Contract analysis

I. Introduction and Purpose Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") has been engaged to advise Ardent Capital Partners III LP ("Ardent Capital" or "Fund III") on state and local tax structuring matters in connection with Fund III's proposed acquisition of one hundred percent (100%) of the outstanding membership interests in Pinnacle Health Services Group LLC ("Pinnacle" or "PHSG"), a limited

II. Overview of Post-Acquisition Entity Structure and Tax Classification A thorough understanding of the post-acquisition entity structure and the tax classification of each entity is essential to the SALT analysis that follows. This section provides an overview of the three-tier entity structure and the composition of the investor base at each level. A. Ardent Healthcare Holdings LLC Holdings LLC is a Delaware limit

III. Recommendation 1: Blocker Entity Positioning for State Nexus Isolation A. Role of Ardent Healthcare Intermediate Inc. as Nexus Shield Our first and most fundamental SALT recommendation is the maintenance and proper operation of Intermediate Inc. as the direct owner of Pinnacle's membership interests, thereby creating a corporate-level "nexus shield" that isolates state income tax filing obligations at the Interm

IV. Recommendation 2: Maryland Pass-Through Entity Tax Election A. Background on Maryland PTE Election Maryland enacted a pass-through entity ("PTE") tax election, codified at Tax-General Article § 10-102.1 of the Annotated Code of Maryland, which permits eligible pass-through entities conducting business in Maryland to elect to pay income tax at the entity level on behalf of their resident and nonresident members. T

1. Short Tax Year PTE Election. Pinnacle should make the Maryland PTE election for its short tax year ending May 31, 2024, to benefit the individual sellers (both the fourteen minority physician-investors receiving cash-out proceeds and the three rollover participants with respect to their pre-closing allocable share of Maryland-source income). The election should be made on a timely basis in accordance with the proc

2. Post-Closing Annual Evaluation. Following closing, Ardent Capital should coordinate with Caldwell Pratt & Moorehouse LLP to evaluate the Maryland PTE election annually for any pass-through entities in the structure that have individual members with Maryland-source income. This analysis should consider the continuing applicability of the SALT Cap at the federal level, any changes to Maryland's PTE election statute,

3. Coordination with Sellers' Counsel. The PTE election for the short tax year should be communicated to Whitford & Gaines LLP (Patricia Engelman) so that the individual sellers are aware of the election and can properly account for the entity-level tax payment on their individual Maryland and federal income tax returns. Note: Because Intermediate Inc. is a C-corporation, the PTE election is most directly relevant at

V. Recommendation 3: Philadelphia Business Income and Receipts Tax (BIRT) Mitigation A. Exposure Pinnacle currently operates three (3) urgent care clinics within the City of Philadelphia, Pennsylvania. The operation of these facilities subjects Pinnacle (and, post-closing, Intermediate Inc. as Pinnacle's corporate-level taxpayer in Pennsylvania) to the Philadelphia Business Income and Receipts Tax ("BIRT"), which is

1. Near Term. Ensure strict cost center separation for the three Philadelphia clinics and proper documentation of revenue sourcing. All management fees, shared services charges, and cost allocations between Philadelphia and non-Philadelphia operations should be documented and supportable under the city's apportionment rules. This should be implemented promptly following closing.

2. Medium Term. Evaluate the cost-benefit of creating a Philadelphia-only operating subsidiary under Pinnacle. This analysis should consider the incremental legal and administrative costs of maintaining a separate entity, the tax savings achievable through BIRT isolation, and the risk of challenge by the Philadelphia Department of Revenue. We recommend that this evaluation be completed within twelve (12) months follo

3. Coordination. During the transition period between signing and closing, and for the initial post-closing compliance period, coordinate with Brewer Stanfield & Associates LLP (Pinnacle's existing accounting firm) for Philadelphia BIRT return preparation and apportionment analysis. Post-transition, responsibility for BIRT compliance should be assumed by Caldwell Pratt & Moorehouse LLP.

VI. Recommendation 4: New York Nexus Avoidance for Ardent Healthcare Holdings LLC A. Risk Identified A significant risk identified in our SALT analysis relates to the potential creation of New York nexus for Holdings LLC. Holdings LLC's management activities could create New York nexus if management services are provided from, or directed at Holdings LLC from, Ardent Capital's offices at 600 Lexington Avenue, 38th Fl

1. Execute the Management Fee/Advisory Agreement between Ardent Capital GP III LLC and Ardent Healthcare Intermediate Inc. prior to or contemporaneously with the closing of the Transaction. The agreement should be reviewed by Harcourt Shaw & DeVries LLP (Thomas Kundra) to ensure that the terms are consistent with the nexus avoidance strategy and that Holdings LLC is not named as a party or referenced as providing ser

2. Adopt a Written Holdings LLC Nexus Avoidance Policy and Checklist. We recommend that Ardent Capital's deal team adopt a formal written policy governing Holdings LLC's activities and a compliance checklist to be completed at least annually by the individual(s) responsible for Holdings LLC's administration. A template for this policy and checklist can be provided by our office upon request.

3. Coordinate with Harcourt Shaw & DeVries LLP. Thomas Kundra and his team should review all organizational documents, operating agreements, management fee agreements, and advisory agreements to ensure consistency with the nexus avoidance structure. In particular, the Amended and Restated Limited Liability Company Agreement of Holdings LLC should not contain provisions that could be interpreted as authorizing Holding

VII. Recommendation 5: State Nonresident Withholding Management A. Withholding Obligations on Sellers Several of the states in which Pinnacle operates impose withholding obligations on the disposition of interests in entities conducting business within the state by nonresident individuals. These withholding obligations are imposed on the entity (or the buyer, in certain states) and require the payment to the state ta

1. Include State Withholding Line Items in the Closing Statement and Funds Flow. Harcourt Shaw & DeVries LLP should include separate line items for Virginia, Maryland, and Georgia (and North Carolina, if applicable) nonresident withholding in the closing statement and funds flow memorandum. These line items should identify the aggregate withholding amount for each state and the allocation of withholding among the ind

2. Coordinate with Sellers' Counsel. Whitford & Gaines LLP (Patricia Engelman) should be notified of the withholding amounts so that the individual sellers are aware of the amounts to be withheld from their proceeds and can plan their individual state and federal income tax filings accordingly. Each seller should receive a copy of the withholding certificate or receipt issued by the applicable state taxing authority.

3. File Withholding Returns Promptly After Closing. Withholding returns should be filed in Virginia, Maryland, and Georgia promptly after closing, in accordance with each state's filing deadlines. In most states, withholding returns are due within thirty (30) days of the closing date or by the fifteenth day of the month following the month in which closing occurs, whichever is later. We recommend that Caldwell Pratt

VIII. Post-Closing State Tax Compliance Calendar The following summarizes the post-closing state tax filing obligations for each entity in the post-acquisition structure. This summary is intended to serve as a compliance reference for Ardent Capital's deal team and its accounting advisors at Caldwell Pratt & Moorehouse LLP. A. Ardent Healthcare Intermediate Inc. • Corporate income tax returns are required in each of

IX. Interaction with Federal Tax Elections and Tax Receivable Agreement The SALT optimization strategies described in this letter are designed to complement the federal tax structuring decisions previously recommended by this Firm and endorsed by Ardent Capital's deal team. The interaction between the SALT strategies and the federal tax structure is summarized below. A. Section 754 Election and Section 743(b) Basis S

X. Summary of Recommendations The following summarizes the five principal SALT optimization recommendations set forth in this letter: 1. blocker Entity Positioning. Maintain Ardent Healthcare Intermediate Inc. as the direct owner of Pinnacle's membership interests, isolating corporate-level state income tax filing obligations at the Intermediate Inc. level and shielding Holdings LLC and its members (including Fund II

2. Maryland PTE Election. Pinnacle should make the Maryland pass-through entity tax election for its short tax year ending May 31, 2024, to benefit the individual sellers (including the fourteen minority physician-investors receiving cash-out proceeds and the three rollover participants). Post-closing, the PTE election should be evaluated annually in coordination with Caldwell Pratt & Moorehouse LLP for any pass-thro

3. Philadelphia BIRT Mitigation. In the near term, ensure strict cost center separation for the three Philadelphia clinics and proper documentation of revenue sourcing to prevent BIRT apportionment from capturing non-Philadelphia revenue. In the medium term, evaluate the cost-benefit of creating a Philadelphia-only operating subsidiary under Pinnacle to isolate BIRT exposure. Coordinate with Brewer Stanfield & Associ

4. New York Nexus Avoidance. Route management fee and advisory services agreements through Ardent Capital GP III LLC (an entity already nexused in New York) to Ardent Healthcare Intermediate Inc. Maintain Holdings LLC as a passive Delaware holding entity with no employees, office space, bank accounts, or other presence in New York. Adopt a written Holdings LLC nexus avoidance policy and compliance checklist. Coordina

5. State Nonresident Withholding Management. Withhold and remit an estimated aggregate of $4,740,000 across Virginia ($1,460,000), Maryland ($2,410,000), and Georgia ($870,000) at closing. Include state withholding line items in the closing statement and funds flow. Coordinate with Whitford & Gaines LLP (sellers' counsel) to ensure sellers are aware of withholding amounts and can claim credits on their individual sta

XI. Limitations and Qualifications This letter is provided solely for the benefit of Ardent Capital Partners III LP and its affiliates, including Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc., and Ardent Capital GP III LLC, in connection with the Transaction described herein. This letter may not be relied upon by any other party, including any seller, any lender, any counterparty to the Transact

XII. Closing We appreciate the opportunity to advise Ardent Capital Partners III LP on this important transaction and welcome any questions regarding these recommendations. We look forward to continuing to work with your team and your co-counsel at Harcourt Shaw & DeVries LLP as the Transaction proceeds toward closing. Please do not hesitate to contact Leonard Cross or Sylvia Hartwell at the contact information below

1. State & Local Tax Memorandum dated February 20, 2024 (detailed analysis supporting the recommendations herein) — previously delivered.

2. Preliminary Tax Structure Memorandum dated February 12, 2024 (overview of the federal and state tax structure for the Transaction) — previously delivered. 3. blocker Entity Analysis Memorandum dated February 16, 2024 (analysis of the blocker entity positioning strategy and nexus isolation benefits) — previously delivered.

4. Nonresident Withholding Computation Schedule (final computation of state nonresident withholding amounts by seller, by state, with supporting calculations) — to be delivered on or about May 15, 2024. PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION. This letter and its enclosures contain information that is privileged, confidential, and exempt from disclosure under applicable law, including the attorney