Emmis holders in lock-up agreement up stake in 6.25% convertibles

By Jennifer Chiou

New York, Dec. 22 - A group of holders of Emmis Communications Corp.'s 6.25% series A cumulative convertible preferred stock that entered into a lock-up agreement has increased its holdings.

The group now owns 784,860, or 30.4%, of the convertibles, according to a schedule 13D filed with the Securities and Exchange Commission on Wednesday by Kevan Fight. The group previously owned 769,403 of the convertibles.

As already reported, Zazove Associates, LLC, Corre Opportunities Fund, LP, Kevan Fight and DJD Group, LLLP agreed on Dec. 12 not to sell, assign, transfer or otherwise dispose of any convertibles without the prior written consent of at least two locked-up holders that hold at least two-thirds of the preferreds subject to the lock-up agreement.

The lock-up agreement follows the Dec. 1 launch of the company's modified Dutch auction tender offer for the convertibles.

If the company holds at least two-thirds of the outstanding convertibles following the completion of the tender offer, it may elect to make any or all of the following changes:

• Reduce or eliminate the liquidation preference of the convertibles;

• Remove the change-of-control put option;

• Remove the company's obligation to pay the dividends that are currently accrued;

• Change the designation of the convertibles from cumulative to non-cumulative so that dividends cease to accrue;

• Eliminate the rights of the holders to nominate directors to the board of directors as a result of arrearages in dividends; and

• Eliminate the restrictions on the company's ability to pay dividends or make distributions on its class A common stock and its class B common stock prior to paying accrued dividends on the convertibles.

According to the schedule 13D filing, Emmis entered into total return swap transactions with the holders of 1,484,679 convertibles prior to the start of the tender offer. Under the terms of the transactions, the purchased convertibles are treated as outstanding and eligible to be voted by Emmis.

The 30.4% figure assumes that the preferreds purchased by Emmis under total return swap transactions are treated as outstanding, which may not be the case, according to the schedule 13D. If these preferreds are treated as redeemed or otherwise not eligible to be voted, then the beneficial ownership of the locked-up holders is 69.95% of the convertibles.

As of Dec. 12, 2,612,420 convertibles were outstanding, including the convertibles purchase by Emmis under the total return swap transactions.

Tender offer

As noted, the company is offering to purchase up to $6 million in value of the convertibles. The offer will end at 5 p.m. ET on Dec. 30.

The minimum price is $14.00, and the maximum price is $15.56. The convertibles have a liquidation preference of $50.00 each.

Depending on the final purchase price, Emmis could purchase between 385,604 and 480,000 convertibles if the offer is fully subscribed. This would be 14.8% to 18.4% of the issued and outstanding convertibles as of Nov. 30.

Based on the number of convertibles tendered and the prices specified by holders, Emmis will determine the lowest price that will enable it to purchase up to $6 million of convertibles at that price.

If the offer is oversubscribed, Emmis will purchase the convertibles on a pro rata basis.

The offer will be financed with amounts drawn under Emmis' Nov. 10 note purchase agreement with Zell Credit Opportunities Master Fund, LP.

Zell agreed to buy up to $35 million of notes due February 2015 from Emmis on up to four separate occasions by Feb. 2. Interest on the notes will accrue quarterly at a rate of 22.95% per year and is not payable in cash.

The tender offer is not conditioned on any minimum number of convertibles being tendered, but it is subject to other conditions.

BNY Mellon Shareowner Services (866 301-0524 or collect 201 680-6579) is the information agent and depositary for the tender offer.

Indianapolis-based Emmis operates radio stations and publishes magazines.

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