Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
The information set forth under Item 8.01 of this Current Report on Form 8-K is
incorporated by reference herein.
Item 8.01 Other Events.
As previously disclosed, on March 29, 2019, a stockholder of Madison Square
Garden Sports Corp. (the "Company") filed a complaint in the Court of Chancery
of the State of Delaware (the "Court"), derivatively on behalf of the Company
(the "Action"), against certain directors of the Company who are members of the
Dolan family group and against those other directors of the Company who were the
members of the Compensation Committee on such date (collectively, the
"Individual Defendants"). The Company was also named as a nominal defendant in
the Action. The Action alleges that the Individual Defendants breached their
fiduciary duties to the Company and its stockholders in approving the
compensation of James L. Dolan, as the Executive Chairman and Chief Executive
Officer of the Company, pursuant to his 2016 and 2018 employment agreements.
Pursuant to Mr. Dolan's 2018 employment agreement, on October 3, 2018 the
Company granted Mr. Dolan a one-time award consisting of 32,471 performance
stock units and 448,992 stock options (the "MSGS Award"). The stock options
included as part of this award vest over four years and at the time of grant
date were, and continue to be, priced substantially higher than the Company's
current stock price. The Action sought monetary damages in an unspecified amount
from the Individual Defendants in favor of the Company; rescission of
Mr. Dolan's employment agreements; restitution and disgorgement by Mr. Dolan in
respect of his compensation; and costs and disbursements for the plaintiff. Each
of the Individual Defendants denies all allegations, in the Action or otherwise,
that any of them committed wrongdoing, has any fault or liability or has caused
any damage.
On June 5, 2019, the Board of Directors of the Company formed a Special
Litigation Committee (the "SLC") to investigate the claims made in the Action
and determine the Company's response thereto. From July to December 2019, the
SLC conducted a thorough investigation into the facts and circumstances
surrounding the Action to objectively assess the substantive fairness of
Mr. Dolan's compensation under his 2016 and 2018 employment agreements. The SLC
concluded that a settlement of the Action is in the best interests of the
Company and its stockholders. In reaching that determination, the SLC considered
the facts and circumstances surrounding the proposed settlement, including:
(i) the strengths and weaknesses of the claims asserted by plaintiff and the
Individual Defendants' defenses, viewed in light of the SLC's considerable
investigation; (ii) that the SLC found no evidence that any of the Individual
Defendants acted in bad faith or in a manner that they believed not to be in the
best interests of the Company and its stockholders; (iii) the potential recovery
from the claims asserted; (iv) the time, expense, risks, and uncertainties of
continued litigation; (v) the effect on the Company of continued litigation; and
(vi) the benefits that the proposed settlement affords the Company.
Also as previously disclosed, on April 17, 2020 the Company effected a spin-off
to its common stockholders (the "MSGE Spin-off") of all of the common stock of
Madison Square Garden Entertainment Corp. ("MSG Entertainment"). In connection
with the MSGE Spin-off, each of the Company and MSG Entertainment entered into
new March 31, 2020 employment agreements with Mr. Dolan, which allocated
Mr. Dolan's compensation between the two companies. Additionally in connection
with the MSGE Spin-off, MSG Entertainment granted a one-time award consisting of
32,471 performance stock units and 448,992 stock options (the "MSGE Award") to
Mr. Dolan in respect of the MSGS Award, consistent with the treatment of all
equity-based Company awards in the MSGE Spin-off. Like the MSGS Award, the stock
options included as part of this award vest over four years and at the time of
grant date were, and continue to be, priced substantially higher than MSG
Entertainment's current stock price.
On June 18, 2020, as a result of arm's-length negotiations among the SLC, the
plaintiff, and the Individual Defendants, and their respective counsel, such
parties and the Company and MSG Entertainment entered into an agreement to
settle the Action (the "Settlement"). The Individual Defendants are entering
into the Settlement solely because it will eliminate the distraction, burden,
delay and expense of further litigation involving the claims to be released in
the Settlement and will permit the operation of the Company without further
distraction to and diversion of its directors and executives with respect to the
Action.
Upon the Settlement becoming effective, Mr. Dolan has agreed to voluntarily
relinquish the MSGS Award and MSGE Award and the related award agreements will
be cancelled. The Settlement also provides that (i) no future decision by the
Company or MSG Entertainment, as applicable, concerning Mr. Dolan's compensation
will reinstate or recompense Mr. Dolan for the cancelled MSGS Award or MSGE
Award or the exclusion from Mr. Dolan's employment agreements of the terms set
forth in Annex B to the 2018 employment agreement (which had provided Mr. Dolan
with certain rights in the event of his termination of employment with MSG
Networks Inc.), and (ii) as applicable, in connection with any negotiations with
Mr. Dolan regarding his compensation, the Board of Directors or the Compensation
Committee of each of the Company and MSG Entertainment will retain independent
legal counsel and will continue to retain an independent compensation
consultant. As part of the Settlement, the plaintiff will withdraw all of the
allegations made in the Action upon the Settlement becoming effective. The
parties agreed that the Settlement is not a presumption, concession, or
admission by any of the parties of any fault, liability, or wrongdoing, or of
any infirmity or weakness of any claim or defense. If the Court approves the
Settlement, it will issue a Final Judgment and Order of Dismissal that will
dismiss the Action with prejudice and release claims relating to the Action. The
Settlement will become effective on the date on which the Final Judgment and
Order of Dismissal becomes final.
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