1038-00006 · Calderwood & Harkness LLP · Pre-Litigation Correspondence

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION NOT TO BE DISCLOSED WITHOUT PRIOR AUTHORIZATION OF COUNSEL

CALDERWOOD & HARKNESS LLP 1301 K Street NW, Suite 1200 Washington, DC 20005

Telephone: (202) 555-7100 Facsimile: (202) 555-7101

Bernard Crawford Partner, Labor & Employment Litigation Direct Dial: (202) 555-7134 bcrawford@calderwoodharkness.com

March 4, 2025

VIA HAND DELIVERY AND ENCRYPTED EMAIL

Dr. Lorraine Stahl Independent Director and Chair, Audit Committee Board of Directors Cascade Retail Holdings Inc. 2200 Elliott Avenue West, Suite 3400 Seattle, WA 98119

Re: Litigation Contingency Notification — Cascade Retail Holdings Inc. v. Rathore et al., C.A. No. 2025-0198-MTZ (Delaware Court of Chancery)

Matter Number: 1038-00006

Dear Dr. Stahl:

I. Purpose of This Letter

Calderwood & Harkness LLP serves as outside litigation counsel to Cascade Retail Holdings Inc. ("CRH" or the "Company") in connection with the enforcement of restrictive covenant, confidentiality, and trade-secret protections against eight former senior merchandising employees (collectively, the "Rathore Group") and a direct competitor, Verdana Commerce Group, Inc. ("Verdana"). This engagement arises from the coordinated departure of the Rathore Group from CRH's merchandising division and their simultaneous hiring by Verdana, as more fully described below.

The purpose of this letter is to formally notify the Audit Committee of the Board of Directors of CRH (the "Audit Committee") of a material litigation matter that may give rise to a litigation contingency accrual under Accounting Standards Codification Topic 450 (Contingencies) ("ASC 450"), and to recommend that the Audit Committee maintain board-level awareness of this matter as it progresses through the judicial system and, potentially, through settlement negotiations or alternative dispute resolution.

This notification is being provided in advance of the anticipated filing of a Verified Complaint and Motion for Temporary Restraining Order and Preliminary Injunction in the Delaware Court of Chancery, which filing is currently targeted for March 5, 2025. Given the accelerated nature of the emergency injunctive relief proceedings contemplated by CRH, we believe it is prudent and appropriate to apprise the Audit Committee at this time so that the Company's governance, financial reporting, and risk management functions are fully aligned as the litigation unfolds.

This letter and all of its contents constitute a privileged and confidential attorney-client communication and are protected by the attorney-client privilege and the attorney work-product doctrine. This letter should not be shared with, disclosed to, or discussed with any person outside of the Audit Committee, CRH's General Counsel, and CRH's outside auditors (solely to the extent necessary for financial reporting purposes and subject to appropriate privilege protections), without the prior written authorization of Calderwood & Harkness LLP.

II. Background of the Matter

A. The Coordinated Departure

On February 7, 2025, at approximately 4:47 PM Pacific Standard Time, eight senior employees of CRH's merchandising division submitted simultaneous resignation letters to CRH's Chief Human Resources Officer, each stating that the resignation was effective immediately. The near-identical timing and substantially similar language of the resignation letters strongly suggest a coordinated effort among the departing employees. No advance notice was provided to CRH management, and the resignations were tendered in violation of the notice provisions contained in several of the departing employees' respective employment agreements.

The departures were led by Priya Rathore, CRH's former Senior Vice President, Merchandising, who served as the most senior officer in CRH's merchandising organization and reported directly to CRH's Chief Operating Officer. Ms. Rathore joined CRH on June 3, 2019, and served the Company through her resignation on February 7, 2025 — a tenure of approximately five years and eight months. During her time at CRH, Ms. Rathore was responsible for overseeing all aspects of the Company's merchandising strategy, including vendor negotiations, private-label product development, seasonal planning and category management, and the Company's long-range strategic merchandising planning processes. Ms. Rathore had unfettered access to the Company's most sensitive and proprietary merchandising information, as described more fully in Section II.B below.

The seven other departing employees (collectively with Ms. Rathore, the "Rathore Group") are as follows:

1. Derek Linden — Vice President, Hardlines Merchandising. Mr. Linden served CRH for approximately seven years and was responsible for hardlines category strategy and vendor negotiations across CRH's hardware, outdoor living, and home improvement product lines.

2. Sonia Kaczmarek — Vice President, Softlines Merchandising. Ms. Kaczmarek served CRH for approximately five years and oversaw softlines category management, including CRH's growing private-label apparel and home textiles portfolios.

3. Amara Osei — Director, Private Label Strategy. Ms. Osei served CRH for approximately four years and was responsible for the development and execution of CRH's private-label sourcing and brand strategy, including margin optimization models and supplier relationship management for CRH's proprietary brands.

4. Brent Halvorsen — Director, Seasonal Planning & Analytics. Mr. Halvorsen served CRH for approximately six years and managed CRH's seasonal buying algorithms, demand forecasting models, and inventory allocation systems.

5. Lucia Fernandez-Gill — Director, Vendor Relations (Domestic). Ms. Fernandez-Gill served CRH for approximately five years and was the primary relationship manager for CRH's top 150 domestic vendors, with direct knowledge of negotiated pricing, rebate structures, and promotional allowances.

6. Nathan Tsao — Senior Manager, eCommerce Merchandising. Mr. Tsao served CRH for approximately three years and managed product assortment, pricing strategy, and promotional planning for CRH's eCommerce platform.

7. Kira Johansson — Senior Manager, Category Analytics. Ms. Johansson served CRH for approximately four years and developed and maintained CRH's category performance models, competitive benchmarking data, and customer segmentation analytics.

All eight members of the Rathore Group have accepted employment positions at Verdana Commerce Group, Inc., a direct competitor of CRH headquartered in Wilmington, Delaware. On February 14, 2025, Verdana publicly announced the hiring in a press release titled "Verdana Commerce Welcomes Industry-Leading Merchandising Team to Accelerate Growth." The press release specifically highlighted the team's experience in "private-label development, vendor optimization, and category analytics" — each of which constitutes a core competency of CRH's merchandising division and a domain in which the Rathore Group had access to CRH's most sensitive proprietary information.

B. Significance to CRH's Business

The departure of the Rathore Group and their hiring by a direct competitor is of profound strategic significance to CRH. The Company's merchandising division is a critical driver of the Company's financial performance, accounting for approximately $2.3 billion in gross merchandise value ("GMV") in fiscal year 2024, measured against CRH's total annual revenue of $6.82 billion. By any measure, the merchandising function represents the single largest driver of CRH's competitive differentiation, top-line growth, and gross margin performance.

The members of the Rathore Group, by virtue of their seniority, tenure, and respective responsibilities, had direct and extensive access to the following categories of CRH proprietary and confidential information:

• Vendor Negotiation Playbooks: CRH's proprietary frameworks for negotiating pricing, rebate structures, promotional allowances, and payment terms with the Company's approximately 2,400 active vendors;

• Seasonal Buying Algorithms: CRH's proprietary demand forecasting models and algorithmic buying tools used to optimize inventory allocation across the Company's 412 retail locations and eCommerce platform;

• Private-Label Sourcing Strategies: Detailed cost models, supplier relationships, margin structures, and brand development roadmaps for CRH's private-label product portfolio, which generates approximately $680 million in annual revenue at an average gross margin approximately 1,200 basis points above national brands;

• Customer Segmentation Data: CRH's proprietary customer analytics platform, including purchasing behavior data, loyalty program insights, and targeted promotional strategies; and

• Project Ridgeline: A confidential five-year category expansion roadmap completed in October 2024 under Ms. Rathore's direct leadership. Project Ridgeline represents the culmination of approximately 14 months of strategic planning and contains CRH's proprietary plans for entering seven new product categories, restructuring vendor relationships, and launching twelve new private-label brands between 2025 and 2029. The initiative carries a projected incremental revenue impact of $1.4 billion over the planning horizon.

The competitive threat posed by the Rathore Group's migration to Verdana is substantial and immediate. Verdana Commerce Group, Inc. is a direct competitor to CRH in the specialty retail sector, with estimated fiscal year 2024 revenue of approximately $1.9 billion. Verdana directly competes with CRH across 28 overlapping product categories, including many of the categories that are the subject of CRH's Project Ridgeline expansion plan. In January 2025 — notably, prior to the public announcement of the Rathore Group hiring — Verdana announced a "transformational growth initiative" targeting $4 billion in revenue by 2028, with specific emphasis on expansion into CRH's strongest categories, including private-label home goods and seasonal décor. The alignment between Verdana's announced growth strategy and CRH's confidential strategic plans is striking and deeply concerning.

Verdana is majority-owned by Greystone Capital Partners, LP, through its investment vehicle Greystone Capital Fund VII, LP (committed capital: $8.5 billion). Greystone acquired its majority stake in Verdana in the third quarter of 2023 in a transaction valuing Verdana at an enterprise value of approximately $2.4 billion. The deep pockets and aggressive growth mandate of Greystone's ownership significantly amplify the risk that CRH's proprietary information could be exploited to accelerate Verdana's competitive position at CRH's direct expense.

C. Restrictive Covenant Obligations

Each of the eight departing employees executed employment agreements with CRH containing restrictive covenant provisions, including non-competition, non-solicitation, and confidentiality covenants. By their express terms, all eight employment agreements are governed by the laws of the State of Delaware and contain forum selection clauses designating the courts of the State of Delaware as the exclusive forum for disputes arising under the agreements.

Ms. Rathore's Amended and Restated Employment Agreement, dated March 15, 2021 (the "Rathore Agreement"), contains the following material restrictive covenant provisions:

• Non-Competition: An 18-month post-termination non-compete restriction prohibiting Ms. Rathore from engaging in, or being employed by, any business that competes with CRH in the retail merchandising sector anywhere in the United States. The restriction applies regardless of whether the termination is voluntary or involuntary and is supported by adequate consideration in the form of, among other things, restricted stock unit grants;

• Non-Solicitation of Employees: A 24-month post-termination restriction prohibiting Ms. Rathore from soliciting, recruiting, or inducing any CRH employee to terminate his or her employment with CRH;

• Non-Solicitation of Vendors: A 24-month post-termination restriction prohibiting Ms. Rathore from soliciting or diverting the business of any vendor with whom CRH had a commercial relationship during the 12-month period preceding Ms. Rathore's termination; and

• Confidentiality: A perpetual obligation not to disclose, use, or exploit any Confidential Information (as defined in Section 7(a) of the Rathore Agreement) of CRH, including trade secrets, proprietary data, business plans, vendor terms, customer data, and strategic plans.

Under the Rathore Agreement, Ms. Rathore's compensation included a base salary of $485,000, a target annual bonus of $290,000 (representing 60% of base salary), and restricted stock units valued at $725,000, vesting ratably on an annual basis over a four-year period commencing March 15, 2021. This compensation structure was specifically designed, in part, to provide adequate consideration for Ms. Rathore's restrictive covenant obligations.

The other seven members of the Rathore Group have non-competition periods ranging from 12 to 18 months and non-solicitation periods (covering both employees and vendors) ranging from 18 to 24 months. All seven agreements contain perpetual confidentiality obligations substantially similar to those in the Rathore Agreement. We have reviewed each of the eight employment agreements and believe, based on our preliminary assessment, that the restrictive covenant provisions are enforceable under Delaware law, consistent with the Delaware Court of Chancery's well-established jurisprudence regarding the enforcement of reasonable restrictive covenants where supported by adequate consideration and tailored to legitimate business interests.

D. Data Exfiltration

Upon learning of the coordinated departures, CRH retained Pinnacle Forensics LLC ("Pinnacle"), a nationally recognized digital forensics firm, to conduct a forensic investigation of the Rathore Group's access to and use of CRH's electronic systems during the period preceding their departures. Pinnacle was retained on February 20, 2025, with Dr. Rajiv Anand, a Senior Managing Director at the firm, serving as the engagement lead.

Pinnacle's forensic analysis has yielded deeply troubling findings. Specifically, the analysis has confirmed that a total of 14,327 files, comprising approximately 2.8 gigabytes of data, were downloaded from CRH's Aldermere Systems document management system and Pinnacle Health IT customer relationship management environment to personal cloud storage accounts (including personal Hollowell Health IT, Larkspur Technologies, and Meridian Systems accounts) between January 10 and February 4, 2025 — a period that corresponds precisely with the timeline of the Rathore Group's recruitment by and negotiation with Verdana.

The exfiltrated materials include, but are not limited to, the following categories of confidential and proprietary information:

• Complete Project Ridgeline presentation decks and supporting analyses, including five-year revenue projections, category entry strategies, and competitive positioning assessments;

• Vendor negotiation term sheets for CRH's top 75 domestic and international vendors, including current pricing, rebate schedules, and pending renegotiation targets;

• Private-label cost models reflecting CRH's landed cost structures, margin analysis, and supplier pricing for the Company's 14 proprietary brands;

• Customer segmentation data derived from CRH's loyalty program, including purchasing behavior analytics, lifetime value models, and targeted promotional frameworks; and

• Internal financial projections and quarterly business review materials for the merchandising division.

The scale, timing, and targeted nature of the data exfiltration strongly suggest a premeditated and coordinated effort by the Rathore Group to misappropriate CRH's most valuable trade secrets and confidential information in advance of their departure and for the benefit of their anticipated new employer. Pinnacle's analysis is ongoing, and a comprehensive forensic report is expected to be finalized by approximately March 15, 2025. We anticipate that the Pinnacle findings will form a critical component of CRH's evidentiary presentation in connection with the TRO and preliminary injunction proceedings.

E. Recruitment Investigation

In addition to the digital forensic investigation, CRH retained Aurelian Investigations Group Inc. ("Aurelian"), a licensed private investigation firm, on February 21, 2025, to investigate the circumstances surrounding the recruitment of the Rathore Group by Verdana. Sandra Fielding, a Senior Managing Director at Aurelian, is serving as the lead investigator on this engagement.

Aurelian's investigation has identified the following key facts:

• On January 6, 2025, Verdana CEO Warren Dietrich and Greystone Managing Partner Elliot Westbrook hosted a private dinner meeting with Priya Rathore at a private dining room at a restaurant in New York City. This meeting occurred approximately one month before the Rathore Group's coordinated departure and appears to have been the catalyst for the recruitment effort;

• Encrypted messaging exchanges among the members of the Rathore Group were identified on CRH-issued mobile devices during the period from January 13 through January 24, 2025. The messages discuss, among other things, departure timing, the sequencing of resignation letters, and strategies for maximizing the disruptive impact on CRH's merchandising operations;

• Ms. Rathore signed her offer letter with Verdana on January 27, 2025. The remaining seven members of the Rathore Group signed their respective offer letters with Verdana between January 28 and February 4, 2025 — while all eight individuals remained employed by CRH and were continuing to access CRH's confidential information systems; and

• The aggregate sign-on bonuses paid by Verdana to the Rathore Group total $6,200,000, consisting of $1,500,000 to Ms. Rathore and an aggregate of $4,700,000 to the other seven members of the group. The magnitude of these sign-on bonuses is, in our experience, highly unusual and may reflect Verdana's recognition of the value of the proprietary information and competitive intelligence that the Rathore Group would bring to Verdana from CRH.

Aurelian's investigation is continuing, and we expect additional findings to be developed in the coming weeks, including through formal discovery in the litigation proceedings. The information gathered to date provides substantial support for CRH's tortious interference and civil conspiracy claims against Verdana.

III. Litigation Actions Taken and Planned

A. Pre-Litigation Steps

Calderwood & Harkness LLP was formally engaged by CRH on February 18, 2025, following an initial consultation with CRH General Counsel Theresa Yun-Park and a review of the relevant employment agreements and preliminary forensic findings. The engagement encompasses all aspects of the litigation, including the prosecution of CRH's affirmative claims, defense of any counterclaims, and related settlement negotiations.

On February 25, 2025, Calderwood & Harkness sent cease-and-desist letters to each of the following parties:

1. Each of the eight departing employees individually, demanding that they immediately cease and desist from any further use or disclosure of CRH's confidential information and trade secrets, return all CRH property and data in their possession, and honor their restrictive covenant obligations;

2. Verdana Commerce Group, Inc. (to the attention of General Counsel Helen Tsoi), demanding that Verdana immediately halt the employment of the Rathore Group in any capacity that would result in the use or disclosure of CRH's trade secrets or confidential information, and that Verdana preserve all documents and communications related to the recruitment, hiring, and onboarding of the Rathore Group; and

3. Greystone Capital Partners, LP (to the attention of Managing Partner Elliot Westbrook), given Greystone's majority ownership of Verdana and the direct participation of Mr. Westbrook in the January 6, 2025 dinner meeting with Ms. Rathore.

On February 27, 2025, Whitfield, Nygaard & Doyle LLP, a Delaware litigation firm with offices in Wilmington, entered an appearance on behalf of all eight members of the Rathore Group, with Catherine Nygaard, a named partner of the firm, designated as lead counsel. On the same date, Blackhall & Soren LLP, also of Wilmington, entered an appearance on behalf of Verdana Commerce Group, Inc., with Gavin Blackhall, a named partner of the firm, designated as lead counsel.

Substantive settlement discussions have not yet occurred. To date, counsel for the Rathore Group and counsel for Verdana have each responded to CRH's cease-and-desist letters by disputing the enforceability of the restrictive covenants and denying any misappropriation of trade secrets. Neither the Rathore Group nor Verdana has provided any written assurance that CRH's confidential information has been segregated or will not be used.

B. Court Filing (Anticipated March 5, 2025)

Having exhausted the reasonable pre-litigation avenues available, CRH intends to file a Verified Complaint and Motion for Temporary Restraining Order and Preliminary Injunction in the Delaware Court of Chancery on March 5, 2025. The case has been assigned Case Number 2025-0198-MTZ.

The Verified Complaint will assert the following causes of action:

1. Breach of Restrictive Covenant (Non-Competition) — Against all eight individual defendants, for accepting employment with a direct competitor in violation of their respective non-competition covenants;

2. Breach of Confidentiality Obligations — Against all eight individual defendants, for misappropriating and disclosing CRH's Confidential Information (as defined in their respective employment agreements) by downloading proprietary files to personal cloud storage accounts and, upon information and belief, providing such materials to Verdana;

3. Misappropriation of Trade Secrets — Under the Delaware Uniform Trade Secrets Act, 6 Del. C. §§ 2001–2009 ("DUTSA"), against all eight individual defendants and Verdana, for the misappropriation of CRH's trade secrets, including Project Ridgeline materials, vendor negotiation strategies, private-label cost models, and seasonal buying algorithms;

4. Tortious Interference with Contractual Relations — Against Verdana, for knowingly inducing the Rathore Group to breach their restrictive covenant obligations and confidentiality agreements with CRH; and

5. Civil Conspiracy — Against all eight individual defendants and Verdana, for engaging in a coordinated scheme to misappropriate CRH's trade secrets and proprietary information for the benefit of Verdana and to the detriment of CRH.

Contemporaneously with the filing of the Verified Complaint, CRH will move for a Temporary Restraining Order and Preliminary Injunction seeking the following emergency relief:

• An order restraining all eight individual defendants from commencing, continuing, or otherwise engaging in employment in any merchandising, buying, sourcing, vendor relations, or category management role at Verdana Commerce Group, Inc. for the duration of their respective non-competition periods;

• An order restraining all defendants (individual and corporate) from using, disclosing, disseminating, or exploiting any CRH Confidential Information or trade secrets;

• An order directing the immediate return of all CRH property and data, including the 14,327 files identified by Pinnacle Forensics, and the deletion of all copies thereof from personal devices and cloud storage accounts; and

• An order directing Verdana to preserve and produce for inspection all documents and communications related to the recruitment, hiring, and onboarding of the Rathore Group.

In connection with the TRO and preliminary injunction proceedings, CRH will be required to post an injunction bond. Based on our preliminary analysis and consultation with bond counsel, we estimate the bond amount to be approximately $2,500,000, to be obtained through Broadview Surety Corp. The bond premium and any collateral requirements will constitute an additional cost of the litigation.

C. Expert and Vendor Engagement

As of March 3, 2025, CRH has retained Veltrano Consulting Group LLC ("Veltrano") to serve as CRH's economic damages expert. Dr. Franklin Oberg, PhD (Economics), a Managing Director at Veltrano, will lead the damages analysis. Dr. Oberg's engagement encompasses the quantification of harm to CRH resulting from the potential misuse of CRH's trade secrets and confidential information, the breach of the Rathore Group's restrictive covenants, and the resulting competitive injury to CRH's merchandising division. Dr. Oberg's work is ongoing and a preliminary damages range is expected within approximately four to six weeks of his engagement.

In total, the following third-party experts and vendors have been retained in connection with this matter:

IV. Estimated Litigation Costs

Given the scope, complexity, and accelerated nature of this litigation, the Audit Committee should be aware that the matter will involve substantial legal fees and related expenses. The Calderwood & Harkness billing rates applicable to this matter are as follows:

The matter involves emergency proceedings requiring accelerated timelines and significant associate hours for briefing, discovery preparation, motion practice, and hearing preparation. The TRO and preliminary injunction briefing alone will require an intensive effort spanning the period from filing through the hearing, which we anticipate the Court of Chancery will schedule within 14 to 21 days of filing. Expedited discovery, including the taking of depositions of the individual defendants and key Verdana personnel, will add materially to the cost.

A detailed budget estimate encompassing multiple potential case trajectories — including (i) resolution by consent order or settlement prior to the preliminary injunction hearing, (ii) contested preliminary injunction proceedings followed by settlement, and (iii) full trial on the merits — is currently being prepared by Renata Vasquez for review and discussion with CRH General Counsel Theresa Yun-Park. We anticipate providing the completed budget to Ms. Yun-Park no later than March 12, 2025.

In addition to Calderwood & Harkness's legal fees, the Company should anticipate significant expenditures for the following:

• Forensic services (Pinnacle Forensics LLC): Fees for the ongoing forensic investigation, preparation of expert reports, and potential testimony at hearing and trial;

• Investigation services (Aurelian Investigations Group Inc.): Fees for the continued investigation of recruitment activity, witness identification, and the development of evidence supporting CRH's tortious interference and civil conspiracy claims;

• Economic damages expert services (Veltrano Consulting Group LLC): Fees for the preparation of damages analyses, expert reports, and potential testimony;

• Injunction bond premium (Broadview Surety Corp.): The premium associated with the estimated $2,500,000 injunction bond; and

• Court costs and miscellaneous expenses: Filing fees, service of process costs, transcript costs, electronic discovery hosting and review platform costs, travel expenses, and related disbursements.

We will ensure that all costs are closely monitored and that the Company receives regular billing statements and cost updates through CRH's General Counsel.

V. Litigation Contingency Accrual Recommendation

A. ASC 450 Analysis

Under ASC 450-20 (Contingencies — Loss Contingencies), an entity is required to accrue an estimated loss by a charge to income when two conditions are met: (1) information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and (2) the amount of the loss can be reasonably estimated.

While CRH is the plaintiff in this action and is seeking affirmative relief, the litigation nonetheless may give rise to loss contingencies that warrant consideration under ASC 450. Specifically, the Audit Committee should be aware of the following potential sources of loss:

Defense Costs and Counterclaims. Based on our experience in similar matters and the positions already articulated by opposing counsel, we consider it likely that the Rathore Group and/or Verdana will assert counterclaims. Potential counterclaims may include claims challenging the enforceability of the restrictive covenants (e.g., on the grounds that the covenants are overbroad, lack adequate consideration, or impose an undue hardship on the individual defendants), claims for declaratory relief, and potentially affirmative claims against CRH for wrongful conduct in the enforcement process. The defense of such counterclaims will generate additional legal costs and may create exposure to adverse judgments or awards.

Injunction Bond Exposure. If CRH obtains a TRO or preliminary injunction and such injunction is later dissolved or CRH does not prevail on the merits, the Company may face liability on the injunction bond in an amount up to $2,500,000 to compensate the defendants for damages sustained as a result of the injunction.

Litigation-Related Operational Costs. The litigation will require the diversion of substantial management time and attention, particularly from CRH's legal, human resources, and merchandising organizations. In addition, CRH may incur costs associated with remediation of the competitive harm caused by the data exfiltration and the loss of the Rathore Group's institutional knowledge and vendor relationships.

Risk of Non-Prevailing on Certain Claims. While we believe CRH's claims are well-founded and supported by strong evidence, there can be no assurance that the Company will prevail on all claims or obtain all of the relief sought. The enforceability of restrictive covenants, while well-established under Delaware law, is subject to fact-intensive analysis and judicial discretion. A partial or unfavorable outcome on any material claim could expose CRH to the obligation to pay defendants' attorneys' fees and costs under certain circumstances.

B. Recommended Accrual

Based on our preliminary assessment of the foregoing factors, and considering the anticipated legal fees, expert and vendor costs, injunction bond exposure, and the potential for counterclaim liability, Calderwood & Harkness recommends that CRH consider establishing a litigation contingency accrual of $3,500,000 in the Company's Q1 2025 financial statements.

This recommended accrual represents our current best estimate of the probable and reasonably estimable range of litigation-related costs and contingent liabilities associated with this matter. We note that this estimate is preliminary and is subject to refinement as the litigation progresses, as additional facts are developed through discovery and forensic investigation, and as settlement discussions, if any, develop. In particular, the following events could materially alter the contingency assessment:

• The outcome of the TRO and preliminary injunction proceedings;

• The nature and scope of any counterclaims asserted by the defendants;

• The development of the damages analysis by Dr. Oberg and Veltrano Consulting;

• The initiation and progress of any settlement negotiations; and

• Any ruling or order by the Court that affects the scope or enforceability of CRH's claims.

We will provide updated assessments to CRH's General Counsel on a regular basis as the litigation develops.

C. Coordination with Financial Reporting

The recommended accrual should be discussed with CRH's outside auditors, Hargrove & Tillett CPA, PLLC (lead audit partner: Denise Wheatley), in connection with CRH's quarterly financial reporting process for Q1 2025. Appropriate privilege protections should be maintained in all communications with the auditors, including through the use of Kovel-type arrangements or common interest agreements where necessary.

Additionally, CRH's periodic filings with the Securities and Exchange Commission should be reviewed for appropriate disclosure of this litigation contingency. Specifically:

• Quarterly Report on Form 10-Q for Q1 2025: CRH's quarterly report should include a discussion of this litigation matter in the contingencies footnote to the financial statements and, if appropriate, in the "Legal Proceedings" section of the 10-Q, consistent with the requirements of Regulation S-K, Item 103;

• Current Report on Form 8-K: CRH's management and General Counsel should assess whether the initiation of this litigation, or any subsequent material development, constitutes an event requiring disclosure on Form 8-K. While the filing of litigation does not, by itself, typically trigger an 8-K filing obligation, the Company should remain attentive to any development that would constitute a material definitive event warranting current reporting.

With respect to materiality, the recommended $3,500,000 accrual represents approximately 0.05% of CRH's FY2024 revenue of $6.82 billion and approximately 0.09% of CRH's market capitalization of approximately $4.1 billion. These quantitative measures alone may not support a finding of financial materiality under applicable SEC guidance. However, the underlying matter may be considered qualitatively material given the following considerations:

• The strategic importance of CRH's merchandising division, which generated $2.3 billion in gross merchandise value in FY2024;

• The potential competitive harm arising from the misappropriation of CRH's trade secrets, including the Project Ridgeline strategic plan;

• The potential for significant incremental costs and liabilities beyond the initial accrual;

• The risk that the loss of the Rathore Group and the dissemination of CRH's proprietary information to a well-funded competitor will have lasting effects on CRH's competitive position and financial performance; and

• The high degree of investor and market sensitivity to competitive threats and intellectual property disputes in the retail sector.

Accordingly, a qualitative materiality analysis supports appropriate disclosure even if the quantitative thresholds are not met, and we recommend that the Company err on the side of disclosure.

D. Credit Agreement Reporting

The Audit Committee should also note that Section 6.02(c) of CRH's $750 million revolving credit facility with Keypoint National Bank, N.A. (as administrative agent) contains a covenant requiring the Company to provide prompt written notice to the administrative agent of the commencement of any litigation or proceeding that could reasonably be expected to result in a Material Adverse Effect (as defined in the credit agreement) on CRH or its subsidiaries.

A determination should be made, in consultation with CRH's General Counsel and Calderwood & Harkness, as to whether and when notification to Keypoint National Bank, N.A. is required under this covenant. While the current recommended accrual amount may not, by itself, rise to the level of a Material Adverse Effect, the broader circumstances of the matter — including the strategic and competitive implications — warrant careful analysis of the reporting obligation. We recommend that this determination be made promptly, and in any event prior to the filing of the Verified Complaint on March 5, 2025, to ensure compliance with the credit agreement's notice provisions.

VI. Recommendations to the Audit Committee

In light of the foregoing, Calderwood & Harkness respectfully recommends that the Audit Committee take note of and, as appropriate, act upon the following items:

1. Litigation Contingency Accrual: Coordinate with CRH's outside auditors, Hargrove & Tillett CPA, PLLC, regarding the establishment of a $3,500,000 litigation contingency accrual in connection with the Company's Q1 2025 financial statements, and ensure that the accrual is appropriately reflected in the Company's financial reporting.

2. Ongoing Litigation Monitoring: Monitor the litigation on an ongoing basis for developments that could materially alter the contingency assessment, including but not limited to the outcome of the TRO and preliminary injunction motions, the assertion of counterclaims by any defendant, the initiation and progress of settlement discussions, and any material ruling or order of the Court of Chancery.

3. SEC Disclosure Obligations: Assess and address the Company's disclosure obligations under applicable SEC rules and regulations, including the appropriate treatment of this litigation matter in the Company's upcoming 10-Q filing for Q1 2025 and any required 8-K filings.

4. Credit Agreement Reporting: Evaluate whether the material litigation reporting covenant contained in Section 6.02(c) of the Company's revolving credit facility with Keypoint National Bank, N.A. is triggered by this matter, and ensure that any required notifications are provided in a timely manner.

5. Privilege Protection: Maintain rigorous privilege protections for all communications regarding this matter, including communications among and between the Audit Committee, CRH management, CRH's General Counsel, Calderwood & Harkness, and CRH's outside auditors. All documents and communications related to this matter should be clearly marked as privileged and confidential, and distribution should be limited to those individuals with a need to know.

Calderwood & Harkness will provide periodic privileged status reports to CRH General Counsel Theresa Yun-Park, who will coordinate further reporting to the Audit Committee as appropriate and in accordance with the Company's governance procedures. We anticipate providing written updates at least monthly, with more frequent updates as warranted by case developments, and we are prepared to attend Audit Committee meetings in person or by secure videoconference as requested.

VII. Closing

I am available to discuss this matter with you and the full Audit Committee at your earliest convenience. Given the filing of the Verified Complaint and TRO motion scheduled for March 5, 2025, I would welcome the opportunity to speak with you before that date to address any questions or concerns you may have.

All communications regarding this matter should be treated as privileged and confidential under the attorney-client privilege and the attorney work-product doctrine. If you receive any inquiries from third parties regarding this matter, including from CRH's auditors, lenders, investors, or any other person, we ask that you direct such inquiries to CRH General Counsel Theresa Yun-Park or to me directly, to ensure that privilege is appropriately preserved.

I can be reached at the following:

Bernard Crawford Partner, Labor & Employment Litigation Calderwood & Harkness LLP 1301 K Street NW, Suite 1200 Washington, DC 20005 Direct Dial: (202) 555-7134 Mobile: (202) 555-7198

Email: bcrawford@calderwoodharkness.com

Thank you for your attention to this important matter. We are committed to the vigorous protection of CRH's rights and interests and will keep you and the Audit Committee fully informed as the litigation progresses.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner, Labor & Employment Litigation 1301 K Street NW, Suite 1200 Washington, DC 20005

Date: March 4, 2025

cc: Theresa Yun-Park, General Counsel, Cascade Retail Holdings Inc. (via encrypted email)

cc: Renata Vasquez, Partner, Calderwood & Harkness LLP (via internal distribution)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION This letter and all enclosures and attachments hereto constitute a privileged and confidential attorney-client communication. This letter is intended solely for the use of the addressee and the individuals identified in the copy notation above. Any unauthorized review, use, disclosure, or distribution of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.

Firm	Role	Engagement Date	Engagement Lead
Pinnacle Forensics LLC	Digital Forensics	February 20, 2025	Dr. Rajiv Anand
Aurelian Investigations Group Inc.	Private Investigation	February 21, 2025	Sandra Fielding
Veltrano Consulting Group LLC	Economic Damages Expert	March 3, 2025	Dr. Franklin Oberg
Timekeeper	Role	Hourly Rate
Bernard Crawford	Responsible Partner	$1,350/hr
Renata Vasquez	Billing Partner	$1,275/hr
James Underwood	Lead Associate	$785/hr
Devon Archer	Working Associate	$625/hr

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION NOT TO BE DISCLOSED WITHOUT PRIOR AUTHORIZATION OF COUNSEL
CALDERWOOD & HARKNESS LLP 1301 K Street NW, Suite 1200 Washington, DC 20005
Telephone: (202) 555-7100 Facsimile: (202) 555-7101
Bernard Crawford Partner, Labor & Employment Litigation Direct Dial: (202) 555-7134 bcrawford@calderwoodharkness.com
March 4, 2025
VIA HAND DELIVERY AND ENCRYPTED EMAIL
Dr. Lorraine Stahl Independent Director and Chair, Audit Committee Board of Directors Cascade Retail Holdings Inc. 2200 Elliott Avenue West, Suite 3400 Seattle, WA 98119
Re: Litigation Contingency Notification — Cascade Retail Holdings Inc. v. Rathore et al., C.A. No. 2025-0198-MTZ (Delaware Court of Chancery)
Matter Number: 1038-00006
Dear Dr. Stahl:
I. Purpose of This Letter
Calderwood & Harkness LLP serves as outside litigation counsel to Cascade Retail Holdings Inc. ("CRH" or the "Company") in connection with the enforcement of restrictive covenant, confidentiality, and trade-secret protections against eight former senior merchandising employees (collectively, the "Rathore Group") and a direct competitor, Verdana Commerce Group, Inc. ("Verdana"). This engagement arises from the coordinated departure of the Rathore Group from CRH's merchandising division and their simultaneous hiring by Verdana, as more fully described below.
The purpose of this letter is to formally notify the Audit Committee of the Board of Directors of CRH (the "Audit Committee") of a material litigation matter that may give rise to a litigation contingency accrual under Accounting Standards Codification Topic 450 (Contingencies) ("ASC 450"), and to recommend that the Audit Committee maintain board-level awareness of this matter as it progresses through the judicial system and, potentially, through settlement negotiations or alternative dispute resolution.
This notification is being provided in advance of the anticipated filing of a Verified Complaint and Motion for Temporary Restraining Order and Preliminary Injunction in the Delaware Court of Chancery, which filing is currently targeted for March 5, 2025. Given the accelerated nature of the emergency injunctive relief proceedings contemplated by CRH, we believe it is prudent and appropriate to apprise the Audit Committee at this time so that the Company's governance, financial reporting, and risk management functions are fully aligned as the litigation unfolds.
This letter and all of its contents constitute a privileged and confidential attorney-client communication and are protected by the attorney-client privilege and the attorney work-product doctrine. This letter should not be shared with, disclosed to, or discussed with any person outside of the Audit Committee, CRH's General Counsel, and CRH's outside auditors (solely to the extent necessary for financial reporting purposes and subject to appropriate privilege protections), without the prior written authorization of Calderwood & Harkness LLP.
II. Background of the Matter
A. The Coordinated Departure
On February 7, 2025, at approximately 4:47 PM Pacific Standard Time, eight senior employees of CRH's merchandising division submitted simultaneous resignation letters to CRH's Chief Human Resources Officer, each stating that the resignation was effective immediately. The near-identical timing and substantially similar language of the resignation letters strongly suggest a coordinated effort among the departing employees. No advance notice was provided to CRH management, and the resignations were tendered in violation of the notice provisions contained in several of the departing employees' respective employment agreements.
The departures were led by Priya Rathore, CRH's former Senior Vice President, Merchandising, who served as the most senior officer in CRH's merchandising organization and reported directly to CRH's Chief Operating Officer. Ms. Rathore joined CRH on June 3, 2019, and served the Company through her resignation on February 7, 2025 — a tenure of approximately five years and eight months. During her time at CRH, Ms. Rathore was responsible for overseeing all aspects of the Company's merchandising strategy, including vendor negotiations, private-label product development, seasonal planning and category management, and the Company's long-range strategic merchandising planning processes. Ms. Rathore had unfettered access to the Company's most sensitive and proprietary merchandising information, as described more fully in Section II.B below.
The seven other departing employees (collectively with Ms. Rathore, the "Rathore Group") are as follows:
1.  Derek Linden — Vice President, Hardlines Merchandising. Mr. Linden served CRH for approximately seven years and was responsible for hardlines category strategy and vendor negotiations across CRH's hardware, outdoor living, and home improvement product lines.
2.  Sonia Kaczmarek — Vice President, Softlines Merchandising. Ms. Kaczmarek served CRH for approximately five years and oversaw softlines category management, including CRH's growing private-label apparel and home textiles portfolios.
3.  Amara Osei — Director, Private Label Strategy. Ms. Osei served CRH for approximately four years and was responsible for the development and execution of CRH's private-label sourcing and brand strategy, including margin optimization models and supplier relationship management for CRH's proprietary brands.
4.  Brent Halvorsen — Director, Seasonal Planning & Analytics. Mr. Halvorsen served CRH for approximately six years and managed CRH's seasonal buying algorithms, demand forecasting models, and inventory allocation systems.
5.  Lucia Fernandez-Gill — Director, Vendor Relations (Domestic). Ms. Fernandez-Gill served CRH for approximately five years and was the primary relationship manager for CRH's top 150 domestic vendors, with direct knowledge of negotiated pricing, rebate structures, and promotional allowances.
6.  Nathan Tsao — Senior Manager, eCommerce Merchandising. Mr. Tsao served CRH for approximately three years and managed product assortment, pricing strategy, and promotional planning for CRH's eCommerce platform.
7.  Kira Johansson — Senior Manager, Category Analytics. Ms. Johansson served CRH for approximately four years and developed and maintained CRH's category performance models, competitive benchmarking data, and customer segmentation analytics.
All eight members of the Rathore Group have accepted employment positions at Verdana Commerce Group, Inc., a direct competitor of CRH headquartered in Wilmington, Delaware. On February 14, 2025, Verdana publicly announced the hiring in a press release titled "Verdana Commerce Welcomes Industry-Leading Merchandising Team to Accelerate Growth." The press release specifically highlighted the team's experience in "private-label development, vendor optimization, and category analytics" — each of which constitutes a core competency of CRH's merchandising division and a domain in which the Rathore Group had access to CRH's most sensitive proprietary information.
B. Significance to CRH's Business
The departure of the Rathore Group and their hiring by a direct competitor is of profound strategic significance to CRH. The Company's merchandising division is a critical driver of the Company's financial performance, accounting for approximately $2.3 billion in gross merchandise value ("GMV") in fiscal year 2024, measured against CRH's total annual revenue of $6.82 billion. By any measure, the merchandising function represents the single largest driver of CRH's competitive differentiation, top-line growth, and gross margin performance.
The members of the Rathore Group, by virtue of their seniority, tenure, and respective responsibilities, had direct and extensive access to the following categories of CRH proprietary and confidential information:
•  Vendor Negotiation Playbooks: CRH's proprietary frameworks for negotiating pricing, rebate structures, promotional allowances, and payment terms with the Company's approximately 2,400 active vendors;
•  Seasonal Buying Algorithms: CRH's proprietary demand forecasting models and algorithmic buying tools used to optimize inventory allocation across the Company's 412 retail locations and eCommerce platform;
•  Private-Label Sourcing Strategies: Detailed cost models, supplier relationships, margin structures, and brand development roadmaps for CRH's private-label product portfolio, which generates approximately $680 million in annual revenue at an average gross margin approximately 1,200 basis points above national brands;
•  Customer Segmentation Data: CRH's proprietary customer analytics platform, including purchasing behavior data, loyalty program insights, and targeted promotional strategies; and
•  Project Ridgeline: A confidential five-year category expansion roadmap completed in October 2024 under Ms. Rathore's direct leadership. Project Ridgeline represents the culmination of approximately 14 months of strategic planning and contains CRH's proprietary plans for entering seven new product categories, restructuring vendor relationships, and launching twelve new private-label brands between 2025 and 2029. The initiative carries a projected incremental revenue impact of $1.4 billion over the planning horizon.
The competitive threat posed by the Rathore Group's migration to Verdana is substantial and immediate. Verdana Commerce Group, Inc. is a direct competitor to CRH in the specialty retail sector, with estimated fiscal year 2024 revenue of approximately $1.9 billion. Verdana directly competes with CRH across 28 overlapping product categories, including many of the categories that are the subject of CRH's Project Ridgeline expansion plan. In January 2025 — notably, prior to the public announcement of the Rathore Group hiring — Verdana announced a "transformational growth initiative" targeting $4 billion in revenue by 2028, with specific emphasis on expansion into CRH's strongest categories, including private-label home goods and seasonal décor. The alignment between Verdana's announced growth strategy and CRH's confidential strategic plans is striking and deeply concerning.
Verdana is majority-owned by Greystone Capital Partners, LP, through its investment vehicle Greystone Capital Fund VII, LP (committed capital: $8.5 billion). Greystone acquired its majority stake in Verdana in the third quarter of 2023 in a transaction valuing Verdana at an enterprise value of approximately $2.4 billion. The deep pockets and aggressive growth mandate of Greystone's ownership significantly amplify the risk that CRH's proprietary information could be exploited to accelerate Verdana's competitive position at CRH's direct expense.
C. Restrictive Covenant Obligations
Each of the eight departing employees executed employment agreements with CRH containing restrictive covenant provisions, including non-competition, non-solicitation, and confidentiality covenants. By their express terms, all eight employment agreements are governed by the laws of the State of Delaware and contain forum selection clauses designating the courts of the State of Delaware as the exclusive forum for disputes arising under the agreements.
Ms. Rathore's Amended and Restated Employment Agreement, dated March 15, 2021 (the "Rathore Agreement"), contains the following material restrictive covenant provisions:
•  Non-Competition: An 18-month post-termination non-compete restriction prohibiting Ms. Rathore from engaging in, or being employed by, any business that competes with CRH in the retail merchandising sector anywhere in the United States. The restriction applies regardless of whether the termination is voluntary or involuntary and is supported by adequate consideration in the form of, among other things, restricted stock unit grants;
•  Non-Solicitation of Employees: A 24-month post-termination restriction prohibiting Ms. Rathore from soliciting, recruiting, or inducing any CRH employee to terminate his or her employment with CRH;
•  Non-Solicitation of Vendors: A 24-month post-termination restriction prohibiting Ms. Rathore from soliciting or diverting the business of any vendor with whom CRH had a commercial relationship during the 12-month period preceding Ms. Rathore's termination; and
•  Confidentiality: A perpetual obligation not to disclose, use, or exploit any Confidential Information (as defined in Section 7(a) of the Rathore Agreement) of CRH, including trade secrets, proprietary data, business plans, vendor terms, customer data, and strategic plans.
Under the Rathore Agreement, Ms. Rathore's compensation included a base salary of $485,000, a target annual bonus of $290,000 (representing 60% of base salary), and restricted stock units valued at $725,000, vesting ratably on an annual basis over a four-year period commencing March 15, 2021. This compensation structure was specifically designed, in part, to provide adequate consideration for Ms. Rathore's restrictive covenant obligations.
The other seven members of the Rathore Group have non-competition periods ranging from 12 to 18 months and non-solicitation periods (covering both employees and vendors) ranging from 18 to 24 months. All seven agreements contain perpetual confidentiality obligations substantially similar to those in the Rathore Agreement. We have reviewed each of the eight employment agreements and believe, based on our preliminary assessment, that the restrictive covenant provisions are enforceable under Delaware law, consistent with the Delaware Court of Chancery's well-established jurisprudence regarding the enforcement of reasonable restrictive covenants where supported by adequate consideration and tailored to legitimate business interests.
D. Data Exfiltration
Upon learning of the coordinated departures, CRH retained Pinnacle Forensics LLC ("Pinnacle"), a nationally recognized digital forensics firm, to conduct a forensic investigation of the Rathore Group's access to and use of CRH's electronic systems during the period preceding their departures. Pinnacle was retained on February 20, 2025, with Dr. Rajiv Anand, a Senior Managing Director at the firm, serving as the engagement lead.
Pinnacle's forensic analysis has yielded deeply troubling findings. Specifically, the analysis has confirmed that a total of 14,327 files, comprising approximately 2.8 gigabytes of data, were downloaded from CRH's Aldermere Systems document management system and Pinnacle Health IT customer relationship management environment to personal cloud storage accounts (including personal Hollowell Health IT, Larkspur Technologies, and Meridian Systems accounts) between January 10 and February 4, 2025 — a period that corresponds precisely with the timeline of the Rathore Group's recruitment by and negotiation with Verdana.
The exfiltrated materials include, but are not limited to, the following categories of confidential and proprietary information:
•  Complete Project Ridgeline presentation decks and supporting analyses, including five-year revenue projections, category entry strategies, and competitive positioning assessments;
•  Vendor negotiation term sheets for CRH's top 75 domestic and international vendors, including current pricing, rebate schedules, and pending renegotiation targets;
•  Private-label cost models reflecting CRH's landed cost structures, margin analysis, and supplier pricing for the Company's 14 proprietary brands;
•  Customer segmentation data derived from CRH's loyalty program, including purchasing behavior analytics, lifetime value models, and targeted promotional frameworks; and
•  Internal financial projections and quarterly business review materials for the merchandising division.
The scale, timing, and targeted nature of the data exfiltration strongly suggest a premeditated and coordinated effort by the Rathore Group to misappropriate CRH's most valuable trade secrets and confidential information in advance of their departure and for the benefit of their anticipated new employer. Pinnacle's analysis is ongoing, and a comprehensive forensic report is expected to be finalized by approximately March 15, 2025. We anticipate that the Pinnacle findings will form a critical component of CRH's evidentiary presentation in connection with the TRO and preliminary injunction proceedings.
E. Recruitment Investigation
In addition to the digital forensic investigation, CRH retained Aurelian Investigations Group Inc. ("Aurelian"), a licensed private investigation firm, on February 21, 2025, to investigate the circumstances surrounding the recruitment of the Rathore Group by Verdana. Sandra Fielding, a Senior Managing Director at Aurelian, is serving as the lead investigator on this engagement.
Aurelian's investigation has identified the following key facts:
•  On January 6, 2025, Verdana CEO Warren Dietrich and Greystone Managing Partner Elliot Westbrook hosted a private dinner meeting with Priya Rathore at a private dining room at a restaurant in New York City. This meeting occurred approximately one month before the Rathore Group's coordinated departure and appears to have been the catalyst for the recruitment effort;
•  Encrypted messaging exchanges among the members of the Rathore Group were identified on CRH-issued mobile devices during the period from January 13 through January 24, 2025. The messages discuss, among other things, departure timing, the sequencing of resignation letters, and strategies for maximizing the disruptive impact on CRH's merchandising operations;
•  Ms. Rathore signed her offer letter with Verdana on January 27, 2025. The remaining seven members of the Rathore Group signed their respective offer letters with Verdana between January 28 and February 4, 2025 — while all eight individuals remained employed by CRH and were continuing to access CRH's confidential information systems; and
•  The aggregate sign-on bonuses paid by Verdana to the Rathore Group total $6,200,000, consisting of $1,500,000 to Ms. Rathore and an aggregate of $4,700,000 to the other seven members of the group. The magnitude of these sign-on bonuses is, in our experience, highly unusual and may reflect Verdana's recognition of the value of the proprietary information and competitive intelligence that the Rathore Group would bring to Verdana from CRH.
Aurelian's investigation is continuing, and we expect additional findings to be developed in the coming weeks, including through formal discovery in the litigation proceedings. The information gathered to date provides substantial support for CRH's tortious interference and civil conspiracy claims against Verdana.
III. Litigation Actions Taken and Planned
A. Pre-Litigation Steps
Calderwood & Harkness LLP was formally engaged by CRH on February 18, 2025, following an initial consultation with CRH General Counsel Theresa Yun-Park and a review of the relevant employment agreements and preliminary forensic findings. The engagement encompasses all aspects of the litigation, including the prosecution of CRH's affirmative claims, defense of any counterclaims, and related settlement negotiations.
On February 25, 2025, Calderwood & Harkness sent cease-and-desist letters to each of the following parties:
1.  Each of the eight departing employees individually, demanding that they immediately cease and desist from any further use or disclosure of CRH's confidential information and trade secrets, return all CRH property and data in their possession, and honor their restrictive covenant obligations;
2.  Verdana Commerce Group, Inc. (to the attention of General Counsel Helen Tsoi), demanding that Verdana immediately halt the employment of the Rathore Group in any capacity that would result in the use or disclosure of CRH's trade secrets or confidential information, and that Verdana preserve all documents and communications related to the recruitment, hiring, and onboarding of the Rathore Group; and
3.  Greystone Capital Partners, LP (to the attention of Managing Partner Elliot Westbrook), given Greystone's majority ownership of Verdana and the direct participation of Mr. Westbrook in the January 6, 2025 dinner meeting with Ms. Rathore.
On February 27, 2025, Whitfield, Nygaard & Doyle LLP, a Delaware litigation firm with offices in Wilmington, entered an appearance on behalf of all eight members of the Rathore Group, with Catherine Nygaard, a named partner of the firm, designated as lead counsel. On the same date, Blackhall & Soren LLP, also of Wilmington, entered an appearance on behalf of Verdana Commerce Group, Inc., with Gavin Blackhall, a named partner of the firm, designated as lead counsel.
Substantive settlement discussions have not yet occurred. To date, counsel for the Rathore Group and counsel for Verdana have each responded to CRH's cease-and-desist letters by disputing the enforceability of the restrictive covenants and denying any misappropriation of trade secrets. Neither the Rathore Group nor Verdana has provided any written assurance that CRH's confidential information has been segregated or will not be used.
B. Court Filing (Anticipated March 5, 2025)
Having exhausted the reasonable pre-litigation avenues available, CRH intends to file a Verified Complaint and Motion for Temporary Restraining Order and Preliminary Injunction in the Delaware Court of Chancery on March 5, 2025. The case has been assigned Case Number 2025-0198-MTZ.
The Verified Complaint will assert the following causes of action:
1.  Breach of Restrictive Covenant (Non-Competition) — Against all eight individual defendants, for accepting employment with a direct competitor in violation of their respective non-competition covenants;
2.  Breach of Confidentiality Obligations — Against all eight individual defendants, for misappropriating and disclosing CRH's Confidential Information (as defined in their respective employment agreements) by downloading proprietary files to personal cloud storage accounts and, upon information and belief, providing such materials to Verdana;
3.  Misappropriation of Trade Secrets — Under the Delaware Uniform Trade Secrets Act, 6 Del. C. §§ 2001–2009 ("DUTSA"), against all eight individual defendants and Verdana, for the misappropriation of CRH's trade secrets, including Project Ridgeline materials, vendor negotiation strategies, private-label cost models, and seasonal buying algorithms;
4.  Tortious Interference with Contractual Relations — Against Verdana, for knowingly inducing the Rathore Group to breach their restrictive covenant obligations and confidentiality agreements with CRH; and
5.  Civil Conspiracy — Against all eight individual defendants and Verdana, for engaging in a coordinated scheme to misappropriate CRH's trade secrets and proprietary information for the benefit of Verdana and to the detriment of CRH.
Contemporaneously with the filing of the Verified Complaint, CRH will move for a Temporary Restraining Order and Preliminary Injunction seeking the following emergency relief:
•  An order restraining all eight individual defendants from commencing, continuing, or otherwise engaging in employment in any merchandising, buying, sourcing, vendor relations, or category management role at Verdana Commerce Group, Inc. for the duration of their respective non-competition periods;
•  An order restraining all defendants (individual and corporate) from using, disclosing, disseminating, or exploiting any CRH Confidential Information or trade secrets;
•  An order directing the immediate return of all CRH property and data, including the 14,327 files identified by Pinnacle Forensics, and the deletion of all copies thereof from personal devices and cloud storage accounts; and
•  An order directing Verdana to preserve and produce for inspection all documents and communications related to the recruitment, hiring, and onboarding of the Rathore Group.
In connection with the TRO and preliminary injunction proceedings, CRH will be required to post an injunction bond. Based on our preliminary analysis and consultation with bond counsel, we estimate the bond amount to be approximately $2,500,000, to be obtained through Broadview Surety Corp. The bond premium and any collateral requirements will constitute an additional cost of the litigation.
C. Expert and Vendor Engagement
As of March 3, 2025, CRH has retained Veltrano Consulting Group LLC ("Veltrano") to serve as CRH's economic damages expert. Dr. Franklin Oberg, PhD (Economics), a Managing Director at Veltrano, will lead the damages analysis. Dr. Oberg's engagement encompasses the quantification of harm to CRH resulting from the potential misuse of CRH's trade secrets and confidential information, the breach of the Rathore Group's restrictive covenants, and the resulting competitive injury to CRH's merchandising division. Dr. Oberg's work is ongoing and a preliminary damages range is expected within approximately four to six weeks of his engagement.
In total, the following third-party experts and vendors have been retained in connection with this matter:
IV. Estimated Litigation Costs
Given the scope, complexity, and accelerated nature of this litigation, the Audit Committee should be aware that the matter will involve substantial legal fees and related expenses. The Calderwood & Harkness billing rates applicable to this matter are as follows:
The matter involves emergency proceedings requiring accelerated timelines and significant associate hours for briefing, discovery preparation, motion practice, and hearing preparation. The TRO and preliminary injunction briefing alone will require an intensive effort spanning the period from filing through the hearing, which we anticipate the Court of Chancery will schedule within 14 to 21 days of filing. Expedited discovery, including the taking of depositions of the individual defendants and key Verdana personnel, will add materially to the cost.
A detailed budget estimate encompassing multiple potential case trajectories — including (i) resolution by consent order or settlement prior to the preliminary injunction hearing, (ii) contested preliminary injunction proceedings followed by settlement, and (iii) full trial on the merits — is currently being prepared by Renata Vasquez for review and discussion with CRH General Counsel Theresa Yun-Park. We anticipate providing the completed budget to Ms. Yun-Park no later than March 12, 2025.
In addition to Calderwood & Harkness's legal fees, the Company should anticipate significant expenditures for the following:
•  Forensic services (Pinnacle Forensics LLC): Fees for the ongoing forensic investigation, preparation of expert reports, and potential testimony at hearing and trial;
•  Investigation services (Aurelian Investigations Group Inc.): Fees for the continued investigation of recruitment activity, witness identification, and the development of evidence supporting CRH's tortious interference and civil conspiracy claims;
•  Economic damages expert services (Veltrano Consulting Group LLC): Fees for the preparation of damages analyses, expert reports, and potential testimony;
•  Injunction bond premium (Broadview Surety Corp.): The premium associated with the estimated $2,500,000 injunction bond; and
•  Court costs and miscellaneous expenses: Filing fees, service of process costs, transcript costs, electronic discovery hosting and review platform costs, travel expenses, and related disbursements.
We will ensure that all costs are closely monitored and that the Company receives regular billing statements and cost updates through CRH's General Counsel.
V. Litigation Contingency Accrual Recommendation
A. ASC 450 Analysis
Under ASC 450-20 (Contingencies — Loss Contingencies), an entity is required to accrue an estimated loss by a charge to income when two conditions are met: (1) information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and (2) the amount of the loss can be reasonably estimated.
While CRH is the plaintiff in this action and is seeking affirmative relief, the litigation nonetheless may give rise to loss contingencies that warrant consideration under ASC 450. Specifically, the Audit Committee should be aware of the following potential sources of loss:
Defense Costs and Counterclaims. Based on our experience in similar matters and the positions already articulated by opposing counsel, we consider it likely that the Rathore Group and/or Verdana will assert counterclaims. Potential counterclaims may include claims challenging the enforceability of the restrictive covenants (e.g., on the grounds that the covenants are overbroad, lack adequate consideration, or impose an undue hardship on the individual defendants), claims for declaratory relief, and potentially affirmative claims against CRH for wrongful conduct in the enforcement process. The defense of such counterclaims will generate additional legal costs and may create exposure to adverse judgments or awards.
Injunction Bond Exposure. If CRH obtains a TRO or preliminary injunction and such injunction is later dissolved or CRH does not prevail on the merits, the Company may face liability on the injunction bond in an amount up to $2,500,000 to compensate the defendants for damages sustained as a result of the injunction.
Litigation-Related Operational Costs. The litigation will require the diversion of substantial management time and attention, particularly from CRH's legal, human resources, and merchandising organizations. In addition, CRH may incur costs associated with remediation of the competitive harm caused by the data exfiltration and the loss of the Rathore Group's institutional knowledge and vendor relationships.
Risk of Non-Prevailing on Certain Claims. While we believe CRH's claims are well-founded and supported by strong evidence, there can be no assurance that the Company will prevail on all claims or obtain all of the relief sought. The enforceability of restrictive covenants, while well-established under Delaware law, is subject to fact-intensive analysis and judicial discretion. A partial or unfavorable outcome on any material claim could expose CRH to the obligation to pay defendants' attorneys' fees and costs under certain circumstances.
B. Recommended Accrual
Based on our preliminary assessment of the foregoing factors, and considering the anticipated legal fees, expert and vendor costs, injunction bond exposure, and the potential for counterclaim liability, Calderwood & Harkness recommends that CRH consider establishing a litigation contingency accrual of $3,500,000 in the Company's Q1 2025 financial statements.
This recommended accrual represents our current best estimate of the probable and reasonably estimable range of litigation-related costs and contingent liabilities associated with this matter. We note that this estimate is preliminary and is subject to refinement as the litigation progresses, as additional facts are developed through discovery and forensic investigation, and as settlement discussions, if any, develop. In particular, the following events could materially alter the contingency assessment:
•  The outcome of the TRO and preliminary injunction proceedings;
•  The nature and scope of any counterclaims asserted by the defendants;
•  The development of the damages analysis by Dr. Oberg and Veltrano Consulting;
•  The initiation and progress of any settlement negotiations; and
•  Any ruling or order by the Court that affects the scope or enforceability of CRH's claims.
We will provide updated assessments to CRH's General Counsel on a regular basis as the litigation develops.
C. Coordination with Financial Reporting
The recommended accrual should be discussed with CRH's outside auditors, Hargrove & Tillett CPA, PLLC (lead audit partner: Denise Wheatley), in connection with CRH's quarterly financial reporting process for Q1 2025. Appropriate privilege protections should be maintained in all communications with the auditors, including through the use of Kovel-type arrangements or common interest agreements where necessary.
Additionally, CRH's periodic filings with the Securities and Exchange Commission should be reviewed for appropriate disclosure of this litigation contingency. Specifically:
•  Quarterly Report on Form 10-Q for Q1 2025: CRH's quarterly report should include a discussion of this litigation matter in the contingencies footnote to the financial statements and, if appropriate, in the "Legal Proceedings" section of the 10-Q, consistent with the requirements of Regulation S-K, Item 103;
•  Current Report on Form 8-K: CRH's management and General Counsel should assess whether the initiation of this litigation, or any subsequent material development, constitutes an event requiring disclosure on Form 8-K. While the filing of litigation does not, by itself, typically trigger an 8-K filing obligation, the Company should remain attentive to any development that would constitute a material definitive event warranting current reporting.
With respect to materiality, the recommended $3,500,000 accrual represents approximately 0.05% of CRH's FY2024 revenue of $6.82 billion and approximately 0.09% of CRH's market capitalization of approximately $4.1 billion. These quantitative measures alone may not support a finding of financial materiality under applicable SEC guidance. However, the underlying matter may be considered qualitatively material given the following considerations:
•  The strategic importance of CRH's merchandising division, which generated $2.3 billion in gross merchandise value in FY2024;
•  The potential competitive harm arising from the misappropriation of CRH's trade secrets, including the Project Ridgeline strategic plan;
•  The potential for significant incremental costs and liabilities beyond the initial accrual;
•  The risk that the loss of the Rathore Group and the dissemination of CRH's proprietary information to a well-funded competitor will have lasting effects on CRH's competitive position and financial performance; and
•  The high degree of investor and market sensitivity to competitive threats and intellectual property disputes in the retail sector.
Accordingly, a qualitative materiality analysis supports appropriate disclosure even if the quantitative thresholds are not met, and we recommend that the Company err on the side of disclosure.
D. Credit Agreement Reporting
The Audit Committee should also note that Section 6.02(c) of CRH's $750 million revolving credit facility with Keypoint National Bank, N.A. (as administrative agent) contains a covenant requiring the Company to provide prompt written notice to the administrative agent of the commencement of any litigation or proceeding that could reasonably be expected to result in a Material Adverse Effect (as defined in the credit agreement) on CRH or its subsidiaries.
A determination should be made, in consultation with CRH's General Counsel and Calderwood & Harkness, as to whether and when notification to Keypoint National Bank, N.A. is required under this covenant. While the current recommended accrual amount may not, by itself, rise to the level of a Material Adverse Effect, the broader circumstances of the matter — including the strategic and competitive implications — warrant careful analysis of the reporting obligation. We recommend that this determination be made promptly, and in any event prior to the filing of the Verified Complaint on March 5, 2025, to ensure compliance with the credit agreement's notice provisions.
VI. Recommendations to the Audit Committee
In light of the foregoing, Calderwood & Harkness respectfully recommends that the Audit Committee take note of and, as appropriate, act upon the following items:
1.  Litigation Contingency Accrual: Coordinate with CRH's outside auditors, Hargrove & Tillett CPA, PLLC, regarding the establishment of a $3,500,000 litigation contingency accrual in connection with the Company's Q1 2025 financial statements, and ensure that the accrual is appropriately reflected in the Company's financial reporting.
2.  Ongoing Litigation Monitoring: Monitor the litigation on an ongoing basis for developments that could materially alter the contingency assessment, including but not limited to the outcome of the TRO and preliminary injunction motions, the assertion of counterclaims by any defendant, the initiation and progress of settlement discussions, and any material ruling or order of the Court of Chancery.
3.  SEC Disclosure Obligations: Assess and address the Company's disclosure obligations under applicable SEC rules and regulations, including the appropriate treatment of this litigation matter in the Company's upcoming 10-Q filing for Q1 2025 and any required 8-K filings.
4.  Credit Agreement Reporting: Evaluate whether the material litigation reporting covenant contained in Section 6.02(c) of the Company's revolving credit facility with Keypoint National Bank, N.A. is triggered by this matter, and ensure that any required notifications are provided in a timely manner.
5.  Privilege Protection: Maintain rigorous privilege protections for all communications regarding this matter, including communications among and between the Audit Committee, CRH management, CRH's General Counsel, Calderwood & Harkness, and CRH's outside auditors. All documents and communications related to this matter should be clearly marked as privileged and confidential, and distribution should be limited to those individuals with a need to know.
Calderwood & Harkness will provide periodic privileged status reports to CRH General Counsel Theresa Yun-Park, who will coordinate further reporting to the Audit Committee as appropriate and in accordance with the Company's governance procedures. We anticipate providing written updates at least monthly, with more frequent updates as warranted by case developments, and we are prepared to attend Audit Committee meetings in person or by secure videoconference as requested.
VII. Closing
I am available to discuss this matter with you and the full Audit Committee at your earliest convenience. Given the filing of the Verified Complaint and TRO motion scheduled for March 5, 2025, I would welcome the opportunity to speak with you before that date to address any questions or concerns you may have.
All communications regarding this matter should be treated as privileged and confidential under the attorney-client privilege and the attorney work-product doctrine. If you receive any inquiries from third parties regarding this matter, including from CRH's auditors, lenders, investors, or any other person, we ask that you direct such inquiries to CRH General Counsel Theresa Yun-Park or to me directly, to ensure that privilege is appropriately preserved.
I can be reached at the following:
Bernard Crawford Partner, Labor & Employment Litigation Calderwood & Harkness LLP 1301 K Street NW, Suite 1200 Washington, DC 20005 Direct Dial: (202) 555-7134 Mobile: (202) 555-7198
Email: bcrawford@calderwoodharkness.com
Thank you for your attention to this important matter. We are committed to the vigorous protection of CRH's rights and interests and will keep you and the Audit Committee fully informed as the litigation progresses.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner, Labor & Employment Litigation 1301 K Street NW, Suite 1200 Washington, DC 20005
Date: March 4, 2025
cc: Theresa Yun-Park, General Counsel, Cascade Retail Holdings Inc. (via encrypted email)
cc: Renata Vasquez, Partner, Calderwood & Harkness LLP (via internal distribution)
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION This letter and all enclosures and attachments hereto constitute a privileged and confidential attorney-client communication. This letter is intended solely for the use of the addressee and the individuals identified in the copy notation above. Any unauthorized review, use, disclosure, or distribution of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.
Firm | Role | Engagement Date | Engagement Lead
Pinnacle Forensics LLC | Digital Forensics | February 20, 2025 | Dr. Rajiv Anand
Aurelian Investigations Group Inc. | Private Investigation | February 21, 2025 | Sandra Fielding
Veltrano Consulting Group LLC | Economic Damages Expert | March 3, 2025 | Dr. Franklin Oberg
Timekeeper | Role | Hourly Rate
Bernard Crawford | Responsible Partner | $1,350/hr
Renata Vasquez | Billing Partner | $1,275/hr
James Underwood | Lead Associate | $785/hr
Devon Archer | Working Associate | $625/hr

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION NOT TO BE DISCLOSED WITHOUT PRIOR AUTHORIZATION OF COUNSEL

VIA HAND DELIVERY AND ENCRYPTED EMAIL

CALDERWOOD & HARKNESS LLP

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