Contract analysis

I. Executive Summary The purpose of this memorandum is to provide Cascade Retail Holdings Inc. ("CRH" or "Cascade") with a comprehensive summary of its obligations under the Assurance of Voluntary Compliance ("AVC") executed on August 20, 2024, between CRH and the State of Washington, acting through its Attorney General, Consumer Protection Division. This memorandum is intended to serve as a practical guide for CRH's

II. Immediate Financial Obligations The AVC requires CRH to make two payments within 30 days of the AVC's execution date. Because the AVC was executed on August 20, 2024, the deadline for both payments is September 19, 2024. Given the significance of timely payment — and the potential consequences of any delay — we address each payment obligation in detail below. A. Civil Penalty Payment — $750,000 CRH must remit the

III. Consumer Restitution Fund — Establishment and Administration A. Overview. The largest single financial obligation under the AVC is the establishment of a consumer-restitution fund in the amount of $2,850,000. The purpose of this fund is to provide refunds or store credits to consumers who were affected by potentially misleading reference-price displays during the period from October 15, 2023, through March 15, 2

1. Fund Establishment. CRH should establish a segregated bank account dedicated exclusively to holding the $2,850,000 restitution fund. The account should be interest-bearing, and any interest earned should be treated as part of the fund available for distribution to claimants. Alternatively, CRH may engage a third-party fund administrator — such as a claims-administration firm experienced in consumer-restitution mat

2. Consumer Notice Program. The AVC requires CRH to develop and implement a notice program reasonably calculated to inform affected consumers of the availability of refunds or store credits. The notice program should include, at a minimum, the following components: (a) Direct Email and Mail Notice. CRH should identify affected consumers through its transaction records, including ecommerce orders placed through cascad

3. Claims Process. CRH (or its fund administrator) should design a claims-submission and verification process that is straightforward for consumers while incorporating reasonable anti-fraud protections. Claims should be accepted online (via the dedicated landing page on cascaderetail.com) and by mail. CRH should establish a deadline for consumer claims of at least 90 days from the date of initial notice to allow cons

4. Distribution. After the claims deadline has passed and claims have been verified, CRH should process refunds (by original payment method or by check) or issue store credits to verified claimants. The choice between refunds and store credits should be guided by the terms of the AVC and by practical considerations; where the AVC permits either form of relief, CRH may wish to offer consumers the option to choose. Dis

5. Reporting. CRH must track the status of the fund administration and report on it in the semi-annual compliance reports submitted to the AG (discussed in Section VI below). The first two semi-annual reports (due February 20, 2025, and August 20, 2025) should include detailed information on the status of the fund, including the number of notices sent, the number of claims received, the amount distributed, and the am

IV. Engagement of Independent Compliance Reviewer — Ridgepoint Compliance Solutions Inc. A. Appointment. One of the core structural requirements of the AVC is the retention of an independent compliance reviewer to audit CRH's pricing practices throughout the 24-month monitoring period from August 20, 2024, through August 20, 2026. The AVC designates Ridgepoint Compliance Solutions Inc. as the independent compliance r

V. Revised Pricing-Disclosure Standards A. The 120-Day Lookback Window The AVC requires that all "compare-at," "original," or "was" reference prices displayed by CRH reflect the actual, bona fide price at which the merchandise was offered for sale in the ordinary course of business for a reasonably substantial period during the immediately preceding 120-day lookback window. This standard is the central substantive re

6. Consumer electronics accessories These six categories accounted for the majority of the AG's sampled SKUs and will likely be the focus of Ridgepoint's quarterly audits as well. CRH should prioritize compliance efforts in these categories and ensure that the recalibrated reference-price algorithm is thoroughly validated for SKUs in each of these categories before the first Ridgepoint audit in November 2024. D. Impl

1. Algorithm Recalibration. CRH must work with Praxton Analytics LLC to recalibrate the "Smart Price" algorithmic reference-price model to comply with the 120-day lookback requirement. The recalibration must ensure that all reference prices generated by the algorithm are derived from actual, verifiable offering-price data within the preceding 120-day window. Specifically, the recalibrated algorithm must: (a) Draw ref

2. Manual Override Controls. CRH must implement controls to prevent manual overrides that would set reference prices outside the parameters of the recalibrated algorithm. During the AG's investigation, the AG's office identified instances in which CRH's merchandising team manually set reference prices that exceeded the algorithm's outputs, in some cases by substantial margins. The AVC requires that any manual adjustm

3. Documentation. CRH must maintain contemporaneous records sufficient to demonstrate that each reference price displayed — whether on cascaderetail.com or in-store — was derived from a bona fide offering price within the 120-day lookback period. These records should be organized in a manner that permits efficient retrieval during Ridgepoint's quarterly audits and in the event of any future inquiry by the AG's office

4. Rollout Timeline. Calderwood & Harkness recommends that the recalibrated pricing standards be fully implemented across all channels — both ecommerce and in-store — by no later than October 1, 2024. This timeline allows approximately six weeks from the date of this memorandum for CRH to complete the algorithm recalibration with Praxton Analytics, update all product listings on cascaderetail.com, and distribute upda

VI. Semi-Annual Compliance Reporting to the Attorney General A. Reporting Obligation The AVC requires CRH to submit semi-annual compliance reports to the Washington Attorney General's Consumer Protection Division throughout the 24-month monitoring period. These reports serve as CRH's primary mechanism for demonstrating ongoing compliance with the AVC's terms and for keeping the AG's office informed of CRH's progress

VII. Internal Compliance-Program Enhancements While the AVC's formal requirements focus on external monitoring (Ridgepoint audits) and external reporting (semi-annual reports to the AG), Calderwood & Harkness strongly recommends that CRH also invest in internal compliance-program enhancements. A robust internal compliance infrastructure will not only support CRH's compliance with the AVC but will also reduce the risk

VIII. Consequences of Non-Compliance CRH's leadership should be aware of the consequences that may flow from any failure to comply with the AVC's terms. While we are confident that CRH is committed to full compliance, an understanding of the potential consequences underscores the importance of the implementation steps outlined in this memorandum. A. Stipulated Penalties The AVC provides for stipulated penalties of $1

IX. Consolidated Calendar of Key Deadlines The following table consolidates all material deadlines arising from the AVC and from Calderwood & Harkness's implementation recommendations. CRH should incorporate these deadlines into its internal compliance calendar and assign responsibility to the appropriate personnel and departments.

X. Open Items and Next Steps The following items require near-term attention and decision-making by CRH. We request that the General Counsel and CCO review these items and advise Calderwood & Harkness of CRH's preferred course of action so that we may proceed accordingly.

1. Elkhorn Insurance Coverage. As discussed in Section III.D above, coverage for the $2,850,000 consumer-restitution fund remains disputed by Elkhorn Mutual Insurance Company, which has reserved its rights under Policy No. ELK-DO-2024-08817. Elkhorn's Claims Counsel, Brenda Whitacre, has acknowledged coverage for defense costs subject to the $250,000 self-insured retention; to date, defense costs above the SIR in the

2. Praxton Analytics Coordination. CRH should engage Dr. Leila Farzan at Praxton Analytics LLC promptly to begin the algorithm-recalibration process in accordance with the 120-day lookback standard. Given the October 1, 2024, target date for rollout of the revised pricing standards, the recalibration work should commence immediately. Raymond Soo should coordinate directly with Dr. Farzan's team to define the recalibr

3. Ridgepoint Engagement. As noted in Section IV.A above, CRH should finalize the scope-of-work and engagement terms with Harold Sung at Ridgepoint Compliance Solutions by September 15, 2024. Key terms to be negotiated include Ridgepoint's fee structure (which will be borne by CRH under the AVC), the access protocols for pricing data and internal communications, confidentiality protections for CRH's proprietary busin

4. Restitution Fund Administrator. CRH should determine whether it will administer the consumer-restitution fund internally or retain a third-party claims administrator. An internal approach may be more cost-effective but will require CRH to build or adapt claims-intake and verification infrastructure, which may divert resources from other compliance priorities. An external administrator offers turnkey capabilities b

5. Board and Public Disclosure. CRH should coordinate with its outside auditors, Whitfield & Crane LLP, and its investor-relations team regarding any required disclosures in CRH's SEC filings related to the AVC financial commitments. The $3,785,000 total financial commitment, together with the ongoing monitoring obligations and the disputed insurance-coverage question, may require disclosure in CRH's next quarterly r

6. Calderwood & Harkness Continuing Role. Calderwood & Harkness is available to assist CRH with all of the implementation tasks outlined in this memorandum, including but not limited to: review and drafting of semi-annual compliance reports; coordination with Ridgepoint Compliance Solutions; review of recalibrated pricing-algorithm specifications for AVC compliance; Elkhorn insurance-coverage negotiations or litigati

XI. Conclusion The AVC executed on August 20, 2024, resolves the Washington Attorney General's consumer-protection inquiry into CRH's reference-pricing practices on favorable terms: CRH has made no admission of liability, and the resolution avoids the substantial additional exposure that would have attended a formal enforcement proceeding under RCW 19.86. The AG's investigation had identified significant statistical