We called that one right! Even as RBR-TVBR was writing Friday (3/23) that a new round of litigation might ensue, lawyers for Emmis Communications were heading to the courthouse.
Noting that representative of some of the major holders of its preferred stock had suggested that the company’s move to issue new preferred shares to use as employee bonuses – with Emmis holding the voting rights – might not be legal, Emmis took the preemptive step of seeking a court ruling that it is legal.
“The dissident preferred holder lockout group has made public assertions that Emmis may not have the right to direct the vote of the preferred shares. Emmis is confident it is acting within Indiana law and pursuant to its contract with the preferred holders, and is seeking the court’s judgment to affirm the company’s stance,” said a statement that Emmis sent to RBR-TVBR.
The lawsuit filed in an Indiana state court seeks a declaratory judgment that the moves Emmis has undertaken are in accordance with Indiana securities law and that Emmis may vote the preferred shares of the trustee for the employee retention plan and those whose voting rights it obtained under swap agreements. In total those give Emmis control of the voting rights of slightly over two-thirds of the preferred shares, which will enable the company to change the terms of the preferred shares so that it no longer has to pay dividends to the preferred shareholders.
The defendants in the lawsuit are the members of the “lock-up group” – whose members had refused to accept an offer by the company to buy back preferred shares at less than their face value. Those preferred shareholders named in the Indiana lawsuit are Zazove Associates, Corre Opportunities Fund, DJD Group, Kevan A Fight and First Derivative Traders.