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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP

599 Lexington Avenue, 38th Floor New York, New York 10022

May 18, 2025

MEMORANDUM

FROM: Sylvia Hartwell, Specialist Partner, Tax — Calderwood & Harkness LLP

TO:

Elena Vasquez-Bright, General Counsel, Cascade Retail Holdings Inc.

Theodore ("Ted") Langford, SVP Corporate Development, Cascade Retail Holdings Inc.

Harrison Wexford, Responsible Partner, M&A, Calderwood & Harkness LLP

Derek Okonkwo, Lead Associate, M&A, Calderwood & Harkness LLP

CC:

Rajiv Sundaram, CFO, Cascade Retail Holdings Inc.

Sandra Chiu, Engagement Partner, Whitmore & Paige LLP

Beatrice Holloway, Billing Partner, M&A, Calderwood & Harkness LLP

RE: Tax Structure Analysis — Proposed Stock Purchase of 100% of Outstanding Capital Stock of NovaMart Global Inc. (EIN 84-3291547) by Cascade Retail Holdings Inc. (EIN 91-2847653; Nasdaq: CRHI)

Matter Reference: Cascade Retail Holdings Inc. — Acquisition of NovaMart Global Inc.

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I. EXECUTIVE SUMMARY

This memorandum analyzes the federal and state income tax consequences of the proposed acquisition by Cascade Retail Holdings Inc. ("Cascade" or the "Buyer") of 100% of the outstanding capital stock of NovaMart Global Inc. ("NovaMart" or the "Target") for aggregate cash consideration of $1,200,000,000 (the "Purchase Price") in an all-cash stock purchase transaction (the "Transaction"). The Transaction will be governed by a Stock Purchase Agreement (the "SPA"), which is expected to be executed on May 20, 2025, two days following the date of this memorandum. The SPA is governed by Delaware law.

Structure Selected. After extensive evaluation and negotiation among the parties, the Transaction has been structured as a stock purchase. No election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), will be made in connection with the acquisition.

Key Conclusion. The stock purchase structure is tax-efficient for Cascade when considered holistically, notwithstanding the absence of a stepped-up tax basis in NovaMart's assets. The inability of Cascade and the Selling Stockholders (as defined below) to agree on pricing for the incremental tax cost that a Section 338(h)(10) election would impose on the Selling Stockholders was the decisive factor against such an election. As discussed in Section IV below, after accounting for the Sellers' demanded gross-up of approximately $85–$95 million, the net present value benefit to Cascade of the step-up would be reduced to approximately $25–$55 million — insufficient to justify the additional deal complexity, potential closing delay, and negotiation risk.

Target Overview. NovaMart is a Delaware corporation headquartered at 1100 Congress Avenue, Suite 800, Austin, Texas 78701 (EIN 84-3291547). NovaMart is a leading e-commerce marketplace platform, operating 14 fulfillment centers across nine states and serving approximately 62,400 active sellers and 9.1 million registered buyers. NovaMart maintains tax nexus in the following nine states by reason of its fulfillment center operations: California, New Jersey, Georgia, Ohio, Illinois, Pennsylvania, Tennessee, Florida, and Washington. NovaMart is also subject to franchise or similar taxes in its state of incorporation (Delaware) and its headquarters state (Texas), bringing the total number of state jurisdictions relevant to the tax analysis to eleven.

Purchase Price and Consideration. The Purchase Price is $1,200,000,000, payable entirely in cash. There is no stock component, no earnout, and no contingent consideration. An escrow deposit of $96,000,000 (8% of the Purchase Price) will be deposited with Marlowe Asset Management Trust Company, N.A. (the "Escrow Agent") at closing and held for 24 months to secure the Sellers' indemnification obligations. Net cash to Sellers at Closing is $1,104,000,000 (before any working capital adjustment).

Financing. Cascade will finance the Transaction through (i) a $750,000,000 Term Loan B facility (with Cornerstone National Bank, N.A. as Administrative Agent and Caluvori Capital Partners, Inc. as Co-Lead Arranger), (ii) $200,000,000 drawn on Cascade's existing revolving credit facility, and (iii) approximately $250,000,000 of cash on hand.

Tax Advisory Coordination. We have coordinated, and will continue to coordinate, the tax structuring and analysis with Whitmore & Paige LLP (Sandra Chiu, Engagement Partner), which is providing accounting and tax advisory services in connection with the Transaction. This memorandum should be read in conjunction with the separate Tax Due Diligence Memorandum prepared by this firm in connection with the pre-signing diligence phase.

II. TRANSACTION OVERVIEW

A. Parties

Buyer: Cascade Retail Holdings Inc. Cascade is a Delaware corporation (EIN 91-2847653), publicly traded on The Nasdaq Stock Market LLC under the ticker symbol "CRHI." Cascade's principal offices are located at 4500 Elliott Avenue West, Suite 3200, Seattle, Washington 98119. Cascade is one of the largest omni-channel retail operators in North America, with approximately 380 retail locations across the United States and Canada and approximately 28 million active online customers through its CascadeDirect.com e-commerce platform. For the fiscal year ended December 31, 2024 ("FY2024"), Cascade reported revenue of approximately $14.7 billion and EBITDA of approximately $1.83 billion. As of May 19, 2025, Cascade's market capitalization is approximately $22.4 billion, with approximately 412 million shares of common stock outstanding. Cascade is a calendar-year taxpayer using the accrual method of accounting.

Target: NovaMart Global Inc. NovaMart is a Delaware corporation (EIN 84-3291547), privately held, headquartered at 1100 Congress Avenue, Suite 800, Austin, Texas 78701. NovaMart operates a technology-enabled e-commerce marketplace connecting third-party sellers with consumers, supported by a proprietary logistics platform branded "NovaShip." For FY2024, NovaMart reported revenue of approximately $891 million, EBITDA of approximately $134 million, and gross merchandise value ("GMV") of approximately $6.2 billion transacted through its platform. NovaMart maintains approximately 62,400 active sellers, approximately 9.1 million registered buyers, approximately 2,400 employees, and 14 fulfillment centers spread across nine states. NovaMart is a calendar-year taxpayer using the accrual method of accounting.

Selling Stockholders. The issued and outstanding capital stock of NovaMart is held by the following stockholders (collectively, the "Selling Stockholders" or "Sellers"):

Ridgeline Equity Partners, LP ("Ridgeline") and Brindoval Ventures Fund III, LP ("Brindoval") are Delaware limited partnerships that function as institutional private equity investors. Julian Reeves and Priya Narasimhan are individual United States citizen co-founders of NovaMart who continue to serve in senior management positions (CEO and CTO, respectively). The remaining 9.2% is held in aggregate by other management and employee holders, including individuals holding vested stock options.

Stockholder Representative. Ridgeline Equity Partners, LP, acting through its Managing Partner, Franklin Osei, has been designated as the Stockholder Representative under the SPA for purposes of post-closing claims, indemnification, and escrow administration.

B. Deal Economics

The key economic terms of the Transaction are as follows:

• Purchase Price: $1,200,000,000, payable in full at closing in immediately available funds (subject to the escrow mechanism and customary adjustments described below).

• Implied EV/EBITDA Multiple: Approximately 8.96x ($1,200,000,000 ÷ $134,000,000 FY2024 EBITDA), which falls within the expected range for e-commerce marketplace businesses of comparable scale and growth trajectory. We note that this is an enterprise value to EBITDA ratio, and the enterprise value is net of NovaMart's existing indebtedness to be repaid at closing.

• Implied EV/Revenue Multiple: Approximately 1.35x ($1,200,000,000 ÷ $891,000,000 FY2024 Revenue).

• Consideration Type: All-cash consideration. There is no stock component, no contingent consideration, and no earnout arrangement. The all-cash structure simplifies the tax analysis considerably, as there are no Section 368 reorganization considerations, no Section 351 exchange issues, and no deferred or contingent payment concerns (other than the escrow discussed below).

• Working Capital Adjustment: The SPA provides for a customary post-closing working capital adjustment, with a Working Capital Target of $78,500,000 and a collar (deadband) of $5,000,000. Deviations in excess of the collar in either direction will result in a dollar-for-dollar adjustment to the Purchase Price.

• Escrow: $96,000,000 (8% of the Purchase Price) will be deposited at closing with Marlowe Asset Management Trust Company, N.A. as Escrow Agent pursuant to a separate Escrow Agreement. The escrow fund will be held for 24 months following the closing date and will serve as the primary source for payment of indemnification claims (other than tax and fraud claims, which are not subject to the escrow cap). Funds remaining in escrow after resolution of any pending claims will be released to the Selling Stockholders in accordance with their pro rata shares.

• Indemnification Cap: $216,000,000 (18% of the Purchase Price) for general representations and warranties.

• Tax Indemnification: The Selling Stockholders' indemnification obligations with respect to pre-closing tax liabilities are uncapped and survive until 60 days after the expiration of the applicable statute of limitations (as extended). This is a critical Buyer protection, as discussed further in Section VIII.C below.

C. Transaction Timeline (Tax-Relevant Dates)

The following timeline sets forth the key dates relevant to the tax analysis:

The pre-closing period between signing (May 20, 2025) and closing (targeted October 15, 2025) is approximately five months, during which NovaMart will continue to operate as a standalone entity under the operational covenants set forth in the SPA. The timing of the Board authorization (February 3, 2025) and the LOI (February 14, 2025) is relevant to the deductibility analysis of pre-decision investigatory costs, as discussed in Section III.D below.

III. ANALYSIS OF STOCK PURCHASE STRUCTURE — FEDERAL INCOME TAX CONSEQUENCES

A. Treatment as a Stock Acquisition

Cascade is acquiring 100% of the issued and outstanding capital stock of NovaMart from the Selling Stockholders in exchange for cash consideration of $1,200,000,000. For federal income tax purposes, this Transaction is treated as a purchase of stock — that is, Cascade is purchasing equity interests in NovaMart from the Selling Stockholders in a fully taxable exchange. NovaMart itself is not a party to the sale (it is the object of the sale, not a participant); the Transaction occurs entirely at the stockholder level.

As a consequence of the stock purchase structure, NovaMart continues as the same taxpayer following the closing. NovaMart will retain its employer identification number (EIN 84-3291547) and its existing tax attributes, including (without limitation) its historical cost basis in its tangible and intangible assets, its depreciation and amortization schedules, any net operating loss carryforwards, any tax credit carryforwards, and its existing tax accounting methods. The stock purchase does not constitute a taxable event for NovaMart itself, and NovaMart will not recognize any gain or loss as a result of the Transaction.

Upon the closing of the Transaction, NovaMart will become a wholly-owned subsidiary of Cascade. Effective the day following the closing date, NovaMart (and any subsidiaries it may have) will become members of Cascade's federal consolidated tax group, with Cascade serving as the common parent. From that point forward, NovaMart will be included in Cascade's consolidated federal income tax return for post-closing taxable periods.

There is no immediate taxable gain or loss recognized by Cascade on the acquisition itself. Cascade is simply exchanging cash for stock, and the cash paid becomes Cascade's tax basis in the NovaMart stock, as discussed in Section III.B below.

The Selling Stockholders, by contrast, will recognize gain or loss on the sale of their NovaMart stock. The characterization of such gain or loss depends on each Selling Stockholder's individual circumstances, including holding period and tax status. The institutional Selling Stockholders — Ridgeline and Brindoval — are both organized as limited partnerships under the laws of Delaware. As such, they are pass-through entities for federal income tax purposes, and the gain recognized on the sale of the NovaMart stock will pass through to their respective partners under Subchapter K of the Code. The individual Selling Stockholders (Julian Reeves, Priya Narasimhan, and the management/employee holders) will report gain directly on their individual federal income tax returns. The tax treatment of the Selling Stockholders is discussed in greater detail in Section V below.

B. Cascade's Tax Basis in NovaMart Stock

Cascade's aggregate tax basis in the NovaMart stock will equal the Purchase Price of $1,200,000,000, allocated ratably among all shares of NovaMart capital stock acquired in the Transaction. This basis is established under the general cost basis rule of IRC Section 1012, as modified by the capitalization requirements of Treasury Regulation Section 1.263(a)-5 (which requires certain transaction costs to be capitalized into the basis of the stock acquired, as discussed in Section III.D below). After accounting for capitalized transaction costs of approximately $36,050,000, Cascade's aggregate tax basis in the NovaMart stock is estimated to be approximately $1,236,050,000.

Critically, because the Transaction is structured as a stock purchase without a Section 338(h)(10) election, there is no step-up in the "inside" basis of NovaMart's underlying assets. NovaMart will continue to hold its tangible and intangible assets at their historical cost basis for tax purposes, which (based on the tax due diligence performed by this firm in coordination with Whitmore & Paige LLP) is estimated to be approximately $310 million in aggregate net tax basis.

This creates a significant "basis gap" of approximately $890 million between Cascade's outside basis in the NovaMart stock ($1.2 billion) and NovaMart's aggregate inside net asset basis ($310 million). This basis gap will not generate tax deductions for Cascade or the consolidated group during the period of Cascade's ownership of NovaMart. The basis gap would only become relevant for tax purposes in the event of (i) a future taxable disposition of the NovaMart stock (in which case Cascade would recognize a loss or reduced gain to the extent the stock basis exceeds the amount realized), (ii) a future qualifying Section 338 election in connection with a subsequent sale, or (iii) a future qualifying Section 336(e) election. None of these events is anticipated at this time.

Cascade inherits, through its ownership of NovaMart, NovaMart's existing depreciation and amortization schedules for all of NovaMart's depreciable and amortizable property — including warehouse equipment, fulfillment center improvements, computer hardware, software development costs, and identified intangible assets. These schedules are based on NovaMart's historical cost basis, which in many cases is significantly below current fair market value, particularly with respect to NovaMart's intangible assets (including goodwill, the NovaMart brand, customer relationships, the NovaShip logistics platform, and assembled workforce). The economic cost of the basis gap is a permanent non-deductible differential that Cascade and Whitmore & Paige LLP should model into their after-tax return analysis for the Transaction.

C. Impact on NovaMart's Tax Attributes Post-Closing

1. Net Operating Loss Carryforwards

Based on the tax due diligence conducted in the pre-signing phase, NovaMart has immaterial federal net operating loss ("NOL") carryforwards of approximately $4.2 million and state NOL carryforwards of approximately $2.8 million. These losses arose during NovaMart's startup phase in 2018 and 2019, prior to the company achieving sustained profitability. Because these NOLs arose in taxable years beginning after December 31, 2017, they are subject to the 80% taxable income limitation enacted by the Tax Cuts and Jobs Act of 2017 (Section 172(a)(2) of the Code) and may be carried forward indefinitely (they do not expire).

2. Section 382 Limitation

The stock purchase by Cascade constitutes an "ownership change" of NovaMart within the meaning of IRC Section 382. Specifically, Cascade is acquiring 100% of NovaMart's stock from the Selling Stockholders, which represents a greater-than-50-percentage-point increase in the ownership of NovaMart stock by a "5-percent shareholder" (Cascade) within the applicable testing period. As a result of this ownership change, NovaMart's ability to use its pre-change NOLs (and certain recognized built-in losses, if any) in post-change taxable years is subject to the annual Section 382 limitation.

The Section 382 annual limitation is calculated by multiplying the fair market value of NovaMart's stock immediately before the ownership change by the applicable long-term tax-exempt rate published by the IRS for the month in which the ownership change occurs. Based on an assumed equity value of $1,200,000,000 and an illustrative long-term tax-exempt rate of approximately 4.5% (which reflects recent published rates; the exact rate will be determined based on the month in which closing occurs), the annual Section 382 limitation would be approximately:

$1,200,000,000 × 4.5% = $54,000,000 per year

Because NovaMart's pre-change federal NOLs total only approximately $4.2 million, the Section 382 annual limitation of approximately $54 million is vastly in excess of the available pre-change NOLs. Accordingly, the Section 382 limitation is practically irrelevant for this Transaction — the entire remaining balance of pre-change NOLs could be utilized in the first post-change taxable year, subject to the 80% taxable income limitation under Section 172(a)(2). Nevertheless, for compliance purposes, the Section 382 ownership change should be documented and tracked.

3. Section 383 Implications

Section 383 of the Code applies similar limitations to pre-change tax credits. Based on the tax due diligence, NovaMart does not have material pre-change tax credit carryforwards. However, to the extent any pre-change credits exist (including, for example, research and experimentation credits under Section 41), their utilization in post-change years would be subject to an analogous annual limitation. We recommend that Whitmore & Paige LLP confirm the absence of material pre-change credits during the preparation of NovaMart's pre-closing short-period return.

4. Tax Accounting Methods

NovaMart is a calendar-year taxpayer that uses the overall accrual method of accounting for federal income tax purposes. These methods of accounting will continue unchanged following the closing. NovaMart's existing method of accounting for inventory, revenue recognition, and other specific items should be reviewed during the post-closing integration process to ensure consistency with Cascade's own tax accounting methods, or to identify and file any necessary changes in accounting methods (Form 3115) on a prospective basis.

5. SRLY (Separate Return Limitation Year) Rules

Upon NovaMart's inclusion in Cascade's federal consolidated tax group, NovaMart's pre-acquisition NOLs will be subject to the separate return limitation year ("SRLY") rules under Treasury Regulation Section 1.1502-21. Under the SRLY rules, NovaMart's pre-acquisition NOLs may only be used to offset NovaMart's own contribution to the consolidated group's taxable income (i.e., NovaMart's separate return income), and may not be used to offset income generated by other members of the Cascade consolidated group.

However, Treasury Regulation Section 1.1502-21(g) provides an "overlap rule" that applies when both the Section 382 limitation and the SRLY limitation apply to the same losses. Where the overlap rule applies, only the Section 382 limitation (and not the SRLY limitation) governs. Because NovaMart's inclusion in the Cascade consolidated group is concurrent with the Section 382 ownership change, the overlap rule should apply, and the SRLY limitation should be subsumed by the Section 382 limitation. Given the immateriality of NovaMart's pre-change NOLs relative to the Section 382 annual limitation, the practical effect is that the full $4.2 million of federal NOLs should be available for use in the first post-change consolidated year, subject only to the 80% taxable income limitation.

D. Deductibility of Transaction Costs

Cascade's estimated transaction costs total approximately $47,300,000. The tax treatment of these costs is governed primarily by IRC Section 263(a) and Treasury Regulation Section 1.263(a)-5, which address amounts paid to facilitate the acquisition of a trade or business. The regulation requires capitalization of amounts paid to facilitate the acquisition, including fees paid to investment bankers, attorneys, accountants, and other service providers for services rendered in connection with the transaction.

The following summarizes the treatment of each major category of transaction costs:

Legal Fees — Calderwood & Harkness LLP ($8,200,000). Legal fees incurred for negotiation and drafting of the SPA, ancillary transaction documents, and closing activities are facilitative costs that must be capitalized into Cascade's basis in the NovaMart stock under Treas. Reg. § 1.263(a)-5(e)(1). However, legal fees incurred during the investigatory or evaluative phase — i.e., prior to the "final decision" to acquire the target — may be currently deductible under Treas. Reg. § 1.263(a)-5(e)(2), provided they relate to the evaluation of whether and which target to acquire. The "final decision" date is a factual determination, but for these purposes, the relevant milestone is the Cascade Board's authorization to pursue the NovaMart acquisition on February 3, 2025 (or, arguably, the execution of the LOI on February 14, 2025). Legal fees incurred prior to that date for investigatory or evaluative purposes may be currently deductible. We estimate that approximately $1,200,000–$1,800,000 of the total legal fees may qualify as investigatory costs, subject to further analysis and documentation.

Advisory Fees — Hargrove Mead & Co. ($14,400,000). The success-based fee paid to Hargrove Mead & Co. as financial advisor is a facilitative cost of the acquisition and must be capitalized into Cascade's basis in the NovaMart stock. Under IRS Revenue Procedure 2011-29, a taxpayer may elect to treat 70% of a success-based fee as an amount that does not facilitate the transaction (and is therefore currently deductible), provided the fee is contingent on the closing of the transaction and the taxpayer makes the election on a timely filed original return. We recommend that Cascade evaluate whether to make the Rev. Proc. 2011-29 election, which could result in a current deduction of approximately $10,080,000 (70% × $14,400,000), with the remaining $4,320,000 capitalized. This represents a significant potential tax benefit that should be discussed with Whitmore & Paige LLP.

Accounting and Tax Advisory — Whitmore & Paige LLP ($3,100,000). As with legal fees, accounting and tax advisory fees attributable to the investigatory or evaluative phase may be currently deductible, while fees attributable to facilitating the transaction must be capitalized. We estimate that approximately $600,000–$900,000 of these fees relate to the pre-decision investigatory phase.

Financing Costs — Term Loan B OID ($11,250,000). The $11,250,000 of original issue discount on the $750,000,000 Term Loan B is not a cost of acquiring the NovaMart stock; rather, it is a cost of borrowing. OID is amortized as interest expense over the 7-year term of the Term Loan B facility under IRC Sections 163 and 1273, using the constant yield method. The deductibility of this interest expense is subject to the Section 163(j) business interest expense limitation, discussed in Section III.E below.

R&W Insurance Premium ($5,400,000). The premium paid for the representations and warranties insurance policy is a cost incurred to facilitate the acquisition of the NovaMart stock. Under Treas. Reg. § 1.263(a)-5, this cost must be capitalized into Cascade's stock basis. The premium is not amortizable or deductible during the policy period.

HSR Filing Fee ($2,390,000). The Hart-Scott-Rodino Act filing fee is a cost directly attributable to the acquisition and must be capitalized into Cascade's stock basis under Treas. Reg. § 1.263(a)-5.

D&O Tail Premium ($1,800,000). The premium for tail coverage on NovaMart's directors' and officers' liability insurance policy, which is being procured in connection with the Transaction, is appropriately treated as a cost of the acquisition and capitalized into stock basis.

Miscellaneous ($760,000). Miscellaneous costs (including data room fees, printing costs, courier charges, and other incidental expenses) should be analyzed individually, but the majority are expected to be facilitative costs capitalized into stock basis.

A detailed summary of the transaction cost tax treatment is set forth in Appendix C and in the table in Section XIII below.

E. Interest Deductibility — Section 163(j) Analysis

The acquisition financing consists of (i) a new $750,000,000 Term Loan B priced at SOFR plus 275 basis points and (ii) a $200,000,000 draw on Cascade's existing revolving credit facility priced at SOFR plus 200 basis points. The combined incremental debt of $950,000,000 will generate significant annual interest expense that must be evaluated under the Section 163(j) business interest expense limitation.

Section 163(j) of the Code, as amended by the Tax Cuts and Jobs Act of 2017, limits a taxpayer's deduction for business interest expense in any taxable year to the sum of (i) the taxpayer's business interest income for the year, plus (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the year, plus (iii) the taxpayer's floor plan financing interest for the year. For taxable years beginning after December 31, 2021, ATI is computed without adding back depreciation, amortization, or depletion deductions (i.e., ATI is closer to a taxable-income-based measure rather than an EBITDA-based measure).

For the Cascade consolidated group on a post-closing basis, the combined ATI will include NovaMart's income contribution. Based on FY2024 financial data, Cascade's standalone EBITDA was approximately $1,830,000,000 and NovaMart's EBITDA was approximately $134,000,000, for a combined EBITDA of approximately $1,964,000,000. While ATI for Section 163(j) purposes differs from EBITDA (primarily because ATI is a tax-basis measure and does not add back depreciation and amortization for current years), the combined taxable income of the consolidated group before interest deductions is expected to be substantial — likely in excess of $1.3 billion based on current estimates. At a 30% ATI limitation, the consolidated group should have Section 163(j) capacity in excess of $390 million, which is well in excess of the anticipated annual interest expense on the acquisition financing (estimated at approximately $65–$75 million annually on the Term Loan B and revolver combined, depending on prevailing SOFR rates), in addition to Cascade's existing interest obligations.

Accordingly, we do not anticipate that the Section 163(j) limitation will restrict Cascade's ability to deduct interest expense on the acquisition financing in the near term. However, this analysis should be revisited annually, particularly if Cascade's taxable income declines, if additional leverage is incurred, or if interest rates rise substantially. Any disallowed business interest expense under Section 163(j) carries forward indefinitely and may be deducted in a subsequent taxable year to the extent the consolidated group has sufficient ATI capacity.

We also note the anti-abuse rules under Section 163(j), including the anti-avoidance provisions applicable to intercompany debt and the special rules for partnership interests. These rules are not expected to be implicated by the current financing structure, but should be monitored as post-closing intercompany arrangements are established.

IV. EVALUATION AND REJECTION OF SECTION 338(h)(10) ELECTION

A. Overview of Section 338(h)(10)

Section 338(h)(10) of the Code, in conjunction with Treasury Regulation Section 1.338(h)(10)-1, permits a buyer and seller to jointly elect to treat a qualified stock purchase as a deemed asset sale for federal income tax purposes. When a Section 338(h)(10) election is made, the transaction is recharacterized as follows: (i) NovaMart is deemed to have sold all of its assets to an unrelated third party in a single transaction at the close of the acquisition date, (ii) NovaMart is deemed to have distributed the sale proceeds to the Selling Stockholders in complete liquidation, and (iii) a "new" NovaMart is deemed to have been formed and to have acquired the assets at a stepped-up basis equal to the "aggregate deemed sale price" ("ADSP"), which is generally equal to the Purchase Price plus assumed liabilities.

The principal benefit of a Section 338(h)(10) election to a buyer is that the buyer obtains a stepped-up tax basis in the target's assets, enabling increased depreciation and amortization deductions that reduce the buyer's taxable income over time. In particular, intangible assets such as goodwill, customer relationships, and technology — which are typically a significant component of the value of e-commerce businesses — would be amortizable over a 15-year period under IRC Section 197 based on the stepped-up basis, rather than the target's historical cost basis (which may already be substantially or fully amortized).

B. Potential Benefit of a Section 338(h)(10) Election

The basis gap between the Purchase Price ($1,200,000,000) and NovaMart's estimated net inside asset basis (approximately $310 million, based on tax due diligence) is approximately $890 million. If a Section 338(h)(10) election were made, this $890 million basis gap would be allocated among NovaMart's assets under the residual method prescribed by IRC Section 1060 and Treasury Regulation Section 1.338-6.

Based on preliminary valuation analysis and the composition of NovaMart's assets, we estimate that a significant portion of the stepped-up basis — likely in excess of 80% — would be allocable to Section 197 intangible assets, including:

• Goodwill (residual value)

• Customer relationships (registered buyer base, active seller relationships)

• NovaMart brand and trade names

• NovaShip logistics platform and related technology

• Assembled workforce

• Favorable lease terms (if any)

If the full $890 million basis step-up were allocable to Section 197 intangibles amortizable over 15 years, the estimated incremental annual amortization deduction would be approximately $59.3 million per year ($890 million ÷ 15 years). At a 21% federal corporate tax rate, this would yield estimated annual federal tax savings of approximately $12.5 million per year. The present value of the total incremental tax savings over the 15-year amortization period, discounted at rates ranging from 7% to 10%, is estimated to be in the range of $120–$140 million. Additional state tax savings would accrue in states that conform to the federal treatment, though some states may not fully conform.

C. Reasons for Rejection

Notwithstanding the potential buyer-side benefits of a Section 338(h)(10) election, the parties determined, after extensive negotiation, not to make such an election. The principal reasons for this decision are as follows:

Seller Pricing Disagreement. A Section 338(h)(10) election imposes incremental tax costs on the Selling Stockholders. Under the deemed asset sale construct, the Sellers are treated as having received proceeds from an asset sale rather than a stock sale. This recharacterization results in (i) ordinary income recognition on the deemed sale of certain assets (including depreciation recapture under Sections 1245 and 1250, and ordinary income on accounts receivable and inventory), rather than long-term capital gain on the sale of stock; and (ii) potentially higher state income tax in states where capital gains receive favorable treatment or where the deemed asset sale triggers additional nexus-based taxation.

The Selling Stockholders — principally Ridgeline Equity Partners, LP and Brindoval Ventures Fund III, LP, together holding 64.0% of NovaMart's equity — demanded a gross-up payment from Cascade of approximately $85–$95 million to compensate them for the additional tax cost that would result from the Section 338(h)(10) election. Despite several rounds of negotiation between counsel (Calderwood & Harkness on behalf of Cascade and Calloway, Brandt & Loewe LLP on behalf of the Sellers), the parties were unable to reach agreement on the amount of the gross-up. The Sellers' position was firm, and the spread between the Sellers' demand and Cascade's proposed gross-up (approximately $55–$65 million) was too wide to bridge.

Complexity of Purchase Price Allocation. Making a Section 338(h)(10) election would require the parties to agree on an allocation of the Purchase Price among NovaMart's assets under IRC Section 1060 and the residual method. This allocation requires extensive valuation work — including formal appraisals of customer relationships, brand value, technology, and other intangible assets — and creates significant potential for IRS audit risk if the allocation is challenged. The parties would be required to report consistently on their respective tax returns (buyer and sellers), and any disagreement on the allocation could result in protracted disputes.

State Tax Impact. A deemed asset sale would trigger adverse state income tax consequences in several of NovaMart's nexus states. In particular:

• California imposes its 8.84% corporate income tax on the deemed sale of NovaMart's California-sitused assets, which would include a substantial portion of NovaMart's fulfillment center equipment, inventory, and California-apportioned intangible asset gain. This would significantly increase the Sellers' California tax liability.

• New Jersey would similarly impose its corporate business tax (9% plus surtax) on the deemed sale of New Jersey-apportioned assets.

• Pennsylvania would tax the deemed sale at its corporate net income tax rate (approximately 7.99% for 2025).

These state-level incremental tax costs were a significant component of the Sellers' gross-up demand and further widened the gap between the parties.

Net Present Value Analysis. After accounting for the Sellers' demanded gross-up of $85–$95 million, the net present value benefit to Cascade of the step-up would be reduced as follows:

A net present value benefit in the range of $25–$55 million, while not trivial in isolation, was deemed insufficient to justify the additional deal complexity, potential closing delay (given the need for valuation work and purchase price allocation negotiations), and the risk that the negotiation over the gross-up could jeopardize the overall transaction. The parties' economic advisors (Hargrove Mead & Co. for Cascade and Pennington Advisory Group LLC for the Sellers) concurred that the incremental value did not justify the incremental risk.

Conclusion. For all of the foregoing reasons, the parties determined not to make a Section 338(h)(10) election. The Transaction will be treated as a straight stock purchase with no deemed asset sale, and Cascade will inherit NovaMart's existing inside asset basis without step-up.

D. Section 336(e) Election — Not Applicable

As an alternative to a Section 338(h)(10) election, we considered whether a Section 336(e) election might be available. A Section 336(e) election is available for certain "qualified stock dispositions," defined in Treasury Regulation Section 1.336-1(b)(6) as any transaction (or series of transactions) in which a domestic corporation (or an S corporation shareholder) disposes of stock of another domestic corporation meeting the requirements of Section 1504(a)(2) (generally, at least 80% by vote and value).

The critical limitation is that Section 336(e) requires the seller to be a domestic corporation (or S corporation). In this Transaction, the Selling Stockholders are not domestic corporations — they include Ridgeline Equity Partners, LP (a limited partnership), Brindoval Ventures Fund III, LP (a limited partnership), Julian Reeves (an individual), Priya Narasimhan (an individual), and other management/employee holders (individuals). None of these sellers qualifies as a "domestic corporation" for purposes of Section 336(e).

Accordingly, Section 336(e) is not available for this Transaction, and no further analysis of this election is required.

V. FEDERAL INCOME TAX TREATMENT OF THE SELLING STOCKHOLDERS

A. General Treatment

Each Selling Stockholder will recognize gain or loss on the sale of its NovaMart stock equal to the difference between (i) the amount realized by such Selling Stockholder (i.e., its pro rata share of the Purchase Price, as adjusted for the escrow and working capital adjustment) and (ii) such Selling Stockholder's adjusted tax basis in its NovaMart stock. Because the Transaction is structured as a sale of stock for cash, the gain or loss is characterized as capital gain or loss under Section 1001 of the Code, provided the NovaMart stock constitutes a capital asset in the hands of the Selling Stockholder.

For Selling Stockholders who have held their NovaMart stock for more than one year as of the closing date, the gain will be characterized as long-term capital gain, eligible for the preferential rate of 20% for individuals (plus the 3.8% net investment income tax under Section 1411, for a combined maximum rate of 23.8%) and the 21% corporate rate for corporate partners of the fund entities. Given that NovaMart was incorporated in 2017 and the Selling Stockholders have held their shares since at least 2018 (based on the capitalization table reviewed during diligence), all Selling Stockholders are expected to have holding periods well in excess of one year.

We note that the tax treatment of the Selling Stockholders is primarily a Seller-side concern, and the Selling Stockholders should rely on their own tax advisors (Calloway, Brandt & Loewe LLP and their individual accountants) for specific advice. However, Cascade should understand the Seller-side tax treatment for purposes of (i) structuring the SPA's tax representations and indemnification provisions, (ii) understanding the economic motivations of the Sellers (which drove the rejection of the Section 338(h)(10) election), and (iii) complying with any withholding or reporting obligations.

B. Specific Stockholder Considerations

Ridgeline Equity Partners, LP (41.2%). Ridgeline (EIN 83-4127896) is a Delaware limited partnership. Ridgeline's pro rata share of the Purchase Price is approximately $494,400,000 (41.2% × $1,200,000,000). As a partnership, Ridgeline is not itself subject to federal income tax. Instead, the gain recognized on the sale of the NovaMart stock will be allocated among Ridgeline's partners in accordance with the Ridgeline partnership agreement and pass through to such partners on their respective Schedule K-1s. The character of the gain (long-term capital gain) is preserved at the partner level. Ridgeline's partners include domestic and, potentially, foreign investors; any foreign partners may be subject to U.S. income tax on the gain under Section 865 or FIRPTA principles, depending on the circumstances.

Brindoval Ventures Fund III, LP (22.8%). Brindoval (EIN 94-6238154) is also a Delaware limited partnership. Brindoval's pro rata share of the Purchase Price is approximately $273,600,000 (22.8% × $1,200,000,000). The analysis is substantively identical to that of Ridgeline: gain passes through to Brindoval's partners under Subchapter K, retaining its long-term capital gain character.

Julian Reeves (18.5%). Julian Reeves is an individual and U.S. citizen who serves as CEO of NovaMart. His pro rata share of the Purchase Price is approximately $222,000,000 (18.5% × $1,200,000,000). Mr. Reeves' gain on the sale of his NovaMart stock will be subject to the 20% long-term capital gains rate, plus the 3.8% net investment income tax ("NIIT") under Section 1411, for a combined federal rate of 23.8%. We note that Mr. Reeves' actual gain will be reduced by his adjusted basis in the NovaMart stock, which should be determined by his personal tax advisors. Mr. Reeves may also be subject to state income tax in his state of residence and/or in states where the gain is sourced (e.g., California, if he is a California resident or has California-source income from the sale).

Priya Narasimhan (8.3%). Priya Narasimhan is an individual and U.S. citizen who serves as CTO of NovaMart. Her pro rata share of the Purchase Price is approximately $99,600,000 (8.3% × $1,200,000,000). The federal income tax analysis is substantively identical to that of Mr. Reeves: 20% long-term capital gains rate plus 3.8% NIIT, for a combined maximum federal rate of 23.8%, reduced by her adjusted basis in the NovaMart stock.

Other Management/Employee Stockholders (9.2%). The remaining 9.2% of NovaMart's equity (representing approximately $110,400,000 of the Purchase Price in aggregate) is held by various management and employee stockholders, some of whom hold vested stock options rather than outright shares. The tax treatment of these holders varies depending on several factors:

• Holders of Common Stock: Employees who hold outright shares of NovaMart common stock (whether acquired through exercise of options, direct purchase, or restricted stock awards for which a Section 83(b) election was timely filed) will recognize long-term capital gain on the sale, provided the holding period exceeds one year.

• Holders of Vested Stock Options — ISOs vs. NSOs: The characterization of income depends on whether the options are incentive stock options ("ISOs") under Section 422 or non-qualified stock options ("NSOs"). For NSO holders, the exercise of the option (which will occur immediately prior to or contemporaneously with the closing, as options will be cashed out) will result in ordinary income equal to the spread between the per-share exercise price and the per-share consideration, subject to W-2 withholding. For ISO holders, the analysis is more complex and depends on whether the holding period requirements of Section 422(a)(1) have been satisfied (more than two years from the date of grant and more than one year from the date of exercise). A disqualifying disposition of ISO shares will result in ordinary income treatment of the spread, similar to NSOs. These issues are addressed in greater detail in Section XII.D below.

• Restricted Stock: Any employees holding restricted stock for which a Section 83(b) election was not timely filed will recognize ordinary income at the time of vesting (or, if the stock is substantially vested at closing, at closing) equal to the fair market value of the stock at such time, minus the amount paid for the stock.

C. Escrow — Installment Sale / Open Transaction Considerations

Of the $1,200,000,000 Purchase Price, $96,000,000 (8%) will be deposited at closing with Marlowe Asset Management Trust Company, N.A. as Escrow Agent, to be held for 24 months following the closing date (or longer, to the extent claims are pending at the expiration of the escrow period). The escrow serves as the primary source for satisfaction of the Sellers' indemnification obligations under the SPA.

A question arises as to whether the escrow arrangement creates installment sale treatment under IRC Section 453 or open transaction treatment for the Selling Stockholders. Under Section 453, if a seller receives at least one payment after the close of the taxable year in which the sale occurs, the sale may be treated as an installment sale, potentially deferring gain recognition.

However, we believe that the more appropriate treatment is that the Selling Stockholders should be treated as receiving the full $1,200,000,000 at closing for tax purposes, notwithstanding the escrow arrangement. The basis for this conclusion is as follows:

• The escrow amount is not contingent — it is a fixed, determinable amount. The Purchase Price is $1,200,000,000 in the aggregate, and each Selling Stockholder's pro rata share of the Purchase Price is fixed and known at closing.

• The escrow does not represent a genuine contingency as to the amount of consideration; rather, it represents a mechanism for satisfying indemnification claims. The only uncertainty is whether and to what extent claims will be made against the escrow. This is analogous to a holdback or security deposit, not a contingent payment.

• Under IRS guidance and case law (including Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958), and various revenue rulings), where the amount of consideration is fixed and the only contingency relates to collection risk or indemnification claims, the full amount is generally treated as received at closing for purposes of computing gain.

• The escrow arrangement satisfies the requirements of a "qualified escrow" under Treas. Reg. § 1.468B-1, and the escrow funds are treated as belonging to the Selling Stockholders (subject to the Buyer's security interest for indemnification claims).

Accordingly, the Selling Stockholders should be advised (through their counsel, Calloway, Brandt & Loewe LLP) to report the full amount realized — i.e., their pro rata share of the entire $1,200,000,000 Purchase Price — in the taxable year in which the closing occurs, regardless of the fact that $96,000,000 of the aggregate Purchase Price is held in escrow. If and when any portion of the escrow is applied to satisfy indemnification claims, the affected Selling Stockholders may be entitled to claim a loss or deduction in the year of payment, depending on the nature of the underlying claim.

We note that the tax treatment of the escrow is primarily a Seller-side issue. Cascade bears no direct federal income tax consequence from the escrow arrangement. However, Cascade should understand the treatment for purposes of the SPA's tax representations, indemnification provisions, and tax reporting obligations (including any Form 1099 reporting obligations that may arise upon release of escrow funds to the Sellers).

D. Withholding Obligations

No Federal Income Tax Withholding on Purchase Price Payments to U.S. Persons. Because the Selling Stockholders are U.S. persons (U.S. individuals and domestic limited partnerships), no federal income tax withholding is required on the purchase price payments under Section 1441 or Section 1442 of the Code. Withholding may be required with respect to the cash-out of NovaMart employee stock options (W-2 withholding on ordinary income from NSO exercises), which is an employment tax matter addressed in Section XII.D below.

FIRPTA Analysis. Section 1445 of the Code requires a buyer to withhold 15% of the amount realized on the disposition of a "United States real property interest" ("USRPI") by a foreign person. To avoid withholding, NovaMart will deliver a FIRPTA non-foreign person certificate (also known as an "affidavit of non-foreign status") at closing, certifying under penalties of perjury that NovaMart is not a "foreign person" within the meaning of Section 1445. This certificate provides Cascade with a safe harbor from FIRPTA withholding obligations. A separate FIRPTA Compliance Memorandum has been prepared by this firm and is incorporated herein by reference.

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

VI. STATE INCOME AND FRANCHISE TAX IMPLICATIONS

A. Overview of NovaMart's State Tax Nexus

NovaMart's operations create significant state tax nexus across multiple jurisdictions. NovaMart operates 14 fulfillment centers spread across nine states, as summarized below:

In addition, NovaMart is subject to franchise or similar taxes in its state of incorporation (Delaware) and its headquarters state (Texas), where NovaMart maintains its principal executive offices. This brings the total number of state jurisdictions requiring analysis to eleven: California, New Jersey, Georgia, Florida, Ohio, Illinois, Pennsylvania, Tennessee, Washington, Delaware, and Texas. The following subsections address the state tax implications of the Transaction in each of these jurisdictions.

B. Texas — Franchise Tax (Margin Tax)

Texas does not impose a state income tax on corporations. However, Texas levies a franchise (margin) tax on entities doing business in Texas. The Texas franchise tax is based on the taxpayer's "taxable margin," which is generally the lesser of (i) 70% of total revenue, (ii) total revenue minus cost of goods sold, or (iii) total revenue minus compensation, with the resulting margin apportioned to Texas based on a single gross receipts factor. The applicable rate for retailers and wholesalers is 0.375% of apportioned taxable margin (the general rate is 0.75%; the reduced rate applies to qualifying retailers and wholesalers, but NovaMart's classification must be confirmed).

NovaMart is headquartered in Austin, Texas, and is therefore subject to Texas franchise tax on its Texas-sourced margin. The stock purchase does not trigger a deemed asset sale or any other taxable event for Texas franchise tax purposes. NovaMart continues as the same entity with the same Texas tax attributes.

Post-closing, NovaMart will continue to file its own Texas franchise tax return as a subsidiary of Cascade. Texas does not impose a combined or consolidated reporting requirement for franchise tax purposes — each entity files separately based on its own revenue and margin. NovaMart's estimated annual Texas franchise tax obligation is subject to confirmation by Whitmore & Paige LLP based on NovaMart's Texas-apportioned margin for the applicable reporting period.

C. Delaware — Franchise Tax

NovaMart is incorporated in Delaware and is therefore subject to the Delaware annual franchise tax, which is imposed on all corporations organized under Delaware law, regardless of whether the corporation conducts business within the state. The Delaware franchise tax is calculated under one of two methods: (i) the Authorized Shares Method, which bases the tax on the number of authorized shares of capital stock, or (ii) the Assumed Par Value Capital Method, which bases the tax on the corporation's assumed par value capital, total gross assets, and the number of issued and outstanding shares. NovaMart uses the Assumed Par Value Capital Method, which typically produces a lower tax obligation for companies with large numbers of authorized but unissued shares.

The annual Delaware franchise tax is modest relative to the transaction value. Under current Delaware law, the maximum annual franchise tax is capped at $200,000 per year, regardless of the size of the entity. The stock purchase does not affect NovaMart's Delaware franchise tax status. NovaMart will continue to be a Delaware corporation and will continue to owe the annual franchise tax.

D. California

NovaMart operates three fulfillment centers in California and has substantial sales to California customers (NovaMart's registered buyer base of approximately 9.1 million includes a significant concentration of California residents). California imposes a corporate income tax (the "corporation tax") at a rate of 8.84% on net income apportioned to California. California uses a single sales factor apportionment formula for most businesses, meaning that NovaMart's California tax liability is based on the proportion of its total sales attributable to California customers.

The stock purchase has no immediate California income tax consequence to Cascade. As a stock purchase, the Transaction does not trigger a taxable event at the California level for the buyer.

Post-closing, NovaMart will join Cascade's California combined reporting group. California requires water's-edge combined reporting for members of a unitary business group. Because Cascade and NovaMart will be engaged in related lines of business (retail and e-commerce) and will share common management, operational integration, and centralized services following the acquisition, the combined reporting requirement should apply. NovaMart's California-apportioned income will be included in Cascade's California combined return, which may alter the combined group's overall apportionment factor and effective California tax rate. This integration planning should be undertaken by Whitmore & Paige LLP well in advance of the first combined return filing.

With respect to the Selling Stockholders, California residents who are Selling Stockholders (or, in the case of the fund entities, California-resident partners of Ridgeline or Brindoval) may owe California income tax on their gain from the sale of NovaMart stock. California taxes its residents on worldwide income. Non-resident individuals and out-of-state entities may also have California-source income from the sale to the extent the gain is attributable to NovaMart's California business operations, although the sourcing rules for gain from the sale of stock are complex and depend on the circumstances.

We note that California does not conform to the federal Section 338(h)(10) election. Because no Section 338(h)(10) election is being made, this non-conformity is moot for the present Transaction. Additionally, California's prohibition on non-competition agreements (California Business and Professions Code Section 16600) is relevant to the employment agreements being entered into with key NovaMart employees and would also impact the valuation of any deemed asset purchase under a hypothetical Section 338(h)(10) election (since non-compete agreements unenforceable in California cannot be assigned meaningful value for California tax purposes). This further supports the decision to proceed with a stock purchase structure.

E. New Jersey

NovaMart operates two fulfillment centers in New Jersey, creating substantial physical presence in the state. New Jersey imposes the Corporation Business Tax ("CBT") at a rate of 9% on allocated net income, plus a 2.5% surtax on allocated net income in excess of $1 million (the surtax is currently scheduled to phase down, but remains in effect for 2025). This results in a combined effective rate of 11.5% for corporations with New Jersey-allocated income exceeding $1 million.

New Jersey requires combined reporting for members of a unitary business group. Accordingly, post-closing, NovaMart will be included in Cascade's New Jersey combined return. New Jersey uses a single sales factor apportionment formula, meaning the combined group's New Jersey tax liability will be based on the proportion of combined sales attributable to New Jersey customers.

There are no immediate New Jersey income tax consequences from the stock purchase for Cascade. The stock purchase does not trigger a taxable event for the buyer at the New Jersey level.

F. Georgia

NovaMart operates two fulfillment centers in Georgia. Georgia imposes a corporate income tax at a rate of 5.75% on apportioned net income. Georgia uses a single sales factor apportionment formula for most industries.

Georgia does not require mandatory combined reporting. Accordingly, Cascade and NovaMart will file separate Georgia corporate income tax returns unless they affirmatively elect to file on a combined basis (Georgia does permit elective combined reporting in certain circumstances). The decision regarding separate versus combined filing in Georgia should be evaluated by Whitmore & Paige LLP based on the relative apportionment factors and effective tax rates that would result under each filing method.

There are no immediate Georgia income tax consequences from the stock purchase for Cascade.

G. Ohio

NovaMart operates one fulfillment center in Ohio. Ohio does not impose a traditional corporate income tax. Instead, Ohio levies the Commercial Activity Tax ("CAT") on gross receipts. The CAT rate is 0.26% on taxable gross receipts exceeding $1 million. Because the CAT is a gross receipts tax (not a net income tax), it is imposed regardless of whether the taxpayer has net income.

Post-closing, NovaMart will continue to be subject to Ohio CAT on its Ohio-sitused gross receipts. An analysis should be conducted by Whitmore & Paige LLP to determine whether Cascade and NovaMart constitute a "combined taxpayer group" for CAT purposes. Under Ohio's CAT rules, entities under common ownership that are part of a combined taxpayer group may be required to register and report as a single group, with the group's combined Ohio-sitused gross receipts subject to the CAT. If Cascade already has Ohio CAT obligations (by reason of its retail locations or online sales into Ohio), the inclusion of NovaMart in the combined group may increase the total Ohio CAT liability.

There are no immediate Ohio tax consequences from the stock purchase for Cascade.

H. Illinois

NovaMart operates one fulfillment center in Illinois. Illinois imposes a corporate income tax at a rate of 7.0% of apportioned net income, plus a Personal Property Replacement Tax ("PPRT") of 2.5%, for a combined effective rate of 9.5% on Illinois-apportioned net income.

Illinois requires combined reporting for members of a unitary business group. Post-closing, NovaMart will be included in Cascade's Illinois combined return. Illinois uses a single sales factor apportionment formula.

There are no immediate Illinois income tax consequences from the stock purchase for Cascade.

I. Pennsylvania

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

Pennsylvania does not require combined reporting. NovaMart will file a separate Pennsylvania corporate net income tax return. Pennsylvania uses a three-factor apportionment formula (sales, payroll, property), with the sales factor double-weighted — resulting effectively in a four-factor formula with the sales factor comprising 50%.

There are no immediate Pennsylvania income tax consequences from the stock purchase for Cascade.

J. Tennessee

NovaMart operates one fulfillment center in Tennessee. Tennessee imposes the Franchise and Excise Tax, which consists of two components: (i) the excise tax at a rate of 6.5% on net income, and (ii) the franchise tax at a rate of 0.25% on net worth (or tangible property, or the book value of real or tangible personal property owned or used in Tennessee, whichever base is greater). We note that the Tennessee franchise tax on net worth has been the subject of recent leg

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
599 Lexington Avenue, 38th Floor New York, New York 10022
May 18, 2025
MEMORANDUM
FROM: Sylvia Hartwell, Specialist Partner, Tax — Calderwood & Harkness LLP
TO:
Elena Vasquez-Bright, General Counsel, Cascade Retail Holdings Inc.
Theodore ("Ted") Langford, SVP Corporate Development, Cascade Retail Holdings Inc.
Harrison Wexford, Responsible Partner, M&A, Calderwood & Harkness LLP
Derek Okonkwo, Lead Associate, M&A, Calderwood & Harkness LLP
CC:
Rajiv Sundaram, CFO, Cascade Retail Holdings Inc.
Sandra Chiu, Engagement Partner, Whitmore & Paige LLP
Beatrice Holloway, Billing Partner, M&A, Calderwood & Harkness LLP
RE: Tax Structure Analysis — Proposed Stock Purchase of 100% of Outstanding Capital Stock of NovaMart Global Inc. (EIN 84-3291547) by Cascade Retail Holdings Inc. (EIN 91-2847653; Nasdaq: CRHI)
Matter Reference: Cascade Retail Holdings Inc. — Acquisition of NovaMart Global Inc.
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I. EXECUTIVE SUMMARY
This memorandum analyzes the federal and state income tax consequences of the proposed acquisition by Cascade Retail Holdings Inc. ("Cascade" or the "Buyer") of 100% of the outstanding capital stock of NovaMart Global Inc. ("NovaMart" or the "Target") for aggregate cash consideration of $1,200,000,000 (the "Purchase Price") in an all-cash stock purchase transaction (the "Transaction"). The Transaction will be governed by a Stock Purchase Agreement (the "SPA"), which is expected to be executed on May 20, 2025, two days following the date of this memorandum. The SPA is governed by Delaware law.
Structure Selected. After extensive evaluation and negotiation among the parties, the Transaction has been structured as a stock purchase. No election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), will be made in connection with the acquisition.
Key Conclusion. The stock purchase structure is tax-efficient for Cascade when considered holistically, notwithstanding the absence of a stepped-up tax basis in NovaMart's assets. The inability of Cascade and the Selling Stockholders (as defined below) to agree on pricing for the incremental tax cost that a Section 338(h)(10) election would impose on the Selling Stockholders was the decisive factor against such an election. As discussed in Section IV below, after accounting for the Sellers' demanded gross-up of approximately $85–$95 million, the net present value benefit to Cascade of the step-up would be reduced to approximately $25–$55 million — insufficient to justify the additional deal complexity, potential closing delay, and negotiation risk.
Target Overview. NovaMart is a Delaware corporation headquartered at 1100 Congress Avenue, Suite 800, Austin, Texas 78701 (EIN 84-3291547). NovaMart is a leading e-commerce marketplace platform, operating 14 fulfillment centers across nine states and serving approximately 62,400 active sellers and 9.1 million registered buyers. NovaMart maintains tax nexus in the following nine states by reason of its fulfillment center operations: California, New Jersey, Georgia, Ohio, Illinois, Pennsylvania, Tennessee, Florida, and Washington. NovaMart is also subject to franchise or similar taxes in its state of incorporation (Delaware) and its headquarters state (Texas), bringing the total number of state jurisdictions relevant to the tax analysis to eleven.
Purchase Price and Consideration. The Purchase Price is $1,200,000,000, payable entirely in cash. There is no stock component, no earnout, and no contingent consideration. An escrow deposit of $96,000,000 (8% of the Purchase Price) will be deposited with Marlowe Asset Management Trust Company, N.A. (the "Escrow Agent") at closing and held for 24 months to secure the Sellers' indemnification obligations. Net cash to Sellers at Closing is $1,104,000,000 (before any working capital adjustment).
Financing. Cascade will finance the Transaction through (i) a $750,000,000 Term Loan B facility (with Cornerstone National Bank, N.A. as Administrative Agent and Caluvori Capital Partners, Inc. as Co-Lead Arranger), (ii) $200,000,000 drawn on Cascade's existing revolving credit facility, and (iii) approximately $250,000,000 of cash on hand.
Tax Advisory Coordination. We have coordinated, and will continue to coordinate, the tax structuring and analysis with Whitmore & Paige LLP (Sandra Chiu, Engagement Partner), which is providing accounting and tax advisory services in connection with the Transaction. This memorandum should be read in conjunction with the separate Tax Due Diligence Memorandum prepared by this firm in connection with the pre-signing diligence phase.
II. TRANSACTION OVERVIEW
A. Parties
Buyer: Cascade Retail Holdings Inc. Cascade is a Delaware corporation (EIN 91-2847653), publicly traded on The Nasdaq Stock Market LLC under the ticker symbol "CRHI." Cascade's principal offices are located at 4500 Elliott Avenue West, Suite 3200, Seattle, Washington 98119. Cascade is one of the largest omni-channel retail operators in North America, with approximately 380 retail locations across the United States and Canada and approximately 28 million active online customers through its CascadeDirect.com e-commerce platform. For the fiscal year ended December 31, 2024 ("FY2024"), Cascade reported revenue of approximately $14.7 billion and EBITDA of approximately $1.83 billion. As of May 19, 2025, Cascade's market capitalization is approximately $22.4 billion, with approximately 412 million shares of common stock outstanding. Cascade is a calendar-year taxpayer using the accrual method of accounting.
Target: NovaMart Global Inc. NovaMart is a Delaware corporation (EIN 84-3291547), privately held, headquartered at 1100 Congress Avenue, Suite 800, Austin, Texas 78701. NovaMart operates a technology-enabled e-commerce marketplace connecting third-party sellers with consumers, supported by a proprietary logistics platform branded "NovaShip." For FY2024, NovaMart reported revenue of approximately $891 million, EBITDA of approximately $134 million, and gross merchandise value ("GMV") of approximately $6.2 billion transacted through its platform. NovaMart maintains approximately 62,400 active sellers, approximately 9.1 million registered buyers, approximately 2,400 employees, and 14 fulfillment centers spread across nine states. NovaMart is a calendar-year taxpayer using the accrual method of accounting.
Selling Stockholders. The issued and outstanding capital stock of NovaMart is held by the following stockholders (collectively, the "Selling Stockholders" or "Sellers"):
Ridgeline Equity Partners, LP ("Ridgeline") and Brindoval Ventures Fund III, LP ("Brindoval") are Delaware limited partnerships that function as institutional private equity investors. Julian Reeves and Priya Narasimhan are individual United States citizen co-founders of NovaMart who continue to serve in senior management positions (CEO and CTO, respectively). The remaining 9.2% is held in aggregate by other management and employee holders, including individuals holding vested stock options.
Stockholder Representative. Ridgeline Equity Partners, LP, acting through its Managing Partner, Franklin Osei, has been designated as the Stockholder Representative under the SPA for purposes of post-closing claims, indemnification, and escrow administration.
B. Deal Economics
The key economic terms of the Transaction are as follows:
• Purchase Price: $1,200,000,000, payable in full at closing in immediately available funds (subject to the escrow mechanism and customary adjustments described below).
• Implied EV/EBITDA Multiple: Approximately 8.96x ($1,200,000,000 ÷ $134,000,000 FY2024 EBITDA), which falls within the expected range for e-commerce marketplace businesses of comparable scale and growth trajectory. We note that this is an enterprise value to EBITDA ratio, and the enterprise value is net of NovaMart's existing indebtedness to be repaid at closing.
• Implied EV/Revenue Multiple: Approximately 1.35x ($1,200,000,000 ÷ $891,000,000 FY2024 Revenue).
• Consideration Type: All-cash consideration. There is no stock component, no contingent consideration, and no earnout arrangement. The all-cash structure simplifies the tax analysis considerably, as there are no Section 368 reorganization considerations, no Section 351 exchange issues, and no deferred or contingent payment concerns (other than the escrow discussed below).
• Working Capital Adjustment: The SPA provides for a customary post-closing working capital adjustment, with a Working Capital Target of $78,500,000 and a collar (deadband) of $5,000,000. Deviations in excess of the collar in either direction will result in a dollar-for-dollar adjustment to the Purchase Price.
• Escrow: $96,000,000 (8% of the Purchase Price) will be deposited at closing with Marlowe Asset Management Trust Company, N.A. as Escrow Agent pursuant to a separate Escrow Agreement. The escrow fund will be held for 24 months following the closing date and will serve as the primary source for payment of indemnification claims (other than tax and fraud claims, which are not subject to the escrow cap). Funds remaining in escrow after resolution of any pending claims will be released to the Selling Stockholders in accordance with their pro rata shares.
• Indemnification Cap: $216,000,000 (18% of the Purchase Price) for general representations and warranties.
• Tax Indemnification: The Selling Stockholders' indemnification obligations with respect to pre-closing tax liabilities are uncapped and survive until 60 days after the expiration of the applicable statute of limitations (as extended). This is a critical Buyer protection, as discussed further in Section VIII.C below.
C. Transaction Timeline (Tax-Relevant Dates)
The following timeline sets forth the key dates relevant to the tax analysis:
The pre-closing period between signing (May 20, 2025) and closing (targeted October 15, 2025) is approximately five months, during which NovaMart will continue to operate as a standalone entity under the operational covenants set forth in the SPA. The timing of the Board authorization (February 3, 2025) and the LOI (February 14, 2025) is relevant to the deductibility analysis of pre-decision investigatory costs, as discussed in Section III.D below.
III. ANALYSIS OF STOCK PURCHASE STRUCTURE — FEDERAL INCOME TAX CONSEQUENCES
A. Treatment as a Stock Acquisition
Cascade is acquiring 100% of the issued and outstanding capital stock of NovaMart from the Selling Stockholders in exchange for cash consideration of $1,200,000,000. For federal income tax purposes, this Transaction is treated as a purchase of stock — that is, Cascade is purchasing equity interests in NovaMart from the Selling Stockholders in a fully taxable exchange. NovaMart itself is not a party to the sale (it is the object of the sale, not a participant); the Transaction occurs entirely at the stockholder level.
As a consequence of the stock purchase structure, NovaMart continues as the same taxpayer following the closing. NovaMart will retain its employer identification number (EIN 84-3291547) and its existing tax attributes, including (without limitation) its historical cost basis in its tangible and intangible assets, its depreciation and amortization schedules, any net operating loss carryforwards, any tax credit carryforwards, and its existing tax accounting methods. The stock purchase does not constitute a taxable event for NovaMart itself, and NovaMart will not recognize any gain or loss as a result of the Transaction.
Upon the closing of the Transaction, NovaMart will become a wholly-owned subsidiary of Cascade. Effective the day following the closing date, NovaMart (and any subsidiaries it may have) will become members of Cascade's federal consolidated tax group, with Cascade serving as the common parent. From that point forward, NovaMart will be included in Cascade's consolidated federal income tax return for post-closing taxable periods.
There is no immediate taxable gain or loss recognized by Cascade on the acquisition itself. Cascade is simply exchanging cash for stock, and the cash paid becomes Cascade's tax basis in the NovaMart stock, as discussed in Section III.B below.
The Selling Stockholders, by contrast, will recognize gain or loss on the sale of their NovaMart stock. The characterization of such gain or loss depends on each Selling Stockholder's individual circumstances, including holding period and tax status. The institutional Selling Stockholders — Ridgeline and Brindoval — are both organized as limited partnerships under the laws of Delaware. As such, they are pass-through entities for federal income tax purposes, and the gain recognized on the sale of the NovaMart stock will pass through to their respective partners under Subchapter K of the Code. The individual Selling Stockholders (Julian Reeves, Priya Narasimhan, and the management/employee holders) will report gain directly on their individual federal income tax returns. The tax treatment of the Selling Stockholders is discussed in greater detail in Section V below.
B. Cascade's Tax Basis in NovaMart Stock
Cascade's aggregate tax basis in the NovaMart stock will equal the Purchase Price of $1,200,000,000, allocated ratably among all shares of NovaMart capital stock acquired in the Transaction. This basis is established under the general cost basis rule of IRC Section 1012, as modified by the capitalization requirements of Treasury Regulation Section 1.263(a)-5 (which requires certain transaction costs to be capitalized into the basis of the stock acquired, as discussed in Section III.D below). After accounting for capitalized transaction costs of approximately $36,050,000, Cascade's aggregate tax basis in the NovaMart stock is estimated to be approximately $1,236,050,000.
Critically, because the Transaction is structured as a stock purchase without a Section 338(h)(10) election, there is no step-up in the "inside" basis of NovaMart's underlying assets. NovaMart will continue to hold its tangible and intangible assets at their historical cost basis for tax purposes, which (based on the tax due diligence performed by this firm in coordination with Whitmore & Paige LLP) is estimated to be approximately $310 million in aggregate net tax basis.
This creates a significant "basis gap" of approximately $890 million between Cascade's outside basis in the NovaMart stock ($1.2 billion) and NovaMart's aggregate inside net asset basis ($310 million). This basis gap will not generate tax deductions for Cascade or the consolidated group during the period of Cascade's ownership of NovaMart. The basis gap would only become relevant for tax purposes in the event of (i) a future taxable disposition of the NovaMart stock (in which case Cascade would recognize a loss or reduced gain to the extent the stock basis exceeds the amount realized), (ii) a future qualifying Section 338 election in connection with a subsequent sale, or (iii) a future qualifying Section 336(e) election. None of these events is anticipated at this time.
Cascade inherits, through its ownership of NovaMart, NovaMart's existing depreciation and amortization schedules for all of NovaMart's depreciable and amortizable property — including warehouse equipment, fulfillment center improvements, computer hardware, software development costs, and identified intangible assets. These schedules are based on NovaMart's historical cost basis, which in many cases is significantly below current fair market value, particularly with respect to NovaMart's intangible assets (including goodwill, the NovaMart brand, customer relationships, the NovaShip logistics platform, and assembled workforce). The economic cost of the basis gap is a permanent non-deductible differential that Cascade and Whitmore & Paige LLP should model into their after-tax return analysis for the Transaction.
C. Impact on NovaMart's Tax Attributes Post-Closing
1. Net Operating Loss Carryforwards
Based on the tax due diligence conducted in the pre-signing phase, NovaMart has immaterial federal net operating loss ("NOL") carryforwards of approximately $4.2 million and state NOL carryforwards of approximately $2.8 million. These losses arose during NovaMart's startup phase in 2018 and 2019, prior to the company achieving sustained profitability. Because these NOLs arose in taxable years beginning after December 31, 2017, they are subject to the 80% taxable income limitation enacted by the Tax Cuts and Jobs Act of 2017 (Section 172(a)(2) of the Code) and may be carried forward indefinitely (they do not expire).
2. Section 382 Limitation
The stock purchase by Cascade constitutes an "ownership change" of NovaMart within the meaning of IRC Section 382. Specifically, Cascade is acquiring 100% of NovaMart's stock from the Selling Stockholders, which represents a greater-than-50-percentage-point increase in the ownership of NovaMart stock by a "5-percent shareholder" (Cascade) within the applicable testing period. As a result of this ownership change, NovaMart's ability to use its pre-change NOLs (and certain recognized built-in losses, if any) in post-change taxable years is subject to the annual Section 382 limitation.
The Section 382 annual limitation is calculated by multiplying the fair market value of NovaMart's stock immediately before the ownership change by the applicable long-term tax-exempt rate published by the IRS for the month in which the ownership change occurs. Based on an assumed equity value of $1,200,000,000 and an illustrative long-term tax-exempt rate of approximately 4.5% (which reflects recent published rates; the exact rate will be determined based on the month in which closing occurs), the annual Section 382 limitation would be approximately:
$1,200,000,000 × 4.5% = $54,000,000 per year
Because NovaMart's pre-change federal NOLs total only approximately $4.2 million, the Section 382 annual limitation of approximately $54 million is vastly in excess of the available pre-change NOLs. Accordingly, the Section 382 limitation is practically irrelevant for this Transaction — the entire remaining balance of pre-change NOLs could be utilized in the first post-change taxable year, subject to the 80% taxable income limitation under Section 172(a)(2). Nevertheless, for compliance purposes, the Section 382 ownership change should be documented and tracked.
3. Section 383 Implications
Section 383 of the Code applies similar limitations to pre-change tax credits. Based on the tax due diligence, NovaMart does not have material pre-change tax credit carryforwards. However, to the extent any pre-change credits exist (including, for example, research and experimentation credits under Section 41), their utilization in post-change years would be subject to an analogous annual limitation. We recommend that Whitmore & Paige LLP confirm the absence of material pre-change credits during the preparation of NovaMart's pre-closing short-period return.
4. Tax Accounting Methods
NovaMart is a calendar-year taxpayer that uses the overall accrual method of accounting for federal income tax purposes. These methods of accounting will continue unchanged following the closing. NovaMart's existing method of accounting for inventory, revenue recognition, and other specific items should be reviewed during the post-closing integration process to ensure consistency with Cascade's own tax accounting methods, or to identify and file any necessary changes in accounting methods (Form 3115) on a prospective basis.
5. SRLY (Separate Return Limitation Year) Rules
Upon NovaMart's inclusion in Cascade's federal consolidated tax group, NovaMart's pre-acquisition NOLs will be subject to the separate return limitation year ("SRLY") rules under Treasury Regulation Section 1.1502-21. Under the SRLY rules, NovaMart's pre-acquisition NOLs may only be used to offset NovaMart's own contribution to the consolidated group's taxable income (i.e., NovaMart's separate return income), and may not be used to offset income generated by other members of the Cascade consolidated group.
However, Treasury Regulation Section 1.1502-21(g) provides an "overlap rule" that applies when both the Section 382 limitation and the SRLY limitation apply to the same losses. Where the overlap rule applies, only the Section 382 limitation (and not the SRLY limitation) governs. Because NovaMart's inclusion in the Cascade consolidated group is concurrent with the Section 382 ownership change, the overlap rule should apply, and the SRLY limitation should be subsumed by the Section 382 limitation. Given the immateriality of NovaMart's pre-change NOLs relative to the Section 382 annual limitation, the practical effect is that the full $4.2 million of federal NOLs should be available for use in the first post-change consolidated year, subject only to the 80% taxable income limitation.
D. Deductibility of Transaction Costs
Cascade's estimated transaction costs total approximately $47,300,000. The tax treatment of these costs is governed primarily by IRC Section 263(a) and Treasury Regulation Section 1.263(a)-5, which address amounts paid to facilitate the acquisition of a trade or business. The regulation requires capitalization of amounts paid to facilitate the acquisition, including fees paid to investment bankers, attorneys, accountants, and other service providers for services rendered in connection with the transaction.
The following summarizes the treatment of each major category of transaction costs:
Legal Fees — Calderwood & Harkness LLP ($8,200,000). Legal fees incurred for negotiation and drafting of the SPA, ancillary transaction documents, and closing activities are facilitative costs that must be capitalized into Cascade's basis in the NovaMart stock under Treas. Reg. § 1.263(a)-5(e)(1). However, legal fees incurred during the investigatory or evaluative phase — i.e., prior to the "final decision" to acquire the target — may be currently deductible under Treas. Reg. § 1.263(a)-5(e)(2), provided they relate to the evaluation of whether and which target to acquire. The "final decision" date is a factual determination, but for these purposes, the relevant milestone is the Cascade Board's authorization to pursue the NovaMart acquisition on February 3, 2025 (or, arguably, the execution of the LOI on February 14, 2025). Legal fees incurred prior to that date for investigatory or evaluative purposes may be currently deductible. We estimate that approximately $1,200,000–$1,800,000 of the total legal fees may qualify as investigatory costs, subject to further analysis and documentation.
Advisory Fees — Hargrove Mead & Co. ($14,400,000). The success-based fee paid to Hargrove Mead & Co. as financial advisor is a facilitative cost of the acquisition and must be capitalized into Cascade's basis in the NovaMart stock. Under IRS Revenue Procedure 2011-29, a taxpayer may elect to treat 70% of a success-based fee as an amount that does not facilitate the transaction (and is therefore currently deductible), provided the fee is contingent on the closing of the transaction and the taxpayer makes the election on a timely filed original return. We recommend that Cascade evaluate whether to make the Rev. Proc. 2011-29 election, which could result in a current deduction of approximately $10,080,000 (70% × $14,400,000), with the remaining $4,320,000 capitalized. This represents a significant potential tax benefit that should be discussed with Whitmore & Paige LLP.
Accounting and Tax Advisory — Whitmore & Paige LLP ($3,100,000). As with legal fees, accounting and tax advisory fees attributable to the investigatory or evaluative phase may be currently deductible, while fees attributable to facilitating the transaction must be capitalized. We estimate that approximately $600,000–$900,000 of these fees relate to the pre-decision investigatory phase.
Financing Costs — Term Loan B OID ($11,250,000). The $11,250,000 of original issue discount on the $750,000,000 Term Loan B is not a cost of acquiring the NovaMart stock; rather, it is a cost of borrowing. OID is amortized as interest expense over the 7-year term of the Term Loan B facility under IRC Sections 163 and 1273, using the constant yield method. The deductibility of this interest expense is subject to the Section 163(j) business interest expense limitation, discussed in Section III.E below.
R&W Insurance Premium ($5,400,000). The premium paid for the representations and warranties insurance policy is a cost incurred to facilitate the acquisition of the NovaMart stock. Under Treas. Reg. § 1.263(a)-5, this cost must be capitalized into Cascade's stock basis. The premium is not amortizable or deductible during the policy period.
HSR Filing Fee ($2,390,000). The Hart-Scott-Rodino Act filing fee is a cost directly attributable to the acquisition and must be capitalized into Cascade's stock basis under Treas. Reg. § 1.263(a)-5.
D&O Tail Premium ($1,800,000). The premium for tail coverage on NovaMart's directors' and officers' liability insurance policy, which is being procured in connection with the Transaction, is appropriately treated as a cost of the acquisition and capitalized into stock basis.
Miscellaneous ($760,000). Miscellaneous costs (including data room fees, printing costs, courier charges, and other incidental expenses) should be analyzed individually, but the majority are expected to be facilitative costs capitalized into stock basis.
A detailed summary of the transaction cost tax treatment is set forth in Appendix C and in the table in Section XIII below.
E. Interest Deductibility — Section 163(j) Analysis
The acquisition financing consists of (i) a new $750,000,000 Term Loan B priced at SOFR plus 275 basis points and (ii) a $200,000,000 draw on Cascade's existing revolving credit facility priced at SOFR plus 200 basis points. The combined incremental debt of $950,000,000 will generate significant annual interest expense that must be evaluated under the Section 163(j) business interest expense limitation.
Section 163(j) of the Code, as amended by the Tax Cuts and Jobs Act of 2017, limits a taxpayer's deduction for business interest expense in any taxable year to the sum of (i) the taxpayer's business interest income for the year, plus (ii) 30% of the taxpayer's adjusted taxable income ("ATI") for the year, plus (iii) the taxpayer's floor plan financing interest for the year. For taxable years beginning after December 31, 2021, ATI is computed without adding back depreciation, amortization, or depletion deductions (i.e., ATI is closer to a taxable-income-based measure rather than an EBITDA-based measure).
For the Cascade consolidated group on a post-closing basis, the combined ATI will include NovaMart's income contribution. Based on FY2024 financial data, Cascade's standalone EBITDA was approximately $1,830,000,000 and NovaMart's EBITDA was approximately $134,000,000, for a combined EBITDA of approximately $1,964,000,000. While ATI for Section 163(j) purposes differs from EBITDA (primarily because ATI is a tax-basis measure and does not add back depreciation and amortization for current years), the combined taxable income of the consolidated group before interest deductions is expected to be substantial — likely in excess of $1.3 billion based on current estimates. At a 30% ATI limitation, the consolidated group should have Section 163(j) capacity in excess of $390 million, which is well in excess of the anticipated annual interest expense on the acquisition financing (estimated at approximately $65–$75 million annually on the Term Loan B and revolver combined, depending on prevailing SOFR rates), in addition to Cascade's existing interest obligations.
Accordingly, we do not anticipate that the Section 163(j) limitation will restrict Cascade's ability to deduct interest expense on the acquisition financing in the near term. However, this analysis should be revisited annually, particularly if Cascade's taxable income declines, if additional leverage is incurred, or if interest rates rise substantially. Any disallowed business interest expense under Section 163(j) carries forward indefinitely and may be deducted in a subsequent taxable year to the extent the consolidated group has sufficient ATI capacity.
We also note the anti-abuse rules under Section 163(j), including the anti-avoidance provisions applicable to intercompany debt and the special rules for partnership interests. These rules are not expected to be implicated by the current financing structure, but should be monitored as post-closing intercompany arrangements are established.
IV. EVALUATION AND REJECTION OF SECTION 338(h)(10) ELECTION
A. Overview of Section 338(h)(10)
Section 338(h)(10) of the Code, in conjunction with Treasury Regulation Section 1.338(h)(10)-1, permits a buyer and seller to jointly elect to treat a qualified stock purchase as a deemed asset sale for federal income tax purposes. When a Section 338(h)(10) election is made, the transaction is recharacterized as follows: (i) NovaMart is deemed to have sold all of its assets to an unrelated third party in a single transaction at the close of the acquisition date, (ii) NovaMart is deemed to have distributed the sale proceeds to the Selling Stockholders in complete liquidation, and (iii) a "new" NovaMart is deemed to have been formed and to have acquired the assets at a stepped-up basis equal to the "aggregate deemed sale price" ("ADSP"), which is generally equal to the Purchase Price plus assumed liabilities.
The principal benefit of a Section 338(h)(10) election to a buyer is that the buyer obtains a stepped-up tax basis in the target's assets, enabling increased depreciation and amortization deductions that reduce the buyer's taxable income over time. In particular, intangible assets such as goodwill, customer relationships, and technology — which are typically a significant component of the value of e-commerce businesses — would be amortizable over a 15-year period under IRC Section 197 based on the stepped-up basis, rather than the target's historical cost basis (which may already be substantially or fully amortized).
B. Potential Benefit of a Section 338(h)(10) Election
The basis gap between the Purchase Price ($1,200,000,000) and NovaMart's estimated net inside asset basis (approximately $310 million, based on tax due diligence) is approximately $890 million. If a Section 338(h)(10) election were made, this $890 million basis gap would be allocated among NovaMart's assets under the residual method prescribed by IRC Section 1060 and Treasury Regulation Section 1.338-6.
Based on preliminary valuation analysis and the composition of NovaMart's assets, we estimate that a significant portion of the stepped-up basis — likely in excess of 80% — would be allocable to Section 197 intangible assets, including:
• Goodwill (residual value)
• Customer relationships (registered buyer base, active seller relationships)
• NovaMart brand and trade names
• NovaShip logistics platform and related technology
• Assembled workforce
• Favorable lease terms (if any)
If the full $890 million basis step-up were allocable to Section 197 intangibles amortizable over 15 years, the estimated incremental annual amortization deduction would be approximately $59.3 million per year ($890 million ÷ 15 years). At a 21% federal corporate tax rate, this would yield estimated annual federal tax savings of approximately $12.5 million per year. The present value of the total incremental tax savings over the 15-year amortization period, discounted at rates ranging from 7% to 10%, is estimated to be in the range of $120–$140 million. Additional state tax savings would accrue in states that conform to the federal treatment, though some states may not fully conform.
C. Reasons for Rejection
Notwithstanding the potential buyer-side benefits of a Section 338(h)(10) election, the parties determined, after extensive negotiation, not to make such an election. The principal reasons for this decision are as follows:
Seller Pricing Disagreement. A Section 338(h)(10) election imposes incremental tax costs on the Selling Stockholders. Under the deemed asset sale construct, the Sellers are treated as having received proceeds from an asset sale rather than a stock sale. This recharacterization results in (i) ordinary income recognition on the deemed sale of certain assets (including depreciation recapture under Sections 1245 and 1250, and ordinary income on accounts receivable and inventory), rather than long-term capital gain on the sale of stock; and (ii) potentially higher state income tax in states where capital gains receive favorable treatment or where the deemed asset sale triggers additional nexus-based taxation.
The Selling Stockholders — principally Ridgeline Equity Partners, LP and Brindoval Ventures Fund III, LP, together holding 64.0% of NovaMart's equity — demanded a gross-up payment from Cascade of approximately $85–$95 million to compensate them for the additional tax cost that would result from the Section 338(h)(10) election. Despite several rounds of negotiation between counsel (Calderwood & Harkness on behalf of Cascade and Calloway, Brandt & Loewe LLP on behalf of the Sellers), the parties were unable to reach agreement on the amount of the gross-up. The Sellers' position was firm, and the spread between the Sellers' demand and Cascade's proposed gross-up (approximately $55–$65 million) was too wide to bridge.
Complexity of Purchase Price Allocation. Making a Section 338(h)(10) election would require the parties to agree on an allocation of the Purchase Price among NovaMart's assets under IRC Section 1060 and the residual method. This allocation requires extensive valuation work — including formal appraisals of customer relationships, brand value, technology, and other intangible assets — and creates significant potential for IRS audit risk if the allocation is challenged. The parties would be required to report consistently on their respective tax returns (buyer and sellers), and any disagreement on the allocation could result in protracted disputes.
State Tax Impact. A deemed asset sale would trigger adverse state income tax consequences in several of NovaMart's nexus states. In particular:
• California imposes its 8.84% corporate income tax on the deemed sale of NovaMart's California-sitused assets, which would include a substantial portion of NovaMart's fulfillment center equipment, inventory, and California-apportioned intangible asset gain. This would significantly increase the Sellers' California tax liability.
• New Jersey would similarly impose its corporate business tax (9% plus surtax) on the deemed sale of New Jersey-apportioned assets.
• Pennsylvania would tax the deemed sale at its corporate net income tax rate (approximately 7.99% for 2025).
These state-level incremental tax costs were a significant component of the Sellers' gross-up demand and further widened the gap between the parties.
Net Present Value Analysis. After accounting for the Sellers' demanded gross-up of $85–$95 million, the net present value benefit to Cascade of the step-up would be reduced as follows:
A net present value benefit in the range of $25–$55 million, while not trivial in isolation, was deemed insufficient to justify the additional deal complexity, potential closing delay (given the need for valuation work and purchase price allocation negotiations), and the risk that the negotiation over the gross-up could jeopardize the overall transaction. The parties' economic advisors (Hargrove Mead & Co. for Cascade and Pennington Advisory Group LLC for the Sellers) concurred that the incremental value did not justify the incremental risk.
Conclusion. For all of the foregoing reasons, the parties determined not to make a Section 338(h)(10) election. The Transaction will be treated as a straight stock purchase with no deemed asset sale, and Cascade will inherit NovaMart's existing inside asset basis without step-up.
D. Section 336(e) Election — Not Applicable
As an alternative to a Section 338(h)(10) election, we considered whether a Section 336(e) election might be available. A Section 336(e) election is available for certain "qualified stock dispositions," defined in Treasury Regulation Section 1.336-1(b)(6) as any transaction (or series of transactions) in which a domestic corporation (or an S corporation shareholder) disposes of stock of another domestic corporation meeting the requirements of Section 1504(a)(2) (generally, at least 80% by vote and value).
The critical limitation is that Section 336(e) requires the seller to be a domestic corporation (or S corporation). In this Transaction, the Selling Stockholders are not domestic corporations — they include Ridgeline Equity Partners, LP (a limited partnership), Brindoval Ventures Fund III, LP (a limited partnership), Julian Reeves (an individual), Priya Narasimhan (an individual), and other management/employee holders (individuals). None of these sellers qualifies as a "domestic corporation" for purposes of Section 336(e).
Accordingly, Section 336(e) is not available for this Transaction, and no further analysis of this election is required.
V. FEDERAL INCOME TAX TREATMENT OF THE SELLING STOCKHOLDERS
A. General Treatment
Each Selling Stockholder will recognize gain or loss on the sale of its NovaMart stock equal to the difference between (i) the amount realized by such Selling Stockholder (i.e., its pro rata share of the Purchase Price, as adjusted for the escrow and working capital adjustment) and (ii) such Selling Stockholder's adjusted tax basis in its NovaMart stock. Because the Transaction is structured as a sale of stock for cash, the gain or loss is characterized as capital gain or loss under Section 1001 of the Code, provided the NovaMart stock constitutes a capital asset in the hands of the Selling Stockholder.
For Selling Stockholders who have held their NovaMart stock for more than one year as of the closing date, the gain will be characterized as long-term capital gain, eligible for the preferential rate of 20% for individuals (plus the 3.8% net investment income tax under Section 1411, for a combined maximum rate of 23.8%) and the 21% corporate rate for corporate partners of the fund entities. Given that NovaMart was incorporated in 2017 and the Selling Stockholders have held their shares since at least 2018 (based on the capitalization table reviewed during diligence), all Selling Stockholders are expected to have holding periods well in excess of one year.
We note that the tax treatment of the Selling Stockholders is primarily a Seller-side concern, and the Selling Stockholders should rely on their own tax advisors (Calloway, Brandt & Loewe LLP and their individual accountants) for specific advice. However, Cascade should understand the Seller-side tax treatment for purposes of (i) structuring the SPA's tax representations and indemnification provisions, (ii) understanding the economic motivations of the Sellers (which drove the rejection of the Section 338(h)(10) election), and (iii) complying with any withholding or reporting obligations.
B. Specific Stockholder Considerations
Ridgeline Equity Partners, LP (41.2%). Ridgeline (EIN 83-4127896) is a Delaware limited partnership. Ridgeline's pro rata share of the Purchase Price is approximately $494,400,000 (41.2% × $1,200,000,000). As a partnership, Ridgeline is not itself subject to federal income tax. Instead, the gain recognized on the sale of the NovaMart stock will be allocated among Ridgeline's partners in accordance with the Ridgeline partnership agreement and pass through to such partners on their respective Schedule K-1s. The character of the gain (long-term capital gain) is preserved at the partner level. Ridgeline's partners include domestic and, potentially, foreign investors; any foreign partners may be subject to U.S. income tax on the gain under Section 865 or FIRPTA principles, depending on the circumstances.
Brindoval Ventures Fund III, LP (22.8%). Brindoval (EIN 94-6238154) is also a Delaware limited partnership. Brindoval's pro rata share of the Purchase Price is approximately $273,600,000 (22.8% × $1,200,000,000). The analysis is substantively identical to that of Ridgeline: gain passes through to Brindoval's partners under Subchapter K, retaining its long-term capital gain character.
Julian Reeves (18.5%). Julian Reeves is an individual and U.S. citizen who serves as CEO of NovaMart. His pro rata share of the Purchase Price is approximately $222,000,000 (18.5% × $1,200,000,000). Mr. Reeves' gain on the sale of his NovaMart stock will be subject to the 20% long-term capital gains rate, plus the 3.8% net investment income tax ("NIIT") under Section 1411, for a combined federal rate of 23.8%. We note that Mr. Reeves' actual gain will be reduced by his adjusted basis in the NovaMart stock, which should be determined by his personal tax advisors. Mr. Reeves may also be subject to state income tax in his state of residence and/or in states where the gain is sourced (e.g., California, if he is a California resident or has California-source income from the sale).
Priya Narasimhan (8.3%). Priya Narasimhan is an individual and U.S. citizen who serves as CTO of NovaMart. Her pro rata share of the Purchase Price is approximately $99,600,000 (8.3% × $1,200,000,000). The federal income tax analysis is substantively identical to that of Mr. Reeves: 20% long-term capital gains rate plus 3.8% NIIT, for a combined maximum federal rate of 23.8%, reduced by her adjusted basis in the NovaMart stock.
Other Management/Employee Stockholders (9.2%). The remaining 9.2% of NovaMart's equity (representing approximately $110,400,000 of the Purchase Price in aggregate) is held by various management and employee stockholders, some of whom hold vested stock options rather than outright shares. The tax treatment of these holders varies depending on several factors:
• Holders of Common Stock: Employees who hold outright shares of NovaMart common stock (whether acquired through exercise of options, direct purchase, or restricted stock awards for which a Section 83(b) election was timely filed) will recognize long-term capital gain on the sale, provided the holding period exceeds one year.
• Holders of Vested Stock Options — ISOs vs. NSOs: The characterization of income depends on whether the options are incentive stock options ("ISOs") under Section 422 or non-qualified stock options ("NSOs"). For NSO holders, the exercise of the option (which will occur immediately prior to or contemporaneously with the closing, as options will be cashed out) will result in ordinary income equal to the spread between the per-share exercise price and the per-share consideration, subject to W-2 withholding. For ISO holders, the analysis is more complex and depends on whether the holding period requirements of Section 422(a)(1) have been satisfied (more than two years from the date of grant and more than one year from the date of exercise). A disqualifying disposition of ISO shares will result in ordinary income treatment of the spread, similar to NSOs. These issues are addressed in greater detail in Section XII.D below.
• Restricted Stock: Any employees holding restricted stock for which a Section 83(b) election was not timely filed will recognize ordinary income at the time of vesting (or, if the stock is substantially vested at closing, at closing) equal to the fair market value of the stock at such time, minus the amount paid for the stock.
C. Escrow — Installment Sale / Open Transaction Considerations
Of the $1,200,000,000 Purchase Price, $96,000,000 (8%) will be deposited at closing with Marlowe Asset Management Trust Company, N.A. as Escrow Agent, to be held for 24 months following the closing date (or longer, to the extent claims are pending at the expiration of the escrow period). The escrow serves as the primary source for satisfaction of the Sellers' indemnification obligations under the SPA.
A question arises as to whether the escrow arrangement creates installment sale treatment under IRC Section 453 or open transaction treatment for the Selling Stockholders. Under Section 453, if a seller receives at least one payment after the close of the taxable year in which the sale occurs, the sale may be treated as an installment sale, potentially deferring gain recognition.
However, we believe that the more appropriate treatment is that the Selling Stockholders should be treated as receiving the full $1,200,000,000 at closing for tax purposes, notwithstanding the escrow arrangement. The basis for this conclusion is as follows:
• The escrow amount is not contingent — it is a fixed, determinable amount. The Purchase Price is $1,200,000,000 in the aggregate, and each Selling Stockholder's pro rata share of the Purchase Price is fixed and known at closing.
• The escrow does not represent a genuine contingency as to the amount of consideration; rather, it represents a mechanism for satisfying indemnification claims. The only uncertainty is whether and to what extent claims will be made against the escrow. This is analogous to a holdback or security deposit, not a contingent payment.
• Under IRS guidance and case law (including Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958), and various revenue rulings), where the amount of consideration is fixed and the only contingency relates to collection risk or indemnification claims, the full amount is generally treated as received at closing for purposes of computing gain.
• The escrow arrangement satisfies the requirements of a "qualified escrow" under Treas. Reg. § 1.468B-1, and the escrow funds are treated as belonging to the Selling Stockholders (subject to the Buyer's security interest for indemnification claims).
Accordingly, the Selling Stockholders should be advised (through their counsel, Calloway, Brandt & Loewe LLP) to report the full amount realized — i.e., their pro rata share of the entire $1,200,000,000 Purchase Price — in the taxable year in which the closing occurs, regardless of the fact that $96,000,000 of the aggregate Purchase Price is held in escrow. If and when any portion of the escrow is applied to satisfy indemnification claims, the affected Selling Stockholders may be entitled to claim a loss or deduction in the year of payment, depending on the nature of the underlying claim.
We note that the tax treatment of the escrow is primarily a Seller-side issue. Cascade bears no direct federal income tax consequence from the escrow arrangement. However, Cascade should understand the treatment for purposes of the SPA's tax representations, indemnification provisions, and tax reporting obligations (including any Form 1099 reporting obligations that may arise upon release of escrow funds to the Sellers).
D. Withholding Obligations
No Federal Income Tax Withholding on Purchase Price Payments to U.S. Persons. Because the Selling Stockholders are U.S. persons (U.S. individuals and domestic limited partnerships), no federal income tax withholding is required on the purchase price payments under Section 1441 or Section 1442 of the Code. Withholding may be required with respect to the cash-out of NovaMart employee stock options (W-2 withholding on ordinary income from NSO exercises), which is an employment tax matter addressed in Section XII.D below.
FIRPTA Analysis. Section 1445 of the Code requires a buyer to withhold 15% of the amount realized on the disposition of a "United States real property interest" ("USRPI") by a foreign person. To avoid withholding, NovaMart will deliver a FIRPTA non-foreign person certificate (also known as an "affidavit of non-foreign status") at closing, certifying under penalties of perjury that NovaMart is not a "foreign person" within the meaning of Section 1445. This certificate provides Cascade with a safe harbor from FIRPTA withholding obligations. A separate FIRPTA Compliance Memorandum has been prepared by this firm and is incorporated herein by reference.
Section 1446(f) Analysis. Section 1446(f) of the Code imposes withholding requirements on the transfer of partnership interests where gain on the transfer is effectively connected with a U.S. trade or business. This provision is not applicable to the Transaction because the Transaction involves the sale of stock in a domestic C corporation (NovaMart), not the transfer of a partnership interest. Accordingly, no Section 1446(f) withholding analysis is required.
VI. STATE INCOME AND FRANCHISE TAX IMPLICATIONS
A. Overview of NovaMart's State Tax Nexus
NovaMart's operations create significant state tax nexus across multiple jurisdictions. NovaMart operates 14 fulfillment centers spread across nine states, as summarized below:
In addition, NovaMart is subject to franchise or similar taxes in its state of incorporation (Delaware) and its headquarters state (Texas), where NovaMart maintains its principal executive offices. This brings the total number of state jurisdictions requiring analysis to eleven: California, New Jersey, Georgia, Florida, Ohio, Illinois, Pennsylvania, Tennessee, Washington, Delaware, and Texas. The following subsections address the state tax implications of the Transaction in each of these jurisdictions.
B. Texas — Franchise Tax (Margin Tax)
Texas does not impose a state income tax on corporations. However, Texas levies a franchise (margin) tax on entities doing business in Texas. The Texas franchise tax is based on the taxpayer's "taxable margin," which is generally the lesser of (i) 70% of total revenue, (ii) total revenue minus cost of goods sold, or (iii) total revenue minus compensation, with the resulting margin apportioned to Texas based on a single gross receipts factor. The applicable rate for retailers and wholesalers is 0.375% of apportioned taxable margin (the general rate is 0.75%; the reduced rate applies to qualifying retailers and wholesalers, but NovaMart's classification must be confirmed).
NovaMart is headquartered in Austin, Texas, and is therefore subject to Texas franchise tax on its Texas-sourced margin. The stock purchase does not trigger a deemed asset sale or any other taxable event for Texas franchise tax purposes. NovaMart continues as the same entity with the same Texas tax attributes.
Post-closing, NovaMart will continue to file its own Texas franchise tax return as a subsidiary of Cascade. Texas does not impose a combined or consolidated reporting requirement for franchise tax purposes — each entity files separately based on its own revenue and margin. NovaMart's estimated annual Texas franchise tax obligation is subject to confirmation by Whitmore & Paige LLP based on NovaMart's Texas-apportioned margin for the applicable reporting period.
C. Delaware — Franchise Tax
NovaMart is incorporated in Delaware and is therefore subject to the Delaware annual franchise tax, which is imposed on all corporations organized under Delaware law, regardless of whether the corporation conducts business within the state. The Delaware franchise tax is calculated under one of two methods: (i) the Authorized Shares Method, which bases the tax on the number of authorized shares of capital stock, or (ii) the Assumed Par Value Capital Method, which bases the tax on the corporation's assumed par value capital, total gross assets, and the number of issued and outstanding shares. NovaMart uses the Assumed Par Value Capital Method, which typically produces a lower tax obligation for companies with large numbers of authorized but unissued shares.
The annual Delaware franchise tax is modest relative to the transaction value. Under current Delaware law, the maximum annual franchise tax is capped at $200,000 per year, regardless of the size of the entity. The stock purchase does not affect NovaMart's Delaware franchise tax status. NovaMart will continue to be a Delaware corporation and will continue to owe the annual franchise tax.
D. California
NovaMart operates three fulfillment centers in California and has substantial sales to California customers (NovaMart's registered buyer base of approximately 9.1 million includes a significant concentration of California residents). California imposes a corporate income tax (the "corporation tax") at a rate of 8.84% on net income apportioned to California. California uses a single sales factor apportionment formula for most businesses, meaning that NovaMart's California tax liability is based on the proportion of its total sales attributable to California customers.
The stock purchase has no immediate California income tax consequence to Cascade. As a stock purchase, the Transaction does not trigger a taxable event at the California level for the buyer.
Post-closing, NovaMart will join Cascade's California combined reporting group. California requires water's-edge combined reporting for members of a unitary business group. Because Cascade and NovaMart will be engaged in related lines of business (retail and e-commerce) and will share common management, operational integration, and centralized services following the acquisition, the combined reporting requirement should apply. NovaMart's California-apportioned income will be included in Cascade's California combined return, which may alter the combined group's overall apportionment factor and effective California tax rate. This integration planning should be undertaken by Whitmore & Paige LLP well in advance of the first combined return filing.
With respect to the Selling Stockholders, California residents who are Selling Stockholders (or, in the case of the fund entities, California-resident partners of Ridgeline or Brindoval) may owe California income tax on their gain from the sale of NovaMart stock. California taxes its residents on worldwide income. Non-resident individuals and out-of-state entities may also have California-source income from the sale to the extent the gain is attributable to NovaMart's California business operations, although the sourcing rules for gain from the sale of stock are complex and depend on the circumstances.
We note that California does not conform to the federal Section 338(h)(10) election. Because no Section 338(h)(10) election is being made, this non-conformity is moot for the present Transaction. Additionally, California's prohibition on non-competition agreements (California Business and Professions Code Section 16600) is relevant to the employment agreements being entered into with key NovaMart employees and would also impact the valuation of any deemed asset purchase under a hypothetical Section 338(h)(10) election (since non-compete agreements unenforceable in California cannot be assigned meaningful value for California tax purposes). This further supports the decision to proceed with a stock purchase structure.
E. New Jersey
NovaMart operates two fulfillment centers in New Jersey, creating substantial physical presence in the state. New Jersey imposes the Corporation Business Tax ("CBT") at a rate of 9% on allocated net income, plus a 2.5% surtax on allocated net income in excess of $1 million (the surtax is currently scheduled to phase down, but remains in effect for 2025). This results in a combined effective rate of 11.5% for corporations with New Jersey-allocated income exceeding $1 million.
New Jersey requires combined reporting for members of a unitary business group. Accordingly, post-closing, NovaMart will be included in Cascade's New Jersey combined return. New Jersey uses a single sales factor apportionment formula, meaning the combined group's New Jersey tax liability will be based on the proportion of combined sales attributable to New Jersey customers.
There are no immediate New Jersey income tax consequences from the stock purchase for Cascade. The stock purchase does not trigger a taxable event for the buyer at the New Jersey level.
F. Georgia
NovaMart operates two fulfillment centers in Georgia. Georgia imposes a corporate income tax at a rate of 5.75% on apportioned net income. Georgia uses a single sales factor apportionment formula for most industries.
Georgia does not require mandatory combined reporting. Accordingly, Cascade and NovaMart will file separate Georgia corporate income tax returns unless they affirmatively elect to file on a combined basis (Georgia does permit elective combined reporting in certain circumstances). The decision regarding separate versus combined filing in Georgia should be evaluated by Whitmore & Paige LLP based on the relative apportionment factors and effective tax rates that would result under each filing method.
There are no immediate Georgia income tax consequences from the stock purchase for Cascade.
G. Ohio
NovaMart operates one fulfillment center in Ohio. Ohio does not impose a traditional corporate income tax. Instead, Ohio levies the Commercial Activity Tax ("CAT") on gross receipts. The CAT rate is 0.26% on taxable gross receipts exceeding $1 million. Because the CAT is a gross receipts tax (not a net income tax), it is imposed regardless of whether the taxpayer has net income.
Post-closing, NovaMart will continue to be subject to Ohio CAT on its Ohio-sitused gross receipts. An analysis should be conducted by Whitmore & Paige LLP to determine whether Cascade and NovaMart constitute a "combined taxpayer group" for CAT purposes. Under Ohio's CAT rules, entities under common ownership that are part of a combined taxpayer group may be required to register and report as a single group, with the group's combined Ohio-sitused gross receipts subject to the CAT. If Cascade already has Ohio CAT obligations (by reason of its retail locations or online sales into Ohio), the inclusion of NovaMart in the combined group may increase the total Ohio CAT liability.
There are no immediate Ohio tax consequences from the stock purchase for Cascade.
H. Illinois
NovaMart operates one fulfillment center in Illinois. Illinois imposes a corporate income tax at a rate of 7.0% of apportioned net income, plus a Personal Property Replacement Tax ("PPRT") of 2.5%, for a combined effective rate of 9.5% on Illinois-apportioned net income.
Illinois requires combined reporting for members of a unitary business group. Post-closing, NovaMart will be included in Cascade's Illinois combined return. Illinois uses a single sales factor apportionment formula.
There are no immediate Illinois income tax consequences from the stock purchase for Cascade.
I. Pennsylvania
NovaMart operates one fulfillment center in Pennsylvania. Pennsylvania imposes a Corporate Net Income Tax ("CNIT") at a rate of approximately 7.99% for taxable year 2025. Importantly, Pennsylvania has enacted legislation phasing down the CNIT rate over several years, with a target rate of 4.99% by 2031. This rate reduction trend is favorable for NovaMart's post-closing Pennsylvania tax obligations.
Pennsylvania does not require combined reporting. NovaMart will file a separate Pennsylvania corporate net income tax return. Pennsylvania uses a three-factor apportionment formula (sales, payroll, property), with the sales factor double-weighted — resulting effectively in a four-factor formula with the sales factor comprising 50%.
There are no immediate Pennsylvania income tax consequences from the stock purchase for Cascade.
J. Tennessee
NovaMart operates one fulfillment center in Tennessee. Tennessee imposes the Franchise and Excise Tax, which consists of two components: (i) the excise tax at a rate of 6.5% on net income, and (ii) the franchise tax at a rate of 0.25% on net worth (or tangible property, or the book value of real or tangible personal property owned or used in Tennessee, whichever base is greater). We note that the Tennessee franchise tax on net worth has been the subject of recent leg

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MEMORANDUM

I. EXECUTIVE SUMMARY

II. TRANSACTION OVERVIEW

V. FEDERAL INCOME TAX TREATMENT OF THE SELLING STOCKHOLDERS

VI. STATE INCOME AND FRANCHISE TAX IMPLICATIONS

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