UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF INDIANAINDIANAPOLIS DIVISIONCORRE OPPORTUNITIES FUND, LP,ZAZOVE ASSOCIATES LLC, DJDGROUP LLLP, FIRST DERIVATIVETRADERS LP, and KEVAN A. FIGHT,Plaintiffs,vs.EMMIS COMMUNICATIONSCORPORATION, JEFFREY H.SMULYAN, PATRICK M. WALSH, J.SCOTT ENRIGHT, SUSAN B. BAYH,GARY L. KASEFF, RICHARD A.LEVENTHAL, PETER A. LUND, GREGA. NATHANSON, and LAWRENCE B.SORREL,Defendants.)))))))) 1:12-cv-491-SEB-TAB)))))))))))
ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION
This cause is before the Court on Plaintiffs’ Motion for Preliminary Injunction[Docket No. 12], filed on April 16, 2012, pursuant to Rule 65 of the Federal Rules of Civil Procedure. Plaintiffs, Corre Opportunities Fund, LP, Zazove Associates LLC, DJDGroup LLLP, First Derivatives Traders LP, and Kevan A. Fight, seek a preliminaryinjunction barring Defendants, Emmis Communications Corporation (“Emmis”), JeffreyH. Smulyan, Patrick M. Walsh, J. Scott Enright, Susan B. Bayh, Gary L. Kaseff, RichardA. Leventhal, Peter A. Lund, Greg A. Nathanson, and Lawrence B. Sorrel, from,
inter
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alia
, holding a Special Meeting to vote on the Proposed Amendments set forth inEmmis’s March 13, 2012 Preliminary Proxy Statement and from voting, directing othersto vote, or taking any action on votes cast for the Proposed Amendments.A hearing was held on July 31 and August 1, 2012, at which the parties presentedevidence and oral argument. Having considered the parties’ briefing, the documentaryand testimonial evidence, and oral arguments, the Court hereby DENIES Plaintiffs’motion for injunctive relief.
Factual BackgroundRelevant Rights and Protections of Preferred Stock
In 1999, Emmis issued 2,875,000 shares of 6.25% Series A CumulativeConvertible Preferred Stock (“Preferred Stock”) for $50 per share, raising approximately$144 million. Docket No. 43 ¶ 23. Plaintiffs are all shareholders who own, or managefunds that own, more than 800,000 shares of Emmis’s Preferred Stock.Emmis’s Articles of Incorporation sets out the rights and protections associatedwith the Preferred Stock, which include,
inter alia
: (1) a right to cumulative annual cashdividends at a rate per annum equal to 6.25% of the stock’s $50 liquidation preference;(2) a bar on Emmis’s ability to pay dividends to its common stockholders or to repurchasesecurities ranking junior to or ratably with the Preferred Stock unless Emmis is current onthe Preferred Stock dividend payments; (3) a right to sell the stock back to Emmis at $50per share, plus any outstanding dividends, if the Company goes private; (4) the right toelect two Emmis directors if dividends are not paid for six consecutive quarters; and (5)
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In August 2009, the holders of Emmis’s senior debt demanded that loan covenants beamended to prohibit the Company from paying dividends on the Preferred Stock. Thisprohibition continues today. See Exh. 800 § 10.4; Exh. 801 § 5.3
the requirement that any issuance of senior-ranking stock or any adverse amendment tothe terms of the Preferred Stock be approved by two-thirds of the outstanding PreferredStock. Exh. 7.
Attempts to Take Emmis Private
In 2006, Emmis CEO, Jeff Smulyan, proposed to take Emmis private bypurchasing the Company’s common stock at $15.25 per share. However, a committee of disinterested directors of the Board of Directors (“the Board”) rejected his proposal andEmmis remained a public company. Smulyan Dep. at 20. Two years later, in October2008, Emmis, like other entities in the radio and media industry, was hit hard by thenationwide financial crisis and was forced to cut its workforce, reduce employee benefits,and cut wages and salaries. Emmis also ceased paying dividends to its PreferredShareholders at that time and has not paid dividends since.
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Docket No. 43 ¶ 24. Thecurrent amount of accrued unpaid dividends is $12.12 per share. Hornaday Dep. at 30.In 2010, two years after the financial crisis, the market price of Emmis’s CommonStock had fallen to less than $3.00 per share. Smulyan Dep. at 23. Mr. Smulyan, fueledby the belief that the Common Stock was undervalued by the market, proposed anothergo-private transaction. As part of that deal, Emmis asked the Preferred Shareholders torelinquish their right to sell their stock back to Emmis at $50.00 per share plus unpaid
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