UPDATE: Lawsuits could still go forward, despite Emmis deal

Shareholders challenging Emmis Communications Corp.’s bid to go private could still have their day in court, even though
the Indianapolis-based media company agreed to be acquired by a group led by Emmis Chairman Jeffrey H. Smulyan.

Emmis’ board on Tuesday unanimously approved the transaction by closely held JS Acquisition LLC in a deal valued at
more than $500 million when including debt.  

The acquisition, announced April 26, would pay Emmis common shareholders $2.40 per share, which amounts to about $90 million.
Smulyan, who owns 20 percent of Emmis’ common stock but has voting power approaching 70 percent, has teamed up with
New York-based Alden Global Capital to buy out other shareholders.

At least five lawsuits have been filed over the deal in recent weeks, claiming board members have breached their fiduciary
duty by enriching Smulyan at the expense of minority shareholders.

James Knauer, a partner at Indianapolis law firm Kroger Gardis & Regis LLP, represents Emmis investor William McQueen,
who holds nearly 35,000 company shares.

“[Smulyan’s] taking advantage of the company’s timing in going private,” Knauer said. “[The
shareholders] won’t have the benefits of the comeback.”

Emmis shares plunged to as low as 24 cents each last July but rallied to about $2.30 before Smulyan unveiled his $2.40-per-share
buyout offer in late April.

“It’s a 4-percent premium over the closing price,” Knauer said. “Historically, going-private premiums
are considerably higher.”

Knauer said a court could determine that the board breached its fiduciary duty to shareholders and award them damages, or
it could delay the transaction—a decision that Knauer acknowledged would be unlikely.

The transaction won’t be completed for at least three months and still needs shareholder approval, which prevents Smulyan
from discussing details, Emmis spokeswoman Kate Snedeker said.

In a letter to employees, company Chief Financial Officer Patrick Walsh reassured them that nothing will change under the
new ownership structure.

“While Alden will have certain rights as a minority shareholder under the proposed transactions, they will not be involved
in the day-to-day operations of Emmis,” he said. “The transaction should not result in changes to how we operate
the business.”

Although Smulyan owns fewer than 20 percent of the shares, most of his stock has special voting rights on nearly all matters
except a going-private transaction. In that scenario, each of his shares has a single vote, putting him on equal footing with
rank-and-file shareholders.

Yet even with the diminished voting power, experts believe Smulyan can win majority support to close his deal—in part
because other shareholders recognize this might be the best deal they can get.

Smulyan, 63, tried in 2006 to take Emmis private, offering $15.25 per share.

Four years, however, seems like an eternity in the radio industry, which is struggling with increased competition and declining
advertising revenue.

“That showed us that [Smulyan] wanted to go private and now he’s able to do it,” said Tom Taylor, executive
news editor of Radio-Info. “He didn’t even have to sweeten the price.”

The latest transaction didn’t need board approval, though. The letter of intent signed by Alden conditions the deal
on the board’s exercising its right under Indiana’s “special circumstances statute” to send the proposal
directly to shareholders without a board recommendation.

Indiana law normally requires board approval for buyouts. But the language cited by Alden provides an exception for conflicts
of interest or special circumstances. What qualifies isn’t spelled out in the law, and Emmis has not elaborated on why
the company believed its board’s circumstances fit.

Even so, Indianapolis lawyer David Millard, chairman of Barnes & Thornburg LLP’s business practice, said the board
likely approved the deal to comply with its fiduciary duties.

“Frankly, it’s kind of a safe out for the board,” he said. “I would suspect that while the fact that
their recommendation ultimately has no impact in terms of whether the deal was going to get done, it may have motivated them
a little bit to at least lean toward making an approval.”

The escalating compliance costs involved in keeping a company public likely led to Smulyan’s decision to take it private,
Millard and others said.

“The costs are going in one direction, clearly, and that’s up,” he said. “It’s so much less
attractive to be a public company.”