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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

FROM: Claire Dempsey, Associate, Capital Markets Group, Calderwood & Harkness LLP

TO: Eric Johannsen, Associate, Capital Markets Group, Calderwood & Harkness LLP Howard Bellamy, Partner, Calderwood & Harkness LLP Priya Sundaram, Executive Vice President, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc.

DATE: February 5, 2024

RE: Delaware Law Update — Recent DGCL Amendments and Case Law Developments Relevant to the CRH Bylaws and Committee Charter Refresh

MATTER NO.: C&H Matter No. 1038-00005

FIRM: Calderwood & Harkness LLP 999 Third Avenue, Suite 4200, Seattle, WA 98104 Delaware Office: 300 Delaware Avenue, Suite 900, Wilmington, DE 19801

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I. Executive Summary and Purpose

This memorandum has been prepared in connection with the comprehensive review and refresh of the corporate bylaws and board committee structure of Cascade Retail Holdings Inc. ("CRH" or the "Company"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI," with its principal executive offices located at 4800 Lakeview Blvd, Suite 1100, Bellevue, WA 98004. The engagement giving rise to this memorandum was opened on January 18, 2024, and the present memorandum follows and supplements the Governance Gap Analysis Memorandum that was delivered to the same distribution list on January 29, 2024 (the "Gap Analysis Memo").

The purpose of this memorandum is to provide a detailed analysis of three areas of recent Delaware law development that bear directly on the scope and substance of the current engagement:

1. Officer Exculpation under Amended DGCL § 102(b)(7). The 2022 amendment to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which became effective on August 1, 2022, extended the permissive scope of charter-based exculpation provisions to cover certain senior corporate officers. This amendment has direct implications for CRH's Restated Certificate of Incorporation and presents an opportunity for the Company to strengthen its governance framework and officer recruitment posture.

2. Caremark Oversight Duty Developments. Recent decisions of the Delaware Court of Chancery — principally In re McDonald's Corp. Stockholder Derivative Litigation (Del. Ch. 2023) and In re Harborview & Co. Derivative Litigation (Del. Ch. 2021) — have significantly expanded the practical scope and application of the fiduciary duty of oversight first articulated in In re Caremark International Inc. Derivative Litigation (Del. Ch. 1996). These decisions have important implications for the design and content of CRH's board committee charters and the compliance oversight mandates assigned to the board and its committees.

3. DGCL § 110 Emergency Bylaws. Section 110 of the DGCL authorizes Delaware corporations to adopt emergency bylaws that become operative during conditions that render normal corporate governance procedures impracticable. CRH's current bylaws do not include emergency bylaws provisions, and adoption of such provisions is recommended as part of the current bylaws refresh.

As background, CRH's Restated Certificate of Incorporation was filed with the Delaware Secretary of State on October 3, 2016 (the "Restated Certificate"). The Restated Certificate currently includes a Section 102(b)(7) exculpation clause applicable to directors of the Company but has not been updated since the 2022 amendment and does not extend exculpation to officers. This memorandum includes a recommended action item: CRH should pursue a stockholder-approved charter amendment at its Annual Meeting of Stockholders scheduled for June 6, 2024 (the "2024 Annual Meeting") to adopt officer exculpation in accordance with the amended statute.

All analysis herein is governed by and rendered under the laws of the State of Delaware. This memorandum is intended solely for the recipients identified above and is protected by the attorney-client privilege and the work product doctrine. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

II. DGCL § 102(b)(7) — Officer Exculpation

A. Background: Director Exculpation Under Pre-2022 Law

The historical framework for exculpation of corporate fiduciaries in Delaware traces to the Delaware legislature's 1986 enactment of DGCL § 102(b)(7), which was a direct legislative response to the Delaware Supreme Court's decision in Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). In Van Gorkom, the Supreme Court held that the directors of Trans Union Corporation had breached their fiduciary duty of care by approving a merger without adequate deliberation, exposing the directors to substantial personal monetary liability. The decision sent shockwaves through the corporate governance community and prompted an exodus of qualified individuals from service on corporate boards, as well as a dramatic contraction in the availability and affordability of directors' and officers' liability insurance.

In response, the Delaware legislature enacted Section 102(b)(7), which permits Delaware corporations to include in their certificates of incorporation a provision eliminating or limiting the personal liability of directors for monetary damages arising from a breach of fiduciary duty. Since its enactment, the vast majority of Delaware corporations — both public and private — have adopted exculpation provisions pursuant to Section 102(b)(7), and such provisions have become a standard feature of Delaware corporate charters.

The statute, as originally enacted and as in force prior to the 2022 amendment, contained several important limitations. Specifically, a Section 102(b)(7) provision could not eliminate or limit the personal liability of a director for:

(i) any breach of the director's duty of loyalty to the corporation or its stockholders;

(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

(iii) liability under Section 174 of the DGCL (relating to unlawful dividends and stock repurchases); or

(iv) any transaction from which the director derived an improper personal benefit.

The practical effect of this statutory framework is that exculpation under Section 102(b)(7) shields directors from personal liability for monetary damages arising from breaches of the fiduciary duty of care — including claims of gross negligence in decision-making — but does not protect directors against claims grounded in the duty of loyalty, bad faith, intentional misconduct, or self-dealing. This distinction is critical and, as discussed in Part III below, has significant implications for the interaction between exculpation and the Caremark line of oversight liability cases.

CRH's Current Status. CRH's Restated Certificate of Incorporation, filed with the Delaware Secretary of State on October 3, 2016, contains a director exculpation clause pursuant to Section 102(b)(7). Article VIII of the Restated Certificate provides, in relevant part:

"A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit."

This provision covers all current members of CRH's board of directors, which presently consists of eleven directors: three inside directors and eight independent directors. The current members include Chairman Thomas R. Kinsley, Lead Independent Director Margaret "Meg" Holliday, Chief Executive Officer Julian Voss, Audit Committee Chair Sandra Chen-Watkins, Compensation Committee Chair Robert "Rob" Elliston, and Dr. Anwar Farouk, among others. As noted, however, the provision is limited by its terms to directors and does not extend to officers of the Corporation.

B. The 2022 Amendment: Extension to Officers

On August 1, 2022, a significant amendment to DGCL § 102(b)(7) became effective, extending the permissive scope of exculpation provisions to cover certain senior corporate officers. This amendment was adopted by the Delaware legislature as part of Senate Bill 273, which was signed by the Governor on July 17, 2022. The amendment represents the most significant expansion of the exculpation framework in Delaware since the original enactment of Section 102(b)(7) in 1986 and has been widely discussed by practitioners, academics, and governance commentators.

The key features of the 2022 amendment are as follows:

Scope of Covered Officers. The amended statute defines the officers eligible for exculpation by reference to the officer definition contained in the Foreign Corrupt Practices Act ("FCPA"), specifically 15 U.S.C. § 78dd-1(f)(1). Under this cross-reference, an "officer" for purposes of the amended Section 102(b)(7) means a person who (a) has consented to being identified as an officer of the corporation for purposes of the FCPA, or (b) has been identified by the corporation as an "officer" for such purposes. In practical terms, this definition covers the Company's most senior executive officers — typically the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Legal Officer, and other named executive officers who are designated as Section 16 reporting officers under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The definition is intentionally narrow and does not extend to all individuals who might bear the title of "officer" or "vice president" within the corporation; rather, it is limited to the most senior executives who serve in roles analogous to those identified in the FCPA.

For CRH, the officers who would be covered by an officer exculpation provision would include, at a minimum: Chief Executive Officer Julian Voss, Chief Financial Officer Rachel Dominguez, Chief Operating Officer Marcus Leung, General Counsel & Corporate Secretary Priya Sundaram, and Chief Human Resources Officer Natalie Brennan, as well as any other officers designated as Section 16 reporting persons under the Exchange Act.

Limitation to Direct Claims. A critical limitation of the 2022 amendment is that officer exculpation applies only to direct claims brought by stockholders — that is, claims in which the stockholder asserts a personal injury distinct from any injury to the corporation itself. Officer exculpation does not apply to derivative claims — claims brought by stockholders on behalf of the corporation. This is a significant distinction from director exculpation under the original Section 102(b)(7), which applies to both direct and derivative claims. The practical implication of this limitation is discussed further in Part III.C below, in connection with Caremark oversight liability.

Same Carve-Outs as for Directors. The 2022 amendment preserves the same set of carve-outs that have applied to director exculpation since 1986. Accordingly, an officer exculpation provision may not eliminate or limit the personal liability of an officer for:

(i) any breach of the officer's duty of loyalty to the corporation or its stockholders;

(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

(iii) liability under Section 174 of the DGCL (relating to unlawful dividends and stock repurchases); or

(iv) any transaction from which the officer derived an improper personal benefit.

These carve-outs ensure that officer exculpation, like director exculpation, operates solely as a shield against duty-of-care claims and does not insulate officers from accountability for breaches of loyalty, bad faith, or self-dealing.

C. Relevance to CRH and Recommended Action

As noted above, CRH's Restated Certificate (filed October 3, 2016) predates the 2022 amendment by approximately six years and, accordingly, includes an exculpation provision that covers only directors. The Restated Certificate does not extend exculpation to officers. To adopt officer exculpation, CRH would need to amend the Restated Certificate, which is a process that requires two steps:

(1) Board Approval. The board of directors must approve a proposed charter amendment extending exculpation to officers, in accordance with the procedures set forth in DGCL § 242(b).

(2) Stockholder Approval. The proposed charter amendment must be approved by the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Corporation entitled to vote thereon, pursuant to DGCL § 242(b)(1). Under the Company's existing capital structure, there are 70,000,000 shares of common stock outstanding, meaning that the affirmative vote of holders of at least 35,000,001 shares would be required for approval.

Proposed Timeline. We recommend that the board approve the proposed charter amendment and include it as a management proposal in the proxy statement for the 2024 Annual Meeting of Stockholders, which is scheduled for June 6, 2024. The anticipated record date for the 2024 Annual Meeting is April 11, 2024, and the proxy statement is anticipated to be filed with the Securities and Exchange Commission in late April 2024. This timeline provides sufficient lead time for drafting the charter amendment language, preparing the proxy statement disclosure (including the proposal description, board recommendation, and supporting statement), and coordinating with the Company's proxy solicitor and transfer agent.

Scope of Current Engagement. We note that the drafting of the charter amendment itself is out of scope of the current engagement (C&H Matter No. 1038-00005), which is focused on the bylaws refresh and committee charter revisions. However, the recommendation and proposed timeline are included in this memorandum as part of our comprehensive governance advice, and we recommend that the charter amendment workstream be initiated promptly under a separate engagement letter given the proximity of the anticipated proxy filing date.

Rationale for Adoption. We recommend adoption of officer exculpation for the following reasons:

(i) Recruitment and Retention of Senior Officers. The increasing exposure of corporate officers to personal liability — particularly in light of the expanding Caremark jurisprudence discussed in Part III below — creates meaningful risk that talented executive candidates may decline to serve as officers of public companies absent the protections afforded by exculpation. Adoption of officer exculpation provides a meaningful legal protection that complements the Company's existing D&O insurance program and indemnification provisions, and strengthens CRH's competitive position in attracting and retaining top executive talent in the retail industry.

(ii) Alignment with Market Practice. Since the effective date of the 2022 amendment, a majority of S&P 500 companies have adopted or proposed officer exculpation charter amendments. Among public retail and consumer companies specifically, adoption has accelerated rapidly. Glassman & Torrey's 2023 governance assessment, discussed below, identified officer exculpation as a gap for CRH relative to its peer group. Failure to adopt the provision may place CRH at an increasing competitive disadvantage relative to peers that have already done so.

(iii) Consistency with Existing Director Exculpation. CRH has maintained a director exculpation provision in its charter since 2016 (and, we understand, in predecessor charter documents prior to that date). Extending exculpation to officers is a logical and consistent evolution of the Company's governance framework, and the rationale that supported adoption of director exculpation — namely, encouraging informed risk-taking and protecting fiduciaries against hindsight-driven litigation — applies with equal force to senior officers.

(iv) D&O Insurance Implications. Adoption of officer exculpation may complement CRH's existing directors' and officers' liability insurance coverage maintained through Broadview Insurance Group. The current D&O program provides coverage with policy limits of $50 million per occurrence and $50 million in the aggregate, for the policy period of June 1, 2023 through June 1, 2024. While officer exculpation is not a substitute for D&O insurance, it may over time reduce the frequency and severity of claims against officers, which could have a favorable impact on CRH's insurance costs and coverage terms at future renewal periods.

Proxy Advisory Firm Considerations. ISS and Tarrant Partners LLC — the two leading proxy advisory firms whose vote recommendations significantly influence institutional stockholder voting behavior — have generally evaluated officer exculpation proposals on a case-by-case basis. Factors that these firms typically consider include the company's litigation history, overall governance profile, whether the company has a history of problematic governance practices, and whether the proposed exculpation provision extends beyond the statutory minimum (e.g., to persons not covered by the FCPA officer definition). Given CRH's governance profile and the straightforward nature of the proposed amendment (which would track the statutory language and not extend beyond the permissible scope), we believe that a favorable recommendation from both ISS and Tarrant Partners LLC is reasonably likely, although this assessment is necessarily preliminary and subject to change based on the specific proxy advisory firm policies in effect for the 2024 proxy season.

The Glassman & Torrey governance assessment delivered on December 5, 2023, scored CRH at 58 out of 100 on its proprietary governance scorecard, compared to a peer median score of 67 out of 100 among a group of 18 public retail companies. While the Glassman & Torrey assessment did not penalize CRH for lacking officer exculpation, it noted the absence of an officer exculpation provision as a gap relative to several peer companies that had already adopted or proposed such amendments.

Consideration of Ridgepoint Capital Partners LP's Position. Ridgepoint Capital Partners LP ("Ridgepoint") is a significant stockholder of CRH, holding 3,290,000 shares (approximately 4.7% of the 70,000,000 shares outstanding) as disclosed in its Schedule 13D/A filing with the SEC on November 17, 2023. Ridgepoint's governance reform demands, as articulated in the 13D/A filing, have focused on three specific areas: (i) adoption of majority voting in uncontested director elections, (ii) adoption of proxy access, and (iii) appointment of an independent board chair. Ridgepoint has not publicly opposed officer exculpation, and its counsel, Daniel Orenstein of Whitfield & Pratt LLP, has not raised this issue in any engagement correspondence with the Company or Calderwood & Harkness LLP to date. While we cannot predict Ridgepoint's voting position on an officer exculpation proposal, the absence of any stated opposition — combined with the fact that officer exculpation is generally viewed as a governance best practice rather than an entrenchment device — suggests that this proposal is unlikely to become a point of contention with Ridgepoint.

D. Drafting Considerations for the Charter Amendment

When drafting the charter amendment, the following considerations should be addressed:

• The amendment would modify the existing exculpation clause in Article VIII of the Restated Certificate to add officers (as defined by reference to 15 U.S.C. § 78dd-1(f)(1)) as permissible exculpated persons, tracking the statutory language of amended Section 102(b)(7) as closely as practicable.

• The amendment should expressly incorporate the statutory limitation restricting officer exculpation to direct claims only, excluding derivative claims from the scope of the provision.

• The amendment should include customary language preserving the existing director exculpation provision in its current form, to avoid any implication that the amendment is intended to modify, limit, or supersede the pre-existing protection afforded to directors.

• The amendment should include a "savings clause" providing that, to the fullest extent permitted by future amendments to the DGCL, the exculpation provision shall be interpreted to provide the maximum protection available under law.

• Coordination with the Company's transfer agent, Pennington Shareholder Services LLC, will be required for the mechanics of the stockholder vote, including preparation of the proxy card, tabulation of votes, and filing of the amended Restated Certificate with the Delaware Secretary of State promptly following stockholder approval.

III. Heightened Caremark Oversight Duties — Recent Case Law

A. Foundation: *In re Caremark International Inc. Derivative Litigation* (Del. Ch. 1996) and *Stone v. Ritter* (Del. 2006)

The fiduciary duty of oversight — sometimes referred to as the "Caremark duty" — imposes upon corporate directors an obligation to make a good faith effort to oversee the corporation's operations and to ensure that adequate information and reporting systems exist to bring material compliance and operational risks to the board's attention. The foundational articulation of this duty was set forth by Chancellor Allen in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).

In Caremark, Chancellor Allen explained that director oversight liability can arise in two circumstances:

(a) Prong One — Failure to Implement: The directors utterly failed to implement any reporting or information system or controls; or

(b) Prong Two — Failure to Monitor: Having implemented such a system or controls, the directors consciously failed to monitor or oversee its operations, thus disabling themselves from being informed of risks or problems requiring their attention.

Chancellor Allen emphasized that a Caremark claim is "possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment," because the claim requires a showing that the directors' failure of oversight was so egregious as to constitute bad faith — a demanding standard that goes beyond mere negligence or even gross negligence.

In Stone v. Ritter, 911 A.2d 362 (Del. 2006), the Delaware Supreme Court confirmed and refined the Caremark framework in a critical respect: the Court held that Caremark claims are properly understood as grounded in the fiduciary duty of loyalty, not the duty of care. Specifically, the Court explained that a sustained or systematic failure of the board to exercise oversight — such as an utter failure to attempt to assure a reasonable information and reporting system exists — constitutes a breach of the duty of good faith, which is a subsidiary element of the duty of loyalty. This doctrinal classification has profound practical consequences: because Caremark claims sound in the duty of loyalty, they fall outside the scope of exculpation clauses adopted under Section 102(b)(7), which by their terms cannot eliminate liability for breaches of the duty of loyalty. Accordingly, even where a corporation has adopted a robust exculpation provision covering both directors and officers, its fiduciaries remain fully exposed to potential personal liability under Caremark.

This framework is directly relevant to the design and content of CRH's committee charters and the scope of the compliance oversight mandates assigned to the board and its standing committees. A well-designed committee charter that clearly delineates oversight responsibilities, specifies the types of information and reports that the committee is expected to receive and review, and establishes regular reporting cadences, serves as both a governance best practice and a critical element of a potential defense against a Caremark claim — by evidencing that the board has implemented a reasonable information and reporting system and has consciously and regularly monitored its operations.

B. *In re Harborview & Co. Derivative Litigation* (Del. Ch. 2021)

In re Harborview & Co. Derivative Litigation, C.A. No. 2019-0907-MTZ (Del. Ch. Sept. 7, 2021), is one of the most significant applications of the Caremark framework in recent years and has important implications for the design of board-level oversight structures.

Facts. The Camberwell Holdings case arose out of the two catastrophic crashes of Camberwell Holdings 737 MAX aircraft in October 2018 and March 2019, which killed a combined 346 people. The plaintiff stockholders brought derivative claims against Camberwell Holdings's directors and officers, alleging that the board had failed to adequately oversee airplane safety — a "mission critical" risk for the company. The plaintiffs alleged that the board lacked any committee or management-level reporting system specifically dedicated to the oversight of product safety, and that the board's audit committee, while charged with general risk oversight, had not been specifically tasked with monitoring the safety of Camberwell Holdings's aircraft.

Holding. The Court of Chancery, in a decision by Vice Chancellor Zurn, denied the defendants' motion to dismiss, holding that the plaintiffs had adequately alleged a Caremark claim. The Court found that the complaint supported a reasonable inference that the board had failed under both prongs of the Caremark test: the board had not implemented a reporting system specifically focused on the company's single most important compliance risk (airplane safety), and the board had consciously ignored red flags — including internal reports regarding problems with the 737 MAX's Maneuvering Characteristics Augmentation System (MCAS) — that should have prompted greater scrutiny and oversight.

Key Takeaways for CRH. The Court of Chancery's analysis in Camberwell Holdings emphasized several principles that are directly relevant to the current engagement:

First, the Court underscored the importance of having a board-level committee specifically charged with oversight of "mission critical" risks. Where a company's core business involves specific, identifiable compliance or safety risks, the board should assign explicit oversight responsibility to a standing committee with a charter that memorializes the oversight mandate. A general delegation of "risk oversight" to the audit committee, without more, may be insufficient where the company faces a specific, identifiable category of risk that is central to its business operations.

Second, the Court focused on the existence — or absence — of regular, documented information flows from management to the board regarding the relevant risk area. A committee charter should specify the types of reports that the committee expects to receive, the frequency of such reports, and the management personnel responsible for delivering them.

Third, the Court's analysis confirms that the Caremark duty is not merely a reactive obligation; it requires proactive establishment of oversight structures before a crisis arises. A board that creates a committee or assigns oversight responsibility only after a compliance failure has already occurred may find itself vulnerable to the argument that it failed to satisfy its duties under Caremark Prong One.

Implications for CRH's Committee Structure. CRH operates in multi-channel retail and e-commerce, with business lines spanning specialty apparel, home goods, and outdoor lifestyle products. The Company reported FY2023 revenue of $6.14 billion. While CRH does not face the same category of product safety risk as an aircraft manufacturer, the Company does face several categories of "mission critical" risk that, under the Camberwell Holdings framework, warrant dedicated board-level oversight through standing committees with documented charter mandates:

• Cybersecurity. CRH's significant e-commerce operations — which we understand represent approximately 34% of total revenue — expose the Company to substantial cybersecurity risk, including the risk of data breaches, ransomware attacks, and other cyber incidents that could result in material financial loss, regulatory penalties, and reputational harm. Cybersecurity risk has been increasingly recognized by courts, regulators, and governance commentators as a "mission critical" compliance area warranting dedicated board-level oversight.

• Data Privacy. The Company collects and processes significant volumes of consumer personal data through its e-commerce platforms, loyalty programs, and marketing activities. Compliance with data privacy regulations — including the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), and potentially the European Union's General Data Protection Regulation (GDPR) to the extent of any international operations — is a material compliance obligation.

• Supply Chain Compliance. CRH's global supply chain (spanning apparel, home goods, and outdoor lifestyle products) presents risks related to forced labor, environmental compliance, trade sanctions, and import/export regulations. These risks have been the subject of increasing regulatory and investor scrutiny.

• Consumer Product Safety. The Company's outdoor lifestyle product line in particular may present product safety risks requiring dedicated oversight.

Against this backdrop, the existing ad hoc Technology & Innovation Committee — which was formed by board resolution on September 15, 2022, and is chaired by Dr. Anwar Farouk — presents a significant structural gap. This committee has no formal written charter and therefore does not establish a memorialized oversight mandate of the type that Camberwell Holdings identifies as critical. The absence of a charter means that there is no documented record of the committee's scope of authority, the information and reports it is expected to receive, the management personnel responsible for reporting to it, or the frequency and substance of its oversight activities. This is precisely the type of structural gap that the Court of Chancery found problematic in Camberwell Holdings.

As recommended in the Gap Analysis Memo, we recommend that the ad hoc Technology & Innovation Committee be dissolved and reconstituted as a standing Technology & Cybersecurity Committee with a formal written charter that specifies the committee's oversight mandate, including oversight of cybersecurity programs, IT strategy, data privacy compliance, and artificial intelligence governance. The committee should have a minimum of three independent directors as members.

C. *In re McDonald's Corp. Stockholder Derivative Litigation* (Del. Ch. 2023)

In re McDonald's Corp. Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 25, 2023), represents a further and significant expansion of the Caremark framework, with implications that extend well beyond the specific facts of the case.

Facts. The McDonald's case arose out of allegations that McDonald's directors and officers failed to oversee the company's workplace culture and human capital management, including pervasive sexual harassment complaints at both the corporate and franchise levels. The plaintiffs alleged that the board was aware of systemic workplace misconduct issues — including the high-profile termination of former CEO Steve Easterbrook for a consensual relationship with a subordinate employee and subsequent revelations that the misconduct was far more extensive than initially disclosed — and failed to take adequate remedial steps.

Holding. The Court of Chancery, in a decision by Vice Chancellor Laster, denied in part the defendants' motion to dismiss, allowing Caremark claims to proceed against certain officers and directors. The Court found that the plaintiff had adequately alleged that the board (i) was aware of red flags regarding systemic workplace misconduct, including internal surveys, media reports, and employee complaints that put the board on notice of the problem, and (ii) failed to take adequate remedial steps in response to those red flags. The Court emphasized that the board's knowledge of the red flags, combined with its failure to act, supported a reasonable inference of the kind of conscious disregard that satisfies the demanding Caremark standard.

Key Distinction from *Camberwell Holdings*. Perhaps the most significant aspect of the McDonald's decision is its extension of Caremark analysis to what might be described as "softer" compliance areas — human capital management, workplace culture, and employee conduct — beyond the traditional operational or product safety risks that were at issue in Camberwell Holdings. While Camberwell Holdings involved the failure to oversee airplane safety — a risk with an obvious and direct connection to the company's core business and to public safety — McDonald's involved the failure to oversee workplace culture and human capital management, areas that historically have not been viewed as presenting the same type of concrete, identifiable compliance risk. The McDonald's decision makes clear that the Caremark duty of oversight is not limited to traditional operational or product safety risks but extends to any area of corporate activity that presents material compliance exposure, including human capital and workplace culture.

Implications for CRH. The McDonald's decision has significant implications for CRH in at least two respects:

1. Compensation & Human Capital Committee Charter. CRH's existing Compensation Committee charter (last revised March 2021) does not include explicit human capital management oversight responsibilities, workplace culture monitoring, or employee conduct oversight. In light of McDonald's, the revised charter should include an express mandate for the committee to oversee the Company's human capital management practices, workplace culture and conduct standards, diversity and inclusion initiatives, employee engagement and retention programs, and related compliance matters. The committee should receive regular reports from management — specifically the Chief Human Resources Officer and General Counsel — on workforce metrics, employee complaints, and the status of any investigations or remedial actions related to workplace conduct.

2. Nominating & Corporate Governance Committee Charter. The McDonald's decision reinforces the importance of board-level oversight of environmental, social, and governance ("ESG") and sustainability matters, particularly the "social" component of ESG, which encompasses human capital management, workforce diversity, and community impact. CRH's existing Nominating & Corporate Governance Committee charter (last revised January 2019) lacks any ESG or sustainability mandate. The revised charter should include oversight of ESG and sustainability matters, including both environmental factors (such as the Company's carbon footprint and environmental compliance) and social factors (such as human capital management, diversity and inclusion, and community engagement), consistent with the expanded scope of Caremark duties recognized in McDonald's.

Importance of Information-Reporting Systems. The McDonald's decision also reinforces the critical importance of robust information-reporting systems between management and the board. The Court focused closely on whether the board had received — and, if it had, what it did with — information regarding workplace misconduct. Committee charters should require regular reporting from management on compliance matters within each committee's oversight mandate, including at a minimum quarterly reports and immediate reporting of material developments, investigations, regulatory inquiries, or other events that could represent "red flags" requiring board-level attention. The charters should also specify the management personnel responsible for delivering such reports.

Officer Liability Dimension. The McDonald's case also addressed officer-level Caremark liability, which is particularly notable in the context of the 2022 officer exculpation amendment discussed in Part II above. The Court allowed Caremark claims to proceed against certain officers of McDonald's, not only its directors, reinforcing the principle that officers owe the same fiduciary duties of care and loyalty as directors and are subject to the same Caremark oversight obligations.

This officer liability dimension intersects with the officer exculpation analysis in an important way. As discussed in Part II.B, the amended Section 102(b)(7) permits officer exculpation only for direct claims, not derivative claims. Caremark claims are by their nature derivative claims — they are brought by stockholders on behalf of the corporation, seeking to remedy an injury suffered by the corporation as a result of the board's or officers' failure of oversight. Moreover, Caremark claims are grounded in the duty of loyalty (as confirmed by Stone v. Ritter), not the duty of care. For both of these reasons, officer exculpation under the amended Section 102(b)(7) would not shield CRH's officers from Caremark derivative claims. Even if CRH adopts the recommended officer exculpation charter amendment, the Company's officers will remain fully exposed to potential personal liability under the Caremark framework for failures of oversight.

This underscores the importance of both (a) adopting officer exculpation (to provide protection against direct duty-of-care claims) and (b) implementing robust committee charter mandates and information-reporting systems (to provide a factual foundation for a defense against Caremark derivative claims, should they arise).

D. Practical Implications for CRH Committee Charters

The combined impact of Camberwell Holdings and McDonald's on the four committee charters being revised or adopted as part of this engagement is summarized below. Each committee charter should be designed to reflect the principles articulated in these decisions, with specific and memorialized oversight mandates, clear allocation of responsibilities, and robust reporting requirements.

1. Audit Committee Charter

Current Status: Chaired by Sandra Chen-Watkins; 4 independent members; charter last revised February 2020.

The revised Audit Committee charter should include the following enhancements:

• Caremark-Informed Compliance Oversight Language. The charter should include an explicit mandate for oversight of enterprise risk management, legal and regulatory compliance, and the adequacy of the Company's internal controls over financial reporting and disclosure controls and procedures. While the Audit Committee has traditionally served as the board's primary risk oversight body, the charter should be updated to reflect the heightened expectations articulated in Camberwell Holdings and McDonald's, with specific language identifying the categories of risk that the Audit Committee is expected to oversee and the types of information and reports it expects to receive.

• Cybersecurity Risk Oversight. Consistent with the SEC's cybersecurity disclosure rules adopted in July 2023 — including new Item 106 of Regulation S-K (requiring annual disclosure regarding the registrant's cybersecurity risk management, strategy, and governance) and the new Form 8-K cybersecurity incident disclosure requirements (requiring disclosure of material cybersecurity incidents within four business days of determination of materiality) — the Audit Committee charter should include specific cybersecurity risk oversight responsibilities. These responsibilities should be exercised in coordination with the new Technology & Cybersecurity Committee, with the Audit Committee retaining primary oversight of the financial reporting and disclosure aspects of cybersecurity risk and the Technology & Cybersecurity Committee having primary oversight of the technical and operational dimensions. The charter should delineate the respective responsibilities of the two committees to avoid gaps or overlaps.

• Enhanced Whistleblower Procedures. The charter should include enhanced provisions regarding the Audit Committee's oversight of the Company's whistleblower hotline and mechanisms for the confidential, anonymous submission of concerns regarding questionable accounting, internal controls, auditing matters, or other compliance issues. The charter should require the Audit Committee to receive regular reports — at least quarterly — on the volume, nature, and disposition of whistleblower complaints.

• Independent Auditor Oversight. The charter should reference the Audit Committee's oversight relationship with the Company's independent registered public accounting firm, Mercer & Holloway LLP (lead engagement partner Philip Tanaka), which has served as CRH's auditor since FY2018. The charter should include customary provisions regarding the committee's authority and responsibility for the appointment, compensation, retention, and oversight of the independent auditor, as well as pre-approval of audit and non-audit services.

2. Compensation & Human Capital Committee Charter

Current Status: Chaired by Robert "Rob" Elliston; 3 independent members; charter last revised March 2021.

The revised charter should include the following enhancements:

• Human Capital Management Oversight. Directly responsive to the McDonald's decision, the charter should include an explicit mandate for oversight of the Company's human capital management practices, including workforce composition, talent acquisition and retention, employee engagement, succession planning (below the CEO level), workplace culture and conduct standards, diversity and inclusion programs, and employee health and safety. The committee should receive regular reports from the Chief Human Resources Officer and General Counsel on workforce metrics and any significant human capital developments.

• Pay-Versus-Performance Disclosure Oversight. Consistent with the SEC's pay-versus-performance disclosure rules, which became effective for CRH beginning with its FY2022 proxy statement, the charter should include oversight responsibility for the Company's pay-versus-performance disclosure, including review of the relationships between executive compensation actually paid and the Company's financial performance, total shareholder return, and peer group total shareholder return.

• Clawback Policy Administration. Consistent with the Nasdaq listing rule regarding compensation recovery policies, which became effective on October 2, 2023, the charter should assign to the Compensation & Human Capital Committee responsibility for administration of the Company's clawback policy, including determinations regarding the recovery of erroneously awarded incentive-based compensation in the event of an accounting restatement.

• Regular Management Reporting. The charter should require regular management reporting on workforce and human capital metrics, including at a minimum quarterly reports and immediate reporting of material developments such as significant employee complaints, government investigations, litigation, or regulatory inquiries related to workplace conduct.

3. Nominating & Corporate Governance Committee Charter

Current Status: Chaired by Margaret "Meg" Holliday; 3 independent members; charter last revised January 2019.

The revised charter should include the following enhancements:

• ESG/Sustainability Oversight Mandate. The charter should include an explicit mandate for oversight of the Company's ESG and sustainability strategy and practices, including both environmental factors (carbon footprint, environmental regulatory compliance, sustainability targets) and social factors (human capital management, diversity and inclusion at the board level, community engagement, supply chain responsibility). This mandate is directly responsive to the McDonald's decision's recognition that "social" compliance areas, including human capital management, fall within the scope of the Caremark duty of oversight.

• Board Refreshment and Skills Matrix Review. The charter should include responsibility for oversight of the board refreshment process, including the maintenance and periodic review of a board skills matrix identifying the competencies, experiences, and attributes that the board believes are important for its effective functioning and for oversight of the Company's business and strategy.

• Annual Board and Committee Self-Evaluation. The charter should require the committee to oversee an annual self-evaluation process for the board and each of its standing committees, consistent with the ISS and Tarrant Partners LLC 2024 proxy season policy expectations. Both ISS and Tarrant Partners LLC have increasingly focused on the rigor and transparency of board self-evaluation processes as a governance quality indicator, and the inclusion of a formal self-evaluation mandate in the charter will support a favorable governance assessment.

4. Technology & Cybersecurity Committee Charter (New Standing Committee)

Current Status: No formal committee exists. An ad hoc Technology & Innovation Committee was formed by board resolution on September 15, 2022, without a written charter. Dr. Anwar Farouk has been designated as an initial member.

The new charter should include the following elements:

• Formalization as a Standing Committee. The charter should formally establish the Technology & Cybersecurity Committee as a standing committee of the board, with a minimum of three independent directors as members. This formalization is directly responsive to the Camberwell Holdings mandate that "mission critical" risks be assigned to a standing committee with a documented oversight mandate. The ad hoc Technology & Innovation Committee formed on September 15, 2022 should be dissolved upon the establishment of the new standing committee.

• Scope of Oversight. The charter should define the committee's scope of oversight to include:

• IT strategy and technology innovation;

• Cybersecurity programs, policies, and incident response plans;

• Data privacy compliance (including compliance with the CCPA/CPRA and other applicable data privacy regulations);

• Artificial intelligence governance, including the Company's use of AI and machine learning technologies in its e-commerce, marketing, supply chain, and other operations;

• Oversight of the Company's Chief Information Officer and Chief Information Security Officer (or equivalent positions) in connection with the foregoing matters.

• Coordination with the Audit Committee. The charter should specify the allocation of cybersecurity-related oversight responsibilities between the Technology & Cybersecurity Committee and the Audit Committee, with the Technology & Cybersecurity Committee having primary responsibility for the technical and operational aspects of cybersecurity risk and the Audit Committee retaining primary responsibility for the financial reporting, disclosure, and internal controls aspects.

• Dissolution of Ad Hoc Committee. The charter or an accompanying board resolution should formally dissolve the ad hoc Technology & Innovation Committee and transfer its functions and oversight responsibilities to the new standing committee.

IV. DGCL § 110 — Emergency Bylaws

A. Statutory Framework

Section 110 of the DGCL authorizes Delaware corporations to adopt emergency bylaws that become operative during an "emergency," which is defined as any condition that makes it not practicable for the corporation to conduct its business in conformity with its regular bylaws. The concept of an "emergency" under Section 110 is broadly construed and may encompass a wide range of circumstances, including natural disasters, pandemics, acts of terrorism, cyberattacks, civil disturbances, or other events that disrupt normal corporate operations and governance processes.

Emergency bylaws adopted pursuant to Section 110 may include provisions addressing any or all of the following matters:

• Quorum Requirements. Emergency bylaws may reduce the quorum requirements for meetings of the board of directors and committees of the board below the levels established in the corporation's regular bylaws. This is a critical flexibility, as an emergency may make it impossible to assemble a quorum of directors — for example, if directors are incapacitated, unable to communicate, or otherwise unavailable.

• Alternative Meeting Procedures. Emergency bylaws may establish alternative procedures for calling and conducting meetings of the board and committees, including relaxation of notice requirements and authorization for meetings to be held by any practicable means of communication (including telephone, videoconference, or other electronic means).

• Designation of Additional or Substitute Directors. Emergency bylaws may authorize the designation of additional or substitute directors to serve during an emergency, addressing the possibility that one or more sitting directors may be unable to serve.

• Relocation of Principal Office. Emergency bylaws may authorize the relocation of the corporation's principal office or the designation of alternative offices for the conduct of business during an emergency.

• Lines of Succession for Officers. Emergency bylaws may establish lines of succession for officers, designating the order in which officers or other individuals shall assume the duties and authority of an incapacitated or unavailable officer.

Importantly, Section 110 provides that emergency bylaws may be adopted by the board of directors and do not require stockholder approval. This is a significant procedural advantage, as it allows the board to act unilaterally to adopt emergency bylaws without the delay and expense of a stockholder vote.

Section 110 further provides that no officer, director, employee, or agent of the corporation shall be liable for actions taken in good faith in accordance with emergency bylaws. This statutory safe harbor provides important protection for fiduciaries who are called upon to make difficult decisions under emergency conditions, when perfect compliance with regular governance procedures may be impossible.

B. Current CRH Status

CRH's Amended and Restated Bylaws (last amended May 14, 2019) consist of 38 sections organized across 8 articles. The bylaws do not include any emergency bylaws provisions. This gap was identified in the Gap Analysis Memo dated January 29, 2024, and the adoption of emergency bylaws is included among the recommended actions in the current engagement.

The absence of emergency bylaws provisions means that, in the event of an emergency (such as a pandemic, natural disaster, or cyberattack), CRH would be required to comply with its regular bylaws — including standard quorum requirements, notice requirements, and meeting procedures — even if circumstances made such compliance impracticable. This could result in the board being unable to convene a meeting, take necessary corporate action, or ensure continuity of management and operations during a crisis.

C. Recommended Approach

We recommend that a new Article IX be added to the Amended and Restated Bylaws, containing emergency bylaws provisions consistent with DGCL § 110. The recommended provisions include the following:

• Definition of "Emergency." The emergency bylaws should define "emergency" in terms consistent with the statutory language: any condition (including a natural disaster, attack on the United States, pandemic, epidemic, or similar event) in which the board of directors determines, or it is otherwise apparent, that it is not practicable for the Corporation to conduct its business in the ordinary course in conformity with its regular bylaws.

• Reduced Quorum. During an emergency, any one director present in person or by remote communication shall constitute a quorum for the transaction of business at any meeting of the board of directors or any committee thereof. This provision ensures that the board can take action even if only a single director is available — a critical flexibility in extreme circumstances.

• Alternative Meeting Procedures. During an emergency, meetings of the board of directors or any committee thereof may be called by any officer or director of the Corporation. Notice of any such meeting may be given by any practicable means, including telephone, electronic mail, or other electronic communication, and shall be given to such of the directors as it may be feasible to reach. The notice need not comply with the regular notice provisions of the bylaws. Meetings may be held at any location designated by the person calling the meeting or by means of remote communication.

• Designation of Emergency Officers and Succession. During an emergency, the board of directors may designate lines of succession for officers and may delegate to one or more officers such authority as the board deems necessary or appropriate for the management of the Corporation's affairs during the emergency. The board may also designate additional or substitute directors to serve during the emergency.

• Good Faith Safe Harbor. Actions taken in good faith by any officer, director, employee, or agent of the Corporation during an emergency and in accordance with the emergency bylaws shall be binding upon the Corporation and shall not be used to impose liability upon any such person.

• Automatic Expiration. The emergency bylaws shall cease to be operative when the board of directors determines, or it is otherwise apparent, that the emergency condition no longer exists and the Corporation is able to conduct its business in conformity with its regular bylaws.

Best-Practice Context. Adoption of emergency bylaws has become increasingly common among public companies, particularly since the COVID-19 pandemic highlighted the importance of business continuity planning and the risks associated with the inability to convene board meetings under normal procedures. Neither ISS nor Tarrant Partners LLC penalizes the adoption of emergency bylaws, and many governance commentators — including the Society for Corporate Governance, the National Association of Corporate Directors, and leading law firms — affirmatively recommend adoption. The inclusion of emergency bylaws in CRH's Amended and Restated Bylaws will bring the Company's governance framework into alignment with current best practices and will ensure that the board has the flexibility to act decisively in the event of an unforeseen crisis.

V. Interaction of Legal Developments with CRH's Broader Governance Refresh

A. Context: The 2023 Contested Election and Activist Engagement

The current governance refresh engagement was prompted by several catalysts, the most significant of which were the contested director election at CRH's June 8, 2023 Annual Meeting of Stockholders and the subsequent activist engagement by Ridgepoint Capital Partners LP. A brief recap of these events provides important context for understanding how the Delaware law developments discussed in this memorandum fit within the broader governance refresh.

At the June 8, 2023 Annual Meeting, Ridgepoint nominated Franklin Gu as an alternative candidate for election to the board. Although Mr. Gu was not elected, the vote results revealed significant stockholder concern regarding CRH's governance practices: management nominee David Hargrove received only 54.1% of votes cast, while Mr. Gu received 38.2% of votes cast (with the remainder abstaining or withheld). This near-miss result — in which the management nominee prevailed by a margin of less than sixteen percentage points under CRH's plurality voting standard — underscored the vulnerability of the Company's governance framework and the depth of stockholder dissatisfaction.

Following the annual meeting, Ridgepoint escalated its engagement. On November 17, 2023, Ridgepoint filed a Schedule 13D/A with the SEC disclosing its ownership of 3,290,000 shares (approximately 4.7% of the 70,000,000 shares outstanding) and articulating three specific governance reform demands: (i) adoption of a majority voting standard for uncontested director elections, (ii) adoption of proxy access, and (iii) appointment of an independent board chair.

Separately, the Glassman & Torrey governance assessment, delivered on December 5, 2023, scored CRH at 58 out of 100 on its proprietary governance scorecard — substantially below the peer median score of 67 out of 100 among an 18-company peer group of publicly traded retail companies. The Glassman & Torrey assessment identified multiple governance gaps, including the absence of majority voting, proxy access, an exclusive forum provision, emergency bylaws, a formalized cybersecurity oversight committee, and officer exculpation.

While the contested election and activist engagement are the most visible catalysts for the governance refresh, the Delaware law developments discussed in this memorandum provide independent, substantive justification for many of the governance changes being recommended. These legal developments demonstrate that the recommended changes are not merely responsive to stockholder pressure but are grounded in evolving legal standards and best practices that CRH's board has an obligation to consider and address.

B. How the Legal Developments Inform the Bylaws Changes

The bylaws changes being developed as part of this engagement are informed by the Delaware law developments discussed in this memorandum in the following ways:

Majority Voting in Uncontested Director Elections. The adoption of majority voting for uncontested director elections is not directly driven by the case law developments discussed in this memorandum. However, it is reinforced by the broader governance ecosystem in which the Caremark and officer exculpation developments exist. Under a majority voting standard, a director who fails to receive the affirmative vote of a majority of the shares cast would be required to tender his or her resignation to the board, which would then decide whether to accept or reject the resignation. Had majority voting been in effect at the June 8, 2023 Annual Meeting, David Hargrove's 54.1% share of votes cast would still have exceeded the majority threshold. However, the margin of support would have been far more scrutinized under a majority voting regime, and any further erosion of support in future elections could have a dramatically different outcome.

Proxy Access. The proposed proxy access provision — providing for 3% ownership for 3 years, with the right to nominate the greater of 2 nominees or 20% of the board — is similarly not directly driven by the DGCL amendments or case law discussed here, but forms part of the comprehensive governance refresh. Under the proposed proxy access framework, Ridgepoint — which holds 3,290,000 shares (4.7%), well in excess of the 3% threshold of 2,100,000 shares — would have standing to nominate up to 2 proxy access candidates (20% of 11 directors = 2.2, rounded down to 2).

Forum Selection Clause. The proposed exclusive Delaware forum bylaw is directly informed by the desire to ensure that Caremark and other fiduciary duty claims are adjudicated in the Court of Chancery of the State of Delaware — the court with the deepest expertise in these matters and the court in which the Caremark, Camberwell Holdings, and McDonald's decisions were rendered. The proposed provision would designate the Court of Chancery as the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Corporation to the Corporation or its stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL or the Corporation'

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
FROM: Claire Dempsey, Associate, Capital Markets Group, Calderwood & Harkness LLP
TO: Eric Johannsen, Associate, Capital Markets Group, Calderwood & Harkness LLP Howard Bellamy, Partner, Calderwood & Harkness LLP Priya Sundaram, Executive Vice President, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc.
DATE: February 5, 2024
RE: Delaware Law Update — Recent DGCL Amendments and Case Law Developments Relevant to the CRH Bylaws and Committee Charter Refresh
MATTER NO.: C&H Matter No. 1038-00005
FIRM: Calderwood & Harkness LLP 999 Third Avenue, Suite 4200, Seattle, WA 98104 Delaware Office: 300 Delaware Avenue, Suite 900, Wilmington, DE 19801
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I. Executive Summary and Purpose
This memorandum has been prepared in connection with the comprehensive review and refresh of the corporate bylaws and board committee structure of Cascade Retail Holdings Inc. ("CRH" or the "Company"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI," with its principal executive offices located at 4800 Lakeview Blvd, Suite 1100, Bellevue, WA 98004. The engagement giving rise to this memorandum was opened on January 18, 2024, and the present memorandum follows and supplements the Governance Gap Analysis Memorandum that was delivered to the same distribution list on January 29, 2024 (the "Gap Analysis Memo").
The purpose of this memorandum is to provide a detailed analysis of three areas of recent Delaware law development that bear directly on the scope and substance of the current engagement:
1. Officer Exculpation under Amended DGCL § 102(b)(7). The 2022 amendment to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which became effective on August 1, 2022, extended the permissive scope of charter-based exculpation provisions to cover certain senior corporate officers. This amendment has direct implications for CRH's Restated Certificate of Incorporation and presents an opportunity for the Company to strengthen its governance framework and officer recruitment posture.
2. Caremark Oversight Duty Developments. Recent decisions of the Delaware Court of Chancery — principally In re McDonald's Corp. Stockholder Derivative Litigation (Del. Ch. 2023) and In re Harborview & Co. Derivative Litigation (Del. Ch. 2021) — have significantly expanded the practical scope and application of the fiduciary duty of oversight first articulated in In re Caremark International Inc. Derivative Litigation (Del. Ch. 1996). These decisions have important implications for the design and content of CRH's board committee charters and the compliance oversight mandates assigned to the board and its committees.
3. DGCL § 110 Emergency Bylaws. Section 110 of the DGCL authorizes Delaware corporations to adopt emergency bylaws that become operative during conditions that render normal corporate governance procedures impracticable. CRH's current bylaws do not include emergency bylaws provisions, and adoption of such provisions is recommended as part of the current bylaws refresh.
As background, CRH's Restated Certificate of Incorporation was filed with the Delaware Secretary of State on October 3, 2016 (the "Restated Certificate"). The Restated Certificate currently includes a Section 102(b)(7) exculpation clause applicable to directors of the Company but has not been updated since the 2022 amendment and does not extend exculpation to officers. This memorandum includes a recommended action item: CRH should pursue a stockholder-approved charter amendment at its Annual Meeting of Stockholders scheduled for June 6, 2024 (the "2024 Annual Meeting") to adopt officer exculpation in accordance with the amended statute.
All analysis herein is governed by and rendered under the laws of the State of Delaware. This memorandum is intended solely for the recipients identified above and is protected by the attorney-client privilege and the work product doctrine. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
II. DGCL § 102(b)(7) — Officer Exculpation
A. Background: Director Exculpation Under Pre-2022 Law
The historical framework for exculpation of corporate fiduciaries in Delaware traces to the Delaware legislature's 1986 enactment of DGCL § 102(b)(7), which was a direct legislative response to the Delaware Supreme Court's decision in Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). In Van Gorkom, the Supreme Court held that the directors of Trans Union Corporation had breached their fiduciary duty of care by approving a merger without adequate deliberation, exposing the directors to substantial personal monetary liability. The decision sent shockwaves through the corporate governance community and prompted an exodus of qualified individuals from service on corporate boards, as well as a dramatic contraction in the availability and affordability of directors' and officers' liability insurance.
In response, the Delaware legislature enacted Section 102(b)(7), which permits Delaware corporations to include in their certificates of incorporation a provision eliminating or limiting the personal liability of directors for monetary damages arising from a breach of fiduciary duty. Since its enactment, the vast majority of Delaware corporations — both public and private — have adopted exculpation provisions pursuant to Section 102(b)(7), and such provisions have become a standard feature of Delaware corporate charters.
The statute, as originally enacted and as in force prior to the 2022 amendment, contained several important limitations. Specifically, a Section 102(b)(7) provision could not eliminate or limit the personal liability of a director for:
(i) any breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
(iii) liability under Section 174 of the DGCL (relating to unlawful dividends and stock repurchases); or
(iv) any transaction from which the director derived an improper personal benefit.
The practical effect of this statutory framework is that exculpation under Section 102(b)(7) shields directors from personal liability for monetary damages arising from breaches of the fiduciary duty of care — including claims of gross negligence in decision-making — but does not protect directors against claims grounded in the duty of loyalty, bad faith, intentional misconduct, or self-dealing. This distinction is critical and, as discussed in Part III below, has significant implications for the interaction between exculpation and the Caremark line of oversight liability cases.
CRH's Current Status. CRH's Restated Certificate of Incorporation, filed with the Delaware Secretary of State on October 3, 2016, contains a director exculpation clause pursuant to Section 102(b)(7). Article VIII of the Restated Certificate provides, in relevant part:
"A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit."
This provision covers all current members of CRH's board of directors, which presently consists of eleven directors: three inside directors and eight independent directors. The current members include Chairman Thomas R. Kinsley, Lead Independent Director Margaret "Meg" Holliday, Chief Executive Officer Julian Voss, Audit Committee Chair Sandra Chen-Watkins, Compensation Committee Chair Robert "Rob" Elliston, and Dr. Anwar Farouk, among others. As noted, however, the provision is limited by its terms to directors and does not extend to officers of the Corporation.
B. The 2022 Amendment: Extension to Officers
On August 1, 2022, a significant amendment to DGCL § 102(b)(7) became effective, extending the permissive scope of exculpation provisions to cover certain senior corporate officers. This amendment was adopted by the Delaware legislature as part of Senate Bill 273, which was signed by the Governor on July 17, 2022. The amendment represents the most significant expansion of the exculpation framework in Delaware since the original enactment of Section 102(b)(7) in 1986 and has been widely discussed by practitioners, academics, and governance commentators.
The key features of the 2022 amendment are as follows:
Scope of Covered Officers. The amended statute defines the officers eligible for exculpation by reference to the officer definition contained in the Foreign Corrupt Practices Act ("FCPA"), specifically 15 U.S.C. § 78dd-1(f)(1). Under this cross-reference, an "officer" for purposes of the amended Section 102(b)(7) means a person who (a) has consented to being identified as an officer of the corporation for purposes of the FCPA, or (b) has been identified by the corporation as an "officer" for such purposes. In practical terms, this definition covers the Company's most senior executive officers — typically the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Legal Officer, and other named executive officers who are designated as Section 16 reporting officers under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The definition is intentionally narrow and does not extend to all individuals who might bear the title of "officer" or "vice president" within the corporation; rather, it is limited to the most senior executives who serve in roles analogous to those identified in the FCPA.
For CRH, the officers who would be covered by an officer exculpation provision would include, at a minimum: Chief Executive Officer Julian Voss, Chief Financial Officer Rachel Dominguez, Chief Operating Officer Marcus Leung, General Counsel & Corporate Secretary Priya Sundaram, and Chief Human Resources Officer Natalie Brennan, as well as any other officers designated as Section 16 reporting persons under the Exchange Act.
Limitation to Direct Claims. A critical limitation of the 2022 amendment is that officer exculpation applies only to direct claims brought by stockholders — that is, claims in which the stockholder asserts a personal injury distinct from any injury to the corporation itself. Officer exculpation does not apply to derivative claims — claims brought by stockholders on behalf of the corporation. This is a significant distinction from director exculpation under the original Section 102(b)(7), which applies to both direct and derivative claims. The practical implication of this limitation is discussed further in Part III.C below, in connection with Caremark oversight liability.
Same Carve-Outs as for Directors. The 2022 amendment preserves the same set of carve-outs that have applied to director exculpation since 1986. Accordingly, an officer exculpation provision may not eliminate or limit the personal liability of an officer for:
(i) any breach of the officer's duty of loyalty to the corporation or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
(iii) liability under Section 174 of the DGCL (relating to unlawful dividends and stock repurchases); or
(iv) any transaction from which the officer derived an improper personal benefit.
These carve-outs ensure that officer exculpation, like director exculpation, operates solely as a shield against duty-of-care claims and does not insulate officers from accountability for breaches of loyalty, bad faith, or self-dealing.
C. Relevance to CRH and Recommended Action
As noted above, CRH's Restated Certificate (filed October 3, 2016) predates the 2022 amendment by approximately six years and, accordingly, includes an exculpation provision that covers only directors. The Restated Certificate does not extend exculpation to officers. To adopt officer exculpation, CRH would need to amend the Restated Certificate, which is a process that requires two steps:
(1) Board Approval. The board of directors must approve a proposed charter amendment extending exculpation to officers, in accordance with the procedures set forth in DGCL § 242(b).
(2) Stockholder Approval. The proposed charter amendment must be approved by the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Corporation entitled to vote thereon, pursuant to DGCL § 242(b)(1). Under the Company's existing capital structure, there are 70,000,000 shares of common stock outstanding, meaning that the affirmative vote of holders of at least 35,000,001 shares would be required for approval.
Proposed Timeline. We recommend that the board approve the proposed charter amendment and include it as a management proposal in the proxy statement for the 2024 Annual Meeting of Stockholders, which is scheduled for June 6, 2024. The anticipated record date for the 2024 Annual Meeting is April 11, 2024, and the proxy statement is anticipated to be filed with the Securities and Exchange Commission in late April 2024. This timeline provides sufficient lead time for drafting the charter amendment language, preparing the proxy statement disclosure (including the proposal description, board recommendation, and supporting statement), and coordinating with the Company's proxy solicitor and transfer agent.
Scope of Current Engagement. We note that the drafting of the charter amendment itself is out of scope of the current engagement (C&H Matter No. 1038-00005), which is focused on the bylaws refresh and committee charter revisions. However, the recommendation and proposed timeline are included in this memorandum as part of our comprehensive governance advice, and we recommend that the charter amendment workstream be initiated promptly under a separate engagement letter given the proximity of the anticipated proxy filing date.
Rationale for Adoption. We recommend adoption of officer exculpation for the following reasons:
(i) Recruitment and Retention of Senior Officers. The increasing exposure of corporate officers to personal liability — particularly in light of the expanding Caremark jurisprudence discussed in Part III below — creates meaningful risk that talented executive candidates may decline to serve as officers of public companies absent the protections afforded by exculpation. Adoption of officer exculpation provides a meaningful legal protection that complements the Company's existing D&O insurance program and indemnification provisions, and strengthens CRH's competitive position in attracting and retaining top executive talent in the retail industry.
(ii) Alignment with Market Practice. Since the effective date of the 2022 amendment, a majority of S&P 500 companies have adopted or proposed officer exculpation charter amendments. Among public retail and consumer companies specifically, adoption has accelerated rapidly. Glassman & Torrey's 2023 governance assessment, discussed below, identified officer exculpation as a gap for CRH relative to its peer group. Failure to adopt the provision may place CRH at an increasing competitive disadvantage relative to peers that have already done so.
(iii) Consistency with Existing Director Exculpation. CRH has maintained a director exculpation provision in its charter since 2016 (and, we understand, in predecessor charter documents prior to that date). Extending exculpation to officers is a logical and consistent evolution of the Company's governance framework, and the rationale that supported adoption of director exculpation — namely, encouraging informed risk-taking and protecting fiduciaries against hindsight-driven litigation — applies with equal force to senior officers.
(iv) D&O Insurance Implications. Adoption of officer exculpation may complement CRH's existing directors' and officers' liability insurance coverage maintained through Broadview Insurance Group. The current D&O program provides coverage with policy limits of $50 million per occurrence and $50 million in the aggregate, for the policy period of June 1, 2023 through June 1, 2024. While officer exculpation is not a substitute for D&O insurance, it may over time reduce the frequency and severity of claims against officers, which could have a favorable impact on CRH's insurance costs and coverage terms at future renewal periods.
Proxy Advisory Firm Considerations. ISS and Tarrant Partners LLC — the two leading proxy advisory firms whose vote recommendations significantly influence institutional stockholder voting behavior — have generally evaluated officer exculpation proposals on a case-by-case basis. Factors that these firms typically consider include the company's litigation history, overall governance profile, whether the company has a history of problematic governance practices, and whether the proposed exculpation provision extends beyond the statutory minimum (e.g., to persons not covered by the FCPA officer definition). Given CRH's governance profile and the straightforward nature of the proposed amendment (which would track the statutory language and not extend beyond the permissible scope), we believe that a favorable recommendation from both ISS and Tarrant Partners LLC is reasonably likely, although this assessment is necessarily preliminary and subject to change based on the specific proxy advisory firm policies in effect for the 2024 proxy season.
The Glassman & Torrey governance assessment delivered on December 5, 2023, scored CRH at 58 out of 100 on its proprietary governance scorecard, compared to a peer median score of 67 out of 100 among a group of 18 public retail companies. While the Glassman & Torrey assessment did not penalize CRH for lacking officer exculpation, it noted the absence of an officer exculpation provision as a gap relative to several peer companies that had already adopted or proposed such amendments.
Consideration of Ridgepoint Capital Partners LP's Position. Ridgepoint Capital Partners LP ("Ridgepoint") is a significant stockholder of CRH, holding 3,290,000 shares (approximately 4.7% of the 70,000,000 shares outstanding) as disclosed in its Schedule 13D/A filing with the SEC on November 17, 2023. Ridgepoint's governance reform demands, as articulated in the 13D/A filing, have focused on three specific areas: (i) adoption of majority voting in uncontested director elections, (ii) adoption of proxy access, and (iii) appointment of an independent board chair. Ridgepoint has not publicly opposed officer exculpation, and its counsel, Daniel Orenstein of Whitfield & Pratt LLP, has not raised this issue in any engagement correspondence with the Company or Calderwood & Harkness LLP to date. While we cannot predict Ridgepoint's voting position on an officer exculpation proposal, the absence of any stated opposition — combined with the fact that officer exculpation is generally viewed as a governance best practice rather than an entrenchment device — suggests that this proposal is unlikely to become a point of contention with Ridgepoint.
D. Drafting Considerations for the Charter Amendment
When drafting the charter amendment, the following considerations should be addressed:
• The amendment would modify the existing exculpation clause in Article VIII of the Restated Certificate to add officers (as defined by reference to 15 U.S.C. § 78dd-1(f)(1)) as permissible exculpated persons, tracking the statutory language of amended Section 102(b)(7) as closely as practicable.
• The amendment should expressly incorporate the statutory limitation restricting officer exculpation to direct claims only, excluding derivative claims from the scope of the provision.
• The amendment should include customary language preserving the existing director exculpation provision in its current form, to avoid any implication that the amendment is intended to modify, limit, or supersede the pre-existing protection afforded to directors.
• The amendment should include a "savings clause" providing that, to the fullest extent permitted by future amendments to the DGCL, the exculpation provision shall be interpreted to provide the maximum protection available under law.
• Coordination with the Company's transfer agent, Pennington Shareholder Services LLC, will be required for the mechanics of the stockholder vote, including preparation of the proxy card, tabulation of votes, and filing of the amended Restated Certificate with the Delaware Secretary of State promptly following stockholder approval.
III. Heightened Caremark Oversight Duties — Recent Case Law
A. Foundation: *In re Caremark International Inc. Derivative Litigation* (Del. Ch. 1996) and *Stone v. Ritter* (Del. 2006)
The fiduciary duty of oversight — sometimes referred to as the "Caremark duty" — imposes upon corporate directors an obligation to make a good faith effort to oversee the corporation's operations and to ensure that adequate information and reporting systems exist to bring material compliance and operational risks to the board's attention. The foundational articulation of this duty was set forth by Chancellor Allen in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).
In Caremark, Chancellor Allen explained that director oversight liability can arise in two circumstances:
(a) Prong One — Failure to Implement: The directors utterly failed to implement any reporting or information system or controls; or
(b) Prong Two — Failure to Monitor: Having implemented such a system or controls, the directors consciously failed to monitor or oversee its operations, thus disabling themselves from being informed of risks or problems requiring their attention.
Chancellor Allen emphasized that a Caremark claim is "possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment," because the claim requires a showing that the directors' failure of oversight was so egregious as to constitute bad faith — a demanding standard that goes beyond mere negligence or even gross negligence.
In Stone v. Ritter, 911 A.2d 362 (Del. 2006), the Delaware Supreme Court confirmed and refined the Caremark framework in a critical respect: the Court held that Caremark claims are properly understood as grounded in the fiduciary duty of loyalty, not the duty of care. Specifically, the Court explained that a sustained or systematic failure of the board to exercise oversight — such as an utter failure to attempt to assure a reasonable information and reporting system exists — constitutes a breach of the duty of good faith, which is a subsidiary element of the duty of loyalty. This doctrinal classification has profound practical consequences: because Caremark claims sound in the duty of loyalty, they fall outside the scope of exculpation clauses adopted under Section 102(b)(7), which by their terms cannot eliminate liability for breaches of the duty of loyalty. Accordingly, even where a corporation has adopted a robust exculpation provision covering both directors and officers, its fiduciaries remain fully exposed to potential personal liability under Caremark.
This framework is directly relevant to the design and content of CRH's committee charters and the scope of the compliance oversight mandates assigned to the board and its standing committees. A well-designed committee charter that clearly delineates oversight responsibilities, specifies the types of information and reports that the committee is expected to receive and review, and establishes regular reporting cadences, serves as both a governance best practice and a critical element of a potential defense against a Caremark claim — by evidencing that the board has implemented a reasonable information and reporting system and has consciously and regularly monitored its operations.
B. *In re Harborview & Co. Derivative Litigation* (Del. Ch. 2021)
In re Harborview & Co. Derivative Litigation, C.A. No. 2019-0907-MTZ (Del. Ch. Sept. 7, 2021), is one of the most significant applications of the Caremark framework in recent years and has important implications for the design of board-level oversight structures.
Facts. The Camberwell Holdings case arose out of the two catastrophic crashes of Camberwell Holdings 737 MAX aircraft in October 2018 and March 2019, which killed a combined 346 people. The plaintiff stockholders brought derivative claims against Camberwell Holdings's directors and officers, alleging that the board had failed to adequately oversee airplane safety — a "mission critical" risk for the company. The plaintiffs alleged that the board lacked any committee or management-level reporting system specifically dedicated to the oversight of product safety, and that the board's audit committee, while charged with general risk oversight, had not been specifically tasked with monitoring the safety of Camberwell Holdings's aircraft.
Holding. The Court of Chancery, in a decision by Vice Chancellor Zurn, denied the defendants' motion to dismiss, holding that the plaintiffs had adequately alleged a Caremark claim. The Court found that the complaint supported a reasonable inference that the board had failed under both prongs of the Caremark test: the board had not implemented a reporting system specifically focused on the company's single most important compliance risk (airplane safety), and the board had consciously ignored red flags — including internal reports regarding problems with the 737 MAX's Maneuvering Characteristics Augmentation System (MCAS) — that should have prompted greater scrutiny and oversight.
Key Takeaways for CRH. The Court of Chancery's analysis in Camberwell Holdings emphasized several principles that are directly relevant to the current engagement:
First, the Court underscored the importance of having a board-level committee specifically charged with oversight of "mission critical" risks. Where a company's core business involves specific, identifiable compliance or safety risks, the board should assign explicit oversight responsibility to a standing committee with a charter that memorializes the oversight mandate. A general delegation of "risk oversight" to the audit committee, without more, may be insufficient where the company faces a specific, identifiable category of risk that is central to its business operations.
Second, the Court focused on the existence — or absence — of regular, documented information flows from management to the board regarding the relevant risk area. A committee charter should specify the types of reports that the committee expects to receive, the frequency of such reports, and the management personnel responsible for delivering them.
Third, the Court's analysis confirms that the Caremark duty is not merely a reactive obligation; it requires proactive establishment of oversight structures before a crisis arises. A board that creates a committee or assigns oversight responsibility only after a compliance failure has already occurred may find itself vulnerable to the argument that it failed to satisfy its duties under Caremark Prong One.
Implications for CRH's Committee Structure. CRH operates in multi-channel retail and e-commerce, with business lines spanning specialty apparel, home goods, and outdoor lifestyle products. The Company reported FY2023 revenue of $6.14 billion. While CRH does not face the same category of product safety risk as an aircraft manufacturer, the Company does face several categories of "mission critical" risk that, under the Camberwell Holdings framework, warrant dedicated board-level oversight through standing committees with documented charter mandates:
• Cybersecurity. CRH's significant e-commerce operations — which we understand represent approximately 34% of total revenue — expose the Company to substantial cybersecurity risk, including the risk of data breaches, ransomware attacks, and other cyber incidents that could result in material financial loss, regulatory penalties, and reputational harm. Cybersecurity risk has been increasingly recognized by courts, regulators, and governance commentators as a "mission critical" compliance area warranting dedicated board-level oversight.
• Data Privacy. The Company collects and processes significant volumes of consumer personal data through its e-commerce platforms, loyalty programs, and marketing activities. Compliance with data privacy regulations — including the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), and potentially the European Union's General Data Protection Regulation (GDPR) to the extent of any international operations — is a material compliance obligation.
• Supply Chain Compliance. CRH's global supply chain (spanning apparel, home goods, and outdoor lifestyle products) presents risks related to forced labor, environmental compliance, trade sanctions, and import/export regulations. These risks have been the subject of increasing regulatory and investor scrutiny.
• Consumer Product Safety. The Company's outdoor lifestyle product line in particular may present product safety risks requiring dedicated oversight.
Against this backdrop, the existing ad hoc Technology & Innovation Committee — which was formed by board resolution on September 15, 2022, and is chaired by Dr. Anwar Farouk — presents a significant structural gap. This committee has no formal written charter and therefore does not establish a memorialized oversight mandate of the type that Camberwell Holdings identifies as critical. The absence of a charter means that there is no documented record of the committee's scope of authority, the information and reports it is expected to receive, the management personnel responsible for reporting to it, or the frequency and substance of its oversight activities. This is precisely the type of structural gap that the Court of Chancery found problematic in Camberwell Holdings.
As recommended in the Gap Analysis Memo, we recommend that the ad hoc Technology & Innovation Committee be dissolved and reconstituted as a standing Technology & Cybersecurity Committee with a formal written charter that specifies the committee's oversight mandate, including oversight of cybersecurity programs, IT strategy, data privacy compliance, and artificial intelligence governance. The committee should have a minimum of three independent directors as members.
C. *In re McDonald's Corp. Stockholder Derivative Litigation* (Del. Ch. 2023)
In re McDonald's Corp. Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 25, 2023), represents a further and significant expansion of the Caremark framework, with implications that extend well beyond the specific facts of the case.
Facts. The McDonald's case arose out of allegations that McDonald's directors and officers failed to oversee the company's workplace culture and human capital management, including pervasive sexual harassment complaints at both the corporate and franchise levels. The plaintiffs alleged that the board was aware of systemic workplace misconduct issues — including the high-profile termination of former CEO Steve Easterbrook for a consensual relationship with a subordinate employee and subsequent revelations that the misconduct was far more extensive than initially disclosed — and failed to take adequate remedial steps.
Holding. The Court of Chancery, in a decision by Vice Chancellor Laster, denied in part the defendants' motion to dismiss, allowing Caremark claims to proceed against certain officers and directors. The Court found that the plaintiff had adequately alleged that the board (i) was aware of red flags regarding systemic workplace misconduct, including internal surveys, media reports, and employee complaints that put the board on notice of the problem, and (ii) failed to take adequate remedial steps in response to those red flags. The Court emphasized that the board's knowledge of the red flags, combined with its failure to act, supported a reasonable inference of the kind of conscious disregard that satisfies the demanding Caremark standard.
Key Distinction from *Camberwell Holdings*. Perhaps the most significant aspect of the McDonald's decision is its extension of Caremark analysis to what might be described as "softer" compliance areas — human capital management, workplace culture, and employee conduct — beyond the traditional operational or product safety risks that were at issue in Camberwell Holdings. While Camberwell Holdings involved the failure to oversee airplane safety — a risk with an obvious and direct connection to the company's core business and to public safety — McDonald's involved the failure to oversee workplace culture and human capital management, areas that historically have not been viewed as presenting the same type of concrete, identifiable compliance risk. The McDonald's decision makes clear that the Caremark duty of oversight is not limited to traditional operational or product safety risks but extends to any area of corporate activity that presents material compliance exposure, including human capital and workplace culture.
Implications for CRH. The McDonald's decision has significant implications for CRH in at least two respects:
1. Compensation & Human Capital Committee Charter. CRH's existing Compensation Committee charter (last revised March 2021) does not include explicit human capital management oversight responsibilities, workplace culture monitoring, or employee conduct oversight. In light of McDonald's, the revised charter should include an express mandate for the committee to oversee the Company's human capital management practices, workplace culture and conduct standards, diversity and inclusion initiatives, employee engagement and retention programs, and related compliance matters. The committee should receive regular reports from management — specifically the Chief Human Resources Officer and General Counsel — on workforce metrics, employee complaints, and the status of any investigations or remedial actions related to workplace conduct.
2. Nominating & Corporate Governance Committee Charter. The McDonald's decision reinforces the importance of board-level oversight of environmental, social, and governance ("ESG") and sustainability matters, particularly the "social" component of ESG, which encompasses human capital management, workforce diversity, and community impact. CRH's existing Nominating & Corporate Governance Committee charter (last revised January 2019) lacks any ESG or sustainability mandate. The revised charter should include oversight of ESG and sustainability matters, including both environmental factors (such as the Company's carbon footprint and environmental compliance) and social factors (such as human capital management, diversity and inclusion, and community engagement), consistent with the expanded scope of Caremark duties recognized in McDonald's.
Importance of Information-Reporting Systems. The McDonald's decision also reinforces the critical importance of robust information-reporting systems between management and the board. The Court focused closely on whether the board had received — and, if it had, what it did with — information regarding workplace misconduct. Committee charters should require regular reporting from management on compliance matters within each committee's oversight mandate, including at a minimum quarterly reports and immediate reporting of material developments, investigations, regulatory inquiries, or other events that could represent "red flags" requiring board-level attention. The charters should also specify the management personnel responsible for delivering such reports.
Officer Liability Dimension. The McDonald's case also addressed officer-level Caremark liability, which is particularly notable in the context of the 2022 officer exculpation amendment discussed in Part II above. The Court allowed Caremark claims to proceed against certain officers of McDonald's, not only its directors, reinforcing the principle that officers owe the same fiduciary duties of care and loyalty as directors and are subject to the same Caremark oversight obligations.
This officer liability dimension intersects with the officer exculpation analysis in an important way. As discussed in Part II.B, the amended Section 102(b)(7) permits officer exculpation only for direct claims, not derivative claims. Caremark claims are by their nature derivative claims — they are brought by stockholders on behalf of the corporation, seeking to remedy an injury suffered by the corporation as a result of the board's or officers' failure of oversight. Moreover, Caremark claims are grounded in the duty of loyalty (as confirmed by Stone v. Ritter), not the duty of care. For both of these reasons, officer exculpation under the amended Section 102(b)(7) would not shield CRH's officers from Caremark derivative claims. Even if CRH adopts the recommended officer exculpation charter amendment, the Company's officers will remain fully exposed to potential personal liability under the Caremark framework for failures of oversight.
This underscores the importance of both (a) adopting officer exculpation (to provide protection against direct duty-of-care claims) and (b) implementing robust committee charter mandates and information-reporting systems (to provide a factual foundation for a defense against Caremark derivative claims, should they arise).
D. Practical Implications for CRH Committee Charters
The combined impact of Camberwell Holdings and McDonald's on the four committee charters being revised or adopted as part of this engagement is summarized below. Each committee charter should be designed to reflect the principles articulated in these decisions, with specific and memorialized oversight mandates, clear allocation of responsibilities, and robust reporting requirements.
1. Audit Committee Charter
Current Status: Chaired by Sandra Chen-Watkins; 4 independent members; charter last revised February 2020.
The revised Audit Committee charter should include the following enhancements:
• Caremark-Informed Compliance Oversight Language. The charter should include an explicit mandate for oversight of enterprise risk management, legal and regulatory compliance, and the adequacy of the Company's internal controls over financial reporting and disclosure controls and procedures. While the Audit Committee has traditionally served as the board's primary risk oversight body, the charter should be updated to reflect the heightened expectations articulated in Camberwell Holdings and McDonald's, with specific language identifying the categories of risk that the Audit Committee is expected to oversee and the types of information and reports it expects to receive.
• Cybersecurity Risk Oversight. Consistent with the SEC's cybersecurity disclosure rules adopted in July 2023 — including new Item 106 of Regulation S-K (requiring annual disclosure regarding the registrant's cybersecurity risk management, strategy, and governance) and the new Form 8-K cybersecurity incident disclosure requirements (requiring disclosure of material cybersecurity incidents within four business days of determination of materiality) — the Audit Committee charter should include specific cybersecurity risk oversight responsibilities. These responsibilities should be exercised in coordination with the new Technology & Cybersecurity Committee, with the Audit Committee retaining primary oversight of the financial reporting and disclosure aspects of cybersecurity risk and the Technology & Cybersecurity Committee having primary oversight of the technical and operational dimensions. The charter should delineate the respective responsibilities of the two committees to avoid gaps or overlaps.
• Enhanced Whistleblower Procedures. The charter should include enhanced provisions regarding the Audit Committee's oversight of the Company's whistleblower hotline and mechanisms for the confidential, anonymous submission of concerns regarding questionable accounting, internal controls, auditing matters, or other compliance issues. The charter should require the Audit Committee to receive regular reports — at least quarterly — on the volume, nature, and disposition of whistleblower complaints.
• Independent Auditor Oversight. The charter should reference the Audit Committee's oversight relationship with the Company's independent registered public accounting firm, Mercer & Holloway LLP (lead engagement partner Philip Tanaka), which has served as CRH's auditor since FY2018. The charter should include customary provisions regarding the committee's authority and responsibility for the appointment, compensation, retention, and oversight of the independent auditor, as well as pre-approval of audit and non-audit services.
2. Compensation & Human Capital Committee Charter
Current Status: Chaired by Robert "Rob" Elliston; 3 independent members; charter last revised March 2021.
The revised charter should include the following enhancements:
• Human Capital Management Oversight. Directly responsive to the McDonald's decision, the charter should include an explicit mandate for oversight of the Company's human capital management practices, including workforce composition, talent acquisition and retention, employee engagement, succession planning (below the CEO level), workplace culture and conduct standards, diversity and inclusion programs, and employee health and safety. The committee should receive regular reports from the Chief Human Resources Officer and General Counsel on workforce metrics and any significant human capital developments.
• Pay-Versus-Performance Disclosure Oversight. Consistent with the SEC's pay-versus-performance disclosure rules, which became effective for CRH beginning with its FY2022 proxy statement, the charter should include oversight responsibility for the Company's pay-versus-performance disclosure, including review of the relationships between executive compensation actually paid and the Company's financial performance, total shareholder return, and peer group total shareholder return.
• Clawback Policy Administration. Consistent with the Nasdaq listing rule regarding compensation recovery policies, which became effective on October 2, 2023, the charter should assign to the Compensation & Human Capital Committee responsibility for administration of the Company's clawback policy, including determinations regarding the recovery of erroneously awarded incentive-based compensation in the event of an accounting restatement.
• Regular Management Reporting. The charter should require regular management reporting on workforce and human capital metrics, including at a minimum quarterly reports and immediate reporting of material developments such as significant employee complaints, government investigations, litigation, or regulatory inquiries related to workplace conduct.
3. Nominating & Corporate Governance Committee Charter
Current Status: Chaired by Margaret "Meg" Holliday; 3 independent members; charter last revised January 2019.
The revised charter should include the following enhancements:
• ESG/Sustainability Oversight Mandate. The charter should include an explicit mandate for oversight of the Company's ESG and sustainability strategy and practices, including both environmental factors (carbon footprint, environmental regulatory compliance, sustainability targets) and social factors (human capital management, diversity and inclusion at the board level, community engagement, supply chain responsibility). This mandate is directly responsive to the McDonald's decision's recognition that "social" compliance areas, including human capital management, fall within the scope of the Caremark duty of oversight.
• Board Refreshment and Skills Matrix Review. The charter should include responsibility for oversight of the board refreshment process, including the maintenance and periodic review of a board skills matrix identifying the competencies, experiences, and attributes that the board believes are important for its effective functioning and for oversight of the Company's business and strategy.
• Annual Board and Committee Self-Evaluation. The charter should require the committee to oversee an annual self-evaluation process for the board and each of its standing committees, consistent with the ISS and Tarrant Partners LLC 2024 proxy season policy expectations. Both ISS and Tarrant Partners LLC have increasingly focused on the rigor and transparency of board self-evaluation processes as a governance quality indicator, and the inclusion of a formal self-evaluation mandate in the charter will support a favorable governance assessment.
4. Technology & Cybersecurity Committee Charter (New Standing Committee)
Current Status: No formal committee exists. An ad hoc Technology & Innovation Committee was formed by board resolution on September 15, 2022, without a written charter. Dr. Anwar Farouk has been designated as an initial member.
The new charter should include the following elements:
• Formalization as a Standing Committee. The charter should formally establish the Technology & Cybersecurity Committee as a standing committee of the board, with a minimum of three independent directors as members. This formalization is directly responsive to the Camberwell Holdings mandate that "mission critical" risks be assigned to a standing committee with a documented oversight mandate. The ad hoc Technology & Innovation Committee formed on September 15, 2022 should be dissolved upon the establishment of the new standing committee.
• Scope of Oversight. The charter should define the committee's scope of oversight to include:
• IT strategy and technology innovation;
• Cybersecurity programs, policies, and incident response plans;
• Data privacy compliance (including compliance with the CCPA/CPRA and other applicable data privacy regulations);
• Artificial intelligence governance, including the Company's use of AI and machine learning technologies in its e-commerce, marketing, supply chain, and other operations;
• Oversight of the Company's Chief Information Officer and Chief Information Security Officer (or equivalent positions) in connection with the foregoing matters.
• Coordination with the Audit Committee. The charter should specify the allocation of cybersecurity-related oversight responsibilities between the Technology & Cybersecurity Committee and the Audit Committee, with the Technology & Cybersecurity Committee having primary responsibility for the technical and operational aspects of cybersecurity risk and the Audit Committee retaining primary responsibility for the financial reporting, disclosure, and internal controls aspects.
• Dissolution of Ad Hoc Committee. The charter or an accompanying board resolution should formally dissolve the ad hoc Technology & Innovation Committee and transfer its functions and oversight responsibilities to the new standing committee.
IV. DGCL § 110 — Emergency Bylaws
A. Statutory Framework
Section 110 of the DGCL authorizes Delaware corporations to adopt emergency bylaws that become operative during an "emergency," which is defined as any condition that makes it not practicable for the corporation to conduct its business in conformity with its regular bylaws. The concept of an "emergency" under Section 110 is broadly construed and may encompass a wide range of circumstances, including natural disasters, pandemics, acts of terrorism, cyberattacks, civil disturbances, or other events that disrupt normal corporate operations and governance processes.
Emergency bylaws adopted pursuant to Section 110 may include provisions addressing any or all of the following matters:
• Quorum Requirements. Emergency bylaws may reduce the quorum requirements for meetings of the board of directors and committees of the board below the levels established in the corporation's regular bylaws. This is a critical flexibility, as an emergency may make it impossible to assemble a quorum of directors — for example, if directors are incapacitated, unable to communicate, or otherwise unavailable.
• Alternative Meeting Procedures. Emergency bylaws may establish alternative procedures for calling and conducting meetings of the board and committees, including relaxation of notice requirements and authorization for meetings to be held by any practicable means of communication (including telephone, videoconference, or other electronic means).
• Designation of Additional or Substitute Directors. Emergency bylaws may authorize the designation of additional or substitute directors to serve during an emergency, addressing the possibility that one or more sitting directors may be unable to serve.
• Relocation of Principal Office. Emergency bylaws may authorize the relocation of the corporation's principal office or the designation of alternative offices for the conduct of business during an emergency.
• Lines of Succession for Officers. Emergency bylaws may establish lines of succession for officers, designating the order in which officers or other individuals shall assume the duties and authority of an incapacitated or unavailable officer.
Importantly, Section 110 provides that emergency bylaws may be adopted by the board of directors and do not require stockholder approval. This is a significant procedural advantage, as it allows the board to act unilaterally to adopt emergency bylaws without the delay and expense of a stockholder vote.
Section 110 further provides that no officer, director, employee, or agent of the corporation shall be liable for actions taken in good faith in accordance with emergency bylaws. This statutory safe harbor provides important protection for fiduciaries who are called upon to make difficult decisions under emergency conditions, when perfect compliance with regular governance procedures may be impossible.
B. Current CRH Status
CRH's Amended and Restated Bylaws (last amended May 14, 2019) consist of 38 sections organized across 8 articles. The bylaws do not include any emergency bylaws provisions. This gap was identified in the Gap Analysis Memo dated January 29, 2024, and the adoption of emergency bylaws is included among the recommended actions in the current engagement.
The absence of emergency bylaws provisions means that, in the event of an emergency (such as a pandemic, natural disaster, or cyberattack), CRH would be required to comply with its regular bylaws — including standard quorum requirements, notice requirements, and meeting procedures — even if circumstances made such compliance impracticable. This could result in the board being unable to convene a meeting, take necessary corporate action, or ensure continuity of management and operations during a crisis.
C. Recommended Approach
We recommend that a new Article IX be added to the Amended and Restated Bylaws, containing emergency bylaws provisions consistent with DGCL § 110. The recommended provisions include the following:
• Definition of "Emergency." The emergency bylaws should define "emergency" in terms consistent with the statutory language: any condition (including a natural disaster, attack on the United States, pandemic, epidemic, or similar event) in which the board of directors determines, or it is otherwise apparent, that it is not practicable for the Corporation to conduct its business in the ordinary course in conformity with its regular bylaws.
• Reduced Quorum. During an emergency, any one director present in person or by remote communication shall constitute a quorum for the transaction of business at any meeting of the board of directors or any committee thereof. This provision ensures that the board can take action even if only a single director is available — a critical flexibility in extreme circumstances.
• Alternative Meeting Procedures. During an emergency, meetings of the board of directors or any committee thereof may be called by any officer or director of the Corporation. Notice of any such meeting may be given by any practicable means, including telephone, electronic mail, or other electronic communication, and shall be given to such of the directors as it may be feasible to reach. The notice need not comply with the regular notice provisions of the bylaws. Meetings may be held at any location designated by the person calling the meeting or by means of remote communication.
• Designation of Emergency Officers and Succession. During an emergency, the board of directors may designate lines of succession for officers and may delegate to one or more officers such authority as the board deems necessary or appropriate for the management of the Corporation's affairs during the emergency. The board may also designate additional or substitute directors to serve during the emergency.
• Good Faith Safe Harbor. Actions taken in good faith by any officer, director, employee, or agent of the Corporation during an emergency and in accordance with the emergency bylaws shall be binding upon the Corporation and shall not be used to impose liability upon any such person.
• Automatic Expiration. The emergency bylaws shall cease to be operative when the board of directors determines, or it is otherwise apparent, that the emergency condition no longer exists and the Corporation is able to conduct its business in conformity with its regular bylaws.
Best-Practice Context. Adoption of emergency bylaws has become increasingly common among public companies, particularly since the COVID-19 pandemic highlighted the importance of business continuity planning and the risks associated with the inability to convene board meetings under normal procedures. Neither ISS nor Tarrant Partners LLC penalizes the adoption of emergency bylaws, and many governance commentators — including the Society for Corporate Governance, the National Association of Corporate Directors, and leading law firms — affirmatively recommend adoption. The inclusion of emergency bylaws in CRH's Amended and Restated Bylaws will bring the Company's governance framework into alignment with current best practices and will ensure that the board has the flexibility to act decisively in the event of an unforeseen crisis.
V. Interaction of Legal Developments with CRH's Broader Governance Refresh
A. Context: The 2023 Contested Election and Activist Engagement
The current governance refresh engagement was prompted by several catalysts, the most significant of which were the contested director election at CRH's June 8, 2023 Annual Meeting of Stockholders and the subsequent activist engagement by Ridgepoint Capital Partners LP. A brief recap of these events provides important context for understanding how the Delaware law developments discussed in this memorandum fit within the broader governance refresh.
At the June 8, 2023 Annual Meeting, Ridgepoint nominated Franklin Gu as an alternative candidate for election to the board. Although Mr. Gu was not elected, the vote results revealed significant stockholder concern regarding CRH's governance practices: management nominee David Hargrove received only 54.1% of votes cast, while Mr. Gu received 38.2% of votes cast (with the remainder abstaining or withheld). This near-miss result — in which the management nominee prevailed by a margin of less than sixteen percentage points under CRH's plurality voting standard — underscored the vulnerability of the Company's governance framework and the depth of stockholder dissatisfaction.
Following the annual meeting, Ridgepoint escalated its engagement. On November 17, 2023, Ridgepoint filed a Schedule 13D/A with the SEC disclosing its ownership of 3,290,000 shares (approximately 4.7% of the 70,000,000 shares outstanding) and articulating three specific governance reform demands: (i) adoption of a majority voting standard for uncontested director elections, (ii) adoption of proxy access, and (iii) appointment of an independent board chair.
Separately, the Glassman & Torrey governance assessment, delivered on December 5, 2023, scored CRH at 58 out of 100 on its proprietary governance scorecard — substantially below the peer median score of 67 out of 100 among an 18-company peer group of publicly traded retail companies. The Glassman & Torrey assessment identified multiple governance gaps, including the absence of majority voting, proxy access, an exclusive forum provision, emergency bylaws, a formalized cybersecurity oversight committee, and officer exculpation.
While the contested election and activist engagement are the most visible catalysts for the governance refresh, the Delaware law developments discussed in this memorandum provide independent, substantive justification for many of the governance changes being recommended. These legal developments demonstrate that the recommended changes are not merely responsive to stockholder pressure but are grounded in evolving legal standards and best practices that CRH's board has an obligation to consider and address.
B. How the Legal Developments Inform the Bylaws Changes
The bylaws changes being developed as part of this engagement are informed by the Delaware law developments discussed in this memorandum in the following ways:
Majority Voting in Uncontested Director Elections. The adoption of majority voting for uncontested director elections is not directly driven by the case law developments discussed in this memorandum. However, it is reinforced by the broader governance ecosystem in which the Caremark and officer exculpation developments exist. Under a majority voting standard, a director who fails to receive the affirmative vote of a majority of the shares cast would be required to tender his or her resignation to the board, which would then decide whether to accept or reject the resignation. Had majority voting been in effect at the June 8, 2023 Annual Meeting, David Hargrove's 54.1% share of votes cast would still have exceeded the majority threshold. However, the margin of support would have been far more scrutinized under a majority voting regime, and any further erosion of support in future elections could have a dramatically different outcome.
Proxy Access. The proposed proxy access provision — providing for 3% ownership for 3 years, with the right to nominate the greater of 2 nominees or 20% of the board — is similarly not directly driven by the DGCL amendments or case law discussed here, but forms part of the comprehensive governance refresh. Under the proposed proxy access framework, Ridgepoint — which holds 3,290,000 shares (4.7%), well in excess of the 3% threshold of 2,100,000 shares — would have standing to nominate up to 2 proxy access candidates (20% of 11 directors = 2.2, rounded down to 2).
Forum Selection Clause. The proposed exclusive Delaware forum bylaw is directly informed by the desire to ensure that Caremark and other fiduciary duty claims are adjudicated in the Court of Chancery of the State of Delaware — the court with the deepest expertise in these matters and the court in which the Caremark, Camberwell Holdings, and McDonald's decisions were rendered. The proposed provision would designate the Court of Chancery as the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Corporation to the Corporation or its stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL or the Corporation'

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