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. (formerly known as The Madison Square Garden Company and
referred to herein as "MSG Sports") filed a complaint in the Court of Chancery
of the State of Delaware (the "Court"), derivatively on behalf of MSG Sports
(the "Action"), against certain directors of MSG Sports who are members of the
Dolan family group and against those other directors of MSG Sports who were the
members of the Compensation Committee on such date (collectively, the
"Individual Defendants"). MSG Sports was also named as a nominal defendant in
the Action. The Action alleges that the Individual Defendants breached their
fiduciary duties to MSG Sports and its stockholders in approving the
compensation of James L. Dolan, as the Executive Chairman and Chief Executive
Officer of MSG Sports, pursuant to his 2016 and 2018 employment agreements with
MSG Sports. Pursuant to Mr. Dolan's 2018 employment agreement, on October 3,
2018 MSG Sports 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 MSG
Sports' current stock price. The Action sought monetary damages in an
unspecified amount from the Individual Defendants in favor of MSG Sports;
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 MSG Sports formed a Special
Litigation Committee (the "SLC") to investigate the claims made in the Action
and determine MSG Sports' 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 with MSG Sports. The
SLC concluded that a settlement of the Action is in the best interests of MSG
Sports 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 MSG Sports 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 MSG Sports of continued litigation; and
(vi) the benefits that the proposed settlement affords MSG Sports.
Also as previously disclosed, on April 17, 2020 MSG Sports effected a spin-off
to its common stockholders (the "MSGE Spin-off") of all of the common stock of
Madison Square Garden Entertainment Corp. (the "Company"). In connection with
the MSGE Spin-off, each of the Company and MSG Sports 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, the Company 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 MSG Sports
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 the Company'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 MSG Sports and the Company entered into an agreement to settle the
Action (the "Settlement"). In light of Mr. Dolan's March 31, 2020 employment
agreements with each of the Company and MSG Sports and the plaintiff's status as
a stockholder of the Company as a result of the MSGE Spin-off, the Company is
entering into the Settlement because it believes that entering into the
Settlement will eliminate the distraction, burden, delay and expense of
litigation involving the claims to be released in the Settlement and will permit
the operation of the Company without any distraction to and diversion of its
directors and executives with respect to the Action or similar claims,
especially as the Company focuses on operating as a standalone public company
and on significant strategic initiatives.
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 Sports, 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 MSG Sports 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
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MSG Sports 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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