1017-00004 · Entities. Aurelius Global Media Group · Mediation & Settlement/Class Action

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CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential communication prepared by outside counsel for the purpose of providing legal advice. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. Do not forward, copy, or distribute without the prior written consent of Calderwood & Harkness LLP.

INTERNAL MEMORANDUM

TO: Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc. Philippa Cartwright, General Counsel, Aurelius Global Media Group plc Jonathan Mercer, President, Aurelius Media Americas Inc.

FROM: Renata Vasquez, Partner, Calderwood & Harkness LLP

DATE: September 4, 2023

RE: Revised Settlement Authority Recommendation — Pre-Mediation Session #2 C&H Matter No. 1017-00004 Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated) Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087

I. Executive Summary

This memorandum sets forth Calderwood & Harkness LLP's revised settlement authority recommendation for both the Fuentes class action and the Aldrich individual executive dispute, in advance of the second mediation session scheduled for September 8, 2023. The memorandum is directed to the three individuals within the Aurelius Media Americas Inc. ("AMA") and Aurelius Global Media Group plc ("AGMG") organizations who, pursuant to AMA's Outside Counsel Guidelines, must authorize settlement expenditures exceeding the applicable threshold, and who will need to seek further authorization from the AGMG Board's Audit and Risk Committee.

Following Mediation Session #1, which took place on August 25, 2023 before the Honorable Patricia Okoro (Ret.) at Westpark Dispute Resolution Inc., 1925 Century Park East, Suite 1700, Los Angeles, California 90067, the parties' respective positions have narrowed materially. The session produced meaningful progress on the class action component and a preliminary exchange of positions on the Aldrich individual matter. Judge Okoro has indicated her assessment that the class action will resolve in the $14–16 million range, which is broadly consistent with our own internal analysis and the litigation risk profile we have outlined in prior memoranda. The parties are scheduled to reconvene for Mediation Session #2 on September 8, 2023, again before Judge Okoro at the same location. This session will be conducted as a combined mediation addressing both the class action and the Aldrich individual matter, with the goal of achieving a comprehensive, package-deal resolution of all pending employment litigation involving AMA.

Based on the progress achieved at Session #1, the current litigation posture following the Court's August 11, 2023 partial class certification order, and our updated risk analysis, we recommend that AMA authorize revised total maximum settlement authority of $17,500,000 across both matters. This figure represents a modest decrease from the $18,000,000 aggregate maximum initially authorized for Session #1, reflecting a strategic reallocation between the two matters based on the negotiation dynamics observed during that session. Specifically, we recommend authority of up to $15,000,000 for the class action (the Gross Settlement Amount) and up to $2,500,000 for the Aldrich individual matter (exclusive of any RSU acceleration, which is addressed separately below), for combined maximum authority of $17,500,000.

The detailed rationale for these recommendations, along with projected settlement structures, insurance coordination analysis, a combined financial summary, board approval requirements, and our strategic approach for Session #2, are set forth in the sections that follow.

II. Revised Settlement Authority Recommendation

A. Summary Table

The following table summarizes the pre-mediation authority previously authorized for Session #1 and the revised authority we recommend for Session #2:

As reflected above, the net effect of the revised recommendation is a reduction of $500,000 in total maximum authority. This reduction is achieved by narrowing the Aldrich range from $1,500,000–$3,000,000 to a firm ceiling of $2,500,000, while maintaining the class action GSA ceiling at the $15,000,000 maximum previously authorized. The PAGA component is set at a fixed target of $750,000, which falls at the midpoint of the previously authorized range and reflects the negotiation dynamics observed at Session #1.

B. Rationale for Revised Class Authority (Up to $15,000,000)

The recommendation to maintain maximum class action authority at $15,000,000 is supported by multiple converging factors:

Mediator's Assessment. During caucus sessions at Mediation Session #1, the Honorable Patricia Okoro communicated her assessment that the Fuentes class action will settle in the $14–16 million range. Judge Okoro's assessment is informed by her extensive experience mediating wage-and-hour class actions in the Los Angeles Superior Court, and her evaluation is consistent with our own independent analysis of the case's settlement value. The fact that the mediator has identified a range with its midpoint at $15 million provides strong support for our recommended authority ceiling.

Narrowing of Positions at Session #1. The mediation produced significant movement from both sides. The parties entered Session #1 with a gap of $20 million — Plaintiffs opened at $28 million, while AMA opened at $8 million. By the end of the session, the gap had narrowed to $3 million, with Plaintiffs at $16.5 million and AMA at $13.5 million. This closing trajectory suggests that a resolution in the $14–15 million range is realistic and achievable at Session #2, provided AMA has adequate authority to close the remaining distance.

Relationship to Plaintiffs' Expert Damages. At $15 million, the settlement would represent approximately 38.9% of the aggregate damages calculated by Plaintiffs' retained expert, Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, who has valued the class's claims at $38.6 million. This ratio falls within the range of settlements routinely approved by California courts in comparable wage-and-hour class actions. While the percentage is at the higher end of the approval range, this is appropriate given the strength of the Court's August 11, 2023 partial certification order on the meal period auto-deduction claim, which significantly enhanced Plaintiffs' leverage and confirmed the viability of the central theory of liability.

Relationship to Defense Expert Damages. At $15 million, the settlement would represent approximately 258.6% of the defense expert's damages valuation. Our retained expert, Dr. Catherine Lindstrom of Hargrove Analytics Inc., has assessed class-wide damages at $5.8 million. While this creates an apparent premium above our own expert's valuation, several factors justify paying in excess of the defense damages figure: the partial certification order, the inherent unpredictability of a jury trial on damages, the potential for adverse rulings on the remaining certification issues, and the substantial costs and management distraction associated with continued litigation through trial and post-trial motions.

Partial Certification Order. The Court's August 11, 2023 order certifying the first meal period auto-deduction claim on a class-wide basis fundamentally altered the litigation dynamic. Certification on this claim — which involves AMA's uniform policy of automatically deducting thirty minutes for meal periods regardless of whether employees were fully relieved of duties — established common proof and created a presumption of liability that would be difficult to overcome at trial. The Court also certified the derivative wage statement claim under California Labor Code § 226 and the UCL claim under California Business and Professions Code § 17200, both of which flow from the certified meal period claim. These certifications substantially strengthen Plaintiffs' position and support a settlement at the higher end of the previously authorized range.

Denied Claims. The Court denied certification on several significant claims, including the rest period claim, the off-the-clock/overtime claim, the minimum wage claim, the second meal period claim, and the waiting time penalties claim. The denial of these claims — which collectively represent a substantial portion of Plaintiffs' original damages theory — justifies a significant discount from Plaintiffs' aggregate demand. The $15 million authority ceiling appropriately accounts for this discount while recognizing the strength of the certified claims.

PAGA Component. The $750,000 PAGA allocation (which would be included within the GSA, not in addition to it) is well within the range previously assessed as realistic. At $750,000, the PAGA component would be allocated 75% to the Labor and Workforce Development Agency (LWDA), equaling $562,500, and 25% to aggrieved employees, equaling $187,500, consistent with the statutory allocation under California Labor Code § 2699(i). The $750,000 figure is consistent with the significant judicial discretion afforded to courts to reduce PAGA penalties under California Labor Code § 2699(e)(2), which permits reduction based on the facts and circumstances of the particular case, including the nature and seriousness of the violation, the size of the employer, and the number of employees affected. The $750,000 represents a 93.9% reduction from Plaintiffs' claimed $12.2 million in PAGA penalties, and this magnitude of reduction is well within the range observed in comparable cases.

C. Rationale for Revised Aldrich Authority (Up to $2,500,000)

The Aldrich individual executive dispute was discussed at Mediation Session #1 as part of the combined mediation framework, but was not the primary focus of the session. The parties exchanged initial positions and had a preliminary discussion of the key issues, but the substantive negotiation of the Aldrich matter was deferred to Session #2. The revised authority recommendation of up to $2,500,000 in cash (exclusive of RSU acceleration) is based on the following considerations:

Aldrich's Initial Demand. Gavin Aldrich, through his counsel at Whitfield & Associates, has made an initial settlement demand of $4,150,000, consisting of the following components:

• Severance: $970,000, representing 24 months of base salary at $485,000 per year;

• Pro-rata bonus for fiscal year 2022: $168,750;

• RSU acceleration: approximately $332,200, calculated as 15,300 unvested AGMG RSUs multiplied by an estimated price of $21.71 per share (based on the exchange rate at the time of Aldrich's October 2022 termination);

• Emotional distress damages: $500,000;

• Lost future compensation: $1,200,000;

• Attorneys' fees: $750,000;

• Expense reimbursement: $28,400; and

• Punitive damages: $200,000.

AMA's Risk-Adjusted Assessment. Based on our analysis of the evidentiary record, the applicable legal standards, and the probability-weighted outcomes at trial, we have assessed AMA's risk-adjusted exposure in the Aldrich matter at $1.5 million to $2.5 million. This range reflects the interplay between AMA's principal vulnerability and its principal strength, as discussed below.

Key Vulnerability — Cure Period Deficiency. AMA's most significant exposure in the Aldrich matter arises from the cure-period deficiency under Section 7.2(b)(iv) of the Employment Agreement. The Employment Agreement provides that AMA may terminate Aldrich's employment for cause based on insubordination, but only after providing written notice specifying the alleged deficiency and affording Aldrich a cure period of fifteen (15) business days to remedy the identified conduct. The record establishes that AMA provided Aldrich with only three (3) calendar days (October 11–14, 2022) before effecting the termination. This procedural deficiency undermines the validity of the "for cause" termination to the extent it is predicated on the insubordination ground, and exposes AMA to a claim for severance and other contractual benefits that would have been payable upon a termination without cause. Aldrich's counsel has emphasized this deficiency in its demand letter and can be expected to press it aggressively at mediation.

Key Strength — Confidentiality Violations. AMA possesses strong documentary evidence of Aldrich's violations of the confidentiality obligations under Section 9.4 of the Employment Agreement. Through the e-discovery process, AMA has identified a total of 340 emails that Aldrich forwarded from his AMA corporate email account to his personal email address (galdrich.private@Northgate Software.com) during the period of his employment. More critically, AMA has identified 7 specific emails in which Aldrich transmitted proprietary materials — including show format bibles for "Apex Endurance," "The Remix," and "Untamed West," sizzle reels for multiple programs, and the Summit Challenge revenue model — to Halcyon Creek Productions LLC at the email address info@halcyoncreekprod.com. Halcyon Creek is a production company that competes with AMA in the unscripted entertainment space, and Aldrich's transmission of these proprietary materials constitutes a clear breach of his contractual confidentiality obligations and may constitute misappropriation of trade secrets under the California Uniform Trade Secrets Act ("CUTSA").

AMA's Cross-Claims. AMA has asserted cross-claims against Aldrich for breach of the Employment Agreement, CUTSA trade secret misappropriation, breach of fiduciary duty, and conversion. These cross-claims provide meaningful settlement leverage insofar as they create bilateral exposure and prevent Aldrich from approaching the mediation as a pure plaintiff. However, the cross-claims have limited quantifiable monetary recovery value at this stage of the litigation. AMA has not identified evidence that Halcyon Creek Productions commercially exploited the proprietary materials transmitted by Aldrich, and absent such evidence, AMA's damages on the trade secret and related claims would be limited to the costs of remediation and any unjust enrichment attributable to Aldrich's access to and use of the materials. While the cross-claims are valuable as leverage, they should not be expected to generate a significant affirmative monetary recovery.

Probability Assessment. We assess the probability that AMA's "for cause" termination of Aldrich would be upheld at trial at approximately 60/40 in AMA's favor, with the favorable weighting driven primarily by Ground 1 — the confidential information transmission — rather than the insubordination ground, which is compromised by the cure-period deficiency. This assessment reflects our judgment that a trier of fact is more likely than not to find that Aldrich's transmission of proprietary materials to a competitor constituted cause for termination independent of the insubordination ground, notwithstanding the procedural deficiency with respect to the cure period. However, the outcome is far from certain, and the 40% probability of an adverse finding represents material downside risk.

Cost Avoidance. Continued litigation of the Aldrich matter through trial would impose estimated additional defense costs of $200,000 to $350,000, inclusive of expert costs, deposition costs, trial preparation, and trial. These costs would be incurred with uncertain prospects of success, given the 60/40 probability assessment described above. A settlement within the recommended authority range would avoid these costs and eliminate the risk of an adverse verdict.

Settlement discount. Authority of up to $2,500,000 represents 60.2% of Aldrich's aggregate demand of $4,150,000 — a significant discount reflecting AMA's cross-claim leverage, the strength of the confidentiality violation evidence, and the realistic possibility that the "for cause" termination would be upheld on the basis of Ground 1 (confidential information transmission). This discount is appropriate given the balance of risks and equities in the case.

D. RSU Component (Aldrich)

Separate from the cash settlement component, the acceleration of Aldrich's unvested AGMG restricted stock units ("RSUs") is a critical negotiating variable in the Aldrich matter and warrants specific authorization.

Aldrich's Demand. Aldrich demands full acceleration of all 15,300 unvested AGMG RSUs that were scheduled to vest over the remaining term of his employment. Aldrich's position is that the RSUs would have fully vested had he not been wrongfully terminated, and that he is therefore entitled to acceleration of the entire unvested tranche.

Our Recommendation. We recommend that AMA authorize the acceleration of up to 10,200 RSUs, with forfeiture of the remaining 5,100 RSUs. This partial acceleration (10,200 of 15,300, or 66.7% of the unvested RSUs) represents a meaningful concession that acknowledges the strength of Aldrich's wrongful termination claim with respect to the cure-period deficiency, while preserving some forfeiture consequence for Aldrich's documented policy violations and confidentiality breaches.

Valuation. At the current AGMG share price of approximately £18.79 per share (approximately $21.71 per share at the October 2022 exchange rate applicable to the RSU grant), the value of the RSU components is as follows:

• Full acceleration of 15,300 RSUs: approximately $332,163;

• Partial acceleration of 10,200 RSUs (recommended maximum): approximately $221,442; and

• Forfeiture savings on 5,100 RSUs: approximately $110,721 in avoided equity dilution.

The partial acceleration approach preserves approximately $110,721 in value for AGMG through avoided equity dilution, while providing Aldrich with a substantial equity component that addresses a significant element of his demand and may facilitate closure on the cash component at a lower figure.

III. Anticipated Settlement Structure — Class Action

A. Projected Term Sheet (if settled at $15M authority ceiling)

The following table sets forth the projected allocation of the Gross Settlement Amount if the class action settles at the $15,000,000 maximum authority ceiling. We note that the actual GSA may be lower than $15,000,000; these figures are illustrative and reflect the maximum authority scenario for planning purposes.

The estimated average per-member payment of approximately $4,550 is calculated by dividing the Net Settlement Fund of approximately $8,418,200 by the estimated class size of approximately 1,850 non-exempt, hourly employees. Individual payments will vary based on the distribution formula.

Distribution Formula. As negotiated in the framework discussions at Session #1, the distribution formula would weight individual payments as follows: 60% based on weeks worked during the class period, and 40% based on recorded overtime hours. This blended formula accounts for both the duration of each class member's exposure to the alleged meal period violations (which are measured by time worked) and the individual impact of the overtime-related claims (which, though not certified for class treatment, would be released as part of the settlement).

Release. The settlement would include a broad release of all class, PAGA, and individual claims arising from the operative facts alleged in the Consolidated Complaint, including claims that were not certified for class treatment (rest period, off-the-clock, overtime, waiting time penalties, and minimum wage claims). The inclusion of non-certified claims in the release is a critical component of the settlement's value to AMA and must be preserved in the final agreement. A broad release will provide AMA with comprehensive finality and eliminate the risk of subsequent individual or representative actions based on the same underlying facts.

Class Period. The class period would run from November 1, 2018 through the date of preliminary approval of the settlement. Based on the current case schedule, preliminary approval is anticipated in October 2023; for purposes of settlement documentation, the class period end date would subsequently be defined as October 31, 2023.

Estimated Class Size. The estimated class size is approximately 1,850 non-exempt, hourly employees who were employed by AMA at any time during the class period. This figure is based on the payroll data produced during discovery and verified by the parties' respective experts.

B. PAGA Structuring

The PAGA component of the settlement requires specific attention with respect to both structural requirements and insurance considerations.

LWDA Reporting. The PAGA component of $750,000 must be identified separately within the GSA to satisfy the LWDA's reporting requirements under California Labor Code § 2699(l)(2). The settlement agreement should clearly identify the PAGA allocation and the statutory split (75% LWDA / 25% aggrieved employees). AMA will be responsible for submitting the proposed PAGA settlement to the LWDA for review prior to or contemporaneously with the motion for preliminary approval.

Reduction from Claimed Penalties. The $750,000 PAGA figure represents a 93.9% reduction from Plaintiffs' claimed $12.2 million in PAGA penalties. This substantial reduction is well within the range of judicial discretion reductions observed in comparable cases and is supported by several factors, including the limited scope of the certified claims, the remedial purpose of PAGA, and the significant compliance improvements AMA has implemented during the pendency of this litigation (including the elimination of the automatic meal period deduction policy in January 2023).

Insurance Coordination. Pemberton Mutual Assurance Co.'s reservation of rights regarding PAGA penalties under the Policy's Penalty Exclusion (§ IV.F) remains in effect. However, as discussed further in Section V below, we expect Pemberton to participate in the full GSA without insisting on a carve-out of the modest PAGA allocation. The PAGA component represents only approximately 5% of the anticipated GSA, and we believe Pemberton's practical interest in resolving the matter will outweigh any desire to enforce the Penalty Exclusion with respect to such a small component. Our September 10 letter to the carrier addressed this point and set forth our position that the PAGA allocation is properly covered as part of the integrated settlement. We will confirm Pemberton's final position in the consent-to-settlement letter that will be sent upon reaching a binding agreement at mediation.

IV. Anticipated Settlement Structure — Aldrich

A. Projected Term Sheet (if settled at $2.5M authority ceiling)

The following table sets forth the projected terms of the Aldrich settlement if the matter resolves at the $2,500,000 cash maximum authority ceiling:

The mutual general release would cover all claims and cross-claims between AMA and Aldrich, including Aldrich's claims for wrongful termination, breach of the Employment Agreement, breach of the implied covenant of good faith and fair dealing, defamation, intentional infliction of emotional distress, and violation of California Labor Code provisions, as well as AMA's cross-claims for breach of the Employment Agreement, CUTSA trade secret misappropriation, breach of fiduciary duty, and conversion. The release would be comprehensive and would include a waiver of unknown claims under California Civil Code § 1542.

The restrictive covenant modifications represent a carefully calibrated approach. AMA would agree to void the non-competition clause (§ 9.1), which is unenforceable under California Business and Professions Code § 16600 in any event. The employee and business non-solicitation clauses (§§ 9.2 and 9.3) would be reduced from 24 months to 12 months, providing AMA with meaningful protection during the most critical period following Aldrich's departure while offering Aldrich a tangible concession. Critically, the confidentiality clause (§ 9.4) would remain in full force and effect indefinitely, ensuring that AMA retains robust protections against further disclosure of proprietary information.

B. Key Negotiation Points for Session #2

The following summarizes our strategic approach to the key negotiation variables in the Aldrich matter:

Cash Quantum. Based on the preliminary discussions at Session #1, we assess that Aldrich's realistic floor is in the $2.5–$3.0 million range. His opening demand of $4,150,000 contains significant padding, particularly in the emotional distress, lost future compensation, and punitive damages categories. Our target is $2.0–$2.35 million, and we intend to open at $1.75 million. The authority ceiling of $2.5 million provides adequate negotiation room to reach the $2.0–$2.35 million target range, with the ability to move to $2.5 million as a final concession if necessary to close the deal.

RSU Acceleration. Aldrich demands full acceleration of all 15,300 unvested RSUs. Our recommended opening position is 8,000 RSUs, with authority to move to 10,200 RSUs as a closing concession. The RSU component is particularly useful as a negotiation tool because it can be framed as a significant concession in percentage terms (moving from 8,000 to 10,200 represents a 27.5% increase) while the dollar value of the movement (approximately $47,762) is relatively modest. We should lead with 8,000 RSUs and hold the movement to 10,200 RSUs in reserve for use as a closing mechanism late in the mediation session.

Confidentiality (§ 9.4). The indefinite continuation of the confidentiality clause is non-negotiable. Given Aldrich's demonstrated willingness to transmit proprietary materials to competitors — as evidenced by the 340 emails forwarded to his personal account and the 7 emails transmitting show format bibles, sizzle reels, and the Summit Challenge revenue model to Halcyon Creek Productions — AMA must retain full contractual confidentiality protections. If Aldrich's counsel resists this point, we should make clear that the strength of AMA's cross-claims, particularly the CUTSA misappropriation claim, provides ample justification for insisting on this term, and that any concession on confidentiality would require a corresponding reduction in the cash component.

Non-Competition Clause (§ 9.1). We recommend conceding the unenforceability of the non-competition clause at the outset of the Aldrich negotiation. This provision is unenforceable under California law (Cal. Bus. & Prof. Code § 16600), and any attempt to defend it would undermine our credibility with the mediator and with Aldrich's counsel. By conceding this point early, we build goodwill and credibility that can be deployed on the issues that matter — the cash quantum, RSU acceleration, and confidentiality protections. We should not expend negotiating capital on a provision we cannot enforce.

Non-Solicitation Duration (§§ 9.2 and 9.3). Our target is 12 months (reduced from 24 months) for both the employee non-solicitation clause (§ 9.2) and the business non-solicitation clause (§ 9.3). This represents a meaningful concession — a 50% reduction in duration — but preserves protection during the critical 12-month period following Aldrich's departure, when the risk of solicitation is highest. We note that the enforceability of non-solicitation clauses in California is subject to ongoing legal uncertainty following AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), and subsequent developments. However, a negotiated reduction to 12 months as part of a settlement agreement stands on stronger footing than the original 24-month restriction imposed unilaterally.

V. Insurance Coordination — Pemberton Mutual Assurance Co.

A. EPL Policy Summary

AMA maintains an Employment Practices Liability ("EPL") insurance policy with Pemberton Mutual Assurance Co. The relevant policy details are as follows:

The policy provides coverage for "Employment Practices" claims, subject to the SIR, the aggregate limit, and the various exclusions and reservations set forth in the policy. Pemberton has been placed on notice of both the Fuentes class action and the Aldrich individual matter, and has issued correspondence regarding its coverage position with respect to each.

B. SIR Exhaustion Analysis

AMA's Self-Insured Retention of $5,000,000 must be exhausted before Pemberton's coverage obligations are triggered. Based on current expenditure data, the SIR analysis is as follows:

AMA has incurred approximately $3.1 million in defense costs through September 2023. These costs include Calderwood & Harkness's legal fees and expenses, expert witness retention and consulting fees (including Dr. Catherine Lindstrom at Hargrove Analytics Inc. and other consulting experts), and e-discovery vendor costs. These defense costs are counted toward exhaustion of the SIR under the policy terms.

The $5,000,000 SIR will be exceeded when AMA funds its self-funded share of the class settlement. At a $15 million GSA with Pemberton contributing $9,250,000, AMA's self-funded settlement share would be $5,750,000. Combined with the $3.1 million in defense costs already incurred, AMA's total expenditure would be approximately $8.85 million — well in excess of the $5 million SIR. Accordingly, the SIR exhaustion requirement does not present any obstacle to Pemberton's participation in the settlement.

C. Pemberton's Authorized Contribution

In our August 20, 2023 letter to Pemberton (Document 141 in the case file), we formally requested Pemberton's position on settlement contribution in anticipation of the mediation process. Following discussions between Calderwood & Harkness, Thornhill & Reade (Pemberton's coverage counsel), and Samuel Okonkwo at Kestrel Risk Advisors, Pemberton has indicated its willingness to contribute up to $9,250,000 toward the class settlement, subject to its standard consent-to-settlement requirements.

The contribution scenarios are as follows:

• At a $15,000,000 GSA: Pemberton contribution of $9,250,000 + AMA self-funded share of $5,750,000 = $15,000,000.

• At a $14,750,000 GSA (which we consider the more likely outcome based on the current negotiation trajectory): Pemberton contribution of $9,250,000 + AMA self-funded share of $5,500,000 = $14,750,000.

After Pemberton's maximum authorized contribution of $9,250,000, the remaining balance under the policy's aggregate limit would be $5,750,000 ($15,000,000 aggregate limit minus $9,250,000 contribution). This remaining capacity would be available for any future claims during the policy period, though we consider it unlikely that additional claims will arise given the comprehensive release contemplated by the class settlement.

D. Pemberton — PAGA Reservation

As noted in Section III.B above, Pemberton has reserved its rights regarding PAGA penalties under the Policy's Penalty Exclusion at Section IV.F. This exclusion provides that the Policy does not cover "fines, penalties, or sanctions imposed by law, whether civil, criminal, regulatory, or administrative in nature." PAGA penalties are arguably within the scope of this exclusion, and Pemberton has preserved its right to invoke the exclusion.

However, we anticipate that Pemberton will participate in the full GSA without insisting on a PAGA carve-out for several reasons. First, the PAGA component of $750,000 represents only approximately 5% of the total anticipated settlement, making it impractical and disproportionate to litigate the coverage issue. Second, the PAGA component is integrated into the GSA rather than structured as a standalone penalty payment, which blurs the line between "penalty" and "settlement" and weakens the applicability of the Penalty Exclusion. Third, Pemberton has a strong interest in resolving the class action efficiently and avoiding the costs and uncertainty of continued litigation, which would further erode the available policy limits.

We will confirm Pemberton's final position on PAGA coverage in the formal consent-to-settlement letter that will be submitted to Pemberton upon reaching a binding agreement at mediation. If Pemberton insists on a PAGA carve-out, the financial impact to AMA would be limited to $750,000 — a manageable amount that would not materially alter the settlement economics.

E. Pemberton — Aldrich Coverage Denial

Pemberton denied coverage for the Aldrich executive dispute in its December 22, 2022 Reservation of Rights letter. The denial was based on three grounds:

1. Insured v. Insured Exclusion (§ IV.C). Pemberton invoked the Insured v. Insured Exclusion as applied to AMA's cross-claims against Aldrich, arguing that both AMA and Aldrich qualify as "insureds" under the policy and that claims between insureds are excluded from coverage. While this exclusion is typically directed at collusive or internal disputes, Pemberton's position is not unreasonable on its face given the policy language.

2. Offensive Litigation Characterization. Pemberton characterized AMA's cross-claims as offensive litigation falling outside the scope of "defense" coverage under the EPL policy. The policy provides coverage for the defense of claims brought against the insured, and Pemberton argued that AMA's affirmative cross-claims for breach of contract, trade secret misappropriation, breach of fiduciary duty, and conversion are not defensive in nature.

3. Proprietary Business Interests. Pemberton argued that AMA's restrictive covenant and trade secret claims relate to AMA's proprietary business interests rather than to "Employment Practices" as defined in the policy. Under this reasoning, claims arising from the enforcement of post-employment restrictive covenants and the protection of trade secrets fall outside the insuring agreement.

In light of this denial, AMA should plan to self-fund the entire Aldrich settlement out of its own resources. The Aldrich settlement is not included in the Pemberton contribution analysis set forth above, and the $2,500,000 maximum authority for the Aldrich matter represents a fully self-funded obligation.

We do not recommend challenging Pemberton's coverage denial at this time. The cost of coverage litigation — including retention of coverage counsel, the filing of a declaratory relief action, and the associated discovery and motion practice — would likely approach or exceed $250,000 to $400,000, which may exceed the potential recovery given the arguable applicability of the cited exclusions. Additionally, a coverage dispute with Pemberton could adversely affect the carrier relationship and complicate Pemberton's participation in the class settlement, which is the more financially significant component.

AMA should, however, preserve its rights under the Directors and Officers Liability ("D&O") insurance policy issued by Redcliffe Specialty Insurance Ltd. (Policy No. RSI-DO-2022-04419, providing a $10 million primary tower) and the excess D&O policy issued by Ashford Re Ltd. (Policy No. ARL-EX-2022-01102, providing a $25 million excess tower). These policies may be triggered in the event that Aldrich names individual AMA or AGMG officers as defendants in his claims, though this has not occurred to date and we consider it unlikely to occur given the posture of the settlement negotiations.

VI. Combined Financial Summary

A. All-In Cost Analysis at Maximum Authority

The following table sets forth AMA's total financial exposure at the maximum authority levels recommended in this memorandum:

The total AMA out-of-pocket exposure of approximately $11,550,000 represents the maximum all-in cost to AMA if both matters settle at the authority ceilings recommended herein. This figure includes all defense costs already incurred, the projected costs of the settlement approval process (including the motions for preliminary and final approval of the class settlement), and the full self-funded settlement amounts for both matters.

B. Comparison to Claimed Exposure

The following table places the recommended settlement authority in context relative to the total claimed exposure across both matters:

At the maximum authority levels, AMA would resolve claims with a stated aggregate value of $42,750,000 for a total payout of $17,500,000, representing 40.9% of the claimed exposure. After accounting for Pemberton's contribution, AMA's actual out-of-pocket cost of approximately $11,550,000 represents only 27.0% of the total claimed exposure. These ratios are favorable and reflect the significant discount achieved through the litigation process, the partial certification outcome, and the negotiation dynamics at Mediation Session #1.

C. Comparison to Most Likely Outcome

Based on the negotiation trajectory from Session #1 and the mediator's assessment, the most likely settlement outcome is a class settlement in the range of $14,500,000 to $15,000,000, with the Aldrich settlement likely in the range of $2,000,000 to $2,350,000. At the midpoint of these ranges — a $14,750,000 class settlement and a $2,175,000 Aldrich settlement, for a total resolution value of $16,925,000 — AMA's self-funded costs would be approximately as follows:

• Class self-funded share: $14,750,000 – $9,250,000 (Pemberton) = $5,500,000

• Aldrich self-funded: $2,175,000

• Estimated final defense costs (including settlement approval phase): ~$3,300,000

• Total AMA out-of-pocket at most likely outcome: ~$10,975,000

This most-likely-outcome figure of approximately $10,975,000 compares favorably to the alternative of continued litigation through trial. Proceeding to trial on the class action alone would impose estimated additional trial preparation and trial costs of $1,200,000 to $1,800,000, with significant verdict risk given the partial certification order. Trial of the Aldrich matter would impose an additional $300,000 to $500,000 in costs, with uncertain prospects (60/40 probability assessment). The total additional cost of trial on both matters — $1,500,000 to $2,300,000 in legal fees alone, plus the risk of adverse verdicts — strongly supports the pursuit of a negotiated resolution at the recommended authority levels.

VII. Board Approval Requirement

Pursuant to Section 7.4 of AMA's Outside Counsel Guidelines, settlement authority exceeding $5,000,000 requires the approval of the following individuals and bodies:

1. Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc.;

2. Philippa Cartwright, General Counsel, Aurelius Global Media Group plc;

3. Jonathan Mercer, President, Aurelius Media Americas Inc.; and

4. The AGMG Board's Audit and Risk Committee.

The total revised authority of $17,500,000 recommended in this memorandum exceeds the $5,000,000 threshold and therefore requires approval from all four of the above. We understand that Greg, Philippa, and Jonathan are in a position to review and act on this memorandum promptly. However, we are aware that obtaining Audit and Risk Committee approval may require scheduling a special meeting or circulating a written consent for action, which may not be achievable in the four business days between the date of this memorandum (September 4, 2023) and the date of Mediation Session #2 (September 8, 2023).

We recommend that this memorandum be circulated to the Audit and Risk Committee for review and approval at the earliest possible opportunity, and in any event prior to September 8, 2023. If Board approval cannot be obtained before the mediation date, we recommend the following interim approach:

• Greg, Philippa, and Jonathan should authorize an interim ceiling of $15,000,000 for the class action component only, which falls within the authority range previously approved by the Audit and Risk Committee for Mediation Session #1.

• Aldrich authority of up to $2,500,000 should be obtained separately from the Audit and Risk Committee in advance of a standalone Aldrich mediation session, which may be necessary in any event if the Aldrich matter does not resolve at Session #2.

• This interim approach allows AMA to participate fully in the class action component of the mediation on September 8 while preserving the Aldrich negotiation for a later session if necessary.

We emphasize, however, that the preferred approach is to obtain full authority for both matters prior to Session #2, as the package-deal dynamic — resolving both matters simultaneously — provides significant negotiating leverage and is likely to produce a more favorable overall result than addressing the matters sequentially.

VIII. Mediation Session #2 — Logistics and Strategy

A. Logistics

The logistical details for Mediation Session #2 are as follows:

• Date: Friday, September 8, 2023

• Location: Westpark Dispute Resolution Inc., 1925 Century Park East, Suite 1700, Los Angeles, California 90067

• Mediator: Hon. Patricia Okoro (Ret.)

• Format: Combined session — the class action and the Aldrich individual matter will be addressed in a single mediation day

AMA Attendees:

• Gregory Tanaka, Vice President, Legal & Compliance, AMA

• Renata Vasquez, Partner, Calderwood & Harkness LLP

• Devon Archer, Associate, Calderwood & Harkness LLP

Class Plaintiffs' Attendees (expected):

• Marco Castellano, Castellano Byrne & Salas LLP (lead class counsel)

• Diane Salas, Castellano Byrne & Salas LLP

• Trevor Kim, Castellano Byrne & Salas LLP

• Sandra Higuera, Veltrano Employment Law Group PC (PAGA counsel)

• Marisol Fuentes, named plaintiff and class representative

Aldrich Attendees (expected):

• Gavin Aldrich

• Cameron Whitfield, Whitfield & Associates (lead counsel for Aldrich)

• Julia Nazarian, Whitfield & Associates

B. Strategic Approach

Our strategic approach for Session #2 is designed to achieve a comprehensive resolution of both matters within the authorized settlement parameters. The key elements of our approach are as follows:

Class Action. We intend to open at $13,500,000 — the position at which we concluded Session #1. We expect Plaintiffs to open at or near their closing position of $16,500,000. Our target range for the class settlement is $14,500,000 to $15,000,000, and we have authority to concede to $15,000,000 if necessary to close. We will emphasize the strength of AMA's position on the denied claims (rest period, off-the-clock/overtime, minimum wage, second meal period, and waiting time penalties) as justification for our position, while acknowledging the impact of the partial certification order on the meal period auto-deduction claim. We expect the mediator to drive the parties toward the $14.5–$15.0 million range, consistent with her stated assessment.

PAGA. We intend to hold firm at $750,000 for the PAGA component. This figure already represents a massive concession from the $12.2 million claimed by Plaintiffs, reflecting a 93.9% reduction. The $750,000 figure is defensible, well-supported by case law on judicial discretion to reduce PAGA penalties, and consistent with the scope of the certified claims. If PAGA counsel Sandra Higuera pushes for a higher PAGA allocation, we should emphasize that the PAGA component is being resolved as part of a global settlement and that any increase in the PAGA allocation would come at the expense of the Net Settlement Fund available to class members, which is not in the class's interest.

Aldrich. We intend to open at $1,750,000 in cash plus 8,000 RSU acceleration. Our target range is $2,000,000 to $2,350,000 in cash plus 10,200 RSUs. We have authority to move to $2,500,000 in cash plus 10,200 RSUs as a final position. The negotiation sequence should proceed as follows: we open at $1,750,000 and 8,000 RSUs; we move to $2,000,000 and 8,000 RSUs in the second round; we move to $2,200,000 and 10,200 RSUs as a significant concession in the third or fourth round (deploying the RSU increase as a demonstrable move); and we hold $2,500,000 and 10,200 RSUs as our absolute ceiling, to be deployed only if necessary to close. Throughout the negotiation, we should emphasize the strength of AMA's cross-claims and the documentary evidence of Aldrich's confidentiality violations as the basis for the significant discount from Aldrich's demand.

Package-Deal Value. A central element of our strategy is to emphasize the package-deal value of resolving both matters simultaneously. We should communicate — through the mediator and, if appropriate, directly in joint session — that AMA is prepared to make meaningful concessions to achieve comprehensive finality across all pending employment litigation. Resolving both the class action and the Aldrich dispute simultaneously eliminates all pending claims, avoids the costs and management distraction of continued litigation on either front, and allows AMA to move forward with a clean slate. This framing benefits AMA by creating pressure on both sets of plaintiffs to close and by positioning AMA's concessions as part of a broader strategic decision rather than a sign of weakness on either individual matter.

Contingency — Aldrich Non-Resolution. If the Aldrich matter does not settle at Session #2, we recommend proposing a standalone Aldrich mediation session in late 2023 or early 2024, after the class settlement has cleared preliminary approval. This sequencing would allow AMA to demonstrate the finality achieved on the class action and to approach the Aldrich negotiation with the benefit of a confirmed class settlement behind it. A standalone session would also provide additional time to obtain Audit and Risk Committee approval for Aldrich-specific authority if such approval was not obtained prior to Session #2.

IX. Recommendation

Based on the foregoing analysis, we recommend that AMA authorize the revised settlement parameters set forth in Section II of this memorandum, specifically:

• Maximum class action Gross Settlement Amount: $15,000,000, inclusive of a $750,000 PAGA component;

• Maximum Aldrich individual cash settlement: $2,500,000;

• Maximum Aldrich RSU acceleration: 10,200 of 15,300 unvested AGMG RSUs (with forfeiture of the remaining 5,100 RSUs); and

• Total maximum authority across both matters: $17,500,000 (exclusive of RSU acceleration value).

The total maximum authority of $17,500,000 represents a well-reasoned allocation of settlement value across both matters, supported by the Court's August 11, 2023 partial class certification order, the mediator's assessment that the case will settle in the $14–16 million range, the competing expert analyses of Dr. Rennick and Dr. Lindstrom, the strength of AMA's cross-claims against Aldrich, the cure-period deficiency that undermines AMA's "for cause" termination defense, and the probability-weighted litigation risk factors detailed throughout this memorandum.

The combined resolution, if achieved at Mediation Session #2, would close both matters before the end of Q1 FY 2024, provide AMA with comprehensive releases and finality across all pending employment litigation, and allow AMA to turn its attention to the forward-looking compliance reforms recommended in our ongoing discussions with Lorraine Okafor regarding timekeeping system modifications, meal and rest period policy revisions, and restrictive covenant best practices. Achieving finality on these matters will also allow AMA to report the resolution to AGMG's Board with certainty, eliminating the contingent liability from AGMG's financial disclosures.

We are available to discuss this memorandum at your convenience and request that you advise us of the Board's authorization as soon as practicable, and in any event no later than September 7, 2023, to allow adequate preparation time before the September 8 mediation session.

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP

By: ________

Renata Vasquez Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 555-0147

Email: rvasquez@calderwoodharkness.com

Date: September 4, 2023

Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

This memorandum is a privileged and confidential communication of Calderwood & Harkness LLP, prepared at the direction of and for the benefit of Aurelius Media Americas Inc. and Aurelius Global Media Group plc. It is protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. Any unauthorized review, use, disclosure, or distribution is strictly prohibited. If you have received this memorandum in error, please contact the sender immediately and destroy all copies.

Parameter	Pre-Mediation #1 Range	Revised Range (Session #2)
Gross Settlement Amount (Class)	$10,000,000 – $15,000,000	Up to $15,000,000
PAGA Component (included in GSA)	$500,000 – $1,000,000	$750,000
Aldrich Individual (Cash)	$1,500,000 – $3,000,000	Up to $2,500,000
Total Maximum Authority (all matters)	$18,000,000	$17,500,000
Component	Amount
Gross Settlement Amount (GSA)	$15,000,000 (illustrative maximum)
Attorneys' Fees (33.33% of GSA)	$4,999,500
Litigation Costs (Class Counsel's documented expenses)	~$412,300
Service Awards (Named Plaintiffs)	$35,000 total
— Marisol Fuentes	$15,000
— Kevin Halloran	$10,000
— Diana Padilla	$10,000
Settlement Administration (Meridian Settlement Services LLC)	~$385,000
PAGA Payment (included in GSA)	$750,000
— 75% to LWDA	$562,500
— 25% to Aggrieved Employees	$187,500
Net Settlement Fund	~$8,418,200
Estimated Average Per-Member Payment	~$4,550
Component	Amount / Term
Lump Sum Cash Payment	Up to $2,500,000
RSU Acceleration	Up to 10,200 of 15,300 unvested AGMG RSUs
RSU Forfeiture	Minimum 5,100 AGMG RSUs
Mutual General Release	All claims and cross-claims arising from or related to Aldrich's employment and termination

Restrictive Covenant Modifications:

— § 9.1 (Non-Competition)	Voided — mutual agreement consistent with Cal. Bus. & Prof. Code § 16600
— § 9.2 (Employee Non-Solicitation)	Reduced from 24 months to 12 months
— § 9.3 (Business Non-Solicitation)	Reduced from 24 months to 12 months
— § 9.4 (Confidentiality)	Remains in full force and effect indefinitely
Neutral Reference Agreement	Yes — confirming dates of employment, title, and eligibility for rehire
Non-Disparagement	Mutual, 3-year term
Return of Materials	All AMA proprietary materials in Aldrich's possession, custody, or control
Item	Detail
Policy Number	PMA-EPL-2022-00837
Named Insured	Aurelius Media Americas Inc.
Carrier	Pemberton Mutual Assurance Co.
Self-Insured Retention (SIR)	$5,000,000
Aggregate Policy Limit	$15,000,000 (in excess of SIR)
Coverage Counsel	Thornhill & Reade LLP (Hartford, CT)
Insurance Broker	Kestrel Risk Advisors Ltd. (Contact: Samuel Okonkwo)
Item	Amount	Funding Source
Class GSA (maximum)	$15,000,000	Settlement
Less: Pemberton contribution	($9,250,000)	EPL Policy (PMA-EPL-2022-00837)
AMA self-funded (class)	$5,750,000	AMA
Aldrich settlement (maximum cash)	$2,500,000	AMA (self-funded)
Total AMA self-funded (settlements)	$8,250,000	—
Defense costs incurred through Sept. 2023	~$3,100,000	C&H fees, expenses, experts, e-discovery
Estimated additional costs (settlement approval phase)	~$200,000	C&H estimate
Total AMA out-of-pocket (all-in)	~$11,550,000	—
Metric	Amount

Plaintiffs' total claimed exposure (class + Aldrich)	$42,750,000 ($38.6M class + $4.15M Aldrich)
Total maximum resolution value (both matters)	$17,500,000
Resolution as percentage of claimed exposure	40.9%
AMA total out-of-pocket (all-in)	~$11,550,000
AMA out-of-pocket as percentage of claimed exposure	27.0%

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential communication prepared by outside counsel for the purpose of providing legal advice. It is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges. Do not forward, copy, or distribute without the prior written consent of Calderwood & Harkness LLP.
INTERNAL MEMORANDUM
TO: Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc. Philippa Cartwright, General Counsel, Aurelius Global Media Group plc Jonathan Mercer, President, Aurelius Media Americas Inc.
FROM: Renata Vasquez, Partner, Calderwood & Harkness LLP
DATE: September 4, 2023
RE: Revised Settlement Authority Recommendation — Pre-Mediation Session #2 C&H Matter No. 1017-00004 Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated) Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087
I. Executive Summary
This memorandum sets forth Calderwood & Harkness LLP's revised settlement authority recommendation for both the Fuentes class action and the Aldrich individual executive dispute, in advance of the second mediation session scheduled for September 8, 2023. The memorandum is directed to the three individuals within the Aurelius Media Americas Inc. ("AMA") and Aurelius Global Media Group plc ("AGMG") organizations who, pursuant to AMA's Outside Counsel Guidelines, must authorize settlement expenditures exceeding the applicable threshold, and who will need to seek further authorization from the AGMG Board's Audit and Risk Committee.
Following Mediation Session #1, which took place on August 25, 2023 before the Honorable Patricia Okoro (Ret.) at Westpark Dispute Resolution Inc., 1925 Century Park East, Suite 1700, Los Angeles, California 90067, the parties' respective positions have narrowed materially. The session produced meaningful progress on the class action component and a preliminary exchange of positions on the Aldrich individual matter. Judge Okoro has indicated her assessment that the class action will resolve in the $14–16 million range, which is broadly consistent with our own internal analysis and the litigation risk profile we have outlined in prior memoranda. The parties are scheduled to reconvene for Mediation Session #2 on September 8, 2023, again before Judge Okoro at the same location. This session will be conducted as a combined mediation addressing both the class action and the Aldrich individual matter, with the goal of achieving a comprehensive, package-deal resolution of all pending employment litigation involving AMA.
Based on the progress achieved at Session #1, the current litigation posture following the Court's August 11, 2023 partial class certification order, and our updated risk analysis, we recommend that AMA authorize revised total maximum settlement authority of $17,500,000 across both matters. This figure represents a modest decrease from the $18,000,000 aggregate maximum initially authorized for Session #1, reflecting a strategic reallocation between the two matters based on the negotiation dynamics observed during that session. Specifically, we recommend authority of up to $15,000,000 for the class action (the Gross Settlement Amount) and up to $2,500,000 for the Aldrich individual matter (exclusive of any RSU acceleration, which is addressed separately below), for combined maximum authority of $17,500,000.
The detailed rationale for these recommendations, along with projected settlement structures, insurance coordination analysis, a combined financial summary, board approval requirements, and our strategic approach for Session #2, are set forth in the sections that follow.
II. Revised Settlement Authority Recommendation
A. Summary Table
The following table summarizes the pre-mediation authority previously authorized for Session #1 and the revised authority we recommend for Session #2:
As reflected above, the net effect of the revised recommendation is a reduction of $500,000 in total maximum authority. This reduction is achieved by narrowing the Aldrich range from $1,500,000–$3,000,000 to a firm ceiling of $2,500,000, while maintaining the class action GSA ceiling at the $15,000,000 maximum previously authorized. The PAGA component is set at a fixed target of $750,000, which falls at the midpoint of the previously authorized range and reflects the negotiation dynamics observed at Session #1.
B. Rationale for Revised Class Authority (Up to $15,000,000)
The recommendation to maintain maximum class action authority at $15,000,000 is supported by multiple converging factors:
Mediator's Assessment. During caucus sessions at Mediation Session #1, the Honorable Patricia Okoro communicated her assessment that the Fuentes class action will settle in the $14–16 million range. Judge Okoro's assessment is informed by her extensive experience mediating wage-and-hour class actions in the Los Angeles Superior Court, and her evaluation is consistent with our own independent analysis of the case's settlement value. The fact that the mediator has identified a range with its midpoint at $15 million provides strong support for our recommended authority ceiling.
Narrowing of Positions at Session #1. The mediation produced significant movement from both sides. The parties entered Session #1 with a gap of $20 million — Plaintiffs opened at $28 million, while AMA opened at $8 million. By the end of the session, the gap had narrowed to $3 million, with Plaintiffs at $16.5 million and AMA at $13.5 million. This closing trajectory suggests that a resolution in the $14–15 million range is realistic and achievable at Session #2, provided AMA has adequate authority to close the remaining distance.
Relationship to Plaintiffs' Expert Damages. At $15 million, the settlement would represent approximately 38.9% of the aggregate damages calculated by Plaintiffs' retained expert, Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, who has valued the class's claims at $38.6 million. This ratio falls within the range of settlements routinely approved by California courts in comparable wage-and-hour class actions. While the percentage is at the higher end of the approval range, this is appropriate given the strength of the Court's August 11, 2023 partial certification order on the meal period auto-deduction claim, which significantly enhanced Plaintiffs' leverage and confirmed the viability of the central theory of liability.
Relationship to Defense Expert Damages. At $15 million, the settlement would represent approximately 258.6% of the defense expert's damages valuation. Our retained expert, Dr. Catherine Lindstrom of Hargrove Analytics Inc., has assessed class-wide damages at $5.8 million. While this creates an apparent premium above our own expert's valuation, several factors justify paying in excess of the defense damages figure: the partial certification order, the inherent unpredictability of a jury trial on damages, the potential for adverse rulings on the remaining certification issues, and the substantial costs and management distraction associated with continued litigation through trial and post-trial motions.
Partial Certification Order. The Court's August 11, 2023 order certifying the first meal period auto-deduction claim on a class-wide basis fundamentally altered the litigation dynamic. Certification on this claim — which involves AMA's uniform policy of automatically deducting thirty minutes for meal periods regardless of whether employees were fully relieved of duties — established common proof and created a presumption of liability that would be difficult to overcome at trial. The Court also certified the derivative wage statement claim under California Labor Code § 226 and the UCL claim under California Business and Professions Code § 17200, both of which flow from the certified meal period claim. These certifications substantially strengthen Plaintiffs' position and support a settlement at the higher end of the previously authorized range.
Denied Claims. The Court denied certification on several significant claims, including the rest period claim, the off-the-clock/overtime claim, the minimum wage claim, the second meal period claim, and the waiting time penalties claim. The denial of these claims — which collectively represent a substantial portion of Plaintiffs' original damages theory — justifies a significant discount from Plaintiffs' aggregate demand. The $15 million authority ceiling appropriately accounts for this discount while recognizing the strength of the certified claims.
PAGA Component. The $750,000 PAGA allocation (which would be included within the GSA, not in addition to it) is well within the range previously assessed as realistic. At $750,000, the PAGA component would be allocated 75% to the Labor and Workforce Development Agency (LWDA), equaling $562,500, and 25% to aggrieved employees, equaling $187,500, consistent with the statutory allocation under California Labor Code § 2699(i). The $750,000 figure is consistent with the significant judicial discretion afforded to courts to reduce PAGA penalties under California Labor Code § 2699(e)(2), which permits reduction based on the facts and circumstances of the particular case, including the nature and seriousness of the violation, the size of the employer, and the number of employees affected. The $750,000 represents a 93.9% reduction from Plaintiffs' claimed $12.2 million in PAGA penalties, and this magnitude of reduction is well within the range observed in comparable cases.
C. Rationale for Revised Aldrich Authority (Up to $2,500,000)
The Aldrich individual executive dispute was discussed at Mediation Session #1 as part of the combined mediation framework, but was not the primary focus of the session. The parties exchanged initial positions and had a preliminary discussion of the key issues, but the substantive negotiation of the Aldrich matter was deferred to Session #2. The revised authority recommendation of up to $2,500,000 in cash (exclusive of RSU acceleration) is based on the following considerations:
Aldrich's Initial Demand. Gavin Aldrich, through his counsel at Whitfield & Associates, has made an initial settlement demand of $4,150,000, consisting of the following components:
•  Severance: $970,000, representing 24 months of base salary at $485,000 per year;
•  Pro-rata bonus for fiscal year 2022: $168,750;
•  RSU acceleration: approximately $332,200, calculated as 15,300 unvested AGMG RSUs multiplied by an estimated price of $21.71 per share (based on the exchange rate at the time of Aldrich's October 2022 termination);
•  Emotional distress damages: $500,000;
•  Lost future compensation: $1,200,000;
•  Attorneys' fees: $750,000;
•  Expense reimbursement: $28,400; and
•  Punitive damages: $200,000.
AMA's Risk-Adjusted Assessment. Based on our analysis of the evidentiary record, the applicable legal standards, and the probability-weighted outcomes at trial, we have assessed AMA's risk-adjusted exposure in the Aldrich matter at $1.5 million to $2.5 million. This range reflects the interplay between AMA's principal vulnerability and its principal strength, as discussed below.
Key Vulnerability — Cure Period Deficiency. AMA's most significant exposure in the Aldrich matter arises from the cure-period deficiency under Section 7.2(b)(iv) of the Employment Agreement. The Employment Agreement provides that AMA may terminate Aldrich's employment for cause based on insubordination, but only after providing written notice specifying the alleged deficiency and affording Aldrich a cure period of fifteen (15) business days to remedy the identified conduct. The record establishes that AMA provided Aldrich with only three (3) calendar days (October 11–14, 2022) before effecting the termination. This procedural deficiency undermines the validity of the "for cause" termination to the extent it is predicated on the insubordination ground, and exposes AMA to a claim for severance and other contractual benefits that would have been payable upon a termination without cause. Aldrich's counsel has emphasized this deficiency in its demand letter and can be expected to press it aggressively at mediation.
Key Strength — Confidentiality Violations. AMA possesses strong documentary evidence of Aldrich's violations of the confidentiality obligations under Section 9.4 of the Employment Agreement. Through the e-discovery process, AMA has identified a total of 340 emails that Aldrich forwarded from his AMA corporate email account to his personal email address (galdrich.private@Northgate Software.com) during the period of his employment. More critically, AMA has identified 7 specific emails in which Aldrich transmitted proprietary materials — including show format bibles for "Apex Endurance," "The Remix," and "Untamed West," sizzle reels for multiple programs, and the Summit Challenge revenue model — to Halcyon Creek Productions LLC at the email address info@halcyoncreekprod.com. Halcyon Creek is a production company that competes with AMA in the unscripted entertainment space, and Aldrich's transmission of these proprietary materials constitutes a clear breach of his contractual confidentiality obligations and may constitute misappropriation of trade secrets under the California Uniform Trade Secrets Act ("CUTSA").
AMA's Cross-Claims. AMA has asserted cross-claims against Aldrich for breach of the Employment Agreement, CUTSA trade secret misappropriation, breach of fiduciary duty, and conversion. These cross-claims provide meaningful settlement leverage insofar as they create bilateral exposure and prevent Aldrich from approaching the mediation as a pure plaintiff. However, the cross-claims have limited quantifiable monetary recovery value at this stage of the litigation. AMA has not identified evidence that Halcyon Creek Productions commercially exploited the proprietary materials transmitted by Aldrich, and absent such evidence, AMA's damages on the trade secret and related claims would be limited to the costs of remediation and any unjust enrichment attributable to Aldrich's access to and use of the materials. While the cross-claims are valuable as leverage, they should not be expected to generate a significant affirmative monetary recovery.
Probability Assessment. We assess the probability that AMA's "for cause" termination of Aldrich would be upheld at trial at approximately 60/40 in AMA's favor, with the favorable weighting driven primarily by Ground 1 — the confidential information transmission — rather than the insubordination ground, which is compromised by the cure-period deficiency. This assessment reflects our judgment that a trier of fact is more likely than not to find that Aldrich's transmission of proprietary materials to a competitor constituted cause for termination independent of the insubordination ground, notwithstanding the procedural deficiency with respect to the cure period. However, the outcome is far from certain, and the 40% probability of an adverse finding represents material downside risk.
Cost Avoidance. Continued litigation of the Aldrich matter through trial would impose estimated additional defense costs of $200,000 to $350,000, inclusive of expert costs, deposition costs, trial preparation, and trial. These costs would be incurred with uncertain prospects of success, given the 60/40 probability assessment described above. A settlement within the recommended authority range would avoid these costs and eliminate the risk of an adverse verdict.
Settlement discount. Authority of up to $2,500,000 represents 60.2% of Aldrich's aggregate demand of $4,150,000 — a significant discount reflecting AMA's cross-claim leverage, the strength of the confidentiality violation evidence, and the realistic possibility that the "for cause" termination would be upheld on the basis of Ground 1 (confidential information transmission). This discount is appropriate given the balance of risks and equities in the case.
D. RSU Component (Aldrich)
Separate from the cash settlement component, the acceleration of Aldrich's unvested AGMG restricted stock units ("RSUs") is a critical negotiating variable in the Aldrich matter and warrants specific authorization.
Aldrich's Demand. Aldrich demands full acceleration of all 15,300 unvested AGMG RSUs that were scheduled to vest over the remaining term of his employment. Aldrich's position is that the RSUs would have fully vested had he not been wrongfully terminated, and that he is therefore entitled to acceleration of the entire unvested tranche.
Our Recommendation. We recommend that AMA authorize the acceleration of up to 10,200 RSUs, with forfeiture of the remaining 5,100 RSUs. This partial acceleration (10,200 of 15,300, or 66.7% of the unvested RSUs) represents a meaningful concession that acknowledges the strength of Aldrich's wrongful termination claim with respect to the cure-period deficiency, while preserving some forfeiture consequence for Aldrich's documented policy violations and confidentiality breaches.
Valuation. At the current AGMG share price of approximately £18.79 per share (approximately $21.71 per share at the October 2022 exchange rate applicable to the RSU grant), the value of the RSU components is as follows:
•  Full acceleration of 15,300 RSUs: approximately $332,163;
•  Partial acceleration of 10,200 RSUs (recommended maximum): approximately $221,442; and
•  Forfeiture savings on 5,100 RSUs: approximately $110,721 in avoided equity dilution.
The partial acceleration approach preserves approximately $110,721 in value for AGMG through avoided equity dilution, while providing Aldrich with a substantial equity component that addresses a significant element of his demand and may facilitate closure on the cash component at a lower figure.
III. Anticipated Settlement Structure — Class Action
A. Projected Term Sheet (if settled at $15M authority ceiling)
The following table sets forth the projected allocation of the Gross Settlement Amount if the class action settles at the $15,000,000 maximum authority ceiling. We note that the actual GSA may be lower than $15,000,000; these figures are illustrative and reflect the maximum authority scenario for planning purposes.
The estimated average per-member payment of approximately $4,550 is calculated by dividing the Net Settlement Fund of approximately $8,418,200 by the estimated class size of approximately 1,850 non-exempt, hourly employees. Individual payments will vary based on the distribution formula.
Distribution Formula. As negotiated in the framework discussions at Session #1, the distribution formula would weight individual payments as follows: 60% based on weeks worked during the class period, and 40% based on recorded overtime hours. This blended formula accounts for both the duration of each class member's exposure to the alleged meal period violations (which are measured by time worked) and the individual impact of the overtime-related claims (which, though not certified for class treatment, would be released as part of the settlement).
Release. The settlement would include a broad release of all class, PAGA, and individual claims arising from the operative facts alleged in the Consolidated Complaint, including claims that were not certified for class treatment (rest period, off-the-clock, overtime, waiting time penalties, and minimum wage claims). The inclusion of non-certified claims in the release is a critical component of the settlement's value to AMA and must be preserved in the final agreement. A broad release will provide AMA with comprehensive finality and eliminate the risk of subsequent individual or representative actions based on the same underlying facts.
Class Period. The class period would run from November 1, 2018 through the date of preliminary approval of the settlement. Based on the current case schedule, preliminary approval is anticipated in October 2023; for purposes of settlement documentation, the class period end date would subsequently be defined as October 31, 2023.
Estimated Class Size. The estimated class size is approximately 1,850 non-exempt, hourly employees who were employed by AMA at any time during the class period. This figure is based on the payroll data produced during discovery and verified by the parties' respective experts.
B. PAGA Structuring
The PAGA component of the settlement requires specific attention with respect to both structural requirements and insurance considerations.
LWDA Reporting. The PAGA component of $750,000 must be identified separately within the GSA to satisfy the LWDA's reporting requirements under California Labor Code § 2699(l)(2). The settlement agreement should clearly identify the PAGA allocation and the statutory split (75% LWDA / 25% aggrieved employees). AMA will be responsible for submitting the proposed PAGA settlement to the LWDA for review prior to or contemporaneously with the motion for preliminary approval.
Reduction from Claimed Penalties. The $750,000 PAGA figure represents a 93.9% reduction from Plaintiffs' claimed $12.2 million in PAGA penalties. This substantial reduction is well within the range of judicial discretion reductions observed in comparable cases and is supported by several factors, including the limited scope of the certified claims, the remedial purpose of PAGA, and the significant compliance improvements AMA has implemented during the pendency of this litigation (including the elimination of the automatic meal period deduction policy in January 2023).
Insurance Coordination. Pemberton Mutual Assurance Co.'s reservation of rights regarding PAGA penalties under the Policy's Penalty Exclusion (§ IV.F) remains in effect. However, as discussed further in Section V below, we expect Pemberton to participate in the full GSA without insisting on a carve-out of the modest PAGA allocation. The PAGA component represents only approximately 5% of the anticipated GSA, and we believe Pemberton's practical interest in resolving the matter will outweigh any desire to enforce the Penalty Exclusion with respect to such a small component. Our September 10 letter to the carrier addressed this point and set forth our position that the PAGA allocation is properly covered as part of the integrated settlement. We will confirm Pemberton's final position in the consent-to-settlement letter that will be sent upon reaching a binding agreement at mediation.
IV. Anticipated Settlement Structure — Aldrich
A. Projected Term Sheet (if settled at $2.5M authority ceiling)
The following table sets forth the projected terms of the Aldrich settlement if the matter resolves at the $2,500,000 cash maximum authority ceiling:
The mutual general release would cover all claims and cross-claims between AMA and Aldrich, including Aldrich's claims for wrongful termination, breach of the Employment Agreement, breach of the implied covenant of good faith and fair dealing, defamation, intentional infliction of emotional distress, and violation of California Labor Code provisions, as well as AMA's cross-claims for breach of the Employment Agreement, CUTSA trade secret misappropriation, breach of fiduciary duty, and conversion. The release would be comprehensive and would include a waiver of unknown claims under California Civil Code § 1542.
The restrictive covenant modifications represent a carefully calibrated approach. AMA would agree to void the non-competition clause (§ 9.1), which is unenforceable under California Business and Professions Code § 16600 in any event. The employee and business non-solicitation clauses (§§ 9.2 and 9.3) would be reduced from 24 months to 12 months, providing AMA with meaningful protection during the most critical period following Aldrich's departure while offering Aldrich a tangible concession. Critically, the confidentiality clause (§ 9.4) would remain in full force and effect indefinitely, ensuring that AMA retains robust protections against further disclosure of proprietary information.
B. Key Negotiation Points for Session #2
The following summarizes our strategic approach to the key negotiation variables in the Aldrich matter:
Cash Quantum. Based on the preliminary discussions at Session #1, we assess that Aldrich's realistic floor is in the $2.5–$3.0 million range. His opening demand of $4,150,000 contains significant padding, particularly in the emotional distress, lost future compensation, and punitive damages categories. Our target is $2.0–$2.35 million, and we intend to open at $1.75 million. The authority ceiling of $2.5 million provides adequate negotiation room to reach the $2.0–$2.35 million target range, with the ability to move to $2.5 million as a final concession if necessary to close the deal.
RSU Acceleration. Aldrich demands full acceleration of all 15,300 unvested RSUs. Our recommended opening position is 8,000 RSUs, with authority to move to 10,200 RSUs as a closing concession. The RSU component is particularly useful as a negotiation tool because it can be framed as a significant concession in percentage terms (moving from 8,000 to 10,200 represents a 27.5% increase) while the dollar value of the movement (approximately $47,762) is relatively modest. We should lead with 8,000 RSUs and hold the movement to 10,200 RSUs in reserve for use as a closing mechanism late in the mediation session.
Confidentiality (§ 9.4). The indefinite continuation of the confidentiality clause is non-negotiable. Given Aldrich's demonstrated willingness to transmit proprietary materials to competitors — as evidenced by the 340 emails forwarded to his personal account and the 7 emails transmitting show format bibles, sizzle reels, and the Summit Challenge revenue model to Halcyon Creek Productions — AMA must retain full contractual confidentiality protections. If Aldrich's counsel resists this point, we should make clear that the strength of AMA's cross-claims, particularly the CUTSA misappropriation claim, provides ample justification for insisting on this term, and that any concession on confidentiality would require a corresponding reduction in the cash component.
Non-Competition Clause (§ 9.1). We recommend conceding the unenforceability of the non-competition clause at the outset of the Aldrich negotiation. This provision is unenforceable under California law (Cal. Bus. & Prof. Code § 16600), and any attempt to defend it would undermine our credibility with the mediator and with Aldrich's counsel. By conceding this point early, we build goodwill and credibility that can be deployed on the issues that matter — the cash quantum, RSU acceleration, and confidentiality protections. We should not expend negotiating capital on a provision we cannot enforce.
Non-Solicitation Duration (§§ 9.2 and 9.3). Our target is 12 months (reduced from 24 months) for both the employee non-solicitation clause (§ 9.2) and the business non-solicitation clause (§ 9.3). This represents a meaningful concession — a 50% reduction in duration — but preserves protection during the critical 12-month period following Aldrich's departure, when the risk of solicitation is highest. We note that the enforceability of non-solicitation clauses in California is subject to ongoing legal uncertainty following AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), and subsequent developments. However, a negotiated reduction to 12 months as part of a settlement agreement stands on stronger footing than the original 24-month restriction imposed unilaterally.
V. Insurance Coordination — Pemberton Mutual Assurance Co.
A. EPL Policy Summary
AMA maintains an Employment Practices Liability ("EPL") insurance policy with Pemberton Mutual Assurance Co. The relevant policy details are as follows:
The policy provides coverage for "Employment Practices" claims, subject to the SIR, the aggregate limit, and the various exclusions and reservations set forth in the policy. Pemberton has been placed on notice of both the Fuentes class action and the Aldrich individual matter, and has issued correspondence regarding its coverage position with respect to each.
B. SIR Exhaustion Analysis
AMA's Self-Insured Retention of $5,000,000 must be exhausted before Pemberton's coverage obligations are triggered. Based on current expenditure data, the SIR analysis is as follows:
AMA has incurred approximately $3.1 million in defense costs through September 2023. These costs include Calderwood & Harkness's legal fees and expenses, expert witness retention and consulting fees (including Dr. Catherine Lindstrom at Hargrove Analytics Inc. and other consulting experts), and e-discovery vendor costs. These defense costs are counted toward exhaustion of the SIR under the policy terms.
The $5,000,000 SIR will be exceeded when AMA funds its self-funded share of the class settlement. At a $15 million GSA with Pemberton contributing $9,250,000, AMA's self-funded settlement share would be $5,750,000. Combined with the $3.1 million in defense costs already incurred, AMA's total expenditure would be approximately $8.85 million — well in excess of the $5 million SIR. Accordingly, the SIR exhaustion requirement does not present any obstacle to Pemberton's participation in the settlement.
C. Pemberton's Authorized Contribution
In our August 20, 2023 letter to Pemberton (Document 141 in the case file), we formally requested Pemberton's position on settlement contribution in anticipation of the mediation process. Following discussions between Calderwood & Harkness, Thornhill & Reade (Pemberton's coverage counsel), and Samuel Okonkwo at Kestrel Risk Advisors, Pemberton has indicated its willingness to contribute up to $9,250,000 toward the class settlement, subject to its standard consent-to-settlement requirements.
The contribution scenarios are as follows:
•  At a $15,000,000 GSA: Pemberton contribution of $9,250,000 + AMA self-funded share of $5,750,000 = $15,000,000.
•  At a $14,750,000 GSA (which we consider the more likely outcome based on the current negotiation trajectory): Pemberton contribution of $9,250,000 + AMA self-funded share of $5,500,000 = $14,750,000.
After Pemberton's maximum authorized contribution of $9,250,000, the remaining balance under the policy's aggregate limit would be $5,750,000 ($15,000,000 aggregate limit minus $9,250,000 contribution). This remaining capacity would be available for any future claims during the policy period, though we consider it unlikely that additional claims will arise given the comprehensive release contemplated by the class settlement.
D. Pemberton — PAGA Reservation
As noted in Section III.B above, Pemberton has reserved its rights regarding PAGA penalties under the Policy's Penalty Exclusion at Section IV.F. This exclusion provides that the Policy does not cover "fines, penalties, or sanctions imposed by law, whether civil, criminal, regulatory, or administrative in nature." PAGA penalties are arguably within the scope of this exclusion, and Pemberton has preserved its right to invoke the exclusion.
However, we anticipate that Pemberton will participate in the full GSA without insisting on a PAGA carve-out for several reasons. First, the PAGA component of $750,000 represents only approximately 5% of the total anticipated settlement, making it impractical and disproportionate to litigate the coverage issue. Second, the PAGA component is integrated into the GSA rather than structured as a standalone penalty payment, which blurs the line between "penalty" and "settlement" and weakens the applicability of the Penalty Exclusion. Third, Pemberton has a strong interest in resolving the class action efficiently and avoiding the costs and uncertainty of continued litigation, which would further erode the available policy limits.
We will confirm Pemberton's final position on PAGA coverage in the formal consent-to-settlement letter that will be submitted to Pemberton upon reaching a binding agreement at mediation. If Pemberton insists on a PAGA carve-out, the financial impact to AMA would be limited to $750,000 — a manageable amount that would not materially alter the settlement economics.
E. Pemberton — Aldrich Coverage Denial
Pemberton denied coverage for the Aldrich executive dispute in its December 22, 2022 Reservation of Rights letter. The denial was based on three grounds:
1.  Insured v. Insured Exclusion (§ IV.C). Pemberton invoked the Insured v. Insured Exclusion as applied to AMA's cross-claims against Aldrich, arguing that both AMA and Aldrich qualify as "insureds" under the policy and that claims between insureds are excluded from coverage. While this exclusion is typically directed at collusive or internal disputes, Pemberton's position is not unreasonable on its face given the policy language.
2.  Offensive Litigation Characterization. Pemberton characterized AMA's cross-claims as offensive litigation falling outside the scope of "defense" coverage under the EPL policy. The policy provides coverage for the defense of claims brought against the insured, and Pemberton argued that AMA's affirmative cross-claims for breach of contract, trade secret misappropriation, breach of fiduciary duty, and conversion are not defensive in nature.
3.  Proprietary Business Interests. Pemberton argued that AMA's restrictive covenant and trade secret claims relate to AMA's proprietary business interests rather than to "Employment Practices" as defined in the policy. Under this reasoning, claims arising from the enforcement of post-employment restrictive covenants and the protection of trade secrets fall outside the insuring agreement.
In light of this denial, AMA should plan to self-fund the entire Aldrich settlement out of its own resources. The Aldrich settlement is not included in the Pemberton contribution analysis set forth above, and the $2,500,000 maximum authority for the Aldrich matter represents a fully self-funded obligation.
We do not recommend challenging Pemberton's coverage denial at this time. The cost of coverage litigation — including retention of coverage counsel, the filing of a declaratory relief action, and the associated discovery and motion practice — would likely approach or exceed $250,000 to $400,000, which may exceed the potential recovery given the arguable applicability of the cited exclusions. Additionally, a coverage dispute with Pemberton could adversely affect the carrier relationship and complicate Pemberton's participation in the class settlement, which is the more financially significant component.
AMA should, however, preserve its rights under the Directors and Officers Liability ("D&O") insurance policy issued by Redcliffe Specialty Insurance Ltd. (Policy No. RSI-DO-2022-04419, providing a $10 million primary tower) and the excess D&O policy issued by Ashford Re Ltd. (Policy No. ARL-EX-2022-01102, providing a $25 million excess tower). These policies may be triggered in the event that Aldrich names individual AMA or AGMG officers as defendants in his claims, though this has not occurred to date and we consider it unlikely to occur given the posture of the settlement negotiations.
VI. Combined Financial Summary
A. All-In Cost Analysis at Maximum Authority
The following table sets forth AMA's total financial exposure at the maximum authority levels recommended in this memorandum:
The total AMA out-of-pocket exposure of approximately $11,550,000 represents the maximum all-in cost to AMA if both matters settle at the authority ceilings recommended herein. This figure includes all defense costs already incurred, the projected costs of the settlement approval process (including the motions for preliminary and final approval of the class settlement), and the full self-funded settlement amounts for both matters.
B. Comparison to Claimed Exposure
The following table places the recommended settlement authority in context relative to the total claimed exposure across both matters:
At the maximum authority levels, AMA would resolve claims with a stated aggregate value of $42,750,000 for a total payout of $17,500,000, representing 40.9% of the claimed exposure. After accounting for Pemberton's contribution, AMA's actual out-of-pocket cost of approximately $11,550,000 represents only 27.0% of the total claimed exposure. These ratios are favorable and reflect the significant discount achieved through the litigation process, the partial certification outcome, and the negotiation dynamics at Mediation Session #1.
C. Comparison to Most Likely Outcome
Based on the negotiation trajectory from Session #1 and the mediator's assessment, the most likely settlement outcome is a class settlement in the range of $14,500,000 to $15,000,000, with the Aldrich settlement likely in the range of $2,000,000 to $2,350,000. At the midpoint of these ranges — a $14,750,000 class settlement and a $2,175,000 Aldrich settlement, for a total resolution value of $16,925,000 — AMA's self-funded costs would be approximately as follows:
•  Class self-funded share: $14,750,000 – $9,250,000 (Pemberton) = $5,500,000
•  Aldrich self-funded: $2,175,000
•  Estimated final defense costs (including settlement approval phase): ~$3,300,000
•  Total AMA out-of-pocket at most likely outcome: ~$10,975,000
This most-likely-outcome figure of approximately $10,975,000 compares favorably to the alternative of continued litigation through trial. Proceeding to trial on the class action alone would impose estimated additional trial preparation and trial costs of $1,200,000 to $1,800,000, with significant verdict risk given the partial certification order. Trial of the Aldrich matter would impose an additional $300,000 to $500,000 in costs, with uncertain prospects (60/40 probability assessment). The total additional cost of trial on both matters — $1,500,000 to $2,300,000 in legal fees alone, plus the risk of adverse verdicts — strongly supports the pursuit of a negotiated resolution at the recommended authority levels.
VII. Board Approval Requirement
Pursuant to Section 7.4 of AMA's Outside Counsel Guidelines, settlement authority exceeding $5,000,000 requires the approval of the following individuals and bodies:
1.  Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc.;
2.  Philippa Cartwright, General Counsel, Aurelius Global Media Group plc;
3.  Jonathan Mercer, President, Aurelius Media Americas Inc.; and
4.  The AGMG Board's Audit and Risk Committee.
The total revised authority of $17,500,000 recommended in this memorandum exceeds the $5,000,000 threshold and therefore requires approval from all four of the above. We understand that Greg, Philippa, and Jonathan are in a position to review and act on this memorandum promptly. However, we are aware that obtaining Audit and Risk Committee approval may require scheduling a special meeting or circulating a written consent for action, which may not be achievable in the four business days between the date of this memorandum (September 4, 2023) and the date of Mediation Session #2 (September 8, 2023).
We recommend that this memorandum be circulated to the Audit and Risk Committee for review and approval at the earliest possible opportunity, and in any event prior to September 8, 2023. If Board approval cannot be obtained before the mediation date, we recommend the following interim approach:
•  Greg, Philippa, and Jonathan should authorize an interim ceiling of $15,000,000 for the class action component only, which falls within the authority range previously approved by the Audit and Risk Committee for Mediation Session #1.
•  Aldrich authority of up to $2,500,000 should be obtained separately from the Audit and Risk Committee in advance of a standalone Aldrich mediation session, which may be necessary in any event if the Aldrich matter does not resolve at Session #2.
•  This interim approach allows AMA to participate fully in the class action component of the mediation on September 8 while preserving the Aldrich negotiation for a later session if necessary.
We emphasize, however, that the preferred approach is to obtain full authority for both matters prior to Session #2, as the package-deal dynamic — resolving both matters simultaneously — provides significant negotiating leverage and is likely to produce a more favorable overall result than addressing the matters sequentially.
VIII. Mediation Session #2 — Logistics and Strategy
A. Logistics
The logistical details for Mediation Session #2 are as follows:
•  Date: Friday, September 8, 2023
•  Location: Westpark Dispute Resolution Inc., 1925 Century Park East, Suite 1700, Los Angeles, California 90067
•  Mediator: Hon. Patricia Okoro (Ret.)
•  Format: Combined session — the class action and the Aldrich individual matter will be addressed in a single mediation day
AMA Attendees:
•  Gregory Tanaka, Vice President, Legal & Compliance, AMA
•  Renata Vasquez, Partner, Calderwood & Harkness LLP
•  Devon Archer, Associate, Calderwood & Harkness LLP
Class Plaintiffs' Attendees (expected):
•  Marco Castellano, Castellano Byrne & Salas LLP (lead class counsel)
•  Diane Salas, Castellano Byrne & Salas LLP
•  Trevor Kim, Castellano Byrne & Salas LLP
•  Sandra Higuera, Veltrano Employment Law Group PC (PAGA counsel)
•  Marisol Fuentes, named plaintiff and class representative
Aldrich Attendees (expected):
•  Gavin Aldrich
•  Cameron Whitfield, Whitfield & Associates (lead counsel for Aldrich)
•  Julia Nazarian, Whitfield & Associates
B. Strategic Approach
Our strategic approach for Session #2 is designed to achieve a comprehensive resolution of both matters within the authorized settlement parameters. The key elements of our approach are as follows:
Class Action. We intend to open at $13,500,000 — the position at which we concluded Session #1. We expect Plaintiffs to open at or near their closing position of $16,500,000. Our target range for the class settlement is $14,500,000 to $15,000,000, and we have authority to concede to $15,000,000 if necessary to close. We will emphasize the strength of AMA's position on the denied claims (rest period, off-the-clock/overtime, minimum wage, second meal period, and waiting time penalties) as justification for our position, while acknowledging the impact of the partial certification order on the meal period auto-deduction claim. We expect the mediator to drive the parties toward the $14.5–$15.0 million range, consistent with her stated assessment.
PAGA. We intend to hold firm at $750,000 for the PAGA component. This figure already represents a massive concession from the $12.2 million claimed by Plaintiffs, reflecting a 93.9% reduction. The $750,000 figure is defensible, well-supported by case law on judicial discretion to reduce PAGA penalties, and consistent with the scope of the certified claims. If PAGA counsel Sandra Higuera pushes for a higher PAGA allocation, we should emphasize that the PAGA component is being resolved as part of a global settlement and that any increase in the PAGA allocation would come at the expense of the Net Settlement Fund available to class members, which is not in the class's interest.
Aldrich. We intend to open at $1,750,000 in cash plus 8,000 RSU acceleration. Our target range is $2,000,000 to $2,350,000 in cash plus 10,200 RSUs. We have authority to move to $2,500,000 in cash plus 10,200 RSUs as a final position. The negotiation sequence should proceed as follows: we open at $1,750,000 and 8,000 RSUs; we move to $2,000,000 and 8,000 RSUs in the second round; we move to $2,200,000 and 10,200 RSUs as a significant concession in the third or fourth round (deploying the RSU increase as a demonstrable move); and we hold $2,500,000 and 10,200 RSUs as our absolute ceiling, to be deployed only if necessary to close. Throughout the negotiation, we should emphasize the strength of AMA's cross-claims and the documentary evidence of Aldrich's confidentiality violations as the basis for the significant discount from Aldrich's demand.
Package-Deal Value. A central element of our strategy is to emphasize the package-deal value of resolving both matters simultaneously. We should communicate — through the mediator and, if appropriate, directly in joint session — that AMA is prepared to make meaningful concessions to achieve comprehensive finality across all pending employment litigation. Resolving both the class action and the Aldrich dispute simultaneously eliminates all pending claims, avoids the costs and management distraction of continued litigation on either front, and allows AMA to move forward with a clean slate. This framing benefits AMA by creating pressure on both sets of plaintiffs to close and by positioning AMA's concessions as part of a broader strategic decision rather than a sign of weakness on either individual matter.
Contingency — Aldrich Non-Resolution. If the Aldrich matter does not settle at Session #2, we recommend proposing a standalone Aldrich mediation session in late 2023 or early 2024, after the class settlement has cleared preliminary approval. This sequencing would allow AMA to demonstrate the finality achieved on the class action and to approach the Aldrich negotiation with the benefit of a confirmed class settlement behind it. A standalone session would also provide additional time to obtain Audit and Risk Committee approval for Aldrich-specific authority if such approval was not obtained prior to Session #2.
IX. Recommendation
Based on the foregoing analysis, we recommend that AMA authorize the revised settlement parameters set forth in Section II of this memorandum, specifically:
•  Maximum class action Gross Settlement Amount: $15,000,000, inclusive of a $750,000 PAGA component;
•  Maximum Aldrich individual cash settlement: $2,500,000;
•  Maximum Aldrich RSU acceleration: 10,200 of 15,300 unvested AGMG RSUs (with forfeiture of the remaining 5,100 RSUs); and
•  Total maximum authority across both matters: $17,500,000 (exclusive of RSU acceleration value).
The total maximum authority of $17,500,000 represents a well-reasoned allocation of settlement value across both matters, supported by the Court's August 11, 2023 partial class certification order, the mediator's assessment that the case will settle in the $14–16 million range, the competing expert analyses of Dr. Rennick and Dr. Lindstrom, the strength of AMA's cross-claims against Aldrich, the cure-period deficiency that undermines AMA's "for cause" termination defense, and the probability-weighted litigation risk factors detailed throughout this memorandum.
The combined resolution, if achieved at Mediation Session #2, would close both matters before the end of Q1 FY 2024, provide AMA with comprehensive releases and finality across all pending employment litigation, and allow AMA to turn its attention to the forward-looking compliance reforms recommended in our ongoing discussions with Lorraine Okafor regarding timekeeping system modifications, meal and rest period policy revisions, and restrictive covenant best practices. Achieving finality on these matters will also allow AMA to report the resolution to AGMG's Board with certainty, eliminating the contingent liability from AGMG's financial disclosures.
We are available to discuss this memorandum at your convenience and request that you advise us of the Board's authorization as soon as practicable, and in any event no later than September 7, 2023, to allow adequate preparation time before the September 8 mediation session.
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
By: ________
Renata Vasquez Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 555-0147
Email: rvasquez@calderwoodharkness.com
Date: September 4, 2023
Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
This memorandum is a privileged and confidential communication of Calderwood & Harkness LLP, prepared at the direction of and for the benefit of Aurelius Media Americas Inc. and Aurelius Global Media Group plc. It is protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. Any unauthorized review, use, disclosure, or distribution is strictly prohibited. If you have received this memorandum in error, please contact the sender immediately and destroy all copies.
Parameter | Pre-Mediation #1 Range | Revised Range (Session #2)
Gross Settlement Amount (Class) | $10,000,000 – $15,000,000 | Up to $15,000,000
PAGA Component (included in GSA) | $500,000 – $1,000,000 | $750,000
Aldrich Individual (Cash) | $1,500,000 – $3,000,000 | Up to $2,500,000
Total Maximum Authority (all matters) | $18,000,000 | $17,500,000
Component | Amount
Gross Settlement Amount (GSA) | $15,000,000 (illustrative maximum)
Attorneys' Fees (33.33% of GSA) | $4,999,500
Litigation Costs (Class Counsel's documented expenses) | ~$412,300
Service Awards (Named Plaintiffs) | $35,000 total
— Marisol Fuentes | $15,000
— Kevin Halloran | $10,000
— Diana Padilla | $10,000
Settlement Administration (Meridian Settlement Services LLC) | ~$385,000
PAGA Payment (included in GSA) | $750,000
— 75% to LWDA | $562,500
— 25% to Aggrieved Employees | $187,500
Net Settlement Fund | ~$8,418,200
Estimated Average Per-Member Payment | ~$4,550
Component | Amount / Term
Lump Sum Cash Payment | Up to $2,500,000
RSU Acceleration | Up to 10,200 of 15,300 unvested AGMG RSUs
RSU Forfeiture | Minimum 5,100 AGMG RSUs
Mutual General Release | All claims and cross-claims arising from or related to Aldrich's employment and termination
Restrictive Covenant Modifications:
— § 9.1 (Non-Competition) | Voided — mutual agreement consistent with Cal. Bus. & Prof. Code § 16600
— § 9.2 (Employee Non-Solicitation) | Reduced from 24 months to 12 months
— § 9.3 (Business Non-Solicitation) | Reduced from 24 months to 12 months
— § 9.4 (Confidentiality) | Remains in full force and effect indefinitely
Neutral Reference Agreement | Yes — confirming dates of employment, title, and eligibility for rehire
Non-Disparagement | Mutual, 3-year term
Return of Materials | All AMA proprietary materials in Aldrich's possession, custody, or control
Item | Detail
Policy Number | PMA-EPL-2022-00837
Named Insured | Aurelius Media Americas Inc.
Carrier | Pemberton Mutual Assurance Co.
Self-Insured Retention (SIR) | $5,000,000
Aggregate Policy Limit | $15,000,000 (in excess of SIR)
Coverage Counsel | Thornhill & Reade LLP (Hartford, CT)
Insurance Broker | Kestrel Risk Advisors Ltd. (Contact: Samuel Okonkwo)
Item | Amount | Funding Source
Class GSA (maximum) | $15,000,000 | Settlement
Less: Pemberton contribution | ($9,250,000) | EPL Policy (PMA-EPL-2022-00837)
AMA self-funded (class) | $5,750,000 | AMA
Aldrich settlement (maximum cash) | $2,500,000 | AMA (self-funded)
Total AMA self-funded (settlements) | $8,250,000 | —
Defense costs incurred through Sept. 2023 | ~$3,100,000 | C&H fees, expenses, experts, e-discovery
Estimated additional costs (settlement approval phase) | ~$200,000 | C&H estimate
Total AMA out-of-pocket (all-in) | ~$11,550,000 | —
Metric | Amount
Plaintiffs' total claimed exposure (class + Aldrich) | $42,750,000 ($38.6M class + $4.15M Aldrich)
Total maximum resolution value (both matters) | $17,500,000
Resolution as percentage of claimed exposure | 40.9%
AMA total out-of-pocket (all-in) | ~$11,550,000
AMA out-of-pocket as percentage of claimed exposure | 27.0%

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

INTERNAL MEMORANDUM

CALDERWOOD & HARKNESS LLP

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