Emmis wins judgment in lawsuit over 6.25% convertible preferreds

By Susanna Moon

Chicago, July 9 – Emmis Communications Corp. won the final court ruling in a lawsuit brought by a group of holders of its 6.25% series A noncumulative convertible preferred stock, according to a 10-K filing with the Securities and Exchange Commission.

The U.S. Court of Appeals for the Seventh Circuit heard oral arguments on Dec. 5, 2014 and on July 2 unanimously affirmed the U.S. District Court’s ruling Feb. 28, 2014 in favor of Emmis, the filing noted.

“Last Friday’s decision by the Seventh Circuit Court of Appeals in our preferred stock case was particularly gratifying,” Jeff Smulyan, president and chief executive officer of Emmis, said in a company press release.

“We always knew that we had complied with Indiana’s unique corporate law, and were very pleased that the court agreed.”

As previously reported, Emmis bought back more than 60% of the convertible preferreds as part of an attempt by Smulyan to take the company private and in 2012 proposed amendments to the terms that included canceling undeclared dividends and eliminating the holders' put option upon the occurrence of certain going-private transactions.

In response, a group of holders filed a lawsuit seeking to enjoin the vote on the amendments. Among other issues, the plaintiffs objected to Emmis’ acquisition of the convertible preferreds without first paying accumulated dividends, and they contended that by purchasing a majority of the convertible preferreds and then voting in favor of the amendments, Emmis was amending their terms unilaterally.

In August 2012, judge Sarah Evans Barker of the U.S. District Court, Southern District of Indiana, denied the injunction. The vote went ahead, and Emmis was able to make the amendments.

In the February 2014 ruling, Barker said her initial view on the issues remained unchanged. She granted Emmis’ motions for judgment.

Amendments made

Emmis amended the convertible preferreds to make the following changes:

• Cancel the dividends that had accumulated but were undeclared prior to the amendments;

• Change the designation of the preferreds to “noncumulative” from “cumulative” and change the rights of the holders so that dividends or distributions will not accumulate unless declared by the board of directors;

• Cancel the restrictions on Emmis’ ability to pay dividends or make distributions on or repurchase its common stock or other junior stock prior to paying accumulated but undeclared dividends or distributions on the preferreds;

• Remove the ability of the holders of the preferreds to require Emmis to repurchase the preferreds upon certain going-private transactions in which an affiliate of Smulyan participates that do not constitute a change of control;

• Remove the ability of the holders to convert all of the preferreds to class A stock upon a change of control;

• Change the ability of holders to vote as a separate class on a plan of merger, share exchange, sale of assets or similar transaction to the ability to vote with the stock on an as-converted basis; and

• Change the conversion price adjustment applicable to certain merger, reclassification and other transactions to provide that the preferreds convert into the right to receive property that would have been receivable had the preferreds been converted into class A shares immediately prior to the transaction.

Emmis is an Indianapolis-based diversified media company.

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