Contract analysis

I. Purpose and Background This memorandum analyzes the federal and California state income tax treatment of the $2,350,000 lump-sum settlement payment to Gavin Aldrich, former Senior Vice President of Original Content & Executive Producer of Aurelius Media Americas Inc. ("AMA"), and the agreed allocation between wage and non-wage components. This memorandum is intended to guide AMA's compliance with its withholding,

II. Agreed Allocation A. Summary Table The parties have agreed to the following allocation of the $2,350,000 cash settlement payment: The RSU acceleration (10,200 RSUs) is treated separately from the cash settlement payment and is addressed in Section V below. B. Basis for the 45/55 Split The allocation reflected above is the product of arm's-length negotiations between adverse parties, each represented by independen

III. Analysis of the Wage Component ($1,057,500) A. Characterization The wage component of $1,057,500 represents compensation that Aldrich would have received from AMA had his employment not been terminated "for cause" under Section 7.2(b) of the Employment Agreement dated September 5, 2017 (as amended August 1, 2020) (the "Employment Agreement"). As background, AMA terminated Aldrich's employment on October 14, 2022

IV. Analysis of the Non-Wage Component ($1,292,500) A. Characterization The non-wage component of $1,292,500 represents damages and settlement consideration that are not in the nature of compensation for services rendered by Aldrich to AMA. Rather, this component reflects the resolution of tort-based and contract-based claims, emotional distress damages, and general consideration for the broad mutual release of all c

V. Tax Treatment of RSU Acceleration A. Background During his tenure as Senior Vice President of Original Content & Executive Producer at AMA, Aldrich was granted a total of 42,500 restricted stock units ("RSUs") in Aurelius Global Media Group PLC ("AGMG"), the London Stock Exchange-listed parent company of AMA (ticker: AGMG). The RSUs were granted under the AGMG 2018 Long-Term Incentive Plan (the "Equity Plan") and

1. Withholding method. The Equity Plan and Aldrich's RSU award agreements should specify the method for satisfying withholding obligations upon vesting. Common methods include "sell-to-cover" (in which a portion of the vested shares is sold on the open market to generate cash for withholding) and "cash withholding" (in which the employee remits cash to the employer to cover withholding, or the employer nets shares).

2. Reporting. The RSU income should be reported on Aldrich's Form W-2 for tax year 2024. If AGMG administers the plan through a U.S. payroll entity (such as AMA), the income should appear on the W-2 issued by AMA. If AGMG administers the plan through a separate payroll or equity compensation platform, AMA should confirm that the income is reported on a U.S. Form W-2 (rather than a UK payroll mechanism such as a P60 o

3. Plan terms. AMA should ensure that the Settlement Agreement references the RSU acceleration in a manner consistent with the Equity Plan's terms, including any required consent from the AGMG Compensation Committee or the plan administrator. If the plan requires board-level or committee-level approval for accelerated vesting in the context of a legal settlement, AMA should confirm that such approval has been obtaine

VI. Allocation Reasonableness and IRS Risk A. Standards for Reviewing Allocation The IRS retains the authority to challenge the tax allocation of settlement payments if it determines that the allocation does not reflect the economic substance of the settlement. While the IRS generally respects an allocation agreed upon by adverse parties in an arm's-length negotiation, it is not bound by the parties' characterization

1. Arm's-length negotiation. Whether the allocation was negotiated between adverse parties, each represented by independent counsel, with competing tax interests. An allocation agreed upon in a friendly or collusive manner — for example, where the payor is indifferent to the allocation, or where both parties benefit from the same tax treatment — is more likely to be challenged.

2. Consistency with underlying claims. Whether the allocation is consistent with the damages theories and amounts asserted in the pleadings, mediation briefs, or settlement negotiations. An allocation that attributes a disproportionate share of the settlement to a category of damages that was not meaningfully litigated or claimed is vulnerable to challenge.

3. Consistent reporting. Whether both parties report the settlement payments consistently with the agreed allocation on their respective tax returns. Inconsistent reporting — for example, where the payor deducts the full amount as wages but the payee reports it as non-wage income — is a red flag for the IRS.

4. Express allocation in the settlement agreement. Whether the settlement agreement contains a specific, written allocation and the basis for each component. A settlement agreement that is silent on the allocation leaves both parties vulnerable to competing characterizations by the IRS. B. Assessment of the 45/55 Allocation Applying the standards described above, the 45% wage / 55% non-wage allocation of the $2,350,0

1. The Settlement Agreement clearly specifies the allocation and identifies the wage component ($1,057,500) and the non-wage component ($1,292,500) with specificity, including the basis for each component (severance equivalent, partial pro-rata bonus, emotional distress damages, general settlement consideration, etc.).

2. Both AMA and Aldrich report the settlement payments consistently with the agreed allocation on their respective tax returns. AMA should report the wage component on Aldrich's Form W-2 and the non-wage component on a Form 1099-MISC, and should deduct the settlement payments on its corporate tax return in a manner consistent with the allocation.

3. AMA properly withholds federal and California income taxes, FICA, and SDI from the wage component, and does not withhold on the non-wage component.

4. The Settlement Agreement includes provisions requiring consistent reporting by both parties and acknowledging that each party will bear the consequences of any adverse tax determination relating to its own tax obligations.

VII. Recommendations Based on the analysis set forth above, the following actions are recommended: A. Settlement Agreement Language

1. Tax allocation provision. The Settlement Agreement should include a specific provision setting forth the 45% wage / 55% non-wage allocation, identifying the wage component ($1,057,500) and the non-wage component ($1,292,500) with specificity. The provision should describe the basis for each component — e.g., stating that the wage component represents severance-equivalent pay and a partial pro-rata bonus, and that

2. Consistent reporting provision. The Settlement Agreement should include a provision requiring both AMA and Aldrich to report the settlement payments consistently with the agreed allocation for all federal and state tax purposes, including on IRS Forms W-2, 1099-MISC, and their respective income tax returns. The provision should state that neither party will take a position on any tax return, amended return, or in

3. No tax advice disclaimer. The Settlement Agreement should include a provision acknowledging that neither AMA nor its counsel (Calderwood & Harkness LLP) has provided tax advice to Aldrich and that Aldrich has been advised to consult his own tax advisor regarding the federal, state, and local tax consequences of the settlement payments, including the tax treatment of the wage and non-wage components and the RSU acc

4. Withholding and tax responsibility provision. The Settlement Agreement should specify that AMA will withhold applicable federal and state income taxes, FICA contributions (employee share), and California SDI from the wage component, and that the net amount (after withholding) will be paid to Aldrich. The provision should further state that Aldrich is solely responsible for any additional tax liability arising from

1. Notification to AGMG. AMA should promptly notify AGMG's equity compensation team of the RSU acceleration provision in the Settlement Agreement. The primary contact is Malcolm Dunmore, Chief Financial Officer, Aurelius Global Media Group PLC, 34 Kingsway, London WC2B 6EX, United Kingdom. Notification should be made by email and followed by formal written correspondence, with a copy to AGMG's General Counsel.

2. Confirmation of vesting mechanics. AMA should confirm with AGMG and the plan administrator: (a) the vesting date for the 10,200 accelerated RSUs (which should be the later of execution of the Settlement Agreement and filing of the Stipulation for Dismissal); (b) the applicable withholding method (sell-to-cover, net share settlement, or cash withholding); and (c) the reporting mechanism (U.S. Form W-2 issued by AMA

3. Plan compliance. AMA should ensure that the Settlement Agreement references the RSU acceleration in a manner consistent with the AGMG 2018 Long-Term Incentive Plan's terms, including any required consent from the AGMG Compensation Committee, the plan administrator, or any other governing body. If such consent has not yet been obtained, AMA should make the RSU acceleration provision in the Settlement Agreement cont

1. Wage component processing. The wage component ($1,057,500) should be processed through AMA's payroll system (NovaPay Solutions Inc.) as a supplemental wage payment. AMA's Payroll Manager, Karen Fong, should be notified of the forthcoming settlement payment and provided with a copy of the executed Settlement Agreement and this memorandum (subject to privilege protections). Karen Fong should ensure that the settleme

2. Non-wage component payment. The non-wage component ($1,292,500) should be paid by AMA directly — not through the NovaPay payroll system — via wire transfer to Gavin Aldrich or to his counsel's client trust account (Whitfield & Associates IOLTA Account), as specified in the Settlement Agreement. No withholding should be applied to this payment. AMA's Treasury or Finance department should process the wire transfer a

3. Tax form deadlines. AMA should issue the Form W-2 and Form 1099-MISC to Aldrich by January 31, 2025, for tax year 2024 payments. AMA should file copies of the W-2 with the Social Security Administration and the 1099-MISC with the IRS by the applicable deadlines (February 28, 2025, for paper filings; March 31, 2025, for electronic filings). California state copies (DE 6 and related filings) should be filed with the

1. AMA should retain the following documents in connection with the Aldrich settlement for a minimum of seven (7) years from the date of the last tax filing to which the settlement relates: (a) The executed Settlement Agreement and Mutual Release; (b) This tax allocation memorandum and any supplements or updates thereto; (c) All Forms W-2 and 1099-MISC issued in connection with the settlement; (d) Payroll records ref

VIII. Conclusion The 45% wage / 55% non-wage allocation of the $2,350,000 Aldrich settlement cash payment is defensible and consistent with the economic substance of the underlying claims resolved by the Settlement Agreement. The allocation reflects a genuine, arm's-length negotiation between adverse parties with competing tax interests, and is supported by the specific contractual entitlements and damages theories a