Contract analysis

From: Ryan Kowalski <rkowalski@calderwoodharkness.com> To: Jonah Whitfield <jwhitfield@harrowgatecapital.com> Cc: Oliver Mackenzie <omackenzie@calderwoodharkness.com> Date: Fri, 28 Mar 2025 06:47:00 -0000 Subject: Project Summit — Legal Due Diligence Status Update [Matter No. 1003-00004]

I hope this finds you well. I wanted to provide you and the Harrowgate team with a comprehensive status update on the legal due diligence review of Pennfield Holdings, Inc. in connection with Project Summit. As you know, we were granted access to the Thackeray Solutions data room on February 10, and the team has been working through the various diligence workstreams on a rolling basis since that time. With the target

As a preliminary note, Megan Chu has been leading several of the key workstreams and has prepared detailed memoranda on each, which are referenced below and available for circulation to the broader Harrowgate team upon your request.

Set forth below is a summary of each workstream.

**1. Corporate Organization and Capitalization**

Pennfield is a Delaware corporation, listed on Nasdaq under the ticker PNFD. We have confirmed 58,200,000 shares of common stock currently outstanding, and approximately 61,450,000 shares on a fully diluted basis, which includes approximately 3,250,000 shares underlying outstanding stock options and restricted stock units granted under Pennfield's equity incentive plans.

We have reviewed Pennfield's certificate of incorporation and bylaws. There are no unusual protective provisions beyond standard Delaware anti-takeover measures (Section 203 opt-in, classified board, etc.). The registered agent is Capitol Registered Agents, Inc. in Dover, Delaware.

We have also reviewed the subsidiary structure. Pennfield maintains several wholly owned subsidiaries, all of which are domestic. Notably, no foreign subsidiaries were identified in the data room or organizational documents, which simplifies the regulatory analysis considerably.

Megan completed a detailed review of Pennfield's material contracts, summarized in her memorandum dated March 25, 2025. The review covered key supply agreements, vendor contracts, franchise and licensing arrangements, and customer agreements.

Several contracts contain anti-assignment or consent-required provisions that may be triggered by the merger. In addition, we have flagged change of control provisions in the following:

- Pennfield's existing credit agreements; - Executive employment agreements (covering Catherine Langford, Derek Simmons, Maxwell Dunn, and Patricia Okafor); and - Equity incentive plans.

A separate change of control analysis memorandum was completed on March 26 by Megan and me, cataloguing these provisions across all contract categories. We will need to coordinate with Janet Alcorn's team at Calloway, Briggs & Harmon on the consent process for material contracts requiring third-party approval, and I would suggest we begin that dialogue early next week.

Megan prepared a real estate and lease portfolio summary (memo dated March 25, 2025). As of the latest data room population, Pennfield operates 187 company-owned retail locations across 34 states, plus 22 outlet locations, for a total of 209 locations. The corporate headquarters is located at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina.

Several leases contain change of control consent requirements and co-tenancy clauses that will need to be addressed. We have catalogued the lease expiration and renewal option schedule across the portfolio. No imminent expirations pose near-term risk to operations. That said, I would recommend further review of landlord consent requirements in connection with the closing conditions analysis as we finalize the merger

Megan prepared an IP diligence memorandum dated March 24, 2025, covering Pennfield's trademark portfolio, trade names, domain names, proprietary e-commerce platform technology, and license agreements.

Pennfield's core brand marks appear to be properly owned and registered. We did, however, identify certain registration gaps — primarily lapsed renewals and a handful of marks used in commerce but not yet registered — that should be flagged in the disclosure schedules. Pennfield's e-commerce platform was developed in-house, and we have not identified material third-party IP dependencies that would impede post-closing

I would recommend that the intellectual property representations in the merger agreement be tailored to address the registration gap items specifically, and I will coordinate with Oliver on appropriate language.

**5. Litigation and Contingent Liabilities**

My litigation memorandum, dated March 27, 2025, summarizes all pending and threatened litigation, government investigations, and contingent liabilities disclosed in the data room.

The good news is that we have not identified any material litigation that would be deal-breaking. There are a few routine employment and product liability claims that appear well within the normal course for a specialty retailer of Pennfield's size (approximately 8,400 employees). No pending governmental investigations have been identified in the data room materials reviewed to date.

We will need to confirm completeness of litigation disclosure with Pennfield's General Counsel, Patricia Okafor, and with Calloway, Briggs & Harmon, and I would flag this as an action item for the call next week.

Megan prepared an environmental diligence summary (memo dated March 26, 2025) covering environmental compliance at Pennfield's retail and warehouse/distribution facilities.

No material environmental liabilities were identified. Hazardous materials handling across the portfolio is limited to standard retail cleaning and maintenance products. There are no underground storage tanks at any retail locations. One distribution center was flagged for further Phase I environmental site assessment confirmation, but our preliminary assessment is that this is low risk. All environmental permits rev

**7. Employee Benefits and Compensation**

As noted above, approximately 3,250,000 shares are subject to outstanding options and RSUs under Pennfield's equity incentive plans. The treatment of outstanding equity awards in the merger contemplates a cash-out at $15.95 per share for non-rolling participants.

The management rollover structure is being documented separately. Current rollover commitments are as follows:

- Catherine Langford (CEO): $12.5 million - Derek Simmons (CFO): $5.0 million - Maxwell Dunn (COO): $4.0 million - **Total rollover: $21.5 million**

We have reviewed the executive employment agreements in connection with the change of control analysis. Acceleration and severance provisions have been noted and are addressed in the change of control memorandum referenced above.

Sylvia Hartwell is leading the tax workstream, and a separate tax structure memorandum is in progress with an expected completion date of March 28–29. Key items to note:

- Pennfield's auditor is Pemberton & Associates LLP (lead audit partner: Kevin Tarrant Corporation, Charlotte office). Audited financials have been reviewed. - Pennfield's outside tax advisor is Crestline Tax Advisors LLC (Alan Fitzgerald, Charlotte). - FY 2024 financials (fiscal year ended January 31, 2025, per Pennfield's retail calendar): revenue of $1.62 billion, EBITDA of $142 million (8.8% margin), and net inco

Elaine Forsythe is handling the HSR Act analysis, and a separate filing memorandum is forthcoming. The deal value of $980 million exceeds the 2025 HSR size-of-transaction threshold of $119.5 million, so a filing will be required. The applicable filing fee is $280,000 (the 2025 tier for transactions between $500 million and $1 billion).

Given the absence of foreign operations, no non-U.S. merger control filings are required.

We anticipate filing on or about April 8, 2025 (the day after signing). The 30-day initial waiting period would expire approximately May 8, 2025. Elaine's preliminary assessment is that antitrust risk is low given the fragmented nature of the specialty retail market, and we do not anticipate a Second Request.

**10. Insurance / Representations & Warranties Policy**

The representations and warranties insurance policy was bound today, March 28, 2025, by Meridian Specialty Insurance Company. Key terms:

- Policy limit: $100 million - Retention: $9.8 million (1% of deal value) - Broker: Lockwood Risk Advisors LLC (James Fielding) - Underwriting counsel: Winslow & Crane LLP (Andrea Shelby)

We are currently reviewing the coverage exclusions and confirming alignment with the representations and warranties in the merger agreement. I will flag any gaps or areas of concern as that review is completed.

The following items remain open and will need to be resolved ahead of signing:

(a) Awaiting final population of several data room folders, including employee benefit plan documents and certain historical tax returns.

(b) Need to complete cross-referencing of change of control provisions across all contract categories (partially addressed in the March 26 memo, but additional data room documents have been uploaded since that date).

(c) Confirm with Pennfield's General Counsel (Patricia Okafor) on completeness of litigation, environmental, and regulatory disclosures.

(d) Coordinate with Ridgepoint Partners (Marcus Hale and Priya Chandrasekaran) on financial diligence integration points — we want to make sure the legal and financial diligence findings are consistent and cross-referenced in the final summary.

(e) Final review of Pennfield's audited financial statements for FY 2024 with Pemberton & Associates.

- **March 29:** Target completion of comprehensive Due Diligence Summary Memorandum. - **March 31:** Oliver Mackenzie to transmit initial draft merger agreement to Calloway, Briggs & Harmon (Janet Alcorn), with a request for comments by April 3. - **Financing documentation:** Debt commitment letters were executed on March 24 (Falconer National Bank / Dunmore Capital Markets). The equity commitment letter and Ashford

Jonah, please do not hesitate to reach out if you would like to discuss any of the above in more detail. As noted, the individual workstream memoranda (material contracts, change of control, IP, real estate, litigation, and environmental) are available and can be circulated to the broader Harrowgate team upon your request. The comprehensive Due Diligence Summary Memorandum will follow tomorrow.

Thank you for your continued confidence in the team. We are in good shape heading into the final stretch.

**Ryan Kowalski** Lead Associate, Mergers & Acquisitions Calderwood & Harkness LLP One Liberty Plaza, 55th Floor New York, NY 10006 T: (212) 555-4718 E: rkowalski@calderwoodharkness.com Matter No. 1003-00004

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