Contract analysis

I. Purpose and Executive Summary This memorandum addresses the ongoing post-closing tax compliance obligations, administrative requirements, and planning considerations arising from the closing on May 31, 2024 of Ardent Capital Partners III LP's ("Fund III" or "Ardent") acquisition of 100% of the membership interests in Pinnacle Health Services Group LLC ("Pinnacle" or the "Company," EIN 82-1947632) at an enterprise

1. Tax Receivable Agreement Administration. The TRA executed among Holdings LLC, Intermediate Inc., and the TRA Holders requires annual computation of realized tax benefits, determination of TRA payments, and allocation among the TRA Holders in accordance with their respective pre-closing ownership percentages.

2. Earnout Tax Tracking and Reporting. The Merger Agreement provides for contingent earnout payments of up to $35.0 million over two measurement periods. The tax characterization, Section 483 imputed interest computations, and purchase price adjustment implications require careful tracking and coordination.

3. Section 483 Imputed Interest Computations. Earnout payments deferred beyond one year from the closing date are subject to imputed interest rules under Section 483 of the Internal Revenue Code, requiring present value analysis and bifurcation of payments into principal and interest components.

4. Estimated Tax Payment Scheduling. Intermediate Inc., as a newly formed C-corporation, must compute and remit quarterly estimated federal and state income tax payments. Tax distribution obligations from Holdings LLC to its members must also be coordinated.

5. State Income Tax Return Filing Calendar. Pinnacle operates in five states — Pennsylvania, Virginia, Maryland, North Carolina, and Georgia — each with distinct filing requirements, tax rates, apportionment methods, and estimated payment obligations.

6. Outstanding Elections and Filings. Critical time-sensitive elections and filings remain pending, including Section 83(b) elections for unvested rollover interests (due June 30, 2024), the Section 754 election (to be filed with Pinnacle's 2024 Form 1065), Form 8308, and Schedule K-1 reporting for both the pre-closing and post-closing periods.

7. Coordination with Caldwell Pratt & Moorehouse LLP. Responsibility for ongoing tax compliance preparation transitions from Calderwood & Harkness LLP to Caldwell Pratt & Moorehouse LLP as the buyer's accounting firm, requiring a comprehensive handoff of transaction documents, workpapers, and methodologies. This memorandum is organized to serve as a practical compliance roadmap for the first 24 months following the c

II. Post-Closing Entity and Tax Classification Summary A. Entity Structure Chart The following describes the post-closing organizational structure from the top of the investment chain through the operating entity. A complete entity structure chart is provided as Exhibit A to this memorandum. Ardent Capital Partners III LP (Delaware limited partnership, EIN 87-3491520) is the ultimate investor in the transaction. Fund

III. Outstanding Elections and Filing Deadlines A. Section 83(b) Elections

1. Applicability. Section 83(b) elections are applicable to the unvested Class B Units of Ardent Healthcare Holdings LLC received by the three rollover participants in connection with the closing. Each rollover participant received Class B Units in exchange for the rollover of a portion of their pre-closing Pinnacle membership interests. A portion of each participant's Class B Units vested immediately at closing, whi

2. Vesting Schedule and Unvested Amounts The vesting terms for each rollover participant are as follows: For Dr. Carvallo and Dr. Ostrowski, the unvested 50% vests ratably over 36 months, subject to continued employment with Pinnacle in their respective capacities as Chief Executive Officer and Chief Medical Officer. Mr. Farnsworth's unvested units vest on a similar 36-month ratable schedule, subject to continued emp

3. Filing Deadline and Procedures The deadline for filing a Section 83(b) election is 30 days from the date of the transfer of the property subject to the election. The transfer date for purposes of Section 83(b) is the closing date: May 31, 2024. Accordingly, the filing deadline is June 30, 2024. Template Section 83(b) election forms and accompanying transmittal letters were prepared by Calderwood & Harkness and del

4. Action Item Action Required: Confirm that each participant has filed (or is on track to file) the Section 83(b) election no later than June 28, 2024 (allowing two business days for postal delivery prior to the June 30 deadline). Retain copies of the filed elections, certified mail receipts, and evidence of timely filing. Responsible Party: Leonard Cross / Robert Jansen (Calderwood & Harkness LLP), in coordination

5. Consequences of Failure to File Failure to timely file a Section 83(b) election would result in the following adverse consequences for each affected participant: (a) The participant would be required to recognize ordinary income upon each vesting date, measured by the fair market value of the vested units at the time of vesting less any amount paid for the units. Given the expected appreciation of Holdings LLC ove

1. Overview. Section 754 of the Code permits a partnership to elect to adjust the basis of its assets with respect to a transferee partner under Section 743(b). Once made, the election is irrevocable and applies to all future transfers of partnership interests unless the Internal Revenue Service grants a revocation under Regulations Section 1.754-1(c). Pinnacle will file a Section 754 election with its 2024 partnersh

2. Status of Election A draft Section 754 election statement was prepared by Calderwood & Harkness and delivered to the parties on May 31, 2024. The election statement complies with the requirements of Regulations Section 1.754-1(b) and includes the name and address of the partnership, a declaration that the partnership elects under Section 754 to apply the provisions of Section 734(b) and Section 743(b), and the sig

3. Coordination and Filing Caldwell Pratt & Moorehouse LLP will be responsible for preparing Pinnacle's 2024 Form 1065, to which the Section 754 election statement must be attached. The Form 1065 is due on March 15, 2025 (for a calendar-year partnership), with an automatic six-month extension available through September 15, 2025, upon timely filing of Form 7004. We recommend that the Form 1065 be filed (or that a val

4. Authorization. The election must be signed by a partner authorized to make elections on behalf of the partnership. We recommend confirming that the Pinnacle LLC operating agreement (originally dated August 12, 2016, as amended March 3, 2020, and as further amended and restated at closing on May 31, 2024) designates the appropriate person — which, post-closing, should be the sole member (Intermediate Inc.) or its a

Section 6050K of the Code requires a partnership to file Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests) if a partner exchanges a partnership interest and any portion of the money or other property received in exchange is attributable to unrealized receivables or inventory items (as defined in Section 751). Given the nature of Pinnacle's assets — which include accounts receivable, supplies i

Section 1060 of the Code requires both the buyer and seller in an "applicable asset acquisition" to file Form 8594 (Asset Acquisition Statement Under Section 1060) with their respective income tax returns for the taxable year in which the acquisition occurs. An applicable asset acquisition is defined as a transfer of assets that constitutes a trade or business in which the transferee's basis in the assets is determin

IV. Section 743(b) Basis Step-Up Administration A. Computation of Basis Adjustment

Section 743(b) of the Code provides that, in the case of a transfer of a partnership interest with respect to which a Section 754 election is in effect, the partnership shall adjust the basis of its assets with respect to the transferee partner. The adjustment is equal to the difference between the transferee partner's outside basis in its partnership interest (generally, the purchase price) and the transferee partne

Section 743(b) basis step-up: $224.4 million The $224.4 million basis step-up is allocated among Pinnacle's assets in accordance with the purchase price allocation schedule dated April 18, 2024, which was prepared by Caldwell Pratt & Moorehouse LLP in consultation with Calderwood & Harkness and agreed upon by the parties. The allocation follows the residual method prescribed by Section 1060 (applied by analogy in the

1. The Section 743(b) basis adjustment is reflected on Pinnacle's partnership return (Form 1065), but as a special basis adjustment applicable only to Intermediate Inc.;

2. The amortization deduction attributable to the Section 743(b) adjustment is reported on Intermediate Inc.'s Schedule K-1 from Pinnacle;

3. Intermediate Inc. claims the amortization deduction on its corporate income tax return (Form 1120), reducing its federal and state income tax liability. C. Ongoing Tracking Requirements The following ongoing tracking requirements apply to the Section 743(b) basis adjustment: Separate Basis Schedule. A separate Section 743(b) basis adjustment schedule must be maintained for Intermediate Inc. The adjustment is speci

V. Tax Receivable Agreement Administration A. Overview of TRA Terms The Tax Receivable Agreement (the "TRA") was executed on May 28, 2024 among Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc., and the following TRA Holders: Dr. Raymond Carvallo, Dr. Nadia Ostrowski, Jonathan Farnsworth, and the 14 minority pre-closing physician-investors of Pinnacle (collectively, the "TRA Holders"). The TRA was n

1. Designate a TRA Administrator. Ardent should designate an internal point of contact (or engage an external administrator) to manage the annual TRA computation, notice, and payment process. The TRA administrator should coordinate with Caldwell Pratt & Moorehouse LLP on the annual "with and without" computation and with Calderwood & Harkness (or successor tax counsel) on any methodological or interpretive questions.

2. Maintain Detailed Records. Comprehensive records of all Section 743(b) amortization deductions must be maintained on a year-by-year and asset-class-by-asset-class basis. These records should be maintained in a format that facilitates the annual "with and without" computation and the allocation of TRA payments among the TRA Holders.

3. Annual Reporting Package. The TRA administrator should prepare and deliver an annual reporting package to each TRA Holder that includes: (a) the amortization schedule for the relevant year; (b) the "with and without" tax benefit computation; (c) the total TRA payment amount; and (d) the individual allocation to each TRA Holder. The TRA specifies a notice and review period during which the TRA Holders may review th

4. Coordination with Earnout and 743(b) Adjustments. As discussed in Section VI below, earnout payments, when made, increase the purchase price and correspondingly increase the Section 743(b) basis step-up. This results in incremental amortization deductions and incremental TRA payments. The TRA administrator should ensure that the 743(b) amortization schedules are updated each time an earnout payment is made and tha

VI. Earnout Tax Tracking and Reporting A. Earnout Structure Summary The Merger Agreement provides for contingent earnout payments to the pre-closing members of Pinnacle, structured in two measurement periods as follows: The earnout EBITDA targets are measured on a trailing twelve-month basis as of the end of each measurement period, using the definition of "EBITDA" set forth in Section 2.4(b) of the Merger Agreement.

1. Applicability. Section 483 of the Code applies to payments for the sale or exchange of property where some or all of the payments are due more than one year after the date of the sale or exchange, and the payments do not provide for adequate stated interest. The earnout payments in this transaction are contingent in both amount and timing, but if earned, they will be paid more than one year after the closing date.

2. Computation. Period 1 Payout ($15.0 million, if earned). This payout is due after May 31, 2025, which is more than one year after the closing date of May 31, 2024. Accordingly, the Period 1 payout exceeds the one-year deferral threshold and is subject to Section 483 imputed interest. Period 2 Payout ($20.0 million, if earned). This payout is due after May 31, 2026, which is more than two years after the closing da

3. Tax Treatment Imputed interest is ordinary income to the recipient and is reportable as interest income on the recipient's individual income tax return for the taxable year in which it accrues or is received (depending on the recipient's method of accounting). Imputed interest is deductible by the buyer (subject to potential limitations under Section 163(j), discussed in Section X.B below) or, alternatively, may b

VII. Estimated Tax Payment Schedule A. Ardent Healthcare Holdings LLC (Partnership) As a partnership for federal income tax purposes, Holdings LLC is not itself subject to federal income tax. Rather, each item of income, deduction, gain, loss, and credit is allocated to Holdings LLC's members (Fund III and the rollover participants) in accordance with the Holdings LLC Agreement, and each member reports its allocable

VIII. State Income Tax Return Filing Calendar A. Overview of State Obligations Pinnacle operates medical practices and healthcare facilities in five states: Pennsylvania, Virginia, Maryland, North Carolina, and Georgia. Intermediate Inc. has nexus in each of these operating states by reason of Pinnacle's physical presence and business activities conducted through those locations. The filing obligations and estimated

1. Pennsylvania. Corporate Net Income Tax. Pennsylvania imposes a corporate net income tax at a rate of 8.99% for tax year 2024. The rate is declining annually under legislation enacted in 2022 and is scheduled to reach 4.99% by 2031. Intermediate Inc. must file Pennsylvania Form RCT-101 (PA Corporate Tax Report) for each year in which it has nexus in Pennsylvania. Philadelphia Business Income and Receipts Tax (BIRT)

2. Virginia. Corporate Income Tax. Virginia imposes a corporate income tax at a flat rate of 6.0%. Intermediate Inc. must file Virginia Form 500 (Virginia Corporation Income Tax Return) for each year in which it has nexus in Virginia. Nonresident Withholding. Virginia requires partnerships to withhold tax on income allocated to nonresident individual members at a rate of 5.0%. This withholding obligation applied to d

3. Maryland. Corporate Income Tax. Maryland imposes a corporate income tax at a rate of 8.25%. Intermediate Inc. must file a Maryland corporate income tax return for each year in which it has nexus in Maryland. Pass-Through Entity (PTE) Tax Election. Maryland permits pass-through entities to elect to pay an entity-level tax on behalf of their members, which is then credited against the members' individual state incom

4. North Carolina Corporate Income Tax. North Carolina imposes a corporate income tax at a rate of 2.5% for tax year 2024. This is one of the lowest corporate income tax rates in the country and has been declining in recent years under legislative action. There have been discussions in the North Carolina General Assembly regarding the potential elimination of the corporate income tax entirely, though no such legislat

5. Georgia. Corporate Income Tax. Georgia imposes a corporate income tax at a rate of 5.75%. Intermediate Inc. must file Georgia Form 600 (Georgia Corporation Tax Return) for each year in which it has nexus in Georgia. Nonresident Withholding. Georgia requires partnerships to withhold tax on income allocated to nonresident individual members at a rate of 5.75%. A total of $0.87 million was withheld at closing from se