CALDERWOOD & HARKNESS LLP
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Megan Chu, Lead Associate, Mergers & Acquisitions
FROM: Derek Okonkwo, Working Associate, Mergers & Acquisitions
DATE: May 15, 2024
RE: Carve-Out and Sale of Meridian Press Holdings LLC — Proposed Transition Services Agreement: Scope, Pricing, and Duration Analysis
MATTER NO.: 1043-00002
CLIENT: Aurelius Global Media Group PLC
I. Executive Summary
The purpose of this memorandum is to analyze and recommend the scope, pricing structure, and maximum duration of the Transition Services Agreement (the "TSA") to be entered into in connection with the carve-out and sale of one hundred percent (100%) of the membership interests in Meridian Press Holdings LLC ("MPH" or the "Business") by Aurelius Media Holdings Inc. ("Seller" or "AMH"), the US subsidiary of Aurelius Global Media Group PLC ("Aurelius" or "Parent"), to Ridgeline Publishing Acquisition Corp. ("Buyer"), a newly formed acquisition vehicle of Pinnacle Ridge Capital Partners Fund IV, L.P. ("Pinnacle Ridge" or the "Sponsor").
The TSA is a critical component of the contemplated transaction. As discussed in greater detail below, MPH has historically operated on shared infrastructure, enterprise systems, and back-office support provided by Aurelius and its US subsidiary AMH. The carve-out nature of this deal — separating MPH (approximately $1.14 billion in FY2023 revenue, approximately 2,400 employees, and 14 distribution centers across North America) from Aurelius's retained Digital Media & Streaming and E-Commerce & Marketplace business segments — means that MPH currently lacks standalone capability in several key operational areas. Without a properly structured TSA, MPH would not be able to operate as a going concern on a standalone basis immediately following the Closing Date.
Based on our analysis, we recommend that the TSA encompass four forward TSA service categories plus one reverse TSA service, structured as follows:
• Aggregate Monthly Forward TSA Fee: $1,190,000
• Maximum Forward TSA Consideration (18 months): $21,420,000
• Monthly Reverse TSA Fee: $85,000
• Maximum Reverse TSA Consideration (12 months): $1,020,000
The aggregate maximum consideration under both the forward and reverse TSA components is $22,440,000. This amount is reasonable in the context of the overall transaction economics, representing approximately 4.7% of the $480,000,000 enterprise value and approximately 2.0% of MPH's FY2023 revenue on an annualized basis.
We note that the TSA is contemplated to be signed concurrently with the Membership Interest Purchase Agreement (the "MIPA") on the signing date, with effectiveness commencing as of the Closing Date. This structure ensures that the TSA is in place and fully operative at the moment the Business transitions to Buyer ownership, avoiding any gap in service delivery that could disrupt MPH's ongoing operations. The form of TSA will be attached as an exhibit to the MIPA and will constitute a required Closing deliverable.
The balance of this memorandum sets forth the background and rationale for the TSA, a detailed analysis of each proposed service category, the recommended pricing methodology and fee structure, the proposed duration and early termination mechanics, service level standards, limitation of liability provisions, key negotiation points, and coordination with other transaction documents.
II. Background and Rationale for TSA
A. Operational Integration of MPH Within Aurelius
MPH operates its three publishing imprints — Meridian Books (trade publishing), Bellweather Academic (academic and professional publishing), and Foxglove Periodicals (periodical and serial publications) — together with its distribution network of 14 centers across North America. Throughout MPH's history as a subsidiary of Aurelius, these operations have been supported by enterprise systems and shared services that are deeply integrated with Aurelius's centralized corporate infrastructure. MPH has never operated as a standalone business, and the level of integration is considerably greater than what is typically observed in more loosely affiliated subsidiary structures.
Through our due diligence process, and in close coordination with the Aurelius corporate development team (Thomas Whitfield, SVP Corporate Development) and MPH management (Jonathan Kessler, President; Angela Moretti, SVP Finance), we have identified the following key interdependencies that necessitate the provision of transitional services following the Closing:
IT Infrastructure. MPH runs on Aurelius's enterprise Aldermere Services Inc. system, which serves as the backbone for finance, procurement, supply chain management, and warehouse management across all 14 distribution centers. In addition, MPH's publishing operations rely on shared content management systems ("CMS") used for editorial workflows, digital asset management, and production scheduling. MPH does not currently hold standalone ERP or CMS licenses and does not maintain its own server infrastructure, data hosting environment, or IT security monitoring capability. The Hollowell & Co. environment is configured as a single-instance, multi-tenant system, meaning that MPH's data and modules are intermingled with those of Aurelius's retained businesses. Separating MPH onto a standalone ERP platform is the single most complex and time-consuming aspect of the operational separation.
Finance & Accounting. The general ledger, accounts payable, accounts receivable, and treasury functions for MPH are managed through Aurelius's centralized finance organization. While MPH has certain dedicated finance and accounting personnel, these individuals are embedded within the broader Aurelius corporate finance function and utilize shared systems, processes, and reporting tools. Month-end close, quarter-end close, intercompany reconciliation, and financial reporting for MPH are all performed through centralized processes that cannot be replicated on a standalone basis without substantial effort and investment by the Buyer.
Human Resources & Payroll. Aurelius operates a centralized human resources information system ("HRIS") and benefits administration platform that covers all US and Canadian employees across the Aurelius group, including MPH's approximately 2,400 employees distributed across MPH's New York headquarters, its 14 distribution centers, and its Canadian operations. Payroll processing, health insurance administration, 401(k) plan management, workers' compensation claims management, and employment compliance monitoring are all handled through this centralized platform. MPH does not maintain standalone payroll or HRIS systems and is not a separate plan sponsor for its employee benefit plans.
Facilities & Real Estate. MPH's principal executive and editorial office is located at 1180 Avenue of the Americas, 22nd Floor, New York, NY 10036. This space is held under a master lease in the name of Aurelius Media Holdings Inc. Following the Closing, Aurelius will retain the master lease for the building, and MPH will require a continued right to occupy its portion of the 22nd floor under the TSA as a transitional arrangement while Buyer identifies and builds out permanent headquarters space.
B. Limited Reverse Dependency
Our diligence has also revealed that Aurelius's retained operations have a limited but non-trivial dependency on MPH. Specifically, Aurelius's Digital Media & Streaming and E-Commerce & Marketplace segments have historically relied on MPH's distribution center network and warehouse management capabilities for the physical fulfillment of certain digital content packages, promotional materials, and bundled content offerings. This dependency is modest in scale but operationally significant in the near term, necessitating a reverse TSA arrangement under which MPH (post-closing, under Buyer ownership) will continue to provide distribution logistics support to Aurelius for a transitional period.
C. Purpose of the TSA
The TSA is intended to serve the following core purposes:
1. Operational Continuity. The TSA provides Buyer and MPH with a reasonable runway to stand up independent operations and migrate off Aurelius's shared systems, processes, and infrastructure without disruption to MPH's ongoing business operations, customer relationships, or revenue generation.
2. Fair Compensation to Seller. The TSA compensates Aurelius at fair market value for the ongoing cost and administrative burden of providing transitional services to a divested business that is no longer part of the Aurelius group.
3. Clean Separation. The TSA establishes clear boundaries, timelines, and obligations governing the transition, reducing the risk of disputes and ensuring that both parties have a mutual understanding of the path to full operational independence.
4. Regulatory and Compliance Alignment. By structuring the TSA on arm's-length terms and at cost-plus pricing, the arrangement satisfies transfer pricing requirements and avoids any implication of continued economic affiliation that could create issues under applicable tax, regulatory, or antitrust frameworks.
III. Forward TSA Service Categories — Scope and Pricing
A. Overview of Proposed Service Categories and Monthly Fees
We propose that the forward TSA encompass four service categories, each with a fixed monthly fee. The following table summarizes the proposed structure:
Each of these service categories is discussed in detail below.
B. IT Infrastructure & Systems — $485,000/month
1. Scope of Services
The IT Infrastructure & Systems service category encompasses the following services to be provided by Aurelius/AMH to MPH during the transition period:
• Continued access to and support for the enterprise Aldermere Services Inc. system used by MPH, including all currently deployed modules for finance, procurement, supply chain management, and warehouse management across MPH's 14 distribution centers;
• Continued access to and support for the content management systems ("CMS") used by the Meridian Books, Bellweather Academic, and Foxglove Periodicals imprints for editorial workflows, digital asset management, production scheduling, and content archiving;
• Associated network and server infrastructure, including local area network connectivity at MPH's New York headquarters and remote access for MPH's distribution center operations;
• Data hosting and storage services for all MPH operational data, including backup and disaster recovery capabilities;
• Cybersecurity monitoring, threat detection, and incident response services covering MPH's systems and data environments;
• IT helpdesk services for MPH employees, including Tier 1 (end-user support), Tier 2 (application support), and Tier 3 (infrastructure support) functions; and
• Software license management for all third-party software applications currently licensed by Aurelius on behalf of MPH, to the extent such licenses are not separately transferable to Buyer at or prior to Closing.
2. Pricing Basis
The $485,000 monthly fee represents a cost-plus allocation reflecting MPH's proportionate share of Aurelius's global IT spend, adjusted for the direct costs of maintaining the MPH-specific modules, licenses, and dedicated infrastructure components. The allocation methodology apportions Aurelius's aggregate IT costs based on a blended metric of headcount, system utilization (measured by transaction volume and data storage consumption), and revenue contribution. A modest markup of approximately 7% has been applied to the fully allocated cost base to compensate Aurelius for the incremental administrative burden associated with providing services to a divested entity operating under separate ownership.
This amount was benchmarked against comparable carve-out TSA pricing in the media and publishing sector and was reviewed in detail with Aurelius's CFO Priya Nandakumar and MPH's SVP Finance Angela Moretti. Both confirmed that the proposed fee is consistent with the internal cost allocation that was applied to MPH under the existing intercompany shared services agreement and, with the application of the modest markup, fairly represents the arm's-length cost of the services.
3. Anticipated Migration Timeline
IT Infrastructure & Systems is expected to be the longest-duration service category and the most complex to separate. Buyer's advisors at Pinnacle Ridge have indicated through preliminary discussions that they anticipate needing the full 18-month TSA term to implement a standalone ERP system, migrate MPH data, configure and test the new environment, and decommission MPH's presence on Aurelius's systems. This expectation is consistent with our experience in comparable carve-out transactions, where ERP migrations of this scale typically require 12 to 24 months of implementation effort. The 18-month maximum duration of the TSA was, in significant part, driven by the expected timeline for the IT migration workstream.
Given that this is the highest-cost service category and the most operationally critical, the IT migration timeline will be the gating factor for the overall TSA duration. We expect that Buyer will be incentivized to transition off the IT services as quickly as reasonably practicable, given the aggregate cost, but the 18-month backstop ensures adequate protection against unforeseen delays in the migration process.
4. Key Considerations for Drafting
The IT Infrastructure & Systems service schedule should include the following provisions, which we will develop in detail during the drafting process:
• Detailed Service Descriptions. The service schedule must contain granular descriptions of each IT service component, specifying the systems, modules, and applications covered, the personnel responsible for service delivery, the hours of availability, and the specific deliverables. Ambiguity in service descriptions is the single most common source of TSA disputes, and investing effort in precise drafting at the outset will materially reduce the risk of post-closing disagreements.
• Data Ownership and Migration Obligations. The TSA must confirm that all MPH data — including business records, customer data, financial data, employee data, and intellectual property — remains the exclusive property of MPH (and, following Closing, the Buyer) at all times. Upon termination or expiration of the IT services, Aurelius must deliver all MPH data to Buyer in a commercially standard, machine-readable format suitable for migration to Buyer's new systems. Aurelius should be required to certify the completeness of the data transfer and, following a reasonable verification period, to permanently delete all copies of MPH data from its systems.
• Security and Access Controls. Aurelius will need to implement and maintain appropriate data segregation measures to ensure that MPH data is logically separated from Aurelius's retained business data within the shared Hollowell & Co. environment. Access to MPH data should be restricted to authorized MPH personnel and designated Aurelius service delivery personnel on a need-to-know basis. Aurelius should be required to notify Buyer promptly of any data security breach or unauthorized access affecting MPH data.
• Change Management. The TSA should address Aurelius's right to make changes to its own IT infrastructure (including system upgrades, patches, and migrations) and require Aurelius to provide reasonable advance notice of any changes that could materially impact the IT services provided to MPH. Aurelius should be required to use commercially reasonable efforts to minimize disruption to MPH's operations in connection with any such changes.
C. Finance & Accounting — $310,000/month
1. Scope of Services
The Finance & Accounting service category encompasses the following services:
• General ledger maintenance and management for MPH and its subsidiaries, including Meridian Distribution Services Inc., Bellweather Academic Press Inc., Foxglove Media LLC, and Meridian Press Canada ULC;
• Accounts payable processing, including vendor payment processing, invoice matching, and vendor relationship management within the existing AP workflows;
• Accounts receivable management, including customer invoicing, cash application, collections support, and aging analysis;
• Treasury and cash management support, including bank account administration, cash positioning, and intercompany funding coordination during the transition period;
• Month-end and quarter-end close processes, including journal entry preparation, account reconciliation, consolidation entries, and variance analysis;
• Financial reporting support, including preparation of management reports, segment-level financial data, and support for Buyer's financial reporting obligations (including any reporting requirements of Pinnacle Ridge as the Sponsor); and
• Coordination with Buyer's independent accounting advisors in connection with the post-closing net working capital true-up process and any audit or review procedures required during the transition period.
2. Pricing Basis
The $310,000 monthly fee is based on the allocated cost of the Aurelius centralized finance team members who are dedicated to or regularly support MPH operations, plus an allocated share of overhead costs attributable to shared finance leadership, systems, and infrastructure. The allocation methodology identifies the specific full-time equivalent ("FTE") personnel hours dedicated to MPH finance and accounting activities and applies fully loaded personnel costs (including salary, benefits, occupancy, and technology costs) to derive the direct cost component. Shared overhead — including the cost of finance leadership personnel who oversee MPH along with other Aurelius business segments — is allocated on a proportionate basis using MPH's share of total Aurelius transaction volume as the allocation key.
This pricing methodology was reviewed with Aurelius's external auditor, Pemberton Graves LLP (engagement partner Robert Ainsley), to confirm that the allocation approach is consistent with the methodology used to prepare the MPH carve-out financial statements included in the MIPA disclosure schedules. Consistency between the TSA pricing and the carve-out financial statement cost allocation is important to avoid any suggestion that the TSA pricing is artificial or inconsistent with historical practice.
3. Anticipated Migration Timeline
Buyer is expected to hire or contract for standalone finance and accounting personnel within 9 to 12 months following the Closing. However, the full 18-month TSA term may be needed for more complex functions, including:
• Intercompany reconciliation clean-up, which will require coordination between the Aurelius and MPH finance teams to identify, reconcile, and eliminate all intercompany balances and transactions that existed as of the Closing Date;
• Tax reporting support for the period covered by the Section 338(h)(10) election, including preparation of allocable income computations and coordination with the respective parties' tax advisors; and
• Transition of banking relationships and cash management infrastructure, which requires lead time for establishing new bank accounts, modifying customer payment instructions, and redirecting vendor payment flows.
4. Key Considerations for Drafting
• Cooperation with Buyer's Accounting Advisor. The TSA must include an express cooperation obligation requiring Aurelius's finance team to work collaboratively with Buyer's accounting advisor, Whitecliff & Harding LLP (engagement partner Susan Cartwright), during the post-closing net working capital ("NWC") true-up process. Under the MIPA, the NWC true-up statement must be delivered within 90 calendar days of the Closing Date (i.e., by February 13, 2025, assuming a November 15, 2024 Closing). Aurelius's finance team — which will be the team with the most detailed knowledge of MPH's working capital components during the transition period — must provide full access to books, records, and supporting documentation and must respond to information requests within reasonable timeframes.
• Neutral Accountant Coordination. In the event that the parties are unable to resolve any NWC dispute within the 30-day negotiation period provided under the MIPA, the disputed items will be submitted to Kensington Forensic Advisors LLP (the designated neutral accountant). The TSA should require Aurelius's finance team to cooperate with the neutral accountant's review, including making personnel available for interviews and providing access to underlying workpapers.
• Books and Records Access. The MIPA provides for an 18-month general survival period for representations and warranties and a 36-month survival period for fundamental representations. The TSA should include provisions ensuring that Buyer has continued access to MPH's historical books and records maintained by Aurelius's finance team during the TSA term, and should address the mechanics for transferring custody of such records to Buyer upon termination of the Finance & Accounting services.
D. Human Resources & Payroll — $175,000/month
1. Scope of Services
The Human Resources & Payroll service category encompasses the following services:
• Continued use of Aurelius's centralized HRIS platform for management of MPH employee records, including personnel files, employment history, performance records, and benefits enrollment data;
• Payroll processing for approximately 2,400 transferring MPH employees across all US and Canadian jurisdictions, including wage computation, tax withholding, direct deposit administration, and payroll tax filing;
• Benefits administration, including health insurance enrollment and claims coordination, 401(k) plan administration and employer match processing, dental and vision coverage, life insurance, short-term and long-term disability, and other group benefit programs;
• Workers' compensation claims management for open and new claims arising during the TSA period, including coordination with insurance carriers and third-party administrators;
• Employment compliance support across all US and Canadian jurisdictions where MPH has employees, including monitoring of regulatory changes, support for required filings, and guidance on jurisdiction-specific employment law requirements; and
• Administration of employee-related obligations during the transition period, including onboarding of new hires, processing of terminations, and management of leave of absence requests.
MPH's employee population is distributed across the following principal locations:
• New York, NY (headquarters — editorial, marketing, corporate functions)
• Edison, NJ (distribution center)
• Columbus, OH (distribution center)
• Dallas, TX (distribution center)
• Reno, NV (distribution center)
• Toronto, ON, Canada (editorial and distribution — Meridian Press Canada ULC)
• Vancouver, BC, Canada (editorial — Meridian Press Canada ULC)
• Additional leased warehouse and office locations across the US
2. Pricing Basis
The $175,000 monthly fee reflects the per-employee cost allocation of the centralized HR function, HRIS licensing fees, payroll processing costs, and the overhead associated with benefits administration and compliance support. The per-employee cost was calculated by dividing the total cost of Aurelius's centralized HR function by the total headcount covered and then multiplying by MPH's approximately 2,400 employees. A cost-plus markup consistent with the other service categories has been applied.
3. Key Employee Retention Considerations
As discussed in our separate memorandum on employment matters, the MIPA contemplates an aggregate key employee retention pool of $7,200,000 covering 12 senior managers, with 50% payable at Closing and 50% payable on the 12-month anniversary of the Closing Date. The administration of these retention payments — including computation, tax withholding, and disbursement — will require coordination between the parties.
We recommend that the TSA explicitly address whether the administration of the retention payments falls within the scope of the TSA's HR services or whether this is a separate Buyer obligation to be managed independently following the Closing. Given that the retention payments will initially be processed through Aurelius's payroll system (at least for the Closing Date payments), the most practical approach is to include retention payment administration within the TSA scope for the first tranche and to require Buyer to assume direct administration for the second tranche, which will be payable at the 12-month anniversary (i.e., November 15, 2025) when Buyer should have standalone payroll capability.
4. Anticipated Migration Timeline
HR and payroll services are typically among the first services to be transitioned off in carve-out TSA arrangements. Buyer is expected to establish standalone payroll processing and benefits administration capabilities within 6 to 12 months following the Closing. The critical path items include:
• Selection and implementation of a standalone HRIS platform;
• Establishment of Buyer as a separate plan sponsor for employee benefit plans, including negotiation of new group insurance contracts and establishment of a standalone 401(k) plan;
• Transfer of employee data from Aurelius's HRIS to Buyer's new platform;
• Registration of Buyer as an employer in all applicable US and Canadian jurisdictions for payroll tax purposes; and
• Communication of changes to employees and completion of required enrollment processes.
5. Key Considerations for Drafting
• Change of Control Severance. Our diligence confirmed that the transaction does not trigger change of control severance provisions for any MPH employees under their existing employment agreements or under Aurelius's severance policies. Accordingly, the TSA should not include any incremental cost allocation for severance administration. This finding should be memorialized in the TSA to avoid any post-closing dispute.
• Employee Data Privacy. The TSA must address employee data privacy compliance, including the cross-border transfer of personal information for MPH's Canadian employees. Aurelius's HRIS system processes Canadian employee data through US-based servers, which implicates the Personal Information Protection and Electronic Documents Act ("PIPEDA") and applicable provincial privacy legislation. The TSA should include appropriate data processing provisions, including limitations on the use and disclosure of employee personal information and cooperation with Buyer in implementing any required privacy safeguards.
• COBRA Administration. The TSA should address the mechanics of COBRA administration for any MPH employees who experience a qualifying event during the transition period while MPH employees remain covered under Aurelius's group health plans.
• Benefit Plan Transition. The TSA should include a cooperation obligation requiring Aurelius to assist Buyer in the orderly transition of MPH employees from Aurelius benefit plans to Buyer-established plans, including providing employee census data, claims history, and other information necessary for Buyer to obtain competitive quotes from insurance carriers and plan administrators.
E. Facilities & Real Estate — $220,000/month
1. Scope of Services
The Facilities & Real Estate service category encompasses the following:
• Continued occupancy and use by MPH of the shared office space at 1180 Avenue of the Americas, 22nd Floor, New York, NY 10036. Aurelius retains the master lease for this space, and the TSA will function as a sublicense or occupancy arrangement permitting MPH to remain in the space during the transition period;
• Shared building services, including reception, conference room access, mailroom services, building security access, and common area maintenance;
• Utilities allocated to the MPH-occupied portion of the floor, including electricity, HVAC, telecommunications, and internet connectivity; and
• Routine maintenance and cleaning services for the MPH-occupied space.
The Facilities & Real Estate service category covers only the New York headquarters space. It does not include any of MPH's distribution centers or other office and warehouse locations, which are addressed separately as follows:
• MPH's four owned distribution centers — located in Edison, NJ; Columbus, OH; Dallas, TX; and Reno, NV — will transfer to Buyer as part of the Business and are not subject to the TSA;
• MPH's eight leased US warehouse and office locations are held under leases that will be assigned to Buyer at Closing, subject to any required landlord consents; and
• MPH's two leased Canadian locations (Toronto and Vancouver) held by Meridian Press Canada ULC will similarly be assigned to Buyer, subject to landlord consent requirements under Canadian law.
2. Pricing Basis
The $220,000 monthly fee is based on a pro-rata allocation of the lease cost (base rent plus operating expense escalations) and building service costs attributable to the floor area occupied by MPH. Based on our review of the master lease terms and current operating expenses, this allocation represents a cost-based arrangement. Notably, the $220,000 monthly fee is below the current fair market sublease rate for comparable Class A midtown Manhattan office space, which we estimate at approximately $85–$95 per rentable square foot per annum based on current market data. This supports the characterization of the TSA facilities arrangement as a cost-based, non-profit arrangement rather than a sublease at market rates, which is favorable from both a commercial and tax perspective.
3. Anticipated Migration Timeline
Buyer will need to identify, negotiate, and build out a new permanent headquarters facility to replace the 1180 Avenue of the Americas space. Based on current midtown Manhattan market conditions and typical build-out timelines, 12 to 18 months is a reasonable estimate for lease negotiation, space design, construction, and move-in. Accordingly, Buyer may require the full 18-month TSA term for the Facilities & Real Estate service category.
4. Key Considerations for Drafting
• Landlord Consent. The occupancy arrangement under the TSA should be structured to avoid triggering landlord consent requirements under the terms of Aurelius's master lease for the 1180 Avenue of the Americas space. Our real property diligence workstream has identified that 4 of 10 MPH-related leases require landlord consent for assignment; we must coordinate with the real property team to determine whether the master lease for the headquarters space contains similar consent requirements for subletting or occupancy arrangements. If landlord consent is required, we should initiate the consent process promptly following signing of the MIPA, as failure to obtain consent could jeopardize Buyer's ability to occupy the space post-closing.
• Insurance and Indemnification. The TSA should require Buyer/MPH to maintain appropriate insurance coverage for its operations and activities at the shared premises, including commercial general liability and property insurance naming Aurelius as an additional insured. MPH should indemnify Aurelius for any damage to the premises or claims arising from MPH's use of the space during the TSA period.
• Condition of Premises. The TSA should address the condition in which MPH must leave the premises upon vacating, including restoration obligations and removal of MPH's furniture, fixtures, and equipment.
IV. Reverse TSA — Distribution Logistics Support
A. Structure and Parties
Under the reverse TSA arrangement, the roles of service provider and service recipient are reversed:
• Service Provider: Meridian Press Holdings LLC (post-closing, under Buyer's ownership via Ridgeline Publishing Acquisition Corp.)
• Service Recipient: Aurelius Media Holdings Inc. (on behalf of Aurelius's retained Digital Media & Streaming and E-Commerce & Marketplace operations)
B. Scope of Services
The reverse TSA covers distribution logistics support for Aurelius's remaining digital content physical fulfillment operations. Specifically, MPH will continue to leverage its distribution center network and warehouse management capabilities to provide the following services to Aurelius:
• Warehousing and inventory management for Aurelius's physical media products (including bundled content packages, promotional materials, and physical media associated with Aurelius's streaming platform);
• Order fulfillment, pick-pack-ship operations, and shipping logistics for Aurelius customer orders requiring physical fulfillment;
• Returns processing and reverse logistics for Aurelius's physical media products; and
• Coordination with third-party shipping carriers and freight providers on behalf of Aurelius.
C. Pricing and Duration
• Monthly Fee: $85,000
• Maximum Duration: 12 months from the Closing Date
• Maximum Expiry: November 15, 2025 (assuming a November 15, 2024 Closing)
• Maximum Reverse TSA Consideration: $85,000 × 12 = $1,020,000
D. Rationale
Aurelius's Digital Media & Streaming and E-Commerce & Marketplace segments have historically relied on MPH's distribution infrastructure for the fulfillment of physical media products. While the volume of physical fulfillment associated with Aurelius's retained businesses is modest relative to MPH's overall distribution operations, it is operationally significant in the near term. The reverse TSA provides Aurelius with sufficient time to identify, negotiate with, and transition its limited physical fulfillment needs to a third-party logistics ("3PL") provider. Based on discussions with Aurelius management, a 12-month transition period is expected to be adequate for this purpose, as the volume of Aurelius's physical fulfillment needs is relatively small and the services are not highly customized.
E. Key Considerations for Drafting
• Burden on MPH Operations. The reverse TSA obligations must be structured to avoid unduly burdening MPH's operations under new ownership. The volume commitments should be capped at historical levels, and MPH should not be required to allocate distribution center capacity to Aurelius at the expense of MPH's own publishing operations.
• Early Termination Right. Buyer (Pinnacle Ridge) should have the ability to terminate the reverse TSA upon 90 days' prior written notice, consistent with the early termination mechanics for the forward TSA service categories. This ensures that Buyer retains flexibility if it determines that the reverse TSA is interfering with MPH's operations or if Buyer wishes to reconfigure MPH's distribution network.
• Arm's-Length Pricing. The pricing of $85,000/month should be confirmed as at or above Aurelius's fully allocated cost of the distribution services it historically received from MPH. This confirmation is important to avoid any implication of a below-market arrangement that could raise intercompany pricing issues or suggest that Buyer is subsidizing Aurelius's retained operations. We will coordinate with Leonard Cross (Tax) on this point.
V. TSA Duration and Early Termination Mechanics
A. Maximum Duration
The proposed maximum durations for the forward and reverse TSA components are as follows:
• Forward TSA: 18 months from the Closing Date, yielding a maximum expiry date of May 15, 2026 (assuming a November 15, 2024 Closing).
• Reverse TSA: 12 months from the Closing Date, yielding a maximum expiry date of November 15, 2025.
The 18-month forward TSA duration is consistent with market practice for carve-out transactions of this size and complexity. Based on our review of publicly disclosed TSA terms in comparable media and publishing industry transactions over the past five years, forward TSA durations have ranged from 12 to 24 months, with 18 months representing the median. The 18-month term also aligns with the general survival period for representations and warranties under the MIPA, which provides a natural temporal bookend for the parties' post-closing obligations.
The 12-month reverse TSA duration reflects the more limited scope and complexity of the reverse services. Aurelius's physical fulfillment needs are relatively straightforward and can be transitioned to a 3PL provider within a shorter timeframe.
B. Early Termination by Service Recipient
We recommend that the TSA permit the Service Recipient to terminate any individual service category upon 90 days' prior written notice to the Service Provider. Specifically:
• For the forward TSA, Ridgeline/MPH (as Service Recipient) may terminate any of the four forward TSA service categories independently of the others upon 90 days' written notice; and
• For the reverse TSA, AMH (as Service Recipient) may terminate the Distribution Logistics Support service upon 90 days' written notice.
This structure allows for a phased wind-down as Buyer stands up independent capabilities on a service-by-service basis. For example, Buyer might terminate the HR & Payroll services at month 9, the Finance & Accounting services at month 12, and the IT Infrastructure & Systems services at month 18, depending on the pace of its transition efforts. This flexibility avoids an all-or-nothing approach that could force Buyer to continue paying for services it no longer needs merely because other services have not yet been transitioned.
We recommend that no partial-month refunds be available upon early termination. Fees should be payable for the full calendar month in which termination becomes effective. For example, if Buyer delivers a termination notice on January 10, 2025 with respect to the HR & Payroll service category, the 90-day notice period would expire on April 10, 2025, and fees would be payable through April 30, 2025. This approach simplifies the administrative burden and is consistent with market practice.
C. Termination for Cause
Either party should have the right to terminate the TSA (in whole or with respect to any individual service category) in the event of a material breach by the other party, subject to a 30-day cure period following delivery of written notice specifying the nature of the breach in reasonable detail.
In addition, we recommend discussing with the deal team whether Seller should have a specific right to terminate any service category if Buyer fails to pay TSA fees within a specified grace period following the applicable due date. A reasonable formulation would permit Seller to terminate the affected service category if payment is not received within 15 business days after delivery of a second written notice of nonpayment (the first notice being the original invoice). This provides Buyer with a meaningful opportunity to cure a payment default before service suspension, while protecting Aurelius against the risk of providing services for which it is not being compensated.
D. Effect of Expiration or Termination
The TSA should address the consequences of expiration or termination, including:
• Migration Cooperation. Both parties should be required to cooperate in good faith to facilitate the orderly migration of services from the TSA framework to Buyer's standalone capabilities. This includes providing reasonable access to systems, data, and personnel to support the transition, and coordinating on transition planning and execution.
• Data Transfer and Return. Upon termination of any service category, Aurelius must deliver to Buyer all data, records, and materials belonging to MPH that were maintained or generated in connection with the provision of the terminated services. Following a verification period (we recommend 30 days), Aurelius must permanently delete or destroy all copies of MPH data from its systems and certify such destruction in writing.
• Return or Destruction of Confidential Information. Each party must return or destroy confidential information of the other party received in connection with the TSA, subject to customary exceptions for archival copies retained for legal or regulatory compliance purposes.
• Survival. Certain provisions of the TSA should expressly survive expiration or termination, including indemnification obligations, limitation of liability provisions, confidentiality obligations, data ownership and transfer provisions, and any accrued payment obligations.
VI. Service Level Standards
A. General Standard
The TSA should specify that all services provided by Aurelius must be performed at a level of care, quality, and timeliness consistent with the level of service provided by Aurelius to the Business during the 12-month period immediately prior to the signing date of the MIPA (i.e., the period from approximately July 2023 through July 2024). This "historical practice" standard is the market-standard formulation for seller-provided TSA services in carve-out transactions and has the advantage of establishing a concrete, evidence-based benchmark rather than a subjective or aspirational standard.
The historical practice standard avoids two undesirable outcomes: (i) it does not impose an enhanced obligation on Aurelius to provide services at a level superior to what MPH received pre-transaction, and (ii) it does not permit Aurelius to provide diminished services merely because MPH is no longer part of the Aurelius group. The pre-signing period is used as the reference period (rather than the pre-closing period) because the signing date is fixed and determinable, whereas the closing date may shift, and because pre-signing service levels are established under normal course operations without the distortions that may arise during the period between signing and closing.
B. IT-Specific Service Level Agreements
Given the criticality of the Aldermere Services Inc. system and CMS platforms to MPH's day-to-day operations — particularly the distribution center operations that generate the majority of MPH's revenue — we recommend including high-level service level agreements ("SLAs") with quantitative metrics for the IT Infrastructure & Systems service category. Specifically, we recommend the following SLA parameters:
• System Availability: The Aldermere Services Inc. system and CMS platforms shall be available for use by MPH users not less than 99.5% of the time during each calendar month, measured on a 24/7 basis, excluding scheduled maintenance windows;
• Scheduled Maintenance: Aurelius shall provide not less than 72 hours' advance written notice of any scheduled maintenance that may result in system downtime, and shall use commercially reasonable efforts to schedule maintenance windows during non-business hours (weekends and weekday evenings);
• Helpdesk Response Time: IT helpdesk tickets classified as "critical" (i.e., system-wide outages or failures affecting MPH distribution center operations) shall receive an initial response within 1 hour and a target resolution within 4 hours; tickets classified as "high priority" shall receive an initial response within 4 hours and a target resolution within 1 business day; all other tickets shall receive an initial response within 1 business day; and
• Data Backup: Full system backups shall be performed no less than once per week, and incremental backups shall be performed daily, consistent with Aurelius's existing backup protocols.
We do not recommend including penalty provisions (i.e., financial credits or fee abatements) for SLA failures at this stage, as such provisions are unusual in seller-provided TSA arrangements and may be perceived by Aurelius as an unreasonable commercial burden. However, persistent or material SLA failures should constitute a material breach of the TSA, entitling Buyer to exercise its termination-for-cause rights and to seek indemnification for any resulting losses.
C. No Enhancement Obligation
The TSA should expressly provide that the service level standard does not require Aurelius to:
• Provide services at a level materially higher than the level provided to MPH during the reference period;
• Hire additional personnel to maintain or enhance service levels;
• Invest in new systems, infrastructure, or technology to maintain or enhance service levels; or
• Maintain any specific staffing levels or retain any specific individuals in connection with the provision of TSA services.
D. Commercially Reasonable Efforts; Force Majeure