Five Emmis Shareholders Sue Over Move To Reissue Preferred Stock
April 18, 2012 at 4:15 AM (PT)
Two weeks ago (NET NEWS 4/3), EMMIS COMMUNICATIONS shareholders voted to approve the company's institution of an employee retention plan and trust and reissuance of 400,000 shares of Preferred Stock to be voted on behalf of the company. The approval, a step towards stripping Preferred Stock of its rights and most of its value, was a formality since EMMIS' JEFF SMULYAN owns a majority of shares in the company.
Reissuance of the stock allows EMMIS to effectively vote a 2/3 majority of Preferred Shares and thus convert Preferred Shares to common stock, and to avoid paying $26.7 million in dividends to Preferred shareholders that have been in arrears since OCTOBER 2008, when the company began to exercise its right to suspend the payments.
However five dissident shareholders have "countersued the company, alleging numerous violations of federal securities and state corporate laws," reports THE INDIANAPOLIS STAR, which writes "the 56-page lawsuit in U.S. District Court paints an unflattering picture of EMMIS carrying out a 'brazen scheme' to erase the rights of preferred shareholders and not pay $10 million in back dividends they're owed."
THE STAR report notes the allegations against EMMIS include:
It has created illegal "zombie shares" that are retired yet retain their voting rights.
It has pressured preferred shareholders with "manipulative acts" that include use of the "prisoner's dilemma," where shareholders fear losing all share value if they don't take the company-offered price for their shares.
It set up a "sham" stock trust supposedly to benefit employees, but it actually was used to hold company-controlled preferred stock that will help it gain the required 66 percent of preferred shares to control their voting rights.
EMMIS released a statement calling the allegations, "scurrilous and completely without merit. We intend to vigorously defend our actions and protect the interests of the hundreds of EMMIS shareholders from the unreasonable and irrational demands of the few."