Emmis Communications Corp.’s proposal to strip preferred shareholders of their right to collect millions of dollars in dividends is set to be heard Friday in federal court in Indianapolis.

The shareholders are attempting to block the plan and have asked a judge to issue a preliminary injunction to prevent Emmis from holding a special meeting where investors would vote on the plan to weaken preferred shareholders’ rights.

Emmis hopes to rekindle interest in its common shares, in part by freeing itself of the obligation to pay four years of dividends to the holders of preferred stock.

The media company says it amassed voting control over about two-thirds of the preferred stock as a result of a buyback program it launched last fall with $35 million in funding from Chicago financier Sam Zell. The company purchased those shares at a huge discount from holders worried over the company’s perilous finances.

Emmis had planned to hold the special meeting to vote on the plan. But a group of the shareholders filed suit in April to try to prevent the move. A federal judge is set to hear arguments from both sides on Friday and ultimately will decide whether Emmis can proceed with its proposal. The hearing is expected to last one day.

Preferred shareholders Kevan Fight, Corre Opportunities Fund, Zazove Associates, DJD Group and First Derivative Traders allege that Emmis CEO Jeff Smulyan and the company’s board of directors ignored Securities and Exchange Commission rules, failed to file proper documentation, engaged in back-room deals and are illegally attempting to squelch their rights.

In an e-mailed statement to IBJ, Emmis said it “remains confident that all its actions were consistent with applicable state and federal laws.”

Emmis on Wednesday submitted to the federal court a list of witnesses that are expected to testify at the trial. They include Smulyan, Emmis Chief Operating Officer Patrick Walsh, and company board members Susan Bayh, Lawrence Sorrell and David Gale.

Shares of Emmis are fetching $1.43 each and rose above $1 in late April after the company announced two deals that will give it a $92 million cash infusion. The stock climbed as high as $1.63 on May 2 and has slid as low as $1.27 within the past month.

Emmis owns 17 FM and two AM radio stations nationwide, and seven city and specialty magazines. Locally, it operates WFNI-AM 1070, WIBC-FM 93.1, WLHK-FM 97.1 and WYXB-FM 105.7, as well as Indianapolis Monthly magazine.