt. Cineplex could only have had the benefit of the synergies by becoming part of the Cineworld group and thereby assuming the burden of the purchase price debt. The failure to account for this debt put Cineplex in a better position than it would have been in had the contract been performed.

14. In addition to these extricable legal errors, the Trial Judge made a palpable and overriding error of fact in concluding that Cineplex did not breach the Ordinary Course Covenant. The evidence showed that Cineplex had deviated markedly from its normal day-to- day operations and past practice by unilaterally halting or deferring payments owing to its landlords, suppliers, and movie studios and film distributors (for goods, services and films already provided). It used the amounts it ordinarily would have paid these parties to pay down its bank credit facility and thus stay under the $725 Debt Condition.
15. These deviations started on March 2, 2020, before any government mandated shut down of its theatres. Cineplex paid no rent at virtually all of its theatres in April, May and June of 2020. At June 30, 2020, the outside date for a closing under the Arrangement Agreement virtually all of Cineplex leases were in default for non-payment of rent and in respect of many, including those defined as Material Leases under the Arrangement Agreement, the landlord had threatened termination of those leases.
16. Although s. 4.1(1) provided that Cineplex could seek the consent of Cineworld for proposed deviations from the ordinary course and that Cineworld could not withhold its consent unreasonably, Cineplex sought no such consent. The Trial Judge’s finding that these material deviations from past practice, without Cineworld’s consent, qualified as operating in the ordinary course was palpably wrong and effectively deprived Section 4.1(1) of its meaning and purpose.

The Trial Judge Erred in Interpreting the Arrangement Agreement
11. In her interpretation of the Arrangement Agreement, the Trial Judge made extricable errors of law. Each error is grounded in the Trial Judge’s failure to give effect to all of the text of the Arrangement Agreement. She failed to give effect to the words of the Ordinary Course Covenant in Section 4.1(1) of the Arrangement Agreement. She held that the Covenant permitted deviations from past practice in response to an outbreak of illness, such as the pandemic. In fact there was no exception permitting Cineplex to deviate from the Ordinary Course on account of an “outbreak of illness” or on account of any other event defined as a Material Adverse Event (“MAE”).
12. The Trial Judge also made an extricable error of law in finding that the “MAE clause”, s. 6.2(4) of the Arrangement Agreement, addressed the risk of a pandemic and allocated that systemic risk to the purchaser, Cineworld. In fact the express language of s. 6.2 of the Arrangement Agreement, which prescribed closing conditions exclusively for the benefit of the Cineworld, allocated the risk of a pandemic during the Interim Period to the seller, Cineplex. Under s. 6.2(2) it was a condition of closing that Cineplex deliver a certificate that it had performed its covenants during the Interim Period, including the Ordinary Course Covenant, in all material respects. In the performance of these covenants, s. 6.2(2) did not provide Cineplex with any MAE exception, including an “outbreak of illness”. Conversely, s. 6.2(1) did provide an MAE exception for Cineplex’s representations and warranties. The Trial Judge took no account of this express difference in wording in her interpretation of the Arrangement Agreement
13. The Trial Judge also made an extricable error in her interpretation of the second clause of s. 4.1(1), to “in good faith, use commercially reasonable efforts to maintain and preserve its [...] business organization, assets, properties, employees, goodwill and business relationships [...]” (the latter of which is the “commercially reasonable efforts” clause). Instead of reading that clause harmoniously with the Ordinary Course Covenant, the Trial Judge erroneously interpreted it to allow for the non-payment of monetary obligations to landlords (thus putting

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leases in default), suppliers and film studios. This interpretation defeated the purpose of the Ordinary Course Covenant, which immediately preceded it, and rendered it commercially meaningless.
14. In addition to these extricable legal errors, the Trial Judge made a palpable and overriding error of fact in concluding that Cineplex did not breach the Ordinary Course Covenant. The evidence showed that Cineplex had deviated markedly from its normal day-to- day operations and past practice by unilaterally halting or deferring payments owing to its landlords, suppliers, and movie studios and film distributors (for goods, services and films already provided).