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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION BRANDON HARTSELL, ALEXANDER and JACQUELINE BERLIN, ABE KASSIN, MARK GEIS, BRUCE SOUSA and KURT PAIGE, On Behalf of Themselves and All Others Similarly Situated, vs. Plaintiffs, SOURCE MEDIA, INC., TIMOTHY P. PETERS, W. SCOTT BEDFORD, BARRY RUBENSTEIN, MICHAEL J. MAROCCO, JAMES L. GREENWALD, ROBERT H. ALTER, ROBERT J. CRESCI, MICHAEL S. WILLNER, PAUL TIGH, JOHN J. REED, DAVID L. KUYKENDALL and DANIEL D. MAITLAND, CASE NO. 3-98-CV-1980-R CLASS ACTION Defendants. NOTICE OF PENDENCY AND PROPOSED SETTLEMENTS OF CLASS ACTION AND SETTLEMENT HEARING TO: ALL PERSONS OR ENTITIES WHO PURCHASED OR OTHERWISE ACQUIRED THE SECURITIES OF SOURCE MEDIA, INC. DURING THE PERIOD FROM JANUARY 20, 1998 THROUGH AUGUST 14, 1998, INCLUSIVE. PLEASE READ THIS NOTICE CAREFULLY. THIS NOTICE RELATES TO THE PEN- DENCY AND PROPOSED SETTLEMENT OF THIS CLASS LITIGATION AND, IF YOU ARE A SETTLEMENT CLASS MEMBER, CONTAINS IMPORTANT INFORMATION AS TO YOUR RIGHTS. CLAIMS DEADLINE: CLAIMANTS MUST SUBMIT PROOFS OF CLAIM, ON THE FORM ACCOMPANYING THIS NOTICE, POSTMARKED NO LATER THAN NOVEMBER 7, 2002. EXCLUSION DEADLINE: REQUESTS FOR EXCLUSION MUST BE SENT TO THE CLAIMS ADMINISTRATOR POSTMARKED NO LATER THAN SEPTEMBER 27, 2002. SECURITIES BROKERS AND OTHER NOMINEES: PLEASE SEE INSTRUCTIONS IN VIII BELOW. YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Federal Rules of Civil Procedure, and an Order of the United States District Court for the Northern District of Texas, Dallas Division (the Court ), that a settlement, as set forth in the Stipulation of Settlement dated as of April 5, 2002 (the Stipulation ), of the abovecaptioned action in the amount of $3,250,000 in cash, in addition to the assignment of certain rights (the Settlement Fund ), has been reached by the parties, which settlement is subject to approval by the Court (the Proposed Settlement ), and which, if approved, will result: (1) in the payment of the Net Settlement Fund to eligible Settlement Class Members who file timely and valid Proof of Claim forms and evidence a recognized loss; and, (2) in the dismissal of the above-referenced action (the Litigation ) and the release of the Released Claims as against all Released Persons. 1 FURTHER, a settlement, for an additional $300,000, has been proposed pursuant to a Stipulation Re: Settlement of Class Claims With Texas Property and Casualty Insurance Guaranty Association, (the Texas Guaranty Stipulation ) described below at VI, which is also subject to approval by the Court. The Texas Property and Casualty Insurance Guaranty Association is a statutory entity responsible for the payment of 1 All capitalized terms are defined in I below unless otherwise indicated.

certain claims on behalf of Reliance Insurance Company ( Reliance ). The Texas Guaranty Stipulation does not release the Class claims as to the remaining $1,200,000 of their $1,500,000 claim against Reliance YOU ARE FURTHER NOTIFIED, pursuant to an Order of Court, dated July 10, 2002, that a hearing (the Settlement Hearing ) will be held on October 11, 2002, at 9:00 a.m., before the Honorable Barbara M. G. Lynn, United States District Judge, United States District Courthouse, Northern District of Texas, Dallas Division, 1100 Commerce, 15th Floor, Dallas, TX 75242, in Courtroom 1570, to consider: (1) whether the Proposed Settlement and the Texas Guaranty Stipulation described above should be approved by the Court as fair, reasonable and adequate; (2) whether the Litigation should be dismissed on the merits with prejudice, as set forth in the Stipulation on file with the Court; (3) whether the proposed Plan of Allocation of Settlement proceeds should be approved; (4) the reasonableness of the application of Co-Lead Counsel for the payment of attorneys fees and reimbursement of costs and expenses, including the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the Settlement Class to any Representative Plaintiff serving on behalf of the Settlement Class, incurred in connection with the Litigation together with interest thereon; (5) whether the releases should be approved as fair, reasonable and adequate to the Settlement Class and the Defendants; and (6) whether the Settlement Class should be certified. This Notice is not intended to be, and should not be construed as, an expression of any opinion by the Court with respect to the truth of the allegations in the Litigation or the merits of the claims or defenses asserted or the fairness or adequacy of the Proposed Settlement and the Texas Guaranty Stipulation. This Notice is merely to advise you of the pendency of the Litigation and the Proposed Settlement and the Texas Guaranty Stipulation and of your rights in connection therewith. A. Statement of Plaintiffs Recovery Pursuant to the Proposed Settlement described herein, a Settlement Fund in the amount of $3,250,000 in cash, in addition to the assignment of certain rights, has been established, and certain of those assigned rights have been settled for $300,000. The Settlement Fund, less Court-approved costs for notice and administration, is being held in escrow and is currently earning interest. Plaintiffs estimate that there were approximately 8.8 million shares of Source Media common stock 2 purchased and/or acquired during the period from January 20, 1998 through August 14, 1998, inclusive (the Settlement Class Period ), which were allegedly damaged as a result of the purported acts or omissions described below. Plaintiffs estimate that the average recovery per damaged share of Source Media securities, regarding the current cash portion of the Proposed Settlement and the Texas Guaranty Stipulation, will be approximately $0.40 per share before the deduction of attorneys fees, costs and expenses, as approved by the Court. Depending on the number of claims filed, when the shares were purchased during the Settlement Class Period, whether shares were held at the end of the Settlement Class Period, if sold, when they were sold, and the amounts awarded by the Court for attorneys fees, costs and expenses, an individual Settlement Class Member may receive more or less than this average amount. A Settlement Class Member s distribution from the Net Settlement Fund will be governed by the Plan of Allocation set forth below, or such other plan of allocation as may be approved by the Court. B. Summary of Parties Positions on Potential Outcome and Reasons for Settlement The Representative Plaintiffs believe that the claims asserted in the Litigation have merit and that the evidence developed to date supports the claims asserted. Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Representative Plaintiffs in the Litigation and do not believe any evidence supports Representative Plaintiffs claims and contentions. However, both Representative Plaintiffs and Defendants recognize and acknowledge the inherent difficulties, expense and length of continued proceedings necessary to see the Litigation through trial and possible appeals, and have determined that the settlements set forth in the Stipulation and The Texas Guaranty Stipulation, are in the best interests of all parties involved. 2 Excluding warrants and options purchased or acquired during the Settlement Class Period, for which trading records are not available. 2

Representative Plaintiffs and Defendants do not agree on the average amount of damages per share, warrant or option that would be recoverable if plaintiffs were to have prevailed on each claim alleged. The issues on which the Settling Parties disagree include: (1) whether Source Media securities were artificially inflated during the Settlement Class Period; (2) the appropriate economic model for determining the amount by which Source Media securities were allegedly artificially inflated (if at all) during the Settlement Class Period; (3) the amount by which Source Media securities were allegedly artificially inflated (if at all) during the Settlement Class Period; (4) the effect of various market forces influencing the trading price of Source Media securities at various times during the Settlement Class Period; (5) the extent to which external factors, such as general market conditions, influenced the trading price of Source Media securities at various times during the Settlement Class Period; (6) the extent to which the various matters that plaintiffs alleged were materially false or misleading influenced (if at all) the trading price of Source Media securities at various times during the Settlement Class Period; (7) the extent to which the various allegedly adverse material facts that plaintiffs alleged were omitted influenced (if at all) the trading price of Source Media securities at various times during the Settlement Class Period; and (8) whether the statements made or facts allegedly omitted were material or otherwise actionable under the federal securities laws. The Representative Plaintiffs believe that the Proposed Settlement and the Texas Guaranty Stipulation are good recoveries under the circumstances and are in the best interests of the Settlement Class. Because of the risks associated with continuing to litigate and proceeding to trial, there was a danger that plaintiffs would not have prevailed on any of their claims, in which case the Settlement Class would receive nothing. In addition, the amount of damages recoverable would have been subject to rigorous attack by Defendants. Recoverable damages are limited to losses caused by conduct actionable under applicable securities laws and, had the Litigation gone to trial, Defendants intended to prove that all or most of the losses at issue were caused by non-actionable market, industry or general economic factors. C. Statement of Attorneys Fees and Costs Sought Co-Lead Counsel have not received any payment for their service in prosecuting this case on behalf of Representative Plaintiffs and Members of the Settlement Class, nor have they been reimbursed for their out-ofpocket expenses. Co-Lead Counsel intend to apply for an award of attorneys fees in an amount up to one-third of the total Settlement Fund (i.e., approximately $0.13 per share of the current cash portion of the Proposed Settlement and the Texas Guaranty Stipulation), as well as reimbursement for costs and expenses incurred in the prosecution of the Litigation of approximately $332,780.00 (i.e., approximately $0.04 per share of the current cash portion of the Proposed Settlement and the Texas Guaranty Stipulation). D. Identification of Plaintiffs Lawyers Any questions regarding the Proposed Settlement and the Texas Guaranty Stipulation should be directed to the following Co-Lead Counsel for the Representative Plaintiffs and the Settlement Class: WEISS & YOURMAN ABBEY GARDY, LLP Kevin J. Yourman, Esq. Stephen T. Rodd, Esq. Vahn Alexander, Esq. Nancy Kaboolian, Esq. 10940 Wilshire Boulevard, 24 th Floor 212 East 39 th Street Los Angeles, CA 90024 New York, NY 10016 Tel: (310) 208-2800 Tel: (212) 889-3700 Fax: (310) 209-2348 Fax: (212) 684-5191 MILBERG WEISS BERSHAD HYNES & LERACH LLP Janine L. Pollack, Esq. One Pennsylvania Plaza New York, NY 10119-0165 Tel: (212) 594-5300 Fax: (212) 868-1229 Co-Lead Counsel for Plaintiffs 3

I. DEFINITIONS USED IN THIS NOTICE As used in this Notice, the following terms have the meanings specified below: Authorized Claimant means any Settlement Class Member whose claim for recovery has been allowed pursuant to the terms of the Stipulation. Claimant means any Settlement Class Member who files a Proof of Claim in such form and manner, and within such time, as the Court shall prescribe. Claims Administrator means Berdon LLP. Co-Lead Counsel means lead counsel for the Representative Plaintiffs and the Settlement Class: (1) Kevin J. Yourman, Vahn Alexander, Weiss & Yourman, 10940 Wilshire Blvd., 24 th Floor, Los Angeles, CA 90024; (2) Stephen T. Rodd, Nancy Kaboolian, Abbey Gardy, LLP, 212 East 39 th Street, New York, NY 10016; and (3) Janine L. Pollack, Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, NY 10119-0165. Defendants means Source Media, Timothy P. Peters, W. Scott Bedford, Barry Rubenstein, Michael J. Marocco, James L. Greenwald, Robert H. Alter, Robert J. Cresci, Michael S. Willner, Paul Tigh, John J. Reed, David L. Kuykendall, Daniel D. Maitland and Ernst & Young LLP. Effective Date means the first date by which all of the events and conditions specified in V-8.1 of the Stipulation have been met and have occurred. Escrow Agent means the firm of Milberg Weiss Bershad Hynes & Lerach LLP or its successors. Final means: (1) The date of final affirmance on an appeal or the expiration of the time for a petition for a writ of certiorari and, if certiorari be granted, the date of final affirmance following review pursuant to that grant; or (2) the date of final dismissal of any appeal or the final dismissal of any proceeding on certiorari; or (3) if no appeal is filed, the expiration date of the time for the filing or noticing of any appeal from the Court s Judgment approving the settlement provided in the Stipulation substantially in the form of Exhibit B thereto, i.e., thirty (30) days after entry of the Judgment. An appeal or petition for a writ of certiorari pertaining solely to any plan of allocation and/or application for attorneys fees, costs or expenses, shall not in any way delay or preclude the Judgment from becoming Final. Individual Defendants means Timothy P. Peters, W. Scott Bedford, Barry Rubenstein, Michael J. Marocco, James L. Greenwald, Robert H. Alter, Robert J. Cresci, Michael S. Willner, Paul Tigh, John J. Reed, David L. Kuykendall and Daniel D. Maitland. Judgment means the judgment to be rendered by the Court, substantially in the form attached to the Stipulation as Exhibit B. Net Settlement Fund means the balance of the Settlement Fund, plus interest earned on that fund, after the Settlement Fund has been used to pay the costs and expenses set forth in the Stipulation. Person means an individual, corporation, partnership, limited partnership, limited liability company or partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives, or assignees. Plan of Allocation means a plan or formula of allocation of the Settlement Fund, whereby the Settlement Fund shall be distributed to Authorized Claimants after payment of reasonable and necessary expenses of notice and administration of the settlements, any taxes, penalties or interest or tax preparation fees owed by the Settlement Fund, and such attorneys fees, costs and expenses, including the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the Settlement Class to any Representative Plaintiff serving on behalf of the Settlement Class, and interest as may be awarded by the Court. Any Plan of Allocation is not part of the Stipulation. Related Parties means each of Defendants past and present directors, officers, employees, partners, principals, agents, distributors, customers, underwriters, issuers, insurers, co-insurers, reinsurers, controlling share- 4

holders, attorneys, accountants, auditors, banks or investment bankers, advisors, personal or legal representatives, predecessors, successors, parent companies, subsidiaries, divisions, joint ventures, assigns, spouses, heirs, associates, related or affiliated entities, any entity in which a Defendant has a controlling interest, any members of their immediate families, and any trust of which any Defendant is the settlor or which is for the benefit of any Defendant and/or member(s) of his family. Released Claims means and includes any and all claims, actions, causes of action, allegations, rights and liabilities, including but not limited to, claims for negligence, gross negligence, recklessness, breach of duty of care, breach of duty of loyalty, and/or breach of the duty of disclosure, breach of fiduciary duty, fraud, misrepresentation, mismanagement, breach of contract, violations of any state or federal statute, rules or regulations, including Unknown Claims, that have been or could have been asserted against the Released Persons in the Litigation by or on behalf of the Representative Plaintiffs or any Settlement Class Member against the Released Persons which are based upon or related to any acquisition of Source Media securities, including common stock, warrants, and put options, or the sale of any put options, by any Settlement Class Member during the Settlement Class Period and/or the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were alleged in the Litigation or any other forum, based upon, relating to or arising from the facts which were alleged. Released Persons means each and all of the Defendants and their Related Parties. Representative Plaintiffs means Brandon Hartsell, Alexander and Jacqueline Berlin, Abe Kassin, Mark Geis, Bruce Sousa and Kurt Paige. Settlement Class means all Persons who purchased or otherwise acquired the common stock, warrants and/or call options, and/or who sold put options, of Source Media between January 20, 1998 and August 14, 1998 inclusive (the Settlement Class Period ). The Settlement Class also includes a Sub-Class which is defined as all Persons who purchased Source Media common stock on May 19, 1998 and May 20, 1998, contemporaneously with sales of stock by certain Defendants, either directly or indirectly. The Settlement Class and Sub-Class exclude the Individual Defendants in the Litigation, members of the immediate family of each of the Individual Defendants, any entity in which any Defendant has or had a controlling interest, and the legal representatives, heirs, successors, or assigns of any such excluded party. For purposes of the settlements, there is also an Ernst & Young LLP ( E&Y ) Class which is defined as all Persons who purchased or otherwise acquired common stock, warrants and/or call options, and/or who sold put options, of Source Media between March 31, 1998 (the date on which Source Media filed its Form 10-K with the SEC, which contained E&Y s unqualified Report of Independent Auditors, dated February 13, 1998) and August 14, 1998, inclusive (the E&Y Class Period ), excluding E&Y, partners, officers and directors of E&Y, members of their immediate families, any entity in which E&Y has or had a controlling interest, and the legal representatives, heirs, successors, or assigns of any such excluded party, as well as any excluded Person from the Settlement Class including the Sub-Class. The Settlement Class at all times includes the Sub-Class and the E&Y Class unless otherwise indicated. Settlement Class Member or Member of the Settlement Class means a Person who falls within the definition of the Settlement Class as set forth above. Settlement Class Period means the period commencing on January 20, 1998 through and including August 14, 1998. Settlement Hearing means that hearing the Court schedules, on notice to the Settlement Class Members, to consider approval of the Proposed Settlement and the Texas Guaranty Stipulation herein and the application for fees and reimbursement of expenses submitted by plaintiffs counsel. Settling Parties means, collectively, each of the Defendants and the Representative Plaintiffs on behalf of themselves and the Members of the Settlement Class. Source Media means Source Media Inc., and all of its predecessors, successors, parents, subsidiaries, divisions and related or affiliated entities. Unknown Claims means any Released Claims which any Representative Plaintiff or Settlement Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons which, if known by him, her or it, might have affected his, her or its settlement with and release of the Released 5

Persons, or might have affected his, her or its decision not to object to the settlements. With respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, the Representative Plaintiffs shall expressly, and each of the Settlement Class Members shall be deemed to have, and by operation of the Judgment shall have, waived and relinquished, to the fullest extent permitted by law, the provisions, rights, and benefits of 1542 of the California Civil Code, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXE- CUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. The Representative Plaintiffs and the Settlement Class Members, upon the Effective Date, shall be deemed to have, and by operation of the Judgment shall have, waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to 1542 of the California Civil Code. The Representative Plaintiffs and Settlement Class Members may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, but the Representative Plaintiffs and each Settlement Class Member, upon the Effective Date, shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Settling Parties acknowledge that the foregoing waiver was bargained for and is a key element of the settlement of which this release is a part. II. COMMENCEMENT OF THE LITIGATION AND NATURE OF THE ACTION On August 21, 1998, the first of the actions, Hartsell v. Source Media, Inc. et al., Case No. 3-98-CV-1980-R, was filed in the United States District Court for the Northern District of Texas (the Court ) as a class action on behalf of Persons who purchased or otherwise acquired Source Media securities during the relevant time period seeking remedies for Defendants alleged violations of federal securities laws. Subsequently, the following related cases were also filed in this District on the following dates: Short Case Name Case No. Date Filed Sousa v. Source Media, et al. 3:98cv02003 08/24/98 NAZ Partners Ltd. v. Source Media, et al. 3:98cv02028 08/26/98 Wachsman v. Source Media, et al. 3:98cv02037 08/27/98 Burkard v. Source Media, et al. 3:98cv02040 08/27/98 Ericksen v. Source Media, et al. 3:98cv02042 08/27/98 Mohammadi v. Source Media, et al. 3:98cv02050 08/28/98 Esbin v. Source Media, et al. 3:98cv02058 08/28/98 Paul v. Source Media, et al. 3:98cv02074 08/31/98 Ravens v. Source Media, et al. 3:98cv02116 09/04/98 Rostholder v. Source Media, et al. 3:98cv02134 09/09/98 Raziq v. Source Media, et al. 3:98cv02180 09/16/98 Chipman v. Source Media, et al. 3:98cv02253 09/23/98 Reynolds v. Source Media, et al. 3:98cv02272 09/25/98 6

On or about October 20, 1998, plaintiffs in the aforementioned actions filed motions for consolidation, for appointment as lead plaintiff and for approval of lead counsel. On January 5, 1999, this Court entered an Order consolidating the above-related cases and appointing lead plaintiffs, Co-Lead Counsel and designated liaison counsel. After conducting extensive research and investigation concerning their allegations, plaintiffs subsequently filed their Consolidated Amended Class Action Complaint (the Complaint ) on March 3, 1999. The Complaint specifically sought remedies for Defendants alleged violations of 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On August 16, 1999, an action captioned Berlin v. Ernst & Young LLP, Case No.: 3-99CV1838-D, was filed in this Court and subsequently consolidated into the above-referenced Complaint. III. PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION The Litigation was aggressively litigated by all parties. For example, Co-Lead Counsel conducted extensive research and investigation during the prosecution of the Litigation which included, among other things: (1) the review, both prior to and during the Litigation, of thousands of pages of public filings, annual reports and other public statements, including press releases and articles about Source Media; (2) filing original complaints and a consolidated amended complaint which included research of the applicable law with respect to the claims asserted in the complaints and the potential defenses thereto; (3) telephonic meetings with experts and consultants; (4) serving discovery on both Defendants and non-parties and responding and objecting to numerous discovery requests served by certain Defendants; (5) engaging in complex motion practice including the filing of lead plaintiff, Co- Lead Counsel and consolidation motions; opposing certain Defendants motions to dismiss; and opposing in part certain Defendants motion for protective order; (6) conducting investigations with former employees and taking the depositions of certain accountants; and (7) engaging in intensive, arm s-length settlement negotiations in an attempt to resolve the Litigation. IV. CLAIMS OF THE REPRESENTATIVE PLAINTIFFS AND BENEFITS OF SETTLEMENT The Representative Plaintiffs believe that the claims asserted in the Litigation have merit and that the evidence developed to date supports the claims asserted. However, the Representative Plaintiffs and Co-Lead Counsel recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Litigation against Defendants through trial and through appeals. The Representative Plaintiffs and Co-Lead Counsel also have taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as this Litigation, as well as the difficulties and delays inherent in such litigation. The Representative Plaintiffs and Co- Lead Counsel are mindful of the inherent problems of proof under and possible defenses to the federal securities law violations and other claims asserted in the complaints, including the defenses alleged by Defendants in the pleadings filed in the Litigation. The Representative Plaintiffs and Co-Lead Counsel believe that the settlements set forth in the Stipulation and the Texas Guaranty Stipulation confer substantial benefits upon the Settlement Class and each of the Settlement Class Members. Based on their evaluation, the Representative Plaintiffs and Co-Lead Counsel have determined that the settlements set forth in the Stipulation and the Texas Guaranty Stipulation are in the best interests of the Representative Plaintiffs and the Settlement Class and each of the Settlement Class Members. V. DEFENDANTS STATEMENT AND DENIALS OF WRONGDOING AND LIABILITY Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Representative Plaintiffs in the Litigation. Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Litigation. Defendants also have denied and continue to deny, inter alia, the allegations that the Representative Plaintiffs or the Settlement Class have suffered damage, that the price of Source 7

Media securities was artificially inflated by reasons of alleged misrepresentations, non-disclosures or otherwise, or that the Representative Plaintiffs or the Settlement Class were harmed by the conduct alleged in the complaints filed in the Litigation. Defendants believe that the claims asserted in the Litigation do not have merit and that the evidence developed to date does not support any of the claims asserted. Nonetheless, Defendants have concluded that the further conduct of the Litigation would be protracted and expensive, and that it is desirable that the Litigation be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation in order to limit further expense, inconvenience and distraction, to dispose of burdensome and protracted litigation, and to permit the operation of Defendants businesses without further expensive litigation and the distraction and diversion of personnel with respect to matters at issue in the Litigation. Defendants also have taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like this Litigation. Defendants have, therefore, determined that it is desirable and beneficial to them that the Litigation be settled in the manner and upon the terms and conditions set forth in the Stipulation. VI. THE PROPOSED SETTLEMENTS A settlement has been reached in the Litigation between the Representative Plaintiffs, on behalf of themselves and the Members of the Settlement Class, and Defendants, which is embodied in the Stipulation on file with the Court. The Representative Plaintiffs and Co-Lead Counsel, on the basis of, among other things, a thorough investigation of the facts and the law relating to the acts, events, and conduct complained of in the Litigation, have concluded that the settlement provided by the Stipulation is fair to and in the best interests of the Members of the Settlement Class. While Defendants deny all charges of wrongdoing and do not concede liability, they have agreed to settle the Litigation on the basis proposed in order to put to rest all further controversy and to avoid the additional substantial expense, inconvenience and distraction of burdensome and protracted litigation. The following description of the Proposed Settlement of the Litigation is only a summary, and reference is made to the text of the Stipulation, on file with the Court, for a full statement of its provisions: A. The Settlement Fund shall be comprised of the following contributions by Defendants. In settlement of the claims against them, Defendants either have paid, or shall cause to be paid, to the Settlement Class the following amounts: (1) Defendant E&Y has paid $750,000 into an interest-bearing escrow account designated by plaintiffs Co-Lead Counsel; (2) Zurich Insurance Company ( Zurich ) has paid, on behalf of Source Media and the Individual Defendants, $2,500,000 into an interest-bearing account designated by plaintiffs Co-Lead Counsel; (3) upon the Court s Final approval of the Stipulation, or as soon thereafter as is practicable, Zurich shall pay any remaining amounts under the policy, after taking into account all defense fees and costs incurred through that time, provided, however, that plaintiffs acknowledge that Zurich s policy limit is $5 million, that the policy has been depleted by the payment of defense fees and costs to date, and that such policy will be further depleted by the payment of further defense fees and costs incurred in connection with the Proposed Settlement, and, provided, further, that plaintiffs represent and warrant to all parties to the Memorandum of Understanding ( MOU ), and to the Stipulation, and to Zurich, that they do not dispute any amounts paid to date by Zurich in connection with the defense of the case and will not dispute any amounts paid in the future for such purpose through and including the Court s Final approval of the Stipulation; and (4) Source Media and the Individual Defendants shall assign any and all rights to receive $1.5 million from Reliance Insurance Company, pursuant to Excess Financial Products Insurance Policy No. NDA0147890, in connection with the Proposed Settlement. The Settlement Class will use due diligence to collect from Reliance Insurance Company on the assigned claim and Source Media and the Individual Defendants will, to the extent reasonable, cooperate with the Settlement Class and Co-Lead Counsel to collect on that claim. Such cooperation shall include providing an affidavit or declaration detailing the circumstances leading to the settlement offer by Reliance Insurance Company of $1.5 million and plaintiffs acceptance thereof, agreeing to sign a claim in said amount in Reliance Insurance Company s liquidation proceedings and providing information and access to non-privileged documents and personnel, but shall not require Source Media or the Individual Defendants to initiate or participate in any litigation or incur legal fees. Neither Source Media nor any of the Individual Defendants make any representations or warranties regarding the terms of the policy, the validity or effectiveness of the assignment, or the enforceablility or collectibility of the claim against Reliance Insurance Company. Any amounts, which may become payable from Reliance Insurance Company or its estate based on such claim, shall 8

be paid into an interest-bearing account designated by plaintiffs Co-Lead Counsel. The funds paid pursuant to (1) and (2) above, and any amounts collected pursuant to (3) and (4) above, and any interest earned on such amounts, shall constitute the Settlement Fund. Pursuant to the Texas Guaranty Stipulation, $300,000 is being paid by the Texas Property and Casualty Insurance Guaranty Association in connection with the assigned claims against Reliance Insurance Company. The Texas Property and Casualty Insurance Guaranty Association is a statutory entity responsible for the payment of certain claims on behalf of Reliance Insurance Company ( Reliance ), a failed insurance company that was licenced to do business in Texas and which insured Source Media, Inc. and the officers and directors of Source Media, Inc., who are Defendants in the Litigation. The statutory limit of liability of the Texas Property and Casualty Insurance Guaranty Association with respect to a policy issued by insurers licenced to do business in Texas on a loss under that policy is $300,000.00. While the Texas Guaranty Settlement will release the Settlement Class claims against Texas Property and Casualty Insurance Guaranty Association, plaintiffs and the Settlement Class will retain their rights as against Reliance or its Estate with respect to their claims as to the remaining $1,200,000 ($1,500,000 less the $300,000 being paid by the Texas Property and Casualty Insurance Guaranty Association). B. Upon approval of the Proposed Settlement and the Texas Guaranty Stipulation by the Court, and when the Judgment has become Final and all other conditions to the Proposed Settlement are satisfied, the Settlement Fund shall be distributed as follows: 1. To pay all the costs and expenses reasonably and actually incurred in connection with providing notice to the Members of the Settlement Class, locating Settlement Class Members, soliciting Settlement Class claims, assisting with the filing of claims, administering and distributing the Settlement Fund to the Settlement Class, processing Proofs of Claim and Releases and paying escrow fees and costs, if any; 2. To pay Co-Lead Counsel s fees, expenses and costs (including the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the Settlement Class to any Representative Plaintiff serving on behalf of the Settlement Class) with interest thereon (the Fee and Expense Award ) to the extent allowed by the Court; 3. To pay the Taxes and Tax Expenses owed by the Settlement Fund; and 4. To pay to Settlement Class Members the remainder of the Settlement Fund, as described in the Plan of Allocation below. C. Plan of Allocation - Subject to the approval and further Order(s) of the Court as may be necessary, the balance of the Settlement Fund (the Net Settlement Fund ) shall be distributed to Authorized Claimants pursuant to the following Plan of Allocation: 1. Each Person claiming to be an Authorized Claimant shall be required to timely submit a separate Proof of Claim (that shall include a general release of all Released Claims (including Unknown Claims) against the Released Persons) in the form set forth in the Proof of Claim and Release accompanying this Notice, signed under penalty of perjury and supported by proof of all sales and purchases or acquisitions of Source Media securities during the Settlement Class Period. 2. All Proof of Claim and Release forms must be sent to the Claims Administrator and postmarked on or before November 7, 2002. Unless otherwise ordered by this Court, any Settlement Class Member who fails to submit a Proof of Claim and Release within that period, or such other period as may be ordered by the Court, shall be forever barred from receiving any payments pursuant to the Stipulation, but will, in all other respects, be subject to the provisions of the Stipulation and the Judgment entered by the Court. 3. a. The Net Settlement Fund from all sources other than the payment made by E&Y (the Source Media Net Settlement Fund ) shall be allocated pro rata to Authorized Claimants based upon each Authorized Claimant s Recognized Claim. An Authorized Claimant s Recognized Claim shall mean the difference, if a loss, between the amount paid (including brokerage commissions and transaction charges) for Source Media securities during the Settlement Class Period (1/20/98 through 8/14/98), and the sum for which said securities were sold at a loss on or before August 14, 1998 (net of brokerage commissions and transaction charges). As to those 9

securities which an Authorized Claimant continued to hold (or with respect to put options, which were open liabilities of the Settlement Class Member) as of the close of trading on August 14, 1998, Recognized Claim shall mean: i. with respect to Source Media common stock, the difference, if a loss, between the amount paid for each such share purchased during the Settlement Class Period and the greater of (x) $11.31 per share, 3 or (y) the sum for which said shares were sold at a loss on or before December 21, 1998 (net of brokerage commissions and transaction charges); ii. with respect to Source Media warrants, the difference, if a loss, between the amount paid for each such warrant purchased during the Settlement Class Period and the greater of (x) the average price of the warrants for the 90-day period following the end of the Settlement Class Period, or (y) the sum for which said warrants were sold at a loss on or before December 21, 1998 (net of brokerage commissions and transaction charges); iii. with respect to Source Media call options, the difference, if a loss, between (x) the amount paid for each such call option purchased during the Settlement Class Period and (y) either (i) the sum for which said call options were sold at a loss at any time after August 14, 1998 (net of brokerage commissions and transaction charges), or (ii) if such call options expired worthless, $0.00; iv. with respect to Source Media put options sold (written) during the Settlement Class Period which were open liabilities of a Settlement Class Member as of the close of trading on August 14, 1998, the difference, if a loss, between (x) either (i) for options re-purchased at any time after August 14, 1998, the amount paid to re-purchase each such put option, or (ii) for put options which were exercised and assigned to the Settlement Class Member, the exercise price per share less the market value of the shares on the date of exercise. For shares of Source Media common stock purchased on May 19, 1998 or May 20, 1998, the Recognized Claim amount calculated above shall be increased by five percent (5%). b. The Net Settlement Fund from the payment made by E&Y (the E&Y Net Settlement Fund ) shall be allocated pro rata to Authorized Claimants based upon each Authorized Claimant s E&Y Recognized Claim. An Authorized Claimant s E&Y Recognized Claim shall mean the difference, if a loss, between the amount paid (including brokerage commissions and transaction charges) for Source Media securities during the E&Y Class Period (2/13/98 through 8/14/98), and the sum for which said securities were sold at a loss on or before August 14, 1998 (net of brokerage commissions and transaction charges). As to those securities which an Authorized Claimant continued to hold as of the close of trading (or with respect to put options, which were open liabilities of a Settlement Class Member) on August 14, 1998, E&Y Recognized Claim shall mean: i. with respect to Source Media common stock, the difference, if a loss, between the amount paid for each such share purchased during the E&Y Class Period and the greater of (x) $11.31 per share, or (y) the sum for which said shares were sold at a loss on or before December 21, 1998 (net of brokerage commissions and transaction charges); ii. with respect to Source Media warrants, the difference, if a loss, between the amount paid for each such warrant purchased during the E&Y Class Period and the greater of (x) the average price of the warrants for the 90-day period following the end of the E&Y Class Period, or (y) the sum for which said warrants were sold at a loss on or before December 21, 1998 (net of brokerage commissions and transaction charges); iii. with respect to Source Media call options, the difference, if a loss, between (x) the amount paid for each such call option purchased during the E&Y Class Period and (y) either (i) the sum for which said call options were sold at a loss at any time after August 14, 1998 (net of brokerage commissions and transaction charges), or (ii) if such call options expired worthless, $0.00; iv. with respect to Source Media put options sold (written) during the E&Y Class Period, which were open liabilities of a Settlement Class Member as of the close of trading on August 14, 1998, the difference, if a loss, between (x) either (i) for options re-purchased at any time after August 14, 1998 the amount paid to re-purchase 3 $11.31 is the average closing price for the 90-day period following the end of the Class Period. 10

each such put options, or (ii) for put options which were exercised and assigned to a Settlement Class Member, the exercise price per share less the market value of the shares on the date of exercise. c. Purchase/Sale Dates the date of purchase or sale is the contract or trade date and not the settlement date. d. Gains and Losses all profits will be subtracted from all losses to determine the net Recognized Claim of each Settlement Class Member. e. FIFO in processing claims, the first-in, first-out basis ( FIFO ) will be applied to both purchases and sales. Sales will be matched in chronological order, by trade date, first against the securities held as of the close of trading on January 19, 1998 (the last day before the Settlement Class Period begins) and then against the purchases during the Settlement Class Period. f. Short Sales the date of covering a short sale is deemed to be the date of purchase of Source Media securities. The date of a short sale is deemed to be the date of sale of Source Media securities. The Recognized Claim for shares sold prior to the Settlement Class Period shall be $0.00. g. Options where securities were purchased/sold by reason of having exercised an option, the option premium should be incorporated into the price accordingly. h. Multiple Transactions if an Authorized Claimant s trading activity during the Settlement Class Period exceeds 70 transactions, you must provide, in an electronic file, all purchase and sales information required in the Proof of Claim. For a copy of instructions and parameters concerning such a submission, contact the Claims Administrator by phone: (800) 766-3330; by fax (516) 931-0810 or via the website: www.berdonllp.com/claims. i. De Minimis - No payment will be made on a claim where the potential distribution amount is $10.00 or less. j. The Court has reserved jurisdiction to allow, disallow or adjust the claim of any Settlement Class Member on equitable grounds. 4. Although the Net Settlement Fund is being allocated among the Settlement Class Members based on the formula stated above (subject to Court approval), it should not be assumed that an Authorized Claimant s Recognized Claim is equal to the amount of damages, if any, which could have been recovered had this Litigation been fully tried instead of settled. The amount of damages which Representative Plaintiffs could prove, if any, is a matter of serious dispute, and the Settlement s use of the formula set forth above does not constitute a concession, finding or admission that any damages could be proven or that provable damages, if any, would be commensurate with a Claim. No determination has been made by the Court as to whether any Settlement Class Member suffered any damages, or as to the proper measure of any damages. The determination of damages, like the determination of liability, is a complicated and uncertain process, typically involving conflicting expert opinions. During the course of the Litigation, Defendants, in addition to denying any liability, denied that the Settlement Class Members suffered any legally compensable harm. The Proposed Settlement avoids the risks to the Settlement Class Members that liability or damages might not have been proven at trial. 5. Payment pursuant to the Plan of Allocation set forth herein shall be deemed conclusive against all Authorized Claimants. No Person shall have any claim against any plaintiffs counsel, or any Claims Administrator or other agent designated by Co-Lead Counsel, or against Released Persons or Defendants counsel based on distributions made substantially in accordance with the Stipulation and the settlement contained therein, the Plan of Allocation, or further Orders of the Court. 6. All Settlement Class Members who fail to complete and file a valid and timely Proof of Claim and Release shall be barred from participating in distributions from the Net Settlement Fund unless otherwise ordered by the Court, but shall nonetheless be bound by all of the terms of the Stipulation, including the terms of any Judgment entered and the releases given. 11

A. The Proposed Settlement: VII. DISMISSAL AND RELEASES If the Proposed Settlement is approved by the Court, the Court will enter a Judgment which will: 1. Dismiss the Litigation in its entirety as against Defendants with prejudice and without costs to any party as against any other party; 2. Adjudge that the Representative Plaintiffs and each Settlement Class Member, except those who both timely and validly request exclusion in accordance with the procedures detailed herein, shall be deemed conclusively to have released the Released Claims and Unknown Claims (described above and in the Stipulation) against the Released Persons. Notwithstanding that the Representative Plaintiffs, or one or more Settlement Class Members, may hereafter discover facts in addition to, or different from, those which the Representative Plaintiffs or Settlement Class Members now know, or believe to be true, with respect to the Litigation and Released Claims or to the subject matter of the Litigation, which, if known, might have affected his, her, or its settlement with and release of the Released Persons, or might have affected his, her or its decision not to object to the settlement, each of the Representative Plaintiffs and Settlement Class Members shall be deemed, upon the Effective Date of the Proposed Settlement, to have fully, finally and forever settled and released, as against any of the Released Persons, all Released Claims and Unknown Claims, that have been or might have been asserted by the Representative Plaintiffs or Settlement Class Members, or any of them, against Defendants, or any of them, based upon or related to the purchase or acquisition of Source Media securities by the Representative Plaintiffs or Settlement Class Members during the Settlement Class Period and/or the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were alleged in the Litigation or any other forum, based upon, relating to or arising from the facts which were alleged. 3. Bar and permanently enjoin each of the Representative Plaintiffs and the Settlement Class Members from prosecuting the Released Claims (including Unknown Claims) against the Released Persons; and 4. Reserve jurisdiction, without affecting the finality of the Judgment entered, over: a. Implementation of this Proposed Settlement and any award or distribution of the Net Settlement Fund, including interest earned or accrued thereon; b. Disposition of the Settlement Fund and the Net Settlement Fund; c. Hearing and determining Co-Lead Counsel s applications for attorneys fees, costs, interest, and expenses, including fees and costs of experts and/or consultants and the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the Settlement Class to any Representative Plaintiff serving on behalf of the Settlement Class; d. Enforcing and administering the Stipulation, including any releases executed in connection therewith; and e. Other matters related or ancillary to any of the foregoing. B. The Texas Guaranty Stipulation If the Texas Guaranty Stipulation is approved by the Court, the Court will enter a Judgment which will release the Texas Property and Casualty Insurance Guaranty Association of any claims of Representative Plaintiffs and the Settlement Class against the Texas Property and Casualty Insurance Guaranty Association relating in any way to the Texas Property and Casualty Insurance Guaranty Association s obligations for Reliance Insurance Company pursuant to Excess Financial Products Insurance Policy No. NDA0147890. The release shall not release any claims of the Representative Plaintiffs or the Settlement Class against Reliance or its Estate with respect to their claims as to the remaining $1,200,000 ($1,500,000 less the $300,000 being paid by the Texas Property and Casualty Insurance Guaranty Association). 12