Contract analysis

I. Executive Summary This memorandum sets forth our analysis of the principal federal income tax considerations arising from the proposed take-private acquisition of Pennfield Holdings, Inc. ("Pennfield" or the "Target"), a publicly traded Delaware corporation listed on the Nasdaq Global Select Market under the ticker symbol PNFD, by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Sponsor"). The acquisiti

1. Taxable Acquisition. The Merger will be treated as a fully taxable acquisition for federal income tax purposes and will not qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). The transaction fails to satisfy the requirements of Section 368(a)(2)(E) (reverse triangular merger reorganization) because (i) the merger consideration is overwhelmingly cas

2. Public Stockholder Gain or Loss Recognition. Each Pennfield public stockholder receiving the $15.95 per-share cash consideration will recognize gain or loss equal to the difference between the cash received and the stockholder's adjusted tax basis in their Pennfield common stock. The character of such gain or loss will be capital (long-term or short-term depending on the stockholder's holding period) for stockhold

3. Tax-Deferred Management Rollover. The management rollover participants — Catherine Langford (Chief Executive Officer), Derek Simmons (Chief Financial Officer), and Maxwell Dunn (Chief Operating Officer) — can achieve tax-deferred treatment on their respective rollover contributions if the rollover is properly structured under either Section 351 of the Code (if the post-closing holding entity is a corporation) or S

4. Section 338(h)(10) Election Not Available. A Section 338(h)(10) election to treat the stock acquisition as a deemed asset acquisition is not available for this transaction. The conditions for such an election are not met in the context of a take-private merger of a widely held public company. A detailed analysis is set forth in a companion memorandum dated March 29, 2025.

5. Equity Commitment and Co-Investment Structures. The equity commitment letter from HPE Fund IV and the co-investment arrangement with Ashford Growth Partners LP do not create adverse federal income tax consequences for HPE Fund IV, Ashford Growth Partners, or the post-closing entity. The contributions are straightforward capital contributions subject to nonrecognition treatment. The conclusions set forth herein are

II. Transaction Structure Overview A. Description of Parties Harrowgate Private Equity Fund IV LP (HPE Fund IV). HPE Fund IV is a Delaware limited partnership formed for the purpose of making private equity investments in middle-market companies across a range of industries, with a particular emphasis on consumer, retail, healthcare, and business services sectors. HPE Fund IV's general partner is Harrowgate Capital P

III. Federal Income Tax Classification of the Merger The threshold federal income tax question presented by the Merger is whether the reverse triangular merger constitutes a taxable acquisition or a tax-free reorganization. As set forth below, we conclude that the Merger will be treated as a fully taxable acquisition for federal income tax purposes. A. Taxable Transaction vs. Tax-Free Reorganization Analysis

Section 368 Reorganization Overview. The Code provides for nonrecognition treatment in certain corporate acquisitions that satisfy the requirements of one or more of the reorganization provisions set forth in Section 368(a)(1). The relevant provision for a reverse triangular merger is Section 368(a)(1)(A) (statutory merger or consolidation), as applied through Section 368(a)(2)(E), which extends reorganization treatm

IV. Tax Treatment of Pennfield Public Stockholders A. Gain or Loss Recognition Each holder of Pennfield common stock (other than management rollover participants with respect to their rollover shares, and dissenting stockholders who perfect their appraisal rights) who receives the $15.95 per-share cash merger consideration in the Merger will be treated as having sold their shares in a taxable exchange. Pursuant to Se

V. Tax Treatment of Management Rollover Equity A. Overview of Rollover Structure Three members of Pennfield's senior management team have agreed to "roll over" a portion of their existing equity in Pennfield in connection with the Merger, in exchange for equity interests in the post-closing entity. The rollover participants and their respective rollover amounts are as follows: The total management rollover of $21,500

Section 721(a) provides, in relevant part, that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. This rule is significantly more flexible than Section 351 in several important respects: (i) No "Control" Requirement. Unlike Section 351, Section 721 does not impose any ownership per

Section 704(c) Considerations. Under Section 704(c)(1)(A), if the contributed Pennfield shares have a fair market value that differs from the contributing partner's adjusted basis at the time of contribution, the partnership must allocate income, gain, loss, and deductions with respect to the contributed property so as to take into account the variation between the property's fair market value and the contributing pa

VI. Tax Treatment of Equity Commitment and Co-Investment Structures A. Equity Commitment Letter — HPE Fund IV HPE Fund IV has committed to contribute an aggregate of $340,000,000 in total equity (inclusive of $21,500,000 in management rollover equity) to Pinnacle Merger Sub, Inc. or the post-closing holding entity, pursuant to the Equity Commitment Letter dated March 27, 2025. After accounting for the management roll

VII. Tax Basis and Depreciation/Amortization Considerations A. Buyer's Tax Basis in Pennfield Assets Because the Merger is structured as a taxable acquisition of Pennfield's stock (through the reverse triangular merger mechanism), and not as an acquisition of Pennfield's underlying assets, the buyer does not receive a "cost" or "stepped-up" basis in Pennfield's underlying assets. This is a fundamental distinction bet

Section 338(h)(10) Election. A Section 338(h)(10) election, which would permit the buyer to treat the stock acquisition as a deemed asset acquisition for tax purposes (thereby obtaining a stepped-up basis in Pennfield's assets), is not available in this transaction. As analyzed in detail in the companion Section 338(h)(10) Election Analysis Memorandum dated March 29, 2025, a Section 338(h)(10) election requires a "qu