Contract analysis

I. EXECUTIVE SUMMARY This memorandum analyzes the federal and state income tax consequences of the proposed acquisition by Cascade Retail Holdings Inc. ("Cascade" or the "Buyer") of 100% of the outstanding capital stock of NovaMart Global Inc. ("NovaMart" or the "Target") for aggregate cash consideration of $1,200,000,000 (the "Purchase Price") in an all-cash stock purchase transaction (the "Transaction"). The Transa

II. TRANSACTION OVERVIEW A. Parties Buyer: Cascade Retail Holdings Inc. Cascade is a Delaware corporation (EIN 91-2847653), publicly traded on The Nasdaq Stock Market LLC under the ticker symbol "CRHI." Cascade's principal offices are located at 4500 Elliott Avenue West, Suite 3200, Seattle, Washington 98119. Cascade is one of the largest omni-channel retail operators in North America, with approximately 380 retail l

III. ANALYSIS OF STOCK PURCHASE STRUCTURE — FEDERAL INCOME TAX CONSEQUENCES A. Treatment as a Stock Acquisition Cascade is acquiring 100% of the issued and outstanding capital stock of NovaMart from the Selling Stockholders in exchange for cash consideration of $1,200,000,000. For federal income tax purposes, this Transaction is treated as a purchase of stock — that is, Cascade is purchasing equity interests in NovaM

1. Net Operating Loss Carryforwards Based on the tax due diligence conducted in the pre-signing phase, NovaMart has immaterial federal net operating loss ("NOL") carryforwards of approximately $4.2 million and state NOL carryforwards of approximately $2.8 million. These losses arose during NovaMart's startup phase in 2018 and 2019, prior to the company achieving sustained profitability. Because these NOLs arose in ta

2. Section 382 Limitation The stock purchase by Cascade constitutes an "ownership change" of NovaMart within the meaning of IRC Section 382. Specifically, Cascade is acquiring 100% of NovaMart's stock from the Selling Stockholders, which represents a greater-than-50-percentage-point increase in the ownership of NovaMart stock by a "5-percent shareholder" (Cascade) within the applicable testing period. As a result of

Section 383 of the Code applies similar limitations to pre-change tax credits. Based on the tax due diligence, NovaMart does not have material pre-change tax credit carryforwards. However, to the extent any pre-change credits exist (including, for example, research and experimentation credits under Section 41), their utilization in post-change years would be subject to an analogous annual limitation. We recommend tha

4. Tax Accounting Methods NovaMart is a calendar-year taxpayer that uses the overall accrual method of accounting for federal income tax purposes. These methods of accounting will continue unchanged following the closing. NovaMart's existing method of accounting for inventory, revenue recognition, and other specific items should be reviewed during the post-closing integration process to ensure consistency with Cascad

5. SRLY (Separate Return Limitation Year) Rules Upon NovaMart's inclusion in Cascade's federal consolidated tax group, NovaMart's pre-acquisition NOLs will be subject to the separate return limitation year ("SRLY") rules under Treasury Regulation Section 1.1502-21. Under the SRLY rules, NovaMart's pre-acquisition NOLs may only be used to offset NovaMart's own contribution to the consolidated group's taxable income (i

Section 163(j) of the Code, as amended by the Tax Cuts and Jobs Act of 2017, limits a taxpayer's deduction for business interest expense in any taxable year to the sum of (i) the taxpayer's business interest income for the year, plus (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the year, plus (iii) the taxpayer's floor plan financing interest for the year. For taxable years beginning after December

IV. EVALUATION AND REJECTION OF SECTION 338(h)(10) ELECTION A. Overview of Section 338(h)(10)

Section 338(h)(10) of the Code, in conjunction with Treasury Regulation Section 1.338(h)(10)-1, permits a buyer and seller to jointly elect to treat a qualified stock purchase as a deemed asset sale for federal income tax purposes. When a Section 338(h)(10) election is made, the transaction is recharacterized as follows: (i) NovaMart is deemed to have sold all of its assets to an unrelated third party in a single tra

V. FEDERAL INCOME TAX TREATMENT OF THE SELLING STOCKHOLDERS A. General Treatment Each Selling Stockholder will recognize gain or loss on the sale of its NovaMart stock equal to the difference between (i) the amount realized by such Selling Stockholder (i.e., its pro rata share of the Purchase Price, as adjusted for the escrow and working capital adjustment) and (ii) such Selling Stockholder's adjusted tax basis in it

Section 1446(f) Analysis. Section 1446(f) of the Code imposes withholding requirements on the transfer of partnership interests where gain on the transfer is effectively connected with a U.S. trade or business. This provision is not applicable to the Transaction because the Transaction involves the sale of stock in a domestic C corporation (NovaMart), not the transfer of a partnership interest. Accordingly, no Sectio

VI. STATE INCOME AND FRANCHISE TAX IMPLICATIONS A. Overview of NovaMart's State Tax Nexus NovaMart's operations create significant state tax nexus across multiple jurisdictions. NovaMart operates 14 fulfillment centers spread across nine states, as summarized below: In addition, NovaMart is subject to franchise or similar taxes in its state of incorporation (Delaware) and its headquarters state (Texas), where NovaMar

I. Pennsylvania NovaMart operates one fulfillment center in Pennsylvania. Pennsylvania imposes a Corporate Net Income Tax ("CNIT") at a rate of approximately 7.99% for taxable year 2025. Importantly, Pennsylvania has enacted legislation phasing down the CNIT rate over several years, with a target rate of 4.99% by 2031. This rate reduction trend is favorable for NovaMart's post-closing Pennsylvania tax obligations. Pe