1003-00004 · Harrowgate Private Equity Fund IV LP · Diligence

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ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL WORK PRODUCT

This memorandum has been prepared by Calderwood & Harkness LLP for the exclusive use of its client, Harrowgate Private Equity Fund IV LP, in connection with the proposed acquisition of Pennfield Holdings, Inc. (Project Summit). This memorandum is protected by the attorney-client privilege and the work product doctrine. Any disclosure, distribution, or copying of this memorandum or its contents to any person other than authorized representatives of Harrowgate Private Equity Fund IV LP is strictly prohibited without the prior written consent of Calderwood & Harkness LLP.

MEMORANDUM

TO: Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Ryan Kowalski, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP

FROM: Megan Chu, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP

DATE: March 26, 2025

RE: Environmental Compliance Review — Pennfield Holdings, Inc. (Project Summit)

MATTER NO.: 1003-00004

CLIENT: Harrowgate Private Equity Fund IV LP

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I. Executive Summary

This memorandum summarizes the findings of the environmental compliance review conducted by Calderwood & Harkness LLP as part of the legal due diligence in connection with the proposed take-private acquisition of Pennfield Holdings, Inc. ("Pennfield" or the "Company") (Nasdaq: PNFD) by Harrowgate Private Equity Fund IV LP ("Harrowgate" or the "Buyer"), through a reverse triangular merger with Pinnacle Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of Harrowgate formed for the purpose of effecting the transaction. The aggregate merger consideration is approximately $980,000,000 (the "Transaction").

The scope of this review encompassed environmental documents produced by Pennfield in the virtual data room hosted on Thackeray Solutions under the project codename "Project Summit," which was opened on February 10, 2025. The document review was supplemented by targeted follow-up information requests directed to Pennfield's General Counsel, Patricia Okafor, and Pennfield's outside environmental and transactional counsel at Calloway, Briggs & Harmon LLP (Janet Alcorn, Steven Devereux, and Linda Chiang). In total, we reviewed approximately 340 documents across 14 data room folders relating to environmental matters, which are catalogued in Appendix A to this memorandum.

Overall Assessment. Based on our review, Pennfield's environmental risk profile is consistent with that of a specialty retail operation focused on outdoor lifestyle, sporting goods, and adventure apparel products. The Company's environmental exposure is generally low given the nature of its operations, which consist primarily of leased retail store locations, leased outlet locations, and leased warehouse and distribution facilities. Pennfield does not engage in heavy manufacturing, chemical processing, or industrial activities that typically give rise to significant environmental liabilities. The identified environmental issues are manageable, administrative in nature, and none rise to the level of a material impediment to the closing of the Transaction.

Company Overview. Pennfield currently operates a portfolio of 187 company-owned retail store locations across 34 states, together with 22 outlet locations, for a total of 209 retail and outlet locations nationwide. The Company maintains its corporate headquarters at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202, and operates three primary warehouse and distribution center facilities located in Charlotte, North Carolina; Reno, Nevada; and Columbus, Ohio, as described in greater detail in Section III below. Pennfield employs approximately 8,400 individuals across all locations, including full-time and part-time employees. For the fiscal year ended January 31, 2025 ("FY 2024"), the Company reported total revenue of approximately $1.62 billion and adjusted EBITDA of approximately $142 million.

As set forth in more detail in Sections II through XI below, the principal findings of this environmental diligence review are as follows:

• Phase I Environmental Site Assessments for Pennfield's three distribution center facilities did not identify any Recognized Environmental Conditions ("RECs") directly affecting the Company's leased premises. One Controlled Recognized Environmental Condition ("CREC") was noted at the Charlotte Distribution Center, relating to a historical dry cleaning operation on an adjacent parcel that is subject to ongoing groundwater monitoring under state regulatory oversight. No impact to Pennfield's leased parcel has been identified.

• Pennfield does not own or operate any underground storage tanks at any of its facilities.

• The Company maintains appropriate hazardous materials handling programs, including Hazard Communication programs, Spill Prevention, Control, and Countermeasure plans, and hazardous waste generator registrations, consistent with the nature and scale of its operations.

• No active remediation obligations, Superfund or CERCLA liabilities, outstanding notices of violation, administrative orders, consent decrees, or pending environmental enforcement actions were identified.

• Minor administrative items requiring attention include confirming the stormwater permit status at the Columbus Distribution Center and completing post-closing permit transfer notifications at the Charlotte and Reno distribution centers.

• Environmental representations and warranties in the Agreement and Plan of Merger should follow standard market practice for transactions of this type, and no special environmental escrow or specific environmental indemnity is recommended.

II. Scope and Methodology

A. Documents Reviewed

Calderwood & Harkness conducted a comprehensive review of the environmental compliance documentation produced by Pennfield and its advisors to the Project Summit virtual data room on the Thackeray Solutions platform. The principal categories of documents reviewed include the following:

1. Phase I Environmental Site Assessments. Phase I ESAs prepared in accordance with ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process) for each of Pennfield's three warehouse and distribution center facilities. These assessments were prepared by qualified environmental consulting firms and included historical research, database reviews, site reconnaissance, and interviews with knowledgeable parties.

2. Environmental Permits. Copies of all environmental permits held by Pennfield, including stormwater general permits, hazardous waste generator registrations, and related documentation such as Stormwater Pollution Prevention Plans ("SWPPPs") and monitoring reports.

3. Regulatory Correspondence. All correspondence between Pennfield and federal, state, and local environmental regulatory agencies, including any notices of violation, inspection reports, compliance orders, and responses thereto.

4. Compliance Audit Reports. Internal environmental compliance audit reports and assessments prepared by Pennfield's environmental, health, and safety ("EHS") team and third-party consultants.

5. Remediation Documentation. Any documentation relating to environmental investigation, remediation, or corrective action at current or former Pennfield facilities, to the extent such documentation exists (none was identified, as discussed in Section VIII).

6. Environmental Diligence Questionnaire Responses. Pennfield's responses to the environmental section of the buyer's due diligence questionnaire, submitted on February 28, 2025, with supplemental responses provided on March 14, 2025, and March 21, 2025.

7. Lease Agreements. Lease agreements for retail store locations and warehouse and distribution facilities, reviewed in coordination with the real estate diligence workstream. This review cross-references the Real Estate & Lease Portfolio Summary memorandum prepared by the Calderwood & Harkness real estate team, dated March 25, 2025, with particular attention to environmental provisions, indemnification obligations, and landlord representations regarding the environmental condition of the leased premises.

8. Environmental Insurance Policies and Claims Records. Historical environmental insurance policies maintained by Pennfield and records of any environmental claims submitted thereunder.

9. Waste Management Contracts. Material contracts with waste haulers, recycling vendors, and environmental service providers, including agreements governing the transportation, treatment, and disposal of hazardous and non-hazardous waste generated at Pennfield's distribution center facilities.

10. Safety Data Sheets and Hazardous Communication Materials. Representative Safety Data Sheets and Hazard Communication program documentation maintained at distribution center facilities.

A complete itemized list of the data room documents reviewed, organized by facility and cross-referenced to Project Summit data room index numbers on Thackeray Solutions, is set forth in Appendix A to this memorandum.

B. Limitations

The following limitations apply to the scope of this environmental diligence review and should be considered in evaluating the findings and recommendations set forth herein:

1. No Phase II Environmental Site Assessments. No Phase II ESAs (i.e., subsurface sampling, soil borings, groundwater monitoring well installation, or other intrusive investigation activities) were conducted or commissioned by Calderwood & Harkness or Harrowgate in connection with this diligence review. Reliance is placed on the existing Phase I ESAs produced by Pennfield to the data room, which were prepared by third-party environmental consultants and are subject to the limitations stated in those reports. The Phase I ESA reports reviewed were prepared for the benefit of their respective clients (Pennfield or its landlords) and were not addressed to Harrowgate or Calderwood & Harkness; accordingly, we may not be entitled to rely on such reports as a matter of law, and the environmental consultants who prepared them owe no duty of care to Harrowgate or Calderwood & Harkness. We recommend that reliance letters be obtained from the applicable environmental consultants post-closing, to the extent practicable.

2. Data Room Cut-Off Date. This review is limited to documents produced to the Project Summit data room as of March 25, 2025, the date on which the final batch of responsive documents was uploaded by Pennfield's outside counsel. Any documents produced after this date have not been reviewed for purposes of this memorandum, though we will continue to monitor data room uploads through the anticipated closing date.

3. No Independent Site Inspections. No independent site inspections or physical environmental assessments of any Pennfield facility were performed by Calderwood & Harkness attorneys or agents in connection with this review. Our assessment is based entirely on the documentary record produced to the data room and information provided by Pennfield's management and counsel.

4. Auditor Contact. Pennfield's independent auditor, Pemberton & Associates LLP (lead audit partner: Kevin Tarrant Corporation), was not separately contacted by Calderwood & Harkness regarding environmental accruals, contingent liabilities, or other environmental matters reflected or potentially required to be reflected in Pennfield's audited financial statements. Reliance is placed on the data room disclosures, including Pennfield's audited financial statements for FY 2022, FY 2023, and FY 2024 and the notes thereto, as well as Pennfield's representations in the diligence questionnaire regarding the absence of environmental accruals or contingent liabilities.

5. Tax Advisor Exclusion. Environmental matters, if any, relating to Pennfield's tax advisor, Crestline Tax Advisors LLC (Alan Fitzgerald), were not within the scope of this review.

6. General Limitations. This memorandum addresses environmental compliance matters based on currently available information and applicable law as of the date hereof. It does not constitute a guarantee that no environmental liabilities exist or will arise in the future. Environmental conditions that are unknown, undisclosed, or not reasonably discoverable through the diligence procedures described herein may exist at Pennfield's current or former facilities.

III. Facility Overview

Pennfield's real estate portfolio, for purposes of this environmental review, consists of three principal categories of facilities: (a) the corporate headquarters in Charlotte, North Carolina; (b) 209 retail and outlet store locations across 34 states; and (c) three warehouse and distribution center facilities. Each category is discussed below.

A. Corporate Headquarters

Pennfield's corporate headquarters is located at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202. The headquarters occupies approximately 42,000 square feet of leased office space in a Class A multi-tenant commercial office building. The lease term runs through December 31, 2029, with two five-year renewal options. The premises are used exclusively for general corporate, administrative, and executive functions, including finance, legal, human resources, merchandising, marketing, and information technology operations.

No significant environmental concerns were identified in connection with the corporate headquarters. The facility is a conventional commercial office environment with no manufacturing, chemical processing, hazardous materials storage, or other operations that would give rise to environmental regulatory obligations beyond standard building management activities. Standard office cleaning supplies and maintenance materials are present in de minimis quantities. The lease agreement contains standard environmental representations by the landlord regarding the condition of the building and the absence of hazardous materials, as well as standard tenant obligations not to introduce hazardous substances onto the premises other than in connection with ordinary office operations and in compliance with applicable law.

B. Retail Store Locations

Pennfield operates 187 company-owned retail store locations across 34 states, together with 22 outlet locations in outlet malls and lifestyle centers, for a total of 209 retail and outlet locations. The geographic distribution of these locations is concentrated in metropolitan and suburban markets, with the highest concentrations in California (28 locations), Texas (19 locations), Florida (16 locations), New York (14 locations), and Colorado (12 locations).

Substantially all retail and outlet locations are leased premises situated within shopping centers, strip malls, lifestyle centers, and outlet malls. The typical retail store footprint ranges from approximately 4,500 to 12,000 square feet, with outlet locations generally occupying 3,000 to 7,000 square feet. Lease terms vary, with a weighted average remaining lease term of approximately 4.2 years as of the date of this memorandum.

Operations conducted at the retail store level consist of the display, marketing, and sale of outdoor lifestyle products, sporting goods, adventure apparel, footwear, and related accessories. Minor storage of inventory and consumer products occurs in backroom areas of each location. There is no manufacturing, assembly, chemical processing, or heavy industrial activity conducted at any retail location.

Hazardous materials usage at the retail level is limited and consists primarily of: (i) standard cleaning supplies (e.g., floor cleaners, glass cleaners, sanitizers); (ii) pest control materials applied by licensed third-party pest management contractors; and (iii) de minimis quantities of consumer products containing regulated substances that are offered for sale, such as camp fuel canisters, lighter fluid, aerosol products (e.g., waterproofing sprays, insect repellents), and small lithium batteries in electronic accessories. These consumer products are stored and displayed in their original, sealed, manufacturer packaging and in quantities consistent with retail display and sales operations.

No manufacturing, chemical processing, or heavy industrial operations are conducted at any retail or outlet location. No reportable releases, spills, or environmental incidents were identified at any retail location in the data room documents reviewed.

C. Warehouse and Distribution Facilities

Pennfield operates three primary warehouse and distribution center facilities, which serve as the Company's logistics backbone for receiving, warehousing, order fulfillment, and shipping of finished consumer goods to its retail locations and to customers through the Company's direct-to-consumer e-commerce channel. All three distribution centers are leased facilities. The facilities are summarized as follows:

1. Charlotte Distribution Center. Pennfield's primary national distribution hub is located at 1280 Logistics Parkway, Charlotte, North Carolina 28214. The facility comprises approximately 350,000 square feet of warehouse and distribution space in a modern, single-story industrial building constructed in 2015. The lease commenced on March 1, 2018, with a current term running through February 28, 2028, and two five-year renewal options. This facility serves as the central receiving point for imported goods and domestic vendor shipments and distributes inventory to retail locations nationwide, with a particular focus on southeastern and eastern U.S. markets. The Charlotte Distribution Center employs approximately 420 full-time and seasonal workers.

2. Reno Distribution Center. Pennfield's western distribution center is located at 7400 Industrial Way, Reno, Nevada 89506. The facility comprises approximately 180,000 square feet of warehouse and distribution space in a single-story industrial building. The lease commenced on January 1, 2020, with a current term running through December 31, 2029, and one five-year renewal option. This facility serves Pennfield's retail locations throughout the western United States, including California, Oregon, Washington, Arizona, and neighboring states. The Reno Distribution Center employs approximately 175 full-time and seasonal workers.

3. Columbus Distribution Center. Pennfield's midwestern and northeastern distribution center is located at 3200 Commerce Center Drive, Columbus, Ohio 43228. The facility comprises approximately 150,000 square feet of warehouse and distribution space. The lease was originally executed in 2016 and was renewed in early 2024 for an additional seven-year term running through January 31, 2031. This facility serves retail locations throughout the midwestern and northeastern United States. The Columbus Distribution Center employs approximately 140 full-time and seasonal workers.

Operations at all three distribution centers involve receiving shipments from domestic and international suppliers, warehousing and inventory management, picking, packing, and order fulfillment, and outbound shipping to retail locations and direct-to-consumer customers via common carriers and Pennfield's small fleet of delivery vehicles. No manufacturing, assembly, chemical processing, or product modification processes are conducted at any distribution center facility.

Hazardous materials present at the distribution center facilities include: (i) diesel fuel stored in above-ground storage tanks for backup emergency generators and, at the Charlotte facility, for a small fleet of yard tractors and delivery vehicles; (ii) lubricants, hydraulic fluids, and maintenance chemicals for forklift trucks, conveyor systems, and other material handling equipment; (iii) small quantities of consumer products classified as hazardous materials for transportation purposes under Department of Transportation (DOT) regulations, including camp stove fuel, lithium batteries in electronic accessories, and aerosol products; and (iv) minor quantities of cleaning supplies and pest control materials. The nature and quantities of hazardous materials present at each distribution center are discussed in greater detail in Section IV below.

IV. Hazardous Materials Handling and Storage

A. Retail Locations

As noted in Section III.B above, hazardous materials present at Pennfield's 209 retail and outlet locations are limited to de minimis quantities of cleaning supplies and certain consumer products offered for sale that may contain regulated substances. The quantities involved at any individual retail location are well below reportable thresholds under the Emergency Planning and Community Right-to-Know Act ("EPCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), and analogous state laws.

Pennfield maintains a corporate-level Hazard Communication ("HazCom") program that is designed to comply with the requirements of the Occupational Safety and Health Administration ("OSHA") Hazard Communication Standard, 29 CFR § 1910.1200. The HazCom program includes: (i) a written hazard communication plan applicable to all retail and distribution center locations; (ii) an inventory of hazardous chemicals present at each facility; (iii) Safety Data Sheets ("SDS") maintained at each retail location for all applicable products; and (iv) employee training on hazardous chemical recognition, labeling, and safe handling procedures. A copy of the corporate HazCom program manual (dated January 2024) was produced to the data room and was reviewed as part of this diligence effort. The program appears to be current and consistent with regulatory requirements, though we note that certain individual retail locations may not have updated their SDS files to reflect current product inventory; this is a minor administrative compliance matter that does not present a material risk.

No reportable releases, spills, or environmental incidents were identified at any retail or outlet location in the data room documents reviewed. Pennfield's diligence questionnaire responses confirmed that the Company is not aware of any unreported releases or spills at any retail location.

B. Distribution Centers

The distribution center facilities present a somewhat more complex hazardous materials profile than the retail locations, owing to the presence of diesel fuel storage, material handling equipment, and larger inventories of consumer products containing regulated substances. However, the quantities involved remain modest by industrial standards and are consistent with the Company's logistics operations.

Diesel Fuel Storage. Each of the three distribution centers maintains above-ground storage tanks ("ASTs") for diesel fuel, primarily to supply backup emergency generators. The AST capacities at each facility are as follows:

The Charlotte and Reno distribution centers each exceed the aggregate above-ground storage capacity threshold of 1,320 gallons that triggers the requirement to prepare and maintain a Spill Prevention, Control, and Countermeasure ("SPCC") plan under 40 CFR Part 112, promulgated pursuant to the Clean Water Act. SPCC plans are in place for both the Charlotte and Reno facilities. The data room contained copies of the current SPCC plans for each facility: the Charlotte SPCC plan was last updated in August 2023, and the Reno SPCC plan was last updated in November 2022. Both plans appear to have been prepared by qualified Professional Engineers and include the required elements, including facility diagrams, tank descriptions, containment measures, inspection schedules, and spill response procedures. We note that both SPCC plans should be reviewed and updated post-closing to reflect the change in corporate ownership, as discussed in Section X below.

The Columbus Distribution Center's single 2,000-gallon AST is below the 1,320-gallon aggregate threshold (when considered without other oil storage containers on-site) that would mandate an SPCC plan. However, Pennfield has voluntarily prepared and maintained an SPCC plan for the Columbus facility as a matter of best practice. A copy of the Columbus SPCC plan (dated March 2024) was reviewed in the data room.

Hazardous Waste Generation. Hazardous waste generated at the three distribution centers consists primarily of: (i) spent batteries (including lead-acid batteries from forklifts and small batteries from electronic devices); (ii) used oil and lubricants from material handling equipment; and (iii) damaged or unsaleable consumer products that may be classified as hazardous waste (e.g., damaged aerosol cans, spilled camp stove fuel). All three facilities operate as Conditionally Exempt Small Quantity Generators ("CESQGs") or Small Quantity Generators ("SQGs") under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901-6992k, and the implementing regulations at 40 CFR Part 260 et seq. No facility generates hazardous waste in quantities that would trigger Large Quantity Generator ("LQG") obligations.

EPA Identification Numbers have been obtained for each distribution center, as required for facilities that generate hazardous waste. The EPA ID numbers are as follows:

Hazardous waste manifests and disposal records for the trailing three-year period (calendar years 2022, 2023, and 2024) were produced to the data room and reviewed. The manifests reflect routine shipments of used oil, spent batteries, and small quantities of other hazardous waste to licensed Treatment, Storage, and Disposal Facilities ("TSDFs"). The records appear to be complete and in good order, with no anomalies or discrepancies identified. Waste disposal is handled through licensed third-party waste management contractors, principally Pinnacle Systems and Strathmore Health IT, under service agreements that include standard indemnification provisions in favor of Pennfield.

No Reported Incidents. No reported releases, spills, notices of violation, or enforcement actions were identified in connection with hazardous materials handling or storage at any of the three distribution center facilities in the data room documents reviewed. Pennfield's diligence questionnaire responses confirmed that the Company is not aware of any unreported releases or spills at any distribution center.

V. Underground Storage Tanks (USTs)

Pennfield has affirmatively represented, through its responses to the environmental diligence questionnaire and through supplemental certifications provided by its General Counsel, Patricia Okafor, that the Company does not own or operate any underground storage tanks at any of its currently owned or leased facilities. This representation encompasses all 209 retail and outlet locations, the three distribution center facilities, and the corporate headquarters.

Our review of the data room documents is consistent with this representation. We did not identify any UST registration filings, UST closure documentation, UST removal records, or UST-related regulatory correspondence in the data room. No references to underground storage tanks appear in any of the environmental compliance files, permits, or regulatory correspondence produced by Pennfield.

With respect to the distribution center facilities, the Phase I ESAs conducted for each of the three distribution centers (discussed in Section VI below) did not identify any underground storage tanks or evidence of historical UST operations on the premises. The Phase I ESA reports included database searches of state UST registries and visual inspections of the properties, and none reported findings indicative of past or present UST operations.

With respect to the retail and outlet locations, Pennfield relies on environmental representations made by landlords in the applicable lease agreements regarding the condition of the leased premises, including representations regarding the absence of USTs. While we have not independently verified these landlord representations, they are consistent with the expected environmental profile of the types of commercial properties (shopping centers, strip malls, lifestyle centers, and outlet malls) in which Pennfield's retail locations are situated.

Assessment. No UST-related risk has been identified for Pennfield's current operations. The absence of USTs is consistent with the nature of Pennfield's business as a specialty retailer and logistics operator and eliminates a common source of environmental liability in real estate transactions.

VI. Phase I Environmental Site Assessments

A. Distribution Centers

Phase I Environmental Site Assessments were conducted for each of Pennfield's three distribution center facilities within the past three years. Each Phase I ESA was prepared in general conformance with the ASTM E1527-21 standard and included, among other components, a review of historical sources (including historical aerial photographs, Trelwick fire insurance maps, city directories, and topographic maps), federal and state environmental database searches, interviews with current facility managers, and visual site reconnaissance. The Phase I ESAs for each facility are summarized below.

1. Charlotte Distribution Center. A Phase I ESA for the Charlotte Distribution Center at 1280 Logistics Parkway, Charlotte, North Carolina 28214, was prepared in June 2023 by EcoTech Environmental Consulting, Inc. ("EcoTech"), an environmental consulting firm retained by the property landlord, Logistics Capital Partners LLC, in connection with a refinancing of the property. The report was uploaded to the data room at folder 4.3.1 (Data Room Index No. 4.3.1.01).

The Charlotte Phase I ESA identified no Recognized Environmental Conditions (RECs) directly affecting the Pennfield-leased parcel. However, the report noted one Controlled Recognized Environmental Condition (CREC) relating to a historical dry cleaning operation ("EcoClean Dry Cleaners") that formerly occupied a commercial building on an adjacent parcel to the west of the distribution center property. The dry cleaning facility operated from approximately 1988 to 2009 and was the subject of a voluntary cleanup action under the North Carolina Brownfields Program (administered by the North Carolina Department of Environmental Quality, Division of Waste Management). Soil and groundwater contamination associated with perchloroethylene (PCE) and trichloroethylene (TCE) was identified on the adjacent parcel and a No Further Action ("NFA") determination was not issued. Instead, a Brownfields Agreement was executed in 2012 that included land use restrictions on the adjacent parcel and a requirement for ongoing groundwater monitoring. Groundwater monitoring is being conducted by the adjacent property owner under the oversight of the North Carolina DEQ, and the most recent monitoring report (dated October 2024, produced to the data room at Index No. 4.3.1.04) indicates that contaminant concentrations in monitoring wells on the adjacent parcel continue to decrease and remain below applicable groundwater standards at the property boundary nearest to the Pennfield distribution center.

Critically, no contamination has been identified on the Pennfield-leased parcel. The Phase I ESA concluded that the CREC on the adjacent parcel does not constitute a REC with respect to the distribution center property, and the groundwater monitoring data to date does not indicate off-site migration of contamination onto the Pennfield parcel. Nonetheless, this condition merits continued monitoring, and we recommend that Harrowgate consider the procurement of standalone Pollution Legal Liability insurance for the Charlotte Distribution Center as an additional precaution, as discussed in Section XI.B below.

2. Reno Distribution Center. A Phase I ESA for the Reno Distribution Center at 7400 Industrial Way, Reno, Nevada 89506, was prepared in September 2022 by Western Environmental Associates, LLC, at the time of Pennfield's execution of the lease for the facility. The report was uploaded to the data room at folder 4.3.2 (Data Room Index No. 4.3.2.01).

The Reno Phase I ESA identified no Recognized Environmental Conditions (RECs) affecting the property. The report noted one de minimis environmental condition classified as a Business Environmental Risk (BER): minor surface staining (oil and grease) observed near the south loading dock area, likely attributable to vehicle and equipment operations in the loading area. The environmental consultant concluded that the staining was limited in extent and did not represent a significant environmental concern. No further investigation was recommended. We note that surface staining of this nature is commonplace at warehouse and distribution facilities with active loading dock operations and does not, in our assessment, present a material environmental risk.

3. Columbus Distribution Center. A Phase I ESA for the Columbus Distribution Center at 3200 Commerce Center Drive, Columbus, Ohio 43228, was prepared in February 2024 by Midland Environmental Group, Inc., at the time of Pennfield's lease renewal for the facility. The report was uploaded to the data room at folder 4.3.3 (Data Room Index No. 4.3.3.01).

The Columbus Phase I ESA identified no Recognized Environmental Conditions (RECs) affecting the property. The report noted, as a matter of historical context, that the property was used for agricultural purposes (row crops and pasture) prior to the development of the commercial/industrial park in which the distribution center is situated. The conversion from agricultural to commercial use occurred in the early 2000s. The environmental consultant noted that no pesticide or herbicide contamination concerns were identified, and no further investigation was recommended. The historical agricultural use does not, in our assessment, present a material environmental risk.

Overall Assessment. The Phase I ESA results for Pennfield's three distribution center facilities are clean, with no Recognized Environmental Conditions identified on any of the Pennfield-leased parcels. The sole CREC noted at the Charlotte facility relates to a historical condition on an adjacent parcel and does not currently affect Pennfield's operations or leased premises. The Phase I ESA findings are consistent with the low environmental risk profile of Pennfield's distribution operations.

B. Retail Locations

Phase I Environmental Site Assessments were not performed for individual retail store or outlet locations. This is consistent with standard market practice for retail lease situations in which the tenant does not own the underlying real property and occupies space in multi-tenant commercial properties such as shopping centers, strip malls, and outlet malls. The environmental condition of the underlying real property at retail locations is generally the responsibility of the landlord, and Pennfield relies on: (i) standard environmental representations in lease agreements, which typically include landlord warranties regarding the absence of hazardous substances on the premises and compliance with environmental laws; and (ii) the Company's own operational controls, including its HazCom program and corporate EHS policies, to ensure that Pennfield's retail operations do not give rise to environmental liability.

Given the nature of Pennfield's retail operations (display and sale of consumer products, with no manufacturing or chemical processing), the absence of Phase I ESAs for retail locations does not, in our assessment, present a material gap in the environmental diligence record. We are not aware of any practice in comparable retail take-private transactions in which Phase I ESAs were required or obtained for individual retail store locations.

VII. Environmental Permits and Regulatory Compliance

A. Air Quality Permits

No air emission permits are required or held by Pennfield at any of its facilities. The Company's operations do not involve emissions sources subject to permitting under the Clean Air Act, 42 U.S.C. §§ 7401-7671q, or analogous state air quality statutes. Specifically, Pennfield does not operate manufacturing facilities, paint spray booths, solvent degreasing operations, fuel-burning equipment above de minimis thresholds, or other emissions sources that would trigger New Source Review, Prevention of Significant Deterioration, or Title V operating permit requirements.

The emergency backup generators at the three distribution centers constitute potential air emissions sources; however, such generators are generally exempt from air permitting requirements under applicable federal and state regulations, provided they are operated only during emergencies and for limited testing and maintenance periods. Pennfield's records indicate that generator testing is conducted on a monthly basis for approximately 30 minutes per test, which is within the permissible limits for exemption from air permitting under applicable North Carolina, Nevada, and Ohio regulations, as well as EPA's National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines (40 CFR Part 63, Subpart ZZZZ).

As noted in Section VII.D below, the Charlotte Distribution Center received a minor notice of non-compliance from the Mecklenburg County Air Quality Division in 2021 relating to generator testing recordkeeping, but this matter was resolved without fine or penalty and does not indicate an ongoing permitting obligation.

B. Wastewater and Stormwater Permits

Sanitary Wastewater. All Pennfield facilities (headquarters, retail locations, and distribution centers) discharge sanitary wastewater to municipal sewer systems under standard service agreements with local utility providers. No National Pollutant Discharge Elimination System ("NPDES") individual permits have been identified for any Pennfield facility. No industrial wastewater pretreatment permits were identified, which is consistent with the absence of manufacturing or industrial process wastewater at any Pennfield location.

Stormwater Permits. Stormwater management at the distribution center facilities is subject to the requirements of the Clean Water Act, 33 U.S.C. §§ 1251-1387, and implementing regulations governing stormwater discharges from industrial activities (40 CFR Part 122.26). The stormwater permit status at each distribution center is summarized as follows:

Charlotte Distribution Center. The Charlotte facility is covered under a North Carolina NPDES General Permit for Stormwater Discharges Associated with Industrial Activity (Permit No. NCG210XXX). Pennfield submitted a Notice of Intent ("NOI") to the North Carolina Department of Environmental Quality ("NC DEQ") and obtained permit coverage upon commencement of operations at the facility. The facility maintains a Stormwater Pollution Prevention Plan ("SWPPP") that was last updated in May 2023. Semi-annual stormwater monitoring reports (visual and analytical) are prepared and maintained on-site. Data room review of the monitoring reports for the trailing three-year period revealed no exceedances of applicable benchmark values and no violations of permit conditions.

Reno Distribution Center. The Reno facility is covered under a Nevada Division of Environmental Protection ("NDEP") General Permit for Industrial Stormwater (Permit No. NVR05XXXX). Pennfield submitted the required NOI and obtained coverage. The facility maintains a SWPPP that was last updated in January 2023. Stormwater monitoring is conducted in accordance with permit requirements. Review of available monitoring reports did not reveal any permit violations or exceedances.

Columbus Distribution Center. The Columbus Distribution Center does not appear to have stormwater permit coverage under an Ohio EPA NPDES General Permit for Industrial Stormwater Discharges. Based on our review of the data room documents, no NOI filing or general permit authorization was identified for the Columbus facility. Pennfield's supplemental diligence questionnaire response on this point (dated March 21, 2025) indicated that the Company's EHS team had determined that the Columbus facility qualifies for an exclusion from industrial stormwater permitting based on the "no exposure" exemption (i.e., that industrial materials and activities at the facility are not exposed to stormwater), but the data room did not contain a "No Exposure Certification" filed with Ohio EPA to formalize this exclusion.

This matter is flagged as a minor follow-up item. If the Columbus facility does in fact have industrial materials or activities exposed to stormwater (e.g., outdoor loading/unloading of goods, outdoor storage of dumpsters containing materials derived from industrial activity), permit coverage may be required under Ohio EPA's General Permit. We recommend that the stormwater exposure assessment for the Columbus facility be confirmed post-closing and, if necessary, a No Exposure Certification be filed with Ohio EPA or, alternatively, coverage under the applicable general stormwater permit be obtained. This is an administrative compliance matter that, even in a worst-case scenario, would likely result in a modest administrative penalty, if any, and does not present a material environmental risk to the Transaction.

C. Hazardous Waste Permits

As discussed in Section IV.B above, all three distribution centers operate as Small Quantity Generators ("SQGs") or Conditionally Exempt Small Quantity Generators ("CESQGs") under RCRA. No Treatment, Storage, and Disposal Facility ("TSDF") permits are required or held by Pennfield, as the Company does not treat, store (beyond the applicable accumulation time limits), or dispose of hazardous waste on-site at any facility. All hazardous waste is transported off-site by licensed third-party waste management contractors for treatment and disposal at permitted TSDFs.

Hazardous waste manifests and Land Disposal Restriction ("LDR") notification records for the trailing three-year period were reviewed for each distribution center. The records are generally consistent and complete, with proper use of manifest forms, accurate waste characterization, and timely submission of exception reports where applicable. No discrepancies, manifest exceptions, or compliance deficiencies were identified in the hazardous waste management records.

D. Regulatory Correspondence and Enforcement

A comprehensive review of the data room documents identified no outstanding notices of violation, administrative orders, consent decrees, or pending enforcement actions from any federal, state, or local environmental regulatory agency directed at Pennfield or any of its subsidiaries. No environmental litigation is currently pending against Pennfield or any of its subsidiaries. This finding was cross-referenced with the Litigation & Contingent Liabilities Memorandum prepared by Ryan Kowalski, dated March 27, 2025, which independently confirmed the absence of pending environmental litigation.

One historical regulatory item was identified and merits brief discussion. In March 2021, the Charlotte Distribution Center received a minor notice of non-compliance from the Mecklenburg County Air Quality Division (a division of the Mecklenburg County Land Use and Environmental Services Agency). The notice related to recordkeeping requirements for emergency generator testing. Specifically, the county inspector noted that Pennfield had not maintained contemporaneous records of generator run times and test dates for a period of approximately four months (November 2020 through February 2021) as required by the applicable regulations. The notice did not allege any excess emissions or violation of operational limits. Pennfield responded to the notice within 30 days, implemented corrective recordkeeping procedures, and the matter was resolved administratively with no fine, penalty, or further enforcement action. A copy of the notice of non-compliance, Pennfield's response letter, and the county's acknowledgment of resolution were all produced to the data room (Index Nos. 4.5.1.01 through 4.5.1.03). This matter is fully resolved and does not represent an ongoing compliance concern.

No other regulatory notices, inspection deficiencies, or enforcement matters were identified in the data room documents.

VIII. Remediation and Environmental Liabilities

Based on our review of the data room documents and Pennfield's responses to the environmental diligence questionnaire, no active remediation obligations have been identified for any property currently owned, leased, or operated by Pennfield. The Company has not been required to conduct, and is not currently conducting, any environmental investigation, remediation, corrective action, or cleanup at any current or former facility.

Superfund and CERCLA Liabilities. Pennfield is not identified as a potentially responsible party ("PRP") at any National Priorities List ("NPL") site under CERCLA, 42 U.S.C. §§ 9601-9675, or at any state-listed equivalent contaminated site. No PRP notices, information requests (pursuant to CERCLA Section 104(e)), or demand letters from the U.S. Environmental Protection Agency or any state environmental agency were identified in the data room documents. Pennfield's diligence questionnaire responses affirmatively state that the Company has never received a PRP notice or demand for contribution to cleanup costs at any contaminated site.

Environmental Indemnification Obligations. A review of Pennfield's lease agreements for retail and distribution center locations did not identify any environmental indemnification obligations running from Pennfield to any landlord that exceed standard market provisions. The lease agreements generally contain mutual environmental indemnification provisions under which: (i) the landlord indemnifies the tenant for environmental contamination existing on the premises prior to the tenant's occupancy or caused by parties other than the tenant; and (ii) the tenant indemnifies the landlord for environmental contamination caused by the tenant's own operations during the term of the lease. These provisions are customary and appropriate for commercial lease arrangements and do not, in our assessment, create any unusual or disproportionate environmental liability exposure for Pennfield.

Financial Statement Accruals. Pennfield's audited financial statements for FY 2022, FY 2023, and FY 2024, as prepared by Pennfield's management and audited by Pemberton & Associates LLP, do not reflect any environmental remediation accruals, loss contingencies, or contingent liabilities for environmental matters. The notes to the financial statements do not disclose any pending or reasonably possible environmental claims. This is consistent with the low environmental risk profile identified through our document review and with Pennfield's representations in the diligence questionnaire.

IX. Environmental Insurance

Pennfield does not currently maintain a standalone environmental liability insurance policy, such as a Pollution Legal Liability ("PLL") policy, Site Pollution Liability policy, or similar environmental-specific coverage. This is consistent with the Company's low-risk environmental profile as a specialty retailer and logistics operator with no manufacturing or heavy industrial operations.

Pennfield's commercial general liability ("CGL") insurance policy, underwritten by Strathmore Specialty Insurance (Policy No. CGL-2024-NC-78245, effective July 1, 2024, through June 30, 2025; aggregate limit of $10,000,000 per occurrence / $20,000,000 general aggregate), contains a standard absolute pollution exclusion endorsement (Quillon Group ("ISO") Form CG 21 49 12 07 or equivalent). This exclusion broadly precludes coverage for bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, release, or escape of pollutants, subject to limited exceptions for certain hostile fire and completed operations scenarios. The pollution exclusion is standard market practice for CGL policies and means that Pennfield's CGL policy would not be available to respond to most environmental liability claims.

Assessment. The absence of standalone environmental insurance is common among specialty retailers with operational profiles similar to Pennfield's and is not, in our view, a significant concern given the Company's low environmental risk profile. However, we note that the buyer-side representations and warranties ("R&W") insurance policy negotiated in connection with the Transaction will provide an additional backstop for environmental matters arising from breaches of environmental representations and warranties in the Agreement and Plan of Merger.

The R&W insurance policy is being issued by Meridian Specialty Insurance Company (Policy No. MSI-RWI-2025-04872) with a policy limit of $100,000,000 and a retention (effectively, a deductible) of $9,800,000 (equal to 1% of the aggregate merger consideration). The policy is being negotiated by Calderwood & Harkness in coordination with underwriting counsel Winslow & Crane LLP (contact: Andrea Shelby) and insurance broker Lockwood Risk Advisors LLC (contact: James Fielding). As of the date of this memorandum, the R&W insurance policy is in an advanced stage of underwriting and is expected to be bound prior to the execution of the Merger Agreement. Coverage for breaches of environmental representations and warranties is included within the policy's scope, subject to standard environmental exclusions and carve-backs that are being negotiated with the underwriter. We recommend that Oliver Mackenzie and Ryan Kowalski coordinate with Andrea Shelby at Winslow & Crane to ensure that the environmental coverage provisions are not overly broad in their exclusions and provide meaningful protection against potential environmental liabilities discovered post-closing. This point is addressed further in Section XI.C below.

X. Change of Control Considerations — Environmental Permits

The reverse triangular merger structure contemplated by the Transaction will result in Pennfield surviving as a wholly-owned subsidiary of Harrowgate (with Merger Sub merging into Pennfield), and accordingly the Transaction constitutes a change of control of Pennfield for purposes of certain of the Company's agreements, permits, and plans. With respect to environmental permits specifically, the following change-of-control considerations apply:

Stormwater General Permits. The stormwater general permits under which the Charlotte and Reno distribution centers operate are typically issued to the facility operator and are not automatically transferable upon a change in the ultimate corporate ownership of the permittee. While the permittee entity (Pennfield Holdings, Inc.) will survive the merger and continue as the facility operator, the change in ultimate ownership may trigger notification requirements under the applicable state general permit programs.

In North Carolina, the NPDES general permit program administered by the NC DEQ requires permittees to notify the agency of changes in the entity controlling the permittee. Similarly, Nevada's NDEP requires updated NOI filings or transfer notifications when there is a change in the identity of the operator or a change in the entity controlling the operator. Pennfield will need to submit the appropriate transfer notifications or updated NOIs to the NC DEQ and the NDEP post-closing. These are routine administrative filings that are not expected to cause any disruption to operations or permit coverage. No pre-closing regulatory approval or consent is required.

RCRA Generator Status. EPA Identification Numbers assigned to hazardous waste generators are site-specific rather than entity-specific and generally remain valid regardless of changes in the corporate ownership of the generator. However, the RCRA regulations (40 CFR § 262.18) require generators to notify the applicable EPA Region or authorized state agency of changes in certain facility information, including the name and contact information of the owner/operator. Pennfield's three distribution centers will need to submit updated RCRA notification forms (EPA Form 8700-12) to reflect the post-merger ownership structure. This is a ministerial requirement that does not require prior regulatory approval and can be completed post-closing.

Cross-Reference. A comprehensive analysis of change-of-control provisions across all Pennfield agreements, including environmental permits, regulatory authorizations, and material contracts, is provided in the Change of Control Analysis memorandum prepared by Ryan Kowalski and Megan Chu, dated March 26, 2025. Environmental permits are addressed in Section IV.D of that memorandum.

XI. Recommendations and Open Items

Based on the findings of this environmental diligence review, the following items are recommended for attention prior to and following the closing of the Transaction.

A. Pre-Closing Items

1. Columbus Stormwater Permit Status. Confirm the stormwater permit status at the Columbus Distribution Center. Specifically, determine whether the facility qualifies for a "No Exposure" exclusion under Ohio EPA's industrial stormwater permitting program, and if so, arrange for Pennfield to file a No Exposure Certification with Ohio EPA prior to closing or promptly following closing. If the facility does not qualify for the exclusion (i.e., if industrial materials or activities are exposed to stormwater), Pennfield should be directed to obtain coverage under the applicable Ohio EPA general stormwater permit. Consideration should be given to including a covenant in the Merger Agreement requiring Pennfield to use commercially reasonable efforts to resolve this matter prior to closing, or alternatively, to including it as a post-closing obligation of the surviving entity.

2. Updated SDS and HazCom Records. Request that Pennfield provide updated Safety Data Sheet files and Hazard Communication training records for distribution center employees as part of the closing deliverables or as a condition to the bring-down of environmental representations. This will ensure that Harrowgate has a complete baseline of EHS compliance documentation for the distribution center operations at the time of the change of control. This request should be directed to Patricia Okafor, Pennfield's General Counsel, through the standard information request process.

B. Post-Closing Items

1. Stormwater Permit Transfer Notifications. Following the closing of the Transaction, submit transfer notifications and/or updated Notices of Intent for the stormwater general permits at the Charlotte Distribution Center (NC DEQ) and the Reno Distribution Center (NDEP) to reflect the change in ultimate corporate ownership of Pennfield. These filings should be prepared by Harrowgate's environmental counsel or a qualified environmental consultant and submitted within 30 days following the closing date, or such shorter period as may be required under the applicable general permit.

2. RCRA Notification Updates. Submit updated RCRA notification forms (EPA Form 8700-12) for the Charlotte, Reno, and Columbus distribution centers to the applicable EPA Region or authorized state agency (the North Carolina Department of Environmental Quality, the Nevada Division of Environmental Protection, and the Ohio Environmental Protection Agency, respectively) to reflect the post-merger ownership structure. These notifications should be filed within 30 to 90 days following the closing date.

3. SPCC Plan Updates. Update the Spill Prevention, Control, and Countermeasure plans at the Charlotte and Reno distribution centers (and the voluntary SPCC plan at the Columbus distribution center) to reflect the new corporate ownership. Updated SPCC plans should be prepared and certified by a licensed Professional Engineer. We recommend that SPCC plan updates be completed within 90 days following the closing date.

4. Pollution Legal Liability Insurance Evaluation. Evaluate whether standalone Pollution Legal Liability ("PLL") insurance should be procured for the distribution center operations post-closing. While the overall environmental risk profile is low, the CREC on the parcel adjacent to the Charlotte Distribution Center (relating to the historical dry cleaner and ongoing groundwater monitoring) warrants consideration of PLL coverage as a prudential measure. PLL coverage could provide first-party coverage for cleanup costs and third-party coverage for bodily injury and property damage claims arising from pollution conditions at or migrating to the distribution center facilities. We recommend that Harrowgate engage its insurance broker (Lockwood Risk Advisors LLC or another qualified broker) to obtain premium quotations for PLL coverage for the three distribution centers, with particular attention to the Charlotte facility.

C. Merger Agreement Considerations

The environmental representations and warranties in the Agreement and Plan of Merger (target execution date: April 7, 2025) should include standard representations by Pennfield and its principal stockholders regarding the following matters:

(a) Compliance with all applicable Environmental Laws (as defined in the Merger Agreement) in all material respects;

(b) Possession of all Environmental Permits required for the operation of the Company's business, and compliance with such Environmental Permits in all material respects;

(c) Absence of any Release (as defined, with reference to CERCLA § 101(22)) of Hazardous Substances at, on, under, or from any property currently or formerly owned, operated, or leased by the Company that would reasonably be expected to give rise to a material liability under Environmental Laws;

(d) Absence of any material Environmental Liabilities (as defined), including any pending or threatened claims, actions, or proceedings under Environmental Laws;

(e) Absence of any outstanding notices of violation, administrative orders, consent decrees, or similar enforcement instruments issued by any governmental authority under Environmental Laws; and

(f) Delivery to the Buyer of copies of all material Phase I and Phase II Environmental Site Assessments, environmental compliance audits, and material environmental correspondence in the Company's possession or control.

These representations are consistent with market practice for take-private transactions of this size and type. The defined terms (Environmental Laws, Environmental Permits, Hazardous Substances, Release, and Environmental Liabilities) should be drafted broadly to encompass all applicable federal, state, and local environmental statutes, regulations, and common law, including CERCLA, RCRA, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, EPCRA, and state equivalents.

The general indemnification provisions of the Merger Agreement provide a cap of $117,600,000 (representing 12% of the $980,000,000 aggregate merger consideration) for breaches of representations and warranties, including environmental representations. Environmental representations are not being classified as "fundamental representations" subject to a higher or uncapped indemnification limit, which is appropriate given the low environmental risk profile. The standard survival period for representations and warranties (expected to be 18 months following the closing date) will also apply to the environmental representations.

As discussed in Section IX above, the buyer-side R&W insurance policy issued by Meridian Specialty Insurance Company (with a $100,000,000 policy limit and $9,800,000 retention) will provide additional backstop coverage for breaches of environmental representations and warranties, subject to policy terms and exclusions. We recommend that Oliver Mackenzie and Ryan Kowalski coordinate with Andrea Shelby at Winslow & Crane LLP to confirm that the R&W policy's environmental coverage provisions

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL WORK PRODUCT
This memorandum has been prepared by Calderwood & Harkness LLP for the exclusive use of its client, Harrowgate Private Equity Fund IV LP, in connection with the proposed acquisition of Pennfield Holdings, Inc. (Project Summit). This memorandum is protected by the attorney-client privilege and the work product doctrine. Any disclosure, distribution, or copying of this memorandum or its contents to any person other than authorized representatives of Harrowgate Private Equity Fund IV LP is strictly prohibited without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions, Calderwood & Harkness LLP Ryan Kowalski, Lead Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
FROM: Megan Chu, Working Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: March 26, 2025
RE: Environmental Compliance Review — Pennfield Holdings, Inc. (Project Summit)
MATTER NO.: 1003-00004
CLIENT: Harrowgate Private Equity Fund IV LP
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I. Executive Summary
This memorandum summarizes the findings of the environmental compliance review conducted by Calderwood & Harkness LLP as part of the legal due diligence in connection with the proposed take-private acquisition of Pennfield Holdings, Inc. ("Pennfield" or the "Company") (Nasdaq: PNFD) by Harrowgate Private Equity Fund IV LP ("Harrowgate" or the "Buyer"), through a reverse triangular merger with Pinnacle Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of Harrowgate formed for the purpose of effecting the transaction. The aggregate merger consideration is approximately $980,000,000 (the "Transaction").
The scope of this review encompassed environmental documents produced by Pennfield in the virtual data room hosted on Thackeray Solutions under the project codename "Project Summit," which was opened on February 10, 2025. The document review was supplemented by targeted follow-up information requests directed to Pennfield's General Counsel, Patricia Okafor, and Pennfield's outside environmental and transactional counsel at Calloway, Briggs & Harmon LLP (Janet Alcorn, Steven Devereux, and Linda Chiang). In total, we reviewed approximately 340 documents across 14 data room folders relating to environmental matters, which are catalogued in Appendix A to this memorandum.
Overall Assessment. Based on our review, Pennfield's environmental risk profile is consistent with that of a specialty retail operation focused on outdoor lifestyle, sporting goods, and adventure apparel products. The Company's environmental exposure is generally low given the nature of its operations, which consist primarily of leased retail store locations, leased outlet locations, and leased warehouse and distribution facilities. Pennfield does not engage in heavy manufacturing, chemical processing, or industrial activities that typically give rise to significant environmental liabilities. The identified environmental issues are manageable, administrative in nature, and none rise to the level of a material impediment to the closing of the Transaction.
Company Overview. Pennfield currently operates a portfolio of 187 company-owned retail store locations across 34 states, together with 22 outlet locations, for a total of 209 retail and outlet locations nationwide. The Company maintains its corporate headquarters at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202, and operates three primary warehouse and distribution center facilities located in Charlotte, North Carolina; Reno, Nevada; and Columbus, Ohio, as described in greater detail in Section III below. Pennfield employs approximately 8,400 individuals across all locations, including full-time and part-time employees. For the fiscal year ended January 31, 2025 ("FY 2024"), the Company reported total revenue of approximately $1.62 billion and adjusted EBITDA of approximately $142 million.
As set forth in more detail in Sections II through XI below, the principal findings of this environmental diligence review are as follows:
• Phase I Environmental Site Assessments for Pennfield's three distribution center facilities did not identify any Recognized Environmental Conditions ("RECs") directly affecting the Company's leased premises. One Controlled Recognized Environmental Condition ("CREC") was noted at the Charlotte Distribution Center, relating to a historical dry cleaning operation on an adjacent parcel that is subject to ongoing groundwater monitoring under state regulatory oversight. No impact to Pennfield's leased parcel has been identified.
• Pennfield does not own or operate any underground storage tanks at any of its facilities.
• The Company maintains appropriate hazardous materials handling programs, including Hazard Communication programs, Spill Prevention, Control, and Countermeasure plans, and hazardous waste generator registrations, consistent with the nature and scale of its operations.
• No active remediation obligations, Superfund or CERCLA liabilities, outstanding notices of violation, administrative orders, consent decrees, or pending environmental enforcement actions were identified.
• Minor administrative items requiring attention include confirming the stormwater permit status at the Columbus Distribution Center and completing post-closing permit transfer notifications at the Charlotte and Reno distribution centers.
• Environmental representations and warranties in the Agreement and Plan of Merger should follow standard market practice for transactions of this type, and no special environmental escrow or specific environmental indemnity is recommended.
II. Scope and Methodology
A. Documents Reviewed
Calderwood & Harkness conducted a comprehensive review of the environmental compliance documentation produced by Pennfield and its advisors to the Project Summit virtual data room on the Thackeray Solutions platform. The principal categories of documents reviewed include the following:
1. Phase I Environmental Site Assessments. Phase I ESAs prepared in accordance with ASTM E1527-21 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process) for each of Pennfield's three warehouse and distribution center facilities. These assessments were prepared by qualified environmental consulting firms and included historical research, database reviews, site reconnaissance, and interviews with knowledgeable parties.
2. Environmental Permits. Copies of all environmental permits held by Pennfield, including stormwater general permits, hazardous waste generator registrations, and related documentation such as Stormwater Pollution Prevention Plans ("SWPPPs") and monitoring reports.
3. Regulatory Correspondence. All correspondence between Pennfield and federal, state, and local environmental regulatory agencies, including any notices of violation, inspection reports, compliance orders, and responses thereto.
4. Compliance Audit Reports. Internal environmental compliance audit reports and assessments prepared by Pennfield's environmental, health, and safety ("EHS") team and third-party consultants.
5. Remediation Documentation. Any documentation relating to environmental investigation, remediation, or corrective action at current or former Pennfield facilities, to the extent such documentation exists (none was identified, as discussed in Section VIII).
6. Environmental Diligence Questionnaire Responses. Pennfield's responses to the environmental section of the buyer's due diligence questionnaire, submitted on February 28, 2025, with supplemental responses provided on March 14, 2025, and March 21, 2025.
7. Lease Agreements. Lease agreements for retail store locations and warehouse and distribution facilities, reviewed in coordination with the real estate diligence workstream. This review cross-references the Real Estate & Lease Portfolio Summary memorandum prepared by the Calderwood & Harkness real estate team, dated March 25, 2025, with particular attention to environmental provisions, indemnification obligations, and landlord representations regarding the environmental condition of the leased premises.
8. Environmental Insurance Policies and Claims Records. Historical environmental insurance policies maintained by Pennfield and records of any environmental claims submitted thereunder.
9. Waste Management Contracts. Material contracts with waste haulers, recycling vendors, and environmental service providers, including agreements governing the transportation, treatment, and disposal of hazardous and non-hazardous waste generated at Pennfield's distribution center facilities.
10. Safety Data Sheets and Hazardous Communication Materials. Representative Safety Data Sheets and Hazard Communication program documentation maintained at distribution center facilities.
A complete itemized list of the data room documents reviewed, organized by facility and cross-referenced to Project Summit data room index numbers on Thackeray Solutions, is set forth in Appendix A to this memorandum.
B. Limitations
The following limitations apply to the scope of this environmental diligence review and should be considered in evaluating the findings and recommendations set forth herein:
1. No Phase II Environmental Site Assessments. No Phase II ESAs (i.e., subsurface sampling, soil borings, groundwater monitoring well installation, or other intrusive investigation activities) were conducted or commissioned by Calderwood & Harkness or Harrowgate in connection with this diligence review. Reliance is placed on the existing Phase I ESAs produced by Pennfield to the data room, which were prepared by third-party environmental consultants and are subject to the limitations stated in those reports. The Phase I ESA reports reviewed were prepared for the benefit of their respective clients (Pennfield or its landlords) and were not addressed to Harrowgate or Calderwood & Harkness; accordingly, we may not be entitled to rely on such reports as a matter of law, and the environmental consultants who prepared them owe no duty of care to Harrowgate or Calderwood & Harkness. We recommend that reliance letters be obtained from the applicable environmental consultants post-closing, to the extent practicable.
2. Data Room Cut-Off Date. This review is limited to documents produced to the Project Summit data room as of March 25, 2025, the date on which the final batch of responsive documents was uploaded by Pennfield's outside counsel. Any documents produced after this date have not been reviewed for purposes of this memorandum, though we will continue to monitor data room uploads through the anticipated closing date.
3. No Independent Site Inspections. No independent site inspections or physical environmental assessments of any Pennfield facility were performed by Calderwood & Harkness attorneys or agents in connection with this review. Our assessment is based entirely on the documentary record produced to the data room and information provided by Pennfield's management and counsel.
4. Auditor Contact. Pennfield's independent auditor, Pemberton & Associates LLP (lead audit partner: Kevin Tarrant Corporation), was not separately contacted by Calderwood & Harkness regarding environmental accruals, contingent liabilities, or other environmental matters reflected or potentially required to be reflected in Pennfield's audited financial statements. Reliance is placed on the data room disclosures, including Pennfield's audited financial statements for FY 2022, FY 2023, and FY 2024 and the notes thereto, as well as Pennfield's representations in the diligence questionnaire regarding the absence of environmental accruals or contingent liabilities.
5. Tax Advisor Exclusion. Environmental matters, if any, relating to Pennfield's tax advisor, Crestline Tax Advisors LLC (Alan Fitzgerald), were not within the scope of this review.
6. General Limitations. This memorandum addresses environmental compliance matters based on currently available information and applicable law as of the date hereof. It does not constitute a guarantee that no environmental liabilities exist or will arise in the future. Environmental conditions that are unknown, undisclosed, or not reasonably discoverable through the diligence procedures described herein may exist at Pennfield's current or former facilities.
III. Facility Overview
Pennfield's real estate portfolio, for purposes of this environmental review, consists of three principal categories of facilities: (a) the corporate headquarters in Charlotte, North Carolina; (b) 209 retail and outlet store locations across 34 states; and (c) three warehouse and distribution center facilities. Each category is discussed below.
A. Corporate Headquarters
Pennfield's corporate headquarters is located at 4500 Commerce Boulevard, Suite 800, Charlotte, North Carolina 28202. The headquarters occupies approximately 42,000 square feet of leased office space in a Class A multi-tenant commercial office building. The lease term runs through December 31, 2029, with two five-year renewal options. The premises are used exclusively for general corporate, administrative, and executive functions, including finance, legal, human resources, merchandising, marketing, and information technology operations.
No significant environmental concerns were identified in connection with the corporate headquarters. The facility is a conventional commercial office environment with no manufacturing, chemical processing, hazardous materials storage, or other operations that would give rise to environmental regulatory obligations beyond standard building management activities. Standard office cleaning supplies and maintenance materials are present in de minimis quantities. The lease agreement contains standard environmental representations by the landlord regarding the condition of the building and the absence of hazardous materials, as well as standard tenant obligations not to introduce hazardous substances onto the premises other than in connection with ordinary office operations and in compliance with applicable law.
B. Retail Store Locations
Pennfield operates 187 company-owned retail store locations across 34 states, together with 22 outlet locations in outlet malls and lifestyle centers, for a total of 209 retail and outlet locations. The geographic distribution of these locations is concentrated in metropolitan and suburban markets, with the highest concentrations in California (28 locations), Texas (19 locations), Florida (16 locations), New York (14 locations), and Colorado (12 locations).
Substantially all retail and outlet locations are leased premises situated within shopping centers, strip malls, lifestyle centers, and outlet malls. The typical retail store footprint ranges from approximately 4,500 to 12,000 square feet, with outlet locations generally occupying 3,000 to 7,000 square feet. Lease terms vary, with a weighted average remaining lease term of approximately 4.2 years as of the date of this memorandum.
Operations conducted at the retail store level consist of the display, marketing, and sale of outdoor lifestyle products, sporting goods, adventure apparel, footwear, and related accessories. Minor storage of inventory and consumer products occurs in backroom areas of each location. There is no manufacturing, assembly, chemical processing, or heavy industrial activity conducted at any retail location.
Hazardous materials usage at the retail level is limited and consists primarily of: (i) standard cleaning supplies (e.g., floor cleaners, glass cleaners, sanitizers); (ii) pest control materials applied by licensed third-party pest management contractors; and (iii) de minimis quantities of consumer products containing regulated substances that are offered for sale, such as camp fuel canisters, lighter fluid, aerosol products (e.g., waterproofing sprays, insect repellents), and small lithium batteries in electronic accessories. These consumer products are stored and displayed in their original, sealed, manufacturer packaging and in quantities consistent with retail display and sales operations.
No manufacturing, chemical processing, or heavy industrial operations are conducted at any retail or outlet location. No reportable releases, spills, or environmental incidents were identified at any retail location in the data room documents reviewed.
C. Warehouse and Distribution Facilities
Pennfield operates three primary warehouse and distribution center facilities, which serve as the Company's logistics backbone for receiving, warehousing, order fulfillment, and shipping of finished consumer goods to its retail locations and to customers through the Company's direct-to-consumer e-commerce channel. All three distribution centers are leased facilities. The facilities are summarized as follows:
1. Charlotte Distribution Center. Pennfield's primary national distribution hub is located at 1280 Logistics Parkway, Charlotte, North Carolina 28214. The facility comprises approximately 350,000 square feet of warehouse and distribution space in a modern, single-story industrial building constructed in 2015. The lease commenced on March 1, 2018, with a current term running through February 28, 2028, and two five-year renewal options. This facility serves as the central receiving point for imported goods and domestic vendor shipments and distributes inventory to retail locations nationwide, with a particular focus on southeastern and eastern U.S. markets. The Charlotte Distribution Center employs approximately 420 full-time and seasonal workers.
2. Reno Distribution Center. Pennfield's western distribution center is located at 7400 Industrial Way, Reno, Nevada 89506. The facility comprises approximately 180,000 square feet of warehouse and distribution space in a single-story industrial building. The lease commenced on January 1, 2020, with a current term running through December 31, 2029, and one five-year renewal option. This facility serves Pennfield's retail locations throughout the western United States, including California, Oregon, Washington, Arizona, and neighboring states. The Reno Distribution Center employs approximately 175 full-time and seasonal workers.
3. Columbus Distribution Center. Pennfield's midwestern and northeastern distribution center is located at 3200 Commerce Center Drive, Columbus, Ohio 43228. The facility comprises approximately 150,000 square feet of warehouse and distribution space. The lease was originally executed in 2016 and was renewed in early 2024 for an additional seven-year term running through January 31, 2031. This facility serves retail locations throughout the midwestern and northeastern United States. The Columbus Distribution Center employs approximately 140 full-time and seasonal workers.
Operations at all three distribution centers involve receiving shipments from domestic and international suppliers, warehousing and inventory management, picking, packing, and order fulfillment, and outbound shipping to retail locations and direct-to-consumer customers via common carriers and Pennfield's small fleet of delivery vehicles. No manufacturing, assembly, chemical processing, or product modification processes are conducted at any distribution center facility.
Hazardous materials present at the distribution center facilities include: (i) diesel fuel stored in above-ground storage tanks for backup emergency generators and, at the Charlotte facility, for a small fleet of yard tractors and delivery vehicles; (ii) lubricants, hydraulic fluids, and maintenance chemicals for forklift trucks, conveyor systems, and other material handling equipment; (iii) small quantities of consumer products classified as hazardous materials for transportation purposes under Department of Transportation (DOT) regulations, including camp stove fuel, lithium batteries in electronic accessories, and aerosol products; and (iv) minor quantities of cleaning supplies and pest control materials. The nature and quantities of hazardous materials present at each distribution center are discussed in greater detail in Section IV below.
IV. Hazardous Materials Handling and Storage
A. Retail Locations
As noted in Section III.B above, hazardous materials present at Pennfield's 209 retail and outlet locations are limited to de minimis quantities of cleaning supplies and certain consumer products offered for sale that may contain regulated substances. The quantities involved at any individual retail location are well below reportable thresholds under the Emergency Planning and Community Right-to-Know Act ("EPCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), and analogous state laws.
Pennfield maintains a corporate-level Hazard Communication ("HazCom") program that is designed to comply with the requirements of the Occupational Safety and Health Administration ("OSHA") Hazard Communication Standard, 29 CFR § 1910.1200. The HazCom program includes: (i) a written hazard communication plan applicable to all retail and distribution center locations; (ii) an inventory of hazardous chemicals present at each facility; (iii) Safety Data Sheets ("SDS") maintained at each retail location for all applicable products; and (iv) employee training on hazardous chemical recognition, labeling, and safe handling procedures. A copy of the corporate HazCom program manual (dated January 2024) was produced to the data room and was reviewed as part of this diligence effort. The program appears to be current and consistent with regulatory requirements, though we note that certain individual retail locations may not have updated their SDS files to reflect current product inventory; this is a minor administrative compliance matter that does not present a material risk.
No reportable releases, spills, or environmental incidents were identified at any retail or outlet location in the data room documents reviewed. Pennfield's diligence questionnaire responses confirmed that the Company is not aware of any unreported releases or spills at any retail location.
B. Distribution Centers
The distribution center facilities present a somewhat more complex hazardous materials profile than the retail locations, owing to the presence of diesel fuel storage, material handling equipment, and larger inventories of consumer products containing regulated substances. However, the quantities involved remain modest by industrial standards and are consistent with the Company's logistics operations.
Diesel Fuel Storage. Each of the three distribution centers maintains above-ground storage tanks ("ASTs") for diesel fuel, primarily to supply backup emergency generators. The AST capacities at each facility are as follows:
The Charlotte and Reno distribution centers each exceed the aggregate above-ground storage capacity threshold of 1,320 gallons that triggers the requirement to prepare and maintain a Spill Prevention, Control, and Countermeasure ("SPCC") plan under 40 CFR Part 112, promulgated pursuant to the Clean Water Act. SPCC plans are in place for both the Charlotte and Reno facilities. The data room contained copies of the current SPCC plans for each facility: the Charlotte SPCC plan was last updated in August 2023, and the Reno SPCC plan was last updated in November 2022. Both plans appear to have been prepared by qualified Professional Engineers and include the required elements, including facility diagrams, tank descriptions, containment measures, inspection schedules, and spill response procedures. We note that both SPCC plans should be reviewed and updated post-closing to reflect the change in corporate ownership, as discussed in Section X below.
The Columbus Distribution Center's single 2,000-gallon AST is below the 1,320-gallon aggregate threshold (when considered without other oil storage containers on-site) that would mandate an SPCC plan. However, Pennfield has voluntarily prepared and maintained an SPCC plan for the Columbus facility as a matter of best practice. A copy of the Columbus SPCC plan (dated March 2024) was reviewed in the data room.
Hazardous Waste Generation. Hazardous waste generated at the three distribution centers consists primarily of: (i) spent batteries (including lead-acid batteries from forklifts and small batteries from electronic devices); (ii) used oil and lubricants from material handling equipment; and (iii) damaged or unsaleable consumer products that may be classified as hazardous waste (e.g., damaged aerosol cans, spilled camp stove fuel). All three facilities operate as Conditionally Exempt Small Quantity Generators ("CESQGs") or Small Quantity Generators ("SQGs") under the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901-6992k, and the implementing regulations at 40 CFR Part 260 et seq. No facility generates hazardous waste in quantities that would trigger Large Quantity Generator ("LQG") obligations.
EPA Identification Numbers have been obtained for each distribution center, as required for facilities that generate hazardous waste. The EPA ID numbers are as follows:
Hazardous waste manifests and disposal records for the trailing three-year period (calendar years 2022, 2023, and 2024) were produced to the data room and reviewed. The manifests reflect routine shipments of used oil, spent batteries, and small quantities of other hazardous waste to licensed Treatment, Storage, and Disposal Facilities ("TSDFs"). The records appear to be complete and in good order, with no anomalies or discrepancies identified. Waste disposal is handled through licensed third-party waste management contractors, principally Pinnacle Systems and Strathmore Health IT, under service agreements that include standard indemnification provisions in favor of Pennfield.
No Reported Incidents. No reported releases, spills, notices of violation, or enforcement actions were identified in connection with hazardous materials handling or storage at any of the three distribution center facilities in the data room documents reviewed. Pennfield's diligence questionnaire responses confirmed that the Company is not aware of any unreported releases or spills at any distribution center.
V. Underground Storage Tanks (USTs)
Pennfield has affirmatively represented, through its responses to the environmental diligence questionnaire and through supplemental certifications provided by its General Counsel, Patricia Okafor, that the Company does not own or operate any underground storage tanks at any of its currently owned or leased facilities. This representation encompasses all 209 retail and outlet locations, the three distribution center facilities, and the corporate headquarters.
Our review of the data room documents is consistent with this representation. We did not identify any UST registration filings, UST closure documentation, UST removal records, or UST-related regulatory correspondence in the data room. No references to underground storage tanks appear in any of the environmental compliance files, permits, or regulatory correspondence produced by Pennfield.
With respect to the distribution center facilities, the Phase I ESAs conducted for each of the three distribution centers (discussed in Section VI below) did not identify any underground storage tanks or evidence of historical UST operations on the premises. The Phase I ESA reports included database searches of state UST registries and visual inspections of the properties, and none reported findings indicative of past or present UST operations.
With respect to the retail and outlet locations, Pennfield relies on environmental representations made by landlords in the applicable lease agreements regarding the condition of the leased premises, including representations regarding the absence of USTs. While we have not independently verified these landlord representations, they are consistent with the expected environmental profile of the types of commercial properties (shopping centers, strip malls, lifestyle centers, and outlet malls) in which Pennfield's retail locations are situated.
Assessment. No UST-related risk has been identified for Pennfield's current operations. The absence of USTs is consistent with the nature of Pennfield's business as a specialty retailer and logistics operator and eliminates a common source of environmental liability in real estate transactions.
VI. Phase I Environmental Site Assessments
A. Distribution Centers
Phase I Environmental Site Assessments were conducted for each of Pennfield's three distribution center facilities within the past three years. Each Phase I ESA was prepared in general conformance with the ASTM E1527-21 standard and included, among other components, a review of historical sources (including historical aerial photographs, Trelwick fire insurance maps, city directories, and topographic maps), federal and state environmental database searches, interviews with current facility managers, and visual site reconnaissance. The Phase I ESAs for each facility are summarized below.
1. Charlotte Distribution Center. A Phase I ESA for the Charlotte Distribution Center at 1280 Logistics Parkway, Charlotte, North Carolina 28214, was prepared in June 2023 by EcoTech Environmental Consulting, Inc. ("EcoTech"), an environmental consulting firm retained by the property landlord, Logistics Capital Partners LLC, in connection with a refinancing of the property. The report was uploaded to the data room at folder 4.3.1 (Data Room Index No. 4.3.1.01).
The Charlotte Phase I ESA identified no Recognized Environmental Conditions (RECs) directly affecting the Pennfield-leased parcel. However, the report noted one Controlled Recognized Environmental Condition (CREC) relating to a historical dry cleaning operation ("EcoClean Dry Cleaners") that formerly occupied a commercial building on an adjacent parcel to the west of the distribution center property. The dry cleaning facility operated from approximately 1988 to 2009 and was the subject of a voluntary cleanup action under the North Carolina Brownfields Program (administered by the North Carolina Department of Environmental Quality, Division of Waste Management). Soil and groundwater contamination associated with perchloroethylene (PCE) and trichloroethylene (TCE) was identified on the adjacent parcel and a No Further Action ("NFA") determination was not issued. Instead, a Brownfields Agreement was executed in 2012 that included land use restrictions on the adjacent parcel and a requirement for ongoing groundwater monitoring. Groundwater monitoring is being conducted by the adjacent property owner under the oversight of the North Carolina DEQ, and the most recent monitoring report (dated October 2024, produced to the data room at Index No. 4.3.1.04) indicates that contaminant concentrations in monitoring wells on the adjacent parcel continue to decrease and remain below applicable groundwater standards at the property boundary nearest to the Pennfield distribution center.
Critically, no contamination has been identified on the Pennfield-leased parcel. The Phase I ESA concluded that the CREC on the adjacent parcel does not constitute a REC with respect to the distribution center property, and the groundwater monitoring data to date does not indicate off-site migration of contamination onto the Pennfield parcel. Nonetheless, this condition merits continued monitoring, and we recommend that Harrowgate consider the procurement of standalone Pollution Legal Liability insurance for the Charlotte Distribution Center as an additional precaution, as discussed in Section XI.B below.
2. Reno Distribution Center. A Phase I ESA for the Reno Distribution Center at 7400 Industrial Way, Reno, Nevada 89506, was prepared in September 2022 by Western Environmental Associates, LLC, at the time of Pennfield's execution of the lease for the facility. The report was uploaded to the data room at folder 4.3.2 (Data Room Index No. 4.3.2.01).
The Reno Phase I ESA identified no Recognized Environmental Conditions (RECs) affecting the property. The report noted one de minimis environmental condition classified as a Business Environmental Risk (BER): minor surface staining (oil and grease) observed near the south loading dock area, likely attributable to vehicle and equipment operations in the loading area. The environmental consultant concluded that the staining was limited in extent and did not represent a significant environmental concern. No further investigation was recommended. We note that surface staining of this nature is commonplace at warehouse and distribution facilities with active loading dock operations and does not, in our assessment, present a material environmental risk.
3. Columbus Distribution Center. A Phase I ESA for the Columbus Distribution Center at 3200 Commerce Center Drive, Columbus, Ohio 43228, was prepared in February 2024 by Midland Environmental Group, Inc., at the time of Pennfield's lease renewal for the facility. The report was uploaded to the data room at folder 4.3.3 (Data Room Index No. 4.3.3.01).
The Columbus Phase I ESA identified no Recognized Environmental Conditions (RECs) affecting the property. The report noted, as a matter of historical context, that the property was used for agricultural purposes (row crops and pasture) prior to the development of the commercial/industrial park in which the distribution center is situated. The conversion from agricultural to commercial use occurred in the early 2000s. The environmental consultant noted that no pesticide or herbicide contamination concerns were identified, and no further investigation was recommended. The historical agricultural use does not, in our assessment, present a material environmental risk.
Overall Assessment. The Phase I ESA results for Pennfield's three distribution center facilities are clean, with no Recognized Environmental Conditions identified on any of the Pennfield-leased parcels. The sole CREC noted at the Charlotte facility relates to a historical condition on an adjacent parcel and does not currently affect Pennfield's operations or leased premises. The Phase I ESA findings are consistent with the low environmental risk profile of Pennfield's distribution operations.
B. Retail Locations
Phase I Environmental Site Assessments were not performed for individual retail store or outlet locations. This is consistent with standard market practice for retail lease situations in which the tenant does not own the underlying real property and occupies space in multi-tenant commercial properties such as shopping centers, strip malls, and outlet malls. The environmental condition of the underlying real property at retail locations is generally the responsibility of the landlord, and Pennfield relies on: (i) standard environmental representations in lease agreements, which typically include landlord warranties regarding the absence of hazardous substances on the premises and compliance with environmental laws; and (ii) the Company's own operational controls, including its HazCom program and corporate EHS policies, to ensure that Pennfield's retail operations do not give rise to environmental liability.
Given the nature of Pennfield's retail operations (display and sale of consumer products, with no manufacturing or chemical processing), the absence of Phase I ESAs for retail locations does not, in our assessment, present a material gap in the environmental diligence record. We are not aware of any practice in comparable retail take-private transactions in which Phase I ESAs were required or obtained for individual retail store locations.
VII. Environmental Permits and Regulatory Compliance
A. Air Quality Permits
No air emission permits are required or held by Pennfield at any of its facilities. The Company's operations do not involve emissions sources subject to permitting under the Clean Air Act, 42 U.S.C. §§ 7401-7671q, or analogous state air quality statutes. Specifically, Pennfield does not operate manufacturing facilities, paint spray booths, solvent degreasing operations, fuel-burning equipment above de minimis thresholds, or other emissions sources that would trigger New Source Review, Prevention of Significant Deterioration, or Title V operating permit requirements.
The emergency backup generators at the three distribution centers constitute potential air emissions sources; however, such generators are generally exempt from air permitting requirements under applicable federal and state regulations, provided they are operated only during emergencies and for limited testing and maintenance periods. Pennfield's records indicate that generator testing is conducted on a monthly basis for approximately 30 minutes per test, which is within the permissible limits for exemption from air permitting under applicable North Carolina, Nevada, and Ohio regulations, as well as EPA's National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines (40 CFR Part 63, Subpart ZZZZ).
As noted in Section VII.D below, the Charlotte Distribution Center received a minor notice of non-compliance from the Mecklenburg County Air Quality Division in 2021 relating to generator testing recordkeeping, but this matter was resolved without fine or penalty and does not indicate an ongoing permitting obligation.
B. Wastewater and Stormwater Permits
Sanitary Wastewater. All Pennfield facilities (headquarters, retail locations, and distribution centers) discharge sanitary wastewater to municipal sewer systems under standard service agreements with local utility providers. No National Pollutant Discharge Elimination System ("NPDES") individual permits have been identified for any Pennfield facility. No industrial wastewater pretreatment permits were identified, which is consistent with the absence of manufacturing or industrial process wastewater at any Pennfield location.
Stormwater Permits. Stormwater management at the distribution center facilities is subject to the requirements of the Clean Water Act, 33 U.S.C. §§ 1251-1387, and implementing regulations governing stormwater discharges from industrial activities (40 CFR Part 122.26). The stormwater permit status at each distribution center is summarized as follows:
Charlotte Distribution Center. The Charlotte facility is covered under a North Carolina NPDES General Permit for Stormwater Discharges Associated with Industrial Activity (Permit No. NCG210XXX). Pennfield submitted a Notice of Intent ("NOI") to the North Carolina Department of Environmental Quality ("NC DEQ") and obtained permit coverage upon commencement of operations at the facility. The facility maintains a Stormwater Pollution Prevention Plan ("SWPPP") that was last updated in May 2023. Semi-annual stormwater monitoring reports (visual and analytical) are prepared and maintained on-site. Data room review of the monitoring reports for the trailing three-year period revealed no exceedances of applicable benchmark values and no violations of permit conditions.
Reno Distribution Center. The Reno facility is covered under a Nevada Division of Environmental Protection ("NDEP") General Permit for Industrial Stormwater (Permit No. NVR05XXXX). Pennfield submitted the required NOI and obtained coverage. The facility maintains a SWPPP that was last updated in January 2023. Stormwater monitoring is conducted in accordance with permit requirements. Review of available monitoring reports did not reveal any permit violations or exceedances.
Columbus Distribution Center. The Columbus Distribution Center does not appear to have stormwater permit coverage under an Ohio EPA NPDES General Permit for Industrial Stormwater Discharges. Based on our review of the data room documents, no NOI filing or general permit authorization was identified for the Columbus facility. Pennfield's supplemental diligence questionnaire response on this point (dated March 21, 2025) indicated that the Company's EHS team had determined that the Columbus facility qualifies for an exclusion from industrial stormwater permitting based on the "no exposure" exemption (i.e., that industrial materials and activities at the facility are not exposed to stormwater), but the data room did not contain a "No Exposure Certification" filed with Ohio EPA to formalize this exclusion.
This matter is flagged as a minor follow-up item. If the Columbus facility does in fact have industrial materials or activities exposed to stormwater (e.g., outdoor loading/unloading of goods, outdoor storage of dumpsters containing materials derived from industrial activity), permit coverage may be required under Ohio EPA's General Permit. We recommend that the stormwater exposure assessment for the Columbus facility be confirmed post-closing and, if necessary, a No Exposure Certification be filed with Ohio EPA or, alternatively, coverage under the applicable general stormwater permit be obtained. This is an administrative compliance matter that, even in a worst-case scenario, would likely result in a modest administrative penalty, if any, and does not present a material environmental risk to the Transaction.
C. Hazardous Waste Permits
As discussed in Section IV.B above, all three distribution centers operate as Small Quantity Generators ("SQGs") or Conditionally Exempt Small Quantity Generators ("CESQGs") under RCRA. No Treatment, Storage, and Disposal Facility ("TSDF") permits are required or held by Pennfield, as the Company does not treat, store (beyond the applicable accumulation time limits), or dispose of hazardous waste on-site at any facility. All hazardous waste is transported off-site by licensed third-party waste management contractors for treatment and disposal at permitted TSDFs.
Hazardous waste manifests and Land Disposal Restriction ("LDR") notification records for the trailing three-year period were reviewed for each distribution center. The records are generally consistent and complete, with proper use of manifest forms, accurate waste characterization, and timely submission of exception reports where applicable. No discrepancies, manifest exceptions, or compliance deficiencies were identified in the hazardous waste management records.
D. Regulatory Correspondence and Enforcement
A comprehensive review of the data room documents identified no outstanding notices of violation, administrative orders, consent decrees, or pending enforcement actions from any federal, state, or local environmental regulatory agency directed at Pennfield or any of its subsidiaries. No environmental litigation is currently pending against Pennfield or any of its subsidiaries. This finding was cross-referenced with the Litigation & Contingent Liabilities Memorandum prepared by Ryan Kowalski, dated March 27, 2025, which independently confirmed the absence of pending environmental litigation.
One historical regulatory item was identified and merits brief discussion. In March 2021, the Charlotte Distribution Center received a minor notice of non-compliance from the Mecklenburg County Air Quality Division (a division of the Mecklenburg County Land Use and Environmental Services Agency). The notice related to recordkeeping requirements for emergency generator testing. Specifically, the county inspector noted that Pennfield had not maintained contemporaneous records of generator run times and test dates for a period of approximately four months (November 2020 through February 2021) as required by the applicable regulations. The notice did not allege any excess emissions or violation of operational limits. Pennfield responded to the notice within 30 days, implemented corrective recordkeeping procedures, and the matter was resolved administratively with no fine, penalty, or further enforcement action. A copy of the notice of non-compliance, Pennfield's response letter, and the county's acknowledgment of resolution were all produced to the data room (Index Nos. 4.5.1.01 through 4.5.1.03). This matter is fully resolved and does not represent an ongoing compliance concern.
No other regulatory notices, inspection deficiencies, or enforcement matters were identified in the data room documents.
VIII. Remediation and Environmental Liabilities
Based on our review of the data room documents and Pennfield's responses to the environmental diligence questionnaire, no active remediation obligations have been identified for any property currently owned, leased, or operated by Pennfield. The Company has not been required to conduct, and is not currently conducting, any environmental investigation, remediation, corrective action, or cleanup at any current or former facility.
Superfund and CERCLA Liabilities. Pennfield is not identified as a potentially responsible party ("PRP") at any National Priorities List ("NPL") site under CERCLA, 42 U.S.C. §§ 9601-9675, or at any state-listed equivalent contaminated site. No PRP notices, information requests (pursuant to CERCLA Section 104(e)), or demand letters from the U.S. Environmental Protection Agency or any state environmental agency were identified in the data room documents. Pennfield's diligence questionnaire responses affirmatively state that the Company has never received a PRP notice or demand for contribution to cleanup costs at any contaminated site.
Environmental Indemnification Obligations. A review of Pennfield's lease agreements for retail and distribution center locations did not identify any environmental indemnification obligations running from Pennfield to any landlord that exceed standard market provisions. The lease agreements generally contain mutual environmental indemnification provisions under which: (i) the landlord indemnifies the tenant for environmental contamination existing on the premises prior to the tenant's occupancy or caused by parties other than the tenant; and (ii) the tenant indemnifies the landlord for environmental contamination caused by the tenant's own operations during the term of the lease. These provisions are customary and appropriate for commercial lease arrangements and do not, in our assessment, create any unusual or disproportionate environmental liability exposure for Pennfield.
Financial Statement Accruals. Pennfield's audited financial statements for FY 2022, FY 2023, and FY 2024, as prepared by Pennfield's management and audited by Pemberton & Associates LLP, do not reflect any environmental remediation accruals, loss contingencies, or contingent liabilities for environmental matters. The notes to the financial statements do not disclose any pending or reasonably possible environmental claims. This is consistent with the low environmental risk profile identified through our document review and with Pennfield's representations in the diligence questionnaire.
IX. Environmental Insurance
Pennfield does not currently maintain a standalone environmental liability insurance policy, such as a Pollution Legal Liability ("PLL") policy, Site Pollution Liability policy, or similar environmental-specific coverage. This is consistent with the Company's low-risk environmental profile as a specialty retailer and logistics operator with no manufacturing or heavy industrial operations.
Pennfield's commercial general liability ("CGL") insurance policy, underwritten by Strathmore Specialty Insurance (Policy No. CGL-2024-NC-78245, effective July 1, 2024, through June 30, 2025; aggregate limit of $10,000,000 per occurrence / $20,000,000 general aggregate), contains a standard absolute pollution exclusion endorsement (Quillon Group ("ISO") Form CG 21 49 12 07 or equivalent). This exclusion broadly precludes coverage for bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, release, or escape of pollutants, subject to limited exceptions for certain hostile fire and completed operations scenarios. The pollution exclusion is standard market practice for CGL policies and means that Pennfield's CGL policy would not be available to respond to most environmental liability claims.
Assessment. The absence of standalone environmental insurance is common among specialty retailers with operational profiles similar to Pennfield's and is not, in our view, a significant concern given the Company's low environmental risk profile. However, we note that the buyer-side representations and warranties ("R&W") insurance policy negotiated in connection with the Transaction will provide an additional backstop for environmental matters arising from breaches of environmental representations and warranties in the Agreement and Plan of Merger.
The R&W insurance policy is being issued by Meridian Specialty Insurance Company (Policy No. MSI-RWI-2025-04872) with a policy limit of $100,000,000 and a retention (effectively, a deductible) of $9,800,000 (equal to 1% of the aggregate merger consideration). The policy is being negotiated by Calderwood & Harkness in coordination with underwriting counsel Winslow & Crane LLP (contact: Andrea Shelby) and insurance broker Lockwood Risk Advisors LLC (contact: James Fielding). As of the date of this memorandum, the R&W insurance policy is in an advanced stage of underwriting and is expected to be bound prior to the execution of the Merger Agreement. Coverage for breaches of environmental representations and warranties is included within the policy's scope, subject to standard environmental exclusions and carve-backs that are being negotiated with the underwriter. We recommend that Oliver Mackenzie and Ryan Kowalski coordinate with Andrea Shelby at Winslow & Crane to ensure that the environmental coverage provisions are not overly broad in their exclusions and provide meaningful protection against potential environmental liabilities discovered post-closing. This point is addressed further in Section XI.C below.
X. Change of Control Considerations — Environmental Permits
The reverse triangular merger structure contemplated by the Transaction will result in Pennfield surviving as a wholly-owned subsidiary of Harrowgate (with Merger Sub merging into Pennfield), and accordingly the Transaction constitutes a change of control of Pennfield for purposes of certain of the Company's agreements, permits, and plans. With respect to environmental permits specifically, the following change-of-control considerations apply:
Stormwater General Permits. The stormwater general permits under which the Charlotte and Reno distribution centers operate are typically issued to the facility operator and are not automatically transferable upon a change in the ultimate corporate ownership of the permittee. While the permittee entity (Pennfield Holdings, Inc.) will survive the merger and continue as the facility operator, the change in ultimate ownership may trigger notification requirements under the applicable state general permit programs.
In North Carolina, the NPDES general permit program administered by the NC DEQ requires permittees to notify the agency of changes in the entity controlling the permittee. Similarly, Nevada's NDEP requires updated NOI filings or transfer notifications when there is a change in the identity of the operator or a change in the entity controlling the operator. Pennfield will need to submit the appropriate transfer notifications or updated NOIs to the NC DEQ and the NDEP post-closing. These are routine administrative filings that are not expected to cause any disruption to operations or permit coverage. No pre-closing regulatory approval or consent is required.
RCRA Generator Status. EPA Identification Numbers assigned to hazardous waste generators are site-specific rather than entity-specific and generally remain valid regardless of changes in the corporate ownership of the generator. However, the RCRA regulations (40 CFR § 262.18) require generators to notify the applicable EPA Region or authorized state agency of changes in certain facility information, including the name and contact information of the owner/operator. Pennfield's three distribution centers will need to submit updated RCRA notification forms (EPA Form 8700-12) to reflect the post-merger ownership structure. This is a ministerial requirement that does not require prior regulatory approval and can be completed post-closing.
Cross-Reference. A comprehensive analysis of change-of-control provisions across all Pennfield agreements, including environmental permits, regulatory authorizations, and material contracts, is provided in the Change of Control Analysis memorandum prepared by Ryan Kowalski and Megan Chu, dated March 26, 2025. Environmental permits are addressed in Section IV.D of that memorandum.
XI. Recommendations and Open Items
Based on the findings of this environmental diligence review, the following items are recommended for attention prior to and following the closing of the Transaction.
A. Pre-Closing Items
1. Columbus Stormwater Permit Status. Confirm the stormwater permit status at the Columbus Distribution Center. Specifically, determine whether the facility qualifies for a "No Exposure" exclusion under Ohio EPA's industrial stormwater permitting program, and if so, arrange for Pennfield to file a No Exposure Certification with Ohio EPA prior to closing or promptly following closing. If the facility does not qualify for the exclusion (i.e., if industrial materials or activities are exposed to stormwater), Pennfield should be directed to obtain coverage under the applicable Ohio EPA general stormwater permit. Consideration should be given to including a covenant in the Merger Agreement requiring Pennfield to use commercially reasonable efforts to resolve this matter prior to closing, or alternatively, to including it as a post-closing obligation of the surviving entity.
2. Updated SDS and HazCom Records. Request that Pennfield provide updated Safety Data Sheet files and Hazard Communication training records for distribution center employees as part of the closing deliverables or as a condition to the bring-down of environmental representations. This will ensure that Harrowgate has a complete baseline of EHS compliance documentation for the distribution center operations at the time of the change of control. This request should be directed to Patricia Okafor, Pennfield's General Counsel, through the standard information request process.
B. Post-Closing Items
1. Stormwater Permit Transfer Notifications. Following the closing of the Transaction, submit transfer notifications and/or updated Notices of Intent for the stormwater general permits at the Charlotte Distribution Center (NC DEQ) and the Reno Distribution Center (NDEP) to reflect the change in ultimate corporate ownership of Pennfield. These filings should be prepared by Harrowgate's environmental counsel or a qualified environmental consultant and submitted within 30 days following the closing date, or such shorter period as may be required under the applicable general permit.
2. RCRA Notification Updates. Submit updated RCRA notification forms (EPA Form 8700-12) for the Charlotte, Reno, and Columbus distribution centers to the applicable EPA Region or authorized state agency (the North Carolina Department of Environmental Quality, the Nevada Division of Environmental Protection, and the Ohio Environmental Protection Agency, respectively) to reflect the post-merger ownership structure. These notifications should be filed within 30 to 90 days following the closing date.
3. SPCC Plan Updates. Update the Spill Prevention, Control, and Countermeasure plans at the Charlotte and Reno distribution centers (and the voluntary SPCC plan at the Columbus distribution center) to reflect the new corporate ownership. Updated SPCC plans should be prepared and certified by a licensed Professional Engineer. We recommend that SPCC plan updates be completed within 90 days following the closing date.
4. Pollution Legal Liability Insurance Evaluation. Evaluate whether standalone Pollution Legal Liability ("PLL") insurance should be procured for the distribution center operations post-closing. While the overall environmental risk profile is low, the CREC on the parcel adjacent to the Charlotte Distribution Center (relating to the historical dry cleaner and ongoing groundwater monitoring) warrants consideration of PLL coverage as a prudential measure. PLL coverage could provide first-party coverage for cleanup costs and third-party coverage for bodily injury and property damage claims arising from pollution conditions at or migrating to the distribution center facilities. We recommend that Harrowgate engage its insurance broker (Lockwood Risk Advisors LLC or another qualified broker) to obtain premium quotations for PLL coverage for the three distribution centers, with particular attention to the Charlotte facility.
C. Merger Agreement Considerations
The environmental representations and warranties in the Agreement and Plan of Merger (target execution date: April 7, 2025) should include standard representations by Pennfield and its principal stockholders regarding the following matters:
(a) Compliance with all applicable Environmental Laws (as defined in the Merger Agreement) in all material respects;
(b) Possession of all Environmental Permits required for the operation of the Company's business, and compliance with such Environmental Permits in all material respects;
(c) Absence of any Release (as defined, with reference to CERCLA § 101(22)) of Hazardous Substances at, on, under, or from any property currently or formerly owned, operated, or leased by the Company that would reasonably be expected to give rise to a material liability under Environmental Laws;
(d) Absence of any material Environmental Liabilities (as defined), including any pending or threatened claims, actions, or proceedings under Environmental Laws;
(e) Absence of any outstanding notices of violation, administrative orders, consent decrees, or similar enforcement instruments issued by any governmental authority under Environmental Laws; and
(f) Delivery to the Buyer of copies of all material Phase I and Phase II Environmental Site Assessments, environmental compliance audits, and material environmental correspondence in the Company's possession or control.
These representations are consistent with market practice for take-private transactions of this size and type. The defined terms (Environmental Laws, Environmental Permits, Hazardous Substances, Release, and Environmental Liabilities) should be drafted broadly to encompass all applicable federal, state, and local environmental statutes, regulations, and common law, including CERCLA, RCRA, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, EPCRA, and state equivalents.
The general indemnification provisions of the Merger Agreement provide a cap of $117,600,000 (representing 12% of the $980,000,000 aggregate merger consideration) for breaches of representations and warranties, including environmental representations. Environmental representations are not being classified as "fundamental representations" subject to a higher or uncapped indemnification limit, which is appropriate given the low environmental risk profile. The standard survival period for representations and warranties (expected to be 18 months following the closing date) will also apply to the environmental representations.
As discussed in Section IX above, the buyer-side R&W insurance policy issued by Meridian Specialty Insurance Company (with a $100,000,000 policy limit and $9,800,000 retention) will provide additional backstop coverage for breaches of environmental representations and warranties, subject to policy terms and exclusions. We recommend that Oliver Mackenzie and Ryan Kowalski coordinate with Andrea Shelby at Winslow & Crane LLP to confirm that the R&W policy's environmental coverage provisions

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