Contract analysis

From: Bernard Crawford <bcrawford@calderwoodharkness.com> To: Theresa Yun-Park <tyunpark@cascaderetail.com> Cc: Renata Vasquez <rvasquez@calderwoodharkness.com> Date: Sun, 16 Mar 2025 08:14:00 -0000 Subject: RE: Recommended Settlement Range and Covenant Modification Parameters – Privileged & Confidential

**ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT**

**This email constitutes privileged legal advice rendered by Calderwood & Harkness LLP to its client, Cascade Retail Holdings, Inc. It is protected by the attorney-client privilege, the work product doctrine, and all other applicable protections. This communication should not be forwarded, disclosed, or distributed to any person outside of CRH's authorized decision-makers without the prior written consent of counsel.

I wanted to follow up on the privileged strategy memorandum I circulated yesterday (March 15) analyzing CRH's BATNA in advance of the mediation. We are now two days out from the session before the Honorable Philip Ashford (Ret.) on Tuesday, March 18, through Meridian ADR Services LLC (Ref. Meridian-2025-0318-CRH), and my goal with this email is to sharpen the settlement range recommendation and get your sign-off — an

Both opposing counsel have confirmed attendance: Catherine Nygaard of Whitfield, Nygaard & Doyle LLP for the Rathore Group, and Gavin Blackhall of Blackhall & Soren LLP for Verdana. As you know, our preliminary injunction hearing before Vice Chancellor Zhao is currently set for March 21, which creates genuine urgency on all sides. That timing is working in our favor, and I want to make sure we are positioned to capit

**I. Recommended Monetary Settlement Range**

I recommend targeting a **lump-sum cash payment from Verdana to CRH in the range of $7.5 million to $10 million**, with a realistic midpoint expectation of approximately **$8.5–$9 million**. I would plan to anchor our opening position at **$12–$14 million** to create negotiating room and to signal the seriousness of CRH's claims.

Here is the rationale supporting that range:

First, Verdana's PE sponsor, Greystone Capital Partners (Fund VII, $8.5 billion in committed capital), acquired Verdana at a $2.4 billion enterprise value in Q3 2023. Greystone will be pragmatic about protecting that investment. The last thing they want is an injunction that derails Verdana's announced growth initiative targeting $4 billion in revenue by 2028. This is a sponsor that will write a check to make a probl

Second, Verdana already committed $6.2 million in aggregate sign-on bonuses to the Rathore Group — $1.5 million to Rathore individually and $4.7 million across the other seven. That figure tells us how much Verdana valued this team and provides a natural floor for what they should be willing to pay to preserve the hiring. It is very difficult for Blackhall to argue that $8–$9 million is unreasonable when his client v

Third, the underlying damages exposure supports a significantly higher number. CRH's Merchandising Division generated $2.3 billion in gross merchandise value in FY2024. Even a conservative competitive harm estimate — 1–2% margin erosion in overlapping categories over 12–18 months — produces damages exposure in the tens of millions. Dr. Franklin Oberg of Veltrano Consulting Group is still building out the full econome

Fourth, the TRO already in place — granted March 7, with CRH having posted the $2.5 million injunction bond through Broadview Surety Corp. (Bond No. BSC-2025-TRO-04419) — gives us real leverage. That said, an 18-month injunction at trial is never guaranteed. Delaware courts apply a reasonableness standard, and the defendants' overbreadth arguments (filed March 15) have some traction, particularly with respect to the

Taking all of this together, a cash payment in the $8.5–$9 million range, combined with the equity forfeitures and fee reimbursement discussed below, would deliver **total economic recovery in the neighborhood of $10 million** — a strong result given the litigation risks, the speed of resolution, and the certainty it provides.

**Litigation Cost Reimbursement.** Separately from the lump-sum payment, I recommend demanding a **$400,000–$500,000 contribution** toward CRH's litigation costs. For context, Calderwood & Harkness's fees through projected closing of this matter are estimated at approximately $1,850,000, based on our current staffing plan and expected hours (my time at approximately 220 hours at $1,350/hr; Renata at approximately 180

**II. Interplay Between Monetary Recovery and Modified Covenant Terms**

This is where the real strategic analysis lies, and I want to walk through it carefully.

The settlement negotiation involves two linked axes: (a) the monetary payment and (b) the scope and duration of the modified restrictive covenants that would be incorporated into a consent order. These axes move in tension with each other. The more restrictive the post-settlement covenants, the less Verdana is likely to agree to pay in cash — because tighter restrictions impose ongoing economic cost on Verdana's grow

My recommendation is that **CRH should be willing to accept meaningful covenant modifications in exchange for a strong cash recovery.** I say this for several reasons:

First, a court-approved consent order incorporating even modified covenants is *significantly* more enforceable than the original contractual provisions standing alone. We gain contempt remedies, retained jurisdiction by the Court of Chancery, and the moral authority of a judicial order. In practical enforcement terms, a 12-month modified covenant in a consent decree is worth more than an 18-month contractual covenan

Second, let's be realistic about what the covenants can and cannot accomplish. Eight experienced merchandising professionals will bring institutional knowledge to Verdana regardless of the covenant restrictions we impose. The covenants primarily serve as a speed bump and a deterrent — they buy CRH time and impose friction — but they are not an absolute barrier to competition. Accepting that practical reality allows u

Third, and most importantly, I believe the critical protections for CRH are: (i) keeping Rathore out of direct competition in CRH's core categories for at least 12 months; (ii) protecting CRH's vendor relationships during the next buying cycle; and (iii) preventing further employee solicitation. If we can secure those three objectives through modified covenants, the marginal value of broader or longer restrictions is

Fourth, the monetary payment provides immediate, tangible value to offset competitive harm — particularly given CRH's need to recruit a replacement merchandising team. The SVP, Merchandising position remains open, with Martin Cho serving in an interim capacity. Recruitment costs, transition disruption, and the inevitable ramp-up period for a new team are real costs that cash can address. Dollars in hand are worth mor

**III. Specific Covenant Modification Parameters**

With the framework above in mind, here are my specific recommendations on the covenant terms CRH should be prepared to accept:

**Rathore Non-Compete.** The original provision is 18 months, US-wide, covering all retail. I recommend CRH accept a reduction to **12 months** (running through approximately February 6, 2026), limited to **three specific product categories**: home goods, seasonal décor, and private-label apparel. These are the categories where CRH has the greatest competitive vulnerability — they are the categories covered by Projec

**Other Seven Employees' Non-Competes.** The original periods range from 12 to 18 months. I recommend accepting a reduction to **9 months** (through approximately November 6, 2025), in the same three product categories. Nine months covers at least one full seasonal buying cycle and is defensible as reasonable. I should note that the shorter-tenure employees — Nathan Tsao (3 years) and Kira Johansson (4 years) in part

**Employee Non-Solicitation.** I recommend insisting on an **18-month non-solicitation** of CRH employees for all eight defendants (running through approximately August 6, 2026). This is less likely to draw meaningful opposition — non-solicitation provisions are generally viewed more favorably by courts than non-competes — and it protects against further team raids. CRH has already lost eight senior merchandising pro

**Vendor Non-Solicitation.** I recommend a **12-month non-solicitation** of CRH's top 50 vendors (ranked by spend) for all eight defendants (through approximately February 6, 2026). CRH's vendor relationships — particularly the private-label sourcing relationships and negotiated vendor terms — are among the company's most valuable trade secrets and competitive assets. The top 50 vendors account for a disproportionate

Rathore's unvested RSU forfeiture under her Amended and Restated Employment Agreement (dated March 15, 2021) totals approximately **$181,250** — representing 25% of the $725,000 grant, specifically the fourth annual tranche that had not yet vested as of her February 7, 2025 resignation. In addition, the for-cause clawback provision in her agreement, which is triggered by a breach of the restrictive covenants, covers

Aggregate equity forfeitures for the other seven employees total approximately **$487,000**, based on Devon Archer's calculations from CRH's equity plan records maintained through Northland Trust Company.

The **total equity forfeiture component is therefore approximately $849,500**. I recommend insisting on full forfeiture of all amounts as a condition of settlement.

Importantly, this is largely a cost borne by the individual defendants, not by Verdana — the equity is CRH's to claw back under the existing agreements. Blackhall may not resist this point at all. Nygaard may push back on behalf of her clients, and I would expect some noise about the clawback of the already-vested Rathore tranche, but the clawback provisions are clearly drafted and the breach is well-documented. This

**V. Data Return and Destruction — Non-Negotiable**

The exfiltration of 14,327 files (approximately 2.8 GB) from CRH's Aldermere Systems and Pinnacle Health IT environments between January 10 and February 4, 2025 — confirmed by Dr. Rajiv Anand's preliminary report from Pinnacle Forensics — is CRH's strongest card. Project Ridgeline presentations, vendor negotiation term sheets, private-label cost models, and customer segmentation data were all taken. The evidence is c

I recommend that **data return and destruction within 10 business days of settlement execution, verified by an independent forensic audit of Verdana's systems conducted by Pinnacle Forensics, be treated as an absolute non-negotiable**. Verdana should bear the cost of the forensic audit, capped at a reasonable amount — I would suggest $150,000–$200,000 as the cap.

This serves dual purposes. It is a genuine and necessary protective measure for CRH's intellectual property. It also functions as a significant negotiating lever — Verdana's exposure on the DUTSA misappropriation claim is severe, and the forensic audit requirement will be deeply uncomfortable for them. That discomfort should motivate a higher cash payment.

I want to raise for your consideration the concept of an **independent compliance monitor** for a 12-month period following settlement to verify adherence to the modified covenants. This mechanism is increasingly common in non-compete settlement contexts, and a court-appointed or jointly agreed monitor adds real teeth to the consent order — particularly for restrictions that are inherently difficult to police, such a

I would suggest structuring the costs on a **60/40 split, with Verdana bearing the larger share**, to keep CRH's outlay modest. I estimate total monitor costs in the range of $300,000–$400,000 for a 12-month engagement with quarterly reporting. I have not yet identified a specific monitor candidate but will propose one if you approve the concept.

**VII. Authorization Request and Next Steps**

Theresa, I need to walk into Tuesday's mediation with clear authority. Could you please confirm approval of the following negotiating parameters:

1. **Cash payment:** Accept floor of $7.5 million; target $8.5–$9 million; anchor at $12–$14 million. 2. **Litigation cost reimbursement:** Target $400,000–$500,000. 3. **Modified non-compete (Rathore):** 12 months, limited to home goods, seasonal décor, and private-label apparel. 4. **Modified non-compete (other seven):** 9 months, same three categories. 5. **Employee non-solicitation:** 18 months, all eight defenda

Two additional questions. First, does Marcus need to personally approve this settlement authority, or do you have delegated authorization from the Board or from Marcus directly? I want to make sure we are not in a position on Tuesday where we reach a deal in principle and then need to pause for internal approvals — that kind of delay can kill momentum with a mediator like Ashford, who runs a tight process.

Second, I would like to schedule a call for **Monday, March 17**, to finalize authority and walk through our session strategy. I think it would be useful to include **Roland Ashby** on that call, given the personnel and talent implications of the covenant modifications. What time works for you? I am flexible and will make anything work.

A few final notes on logistics. I will finalize the confidential mediation statement for submission to retired Vice Chancellor Ashford on March 17. James Underwood is separately preparing the mediation position summary, which is on track. I will circulate the mediation statement draft to you for review tomorrow before we submit.

You already have the March 15 strategy memorandum (Settlement Parameters and BATNA Analysis), so I am not re-attaching it here. Devon Archer's equity forfeiture calculations and Dr. Anand's preliminary Pinnacle Forensics report are available as supporting materials — let me know if you would like me to send those over before our call.

Thank you, Theresa. I feel good about where we are positioned, and I think Tuesday presents a real opportunity to achieve a strong resolution for CRH. Let's make sure we are fully aligned before we walk in.

**Bernard Crawford** Partner Calderwood & Harkness LLP 1301 K Street NW, Suite 1200 Washington, DC 20005 Direct: (202) 555-0147 Email: bcrawford@calderwoodharkness.com

*Matter Ref: 1038-00006 / Cascade Retail Holdings Inc. v. Rathore et al., C.A. No. 2025-0198-MTZ*

*This communication is privileged and confidential. If you have received it in error, please notify the sender immediately and delete all copies.*