1038-00006 · Calderwood & Harkness LLP · Client Reporting

letter-keypoint-material-litigation.docx DOCUMENT Finance & Banking

2 / 79 ← → ✕

Contract analysis Extract to table

CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Counselors at Law

1301 K Street NW, Suite 1200 Washington, DC 20005

Telephone: (202) 555-8400 Facsimile: (202) 555-8401 www.calderwoodharkness.com

Bernard Crawford Partner Direct: (202) 555-8437 bcrawford@calderwoodharkness.com

April 14, 2025

VIA EMAIL AND OVERNIGHT COURIER

Keypoint National Bank, N.A. as Administrative Agent

Attn: Credit Administration / Agency Services

1111 Second Avenue Seattle, WA 98101

Re: Cascade Retail Holdings Inc. – Notice Pursuant to Section 6.02(c) of Credit Agreement – Resolution of Material Litigation Matter No.: 1038-00006

Dear Sir or Madam:

We write on behalf of our client, Cascade Retail Holdings Inc. ("CRH" or the "Borrower"), a Delaware corporation with its principal executive offices located at 2200 Elliott Avenue West, Suite 3400, Seattle, Washington 98119, publicly traded on the Nasdaq Global Select Market under the ticker symbol CRHL (EIN 91-2847351). Calderwood & Harkness LLP serves as outside litigation counsel to CRH in connection with the matter described herein.

This letter is delivered to Keypoint National Bank, N.A. ("Keypoint" or the "Administrative Agent"), in its capacity as Administrative Agent under and pursuant to Section 6.02(c) (Material Litigation Reporting) of that certain Credit Agreement, dated as of June 15, 2023 (as amended by that First Amendment to Credit Agreement dated November 22, 2023, and as further amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among CRH, as Borrower, the Lenders from time to time party thereto, and Keypoint National Bank, N.A., as Administrative Agent, governing CRH's $750,000,000 senior unsecured revolving credit facility (the "Facility"). Capitalized terms used but not otherwise defined in this letter have the meanings ascribed to them in the Credit Agreement.

This notice provides an update and resolution notification with respect to a litigation matter previously disclosed to Keypoint in accordance with the material litigation reporting obligations set forth in Section 6.02(c) of the Credit Agreement. Specifically, this letter confirms the settlement and resolution of the litigation described below and provides the Administrative Agent with a summary of the material terms of such resolution, an assessment of the financial impact to CRH, and confirmations regarding the absence of any Material Adverse Effect.

1. Background and Reference to Prior Notification

As the Administrative Agent is aware, on or about March 6, 2025, CRH provided written notice to Keypoint (delivered by Theresa Yun-Park, General Counsel of CRH, with a copy to Calderwood & Harkness LLP) regarding the filing of a Verified Complaint and Motion for Temporary Restraining Order in the Delaware Court of Chancery on March 5, 2025. That action is styled Cascade Retail Holdings Inc. v. Priya Rathore, James T. Ellison, Nadia Sokolova, Derek Huang, Martina Caldwell, Reginald Owens, Kristen Fairbanks, and Samuel Nazarian, individually, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ (Del. Ch.), assigned to Vice Chancellor Margaret T. Zhao (the "Chancery Action").

The Chancery Action arose from the following circumstances. On February 7, 2025, eight senior merchandising employees of CRH tendered coordinated resignations and subsequently joined Verdana Commerce Group, Inc. ("Verdana"), a publicly traded direct competitor of CRH in the retail and e-commerce sector. The departing employees were led by Priya Rathore, who at the time of her resignation held the position of Senior Vice President of Merchandising at CRH, a role in which she had direct oversight of vendor relationships, category management, private-label product development, and pricing strategy across CRH's merchandising division. Each of the eight departing employees was a party to written restrictive covenant agreements with CRH, containing non-competition, non-solicitation, and confidentiality obligations. In addition, CRH's internal forensic investigation, conducted with the assistance of Pinnacle Forensics LLC and CRH's information security team, revealed that certain of the departing employees had, in the weeks preceding their resignations, accessed, downloaded, and exfiltrated confidential and proprietary company data, including vendor pricing schedules, private-label sourcing matrices, seasonal merchandising plans, and customer analytics models.

The Verified Complaint asserted the following causes of action: (1) breach of restrictive covenant agreements (against all eight individual defendants); (2) breach of confidentiality obligations (against all eight individual defendants); (3) misappropriation of trade secrets under the Delaware Uniform Trade Secrets Act, 6 Del. C. § 2001 et seq. ("DUTSA") (against all eight individual defendants and Verdana); (4) tortious interference with contractual relations (against Verdana); and (5) civil conspiracy (against all defendants jointly).

On March 7, 2025, Vice Chancellor Zhao granted CRH's application for a Temporary Restraining Order (the "TRO"), which, among other things, enjoined the individual defendants from performing competitive activities in specified product categories on behalf of Verdana and required the immediate sequestration and preservation of all CRH-sourced data in the possession, custody, or control of any defendant. In connection with the issuance of the TRO, CRH was required to and did post an injunction bond in the amount of $2,500,000 through Broadview Surety Corp. (Bond No. BSC-2025-TRO-04419) (the "Injunction Bond").

CRH's prior notification to Keypoint identified the Chancery Action as potentially material litigation within the meaning of Section 6.02(c) of the Credit Agreement, given the seniority of the departing personnel, the volume and sensitivity of the exfiltrated data, and the potential for disruption to CRH's merchandising operations.

2. Settlement Resolution

We are pleased to advise the Administrative Agent that, as of the date of this letter, the Chancery Action has been resolved through a negotiated settlement. On April 14, 2025, CRH, each of the eight individual defendants (Priya Rathore, James T. Ellison, Nadia Sokolova, Derek Huang, Martina Caldwell, Reginald Owens, Kristen Fairbanks, and Samuel Nazarian), and Verdana Commerce Group, Inc. executed a Standstill and Settlement Agreement (the "Settlement Agreement") resolving all claims asserted in C.A. No. 2025-0198-MTZ and releasing all related counterclaims and potential cross-claims among the parties.

Concurrently with execution of the Settlement Agreement, counsel for all parties filed a Stipulation of Settlement and a proposed Consent Order (the "Consent Order") with the Delaware Court of Chancery. The Consent Order incorporates the material terms of the Settlement Agreement, including modified restrictive covenant obligations applicable to each individual defendant, as well as data return and destruction obligations and compliance monitoring provisions, each as described in greater detail below. Based on communications with the Court's chambers, CRH anticipates that Vice Chancellor Zhao will enter the Consent Order on or before April 25, 2025.

In addition, a joint motion to dissolve the Temporary Restraining Order has been filed with the Court and is expected to be granted upon entry of the Consent Order. CRH does not anticipate any opposition to the dissolution of the TRO.

3. Summary of Key Settlement Terms

For the convenience of the Administrative Agent and the Lenders, the following summarizes the material terms of the Settlement Agreement. This summary is qualified in its entirety by reference to the executed Settlement Agreement, the Stipulation of Settlement, and the proposed Consent Order, copies of which are available upon request subject to certain confidentiality restrictions as described below.

3.1 Monetary Recovery

Verdana has agreed to pay CRH a lump-sum cash settlement in the amount of $8,750,000, payable by wire transfer of immediately available funds to an account designated by CRH within thirty (30) calendar days following the date of execution of the Settlement Agreement (i.e., on or before May 14, 2025). In addition, Verdana has agreed to reimburse CRH in the amount of $425,000 toward CRH's out-of-pocket litigation costs and expenses incurred in connection with the Chancery Action, payable on the same timeline and terms as the primary settlement payment.

3.2 Equity Forfeitures

As a condition of settlement, each of the eight individual defendants has agreed to the forfeiture of unvested equity awards previously granted under the Cascade Retail Holdings Inc. 2021 Omnibus Incentive Plan (the "Equity Plan") and the clawback of certain previously vested equity awards, totaling approximately $849,500 in the aggregate. Of this amount, approximately $362,500 is attributable to Priya Rathore's forfeited and clawed-back awards, and approximately $487,000 is attributable to the aggregate forfeited and clawed-back awards of the remaining seven individual defendants. These forfeitures and clawbacks will be effectuated through amendments to the applicable award agreements and are expected to be reflected in CRH's equity compensation disclosures in its next quarterly report on Form 10-Q.

3.3 Total Economic Recovery

Taking into account all components of the settlement, the aggregate economic recovery to CRH is approximately $10,024,500, consisting of the following:

3.4 Modified Restrictive Covenants

The Settlement Agreement and Consent Order impose modified non-competition and non-solicitation restrictions on the individual defendants, as follows:

Non-Competition Restrictions. Priya Rathore is subject to a twelve (12)-month non-competition restriction commencing on the date of her resignation (February 7, 2025) and extending through February 6, 2026. The remaining seven individual defendants are subject to nine (9)-month non-competition restrictions commencing on their respective resignation dates (each also February 7, 2025) and extending through November 6, 2025. The non-competition obligations are limited to activities directly competitive with CRH in three specified product categories: (i) home goods, (ii) seasonal décor, and (iii) private-label apparel. The individual defendants are not restricted from performing services for Verdana or any other entity in product categories outside these three specified areas.

Employee Non-Solicitation. Each individual defendant is subject to an eighteen (18)-month employee non-solicitation restriction extending through August 6, 2026, prohibiting the solicitation, recruitment, or inducement of any current employee of CRH or any of its subsidiaries for employment or engagement by Verdana or any other competitor.

Vendor Non-Solicitation. Each individual defendant is subject to a twelve (12)-month vendor non-solicitation restriction extending through February 6, 2026, prohibiting contact with or solicitation of CRH's top fifty (50) vendors by revenue (as identified in a confidential schedule to the Settlement Agreement) for the purpose of diverting, redirecting, or otherwise interfering with CRH's existing vendor relationships.

3.5 Data Return and Destruction

The Settlement Agreement requires that all exfiltrated confidential and proprietary data of CRH — identified through CRH's forensic investigation as comprising approximately 14,327 files totaling approximately 2.8 gigabytes — be returned to CRH or certified as permanently destroyed within ten (10) business days following the date of execution of the Settlement Agreement. Each individual defendant is required to provide a sworn certification of compliance.

In addition, Verdana has agreed, at its sole expense (subject to a cost cap of $175,000), to submit to an independent forensic audit of its information technology systems to be conducted by Pinnacle Forensics LLC, a nationally recognized digital forensics firm previously engaged by CRH in this matter. The purpose of the forensic audit is to confirm the complete return, deletion, and non-retention of all CRH-sourced data across Verdana's networks, devices, cloud storage, and backup systems. Pinnacle Forensics LLC will issue a written certification of its findings, a copy of which will be provided to CRH and to the independent compliance monitor described below.

3.6 Compliance Monitoring

The parties have jointly appointed Aldwyn Compliance Solutions LLC, a compliance consulting firm based in Philadelphia, Pennsylvania, as an independent compliance monitor (the "Monitor") for a twelve (12)-month term commencing upon entry of the Consent Order. The Monitor will be responsible for verifying compliance by the individual defendants and Verdana with the modified restrictive covenant obligations and data destruction requirements set forth in the Settlement Agreement and Consent Order. The Monitor will have authority to conduct periodic reviews, request documentation, and report to the Court any instances of non-compliance.

The estimated cost of the compliance monitoring engagement is $360,000 over the twelve-month term, which will be shared between the parties as follows: sixty percent (60%), or approximately $216,000, to be borne by Verdana, and forty percent (40%), or approximately $144,000, to be borne by CRH.

3.7 Consent Order and Continuing Court Jurisdiction

The Delaware Court of Chancery will retain jurisdiction over the parties and the subject matter of the Chancery Action for the purpose of enforcing the terms of the Consent Order during the compliance monitoring period. Any alleged breach of the Consent Order may be brought before the Court on an expedited basis.

4. Financial Impact Assessment and Confirmation of No Material Adverse Effect

CRH's management, in consultation with its financial advisors and counsel, has evaluated the financial impact of both the underlying events giving rise to the Chancery Action and the settlement resolution on CRH's financial condition, results of operations, and ability to perform its obligations under the Credit Agreement and all related Loan Documents.

As previously disclosed, CRH accrued a litigation contingency reserve of $3,500,000 in the first quarter of fiscal year 2025 in connection with the Chancery Action and the potential for adverse outcomes, including the risk of unsuccessful injunctive relief, the possibility of counterclaims by the defendants, and litigation costs. In light of the favorable settlement outcome, CRH intends to adjust this reserve in its financial reporting for the second quarter of fiscal year 2025 to reflect the net positive economic result of the settlement.

For context, CRH reported total revenue of approximately $6.82 billion for fiscal year 2024, with EBITDA of approximately $587 million and total assets of approximately $8.4 billion as of the most recent audited financial statements. CRH's approximate market capitalization as of the last trading day in February 2025 was approximately $4.1 billion. In relation to these figures, the aggregate economic recovery to CRH of approximately $10,024,500 represents a net positive result and a favorable resolution of the dispute.

Based on the foregoing, and in the judgment of the Borrower and its counsel, we confirm that:

(a) The resolution of the Chancery Action does not constitute, and is not reasonably likely to result in, a "Material Adverse Effect" as that term is defined in Section 1.01 of the Credit Agreement, on CRH's business, properties, operations, financial condition, or ability to perform its obligations under the Credit Agreement or any related Loan Document.

(b) No Default or Event of Default under the Credit Agreement has occurred or is continuing as a result of the matters described in this letter.

(c) All representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents remain true and correct in all material respects (or, to the extent qualified by materiality, in all respects) as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct in all material respects (or, as applicable, in all respects) as of such earlier date.

We further confirm that CRH's merchandising operations have been stabilized under the interim leadership of Martin Cho, Vice President of Merchandising, who has been serving in the capacity of Interim Senior Vice President, Merchandising since February 10, 2025. Mr. Cho has been with CRH for over eleven years and has deep institutional knowledge of CRH's merchandising function. CRH is conducting a comprehensive search for a permanent successor to the SVP, Merchandising role and does not anticipate material operational disruption to its merchandising division going forward. Vendor relationships across the affected product categories have been maintained, and CRH has not experienced any material loss of vendor accounts attributable to the departures.

5. Status of Injunction Bond

Upon entry of the Consent Order by Vice Chancellor Zhao and the resulting dissolution of the Temporary Restraining Order, CRH intends to seek the prompt discharge of the $2,500,000 Injunction Bond (Bond No. BSC-2025-TRO-04419) posted through Broadview Surety Corp. Based on the terms of the Settlement Agreement and the absence of any counterclaim or claim for wrongful injunction by any defendant, CRH does not anticipate any liability under the Injunction Bond and expects the bond to be fully exonerated and returned without any draw or claim. CRH will notify the Administrative Agent if any issue arises with respect to the discharge of the Injunction Bond, though none is anticipated.

6. Request for Confirmation

CRH respectfully requests that Keypoint National Bank, N.A., as Administrative Agent, acknowledge receipt of this notice and confirm that no further action is required from CRH under Section 6.02(c) of the Credit Agreement with respect to the Chancery Action and the matters described herein. To the extent the Administrative Agent or any Lender under the Facility requires any supplemental information, documentation, or clarification in connection with the foregoing, CRH will promptly provide such materials as may be reasonably requested.

7. Contact Information

Any questions, requests for additional information, or correspondence relating to the matters described in this letter should be directed to:

Bernard Crawford Partner Calderwood & Harkness LLP 1301 K Street NW, Suite 1200 Washington, DC 20005 Telephone: (202) 555-8437

Email: bcrawford@calderwoodharkness.com

Theresa Yun-Park General Counsel Cascade Retail Holdings Inc. 2200 Elliott Avenue West, Suite 3400 Seattle, WA 98119 Telephone: (206) 555-7200

Email: tyunpark@cascaderetail.com

We appreciate the Administrative Agent's attention to this matter and trust that the foregoing provides a thorough account of the resolution of this litigation. CRH remains committed to full compliance with its reporting and notification obligations under the Credit Agreement and values its relationship with Keypoint and the Lenders.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner

Enclosures: None. Copies of the executed Standstill and Settlement Agreement, the filed Stipulation of Settlement, and the proposed Consent Order are available upon request, subject to confidentiality restrictions contained therein.

cc:

Theresa Yun-Park, General Counsel, Cascade Retail Holdings Inc. Renata Vasquez, Partner, Calderwood & Harkness LLP

This letter and any attachments hereto are confidential and may contain information protected by the attorney-client privilege and/or the work product doctrine. This letter is intended solely for the use of the addressee and is delivered for the purpose of providing notice under the Credit Agreement. Any unauthorized review, use, disclosure, or distribution is prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.

Component	Amount
Cash settlement payment (from Verdana)	$8,750,000
Equity forfeitures and clawbacks (individual defendants)	$849,500
Litigation cost reimbursement (from Verdana)	$425,000
Total Economic Recovery	$10,024,500

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Counselors at Law
1301 K Street NW, Suite 1200 Washington, DC 20005
Telephone: (202) 555-8400 Facsimile: (202) 555-8401 www.calderwoodharkness.com
Bernard Crawford Partner Direct: (202) 555-8437 bcrawford@calderwoodharkness.com
April 14, 2025
VIA EMAIL AND OVERNIGHT COURIER
Keypoint National Bank, N.A. as Administrative Agent
Attn: Credit Administration / Agency Services
1111 Second Avenue Seattle, WA 98101
Re: Cascade Retail Holdings Inc. – Notice Pursuant to Section 6.02(c) of Credit Agreement – Resolution of Material Litigation Matter No.: 1038-00006
Dear Sir or Madam:
We write on behalf of our client, Cascade Retail Holdings Inc. ("CRH" or the "Borrower"), a Delaware corporation with its principal executive offices located at 2200 Elliott Avenue West, Suite 3400, Seattle, Washington 98119, publicly traded on the Nasdaq Global Select Market under the ticker symbol CRHL (EIN 91-2847351). Calderwood & Harkness LLP serves as outside litigation counsel to CRH in connection with the matter described herein.
This letter is delivered to Keypoint National Bank, N.A. ("Keypoint" or the "Administrative Agent"), in its capacity as Administrative Agent under and pursuant to Section 6.02(c) (Material Litigation Reporting) of that certain Credit Agreement, dated as of June 15, 2023 (as amended by that First Amendment to Credit Agreement dated November 22, 2023, and as further amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among CRH, as Borrower, the Lenders from time to time party thereto, and Keypoint National Bank, N.A., as Administrative Agent, governing CRH's $750,000,000 senior unsecured revolving credit facility (the "Facility"). Capitalized terms used but not otherwise defined in this letter have the meanings ascribed to them in the Credit Agreement.
This notice provides an update and resolution notification with respect to a litigation matter previously disclosed to Keypoint in accordance with the material litigation reporting obligations set forth in Section 6.02(c) of the Credit Agreement. Specifically, this letter confirms the settlement and resolution of the litigation described below and provides the Administrative Agent with a summary of the material terms of such resolution, an assessment of the financial impact to CRH, and confirmations regarding the absence of any Material Adverse Effect.
1. Background and Reference to Prior Notification
As the Administrative Agent is aware, on or about March 6, 2025, CRH provided written notice to Keypoint (delivered by Theresa Yun-Park, General Counsel of CRH, with a copy to Calderwood & Harkness LLP) regarding the filing of a Verified Complaint and Motion for Temporary Restraining Order in the Delaware Court of Chancery on March 5, 2025. That action is styled Cascade Retail Holdings Inc. v. Priya Rathore, James T. Ellison, Nadia Sokolova, Derek Huang, Martina Caldwell, Reginald Owens, Kristen Fairbanks, and Samuel Nazarian, individually, and Verdana Commerce Group, Inc., C.A. No. 2025-0198-MTZ (Del. Ch.), assigned to Vice Chancellor Margaret T. Zhao (the "Chancery Action").
The Chancery Action arose from the following circumstances. On February 7, 2025, eight senior merchandising employees of CRH tendered coordinated resignations and subsequently joined Verdana Commerce Group, Inc. ("Verdana"), a publicly traded direct competitor of CRH in the retail and e-commerce sector. The departing employees were led by Priya Rathore, who at the time of her resignation held the position of Senior Vice President of Merchandising at CRH, a role in which she had direct oversight of vendor relationships, category management, private-label product development, and pricing strategy across CRH's merchandising division. Each of the eight departing employees was a party to written restrictive covenant agreements with CRH, containing non-competition, non-solicitation, and confidentiality obligations. In addition, CRH's internal forensic investigation, conducted with the assistance of Pinnacle Forensics LLC and CRH's information security team, revealed that certain of the departing employees had, in the weeks preceding their resignations, accessed, downloaded, and exfiltrated confidential and proprietary company data, including vendor pricing schedules, private-label sourcing matrices, seasonal merchandising plans, and customer analytics models.
The Verified Complaint asserted the following causes of action: (1) breach of restrictive covenant agreements (against all eight individual defendants); (2) breach of confidentiality obligations (against all eight individual defendants); (3) misappropriation of trade secrets under the Delaware Uniform Trade Secrets Act, 6 Del. C. § 2001 et seq. ("DUTSA") (against all eight individual defendants and Verdana); (4) tortious interference with contractual relations (against Verdana); and (5) civil conspiracy (against all defendants jointly).
On March 7, 2025, Vice Chancellor Zhao granted CRH's application for a Temporary Restraining Order (the "TRO"), which, among other things, enjoined the individual defendants from performing competitive activities in specified product categories on behalf of Verdana and required the immediate sequestration and preservation of all CRH-sourced data in the possession, custody, or control of any defendant. In connection with the issuance of the TRO, CRH was required to and did post an injunction bond in the amount of $2,500,000 through Broadview Surety Corp. (Bond No. BSC-2025-TRO-04419) (the "Injunction Bond").
CRH's prior notification to Keypoint identified the Chancery Action as potentially material litigation within the meaning of Section 6.02(c) of the Credit Agreement, given the seniority of the departing personnel, the volume and sensitivity of the exfiltrated data, and the potential for disruption to CRH's merchandising operations.
2. Settlement Resolution
We are pleased to advise the Administrative Agent that, as of the date of this letter, the Chancery Action has been resolved through a negotiated settlement. On April 14, 2025, CRH, each of the eight individual defendants (Priya Rathore, James T. Ellison, Nadia Sokolova, Derek Huang, Martina Caldwell, Reginald Owens, Kristen Fairbanks, and Samuel Nazarian), and Verdana Commerce Group, Inc. executed a Standstill and Settlement Agreement (the "Settlement Agreement") resolving all claims asserted in C.A. No. 2025-0198-MTZ and releasing all related counterclaims and potential cross-claims among the parties.
Concurrently with execution of the Settlement Agreement, counsel for all parties filed a Stipulation of Settlement and a proposed Consent Order (the "Consent Order") with the Delaware Court of Chancery. The Consent Order incorporates the material terms of the Settlement Agreement, including modified restrictive covenant obligations applicable to each individual defendant, as well as data return and destruction obligations and compliance monitoring provisions, each as described in greater detail below. Based on communications with the Court's chambers, CRH anticipates that Vice Chancellor Zhao will enter the Consent Order on or before April 25, 2025.
In addition, a joint motion to dissolve the Temporary Restraining Order has been filed with the Court and is expected to be granted upon entry of the Consent Order. CRH does not anticipate any opposition to the dissolution of the TRO.
3. Summary of Key Settlement Terms
For the convenience of the Administrative Agent and the Lenders, the following summarizes the material terms of the Settlement Agreement. This summary is qualified in its entirety by reference to the executed Settlement Agreement, the Stipulation of Settlement, and the proposed Consent Order, copies of which are available upon request subject to certain confidentiality restrictions as described below.
3.1 Monetary Recovery
Verdana has agreed to pay CRH a lump-sum cash settlement in the amount of $8,750,000, payable by wire transfer of immediately available funds to an account designated by CRH within thirty (30) calendar days following the date of execution of the Settlement Agreement (i.e., on or before May 14, 2025). In addition, Verdana has agreed to reimburse CRH in the amount of $425,000 toward CRH's out-of-pocket litigation costs and expenses incurred in connection with the Chancery Action, payable on the same timeline and terms as the primary settlement payment.
3.2 Equity Forfeitures
As a condition of settlement, each of the eight individual defendants has agreed to the forfeiture of unvested equity awards previously granted under the Cascade Retail Holdings Inc. 2021 Omnibus Incentive Plan (the "Equity Plan") and the clawback of certain previously vested equity awards, totaling approximately $849,500 in the aggregate. Of this amount, approximately $362,500 is attributable to Priya Rathore's forfeited and clawed-back awards, and approximately $487,000 is attributable to the aggregate forfeited and clawed-back awards of the remaining seven individual defendants. These forfeitures and clawbacks will be effectuated through amendments to the applicable award agreements and are expected to be reflected in CRH's equity compensation disclosures in its next quarterly report on Form 10-Q.
3.3 Total Economic Recovery
Taking into account all components of the settlement, the aggregate economic recovery to CRH is approximately $10,024,500, consisting of the following:
3.4 Modified Restrictive Covenants
The Settlement Agreement and Consent Order impose modified non-competition and non-solicitation restrictions on the individual defendants, as follows:
Non-Competition Restrictions. Priya Rathore is subject to a twelve (12)-month non-competition restriction commencing on the date of her resignation (February 7, 2025) and extending through February 6, 2026. The remaining seven individual defendants are subject to nine (9)-month non-competition restrictions commencing on their respective resignation dates (each also February 7, 2025) and extending through November 6, 2025. The non-competition obligations are limited to activities directly competitive with CRH in three specified product categories: (i) home goods, (ii) seasonal décor, and (iii) private-label apparel. The individual defendants are not restricted from performing services for Verdana or any other entity in product categories outside these three specified areas.
Employee Non-Solicitation. Each individual defendant is subject to an eighteen (18)-month employee non-solicitation restriction extending through August 6, 2026, prohibiting the solicitation, recruitment, or inducement of any current employee of CRH or any of its subsidiaries for employment or engagement by Verdana or any other competitor.
Vendor Non-Solicitation. Each individual defendant is subject to a twelve (12)-month vendor non-solicitation restriction extending through February 6, 2026, prohibiting contact with or solicitation of CRH's top fifty (50) vendors by revenue (as identified in a confidential schedule to the Settlement Agreement) for the purpose of diverting, redirecting, or otherwise interfering with CRH's existing vendor relationships.
3.5 Data Return and Destruction
The Settlement Agreement requires that all exfiltrated confidential and proprietary data of CRH — identified through CRH's forensic investigation as comprising approximately 14,327 files totaling approximately 2.8 gigabytes — be returned to CRH or certified as permanently destroyed within ten (10) business days following the date of execution of the Settlement Agreement. Each individual defendant is required to provide a sworn certification of compliance.
In addition, Verdana has agreed, at its sole expense (subject to a cost cap of $175,000), to submit to an independent forensic audit of its information technology systems to be conducted by Pinnacle Forensics LLC, a nationally recognized digital forensics firm previously engaged by CRH in this matter. The purpose of the forensic audit is to confirm the complete return, deletion, and non-retention of all CRH-sourced data across Verdana's networks, devices, cloud storage, and backup systems. Pinnacle Forensics LLC will issue a written certification of its findings, a copy of which will be provided to CRH and to the independent compliance monitor described below.
3.6 Compliance Monitoring
The parties have jointly appointed Aldwyn Compliance Solutions LLC, a compliance consulting firm based in Philadelphia, Pennsylvania, as an independent compliance monitor (the "Monitor") for a twelve (12)-month term commencing upon entry of the Consent Order. The Monitor will be responsible for verifying compliance by the individual defendants and Verdana with the modified restrictive covenant obligations and data destruction requirements set forth in the Settlement Agreement and Consent Order. The Monitor will have authority to conduct periodic reviews, request documentation, and report to the Court any instances of non-compliance.
The estimated cost of the compliance monitoring engagement is $360,000 over the twelve-month term, which will be shared between the parties as follows: sixty percent (60%), or approximately $216,000, to be borne by Verdana, and forty percent (40%), or approximately $144,000, to be borne by CRH.
3.7 Consent Order and Continuing Court Jurisdiction
The Delaware Court of Chancery will retain jurisdiction over the parties and the subject matter of the Chancery Action for the purpose of enforcing the terms of the Consent Order during the compliance monitoring period. Any alleged breach of the Consent Order may be brought before the Court on an expedited basis.
4. Financial Impact Assessment and Confirmation of No Material Adverse Effect
CRH's management, in consultation with its financial advisors and counsel, has evaluated the financial impact of both the underlying events giving rise to the Chancery Action and the settlement resolution on CRH's financial condition, results of operations, and ability to perform its obligations under the Credit Agreement and all related Loan Documents.
As previously disclosed, CRH accrued a litigation contingency reserve of $3,500,000 in the first quarter of fiscal year 2025 in connection with the Chancery Action and the potential for adverse outcomes, including the risk of unsuccessful injunctive relief, the possibility of counterclaims by the defendants, and litigation costs. In light of the favorable settlement outcome, CRH intends to adjust this reserve in its financial reporting for the second quarter of fiscal year 2025 to reflect the net positive economic result of the settlement.
For context, CRH reported total revenue of approximately $6.82 billion for fiscal year 2024, with EBITDA of approximately $587 million and total assets of approximately $8.4 billion as of the most recent audited financial statements. CRH's approximate market capitalization as of the last trading day in February 2025 was approximately $4.1 billion. In relation to these figures, the aggregate economic recovery to CRH of approximately $10,024,500 represents a net positive result and a favorable resolution of the dispute.
Based on the foregoing, and in the judgment of the Borrower and its counsel, we confirm that:
(a) The resolution of the Chancery Action does not constitute, and is not reasonably likely to result in, a "Material Adverse Effect" as that term is defined in Section 1.01 of the Credit Agreement, on CRH's business, properties, operations, financial condition, or ability to perform its obligations under the Credit Agreement or any related Loan Document.
(b) No Default or Event of Default under the Credit Agreement has occurred or is continuing as a result of the matters described in this letter.
(c) All representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents remain true and correct in all material respects (or, to the extent qualified by materiality, in all respects) as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct in all material respects (or, as applicable, in all respects) as of such earlier date.
We further confirm that CRH's merchandising operations have been stabilized under the interim leadership of Martin Cho, Vice President of Merchandising, who has been serving in the capacity of Interim Senior Vice President, Merchandising since February 10, 2025. Mr. Cho has been with CRH for over eleven years and has deep institutional knowledge of CRH's merchandising function. CRH is conducting a comprehensive search for a permanent successor to the SVP, Merchandising role and does not anticipate material operational disruption to its merchandising division going forward. Vendor relationships across the affected product categories have been maintained, and CRH has not experienced any material loss of vendor accounts attributable to the departures.
5. Status of Injunction Bond
Upon entry of the Consent Order by Vice Chancellor Zhao and the resulting dissolution of the Temporary Restraining Order, CRH intends to seek the prompt discharge of the $2,500,000 Injunction Bond (Bond No. BSC-2025-TRO-04419) posted through Broadview Surety Corp. Based on the terms of the Settlement Agreement and the absence of any counterclaim or claim for wrongful injunction by any defendant, CRH does not anticipate any liability under the Injunction Bond and expects the bond to be fully exonerated and returned without any draw or claim. CRH will notify the Administrative Agent if any issue arises with respect to the discharge of the Injunction Bond, though none is anticipated.
6. Request for Confirmation
CRH respectfully requests that Keypoint National Bank, N.A., as Administrative Agent, acknowledge receipt of this notice and confirm that no further action is required from CRH under Section 6.02(c) of the Credit Agreement with respect to the Chancery Action and the matters described herein. To the extent the Administrative Agent or any Lender under the Facility requires any supplemental information, documentation, or clarification in connection with the foregoing, CRH will promptly provide such materials as may be reasonably requested.
7. Contact Information
Any questions, requests for additional information, or correspondence relating to the matters described in this letter should be directed to:
Bernard Crawford Partner Calderwood & Harkness LLP 1301 K Street NW, Suite 1200 Washington, DC 20005 Telephone: (202) 555-8437
Email: bcrawford@calderwoodharkness.com
Theresa Yun-Park General Counsel Cascade Retail Holdings Inc. 2200 Elliott Avenue West, Suite 3400 Seattle, WA 98119 Telephone: (206) 555-7200
Email: tyunpark@cascaderetail.com
We appreciate the Administrative Agent's attention to this matter and trust that the foregoing provides a thorough account of the resolution of this litigation. CRH remains committed to full compliance with its reporting and notification obligations under the Credit Agreement and values its relationship with Keypoint and the Lenders.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner
Enclosures: None. Copies of the executed Standstill and Settlement Agreement, the filed Stipulation of Settlement, and the proposed Consent Order are available upon request, subject to confidentiality restrictions contained therein.
cc:
Theresa Yun-Park, General Counsel, Cascade Retail Holdings Inc. Renata Vasquez, Partner, Calderwood & Harkness LLP
This letter and any attachments hereto are confidential and may contain information protected by the attorney-client privilege and/or the work product doctrine. This letter is intended solely for the use of the addressee and is delivered for the purpose of providing notice under the Credit Agreement. Any unauthorized review, use, disclosure, or distribution is prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.
Component | Amount
Cash settlement payment (from Verdana) | $8,750,000
Equity forfeitures and clawbacks (individual defendants) | $849,500
Litigation cost reimbursement (from Verdana) | $425,000
Total Economic Recovery | $10,024,500

CONFIDENTIAL

VIA EMAIL AND OVERNIGHT COURIER

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts