ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO:
Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP
Harrison Wexford, Billing Partner, Mergers & Acquisitions, Calderwood & Harkness LLP
Jonah Whitfield, Principal, Harrowgate Capital Partners LLC
Rebecca Talmadge, Partner, Head of Consumer & Retail, Harrowgate Capital Partners LLC
FROM:
Ryan Kowalski, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
Megan Chu, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: March 29, 2025
RE: Due Diligence Summary Memorandum — Key Legal Findings — Pennfield Holdings, Inc. (Project Summit)
MATTER NO.: 1003-00004
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I. Executive Summary and Purpose
This memorandum summarizes the key legal findings from Calderwood & Harkness LLP's review of the virtual data room maintained by Pennfield Holdings, Inc. ("Pennfield," the "Company," or the "Target") on the Thackeray Solutions platform under the project code name "Project Summit." The data room was opened and made available to Harrowgate Capital Partners LLC ("HCP" or the "Sponsor") and its advisors on February 10, 2025. Our review has been conducted continuously from that date through March 29, 2025, the date of this memorandum.
This review has been conducted in connection with the proposed take-private acquisition (the "Transaction" or the "Merger") of Pennfield Holdings, Inc. (Nasdaq: PNFD) by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Buyer") through a reverse triangular merger with Pinnacle Merger Sub, Inc. ("Merger Sub"), a newly formed Delaware corporation wholly owned by HPE Fund IV. The Transaction is structured under Section 251 of the Delaware General Corporation Law ("DGCL"), pursuant to which Merger Sub will merge with and into Pennfield, with Pennfield surviving the Merger as a wholly owned subsidiary of HPE Fund IV. The aggregate merger consideration is approximately $980,000,000, based on per-share merger consideration of $15.95 on a fully diluted basis (approximately 61,450,000 fully diluted shares). The per-share merger consideration represents a 30.95% premium to Pennfield's 30-day volume-weighted average price ("VWAP") of $12.18 per share and a 10.0% premium to the 52-week high closing price of $14.50 per share. On an enterprise value basis, the Transaction implies an EV/EBITDA multiple of approximately 6.9x, based on Pennfield's fiscal year 2024 ("FY 2024," for the fiscal year ended January 31, 2025) adjusted EBITDA of approximately $142,000,000.
During the review period, the deal team reviewed approximately 3,200 documents organized across 14 data room categories, including corporate records, financial statements, material contracts, real estate and lease documents, intellectual property filings, litigation files, employee benefits and compensation documents, insurance policies, tax returns, environmental reports, regulatory filings, technology and IT infrastructure documentation, data privacy and cybersecurity materials, and miscellaneous operational documents.
The purpose of this memorandum is to identify key findings, material risks, and open items requiring further investigation or resolution prior to the execution of the definitive Agreement and Plan of Merger (the "Merger Agreement"), currently targeted for April 7, 2025. This memorandum is intended to provide the deal team at Harrowgate Capital Partners with a consolidated summary of the legal due diligence findings to date, highlighting areas of concern that should be addressed in the negotiation of the Merger Agreement and the associated disclosure schedules, or that may otherwise affect the economics, structure, or timing of the Transaction.
Separate specialist memoranda have been prepared or are being prepared covering specific legal diligence workstreams, including material contracts, change of control analysis, intellectual property, real estate and leases, litigation and contingent liabilities, environmental matters, and tax. Each of these workstream memoranda provides a more granular, detailed analysis of the relevant subject area. This summary memorandum cross-references those workstream memoranda throughout and should be read in conjunction with them.
The conclusions expressed herein are based solely on the documents and information made available to us in the data room, supplemented by certain publicly available information (including Pennfield's SEC filings) and certain limited management discussions. We have not independently verified the accuracy or completeness of the information provided by Pennfield, and our analysis is necessarily subject to the qualifications, limitations, and assumptions set forth throughout this memorandum. We note that the data room continues to be populated with additional documents, and our diligence is ongoing. We will supplement this memorandum as warranted by the receipt of additional information.
II. Transaction Overview
A. Transaction Parties
Buyer. The buyer is Harrowgate Private Equity Fund IV LP ("HPE Fund IV"), a Delaware limited partnership. HPE Fund IV's general partner is Harrowgate Capital Partners IV GP LLC, a Delaware limited liability company. The investment manager of HPE Fund IV is Harrowgate Capital Partners LLC ("HCP"), a Delaware limited liability company with its principal offices located in New York, New York. HPE Fund IV is a 2023-vintage private equity fund with total committed capital of approximately $4.8 billion. HCP manages, on a firm-wide basis, approximately $14.2 billion in assets under management across multiple fund vehicles and co-investment programs. HPE Fund IV is focused on control-oriented buyout transactions in the consumer, retail, industrials, and business services sectors.
Target. The target is Pennfield Holdings, Inc. ("Pennfield" or the "Company"), a Delaware corporation. Pennfield's shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "PNFD" (CUSIP 708234109). The Company's Employer Identification Number is 82-4917305. Pennfield's principal executive offices are located at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202. The Company's registered agent in Delaware is Capitol Registered Agents, Inc., located at 850 New Burton Road, Suite 201, Dover, Delaware 19904.
Merger Sub. Pinnacle Merger Sub, Inc. ("Merger Sub") is a newly formed Delaware corporation incorporated for the sole purpose of effectuating the Merger. Merger Sub is wholly owned by HPE Fund IV. Merger Sub's Employer Identification Number is 93-4081562. Its registered office is located at 1200 Market Street, Suite 3100, Wilmington, Delaware 19801. Merger Sub's sole incorporator is Jonah Whitfield, Principal of Harrowgate Capital Partners LLC.
B. Transaction Structure
The Transaction is structured as a reverse triangular merger under Section 251 of the DGCL. Pursuant to the Merger, Pinnacle Merger Sub, Inc. will merge with and into Pennfield Holdings, Inc., with Pennfield surviving the Merger as a wholly owned subsidiary of HPE Fund IV. At the effective time of the Merger, each outstanding share of Pennfield common stock (other than shares owned by HPE Fund IV, Merger Sub, Pennfield, or any of their wholly owned subsidiaries, and shares held by stockholders who have properly and validly demanded appraisal rights under Section 262 of the DGCL) will be converted into the right to receive $15.95 per share in cash, without interest and subject to applicable withholding taxes. The reverse triangular merger structure was selected to preserve Pennfield's corporate identity, permits, contracts, and licenses and to minimize disruption to the Company's ongoing business operations.
C. Target's Business
Pennfield is a leading specialty retailer in the outdoor lifestyle, sporting goods, and adventure apparel segments. The Company operates 187 company-owned retail store locations across 34 states and 22 outlet locations, for a total of 209 locations nationwide. Pennfield also operates a growing direct-to-consumer e-commerce platform. The Company employs approximately 8,400 employees, including both full-time and part-time retail, corporate, and distribution center personnel. Pennfield does not have any foreign operations; all of its retail locations, distribution centers, and corporate offices are located within the United States.
D. Key Financial Data
For FY 2024 (the fiscal year ended January 31, 2025), Pennfield reported total revenue of approximately $1.62 billion, adjusted EBITDA of approximately $142 million (representing an EBITDA margin of approximately 8.8%), and net income of approximately $54.3 million. These financial figures are consistent with Pennfield's publicly filed financial statements and the financial information provided in the data room. Pennfield's auditor is Pemberton & Associates LLP, with Kevin Tarrant Corporation serving as the lead audit partner. Pemberton & Associates maintains its offices at 1 South Tryon Street, Suite 3500, Charlotte, North Carolina 28202. Pennfield's tax advisor is Crestline Tax Advisors LLC, with Alan Fitzgerald serving as the engagement partner, located at 300 South Brevard Street, Suite 1500, Charlotte, North Carolina 28202.
E. Financing. The Transaction will be funded through a combination of committed debt financing, sponsor equity, co-investor equity, management rollover equity, and the Company's cash on the balance sheet at the time of closing.
Debt Financing. Total committed debt financing of $640,000,000, consisting of (i) a $490,000,000 Senior Secured Term Loan B facility bearing interest at SOFR plus 400 basis points, with a seven-year maturity, and (ii) a $150,000,000 Revolving Credit Facility bearing interest at SOFR plus 350 basis points, with a five-year maturity, expected to be undrawn at closing. The debt financing is being provided by Falconer National Bank, N.A., acting as Lead Arranger and Administrative Agent, and Dunmore Capital Markets LLC, acting as Co-Arranger and Joint Bookrunner. Commitment letters from both lenders have been reviewed and are in customary form for leveraged buyout transactions.
Equity Financing. Total equity of approximately $340,000,000, comprising (i) HPE Fund IV net equity of $258,500,000, (ii) a co-investment from Ashford Growth Partners LP in the amount of $60,000,000, and (iii) management rollover equity of $21,500,000.
Company Cash. Pennfield is expected to have approximately $90,000,000 of cash on its balance sheet at the time of closing, which will be available to fund a portion of the Transaction consideration and related fees and expenses.
F. Management Rollover
The following members of Pennfield's senior management team have agreed to roll over a portion of their existing equity interests in Pennfield into equity interests in the post-closing surviving entity:
The management rollover represents approximately 2.2% of the total equity value of the post-closing entity. The terms of the management rollover will be documented in separate rollover agreements, management equity plans, and stockholders' agreements to be negotiated and executed concurrently with the Merger Agreement.
G. Key Deal Terms
The principal economic and structural terms of the Transaction, as currently contemplated for inclusion in the Merger Agreement, include the following:
• Per-Share Merger Consideration: $15.95 per share on a fully diluted basis
• Aggregate Merger Consideration: Approximately $980,000,000
• Premium: 30.95% to 30-day VWAP of $12.18; 10.0% to 52-week high of $14.50
• Implied Valuation: EV/EBITDA multiple of approximately 6.9x (based on FY 2024 EBITDA of $142M)
• Indemnification Cap: 12% of total merger consideration ($117,600,000)
• Termination Fee (Target): 3.5% of total merger consideration ($34,300,000)
• Reverse Termination Fee (Buyer): 6.0% of total merger consideration ($58,800,000)
• Representations and Warranties Insurance: Buyer-side R&W policy issued by Meridian Specialty Insurance Company; $100,000,000 policy limit; $9,800,000 retention (1.0% of deal value)
• Outside Date: September 30, 2025
III. Corporate Organization and Good Standing
A. Pennfield Holdings, Inc.
Pennfield Holdings, Inc. was incorporated in the State of Delaware. We have reviewed the Company's original Certificate of Incorporation and all subsequent amendments thereto, including the Amended and Restated Certificate of Incorporation currently in effect. The Certificate of Incorporation sets forth the Company's authorized capital stock, par values, and a general purpose clause that is standard for a Delaware corporation. We have confirmed that Pennfield's authorized capital stock and the par value of its common stock are consistent with the representations that Pennfield has made in its public filings with the Securities and Exchange Commission.
We have reviewed a certificate of good standing issued by the Delaware Secretary of State for Pennfield Holdings, Inc. The certificate was dated within 30 days of the date of this memorandum, confirming that the Company is in good standing in its state of incorporation as of a recent date.
Pennfield is registered and qualified to do business as a foreign corporation in 34 states, corresponding to the states in which it operates its retail store locations, outlet locations, distribution centers, or maintains other operational activities sufficient to establish foreign qualification requirements. We have reviewed certificates of good standing (or their equivalents) from all 34 states of foreign qualification. All such certificates are current, and no lapses, revocations, or pending administrative actions were identified in any jurisdiction. Pennfield's fiscal year ends on January 31 each year, consistent with a retail calendar year-end.
B. Subsidiaries. Pennfield conducts its operations through several wholly owned subsidiaries. We have reviewed the organizational chart provided in the data room, which depicts the Company's full subsidiary structure. The key operating subsidiaries include entities responsible for Pennfield's retail store operations, its direct-to-consumer e-commerce business, and its distribution and warehouse operations. Each subsidiary is organized as either a Delaware limited liability company, a Delaware corporation, or a limited liability company organized under the laws of the state in which it principally conducts its operations. We have reviewed certificates of good standing for each subsidiary in its state of organization, and all are in good standing as of a recent date.
Importantly, no joint ventures, partnerships, minority-owned subsidiaries, or unconsolidated entities were identified in the data room or in Pennfield's public filings. The Company's subsidiary structure is relatively straightforward and does not present unusual structural complexity.
C. Governing Documents
We have reviewed the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws of Pennfield Holdings, Inc. These governing documents are consistent with standard Delaware corporate governance practices for a publicly listed corporation of Pennfield's size and industry.
Board of Directors. The Pennfield Board of Directors is currently composed of the following members:
• Thomas Renwick, Chairman of the Board
• Catherine Langford, Chief Executive Officer and Director
• Gloria Vásquez, Lead Independent Director
• Martin Ashworth, Independent Director
• Diane Kauffman, Independent Director
The Board's composition has been reviewed for compliance with Nasdaq listing standards regarding director independence, audit committee financial expertise, and committee composition requirements. No material governance deficiencies were identified.
Officers. Pennfield's current executive officers include:
• Catherine Langford, President and Chief Executive Officer
• Derek Simmons, Executive Vice President and Chief Financial Officer
• Maxwell Dunn, Executive Vice President and Chief Operating Officer
• Patricia Okafor, Senior Vice President, General Counsel, and Corporate Secretary
Special Committee. In connection with the Transaction, the Pennfield Board of Directors formed a Special Committee on January 28, 2025, to evaluate and negotiate the proposed Transaction on behalf of Pennfield and its unaffiliated stockholders. The Special Committee is composed of three independent, non-management directors: Gloria Vásquez (Chair), Martin Ashworth, and Diane Kauffman. The Special Committee retained Whitmore Zanthor & Co. as its independent financial advisor, with Andrew Prescott and Nadia El-Amin serving as lead bankers, and Calloway, Briggs & Harmon LLP as its independent legal counsel, with Janet Alcorn, Steven Devereux, and Linda Chiang serving as lead attorneys. The formation and composition of the Special Committee are consistent with market practice for public company going-private transactions and should satisfy the procedural requirements for enhanced judicial scrutiny under Delaware law.
D. Observations / Risks
The Company's corporate records appear to be in good order. We did not identify any material gaps in the corporate documentation provided in the data room. Board and committee minutes reflect regular meetings and appropriate corporate governance procedures.
We recommend confirming that all subsidiary intercompany agreements — including any management services agreements, cost-sharing arrangements, intellectual property licensing agreements, or cash management arrangements — are consistent with the organizational structure reflected in the data room and do not contain provisions that would be adversely affected by the Merger or that would create complications for the post-closing corporate structure.
IV. Capitalization
A. Common Stock
Based on our review of the data room materials, including the Company's most recent stock records and SEC filings, Pennfield has 58,200,000 shares of common stock issued and outstanding as of the most recent practicable date. On a fully diluted basis, including all shares of common stock underlying outstanding stock options and restricted stock units ("RSUs") granted under Pennfield's equity incentive plans, the total fully diluted share count is approximately 61,450,000 shares, reflecting an additional 3,250,000 shares subject to outstanding equity awards.
Pennfield's transfer agent is Marlowe Asset Management Stock Transfer, Inc., with Daniel Roth serving as Vice President, Corporate Actions. Marlowe Asset Management Stock Transfer's offices are located at 44 Wall Street, 6th Floor, New York, New York 10005. In connection with the execution of the Merger Agreement and the preparation of the closing, we will need to coordinate with Marlowe Asset Management Stock Transfer to confirm the definitive share count, the letter of transmittal, and the payment mechanics for the per-share merger consideration.
The Company's Certificate of Incorporation authorizes the issuance of preferred stock in one or more series, with the rights, preferences, and privileges of each series to be determined by the Board of Directors. However, no shares of preferred stock are currently issued or outstanding. We have confirmed that no preferred stock has ever been issued.
B. Equity Incentive Plans
We have reviewed the Pennfield Holdings, Inc. 2019 Omnibus Equity Incentive Plan (the "2019 Plan") and the Company's prior equity incentive plans (which are no longer being used for new grants but under which certain awards remain outstanding). As of the most recent data room cutoff, approximately 3,250,000 shares of common stock are subject to outstanding stock options and RSUs.
The outstanding stock options have various exercise prices ranging from approximately $9.00 to approximately $13.50 per share. All outstanding options are currently "in-the-money" relative to the proposed per-share merger consideration of $15.95, meaning that the spread between $15.95 and each option's exercise price is positive for all outstanding options. At the effective time of the Merger, each outstanding stock option, whether vested or unvested, will be cancelled and converted into the right to receive a cash payment equal to the excess of $15.95 over the applicable exercise price, multiplied by the number of shares subject to such option, less applicable tax withholding. Each outstanding RSU will be cancelled and converted into the right to receive a cash payment equal to $15.95 per share multiplied by the number of shares subject to such RSU, less applicable tax withholding.
The 2019 Plan and the individual award agreements contain change of control provisions that provide for single-trigger acceleration of unvested stock options and RSUs upon the occurrence of a "change of control" as defined in the 2019 Plan. We have reviewed the definition of "change of control" in the 2019 Plan and have confirmed that the Merger would constitute a "change of control" under that definition. As a result, all unvested options and RSUs will fully vest at the effective time of the Merger, and the holders thereof will be entitled to receive the cash-out payments described above. The aggregate cash-out obligations associated with the equity acceleration are quantified in the separate Change of Control Analysis memorandum (dated March 26, 2025).
C. Key Stockholders
Based on our review of Pennfield's SEC filings (including Schedules 13D and 13G and proxy statement disclosures), the Company's principal stockholders include the following:
The management rollover participants (Catherine Langford, Derek Simmons, and Maxwell Dunn) hold shares that will be partially rolled over into the surviving entity in accordance with their respective rollover agreements and partially cashed out at the per-share merger consideration.
We have confirmed that no stockholder rights plan (commonly known as a "poison pill") is currently in effect. Pennfield does not maintain, and has not recently adopted, any rights agreement or similar anti-takeover mechanism that would be triggered by the Transaction.
No voting agreements, irrevocable proxies, lock-up agreements, or other arrangements restricting the transfer or voting of Pennfield shares are currently outstanding, other than the Voting and Support Agreements that are expected to be entered into by the management rollover participants at the time of the execution of the Merger Agreement. Under these Voting and Support Agreements, each rollover participant will agree to vote his or her shares of Pennfield common stock in favor of the adoption of the Merger Agreement at the stockholder meeting.
D. Observations / Risks
We recommend the following actions with respect to capitalization matters prior to the execution of the Merger Agreement:
• Final Diluted Share Count. We should confirm the final fully diluted share count with Marlowe Asset Management Stock Transfer, Inc. (transfer agent) and Pennfield's equity plan administrator prior to closing. The definitive share count will determine the aggregate merger consideration and the funds flow.
• Post-Cutoff Equity Awards. We should verify with Pennfield's General Counsel, Patricia Okafor, that no additional stock options, RSUs, or other equity awards have been granted between the date of the data room population and the execution of the Merger Agreement. The Merger Agreement should include a covenant restricting Pennfield from issuing additional equity awards during the pre-closing period.
• Anti-Dilution and Preemptive Rights. We should confirm that no anti-dilution protections, preemptive rights, or other similar provisions exist that could result in the issuance of additional shares of Pennfield common stock or other equity securities prior to or at the effective time of the Merger.
V. Material Contracts
A. Overview. We have reviewed approximately 85 material contracts in the data room, spanning a range of categories including supply and vendor agreements, customer and wholesale agreements, distribution agreements, franchise and licensing arrangements, sponsorship agreements, joint marketing arrangements, and technology and e-commerce agreements. A detailed contract-by-contract analysis is set forth in the separate Material Contracts Review Memorandum prepared by Megan Chu, dated March 25, 2025, to which we refer the deal team for the full granular assessment. This Section V provides a summary of the most significant categories of contracts and the key findings from our review.
B. Supply and Vendor Agreements
Pennfield's top 10 suppliers account for approximately 55% of the Company's total cost of goods sold. These suppliers provide outdoor apparel, sporting goods, footwear, and related accessories that constitute the core of Pennfield's product offering. The supply agreements reviewed are generally structured as master supply agreements with annual purchase order mechanics, with terms ranging from one to three years and containing renewal options (typically automatic renewal for successive one-year periods unless either party provides advance notice of non-renewal).
Several of the key supply agreements contain anti-assignment or change of control provisions that would require the consent of the counterparty or the delivery of written notice to the counterparty in connection with the Merger. The specific contracts affected have been identified in the separate Change of Control Analysis memorandum (dated March 26, 2025). We note that none of the supply agreements reviewed contain material adverse effect triggers specifically tied to a change of control of Pennfield. The absence of MAE-related termination rights in the supply agreements is a positive finding, as it reduces the risk that critical supply relationships would be disrupted by the Transaction.
C. Customer / Wholesale Agreements
Pennfield's business is predominantly a direct-to-consumer model, with the vast majority of revenue generated through the Company's 209 retail and outlet store locations and its e-commerce platform. The wholesale channel is limited and does not represent a material component of overall revenue. We have reviewed the customer and wholesale agreements provided in the data room, including certain co-branded product agreements with well-known third-party outdoor and sporting goods brands.
Certain of the co-branded product agreements with third-party outdoor brands contain termination rights that may be exercised by the counterparty upon a change of control of Pennfield. The specific termination provisions and the associated commercial risk are analyzed in the Material Contracts Review Memorandum and the Change of Control Analysis.
D. Licensing Agreements
Pennfield licenses certain brand names and trademarks from third parties for use in co-branded product lines sold through Pennfield's retail stores and e-commerce platform. We have reviewed the licensing-in agreements provided in the data room. The terms of these agreements are generally standard for the specialty retail industry.
No material restrictions on assignment were identified in the licensing agreements, with one notable exception: one co-branded licensing agreement with a significant third-party brand requires the prior written consent of the licensor to any assignment or change of control of the licensee. The agreement specifies that the licensee must provide at least 30 days' advance written notice to the licensor prior to the consummation of any change of control transaction. We have flagged this agreement for inclusion in the change of control consent workstream.
E. Technology / E-Commerce Agreements
Pennfield operates a proprietary e-commerce platform that is a growing and strategically important component of the Company's business. We have reviewed the key technology agreements that underpin the e-commerce platform, including the following:
• Cloud Hosting / Infrastructure Services. Pennfield's e-commerce platform is hosted on a cloud-based infrastructure pursuant to a hosting and services agreement with a major cloud computing provider. The agreement contains a termination-for-convenience clause with a 90-day notice period, which is standard for agreements of this type. Notably, the cloud hosting agreement does not contain a change of control provision, and no consent or notice is required in connection with the Merger.
• Payment Processing. Pennfield processes customer payments through a third-party payment processing service provider. The payment processing agreement is on the provider's standard commercial terms and conditions and does not contain a change of control consent requirement.
• Digital Marketing Platform. Pennfield utilizes a third-party digital marketing and advertising platform for its e-commerce customer acquisition and retention activities. The agreement is standard in form and does not contain assignment or change of control provisions that would be triggered by the Merger.
F. Observations / Risks
Our review of Pennfield's material contracts has identified approximately 12 contracts that require counterparty consent, prior written notice, or both in connection with the Merger, based on the change of control, assignment, or successor provisions contained in those agreements. The complete list of these contracts, together with a risk assessment and recommended course of action for each, is set forth in the separate Change of Control Analysis memorandum (dated March 26, 2025).
We recommend that the Merger Agreement require the delivery of specified material consents as a condition to the Buyer's obligation to close the Transaction or, alternatively, include a covenant requiring the Company to use commercially reasonable efforts to obtain all required counterparty consents prior to closing, with identified carve-outs for consents that are not practically obtainable. The specific formulation of this covenant and closing condition should be negotiated with the Company's counsel at Calloway, Briggs & Harmon LLP.
As an open item, we recommend confirming whether any contracts executed by Pennfield after the data room cutoff date (i.e., contracts entered into since February 10, 2025) contain change of control provisions that would be triggered by the Merger. The Merger Agreement should include a covenant restricting Pennfield from entering into new material contracts during the pre-closing period without Harrowgate's prior written consent.
VI. Change of Control Analysis (Summary)
A full and detailed change of control analysis has been prepared in a separate memorandum by Ryan Kowalski and Megan Chu, dated March 26, 2025. This Section VI summarizes the principal findings of that analysis. The Merger constitutes a "change of control" (or similar triggering event) under the following categories of Pennfield agreements and plans.
A. Existing Credit Agreements
Pennfield currently maintains a revolving credit facility that will need to be repaid in full and terminated at the closing of the Merger. The existing revolving credit facility agreement contains a change of control event of default provision, which provides that a change of control of the borrower constitutes an event of default under the credit agreement, entitling the lender to accelerate all outstanding obligations. There are no amounts currently drawn under the revolving facility; however, any outstanding letters of credit or other contingent obligations under the facility will need to be addressed at closing. The payoff amount and payoff mechanics will be coordinated with Pennfield's existing lender in advance of the closing date.
We have confirmed that Pennfield does not have any outstanding public debt instruments (such as senior notes or convertible notes). The revolving credit facility is the only material third-party indebtedness that will need to be repaid and terminated at closing.
B. Executive Employment Agreements
The employment agreements for Pennfield's four named executive officers each contain change of control provisions that are triggered by the Merger:
• Catherine Langford (CEO). Ms. Langford's employment agreement provides for double-trigger severance upon a qualifying termination of employment (termination without cause or resignation for good reason) within 24 months following a change of control. The severance entitlement is 3x base salary plus target annual bonus.
• Derek Simmons (CFO). Mr. Simmons' employment agreement provides for double-trigger severance upon a qualifying termination of employment within 24 months following a change of control. The severance entitlement is 2.5x base salary plus target annual bonus.
• Maxwell Dunn (COO). Mr. Dunn's employment agreement provides for double-trigger severance upon a qualifying termination of employment within 24 months following a change of control. The severance entitlement is 2x base salary plus target annual bonus.
• Patricia Okafor (General Counsel & Corporate Secretary). Ms. Okafor's employment agreement provides for double-trigger severance upon a qualifying termination of employment within 24 months following a change of control. The severance entitlement is 2x base salary plus target annual bonus.
Ms. Langford, Mr. Simmons, and Mr. Dunn are each participants in the management rollover. Their respective rollover agreements are expected to include waivers of their change of control severance entitlements with respect to the Merger itself (i.e., the Merger will not constitute a "qualifying termination" triggering the double-trigger severance), though their underlying change of control protections will remain in place for any subsequent qualifying termination of employment occurring during the 24-month period following the Merger. This arrangement is consistent with market practice for management rollover transactions.
C. Equity Incentive Plans
As discussed in Section IV.B above, the 2019 Omnibus Equity Incentive Plan provides for single-trigger acceleration of all unvested stock options and RSUs upon a change of control. The Merger constitutes a change of control under the plan definition. Approximately 3,250,000 shares subject to outstanding options and RSUs will fully vest at the effective time of the Merger, and the holders will be entitled to receive the applicable cash-out payments. The aggregate cash-out obligation associated with this acceleration is a significant component of the total merger consideration and has been factored into the funds flow analysis.
D. Commercial Lease Agreements
Approximately 18 of Pennfield's 209 store and outlet leases contain change of control consent or notice provisions that may be triggered by the Merger. The majority of these leases require the prior written consent of the landlord to any change of control of the tenant. Several leases additionally provide that a change of control without the required landlord consent constitutes an event of default under the lease, entitling the landlord to exercise remedies including termination of the lease.
The risk associated with these lease provisions is partially mitigated by the reverse triangular merger structure of the Transaction. Because Pennfield survives the Merger as the continuing legal entity, there is no direct assignment or transfer of the leases. The same legal entity (Pennfield) remains the tenant under each lease. However, several of the leases define "change of control" broadly to capture not only an assignment of the lease but also a change in the majority ownership or control of the tenant entity. Under these broader definitions, the acquisition of Pennfield by HPE Fund IV through the Merger would constitute a change of control of the tenant, notwithstanding the fact that Pennfield remains the same legal entity.
A detailed lease-by-lease analysis, including the specific change of control provisions, the applicable landlord contact information, and a risk assessment for each affected location, is set forth in the separate Real Estate & Lease Portfolio Summary (Megan Chu, March 25, 2025).
E. Other Agreements
In addition to the foregoing categories, the following agreements or arrangements contain change of control provisions triggered by the Merger:
• Co-Branded Licensing Agreement. As noted in Section V.D above, one co-branded licensing agreement requires the prior written consent of the licensor upon a change of control of the licensee. Pennfield is required to provide at least 30 days' advance written notice to the licensor. Failure to obtain the required consent may entitle the licensor to terminate the agreement.
• Directors' and Officers' Liability Insurance. The existing D&O liability insurance policy provides coverage for the current directors and officers. Upon the closing of the Merger, a D&O tail policy (also known as a run-off policy) covering pre-closing acts and omissions should be obtained for a period of at least six years following the closing. The terms of the D&O tail coverage will be addressed in the Merger Agreement.
F. Observations / Risks
The approximately 18 leases with change of control consent requirements represent a material risk area for the Transaction. While the risk is mitigated by the reverse triangular merger structure, several of the affected leases include broad change of control definitions that would capture the Transaction. We recommend negotiating a covenant in the Merger Agreement requiring the Company to use commercially reasonable efforts to obtain landlord consents for the affected leases prior to closing, together with a materiality qualifier in the closing condition so that the failure to obtain consents for a small number of non-critical locations does not prevent closing.
As an open item, we recommend that Megan Chu quantify the aggregate potential exposure (in terms of annual rent, remaining lease term, and estimated relocation costs) for the leases where landlord consent is not obtained or cannot reasonably be expected to be obtained prior to closing. This analysis will inform the negotiation of the materiality qualifier in the closing condition.
VII. Real Estate and Lease Portfolio
A full analysis of Pennfield's real estate and lease portfolio is set forth in the separate Real Estate & Lease Portfolio Summary prepared by Megan Chu, dated March 25, 2025. The following summarizes the key findings.
A. Store and Outlet Locations
Pennfield operates a total of 209 leased retail and outlet locations across the United States. This total comprises 187 company-owned retail store locations situated in 34 states and 22 outlet locations. All store and outlet locations are leased; no owned real property was identified in the data room, and Pennfield has confirmed in its public filings that it does not own any real property.
B. Corporate Headquarters
Pennfield's corporate headquarters is located at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202. The headquarters space is leased pursuant to an office lease agreement with a lease term expiring in 2031, with two successive five-year renewal options exercisable at the Company's election. The lease terms appear to be at market rates for Class A office space in the Charlotte central business district.
C. Distribution and Warehouse Facilities
Pennfield operates two distribution center facilities:
• Charlotte, NC Area Distribution Center. Located in the greater Charlotte metropolitan area; leased; lease term runs through 2029. This facility serves as Pennfield's primary distribution hub for the eastern United States.
• Midwest Distribution Center. Located in the Midwest; leased; lease term runs through 2030. This facility serves as Pennfield's distribution hub for the central and western United States.
Both distribution centers are critical to Pennfield's supply chain and fulfillment operations. The leases for both facilities have been reviewed and appear to be on standard commercial terms. Neither distribution center lease contains a change of control provision that would be triggered by the Merger.
D. Lease Portfolio Summary
We have reviewed lease abstracts for all 209 store and outlet locations, as well as for the corporate headquarters and the two distribution centers. The average remaining lease term across the retail portfolio is approximately 4.2 years, which is within the normal range for a specialty retail company. The staggered expiration schedule provides operational flexibility and should facilitate any post-closing real estate optimization.
Co-tenancy clauses were identified in approximately 35 leases, primarily in shopping center and mall locations. Co-tenancy clauses typically provide the tenant with rent reduction or termination rights if certain anchor tenants vacate the shopping center or if occupancy falls below a specified threshold. While co-tenancy clauses are commonplace in retail leasing, they represent a potential source of lease-related volatility in the event of broader retail market disruptions.
Approximately 18 leases contain change of control provisions, as discussed in detail in Section VI.D above.
E. Observations / Risks
No material lease defaults or outstanding landlord disputes were identified in the data room. Pennfield appears to be current on all rent obligations.
As an open item, Environmental Phase I reports for the two distribution center locations were requested but had not yet been provided in the data room as of the date of this memorandum. We understand that Phase I reports were previously prepared for the distribution centers and that Pennfield is in the process of uploading them to the data room. This item is being tracked for follow-up. Phase I environmental site assessments were not provided for retail store locations, which is consistent with market practice — Phase I assessments are generally not customary for leased retail space in standard shopping center or mall locations.
VIII. Intellectual Property
A full analysis of Pennfield's intellectual property portfolio is set forth in the separate IP Diligence Memorandum prepared by Megan Chu, dated March 24, 2025. The following summarizes the key findings.
A. Trademarks and Trade Names
Pennfield owns approximately 45 registered trademarks in the United States, covering its primary brand names, product line names, logos, taglines, and trade dress. All registrations have been reviewed and appear to be current, with all required maintenance filings and renewal documents having been timely submitted to the United States Patent and Trademark Office ("USPTO"). No cancellation proceedings are currently pending against any of Pennfield's registered trademarks.
In addition to its registered trademarks, Pennfield has several trademark applications pending at the USPTO. We have reviewed the status of these pending applications and have not identified any material oppositions or other obstacles to registration. The pending applications cover new product line names and updated versions of existing brand logos.
B. Domain Names
Pennfield owns a portfolio of domain names associated with its brands and e-commerce operations, including its primary commercial website domain and various related domains. The domain name registrations have been reviewed and appear to be current. No domain name disputes, UDRP proceedings, or cybersquatting issues were identified.
C. Proprietary Technology
Pennfield's proprietary e-commerce platform, including the associated software code, databases, and related technological infrastructure, was developed in-house by Pennfield's technology team. The Company owns all intellectual property rights in and to the e-commerce platform, including copyrights in the source code and any trade secrets embodied in the platform's architecture and functionality.
Pennfield maintains employee invention assignment agreements for all members of its technology team, consistent with best practices for companies that develop proprietary software and technology. These agreements assign to Pennfield all right, title, and interest in any inventions, works of authorship, or other intellectual property created by employees in the course of their employment.
With respect to open-source software, our review of the data room materials did not identify any material open-source software compliance issues. However, we note that a comprehensive open-source audit — including a review of all open-source components incorporated into Pennfield's software, the applicable license terms, and any copyleft or reciprocal licensing obligations — was not conducted as part of this legal due diligence review. If the Sponsor determines that a full open-source audit is warranted, this could be conducted by a specialized third-party technology diligence firm.
D. License Agreements
Inbound Licensing (Licensing-In). Pennfield licenses certain third-party brand names and trademarks for co-branded product lines, as discussed in Section V.D above. The terms of these inbound licensing agreements have been reviewed and are standard for the specialty retail industry.
Outbound Licensing. Pennfield's outbound licensing activity is limited. The Company has not licensed its core brand intellectual property to third parties in any material respect. This is consistent with Pennfield's business strategy of maintaining direct control over its brand identity and customer experience through its company-owned retail stores and e-commerce platform.
E. Observations / Risks
Pennfield's intellectual property portfolio appears to be well-maintained and appropriately protected. No material IP litigation is currently pending against the Company, and no claims of infringement by or against Pennfield were identified in the data room. We recommend including customary intellectual property representations and warranties in the Merger Agreement, covering ownership of IP, absence of infringement, sufficiency of IP for the conduct of the business, and compliance with applicable IP-related laws and regulations.
As an open item, we recommend confirming the current status of the pending trademark applications at the USPTO and identifying any potential conflicts with third-party marks that could give rise to opposition proceedings. This item is being tracked for follow-up with Pennfield's intellectual property counsel.
IX. Litigation and Contingent Liabilities
A full analysis of Pennfield's litigation exposure and contingent liabilities is set forth in the separate Litigation & Contingent Liabilities Memorandum prepared by Ryan Kowalski, dated March 27, 2025. The following summarizes the key findings.
A. Pending Litigation
We have reviewed all pending litigation matters disclosed by Pennfield in the data room, including pleadings, discovery materials, settlement correspondence, litigation hold notices, and outside counsel status reports. Based on our review, no individual pending litigation matter, and no aggregation of pending litigation matters, rises to a level that would be material to Pennfield's business, results of operations, or financial condition.
The pending matters are as follows:
Employment-Related Claims. Three pending employment-related claims are currently being litigated in various state courts. These claims include allegations of employment discrimination and wage-and-hour violations. The aggregate potential exposure across all three matters is estimated at less than $2,000,000. Each matter is being actively defended by outside employment counsel retained by Pennfield, and all three matters are covered by Pennfield's employment practices liability insurance ("EPLI") policy. Pennfield's outside counsel has assessed these matters as presenting routine litigation risk consistent with a retail company of Pennfield's size and employee count.
Product Liability. One product liability claim is currently pending in state court, relating to a sporting goods product sold through a Pennfield retail store. The matter is in the early stages of discovery, and the plaintiff has asserted claimed damages of approximately $750,000. The matter is covered by Pennfield's commercial general liability ("CGL") insurance policy. Pennfield's outside counsel has assessed the claim as defensible and has not recommended settlement at this stage.
Commercial Disputes. Two minor vendor payment disputes are pending in state court. The aggregate claimed amounts across both matters are less than $500,000. These disputes arise from disagreements regarding the timing and amount of payments due under standard vendor supply agreements. Pennfield's outside counsel has assessed these matters as routine and immaterial.
B. Governmental Investigations
No pending or threatened governmental investigations of Pennfield were disclosed in the data room. We have confirmed through our review of the data room materials and Pennfield's SEC filings that the Company is not subject to any outstanding consent orders, compliance agreements, settlement agreements, or similar arrangements with any federal, state, or local governmental authority.
C. Threatened Litigation
One demand letter was received by Pennfield from a former employee alleging wrongful termination. The demand letter was reviewed by Pennfield's outside employment counsel, who has assessed the claim as lacking merit based on the circumstances of the termination and the applicable employment law. No lawsuit has been filed as of the date of this memorandum. We will continue to monitor this matter.
D. Observations / Risks
Pennfield's overall litigation exposure appears low and is consistent with a retail company of its size, industry, and geographic footprint. The aggregate estimated contingent liabilities across all pending matters amount to less than $3,500,000, which is well below any reasonable materiality threshold for a company with $1.62 billion in annual revenue.
No litigation-related matters were identified that would constitute a Material Adverse Effect under any reasonable definition of "Material Adverse Effect" that might be included in the Merger Agreement. We recommend including standard litigation representations and warranties in the Merger Agreement, together with appropriate disclosure schedule items covering all pending and threatened litigation matters.
X. Regulatory Compliance
A. HSR Act / Antitrust
The Transaction requires a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The aggregate merger consideration of $980,000,000 exceeds the 2025 size-of-transaction threshold of $119,500,000. Pursuant to the current fee schedule established by the Federal Trade Commission, the applicable filing fee for a transaction with a value between $500,000,000 and $1,000,000,000 is $280,000.
A separate HSR Act Filing Memorandum is being prepared by Elaine Forsythe, Senior Associate, Antitrust, Calderwood & Harkness LLP, with an expected completion date of April 1, 2025. A separate Antitrust Risk Assessment Memorandum is being prepared by Ms. Forsythe, with an expected completion date of April 2, 2025. These memoranda will address the filing mechanics, the substance of the filing, and the substantive antitrust risk analysis, respectively.
The HSR filing is estimated to be submitted on or about April 8, 2025, which is one day after the targeted execution date for the Merger Agreement. The initial 30-day waiting period is expected to expire on or about May 8, 2025, assuming no second request is issued by the Federal Trade Commission or the Antitrust Division of the Department of Justice.
We have conducted a preliminary antitrust risk assessment and believe that the antitrust risk associated with this Transaction is low. The specialty outdoor and sporting goods retail market is highly fragmented, with numerous national, regional, and local competitors. Pennfield does not hold a dominant market share in any relevant product or geographic market. Moreover, there is no horizontal overlap between Pennfield and any existing portfolio company of Harrowgate Capital Partners. Based on these factors, we do not anticipate a second request or other material antitrust challenge. Early termination of the HSR waiting period may be available and will be requested in the filing.
B. SEC Filings
As a going-private transaction involving a public company listed on Nasdaq, the Transaction will require the following SEC filings:
• Schedule 13E-3. A Schedule 13E-3 (going-private transaction statement) must be filed jointly by Pennfield and Harrowgate with the SEC. This filing is required under Rule 13e-3 of the Securities Exchange Act of 1934 because the Transaction involves an acquisition of a class of equity securities by an affiliate of the issuer resulting in the termination of the issuer's public reporting obligations.
• Schedule 14A Proxy Statement. A Schedule 14A proxy statement must be prepared and filed with the SEC for the purpose of soliciting the vote of Pennfield's stockholders to adopt the Merger Agreement. We estimate that the preliminary proxy statement will be filed with the SEC on or about April 22, 2025, with the definitive proxy statement expected to be mailed to Pennfield stockholders on or about May 22, 2025 (assuming SEC review and comment clearance within the standard timeframe).
• Form 8-K. A Current Report on Form 8-K must be filed by Pennfield with the SEC to announce the execution of the Merger Agreement. This filing must be made within four business days of the execution of the Merger Agreement.