Contract analysis

I. Purpose This memorandum documents the allocation of the $14,750,000 Gross Settlement Amount (the "GSA") agreed upon in the consolidated class action Fuentes v. Aurelius Media Americas Inc., Los Angeles Superior Court Case No. 22STCV38214, as between the contribution from Aurelius Media Americas Inc.'s ("AMA") Employment Practices Liability ("EPL") carrier, Pemberton Mutual Assurance Co. ("Pemberton"), and AMA's se

II. Settlement Background On September 8, 2023, following two full-day mediation sessions before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc. in Los Angeles, the parties to the consolidated Fuentes class action reached a tentative class-wide settlement with a Gross Settlement Amount of $14,750,000. The first mediation session was held on August 14, 2023, and resulted in a mediator's proposa

III. EPL Policy Summary The following is a summary of the material terms of AMA's Employment Practices Liability insurance policy relevant to the allocation and funding of the Fuentes class action settlement: Several features of the Policy warrant specific discussion in connection with the settlement allocation. Self-Insured Retention. The Policy provides for a $5,000,000 SIR on a per-Claim basis. Pursuant to the bat

IV. Allocation of Settlement Funds A. Allocation Table The $14,750,000 GSA is allocated between Pemberton's EPL Policy contribution and AMA's self-funded portion as follows: This allocation reflects the negotiated outcome between AMA and Pemberton following the coverage demand process. As set forth in Calderwood & Harkness's letter to Pemberton dated September 10, 2023 (Document 142), AMA initially demanded that Pemb

V. SIR Exhaustion Analysis A. SIR Threshold The EPL Policy's Self-Insured Retention is $5,000,000, applied on a per-Claim basis. As noted above, the Policy's batch clause (§ III.B.4) aggregates related claims into a single "Claim" for purposes of the SIR. Accordingly, the Fuentes class action, the Halloran action (LASC Case No. 22STCV39501, consolidated with Fuentes by order dated January 19, 2023), and the PAGA clai

VI. Total AMA Out-of-Pocket Analysis (All Matters) For completeness, and to provide AMA's leadership with a consolidated view of litigation expenditures arising from the Calderwood & Harkness engagement, the following table summarizes AMA's total out-of-pocket expenditure across both the Fuentes class action and the Aldrich executive dispute: ¹ Defense costs through September 2023; final costs will be higher upon eng

VII. Accounting Treatment Recommendations The following recommendations are provided to assist AMA's finance and accounting teams in determining the appropriate treatment of the class settlement, the insurance recovery, and related expenditures in AMA's financial statements. These recommendations are based on our understanding of generally accepted accounting principles and are provided for informational purposes onl

1. Settlement Expense (Class Action — AMA Self-Funded Portion). AMA should record $5,500,000 as a settlement expense (or litigation loss contingency) in the period in which the Settlement Agreement was executed (September 2023), or, if AMA's accounting policy requires, in the period in which the Final Approval Order is entered by the court. Under ASC 450-20 (formerly SFAS No. 5), a loss contingency should be accrued

2. Insurance Receivable / Recovery (Pemberton Contribution). AMA should record $9,250,000 as an insurance receivable upon receipt of Pemberton's written authorization letter dated September 13, 2023. Pemberton's letter constitutes a binding commitment to fund the contribution subject to the conditions described in Section IV.B above. Because Pemberton's authorization is conditioned on entry of the Final Approval Orde

3. Defense Costs. Defense costs of approximately $3,100,000 incurred through September 2023 have been accrued and expensed as incurred in prior periods, consistent with the general principle that legal fees are period costs. No additional accrual is required for defense costs that have already been paid or accrued. Remaining defense costs through engagement closure (estimated at approximately $180,000–$350,000) shoul

4. Aldrich Settlement. AMA should record $2,350,000 (or the actual settlement amount, if different) as a separate settlement expense in the period in which the Aldrich settlement is finalized. This amount is entirely self-funded, as Pemberton denied coverage for the Aldrich matter per its December 22, 2022 reservation of rights letter. The Aldrich settlement expense should be presented as a separate line item from th

VIII. PAGA Allocation Detail The PAGA payment of $750,000 is included within the $14,750,000 GSA and is allocated in accordance with California Labor Code § 2699(i) as follows: • 75% to the California Labor and Workforce Development Agency (LWDA): $562,500 • 25% to the aggrieved employees: $187,500 The PAGA allocation represents 5.1% of the total GSA ($750,000 / $14,750,000 = 5.08%). This allocation was negotiated be

IX. Settlement Funding Timeline and Logistics The following table sets forth the anticipated timeline for key settlement milestones and funding events: The dates set forth above are estimates based on customary timelines in the Los Angeles Superior Court and the terms of the Settlement Agreement. Actual dates may vary depending on the court's calendar, the volume of opt-outs or objections, and other factors. Calderwo

X. Recommendations Based on the foregoing analysis, we offer the following recommendations for AMA's consideration:

1. Pemberton Coordination. Bernard Crawford should confirm wire instructions with Pemberton (through Thornhill & Reade LLP) and ensure that Pemberton has received, or will receive, all documentation required to trigger its funding obligation. In particular, Pemberton should be provided with a certified copy of the Final Approval Order promptly upon its entry by the court. Crawford should also confirm with Pemberton t

2. AMA Internal Funding. Gregory Tanaka should coordinate with AMA's finance department — and, as necessary, with AGMG's Chief Financial Officer, Malcolm Dunmore — to ensure that $5,500,000 is available for wire transfer within the fourteen-day funding window following entry of the Final Approval Order. Given the magnitude of the funding requirement, we recommend that AMA begin the internal approval and budgeting pro

3. Auditor Notification. AMA should promptly notify Graystone & Parr LLP of the settlement terms and the anticipated accounting entries described in Section VII above, particularly if the settlement will be recorded in AGMG's FY 2023 financial statements. Early engagement with the auditor will help ensure that the accounting treatment is agreed upon in advance and that the year-end audit process is not disrupted by l

4. Kestrel Risk Advisors. AMA should notify its insurance broker, Kestrel Risk Advisors Ltd. (Samuel Okonkwo, Managing Director), of the settlement terms and the carrier's $9,250,000 contribution, for purposes of policy renewal negotiations and claims history reporting. The Fuentes settlement will be a significant claims event for purposes of AMA's EPL insurance program, and Kestrel should be prepared to address the

5. Aldrich Self-Funding. AMA should separately budget for the anticipated Aldrich executive dispute settlement, which is estimated at approximately $2.0–$2.5 million based on the current mediation posture and preliminary settlement discussions. Because Pemberton has denied coverage for the Aldrich matter, the settlement will be entirely self-funded by AMA. The standalone Aldrich mediation session is scheduled for Dec

1. Pemberton Mutual Assurance Co. Coverage Authorization Letter dated September 13, 2023 (from Thornhill & Reade LLP, Hartford, CT) — Document 143

2. Employment Practices Liability Insurance Policy No. PMA-EPL-2022-00837, issued by Pemberton Mutual Assurance Co. (Policy Period: July 1, 2022 through June 30, 2023) — Document 3

3. Class Action Settlement Agreement and Release (execution version, dated September 15, 2023), Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 — Document 144

4. Internal Memorandum re: EPL Coverage Analysis and Reservation of Rights, dated January 5, 2023, prepared by Nadia Petrov — Document 10

5. Letter to Pemberton Mutual Assurance Co. re: Consent to Settlement and Demand for Policy Contribution, dated September 10, 2023, prepared by Bernard Crawford — Document 142 CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in connection with the provision of legal advice t