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

fee-letter-review-memo.docx DOCUMENT M&A / Corporate

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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP One Liberty Plaza, 55th Floor New York, New York 10006

March 26, 2025

MEMORANDUM

CONFIDENTIALITY NOTICE: This memorandum constitutes attorney work product and is protected by the attorney-client privilege. It is prepared for the exclusive use of Calderwood & Harkness LLP and Harrowgate Private Equity Fund IV LP in connection with the proposed take-private acquisition of Pennfield Holdings, Inc. (Nasdaq: PNFD). Do not distribute without prior authorization.

I. Executive Summary

The purpose of this memorandum is to summarize and analyze the fee letter (the "Fee Letter") dated March 24, 2025, executed simultaneously with the Debt Commitment Letter by Falconer National Bank, N.A. ("Falconer") and Dunmore Capital Markets LLC ("Dunmore," and together with Falconer, the "Arrangers") in connection with the proposed $980,000,000 take-private acquisition (the "Acquisition") of Pennfield Holdings, Inc. ("Pennfield" or the "Company") by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Sponsor") through Pinnacle Merger Sub, Inc. ("Merger Sub"). This memorandum is intended to assist the deal team in evaluating the commercial reasonableness of the Fee Letter, identifying areas of risk, and framing the fee economics in the broader context of the Merger Agreement and the Sources and Uses framework.

The Fee Letter governs the economic terms payable to the Arrangers for the committed financing, which consists of (i) a $490,000,000 Senior Secured Term Loan B facility with a seven-year maturity at a pricing of SOFR + 400 basis points (the "Term Loan B") and (ii) a $150,000,000 Senior Secured Revolving Credit Facility with a five-year maturity at a pricing of SOFR + 350 basis points, expected to be undrawn at closing (the "Revolving Facility," and together with the Term Loan B, the "Facilities"). The total committed debt under the Facilities is $640,000,000.

The key categories of arranger compensation addressed in the Fee Letter are as follows:

(a) arrangement and structuring fees payable to the Arrangers for their roles in originating, structuring, and syndicating the Facilities;

(b) upfront fees structured as original issue discount ("OID") on the Term Loan B, and an upfront commitment fee on the Revolving Facility, each designed to incentivize syndicate participation;

(c) commitment fees (commonly referred to as "ticking fees") accruing on undrawn committed amounts during the period between the expiration of a sixty-day free period and the earlier of the Closing Date and termination of commitments;

(d) ongoing administrative agent fees and letter of credit issuer fees payable to Falconer in its administrative and operational capacities; and

(e) flex provisions permitting the Arrangers to modify pricing, structure, and certain documentary terms of the Facilities during the fifteen business-day marketing period to facilitate successful syndication.

Overall Assessment: Based on our review and market benchmarking (including input from Ridgepoint Partners LLC, the Sponsor's financial advisor), the fee levels set forth in the Fee Letter are within the market range for a leveraged buyout financing of this size and credit profile. The total estimated pre-closing and closing fee amount is approximately $17,300,000 to $17,400,000, which is encompassed within the $60,000,000 estimated transaction cost budget reflected in the Sources and Uses framework. The flex provisions are customary in scope but warrant careful monitoring during the fifteen business-day marketing period post-signing of the Merger Agreement, as their exercise could meaningfully increase financing costs and affect post-closing cash flow projections. Certain flex terms — particularly the potential for increased OID and the addition of a springing financial maintenance covenant — require attention to ensure alignment with the Merger Agreement economics and the Equity Commitment Letter mechanics.

Copies of this memorandum have been provided to: Megan Chu (Working Associate, Calderwood & Harkness LLP); Jonah Whitfield (Principal, Harrowgate Capital Partners LLC); and Marcus Hale and Priya Chandrasekaran (Ridgepoint Partners LLC, Buyer's Financial Advisor).

II. Background and Transaction Context

A. Transaction Overview

Harrowgate Private Equity Fund IV LP, a Delaware limited partnership managed by Harrowgate Capital Partners LLC (with approximately $4.8 billion in Fund IV commitments and approximately $14.2 billion in firm-wide assets under management), is acquiring Pennfield Holdings, Inc. (Nasdaq: PNFD), a Delaware corporation and specialty retailer focused on outdoor lifestyle, sporting goods, and adventure apparel. Pennfield operates approximately 340 retail locations across 38 states and maintains a growing e-commerce platform that accounted for approximately 22% of total net revenues in fiscal year 2024.

The Acquisition is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"). Pinnacle Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of HPE Fund IV formed for the purpose of effecting the transaction, will merge with and into Pennfield, with Pennfield surviving the merger as a wholly owned subsidiary of HPE Fund IV. Following the closing, Pennfield's common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Securities Exchange Act of 1934, as amended.

The aggregate merger consideration is $980,000,000, representing a per-share consideration of $15.95 on a fully diluted basis (based on approximately 61,450,000 shares of Pennfield common stock outstanding, calculated on a fully diluted, treasury stock method basis, inclusive of in-the-money options, restricted stock units, and performance share units). The per-share price represents a premium of approximately 32% to Pennfield's unaffected closing price of $12.08 on February 14, 2025 (the last trading day prior to media reports of potential strategic interest in the Company) and a premium of approximately 24% to the Company's 90-day volume-weighted average price of $12.86 as of that date.

Pennfield's fiscal year 2024 financial results (for the fiscal year ending January 31, 2025) reflect consolidated revenue of $1.62 billion, Adjusted EBITDA of $142 million (representing a margin of approximately 8.8%), and net income of $54.3 million. These financial metrics imply an enterprise value-to-EBITDA multiple of approximately 6.9x at the agreed-upon purchase price, which is consistent with recent precedent transactions in the specialty retail and outdoor lifestyle sector.

B. Sources and Uses Summary

The financing of the Acquisition is structured as follows:

Sources:

The management rollover equity of $21.5 million is comprised of contributions from: Derek Langford (CEO) — $12.5 million; Catherine Simmons (CFO) — $5.0 million; and Travis Dunn (COO) — $4.0 million. These amounts reflect equity rollover elections under the Management Rollover and Subscription Agreements, copies of which are under separate review by this firm.

Total sources of $980.0 million are exclusive of estimated transaction costs of approximately $60.0 million, which include, among other items, the financing fees summarized in this memorandum, advisory fees payable to Ridgepoint Partners LLC and Whitmore Zanthor & Co. (Pennfield's financial advisor), legal fees, accounting fees, and the premium for the representations and warranties insurance policy.

Uses:

Transaction costs are expected to be funded from a combination of Term Loan B proceeds, equity contributions, and available cash on the Company's balance sheet.

Leverage at Close: Based on the foregoing, approximate net debt-to-LTM EBITDA at closing is approximately 3.2x (calculated as $490.0 million Term Loan B less excess cash, divided by $142.0 million LTM Adjusted EBITDA, and net of closing costs). This leverage level is within the parameters of Harrowgate's investment criteria for its Fund IV portfolio and is consistent with the leverage profile of recent comparable leveraged buyout transactions in the consumer/retail sector.

C. Financing Parties

Falconer National Bank, N.A. serves as Lead Arranger, Administrative Agent, and L/C Issuer for the Facilities. Falconer's principal office is located at 383 Madison Avenue, New York, New York 10179. The senior relationship contact for this transaction is Gregory Poole, Managing Director, Leveraged Finance Group. Falconer is a nationally chartered commercial bank regulated by the Office of the Comptroller of the Currency and is a well-established participant in the leveraged lending market, having served as lead arranger on over $28 billion in leveraged loan commitments during calendar year 2024.

Dunmore Capital Markets LLC serves as Co-Arranger and Joint Bookrunner for the Facilities. Dunmore's principal office is located at 500 West Monroe Street, 35th Floor, Chicago, Illinois 60661. The senior relationship contact for this transaction is Samantha Reeves, Managing Director, Debt Capital Markets. Dunmore is a broker-dealer affiliate of Dunmore Financial Holdings, Inc. and has a recognized presence in the middle-market and upper-middle-market leveraged finance sectors.

The allocation of roles between Falconer and Dunmore reflects Falconer's senior position as lead arranger and administrative agent, with Dunmore providing supplemental distribution capacity and investor relationships to support the syndication process.

D. Debt Commitment Letter

The Debt Commitment Letter was executed on March 24, 2025, concurrently with the Fee Letter. The Debt Commitment Letter commits Falconer and Dunmore, severally (and not jointly), to provide the full $640,000,000 in debt financing, comprised of the $490,000,000 Term Loan B and the $150,000,000 Revolving Facility, subject to the conditions precedent set forth therein and customary limited conditionality provisions consistent with the SunGard-style framework. Under the limited conditionality framework, the number and scope of conditions to funding are narrowly circumscribed, and the Arrangers' obligation to fund on the Closing Date is subject only to (i) the accuracy of "specified representations" (as distinguished from the broader representation and warranty package in the definitive credit agreement), (ii) the absence of a material adverse effect on the Company, (iii) delivery of customary closing documents, and (iv) expiration of the marketing period.

Calderwood & Harkness's separate markup and analysis of the Debt Commitment Letter is addressed in a companion memorandum currently under preparation by the undersigned and Megan Chu. That memorandum will address, among other items, the scope of the specified representations, the definition of "Company Material Adverse Effect" as used in the Debt Commitment Letter (and its alignment with the corresponding definition in the Merger Agreement), the flex provisions as they interact with the commitment letter terms, and the conditions to the Arrangers' funding obligations.

III. Summary of Fee Letter Terms

Set forth below is a detailed summary of each category of fees and economic terms contained in the Fee Letter.

A. Arrangement and Structuring Fees

Arrangement Fee. The Fee Letter provides for an arrangement fee payable to the Arrangers in connection with their origination, structuring, and syndication of the Facilities. The arrangement fee is allocated between the Arrangers as follows:

(i) Falconer National Bank, N.A. (Lead Arranger): An arrangement fee equal to 1.00% of the aggregate committed amount of the Facilities (i.e., 1.00% × $640,000,000 = $6,400,000). This fee compensates Falconer for its primary role in originating the financing, negotiating the credit documentation, and leading the syndication process.

(ii) Dunmore Capital Markets LLC (Co-Arranger): An arrangement fee equal to 0.50% of the aggregate committed amount of the Facilities (i.e., 0.50% × $640,000,000 = $3,200,000). This fee compensates Dunmore for its role as co-arranger and joint bookrunner, including its commitment of capital and distribution efforts in the syndication.

The total arrangement fees payable to the Arrangers are $9,600,000 in the aggregate. The allocation between Falconer and Dunmore represents an approximate 65%/35% split of total arrangement fee economics, which reflects Falconer's lead role in the transaction and is consistent with customary allocation ratios for two-arranger leveraged buyout financings.

Structuring Fee. In addition to the arrangement fee, the Fee Letter provides for a flat structuring fee of $750,000 payable to Falconer in its capacity as Administrative Agent. The structuring fee compensates Falconer for its role in designing the capital structure, preparing the credit documentation, and coordinating the administrative mechanics of the Facilities. This fee is payable solely to Falconer and is not shared with Dunmore.

Payment Timing. Both the arrangement fees and the structuring fee are payable in full in cash on the Closing Date, from the transaction expense proceeds included in the Sources and Uses framework. These fees are not refundable and are fully earned upon closing.

B. Upfront Fees / Original Issue discount (OID)

Term Loan B Upfront Fee / OID. The Fee Letter provides for an upfront fee on the Term Loan B structured as original issue discount of 100 basis points (1.00%) of the aggregate principal amount of the Term Loan B. Based on the $490,000,000 Term Loan B commitment, this OID amounts to $4,900,000. The OID is implemented by funding the Term Loan B at a price of 99.00 (i.e., each lender funds 99 cents on the dollar), meaning that the syndicate lenders will advance $485,100,000 in cash in exchange for $490,000,000 in face value of Term Loan B obligations. The $4,900,000 OID differential is retained by the Arrangers and/or passed through to syndicate participants as an incentive for their participation in the syndication.

From the borrower's perspective, the OID effectively increases the all-in cost of the Term Loan B financing because the borrower is obligated to repay the full $490,000,000 face value while having received only $485,100,000 in net cash proceeds. The OID is amortized over the life of the Term Loan B for accounting and tax purposes, as discussed further in Section IV.E below.

Revolving Facility Upfront Fee. The Fee Letter also provides for an upfront fee on the Revolving Facility equal to 50 basis points (0.50%) of the aggregate commitment amount of the Revolving Facility. Based on the $150,000,000 Revolving Facility commitment, this upfront fee amounts to $750,000, payable to each revolving lender on a pro rata basis on the Closing Date. Unlike the Term Loan B OID, which is structured as a discount to the funded principal amount, the Revolving Facility upfront fee is payable in cash directly from transaction expense proceeds.

Syndication Incentive. The OID on the Term Loan B is a key syndication incentive that makes the Term Loan B investment more attractive to prospective syndicate lenders by providing an immediate day-one return on investment. The OID, in combination with the SOFR + 400 basis point interest rate spread, establishes the overall yield profile that the Arrangers will market to prospective lenders during the syndication process. As discussed in Section III.E below, the flex provisions in the Fee Letter may permit the Arrangers to increase the OID to facilitate syndication if market conditions require a higher yield to attract sufficient lender participation.

C. Commitment Fees (Pre-Closing)

Ticking Fee / Commitment Fee. The Fee Letter provides for a commitment fee (commonly referred to as a "ticking fee") that accrues on undrawn committed amounts under the Facilities during the period between the date that is sixty (60) days after the date of the Debt Commitment Letter (i.e., from approximately May 23, 2025, based on the March 24, 2025 commitment date) and the earlier of (x) the Closing Date and (y) the date of termination of the commitments under the Debt Commitment Letter (such period, the "Ticking Period"). During the Ticking Period, the commitment fee accrues at a rate equal to 50% of the applicable interest rate margin on each Facility, calculated as follows:

(i) Term Loan B: 50% of the SOFR + 400 bps margin = 200 basis points per annum on the $490,000,000 undrawn Term Loan B commitment.

(ii) Revolving Facility: 50% of the SOFR + 350 bps margin = 175 basis points per annum on the $150,000,000 undrawn Revolving Facility commitment.

On a blended basis, the commitment fee rate across the full $640,000,000 of committed debt is approximately 194 basis points per annum (weighted by relative commitment size).

Estimated Ticking Fee Exposure. The total ticking fee exposure depends on the timing of the Closing Date relative to the commencement of the Ticking Period. Based on the current deal timeline, if closing occurs on or about June 30, 2025 (the estimated closing date reflected in the Project Summit timeline), the ticking fees would accrue for approximately 38 days (from May 23, 2025 through June 30, 2025) on up to $640,000,000 of committed amounts, resulting in an estimated aggregate ticking fee of approximately $1,300,000 to $1,400,000.

The sixty-day free period (during which no ticking fee accrues) is designed to align with the expected marketing and syndication timeline. Because the Arrangers will be actively marketing the Facilities to prospective syndicate lenders during the initial weeks following the signing of the Merger Agreement, the free period provides a window during which the Sponsor is not penalized for the time required to complete syndication. The ticking fee commencing after the free period compensates the Arrangers and committed lenders for the opportunity cost of holding committed capital during the extended period between syndication completion and closing, which may be prolonged by the pendency of antitrust review, shareholder approval, or other closing conditions.

D. Administrative Agent and Related Fees

Annual Administrative Agent Fee. The Fee Letter provides for an annual administrative agent fee of $125,000 payable to Falconer in its capacity as Administrative Agent for the Facilities. The administrative agent fee commences on the Closing Date and is payable quarterly in arrears (i.e., $31,250 per quarter). The fee compensates Falconer for the ongoing operational and administrative costs of servicing the credit facilities, including maintaining the register of lenders, processing borrowing and repayment notices, coordinating compliance certificate deliveries, managing amendments and waivers, and performing other ministerial functions customary for an administrative agent under a syndicated credit facility.

L/C Issuer Fee. The Fee Letter provides for a fronting fee payable to Falconer in its capacity as L/C Issuer under the Revolving Facility. The fronting fee is equal to 12.5 basis points per annum on the face amount of each outstanding letter of credit issued by Falconer under the Revolving Facility. In addition to the fronting fee, each outstanding letter of credit generates a participation fee equal to the applicable Revolving Facility margin (SOFR + 350 basis points) that is shared among all revolving lenders on a pro rata basis. The fronting fee compensates Falconer for the credit risk and administrative burden of issuing letters of credit for the account of the borrower, which exposure is then allocated among the revolving lenders through the participation mechanism.

The aggregate letter of credit sub-limit under the Revolving Facility is expected to be $25,000,000 (as set forth in the Debt Commitment Letter term sheet), and the Company's current outstanding letters of credit (primarily supporting store lease obligations and vendor guarantees) total approximately $8.2 million. The L/C issuer fees are therefore expected to be modest in the near term.

E. Flex Provisions

The Fee Letter contains customary "market flex" provisions (the "Flex Provisions") that permit the Arrangers, in their discretion and upon consultation with the Sponsor, to modify certain pricing, structural, and documentary terms of the Facilities to facilitate successful syndication during the fifteen (15) business-day marketing period. The marketing period is expected to commence upon the signing of the Merger Agreement, currently estimated to occur on or about April 7, 2025, and would therefore be expected to conclude on or about April 28, 2025. The following is a summary of the principal Flex Provisions:

Pricing Flex (Upward):

(i) Term Loan B Interest Rate Spread. The Arrangers may increase the interest rate spread on the Term Loan B by up to 50 basis points, from SOFR + 400 basis points to a maximum of SOFR + 450 basis points. This upward flex permits the Arrangers to offer a higher current yield to prospective syndicate lenders if market conditions, investor sentiment, or competing loan issuances require a richer coupon to achieve full syndication.

(ii) Revolving Facility Interest Rate Spread. The Arrangers may increase the interest rate spread on the Revolving Facility by up to 50 basis points, from SOFR + 350 basis points to a maximum of SOFR + 400 basis points.

(iii) Term Loan B OID. The Arrangers may increase the OID on the Term Loan B by up to 100 additional basis points, from the base level of 100 basis points (funding price of 99.00) to a maximum of 200 basis points (funding price of 98.00). This would increase the aggregate OID from $4,900,000 to $9,800,000 and reduce net Term Loan B cash proceeds from $485,100,000 to $480,200,000.

Structural Flex:

(iv) Reallocation Between Facilities. The Arrangers may reallocate committed amounts between the Term Loan B and the Revolving Facility, subject to a floor on the revolving commitment of not less than $100,000,000. This permits the Arrangers to adjust the relative sizing of the term loan and revolving tranches to better match investor appetite, while preserving a minimum level of revolving availability for the borrower's working capital and general corporate purposes.

(v) Creation of Additional Tranches. The Arrangers may create additional tranches of indebtedness to facilitate syndication, including (without limitation) a Term Loan A tranche or a second lien term loan tranche, provided that the total aggregate committed debt under all facilities does not exceed $640,000,000. The creation of a second lien tranche, if exercised, would involve subordination of such tranche to the senior secured facilities through an intercreditor agreement, the terms of which would need to be separately negotiated and documented.

(vi) Amortization. The Arrangers may modify the amortization schedule applicable to the Term Loan B, including increasing the required quarterly amortization from 1.00% per annum (the base case) to up to 5.00% per annum. Any increase in amortization would reduce the bullet payment at maturity but would increase mandatory debt service during the term, thereby reducing free cash flow available for capital expenditures, distributions, and operational initiatives.

(vii) Financial Maintenance Covenants. The Arrangers may add or modify financial maintenance covenants applicable to the Revolving Facility, including adding a springing net leverage covenant that would be tested only when revolving utilization exceeds a specified threshold (e.g., 35% of aggregate revolving commitments, or $52,500,000 based on the $150,000,000 base commitment). The specific leverage ratio applicable to such a springing covenant, if added, would be determined during syndication in consultation with the Arrangers, and the Fee Letter does not specify a minimum or maximum level for such ratio.

SOFR Floor:

(viii) The Arrangers may impose or increase a SOFR floor applicable to the Facilities from 0 basis points (the base case) to up to 75 basis points. A SOFR floor establishes a minimum reference rate below which the floating rate component of the interest rate will not fall, thereby providing lenders with yield protection in a declining interest rate environment. A 75 basis point floor would mean that even if Term SOFR falls below 0.75%, the interest rate on the Facilities would be calculated as if Term SOFR were 0.75%.

Call Protection:

(ix) The Arrangers may add soft call protection on the Term Loan B for the first six months following the Closing Date, in the form of a 101 soft call premium (i.e., the borrower would be required to pay a 1.00% premium on the principal amount of any Term Loan B prepayment made during such six-month period in connection with a repricing transaction). This provision protects syndicate lenders' yield expectations against early repricing by the borrower in a favorable market and is a commonly requested feature in leveraged loan syndications.

Sunset of Flex Rights:

The Flex Provisions expire and are of no further force or effect upon the earlier of (i) the completion of successful syndication of the Facilities (as determined by the Arrangers in their reasonable discretion) and (ii) the end of the fifteen business-day marketing period. Upon the expiration of the Flex Provisions, the terms of the Facilities are fixed as set forth in the Debt Commitment Letter (as may have been modified by any flex exercise prior to such expiration).

F. Fee Letter Confidentiality

The Fee Letter contains customary confidentiality provisions that restrict the disclosure of the fee amounts, flex terms, and other economic terms set forth therein. Disclosure is permitted to the borrower (Pennfield, post-closing), its affiliates (including HPE Fund IV and Harrowgate Capital Partners LLC), and their respective professional advisors (including Calderwood & Harkness LLP, Ridgepoint Partners LLC, and the Sponsor's accounting advisors) on a need-to-know basis and subject to the advisors' agreement to maintain the confidentiality of the disclosed information.

Importantly, the Fee Letter is a separate side agreement to the Debt Commitment Letter and is not required to be filed with the Securities and Exchange Commission as an exhibit to the Merger Agreement or any related Schedule 13D or 13E-3 filings. Only the Debt Commitment Letter (without the Fee Letter or any reference to fee amounts or flex terms) will be filed as an exhibit to the proxy statement and other SEC filings. The deal team should take care to ensure that no Fee Letter terms — and particularly no flex provision details — are inadvertently disclosed in any public filings, press releases, investor communications, or correspondence with Pennfield or its advisors (Calloway, Briggs & Harmon LLP and Whitmore Zanthor & Co.).

IV. Analysis and Commentary

A. Market Benchmarking

Based on our review of recent precedent transactions and publicly available leveraged loan market data, as well as input from Ridgepoint Partners LLC (Marcus Hale and Priya Chandrasekaran), the arrangement fees, upfront fees/OID, commitment fees, and administrative agent fees set forth in the Fee Letter appear to be consistent with market practice for leveraged buyout financings in the mid-market consumer and retail sector at comparable leverage levels (approximately 3.0x to 3.5x net leverage at closing).

Specifically, we note the following benchmarking observations:

(i) Arrangement Fees. Total arrangement fees of $9,600,000 represent approximately 1.50% of the $640,000,000 aggregate committed amount on a blended basis. This percentage is within the range of 1.25% to 2.00% observed in recent comparable two-arranger leveraged buyout financings. The 65%/35% allocation between Falconer and Dunmore is consistent with customary lead arranger / co-arranger economics.

(ii) OID. The 100 basis point OID on the Term Loan B (funding price of 99.00) is at the tighter end of the range observed in recent broadly syndicated leveraged loans, where OID has ranged from approximately 75 basis points to 200 basis points depending on credit quality, market conditions, and issuer profile. The relatively tight OID reflects the favorable credit profile of Pennfield (moderate leverage, stable cash flows, and a well-recognized consumer brand) and current demand for leveraged loan paper among CLO and institutional loan investors.

(iii) Interest Rate Pricing. The SOFR + 400 basis point spread on the Term Loan B provides an effective yield (inclusive of OID amortization) that is competitive with recent syndicated leveraged loan issuances for borrowers with similar credit characteristics. Ridgepoint Partners LLC has confirmed that the SOFR + 400 bps pricing is at the tighter end of the indicative range for comparable credits, reflecting the favorable market reception anticipated for the Pennfield credit story and the moderate leverage profile.

(iv) Commitment / Ticking Fee. The 50% of applicable margin ticking fee structure with a sixty-day free period is a commonly observed construct in leveraged buyout commitment letters and is generally considered market standard.

(v) Administrative Agent Fee. The $125,000 annual administrative agent fee is within the standard range of $75,000 to $175,000 for credit facilities of this size.

B. Flex Provision Risk Assessment

While the Flex Provisions are customary in scope and consistent with leveraged finance market practice, they create meaningful exposure to increased financing costs that could affect the Sponsor's returns and the post-closing financial projections for the Company. Set forth below is our assessment of the principal flex-related risks:

Interest Rate Flex. The potential 50 basis point upward flex on the Term Loan B spread (from SOFR + 400 to a maximum of SOFR + 450) would increase the annual interest expense on the $490,000,000 Term Loan B by approximately $2,450,000 per year (calculated as $490,000,000 × 0.50% = $2,450,000). Over the seven-year term of the Term Loan B, this represents a cumulative increase in interest costs of approximately $17.15 million (before accounting for amortization and assuming the full principal amount remains outstanding). This increase could affect post-closing cash flow projections and, depending on the terms of any financial maintenance covenants added through structural flex, could reduce the borrower's headroom under such covenants. We recommend that the Harrowgate deal team run an updated financial model sensitivity reflecting the fully flexed interest rate scenario to assess the impact on projected leverage ratios, fixed charge coverage ratios, and free cash flow available for the Sponsor's planned supply-chain optimization and digital-first omnichannel capital expenditures.

OID Flex. An increase in OID from 100 basis points to the maximum of 200 basis points would reduce the net cash proceeds from the Term Loan B by an additional $4,900,000 (from $485,100,000 to $480,200,000). This shortfall would need to be covered from one or more of the following sources: (a) additional equity contributions from the Sponsor under the Equity Commitment Letter, (b) additional co-investment from Ashford Growth Partners LP under the Co-Investment Agreement, or (c) available cash on the Company's balance sheet. We recommend confirming that the Equity Commitment Letter contains a "true-up" mechanism that obligates HPE Fund IV to fund any shortfall in debt proceeds resulting from OID flex exercise. If the Equity Commitment Letter does not contain such a mechanism (or if the mechanism is subject to a cap that would be exceeded by the maximum OID flex), this gap should be addressed promptly with Jonah Whitfield and, if appropriate, with David Nakamura at Ashford Growth Partners LP.

Structural Flex — Financial Maintenance Covenant Addition. The potential addition of a springing net leverage financial maintenance covenant on the Revolving Facility is the most consequential structural flex item from an operational perspective. A springing covenant would impose a mandatory leverage test whenever the borrower's revolving facility utilization exceeds the specified threshold (e.g., 35% of commitments, or $52,500,000 based on the $150,000,000 base revolving commitment). If the borrower fails to satisfy the leverage test at a time when the springing trigger is active, such failure would constitute an event of default under the credit agreement, potentially leading to acceleration of the Facilities and enforcement of the security package.

We recommend that, in any negotiation of a springing covenant, the Sponsor seek to ensure that: (a) the utilization trigger is set at no less than 35% of revolving commitments; (b) outstanding letters of credit are excluded from the utilization calculation (or, at a minimum, only drawn letters of credit are included); (c) the net leverage ratio is set at no less than 1.0x above projected closing net leverage (i.e., if closing net leverage is 3.2x, the springing covenant should be set at no less than 4.2x net leverage); and (d) the testing frequency is limited to the last day of each fiscal quarter during which the springing trigger is active, with a customary cure period allowing the borrower to reduce utilization below the threshold and thereby avoid a covenant default.

Structural Flex — Amortization. An increase in the Term Loan B amortization rate from 1.00% to the maximum of 5.00% per annum would increase annual mandatory principal repayment from $4,900,000 to $24,500,000, an increase of $19,600,000 per year. While accelerated amortization would reduce the outstanding principal at maturity and may be viewed favorably by credit investors, the increased mandatory debt service would reduce free cash flow available for Harrowgate's planned post-closing value creation initiatives, including the supply-chain optimization program (estimated capital expenditure of $35–40 million over the first two years), the digital-first omnichannel platform buildout (estimated capital expenditure of $18–22 million), and potential tuck-in acquisitions. We recommend that the Sponsor's financial model be updated to reflect the fully flexed amortization scenario and that the deal team assess whether the resulting cash flow profile is consistent with the value creation plan presented to the Fund IV investment committee.

Overall Flex Assessment. In the aggregate, full exercise of all Flex Provisions could increase financing costs by approximately $7,000,000 to $8,000,000 in additional OID at closing and approximately $2,450,000 in incremental annual interest expense, together with meaningful increases to mandatory annual debt service. While these amounts are significant, they are within the range of outcomes anticipated by the Sources and Uses framework and the $60,000,000 transaction cost budget. The Flex Provisions are consistent with customary market terms for leveraged buyout financings of this size and should be actively managed during the syndication process.

We recommend that Jonah Whitfield and the Ridgepoint team coordinate closely with Gregory Poole (Falconer) and Samantha Reeves (Dunmore) throughout the marketing period to monitor investor feedback, assess the likelihood of flex exercise, and, if flex exercise becomes necessary, negotiate the extent of any modifications to minimize the impact on the Sponsor's economics.

C. Alignment with Merger Agreement

Marketing Period. The Merger Agreement (as currently negotiated) provides for a fifteen (15) business-day marketing period commencing upon satisfaction of certain conditions (including the availability of customary marketing materials such as a confidential information memorandum and a bank financial model) following the signing of the Merger Agreement. The Fee Letter Flex Provisions sunset at the earlier of successful syndication completion and the end of the marketing period. These provisions are appropriately aligned, and the marketing period mechanics in the Merger Agreement should provide sufficient time for the Arrangers to complete the syndication process. We do not identify any timing mismatch between the Fee Letter flex sunset and the Merger Agreement marketing period provisions.

Conditions Precedent / SunGard Conditionality. The Fee Letter does not independently impose conditions to the Arrangers' obligation to fund the Facilities beyond those set forth in the Debt Commitment Letter. This is consistent with the SunGard-style "limited conditionality" framework, under which the conditions to funding are intentionally restricted to a narrow set of specified representations, absence of a material adverse effect, delivery of closing documents, and expiration of the marketing period. The Fee Letter appropriately defers to the Debt Commitment Letter for all funding conditions, and we do not identify any "hidden" conditions in the Fee Letter that would expand the Arrangers' ability to refuse to fund.

However, we note that any exercise of structural flex — particularly the creation of new tranches (e.g., a Term Loan A or a second lien tranche) or the addition of a springing financial maintenance covenant — may require conforming amendments to the Merger Agreement's financing cooperation covenant (which obligates Pennfield and its management to cooperate with the Sponsor's financing efforts during the period between signing and closing). If the structural flex results in a materially different credit documentation package than contemplated at the time the Merger Agreement is executed, the scope of Pennfield's cooperation obligations may need to be broadened to encompass the revised financing structure. We recommend monitoring this issue during syndication and, if structural flex is exercised, promptly assessing whether a Merger Agreement amendment or waiver is required.

Reverse Termination Fee. If the committed financing fails to close despite the Arrangers' commitment (for example, due to a market disruption event, a failure of the SunGard conditions, or a breach by the Arrangers of their funding obligations under the Debt Commitment Letter), HPE Fund IV's exposure includes the $58,800,000 reverse termination fee payable to Pennfield under the Merger Agreement. The reverse termination fee represents 6.0% of the aggregate merger consideration of $980,000,000 and is guaranteed by HPE Fund IV under the Limited Guarantee delivered in favor of Pennfield in connection with the Merger Agreement.

The Fee Letter does not address, offset, or provide any indemnification or reimbursement right with respect to the Sponsor's reverse termination fee exposure. This is customary — fee letters do not typically provide for arranger liability for financing failures — but the reverse termination fee exposure should be borne in mind as a material risk factor in the event of a financing failure. The Sponsor's recourse against the Arrangers in the event of a wrongful refusal to fund would be governed by the Debt Commitment Letter and applicable contract law, not the Fee Letter.

D. Interaction with R&W Insurance and Indemnification

The financing fees and OID described in this memorandum are included in the estimated $60,000,000 of aggregate transaction costs that form part of the Sources and Uses framework. The representations and warranties insurance policy procured by the Sponsor for this transaction (underwritten by Meridian Specialty Insurance Company, with a policy limit of $100,000,000 and a retention (self-insured deductible) of $9,800,000) and the indemnification provisions of the Merger Agreement (subject to an aggregate indemnification cap of $117,600,000, representing 12% of the aggregate merger consideration) are separate and distinct from the financing-related fees described herein. We do not identify any conflict, overlap, or interaction between the Fee Letter economics and the R&W insurance or indemnification provisions. No portion of the financing fees is recoverable under the R&W insurance policy or the Merger Agreement indemnification provisions.

E. Tax Treatment of Fees

The tax treatment of the various categories of fees set forth in the Fee Letter is summarized as follows:

Arrangement and Structuring Fees. The arrangement fees ($9,600,000) and the structuring fee ($750,000) are generally deductible by the borrower as ordinary business expenses, subject to the capitalization requirements of Section 263(a) of the Internal Revenue Code (the "Code"). Under applicable Treasury Regulations and IRS guidance, loan origination fees and similar costs incurred in connection with the establishment of a debt facility are treated as debt issuance costs and must be capitalized and amortized ratably over the term of the respective facility. Accordingly, the arrangement fees and structuring fee allocable to the Term Loan B would be amortized over the seven-year term of the Term Loan B, and the arrangement fees allocable to the Revolving Facility would be amortized over the five-year term of the Revolving Facility. The amortization deductions would be available as ordinary deductions in each taxable year during the amortization period.

Original Issue discount. The $4,900,000 OID on the Term Loan B (or up to $9,800,000 if the maximum OID flex is exercised) is amortized over the seven-year term of the Term Loan B using the constant yield method prescribed by Sections 1272 through 1273 of the Code. Under the constant yield method, the borrower's deductible OID expense in each taxable year is determined based on the adjusted issue price of the Term Loan B and the yield to maturity, resulting in an increasing amortization schedule over the term. The OID amortization deductions are treated as additional interest expense for federal income tax purposes.

Interaction with Section 163(j) Limitation. The deductibility of interest expense (including OID amortization) may be subject to the business interest expense limitation under Section 163(j) of the Code, which generally limits the deduction for business interest expense to the sum of (i) business interest income, (ii) 30% of adjusted taxable income, and (iii) floor plan financing interest. The interaction of the Fee Letter economics with the Section 163(j) limitation should be analyzed in the context of the broader tax structure for the Acquisition.

We recommend that Sylvia Hartwell (Specialist Partner, Tax Group) be consulted regarding the deductibility and timing of all fee payments in connection with the broader tax structure, including the Section 338(h)(10) election analysis and the projected interest expense deductibility under Section 163(j). The tax treatment of fees is addressed in further detail in the separate Tax Structure Memorandum under preparation by the Tax Group.

V. Summary of Fee Amounts

The following table summarizes all fee categories set forth in the Fee Letter, together with the estimated dollar amounts, payees, and payment timing:

The total estimated pre-closing and closing fee amount of approximately $17,300,000 to $17,400,000 represents a component of the estimated $60,000,000 in aggregate transaction costs reflected in the Sources and Uses framework. The remaining approximately $42,600,000 to $42,700,000 of estimated transaction costs consists of advisory fees (financial advisor fees, legal fees, accounting and due diligence fees), R&W insurance premiums, filing fees, and other customary acquisition-related expenses.

The annual administrative agent fee of $125,000 and the variable L/C issuer fronting fee are recurring post-closing expenses that will be borne by the borrower (Pennfield, as the surviving entity) and are not included in the estimated closing-date fee total.

VI. Open Items and Recommendations

Based on our review and analysis of the Fee Letter, we identify the following open items and provide the corresponding recommendations for the deal team's consideration:

1. Equity Commitment Letter True-Up. Confirm with Jonah Whitfield (Harrowgate Capital Partners LLC) and David Nakamura (Ashford Growth Partners LP) that the Equity Commitment Letter and the Co-Investment Agreement contain mechanics to fund any shortfall in debt proceeds resulting from the Arrangers' exercise of OID flex. If the maximum OID flex is exercised (increasing OID from 100 bps to 200 bps), the net Term Loan B proceeds would decrease by $4,900,000, from $485,100,000 to $480,200,000. This shortfall must be covered by additional equity or available cash. We recommend obtaining written confirmation from the Sponsor and the co-investor that the true-up mechanics are operative and sufficient to cover the full potential shortfall.

2. Syndication Strategy Coordination. We recommend scheduling a syndication strategy call with Gregory Poole (Falconer), Samantha Reeves (Dunmore), Marcus Hale (Ridgepoint Partners LLC), and the Harrowgate deal team to discuss the marketing strategy, target lender universe, expected timeline for commitments, and the Arrangers' current assessment of the likelihood of flex exercise. Early engagement on syndication strategy will allow the Sponsor to influence the marketing process and may reduce the probability that the Arrangers find it necessary to invoke the Flex Provisions.

3. Funds Flow Integration. All fee amounts reflected in the Fee Letter should be incorporated into the Closing Funds Flow Memorandum and the supporting funds flow spreadsheet, which is being prepared by Megan Chu (Working Associate, Calderwood & Harkness LLP). Wire instructions for Falconer's administrative agent account (for receipt of arrangement fees, structuring fees, and administrative agent fees) and Dunmore's designated account (for receipt of Dunmore's share of arrangement fees) should be obtained from the respective financing parties and verified in advance of closing. The funds flow should also reflect the netting of the Term Loan B OID from the funded amount and the payment of the Revolving Facility upfront fee from transaction expense proceeds.

4. Tax Consultation. We recommend referring the fee deductibility and OID amortization analysis to Sylvia Hartwell (Specialist Partner, Tax Group) for integration into the Tax Structure Memorandum and the Section 338(h)(10) Election Analysis currently under preparation. The tax treatment of debt issuance costs and OID will be relevant to the Sponsor's post-closing cash flow projections and tax planning, including the analysis of the Section 163(j) business interest expense limitation.

5. Confidentiality. We remind the deal team that the Fee Letter and its terms (including, in particular, the specific fee amounts and the Flex Provisions) are confidential and should not be included in any SEC filings (including the proxy statement, Schedule 13E-3, or Schedule 13D), press releases, investor presentations, or communications with Pennfield or its advisors (Calloway, Briggs & Harmon LLP and Whitmore Zanthor & Co.). Only the Debt Commitment Letter (without the Fee Letter) will be filed as an exhibit. Any request from Pennfield's advisors for disclosure of fee terms should be directed to Oliver Mackenzie for assessment.

6. Marketing Period Monitoring. We recommend that the deal team establish a tracking protocol for the fifteen (15) business-day marketing period (expected to commence upon the signing of the Merger Agreement, estimated April 7, 2025) and any Flex Provision exercise notifications received from the Arrangers during such period. Any notice from the Arrangers indicating an intent to exercise pricing flex, OID flex, structural flex, or any other Flex Provision should be reported immediately to Oliver Mackenzie (Responsible Partner) and Jonah Whitfield (Harrowgate Capital Partners LLC) for evaluation and, if necessary, negotiation. Calderwood & Harkness will coordinate with Ridgepoint Partners LLC to monitor the syndication process and assess the implications of any flex exercise on the overall transaction economics.

VII. Conclusion

Based on our review, the Fee Letter terms are commercially reasonable and consistent with market practice for a leveraged buyout financing of this size ($640,000,000 in aggregate committed debt) and credit quality (approximately 3.2x net leverage at closing; Pennfield FY 2024 Adjusted EBITDA of $142 million). The aggregate estimated pre-closing and closing fees of approximately $17,300,000 to $17,400,000 are within the parameters of the $60,000,000 estimated transaction cost budget and have been cross-referenced against the Sources and Uses framework.

The Flex Provisions, while standard in scope and consistent with customary leveraged finance practice, create meaningful potential increases to financing costs. In the event of full flex exercise, the Sponsor could face up to approximately $7,000,000 to $8,000,000 in additional OID at closing and up to $2,450,000 in incremental annual interest expense on the Term Loan B. These amounts, while manageable within the overall transaction economics, should be managed proactively during the syndication process to minimize the likelihood and extent of flex exercise. We particularly flag the potential addition of a springing financial maintenance covenant and the increase in mandatory amortization as structural flex items that could meaningfully affect post-closing operational flexibility.

All fee amounts have been cross-referenced against the Sources and Uses framework prepared by Ridgepoint Partners LLC and are encompassed within the estimated transaction cost budget. The fee economics are separate from, and do not conflict with, the R&W insurance policy, the Merger Agreement indemnification provisions, or the reverse termination fee.

Calderwood & Harkness will continue to monitor the Fee Letter in conjunction with our ongoing markup and analysis of the Debt Commitment Letter and will promptly flag any issues that arise during the marketing period or in connection with any Flex Provision exercise notifications. We will circulate an updated version of this memorandum if any material changes occur.

Please do not hesitate to contact me at (212) 555-9140 or ryan.kowalski@calderwoodharkness.com with any questions or comments.

VIII. Attachments

The following documents are attached to this memorandum for reference:

Attachment A: Fee Letter dated March 24, 2025, by and among Falconer National Bank, N.A., Dunmore Capital Markets LLC, and Pinnacle Merger Sub, Inc. — CONFIDENTIAL

Attachment B: Debt Commitment Letter dated March 24, 2025, by and among Falconer National Bank, N.A., Dunmore Capital Markets LLC, and Pinnacle Merger Sub, Inc. (for reference; separate Calderwood & Harkness markup under preparation)

Attachment C: Sources and Uses Summary Table (extracted from Ridgepoint Partners LLC financial advisor materials dated March 21, 2025)

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP	Matter No. 1003-00004	Project Summit This memorandum is prepared for the exclusive use of Calderwood & Harkness LLP and Harrowgate Private Equity Fund IV LP. Do not distribute without prior authorization.
To:	Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions
From:	Ryan Kowalski, Lead Associate, Mergers & Acquisitions
Date:	March 26, 2025
Re:	Review and Analysis of Arranger Fee Letter — Falconer National Bank, N.A. and Dunmore Capital Markets LLC (Project Summit)
Matter Number:	1003-00004
Client:	Harrowgate Private Equity Fund IV LP
Source	Amount ($M)	% of Total
Term Loan B	$490.0	50.0%
HPE Fund IV Equity (net of rollover and co-invest)	$258.5	26.4%
Ashford Growth Partners LP Co-Invest Equity	$60.0	6.1%
Management Rollover Equity	$21.5	2.2%
Pennfield Cash on Balance Sheet	$90.0	9.2%
Revolving Credit Facility (available but undrawn at closing)	$150.0 (undrawn)	—
Total Sources	$980.0	100.0%
Use	Amount ($M)
Aggregate Merger Consideration	$980.0
Estimated Transaction Costs	$60.0
Total Uses	$1,040.0
Fee Category	Amount / Rate	Dollar Amount (Est.)	Payee	Payment Timing
Arrangement Fee — Falconer	1.00% of $640M	$6,400,000	Falconer National Bank, N.A.	Closing Date
Arrangement Fee — Dunmore	0.50% of $640M	$3,200,000	Dunmore Capital Markets LLC	Closing Date
Structuring Fee	Flat fee	$750,000	Falconer National Bank, N.A.	Closing Date
TLB Upfront Fee / OID	100 bps of $490M	$4,900,000	Syndicate / Arrangers (netted from proceeds)	Closing Date (netted)
RCF Upfront Fee	50 bps of $150M	$750,000	Revolving Lenders (pro rata)	Closing Date

Commitment / Ticking Fee	~194 bps blended (est.)	~$1,300,000–$1,400,000	Falconer / Dunmore	Closing Date
Annual Admin Agent Fee	Flat fee	$125,000 per annum	Falconer National Bank, N.A.	Quarterly post-closing
L/C Issuer Fronting Fee	12.5 bps per L/C	Variable	Falconer National Bank, N.A.	Per issuance
Estimated Total Pre-Closing / Closing Fees	~$17,300,000–$17,400,000

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 55th Floor New York, New York 10006
March 26, 2025
MEMORANDUM
CONFIDENTIALITY NOTICE: This memorandum constitutes attorney work product and is protected by the attorney-client privilege. It is prepared for the exclusive use of Calderwood & Harkness LLP and Harrowgate Private Equity Fund IV LP in connection with the proposed take-private acquisition of Pennfield Holdings, Inc. (Nasdaq: PNFD). Do not distribute without prior authorization.
I. Executive Summary
The purpose of this memorandum is to summarize and analyze the fee letter (the "Fee Letter") dated March 24, 2025, executed simultaneously with the Debt Commitment Letter by Falconer National Bank, N.A. ("Falconer") and Dunmore Capital Markets LLC ("Dunmore," and together with Falconer, the "Arrangers") in connection with the proposed $980,000,000 take-private acquisition (the "Acquisition") of Pennfield Holdings, Inc. ("Pennfield" or the "Company") by Harrowgate Private Equity Fund IV LP ("HPE Fund IV" or the "Sponsor") through Pinnacle Merger Sub, Inc. ("Merger Sub"). This memorandum is intended to assist the deal team in evaluating the commercial reasonableness of the Fee Letter, identifying areas of risk, and framing the fee economics in the broader context of the Merger Agreement and the Sources and Uses framework.
The Fee Letter governs the economic terms payable to the Arrangers for the committed financing, which consists of (i) a $490,000,000 Senior Secured Term Loan B facility with a seven-year maturity at a pricing of SOFR + 400 basis points (the "Term Loan B") and (ii) a $150,000,000 Senior Secured Revolving Credit Facility with a five-year maturity at a pricing of SOFR + 350 basis points, expected to be undrawn at closing (the "Revolving Facility," and together with the Term Loan B, the "Facilities"). The total committed debt under the Facilities is $640,000,000.
The key categories of arranger compensation addressed in the Fee Letter are as follows:
(a) arrangement and structuring fees payable to the Arrangers for their roles in originating, structuring, and syndicating the Facilities;
(b) upfront fees structured as original issue discount ("OID") on the Term Loan B, and an upfront commitment fee on the Revolving Facility, each designed to incentivize syndicate participation;
(c) commitment fees (commonly referred to as "ticking fees") accruing on undrawn committed amounts during the period between the expiration of a sixty-day free period and the earlier of the Closing Date and termination of commitments;
(d) ongoing administrative agent fees and letter of credit issuer fees payable to Falconer in its administrative and operational capacities; and
(e) flex provisions permitting the Arrangers to modify pricing, structure, and certain documentary terms of the Facilities during the fifteen business-day marketing period to facilitate successful syndication.
Overall Assessment: Based on our review and market benchmarking (including input from Ridgepoint Partners LLC, the Sponsor's financial advisor), the fee levels set forth in the Fee Letter are within the market range for a leveraged buyout financing of this size and credit profile. The total estimated pre-closing and closing fee amount is approximately $17,300,000 to $17,400,000, which is encompassed within the $60,000,000 estimated transaction cost budget reflected in the Sources and Uses framework. The flex provisions are customary in scope but warrant careful monitoring during the fifteen business-day marketing period post-signing of the Merger Agreement, as their exercise could meaningfully increase financing costs and affect post-closing cash flow projections. Certain flex terms — particularly the potential for increased OID and the addition of a springing financial maintenance covenant — require attention to ensure alignment with the Merger Agreement economics and the Equity Commitment Letter mechanics.
Copies of this memorandum have been provided to: Megan Chu (Working Associate, Calderwood & Harkness LLP); Jonah Whitfield (Principal, Harrowgate Capital Partners LLC); and Marcus Hale and Priya Chandrasekaran (Ridgepoint Partners LLC, Buyer's Financial Advisor).
II. Background and Transaction Context
A. Transaction Overview
Harrowgate Private Equity Fund IV LP, a Delaware limited partnership managed by Harrowgate Capital Partners LLC (with approximately $4.8 billion in Fund IV commitments and approximately $14.2 billion in firm-wide assets under management), is acquiring Pennfield Holdings, Inc. (Nasdaq: PNFD), a Delaware corporation and specialty retailer focused on outdoor lifestyle, sporting goods, and adventure apparel. Pennfield operates approximately 340 retail locations across 38 states and maintains a growing e-commerce platform that accounted for approximately 22% of total net revenues in fiscal year 2024.
The Acquisition is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"). Pinnacle Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of HPE Fund IV formed for the purpose of effecting the transaction, will merge with and into Pennfield, with Pennfield surviving the merger as a wholly owned subsidiary of HPE Fund IV. Following the closing, Pennfield's common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Securities Exchange Act of 1934, as amended.
The aggregate merger consideration is $980,000,000, representing a per-share consideration of $15.95 on a fully diluted basis (based on approximately 61,450,000 shares of Pennfield common stock outstanding, calculated on a fully diluted, treasury stock method basis, inclusive of in-the-money options, restricted stock units, and performance share units). The per-share price represents a premium of approximately 32% to Pennfield's unaffected closing price of $12.08 on February 14, 2025 (the last trading day prior to media reports of potential strategic interest in the Company) and a premium of approximately 24% to the Company's 90-day volume-weighted average price of $12.86 as of that date.
Pennfield's fiscal year 2024 financial results (for the fiscal year ending January 31, 2025) reflect consolidated revenue of $1.62 billion, Adjusted EBITDA of $142 million (representing a margin of approximately 8.8%), and net income of $54.3 million. These financial metrics imply an enterprise value-to-EBITDA multiple of approximately 6.9x at the agreed-upon purchase price, which is consistent with recent precedent transactions in the specialty retail and outdoor lifestyle sector.
B. Sources and Uses Summary
The financing of the Acquisition is structured as follows:
Sources:
The management rollover equity of $21.5 million is comprised of contributions from: Derek Langford (CEO) — $12.5 million; Catherine Simmons (CFO) — $5.0 million; and Travis Dunn (COO) — $4.0 million. These amounts reflect equity rollover elections under the Management Rollover and Subscription Agreements, copies of which are under separate review by this firm.
Total sources of $980.0 million are exclusive of estimated transaction costs of approximately $60.0 million, which include, among other items, the financing fees summarized in this memorandum, advisory fees payable to Ridgepoint Partners LLC and Whitmore Zanthor & Co. (Pennfield's financial advisor), legal fees, accounting fees, and the premium for the representations and warranties insurance policy.
Uses:
Transaction costs are expected to be funded from a combination of Term Loan B proceeds, equity contributions, and available cash on the Company's balance sheet.
Leverage at Close: Based on the foregoing, approximate net debt-to-LTM EBITDA at closing is approximately 3.2x (calculated as $490.0 million Term Loan B less excess cash, divided by $142.0 million LTM Adjusted EBITDA, and net of closing costs). This leverage level is within the parameters of Harrowgate's investment criteria for its Fund IV portfolio and is consistent with the leverage profile of recent comparable leveraged buyout transactions in the consumer/retail sector.
C. Financing Parties
Falconer National Bank, N.A. serves as Lead Arranger, Administrative Agent, and L/C Issuer for the Facilities. Falconer's principal office is located at 383 Madison Avenue, New York, New York 10179. The senior relationship contact for this transaction is Gregory Poole, Managing Director, Leveraged Finance Group. Falconer is a nationally chartered commercial bank regulated by the Office of the Comptroller of the Currency and is a well-established participant in the leveraged lending market, having served as lead arranger on over $28 billion in leveraged loan commitments during calendar year 2024.
Dunmore Capital Markets LLC serves as Co-Arranger and Joint Bookrunner for the Facilities. Dunmore's principal office is located at 500 West Monroe Street, 35th Floor, Chicago, Illinois 60661. The senior relationship contact for this transaction is Samantha Reeves, Managing Director, Debt Capital Markets. Dunmore is a broker-dealer affiliate of Dunmore Financial Holdings, Inc. and has a recognized presence in the middle-market and upper-middle-market leveraged finance sectors.
The allocation of roles between Falconer and Dunmore reflects Falconer's senior position as lead arranger and administrative agent, with Dunmore providing supplemental distribution capacity and investor relationships to support the syndication process.
D. Debt Commitment Letter
The Debt Commitment Letter was executed on March 24, 2025, concurrently with the Fee Letter. The Debt Commitment Letter commits Falconer and Dunmore, severally (and not jointly), to provide the full $640,000,000 in debt financing, comprised of the $490,000,000 Term Loan B and the $150,000,000 Revolving Facility, subject to the conditions precedent set forth therein and customary limited conditionality provisions consistent with the SunGard-style framework. Under the limited conditionality framework, the number and scope of conditions to funding are narrowly circumscribed, and the Arrangers' obligation to fund on the Closing Date is subject only to (i) the accuracy of "specified representations" (as distinguished from the broader representation and warranty package in the definitive credit agreement), (ii) the absence of a material adverse effect on the Company, (iii) delivery of customary closing documents, and (iv) expiration of the marketing period.
Calderwood & Harkness's separate markup and analysis of the Debt Commitment Letter is addressed in a companion memorandum currently under preparation by the undersigned and Megan Chu. That memorandum will address, among other items, the scope of the specified representations, the definition of "Company Material Adverse Effect" as used in the Debt Commitment Letter (and its alignment with the corresponding definition in the Merger Agreement), the flex provisions as they interact with the commitment letter terms, and the conditions to the Arrangers' funding obligations.
III. Summary of Fee Letter Terms
Set forth below is a detailed summary of each category of fees and economic terms contained in the Fee Letter.
A. Arrangement and Structuring Fees
Arrangement Fee. The Fee Letter provides for an arrangement fee payable to the Arrangers in connection with their origination, structuring, and syndication of the Facilities. The arrangement fee is allocated between the Arrangers as follows:
(i) Falconer National Bank, N.A. (Lead Arranger): An arrangement fee equal to 1.00% of the aggregate committed amount of the Facilities (i.e., 1.00% × $640,000,000 = $6,400,000). This fee compensates Falconer for its primary role in originating the financing, negotiating the credit documentation, and leading the syndication process.
(ii) Dunmore Capital Markets LLC (Co-Arranger): An arrangement fee equal to 0.50% of the aggregate committed amount of the Facilities (i.e., 0.50% × $640,000,000 = $3,200,000). This fee compensates Dunmore for its role as co-arranger and joint bookrunner, including its commitment of capital and distribution efforts in the syndication.
The total arrangement fees payable to the Arrangers are $9,600,000 in the aggregate. The allocation between Falconer and Dunmore represents an approximate 65%/35% split of total arrangement fee economics, which reflects Falconer's lead role in the transaction and is consistent with customary allocation ratios for two-arranger leveraged buyout financings.
Structuring Fee. In addition to the arrangement fee, the Fee Letter provides for a flat structuring fee of $750,000 payable to Falconer in its capacity as Administrative Agent. The structuring fee compensates Falconer for its role in designing the capital structure, preparing the credit documentation, and coordinating the administrative mechanics of the Facilities. This fee is payable solely to Falconer and is not shared with Dunmore.
Payment Timing. Both the arrangement fees and the structuring fee are payable in full in cash on the Closing Date, from the transaction expense proceeds included in the Sources and Uses framework. These fees are not refundable and are fully earned upon closing.
B. Upfront Fees / Original Issue discount (OID)
Term Loan B Upfront Fee / OID. The Fee Letter provides for an upfront fee on the Term Loan B structured as original issue discount of 100 basis points (1.00%) of the aggregate principal amount of the Term Loan B. Based on the $490,000,000 Term Loan B commitment, this OID amounts to $4,900,000. The OID is implemented by funding the Term Loan B at a price of 99.00 (i.e., each lender funds 99 cents on the dollar), meaning that the syndicate lenders will advance $485,100,000 in cash in exchange for $490,000,000 in face value of Term Loan B obligations. The $4,900,000 OID differential is retained by the Arrangers and/or passed through to syndicate participants as an incentive for their participation in the syndication.
From the borrower's perspective, the OID effectively increases the all-in cost of the Term Loan B financing because the borrower is obligated to repay the full $490,000,000 face value while having received only $485,100,000 in net cash proceeds. The OID is amortized over the life of the Term Loan B for accounting and tax purposes, as discussed further in Section IV.E below.
Revolving Facility Upfront Fee. The Fee Letter also provides for an upfront fee on the Revolving Facility equal to 50 basis points (0.50%) of the aggregate commitment amount of the Revolving Facility. Based on the $150,000,000 Revolving Facility commitment, this upfront fee amounts to $750,000, payable to each revolving lender on a pro rata basis on the Closing Date. Unlike the Term Loan B OID, which is structured as a discount to the funded principal amount, the Revolving Facility upfront fee is payable in cash directly from transaction expense proceeds.
Syndication Incentive. The OID on the Term Loan B is a key syndication incentive that makes the Term Loan B investment more attractive to prospective syndicate lenders by providing an immediate day-one return on investment. The OID, in combination with the SOFR + 400 basis point interest rate spread, establishes the overall yield profile that the Arrangers will market to prospective lenders during the syndication process. As discussed in Section III.E below, the flex provisions in the Fee Letter may permit the Arrangers to increase the OID to facilitate syndication if market conditions require a higher yield to attract sufficient lender participation.
C. Commitment Fees (Pre-Closing)
Ticking Fee / Commitment Fee. The Fee Letter provides for a commitment fee (commonly referred to as a "ticking fee") that accrues on undrawn committed amounts under the Facilities during the period between the date that is sixty (60) days after the date of the Debt Commitment Letter (i.e., from approximately May 23, 2025, based on the March 24, 2025 commitment date) and the earlier of (x) the Closing Date and (y) the date of termination of the commitments under the Debt Commitment Letter (such period, the "Ticking Period"). During the Ticking Period, the commitment fee accrues at a rate equal to 50% of the applicable interest rate margin on each Facility, calculated as follows:
(i) Term Loan B: 50% of the SOFR + 400 bps margin = 200 basis points per annum on the $490,000,000 undrawn Term Loan B commitment.
(ii) Revolving Facility: 50% of the SOFR + 350 bps margin = 175 basis points per annum on the $150,000,000 undrawn Revolving Facility commitment.
On a blended basis, the commitment fee rate across the full $640,000,000 of committed debt is approximately 194 basis points per annum (weighted by relative commitment size).
Estimated Ticking Fee Exposure. The total ticking fee exposure depends on the timing of the Closing Date relative to the commencement of the Ticking Period. Based on the current deal timeline, if closing occurs on or about June 30, 2025 (the estimated closing date reflected in the Project Summit timeline), the ticking fees would accrue for approximately 38 days (from May 23, 2025 through June 30, 2025) on up to $640,000,000 of committed amounts, resulting in an estimated aggregate ticking fee of approximately $1,300,000 to $1,400,000.
The sixty-day free period (during which no ticking fee accrues) is designed to align with the expected marketing and syndication timeline. Because the Arrangers will be actively marketing the Facilities to prospective syndicate lenders during the initial weeks following the signing of the Merger Agreement, the free period provides a window during which the Sponsor is not penalized for the time required to complete syndication. The ticking fee commencing after the free period compensates the Arrangers and committed lenders for the opportunity cost of holding committed capital during the extended period between syndication completion and closing, which may be prolonged by the pendency of antitrust review, shareholder approval, or other closing conditions.
D. Administrative Agent and Related Fees
Annual Administrative Agent Fee. The Fee Letter provides for an annual administrative agent fee of $125,000 payable to Falconer in its capacity as Administrative Agent for the Facilities. The administrative agent fee commences on the Closing Date and is payable quarterly in arrears (i.e., $31,250 per quarter). The fee compensates Falconer for the ongoing operational and administrative costs of servicing the credit facilities, including maintaining the register of lenders, processing borrowing and repayment notices, coordinating compliance certificate deliveries, managing amendments and waivers, and performing other ministerial functions customary for an administrative agent under a syndicated credit facility.
L/C Issuer Fee. The Fee Letter provides for a fronting fee payable to Falconer in its capacity as L/C Issuer under the Revolving Facility. The fronting fee is equal to 12.5 basis points per annum on the face amount of each outstanding letter of credit issued by Falconer under the Revolving Facility. In addition to the fronting fee, each outstanding letter of credit generates a participation fee equal to the applicable Revolving Facility margin (SOFR + 350 basis points) that is shared among all revolving lenders on a pro rata basis. The fronting fee compensates Falconer for the credit risk and administrative burden of issuing letters of credit for the account of the borrower, which exposure is then allocated among the revolving lenders through the participation mechanism.
The aggregate letter of credit sub-limit under the Revolving Facility is expected to be $25,000,000 (as set forth in the Debt Commitment Letter term sheet), and the Company's current outstanding letters of credit (primarily supporting store lease obligations and vendor guarantees) total approximately $8.2 million. The L/C issuer fees are therefore expected to be modest in the near term.
E. Flex Provisions
The Fee Letter contains customary "market flex" provisions (the "Flex Provisions") that permit the Arrangers, in their discretion and upon consultation with the Sponsor, to modify certain pricing, structural, and documentary terms of the Facilities to facilitate successful syndication during the fifteen (15) business-day marketing period. The marketing period is expected to commence upon the signing of the Merger Agreement, currently estimated to occur on or about April 7, 2025, and would therefore be expected to conclude on or about April 28, 2025. The following is a summary of the principal Flex Provisions:
Pricing Flex (Upward):
(i) Term Loan B Interest Rate Spread. The Arrangers may increase the interest rate spread on the Term Loan B by up to 50 basis points, from SOFR + 400 basis points to a maximum of SOFR + 450 basis points. This upward flex permits the Arrangers to offer a higher current yield to prospective syndicate lenders if market conditions, investor sentiment, or competing loan issuances require a richer coupon to achieve full syndication.
(ii) Revolving Facility Interest Rate Spread. The Arrangers may increase the interest rate spread on the Revolving Facility by up to 50 basis points, from SOFR + 350 basis points to a maximum of SOFR + 400 basis points.
(iii) Term Loan B OID. The Arrangers may increase the OID on the Term Loan B by up to 100 additional basis points, from the base level of 100 basis points (funding price of 99.00) to a maximum of 200 basis points (funding price of 98.00). This would increase the aggregate OID from $4,900,000 to $9,800,000 and reduce net Term Loan B cash proceeds from $485,100,000 to $480,200,000.
Structural Flex:
(iv) Reallocation Between Facilities. The Arrangers may reallocate committed amounts between the Term Loan B and the Revolving Facility, subject to a floor on the revolving commitment of not less than $100,000,000. This permits the Arrangers to adjust the relative sizing of the term loan and revolving tranches to better match investor appetite, while preserving a minimum level of revolving availability for the borrower's working capital and general corporate purposes.
(v) Creation of Additional Tranches. The Arrangers may create additional tranches of indebtedness to facilitate syndication, including (without limitation) a Term Loan A tranche or a second lien term loan tranche, provided that the total aggregate committed debt under all facilities does not exceed $640,000,000. The creation of a second lien tranche, if exercised, would involve subordination of such tranche to the senior secured facilities through an intercreditor agreement, the terms of which would need to be separately negotiated and documented.
(vi) Amortization. The Arrangers may modify the amortization schedule applicable to the Term Loan B, including increasing the required quarterly amortization from 1.00% per annum (the base case) to up to 5.00% per annum. Any increase in amortization would reduce the bullet payment at maturity but would increase mandatory debt service during the term, thereby reducing free cash flow available for capital expenditures, distributions, and operational initiatives.
(vii) Financial Maintenance Covenants. The Arrangers may add or modify financial maintenance covenants applicable to the Revolving Facility, including adding a springing net leverage covenant that would be tested only when revolving utilization exceeds a specified threshold (e.g., 35% of aggregate revolving commitments, or $52,500,000 based on the $150,000,000 base commitment). The specific leverage ratio applicable to such a springing covenant, if added, would be determined during syndication in consultation with the Arrangers, and the Fee Letter does not specify a minimum or maximum level for such ratio.
SOFR Floor:
(viii) The Arrangers may impose or increase a SOFR floor applicable to the Facilities from 0 basis points (the base case) to up to 75 basis points. A SOFR floor establishes a minimum reference rate below which the floating rate component of the interest rate will not fall, thereby providing lenders with yield protection in a declining interest rate environment. A 75 basis point floor would mean that even if Term SOFR falls below 0.75%, the interest rate on the Facilities would be calculated as if Term SOFR were 0.75%.
Call Protection:
(ix) The Arrangers may add soft call protection on the Term Loan B for the first six months following the Closing Date, in the form of a 101 soft call premium (i.e., the borrower would be required to pay a 1.00% premium on the principal amount of any Term Loan B prepayment made during such six-month period in connection with a repricing transaction). This provision protects syndicate lenders' yield expectations against early repricing by the borrower in a favorable market and is a commonly requested feature in leveraged loan syndications.
Sunset of Flex Rights:
The Flex Provisions expire and are of no further force or effect upon the earlier of (i) the completion of successful syndication of the Facilities (as determined by the Arrangers in their reasonable discretion) and (ii) the end of the fifteen business-day marketing period. Upon the expiration of the Flex Provisions, the terms of the Facilities are fixed as set forth in the Debt Commitment Letter (as may have been modified by any flex exercise prior to such expiration).
F. Fee Letter Confidentiality
The Fee Letter contains customary confidentiality provisions that restrict the disclosure of the fee amounts, flex terms, and other economic terms set forth therein. Disclosure is permitted to the borrower (Pennfield, post-closing), its affiliates (including HPE Fund IV and Harrowgate Capital Partners LLC), and their respective professional advisors (including Calderwood & Harkness LLP, Ridgepoint Partners LLC, and the Sponsor's accounting advisors) on a need-to-know basis and subject to the advisors' agreement to maintain the confidentiality of the disclosed information.
Importantly, the Fee Letter is a separate side agreement to the Debt Commitment Letter and is not required to be filed with the Securities and Exchange Commission as an exhibit to the Merger Agreement or any related Schedule 13D or 13E-3 filings. Only the Debt Commitment Letter (without the Fee Letter or any reference to fee amounts or flex terms) will be filed as an exhibit to the proxy statement and other SEC filings. The deal team should take care to ensure that no Fee Letter terms — and particularly no flex provision details — are inadvertently disclosed in any public filings, press releases, investor communications, or correspondence with Pennfield or its advisors (Calloway, Briggs & Harmon LLP and Whitmore Zanthor & Co.).
IV. Analysis and Commentary
A. Market Benchmarking
Based on our review of recent precedent transactions and publicly available leveraged loan market data, as well as input from Ridgepoint Partners LLC (Marcus Hale and Priya Chandrasekaran), the arrangement fees, upfront fees/OID, commitment fees, and administrative agent fees set forth in the Fee Letter appear to be consistent with market practice for leveraged buyout financings in the mid-market consumer and retail sector at comparable leverage levels (approximately 3.0x to 3.5x net leverage at closing).
Specifically, we note the following benchmarking observations:
(i) Arrangement Fees. Total arrangement fees of $9,600,000 represent approximately 1.50% of the $640,000,000 aggregate committed amount on a blended basis. This percentage is within the range of 1.25% to 2.00% observed in recent comparable two-arranger leveraged buyout financings. The 65%/35% allocation between Falconer and Dunmore is consistent with customary lead arranger / co-arranger economics.
(ii) OID. The 100 basis point OID on the Term Loan B (funding price of 99.00) is at the tighter end of the range observed in recent broadly syndicated leveraged loans, where OID has ranged from approximately 75 basis points to 200 basis points depending on credit quality, market conditions, and issuer profile. The relatively tight OID reflects the favorable credit profile of Pennfield (moderate leverage, stable cash flows, and a well-recognized consumer brand) and current demand for leveraged loan paper among CLO and institutional loan investors.
(iii) Interest Rate Pricing. The SOFR + 400 basis point spread on the Term Loan B provides an effective yield (inclusive of OID amortization) that is competitive with recent syndicated leveraged loan issuances for borrowers with similar credit characteristics. Ridgepoint Partners LLC has confirmed that the SOFR + 400 bps pricing is at the tighter end of the indicative range for comparable credits, reflecting the favorable market reception anticipated for the Pennfield credit story and the moderate leverage profile.
(iv) Commitment / Ticking Fee. The 50% of applicable margin ticking fee structure with a sixty-day free period is a commonly observed construct in leveraged buyout commitment letters and is generally considered market standard.
(v) Administrative Agent Fee. The $125,000 annual administrative agent fee is within the standard range of $75,000 to $175,000 for credit facilities of this size.
B. Flex Provision Risk Assessment
While the Flex Provisions are customary in scope and consistent with leveraged finance market practice, they create meaningful exposure to increased financing costs that could affect the Sponsor's returns and the post-closing financial projections for the Company. Set forth below is our assessment of the principal flex-related risks:
Interest Rate Flex. The potential 50 basis point upward flex on the Term Loan B spread (from SOFR + 400 to a maximum of SOFR + 450) would increase the annual interest expense on the $490,000,000 Term Loan B by approximately $2,450,000 per year (calculated as $490,000,000 × 0.50% = $2,450,000). Over the seven-year term of the Term Loan B, this represents a cumulative increase in interest costs of approximately $17.15 million (before accounting for amortization and assuming the full principal amount remains outstanding). This increase could affect post-closing cash flow projections and, depending on the terms of any financial maintenance covenants added through structural flex, could reduce the borrower's headroom under such covenants. We recommend that the Harrowgate deal team run an updated financial model sensitivity reflecting the fully flexed interest rate scenario to assess the impact on projected leverage ratios, fixed charge coverage ratios, and free cash flow available for the Sponsor's planned supply-chain optimization and digital-first omnichannel capital expenditures.
OID Flex. An increase in OID from 100 basis points to the maximum of 200 basis points would reduce the net cash proceeds from the Term Loan B by an additional $4,900,000 (from $485,100,000 to $480,200,000). This shortfall would need to be covered from one or more of the following sources: (a) additional equity contributions from the Sponsor under the Equity Commitment Letter, (b) additional co-investment from Ashford Growth Partners LP under the Co-Investment Agreement, or (c) available cash on the Company's balance sheet. We recommend confirming that the Equity Commitment Letter contains a "true-up" mechanism that obligates HPE Fund IV to fund any shortfall in debt proceeds resulting from OID flex exercise. If the Equity Commitment Letter does not contain such a mechanism (or if the mechanism is subject to a cap that would be exceeded by the maximum OID flex), this gap should be addressed promptly with Jonah Whitfield and, if appropriate, with David Nakamura at Ashford Growth Partners LP.
Structural Flex — Financial Maintenance Covenant Addition. The potential addition of a springing net leverage financial maintenance covenant on the Revolving Facility is the most consequential structural flex item from an operational perspective. A springing covenant would impose a mandatory leverage test whenever the borrower's revolving facility utilization exceeds the specified threshold (e.g., 35% of commitments, or $52,500,000 based on the $150,000,000 base revolving commitment). If the borrower fails to satisfy the leverage test at a time when the springing trigger is active, such failure would constitute an event of default under the credit agreement, potentially leading to acceleration of the Facilities and enforcement of the security package.
We recommend that, in any negotiation of a springing covenant, the Sponsor seek to ensure that: (a) the utilization trigger is set at no less than 35% of revolving commitments; (b) outstanding letters of credit are excluded from the utilization calculation (or, at a minimum, only drawn letters of credit are included); (c) the net leverage ratio is set at no less than 1.0x above projected closing net leverage (i.e., if closing net leverage is 3.2x, the springing covenant should be set at no less than 4.2x net leverage); and (d) the testing frequency is limited to the last day of each fiscal quarter during which the springing trigger is active, with a customary cure period allowing the borrower to reduce utilization below the threshold and thereby avoid a covenant default.
Structural Flex — Amortization. An increase in the Term Loan B amortization rate from 1.00% to the maximum of 5.00% per annum would increase annual mandatory principal repayment from $4,900,000 to $24,500,000, an increase of $19,600,000 per year. While accelerated amortization would reduce the outstanding principal at maturity and may be viewed favorably by credit investors, the increased mandatory debt service would reduce free cash flow available for Harrowgate's planned post-closing value creation initiatives, including the supply-chain optimization program (estimated capital expenditure of $35–40 million over the first two years), the digital-first omnichannel platform buildout (estimated capital expenditure of $18–22 million), and potential tuck-in acquisitions. We recommend that the Sponsor's financial model be updated to reflect the fully flexed amortization scenario and that the deal team assess whether the resulting cash flow profile is consistent with the value creation plan presented to the Fund IV investment committee.
Overall Flex Assessment. In the aggregate, full exercise of all Flex Provisions could increase financing costs by approximately $7,000,000 to $8,000,000 in additional OID at closing and approximately $2,450,000 in incremental annual interest expense, together with meaningful increases to mandatory annual debt service. While these amounts are significant, they are within the range of outcomes anticipated by the Sources and Uses framework and the $60,000,000 transaction cost budget. The Flex Provisions are consistent with customary market terms for leveraged buyout financings of this size and should be actively managed during the syndication process.
We recommend that Jonah Whitfield and the Ridgepoint team coordinate closely with Gregory Poole (Falconer) and Samantha Reeves (Dunmore) throughout the marketing period to monitor investor feedback, assess the likelihood of flex exercise, and, if flex exercise becomes necessary, negotiate the extent of any modifications to minimize the impact on the Sponsor's economics.
C. Alignment with Merger Agreement
Marketing Period. The Merger Agreement (as currently negotiated) provides for a fifteen (15) business-day marketing period commencing upon satisfaction of certain conditions (including the availability of customary marketing materials such as a confidential information memorandum and a bank financial model) following the signing of the Merger Agreement. The Fee Letter Flex Provisions sunset at the earlier of successful syndication completion and the end of the marketing period. These provisions are appropriately aligned, and the marketing period mechanics in the Merger Agreement should provide sufficient time for the Arrangers to complete the syndication process. We do not identify any timing mismatch between the Fee Letter flex sunset and the Merger Agreement marketing period provisions.
Conditions Precedent / SunGard Conditionality. The Fee Letter does not independently impose conditions to the Arrangers' obligation to fund the Facilities beyond those set forth in the Debt Commitment Letter. This is consistent with the SunGard-style "limited conditionality" framework, under which the conditions to funding are intentionally restricted to a narrow set of specified representations, absence of a material adverse effect, delivery of closing documents, and expiration of the marketing period. The Fee Letter appropriately defers to the Debt Commitment Letter for all funding conditions, and we do not identify any "hidden" conditions in the Fee Letter that would expand the Arrangers' ability to refuse to fund.
However, we note that any exercise of structural flex — particularly the creation of new tranches (e.g., a Term Loan A or a second lien tranche) or the addition of a springing financial maintenance covenant — may require conforming amendments to the Merger Agreement's financing cooperation covenant (which obligates Pennfield and its management to cooperate with the Sponsor's financing efforts during the period between signing and closing). If the structural flex results in a materially different credit documentation package than contemplated at the time the Merger Agreement is executed, the scope of Pennfield's cooperation obligations may need to be broadened to encompass the revised financing structure. We recommend monitoring this issue during syndication and, if structural flex is exercised, promptly assessing whether a Merger Agreement amendment or waiver is required.
Reverse Termination Fee. If the committed financing fails to close despite the Arrangers' commitment (for example, due to a market disruption event, a failure of the SunGard conditions, or a breach by the Arrangers of their funding obligations under the Debt Commitment Letter), HPE Fund IV's exposure includes the $58,800,000 reverse termination fee payable to Pennfield under the Merger Agreement. The reverse termination fee represents 6.0% of the aggregate merger consideration of $980,000,000 and is guaranteed by HPE Fund IV under the Limited Guarantee delivered in favor of Pennfield in connection with the Merger Agreement.
The Fee Letter does not address, offset, or provide any indemnification or reimbursement right with respect to the Sponsor's reverse termination fee exposure. This is customary — fee letters do not typically provide for arranger liability for financing failures — but the reverse termination fee exposure should be borne in mind as a material risk factor in the event of a financing failure. The Sponsor's recourse against the Arrangers in the event of a wrongful refusal to fund would be governed by the Debt Commitment Letter and applicable contract law, not the Fee Letter.
D. Interaction with R&W Insurance and Indemnification
The financing fees and OID described in this memorandum are included in the estimated $60,000,000 of aggregate transaction costs that form part of the Sources and Uses framework. The representations and warranties insurance policy procured by the Sponsor for this transaction (underwritten by Meridian Specialty Insurance Company, with a policy limit of $100,000,000 and a retention (self-insured deductible) of $9,800,000) and the indemnification provisions of the Merger Agreement (subject to an aggregate indemnification cap of $117,600,000, representing 12% of the aggregate merger consideration) are separate and distinct from the financing-related fees described herein. We do not identify any conflict, overlap, or interaction between the Fee Letter economics and the R&W insurance or indemnification provisions. No portion of the financing fees is recoverable under the R&W insurance policy or the Merger Agreement indemnification provisions.
E. Tax Treatment of Fees
The tax treatment of the various categories of fees set forth in the Fee Letter is summarized as follows:
Arrangement and Structuring Fees. The arrangement fees ($9,600,000) and the structuring fee ($750,000) are generally deductible by the borrower as ordinary business expenses, subject to the capitalization requirements of Section 263(a) of the Internal Revenue Code (the "Code"). Under applicable Treasury Regulations and IRS guidance, loan origination fees and similar costs incurred in connection with the establishment of a debt facility are treated as debt issuance costs and must be capitalized and amortized ratably over the term of the respective facility. Accordingly, the arrangement fees and structuring fee allocable to the Term Loan B would be amortized over the seven-year term of the Term Loan B, and the arrangement fees allocable to the Revolving Facility would be amortized over the five-year term of the Revolving Facility. The amortization deductions would be available as ordinary deductions in each taxable year during the amortization period.
Original Issue discount. The $4,900,000 OID on the Term Loan B (or up to $9,800,000 if the maximum OID flex is exercised) is amortized over the seven-year term of the Term Loan B using the constant yield method prescribed by Sections 1272 through 1273 of the Code. Under the constant yield method, the borrower's deductible OID expense in each taxable year is determined based on the adjusted issue price of the Term Loan B and the yield to maturity, resulting in an increasing amortization schedule over the term. The OID amortization deductions are treated as additional interest expense for federal income tax purposes.
Interaction with Section 163(j) Limitation. The deductibility of interest expense (including OID amortization) may be subject to the business interest expense limitation under Section 163(j) of the Code, which generally limits the deduction for business interest expense to the sum of (i) business interest income, (ii) 30% of adjusted taxable income, and (iii) floor plan financing interest. The interaction of the Fee Letter economics with the Section 163(j) limitation should be analyzed in the context of the broader tax structure for the Acquisition.
We recommend that Sylvia Hartwell (Specialist Partner, Tax Group) be consulted regarding the deductibility and timing of all fee payments in connection with the broader tax structure, including the Section 338(h)(10) election analysis and the projected interest expense deductibility under Section 163(j). The tax treatment of fees is addressed in further detail in the separate Tax Structure Memorandum under preparation by the Tax Group.
V. Summary of Fee Amounts
The following table summarizes all fee categories set forth in the Fee Letter, together with the estimated dollar amounts, payees, and payment timing:
The total estimated pre-closing and closing fee amount of approximately $17,300,000 to $17,400,000 represents a component of the estimated $60,000,000 in aggregate transaction costs reflected in the Sources and Uses framework. The remaining approximately $42,600,000 to $42,700,000 of estimated transaction costs consists of advisory fees (financial advisor fees, legal fees, accounting and due diligence fees), R&W insurance premiums, filing fees, and other customary acquisition-related expenses.
The annual administrative agent fee of $125,000 and the variable L/C issuer fronting fee are recurring post-closing expenses that will be borne by the borrower (Pennfield, as the surviving entity) and are not included in the estimated closing-date fee total.
VI. Open Items and Recommendations
Based on our review and analysis of the Fee Letter, we identify the following open items and provide the corresponding recommendations for the deal team's consideration:
1.  Equity Commitment Letter True-Up. Confirm with Jonah Whitfield (Harrowgate Capital Partners LLC) and David Nakamura (Ashford Growth Partners LP) that the Equity Commitment Letter and the Co-Investment Agreement contain mechanics to fund any shortfall in debt proceeds resulting from the Arrangers' exercise of OID flex. If the maximum OID flex is exercised (increasing OID from 100 bps to 200 bps), the net Term Loan B proceeds would decrease by $4,900,000, from $485,100,000 to $480,200,000. This shortfall must be covered by additional equity or available cash. We recommend obtaining written confirmation from the Sponsor and the co-investor that the true-up mechanics are operative and sufficient to cover the full potential shortfall.
2.  Syndication Strategy Coordination. We recommend scheduling a syndication strategy call with Gregory Poole (Falconer), Samantha Reeves (Dunmore), Marcus Hale (Ridgepoint Partners LLC), and the Harrowgate deal team to discuss the marketing strategy, target lender universe, expected timeline for commitments, and the Arrangers' current assessment of the likelihood of flex exercise. Early engagement on syndication strategy will allow the Sponsor to influence the marketing process and may reduce the probability that the Arrangers find it necessary to invoke the Flex Provisions.
3.  Funds Flow Integration. All fee amounts reflected in the Fee Letter should be incorporated into the Closing Funds Flow Memorandum and the supporting funds flow spreadsheet, which is being prepared by Megan Chu (Working Associate, Calderwood & Harkness LLP). Wire instructions for Falconer's administrative agent account (for receipt of arrangement fees, structuring fees, and administrative agent fees) and Dunmore's designated account (for receipt of Dunmore's share of arrangement fees) should be obtained from the respective financing parties and verified in advance of closing. The funds flow should also reflect the netting of the Term Loan B OID from the funded amount and the payment of the Revolving Facility upfront fee from transaction expense proceeds.
4.  Tax Consultation. We recommend referring the fee deductibility and OID amortization analysis to Sylvia Hartwell (Specialist Partner, Tax Group) for integration into the Tax Structure Memorandum and the Section 338(h)(10) Election Analysis currently under preparation. The tax treatment of debt issuance costs and OID will be relevant to the Sponsor's post-closing cash flow projections and tax planning, including the analysis of the Section 163(j) business interest expense limitation.
5.  Confidentiality. We remind the deal team that the Fee Letter and its terms (including, in particular, the specific fee amounts and the Flex Provisions) are confidential and should not be included in any SEC filings (including the proxy statement, Schedule 13E-3, or Schedule 13D), press releases, investor presentations, or communications with Pennfield or its advisors (Calloway, Briggs & Harmon LLP and Whitmore Zanthor & Co.). Only the Debt Commitment Letter (without the Fee Letter) will be filed as an exhibit. Any request from Pennfield's advisors for disclosure of fee terms should be directed to Oliver Mackenzie for assessment.
6.  Marketing Period Monitoring. We recommend that the deal team establish a tracking protocol for the fifteen (15) business-day marketing period (expected to commence upon the signing of the Merger Agreement, estimated April 7, 2025) and any Flex Provision exercise notifications received from the Arrangers during such period. Any notice from the Arrangers indicating an intent to exercise pricing flex, OID flex, structural flex, or any other Flex Provision should be reported immediately to Oliver Mackenzie (Responsible Partner) and Jonah Whitfield (Harrowgate Capital Partners LLC) for evaluation and, if necessary, negotiation. Calderwood & Harkness will coordinate with Ridgepoint Partners LLC to monitor the syndication process and assess the implications of any flex exercise on the overall transaction economics.
VII. Conclusion
Based on our review, the Fee Letter terms are commercially reasonable and consistent with market practice for a leveraged buyout financing of this size ($640,000,000 in aggregate committed debt) and credit quality (approximately 3.2x net leverage at closing; Pennfield FY 2024 Adjusted EBITDA of $142 million). The aggregate estimated pre-closing and closing fees of approximately $17,300,000 to $17,400,000 are within the parameters of the $60,000,000 estimated transaction cost budget and have been cross-referenced against the Sources and Uses framework.
The Flex Provisions, while standard in scope and consistent with customary leveraged finance practice, create meaningful potential increases to financing costs. In the event of full flex exercise, the Sponsor could face up to approximately $7,000,000 to $8,000,000 in additional OID at closing and up to $2,450,000 in incremental annual interest expense on the Term Loan B. These amounts, while manageable within the overall transaction economics, should be managed proactively during the syndication process to minimize the likelihood and extent of flex exercise. We particularly flag the potential addition of a springing financial maintenance covenant and the increase in mandatory amortization as structural flex items that could meaningfully affect post-closing operational flexibility.
All fee amounts have been cross-referenced against the Sources and Uses framework prepared by Ridgepoint Partners LLC and are encompassed within the estimated transaction cost budget. The fee economics are separate from, and do not conflict with, the R&W insurance policy, the Merger Agreement indemnification provisions, or the reverse termination fee.
Calderwood & Harkness will continue to monitor the Fee Letter in conjunction with our ongoing markup and analysis of the Debt Commitment Letter and will promptly flag any issues that arise during the marketing period or in connection with any Flex Provision exercise notifications. We will circulate an updated version of this memorandum if any material changes occur.
Please do not hesitate to contact me at (212) 555-9140 or ryan.kowalski@calderwoodharkness.com with any questions or comments.
VIII. Attachments
The following documents are attached to this memorandum for reference:
Attachment A: Fee Letter dated March 24, 2025, by and among Falconer National Bank, N.A., Dunmore Capital Markets LLC, and Pinnacle Merger Sub, Inc. — CONFIDENTIAL
Attachment B: Debt Commitment Letter dated March 24, 2025, by and among Falconer National Bank, N.A., Dunmore Capital Markets LLC, and Pinnacle Merger Sub, Inc. (for reference; separate Calderwood & Harkness markup under preparation)
Attachment C: Sources and Uses Summary Table (extracted from Ridgepoint Partners LLC financial advisor materials dated March 21, 2025)
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP | Matter No. 1003-00004 | Project Summit This memorandum is prepared for the exclusive use of Calderwood & Harkness LLP and Harrowgate Private Equity Fund IV LP. Do not distribute without prior authorization.
To: | Oliver Mackenzie, Responsible Partner, Mergers & Acquisitions
From: | Ryan Kowalski, Lead Associate, Mergers & Acquisitions
Date: | March 26, 2025
Re: | Review and Analysis of Arranger Fee Letter — Falconer National Bank, N.A. and Dunmore Capital Markets LLC (Project Summit)
Matter Number: | 1003-00004
Client: | Harrowgate Private Equity Fund IV LP
Source | Amount ($M) | % of Total
Term Loan B | $490.0 | 50.0%
HPE Fund IV Equity (net of rollover and co-invest) | $258.5 | 26.4%
Ashford Growth Partners LP Co-Invest Equity | $60.0 | 6.1%
Management Rollover Equity | $21.5 | 2.2%
Pennfield Cash on Balance Sheet | $90.0 | 9.2%
Revolving Credit Facility (available but undrawn at closing) | $150.0 (undrawn) | —
Total Sources | $980.0 | 100.0%
Use | Amount ($M)
Aggregate Merger Consideration | $980.0
Estimated Transaction Costs | $60.0
Total Uses | $1,040.0
Fee Category | Amount / Rate | Dollar Amount (Est.) | Payee | Payment Timing
Arrangement Fee — Falconer | 1.00% of $640M | $6,400,000 | Falconer National Bank, N.A. | Closing Date
Arrangement Fee — Dunmore | 0.50% of $640M | $3,200,000 | Dunmore Capital Markets LLC | Closing Date
Structuring Fee | Flat fee | $750,000 | Falconer National Bank, N.A. | Closing Date
TLB Upfront Fee / OID | 100 bps of $490M | $4,900,000 | Syndicate / Arrangers (netted from proceeds) | Closing Date (netted)
RCF Upfront Fee | 50 bps of $150M | $750,000 | Revolving Lenders (pro rata) | Closing Date
Commitment / Ticking Fee | ~194 bps blended (est.) | ~$1,300,000–$1,400,000 | Falconer / Dunmore | Closing Date
Annual Admin Agent Fee | Flat fee | $125,000 per annum | Falconer National Bank, N.A. | Quarterly post-closing
L/C Issuer Fronting Fee | 12.5 bps per L/C | Variable | Falconer National Bank, N.A. | Per issuance
Estimated Total Pre-Closing / Closing Fees | ~$17,300,000–$17,400,000

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

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