Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the interposition of a C-corporation blocker entity — Ardent Healthcare Intermediate Inc. ("Intermediate" or "AHI") — between Ardent Healthcare Holdings LLC ("Holdings") and the surviving operating subsidiary, Pinnacle Health Services Group LLC ("Pinnacle" or the "Company"), in the proposed acquisition of Pinnacle at an enterprise value of approximatel

II. Background A. Transaction Overview Ardent Capital Partners III LP. Fund III is a Delaware limited partnership with total capital commitments of approximately $3.2 billion (vintage 2022). Fund III is headquartered at 600 Lexington Avenue, 38th Floor, New York, NY 10022. The general partner of Fund III is Ardent Capital GP III LLC, a Delaware limited liability company. Fund III was co-founded by Dominic Ferrera and

Section 754 Election and Basis Step-Up. Pinnacle will make an election under IRC Section 754 for the taxable year ending December 31, 2024, the year in which the Transaction closes. This election will result in a basis step-up under IRC Section 743(b) with respect to Intermediate Inc.'s share of Pinnacle's assets equal to approximately $224,400,000 (calculated as the $412,000,000 enterprise value minus $187,600,000 o

III. Analysis of blocker Entity Objectives A. Objective 1: Blocking UBTI for Tax-Exempt Fund III Limited Partners

1. The UBTI Problem Under IRC Sections 511 through 514, tax-exempt organizations — including qualified pension trusts described in IRC Section 401(a), state and local government pension plans, university and hospital endowments described in IRC Section 501(c)(3), private foundations described in IRC Section 509(a), and certain sovereign wealth funds — are subject to federal income tax on their unrelated business taxa

2. How the blocker Solves the Problem The interposition of Intermediate Inc. — a C-corporation — between Holdings LLC and Pinnacle completely severs the flow-through chain that would otherwise transmit UBTI to tax-exempt Fund III limited partners. The mechanism operates as follows: Step 1: Pinnacle's operating income is generated by the healthcare operations conducted at the clinic and surgery center level. Step 2: B

3. Cost of the blocker — Double Taxation Analysis The UBTI blocking benefit comes at a cost: the imposition of a corporate-level income tax on operating income that would otherwise flow through directly to Fund III's limited partners on a pre-tax basis. The cost-benefit analysis differs for taxable and tax-exempt limited partners. Tax-Exempt Limited Partners. For tax-exempt limited partners, the cost of the blocker i

4. Alternative Structures Considered and Rejected In the course of our analysis, we considered the following alternative structures and determined that the recommended three-tier blocker structure is superior to each: Alternative 1: Direct Fund III Investment Without blocker. Under this approach, Holdings LLC would directly hold the membership interests of Pinnacle without interposing a C-corporation. This structure

1. IPO Readiness Considerations A significant secondary benefit of the blocker structure is that it positions the investment for a potential initial public offering exit without requiring a complex and time-consuming corporate reorganization immediately prior to the offering. Public equity markets overwhelmingly favor C-corporation issuers. While Up-C IPO structures (in which the operating entity remains a partnershi

2. Tax Receivable Agreement Compatibility The TRA negotiated in connection with the Transaction provides for the payment of 85% of the realized tax benefits attributable to the Section 743(b) basis step-up to the rollover participants and pre-closing Pinnacle members. The estimated annual TRA payment is approximately $4,260,000 per year (calculated as 85% of the estimated annual tax benefit of $5,010,000). The TRA is

3. Accounting and Financial Reporting The presence of a C-corporation in the ownership chain simplifies GAAP financial reporting in both the current private company context and a potential future public company context. Consolidated financial statements can be prepared at the Intermediate Inc. level, with Pinnacle's results consolidated as a wholly owned (or substantially wholly owned) subsidiary. This approach avoid

1. Overview of State Tax Nexus Landscape Pinnacle currently operates healthcare facilities in five states. The applicable state corporate income tax rates for the taxable year beginning January 1, 2024, are as follows: Based on the allocation of Pinnacle's revenue and EBITDA across these five states (as reflected in the quality of earnings analysis prepared by Northmark Advisory Group LLC), the blended effective stat

2. Nexus Isolation Through the blocker Without the blocker, if Holdings LLC directly held the membership interests of Pinnacle, the operating activities of Pinnacle could create income tax nexus for Holdings LLC — as a partner in an operating partnership — in each of the five states in which Pinnacle conducts business. Under the laws of most states, a partner in a partnership that conducts business within the state i

3. State-Specific Considerations Pennsylvania. Intermediate Inc. will file Pennsylvania corporate net income tax returns as a corporation conducting business within the Commonwealth. The Pennsylvania corporate net income tax rate is currently 8.99% but is declining annually under Act 53 of 2022, with the rate scheduled to reach 4.99% by 2031. This declining rate trajectory benefits the blocker structure, as the effec

4. Avoidance of State-Level "Composite" Filing Requirements Many states require partnerships with nonresident partners to file composite income tax returns on behalf of their nonresident partners or, alternatively, to withhold state income tax on income allocable to nonresident partners. These composite filing and withholding requirements create significant administrative burdens in multi-tiered partnership structure

1. The New York Nexus Risk Holdings LLC's business address is 600 Lexington Avenue, 38th Floor, New York, New York 10022 — the same address as Fund III and Ardent Capital GP III LLC. New York imposes income tax on partnerships and limited liability companies that are engaged in, or that carry on, any trade, business, profession, or occupation within the state. New York Tax Law Section 631(b) provides that a nonreside

2. Recommended Mitigation Strategy To mitigate the New York nexus risk for Holdings LLC, Calderwood & Harkness recommends the following structural and operational measures: Management Fee Agreements. All management fee agreements and management services agreements should be entered into between Ardent Capital GP III LLC — the general partner of Fund III — and Intermediate Inc. Ardent Capital GP III LLC is already sub

3. Documentation and Operating Protocols To support the New York nexus mitigation strategy, Calderwood & Harkness recommends that the following documentation be prepared and maintained on an ongoing basis: (i) Management Services Agreement between Ardent Capital GP III LLC and Intermediate Inc. (not Holdings LLC), setting forth the scope, compensation, and terms of the management services to be provided by Ardent Cap

IV. Federal Tax Classification and Elections A. Holdings LLC — Partnership Classification Ardent Healthcare Holdings LLC is a Delaware limited liability company with more than one member. Following the closing of the Transaction, the members of Holdings LLC will include Fund III (as the holder of Class A Units) and the three rollover participants — Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth —

V. Structural Diagram The following text-based organizational chart depicts the post-closing structure of the Transaction, including the ownership chain, debt facilities, and management services arrangement: POST-CLOSING ORGANIZATIONAL STRUCTURE ``` ┌──────────────────────────────────────────────────────────────────┐ │ ARDENT CAPITAL PARTNERS III LP │ │ (Delaware LP, EIN 87-3491520) │ │ Fund III Equity: $198,500,000

VI. Impact on Financing Arrangements A. Senior Secured Credit Facility The $155,000,000 Term Loan B and $35,000,000 revolving credit facility arranged by Graystone National Bank, N.A. (as administrative agent), with syndicate members Ridgepoint Capital Markets LLC and Thorncrest Credit Partners LP, will be incurred at the Intermediate Inc. or Pinnacle level. The exact borrower entity — whether Intermediate Inc., Pinn

VII. Impact on Tax Receivable Agreement The Tax Receivable Agreement entered into in connection with the Transaction provides for the payment of 85% of the realized tax benefits from the Section 743(b) basis step-up to the rollover participants (Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth) and pre-closing Pinnacle members. The TRA mechanics operate as follows: (i) The Section 754 election made