1001-00006 · Ardent Capital Partners · Engagement & Administrative

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CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM PRIVILEGED & CONFIDENTIAL

TO: File — Matter No. 1001-00006

FROM: Sylvia Hartwell, Billing Partner

DATE: January 10, 2024

RE: Staffing Plan and Budget Estimate — Tax Structuring Engagement for Ardent Capital Partners III LP Acquisition of Pinnacle Health Services Group LLC

ENGAGEMENT NUMBER: 1001-00006

I. Engagement Overview

Calderwood & Harkness LLP has been retained by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III"), a Delaware limited partnership headquartered at 600 Lexington Avenue, 38th Floor, New York, NY 10022, to serve as tax counsel in connection with Fund III's proposed acquisition of Pinnacle Health Services Group LLC ("Pinnacle" or "PHSG"), a Delaware limited liability company taxed as a partnership for federal income tax purposes, headquartered at 2200 Renaissance Boulevard, Suite 400, King of Prussia, PA 19406. This memorandum sets forth the staffing plan, budget estimate, anticipated deliverable timeline, billing procedures, and risk and scope considerations for this engagement.

Transaction Overview. The proposed acquisition contemplates an enterprise value of approximately $412 million, with an equity value of approximately $339.4 million. The equity value is derived from the enterprise value less $72.6 million of net debt expected at closing, computed as $81.3 million of funded debt less $8.7 million of unrestricted cash on the balance sheet at the anticipated closing date. The transaction is expected to be structured as an acquisition of equity interests in Pinnacle, with the specific acquisition vehicle structure to be determined as part of this engagement's scope.

Target Business. Pinnacle operates 34 urgent care clinics and 8 ambulatory surgery centers across five states: Pennsylvania, Virginia, Maryland, North Carolina, and Georgia. The company employs approximately 1,620 individuals, including 142 employed physicians. For the fiscal year ended December 31, 2023, Pinnacle reported revenue of approximately $287.4 million and Adjusted EBITDA of approximately $51.8 million. The geographic dispersion of Pinnacle's operations across multiple states, the employment of a significant physician workforce, and the company's existing partnership tax classification are significant factors in the tax structuring analysis.

Buyer. Ardent Capital Partners III LP is a 2022-vintage private equity fund with total committed capital of $3.2 billion. The general partner of Fund III is Ardent Capital GP III LLC. Fund III has committed equity of $198.5 million for this transaction. The balance of the acquisition consideration is expected to be funded through a combination of seller rollover equity, third-party debt financing, and, potentially, mezzanine financing from Cascadia Mezzanine Fund IV LP.

Engagement Terms. The engagement letter was executed on January 10, 2024. A conflict check was completed on January 8, 2024, with no conflicts identified across the firm's existing client base, including a review of our representations of healthcare services companies, private equity sponsors, and the selling parties and their counsel. The engagement letter provides for a fee cap of $2,000,000, inclusive of professional fees and expenses but exclusive of filing fees, as described in further detail in Section III.D below.

Scope of Engagement. The scope of our retention encompasses the following principal work streams:

(a) Entity selection for the acquisition vehicle (including analysis of blocker entity structures for potential future IPO optionality);

(b) Management rollover equity treatment, including analysis of Section 721 contribution versus Section 351 exchange treatment, profits interest characterization, and related documentation;

(c) Earnout characterization and reporting under the applicable provisions of the Internal Revenue Code, including open versus closed transaction analysis, installment method reporting, and imputed interest under Section 483;

(d) Section 338(h)(10) election analysis, including comparison with Section 754 election treatment and the resulting inside basis step-up;

(e) Purchase price allocation under Section 1060 and Section 743(b), including preparation of allocation schedules and supporting memoranda;

(f) State and local tax optimization across the five operating states (Pennsylvania, Virginia, Maryland, North Carolina, and Georgia), with additional analysis of potential New York nexus exposure for the acquisition holding company;

(g) Review, drafting, and negotiation of tax-related provisions of the transaction documents, including the merger agreement (representations, warranties, covenants, and indemnification provisions), the LLC agreement for the acquisition holding company, and the Tax Receivable Agreement;

(h) Post-closing tax integration planning, including IRS reporting obligations and ongoing compliance requirements.

Client Contacts. Our primary client contacts at Ardent Capital are as follows:

• Marcus Pellegrino, Partner, Healthcare — primary day-to-day contact for all engagement matters, billing inquiries, and deliverable coordination;

• Claire Ashworth, Co-Founder & Managing Partner — available for strategic structuring discussions and approval of key structural recommendations;

• Dominic Ferrera, Co-Founder & Managing Partner — available for strategic structuring discussions and approval of key structural recommendations.

Coordinating Counsel. We will be coordinating with the following outside counsel in connection with this engagement:

• Harcourt Shaw & DeVries LLP — M&A counsel to Ardent Capital. Lead partner: Thomas Kundra. Associate: Allison Cho. Address: 51 West 52nd Street, New York, NY 10019. Harcourt Shaw is responsible for drafting the merger agreement and ancillary transaction documents. Our firm will provide tax-specific markups of the merger agreement, the LLC agreement, and other documents as appropriate, and will coordinate closely with Mr. Kundra and Ms. Cho on the integration of tax provisions into the definitive documentation.

• Whitford & Gaines LLP — Counsel to the sellers and the target. Lead partner (Tax): Patricia Engelman. Associate (M&A/Tax): Kevin Driscoll. Address: 1735 Market Street, Suite 2800, Philadelphia, PA 19103. We anticipate significant interaction with Whitford & Gaines on purchase price allocation, earnout tax treatment, the Tax Receivable Agreement, and state tax withholding matters.

Other Key Advisors. In addition to outside counsel, we will coordinate as necessary with the following advisors engaged in connection with the transaction:

• Meridian Tuck Partners LLC — Financial advisor to the buyer (Managing Director: Daniel Kessler);

• Caldwell Pratt & Moorehouse LLP — Accounting and audit firm to the buyer;

• Northmark Advisory Group LLC — Quality of earnings provider engaged by the buyer;

• Larchmont & Co. — Financial advisor to the sellers (Managing Director: Sarah Quinlan).

Coordination with these advisors is expected to be particularly important in connection with the purchase price allocation, the quality of earnings analysis (insofar as it informs the tax basis of acquired assets), and the computation of net debt and working capital adjustments at closing.

II. Staffing Plan

A. Team Composition

The engagement team consists of four timekeepers: two partners and two associates. Set forth below is a detailed description of each team member's role, hourly rate, estimated hours, and key responsibilities.

Leonard Cross — Responsible Partner, Tax

Leonard Cross will serve as the responsible partner for this engagement and will be the lead client interface for all structuring matters. Mr. Cross has over twenty-five years of experience advising private equity sponsors and their portfolio companies on the tax aspects of leveraged buyouts, recapitalizations, and management equity programs, with particular depth in healthcare services transactions. Mr. Cross has represented Fund III on two prior acquisitions (the 2023 acquisition of NovaCare Rehabilitation Holdings and the 2023 acquisition of Pacific Diagnostics Group), and accordingly has a well-established working relationship with the client team, including Mr. Pellegrino, Ms. Ashworth, and Mr. Ferrera.

Hourly Rate: $1,450

Estimated Hours: 180–220 hours

Role: Overall engagement supervision, lead client interface, structuring strategy development, sign-off on all deliverables, and tax opinion letter signatory.

Key Responsibilities:

1. Lead development of the preliminary tax structure memorandum, including entity selection for the acquisition vehicle, partnership versus corporate classification analysis, and blocker entity considerations;

2. Section 338(h)(10) versus Section 754 election analysis, including quantification of the after-tax economic impact of each alternative on Fund III and the rollover participants;

3. Earnout characterization guidance, including determination of appropriate treatment under the open transaction doctrine, the installment method, and the closed transaction method, with consideration of imputed interest under Section 483;

4. Drafting and execution of the tax opinion letter to be delivered at closing;

5. Oversight of the purchase price allocation methodology and review of the Section 1060 allocation schedule and the Section 743(b) step-up computation;

6. Development of state tax strategy, including review and approval of the state and local tax memorandum prepared by Ms. Hartwell;

7. Review and approval of all merger agreement tax provision markups, including representations and warranties, pre-closing covenants, tax indemnification provisions, and escrow mechanics;

8. Direct coordination with Thomas Kundra and Allison Cho at Harcourt Shaw & DeVries LLP on the integration of tax provisions into the merger agreement and ancillary transaction documents;

9. Participation in key client calls and structuring meetings throughout the engagement.

Sylvia Hartwell — Billing Partner, Tax

Sylvia Hartwell will serve as the billing partner for this engagement and will lead the state and local tax analysis work stream. Ms. Hartwell has extensive experience in multi-state tax planning for private equity portfolio companies in the healthcare sector, including prior engagements involving urgent care platforms with operations in the Mid-Atlantic and Southeast regions.

Hourly Rate: $1,375

Estimated Hours: 100–130 hours

Role: Budget oversight, billing management, secondary partner-level review on selected deliverables, and lead partner for the state and local tax work stream.

Key Responsibilities:

1. Preparation of the state and local tax memorandum, addressing the tax implications of the proposed acquisition structure in each of Pennsylvania, Virginia, Maryland, North Carolina, and Georgia;

2. Development of state tax structuring recommendations, including optimization of the holding company structure to minimize aggregate state tax liability;

3. Analysis of Philadelphia Business Income and Receipts Tax ("BIRT") exposure arising from Pinnacle's operations in Philadelphia and surrounding suburbs;

4. Analysis of potential New York nexus for the proposed Holdings LLC, given Fund III's New York-based operations and the Managing Partners' New York residency;

5. Budget and staffing management for the engagement, including review of all pre-bills, monitoring of actual hours against budget, and escalation of budget concerns;

6. Review of nonresident withholding computations for selling partners who are residents of states imposing withholding on pass-through entity distributions or sales of partnership interests;

7. Coordination with Ardent Capital's internal accounting team and with Caldwell Pratt & Moorehouse LLP on state tax compliance matters;

8. Secondary partner-level review of selected deliverables, including the rollover equity memorandum and the purchase price allocation schedule.

Robert Jansen — Lead Associate (Senior Associate), Tax

Robert Jansen will serve as the lead associate and day-to-day project manager for this engagement. Mr. Jansen is in his seventh year of practice and has significant experience in private equity M&A tax matters, having worked on twelve leveraged buyout transactions during his tenure at the firm. Mr. Jansen will be responsible for the first drafts of all substantive memoranda and for day-to-day coordination with co-counsel and opposing counsel on the tax provisions of the transaction documents.

Hourly Rate: $1,050

Estimated Hours: 380–450 hours

Role: Primary drafter of memoranda and analysis, day-to-day project management, coordination with opposing counsel (Whitford & Gaines LLP) and M&A counsel (Harcourt Shaw & DeVries LLP) on tax provisions of transaction documents.

Key Responsibilities:

1. First drafts of all substantive memoranda, including:

(a) Preliminary Tax Structure Memorandum;

(b) Section 338(h)(10) versus Section 754 Election Analysis Memorandum;

(d) Earnout Tax Characterization Memorandum;

(e) Open Transaction versus Closed Transaction / Installment Method Memorandum;

(f) blocker Entity Analysis Memorandum;

(g) Purchase Price Allocation Memorandum and Schedule;

(h) Profits Interest / Unvested Equity Memorandum;

(i) Closing Tax Memorandum;

(j) Post-Closing Tax Integration Memorandum;

2. Drafting of tax provisions markups for the merger agreement, including representations and warranties, pre-closing covenants, and tax indemnification provisions;

3. Drafting of the Tax Receivable Agreement, including computation methodology, dispute resolution mechanisms, and termination provisions;

4. Drafting of the Section 754 election for the target entity;

5. Preparation of Section 83(b) election forms and transmittal letters for each rollover participant;

6. Markup of the LLC agreement tax provisions (distribution waterfall, tax allocation provisions, tax matters partner designation, withholding provisions);

7. Preparation of the IRS Reporting Obligations Checklist;

8. Preparation of the state withholding computation schedule, in coordination with Ms. Hartwell;

9. Coordination with Kevin Driscoll and Patricia Engelman at Whitford & Gaines LLP on seller-side tax matters, including purchase price allocation, earnout characterization, and nonresident withholding;

10. Day-to-day project management, including tracking of deliverable deadlines, coordination of internal reviews, and management of the engagement work plan.

Garrett Simmons — Working Associate, Tax

Garrett Simmons will serve as the working associate on this engagement, providing research and computational support. Mr. Simmons is in his fourth year of practice and has experience in partnership tax, including Section 704(b) allocation computations, Section 743(b) step-up calculations, and entity formation matters.

Hourly Rate: $825

Estimated Hours: 300–370 hours

Role: Research, computational support, document assembly, and entity formation matters.

Key Responsibilities:

1. Tax research and citation for all substantive memoranda, including research of relevant authorities under Subchapter K, Subchapter C, and the applicable Treasury Regulations;

2. Computational analyses, including:

(a) Section 743(b) inside basis step-up computation of approximately $224.4 million, including allocation of step-up to individual assets and amortizable intangibles;

(b) Amortization schedules for Section 197 intangibles and other stepped-up assets;

(c) Tax Receivable Agreement payment modeling, based on 85% sharing of an estimated $5.01 million annual tax benefit stream, including present value calculations and sensitivity analyses;

(d) Earnout imputed interest computations under Section 483, using applicable federal rates of 5.12% (short-term) and 4.67% (mid-term) as of January 2024;

(e) State nonresident withholding computations, estimated to total approximately $4.74 million in aggregate across Virginia, Maryland, and Georgia;

(f) Purchase price allocation across Section 1060 asset classes (Classes I through VII), including fair market value analysis for each class;

3. Entity formation checklist and filing instructions for the three acquisition entities:

(a) Holdings LLC (Delaware File No. 7834219, EIN 93-2187445);

(b) Intermediate Inc. (Delaware File No. 7834223, EIN 93-2187512);

4. Preparation of FIRPTA certificate templates for use at closing;

5. Analysis of Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests) and Form 8594 (Asset Acquisition Statement Under Section 1060) filing requirements;

6. Proofreading and cite-checking of all substantive memoranda prior to partner review;

7. Assembly of the closing binder, including organization and indexing of all tax-related closing deliverables.

B. Staffing Rationale

The staffing plan reflects the complexity and scope of this engagement, which involves a number of discrete but interrelated tax structuring challenges. Healthcare services M&A tax structuring requires significant partner involvement due to the complexity inherent in multi-state operations, the analysis of partnership versus corporate classification elections, and the structuring of rollover equity programs for physician-founders who are both operating executives and equity participants.

Several features of this transaction drive the staffing requirements:

Rollover Equity Complexity. The transaction involves three rollover participants — Dr. Raymond Carvallo (Pinnacle's Chief Medical Officer and co-founder), Dr. Nadia Ostrowski (Pinnacle's Chief Operating Officer and co-founder), and Jonathan Farnsworth (Pinnacle's Chief Executive Officer) — with a total rollover of $59.54 million into Class B Units of Holdings LLC. The rollover equity program requires careful analysis of profits interest treatment under Revenue Procedure 93-27 and Revenue Procedure 2001-43, the availability and advisability of Section 83(b) elections, and the vesting schedule (50% vesting at closing and 50% vesting ratably over 36 months). The interaction of partnership tax principles with the deferred compensation rules adds a layer of complexity that requires substantial partner-level attention.

Multi-State Tax Exposure. Pinnacle's operations span five states — Pennsylvania, Virginia, Maryland, North Carolina, and Georgia — with potential additional New York nexus exposure for Holdings LLC. Each state presents distinct tax considerations, including varying treatment of pass-through entity income, nonresident withholding obligations, and entity-level taxes (such as the Philadelphia BIRT). The dedicated SALT analysis led by Ms. Hartwell is essential to ensure that the acquisition structure is optimized across all relevant jurisdictions.

Earnout Structure. The earnout of up to $35 million, payable in two periods ($15 million for the first earnout period and $20 million for the second earnout period), requires careful characterization and reporting analysis. The tax treatment of earnout payments — whether as additional purchase price, as ordinary income, or as a combination — has significant economic consequences for both the buyer and the sellers. The imputed interest analysis under Section 483, the open versus closed transaction analysis, and the installment method reporting analysis are each substantial work streams.

Engagement Duration. The engagement is anticipated to span approximately 5.5 months, from January 10 through late June 2024, with the most intensive period expected to be from mid-February through the anticipated signing date in mid-March and the anticipated closing date at the end of May. The timeline is driven by the transaction timetable, including the regulatory approval process for the ambulatory surgery center licenses and the Hart-Scott-Rodino waiting period.

Additional Staffing. No additional staffing is anticipated at this time unless scope expansion arises. Potential scope expansion scenarios are discussed in Section VI below. If additional staffing becomes necessary — for example, if unexpected state audit issues surface during diligence or if the financing structure is materially revised in a manner that impacts the tax analysis — the staffing plan will be updated and any budget implications will be promptly communicated to the client.

III. Budget Estimate

A. Estimated Fee Breakdown by Timekeeper

The following table sets forth the estimated professional fees for this engagement, broken down by timekeeper, based on the estimated hours set forth in Section II.A above:

The blended hourly rate across the team is approximately $1,088 per hour at the low end of the range and approximately $1,090 per hour at the high end. This blended rate is consistent with the blended rates for comparable healthcare M&A tax structuring engagements that our tax practice group has undertaken for similarly situated private equity sponsors in recent quarters.

B. Estimated Fee by Work Stream

The following table provides an alternative view of the estimated professional fees, allocated across the principal work streams of the engagement. The allocation is approximate, as certain timekeepers will work across multiple work streams during the same time periods.

The midpoint estimate across all work streams is approximately $1,175,000 in professional fees. The slight difference between the high end of the work stream total ($1,300,000) and the high end of the timekeeper total ($1,275,500) reflects the possibility that certain work streams — particularly the earnout negotiation and state tax analysis — may require modestly more time than reflected in the per-timekeeper estimates if negotiations with Whitford & Gaines LLP prove to be more protracted than anticipated.

C. Estimated Disbursements and Expenses

In addition to professional fees, the engagement will involve the following categories of disbursements and expenses:

The online research estimate reflects the anticipated volume of federal and state tax research required for this engagement, including queries on partnership tax issues, state-specific pass-through entity taxation, healthcare regulatory tax matters, and earnout characterization authorities. This estimate is consistent with comparable prior engagements. Travel expenses are estimated conservatively, assuming two to three in-person meetings at Ardent Capital's New York offices and one potential visit to Pinnacle's headquarters in King of Prussia, Pennsylvania.

D. Total Estimated Engagement Cost

The following table summarizes the total estimated engagement cost, combining professional fees and disbursements:

Point Estimate (Budgeting Purposes): $1,850,000. For internal budgeting and client communication purposes, we recommend utilizing a point estimate of $1,850,000, inclusive of a contingency reserve for scope changes, additional negotiation rounds, and potential complexity in the SALT analysis. This point estimate exceeds the high end of the core scope range set forth above because our experience with transactions of this nature — particularly those involving multiple rollover participants, multi-period earnouts, and operations across five or more states — is that several work streams are likely to extend beyond the initial estimates as negotiations progress and as the parties' respective advisors engage in iterative discussions on purchase price allocation, earnout mechanics, and Tax Receivable Agreement terms.

In particular, we anticipate that the following factors may cause actual fees to exceed the core scope range:

(a) The earnout negotiation process with Whitford & Gaines LLP is likely to involve multiple rounds of comments and counterproposals on the tax treatment and reporting obligations associated with the contingent consideration;

(b) The state withholding coordination, including the preparation and filing of nonresident withholding computations in Virginia, Maryland, and Georgia, may involve significant back-and-forth with state taxing authorities and with the sellers' counsel;

(c) The Tax Receivable Agreement negotiation with Whitford & Gaines LLP, including the computation methodology, dispute resolution procedures, and early termination payment provisions, is typically one of the more protracted negotiations in a transaction of this type;

(d) Potential changes to the acquisition structure or financing terms during the period between signing and closing may require updates to previously completed analyses.

Fee Cap per Engagement Letter: $2,000,000. The engagement letter provides for a fee cap of $2,000,000, inclusive of professional fees and expenses but exclusive of filing fees. Based on the point estimate of $1,850,000, the budget cushion below the fee cap is approximately $150,000, or approximately 7.5% of the cap. This cushion provides a reasonable margin for unanticipated developments but is not large enough to accommodate a material scope expansion without client communication and approval.

Any anticipated scope expansion that would cause total fees and expenses to approach or exceed the $2,000,000 cap will be identified and escalated in accordance with the procedures set forth in Section V below.

IV. Anticipated Deliverable Timeline

The following table sets forth the anticipated delivery dates for the principal deliverables of the engagement. All dates are targets and are subject to adjustment based on the overall transaction timetable, the pace of negotiations with counterparties, and the receipt of information from the client, the target, and other advisors. Any material changes to the deliverable timeline will be communicated promptly to the client.

The timeline above reflects an anticipated signing date of March 15, 2024 and an anticipated closing date of May 31, 2024. The approximately 2.5-month gap between signing and closing reflects the expected regulatory approval timeline for the ambulatory surgery center license transfers in Pennsylvania and Virginia, the Hart-Scott-Rodino antitrust waiting period, and the lender closing conditions. If the closing date shifts materially, the deliverable timeline for post-signing work streams will be adjusted accordingly.

The most intensive period of the engagement is expected to be the approximately five-week period from early February through mid-March, during which the team will prepare the core structuring memoranda, complete the entity formation filings, and deliver the initial tax provision markups in advance of the signing date. A second period of intensive activity is expected in the final two weeks of May, as the team prepares closing deliverables, finalizes the Tax Receivable Agreement, and delivers the tax opinion letter.

V. Billing Procedures

The following billing procedures will govern this engagement:

Monthly Billing. Invoices will be prepared and submitted monthly, in arrears, for professional fees incurred and disbursements advanced during the preceding calendar month. All invoices will be directed to Marcus Pellegrino at Ardent Capital Partners III LP, 600 Lexington Avenue, 38th Floor, New York, NY 10022, or to such other address or attention line as the client may designate in writing.

Pre-Bill Review. Sylvia Hartwell, as billing partner, will review all pre-bills before submission to the client. Pre-bill review will include verification that all time entries contain sufficient narrative detail, that time entries accurately reflect the work performed, and that the billing is consistent with the engagement letter terms and the budget parameters set forth in this memorandum.

Matter and Engagement Number. All time entries must reference Matter No. 1001-00006 and Engagement No. 1001-00006. Timekeepers should ensure that time entries are recorded promptly and contain a description sufficient to identify the specific work stream and deliverable to which the time relates.

Disbursements. Disbursements will be billed at cost, with no markup on expenses. This is consistent with the engagement letter terms and with the firm's standard billing practices for private equity fund clients.

Fee Cap. The fee cap of $2,000,000, as set forth in the engagement letter, applies to aggregate professional fees plus expenses. Filing fees for entity formations and state qualifications are excluded from the cap per the express terms of the engagement letter. The fee cap is a hard cap, and the firm may not incur fees or expenses in excess of the cap without prior written authorization from the client.

Scope Expansion Protocol. Any anticipated scope expansion that would cause total fees and expenses to approach or exceed the fee cap must be identified and flagged promptly. The following protocol will apply:

(a) The responsible timekeeper (typically Mr. Jansen or Mr. Simmons) will notify Ms. Hartwell of any scope expansion issue as soon as it is identified;

(b) Ms. Hartwell will assess the budget impact and, if the scope expansion is expected to cause total fees to exceed $1,750,000, will escalate the matter to Mr. Cross;

(c) Mr. Cross will communicate with the client (Mr. Pellegrino) in advance of performing additional work to obtain authorization for the expanded scope and, if necessary, an increase in the fee cap;

(d) All scope expansion communications with the client will be documented in writing and retained in the engagement file.

VI. Risk and Scope Considerations

Potential Scope Expansion Areas. While the engagement scope set forth in Section I above is intended to be comprehensive, the following areas present potential for scope expansion that could increase the total engagement cost beyond the core scope estimates:

(i) Additional State Tax Filings or Audits. Diligence may reveal additional state tax filing obligations, unreported nexus in states beyond the five identified operating states, or pending or threatened state tax audits that require analysis and response. If material state tax issues are identified during diligence, the scope of the SALT work stream may need to be expanded to address remediation, voluntary disclosure applications, or audit defense planning.

(ii) Material Changes to Earnout Structure. The earnout structure (two periods, up to $35 million aggregate) is subject to ongoing negotiation between the parties. If the earnout structure is materially revised — for example, if additional earnout periods are added, if the earnout metrics are changed from financial to operational milestones, or if an acceleration mechanism is introduced — the earnout tax characterization analysis may need to be substantially revised or supplemented.

(iii) Additional Rollover Participants. The current engagement scope contemplates three rollover participants (Dr. Carvallo, Dr. Ostrowski, and Mr. Farnsworth). If additional members of the Pinnacle management team are added as rollover participants, each additional participant will require a separate analysis of his or her rollover equity treatment, preparation of additional Section 83(b) election forms, and potentially additional state tax withholding computations.

(iv) Changes in Financing Structure. The current financing structure includes senior secured debt and mezzanine financing from Cascadia Mezzanine Fund IV LP. If the terms of the Cascadia mezzanine facility are modified — for example, if warrant terms are revised to include a put or call option, or if an additional financing tranche is introduced — the tax implications of such modifications may need to be analyzed, including potential original issue discount computations, debt-equity characterization issues, and the interaction of the financing terms with the partnership tax allocation provisions.

(v) Purchase Price Allocation Disputes. If the sellers' counsel, Whitford & Gaines LLP, disputes the proposed purchase price allocation or insists on an allocation methodology that is inconsistent with our analysis, extended negotiation may be required. Purchase price allocation disputes are a common source of scope expansion in transactions of this type, particularly where the allocation has significant consequences for both the buyer (amortization and depreciation benefits) and the sellers (character of gain).

Complexity Factors. Several features of this transaction contribute to its overall complexity and the associated engagement cost:

• Multi-state operations across five states, each with distinct tax regimes, filing requirements, and nonresident withholding rules;

• Total rollover equity of $59.54 million, with a vesting component (50% at closing, 50% over 36 months) that implicates the intersection of Section 83 and Subchapter K;

• A two-period earnout of up to $35 million in aggregate, requiring careful characterization and reporting analysis under multiple alternative approaches;

• blocker entity analysis for potential future IPO optionality, which requires the team to design a structure that is tax-efficient for the private equity holding period while preserving the ability to restructure for a public offering without triggering material adverse tax consequences;

• A Tax Receivable Agreement with an 85% sharing percentage, which requires detailed payment modeling and generates its own set of complex tax issues, including the treatment of TRA payments themselves.

Mitigation Measures. To manage the risks of scope expansion and budget overruns, the engagement team will implement the following mitigation measures:

• Regular status updates with Marcus Pellegrino at Ardent Capital, including bi-weekly written status reports and monthly budget-to-actual reports;

• Prompt escalation of budget concerns to Sylvia Hartwell, with immediate escalation to Leonard Cross if total fees are projected to exceed $1,750,000;

• Tight coordination with Thomas Kundra and Allison Cho at Harcourt Shaw & DeVries LLP to avoid duplication of effort in areas where M&A and tax responsibilities overlap, particularly with respect to the drafting and negotiation of merger agreement provisions and the LLC agreement;

• Clear delineation of responsibilities between our firm (tax counsel) and Harcourt Shaw & DeVries LLP (M&A counsel), with a shared responsibility matrix to be prepared and circulated within the first two weeks of the engagement;

• Prompt identification and communication of any scope expansion triggers, with client authorization obtained before additional work is performed.

VII. Approval

This memorandum sets forth the staffing plan, budget estimate, deliverable timeline, billing procedures, and risk and scope considerations for the Ardent Capital Partners III LP / Pinnacle Health Services Group LLC tax structuring engagement. By signing below, the undersigned confirm their review and approval of this memorandum and authorize the engagement team to proceed on the terms described herein.

APPROVED:

By: ________

Name: Leonard Cross

Title: Responsible Partner, Tax

Date: January 10, 2024

APPROVED:

By: ________

Name: Sylvia Hartwell

Title: Billing Partner, Tax

Date: January 10, 2024

Distribution: File (Matter No. 1001-00006); copy to Robert Jansen (Senior Associate) and Garrett Simmons (Associate).

This memorandum is an internal firm document prepared for engagement management purposes. It is privileged and confidential and should not be shared with the client or with any third party without the prior approval of Leonard Cross or Sylvia Hartwell.

Timekeeper	Rate	Estimated Low Hours	Estimated High Hours	Estimated Low Fees	Estimated High Fees
Leonard Cross (Partner)	$1,450/hr	180	220	$261,000	$319,000
Sylvia Hartwell (Partner)	$1,375/hr	100	130	$137,500	$178,750
Robert Jansen (Senior Associate)	$1,050/hr	380	450	$399,000	$472,500
Garrett Simmons (Associate)	$825/hr	300	370	$247,500	$305,250
Total	960	1,170	$1,045,000	$1,275,500
Work Stream	Estimated Fees	Primary Timekeepers
Preliminary structuring analysis (entity selection, partnership vs. corporate, blocker analysis)	$200,000–$240,000	Cross, Jansen, Simmons
Section 338(h)(10) vs. Section 754 election analysis	$120,000–$150,000	Cross, Jansen, Simmons
Rollover equity / profits interest / Section 83(b) analysis and documentation	$150,000–$185,000	Cross, Jansen, Simmons
Earnout tax characterization and reporting (including Section 483, installment method, open/closed transaction)	$100,000–$130,000	Cross, Jansen
Purchase price allocation (Section 1060 / 743(b)) and Tax Receivable Agreement	$110,000–$140,000	Cross, Jansen, Simmons
State and local tax analysis (PA, VA, MD, NC, GA, NY nexus) and nonresident withholding	$120,000–$150,000	Hartwell, Jansen, Simmons
Merger Agreement tax provisions review (representations, covenants, indemnity, escrow)	$80,000–$100,000	Cross, Jansen
Entity formations, closing deliverables, opinion letter, and IRS reporting	$100,000–$125,000	Cross, Jansen, Simmons
Post-closing integration memorandum and engagement close-out	$65,000–$80,000	Jansen, Simmons, Hartwell
Total	$1,045,000–$1,300,000
Category	Estimated Amount
Filing fees (Delaware entity formations, state qualifications in PA, VA, MD, NC, GA)	$5,000–$8,000
Online research (Checkpoint, Severin Data Systems, Tidewater Technologies, state law databases)	$15,000–$25,000
Travel (client meetings in New York; potential site visit to King of Prussia, PA)	$3,000–$5,000
Document production, copying, courier services	$2,000–$4,000
Miscellaneous (conference calls, overnight delivery, other out-of-pocket costs)	$1,000–$3,000
Total Estimated Disbursements	$26,000–$45,000
Component	Low	High

Professional fees	$1,045,000	$1,300,000
Disbursements and expenses	$26,000	$45,000
Total	$1,071,000	$1,345,000
Target Date	Deliverable
February 12, 2024	Preliminary Tax Structure Memorandum
February 16, 2024	Blocker Entity Analysis Memorandum
February 20, 2024	State & Local Tax Memorandum
February 22, 2024	Rollover Equity Tax Memorandum (Section 721 vs. Section 351 Analysis)
February 28, 2024	Section 338(h)(10) vs. Section 754 Election Analysis Memorandum
March 1, 2024	Earnout Tax Characterization Memorandum; Entity Formation Checklist
March 5, 2024	Open Transaction vs. Closed Transaction / Installment Method Memorandum; Entity Formation Filings (Holdings LLC, Intermediate Inc., Merger Sub LLC)
March 8, 2024	Profits Interest / Unvested Equity Memorandum; Tax Representations and Covenants Markup
March 10, 2024	Tax Indemnity Provisions Markup; LLC Agreement Tax Provisions Markup
March 12, 2024	Earnout Provisions Tax Review and Comment Letter to Harcourt Shaw & DeVries LLP
March 15, 2024	Signing Date (Merger Agreement) — support as needed
March 18, 2024	State Tax Structuring Recommendations Letter
March 20, 2024	Tax Receivable Agreement — Draft
April 18, 2024	Purchase Price Allocation Schedule and Memorandum
May 15, 2024	Nonresident Withholding Computation Schedule (upon receipt of state regulatory approvals)
May 28–29, 2024	Tax Receivable Agreement — Execution Version; Section 83(b) Election Forms; Tax Opinion Letter
May 30, 2024	IRS Reporting Obligations Checklist
May 31, 2024	Closing Deliverables: Tax Closing Certificate, Section 754 Election Draft, FIRPTA Certificates, Section 83(b) Transmittal Letters, Closing Tax Memorandum
June 14, 2024	Post-Closing Tax Integration Memorandum
June 25, 2024	Engagement Close-Out; Engagement Summary and Lessons Learned Memorandum

CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM PRIVILEGED & CONFIDENTIAL
TO: File — Matter No. 1001-00006
FROM: Sylvia Hartwell, Billing Partner
DATE: January 10, 2024
RE: Staffing Plan and Budget Estimate — Tax Structuring Engagement for Ardent Capital Partners III LP Acquisition of Pinnacle Health Services Group LLC
ENGAGEMENT NUMBER: 1001-00006
I. Engagement Overview
Calderwood & Harkness LLP has been retained by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III"), a Delaware limited partnership headquartered at 600 Lexington Avenue, 38th Floor, New York, NY 10022, to serve as tax counsel in connection with Fund III's proposed acquisition of Pinnacle Health Services Group LLC ("Pinnacle" or "PHSG"), a Delaware limited liability company taxed as a partnership for federal income tax purposes, headquartered at 2200 Renaissance Boulevard, Suite 400, King of Prussia, PA 19406. This memorandum sets forth the staffing plan, budget estimate, anticipated deliverable timeline, billing procedures, and risk and scope considerations for this engagement.
Transaction Overview. The proposed acquisition contemplates an enterprise value of approximately $412 million, with an equity value of approximately $339.4 million. The equity value is derived from the enterprise value less $72.6 million of net debt expected at closing, computed as $81.3 million of funded debt less $8.7 million of unrestricted cash on the balance sheet at the anticipated closing date. The transaction is expected to be structured as an acquisition of equity interests in Pinnacle, with the specific acquisition vehicle structure to be determined as part of this engagement's scope.
Target Business. Pinnacle operates 34 urgent care clinics and 8 ambulatory surgery centers across five states: Pennsylvania, Virginia, Maryland, North Carolina, and Georgia. The company employs approximately 1,620 individuals, including 142 employed physicians. For the fiscal year ended December 31, 2023, Pinnacle reported revenue of approximately $287.4 million and Adjusted EBITDA of approximately $51.8 million. The geographic dispersion of Pinnacle's operations across multiple states, the employment of a significant physician workforce, and the company's existing partnership tax classification are significant factors in the tax structuring analysis.
Buyer. Ardent Capital Partners III LP is a 2022-vintage private equity fund with total committed capital of $3.2 billion. The general partner of Fund III is Ardent Capital GP III LLC. Fund III has committed equity of $198.5 million for this transaction. The balance of the acquisition consideration is expected to be funded through a combination of seller rollover equity, third-party debt financing, and, potentially, mezzanine financing from Cascadia Mezzanine Fund IV LP.
Engagement Terms. The engagement letter was executed on January 10, 2024. A conflict check was completed on January 8, 2024, with no conflicts identified across the firm's existing client base, including a review of our representations of healthcare services companies, private equity sponsors, and the selling parties and their counsel. The engagement letter provides for a fee cap of $2,000,000, inclusive of professional fees and expenses but exclusive of filing fees, as described in further detail in Section III.D below.
Scope of Engagement. The scope of our retention encompasses the following principal work streams:
(a) Entity selection for the acquisition vehicle (including analysis of blocker entity structures for potential future IPO optionality);
(b) Management rollover equity treatment, including analysis of Section 721 contribution versus Section 351 exchange treatment, profits interest characterization, and related documentation;
(c) Earnout characterization and reporting under the applicable provisions of the Internal Revenue Code, including open versus closed transaction analysis, installment method reporting, and imputed interest under Section 483;
(d) Section 338(h)(10) election analysis, including comparison with Section 754 election treatment and the resulting inside basis step-up;
(e) Purchase price allocation under Section 1060 and Section 743(b), including preparation of allocation schedules and supporting memoranda;
(f) State and local tax optimization across the five operating states (Pennsylvania, Virginia, Maryland, North Carolina, and Georgia), with additional analysis of potential New York nexus exposure for the acquisition holding company;
(g) Review, drafting, and negotiation of tax-related provisions of the transaction documents, including the merger agreement (representations, warranties, covenants, and indemnification provisions), the LLC agreement for the acquisition holding company, and the Tax Receivable Agreement;
(h) Post-closing tax integration planning, including IRS reporting obligations and ongoing compliance requirements.
Client Contacts. Our primary client contacts at Ardent Capital are as follows:
•  Marcus Pellegrino, Partner, Healthcare — primary day-to-day contact for all engagement matters, billing inquiries, and deliverable coordination;
•  Claire Ashworth, Co-Founder & Managing Partner — available for strategic structuring discussions and approval of key structural recommendations;
•  Dominic Ferrera, Co-Founder & Managing Partner — available for strategic structuring discussions and approval of key structural recommendations.
Coordinating Counsel. We will be coordinating with the following outside counsel in connection with this engagement:
•  Harcourt Shaw & DeVries LLP — M&A counsel to Ardent Capital. Lead partner: Thomas Kundra. Associate: Allison Cho. Address: 51 West 52nd Street, New York, NY 10019. Harcourt Shaw is responsible for drafting the merger agreement and ancillary transaction documents. Our firm will provide tax-specific markups of the merger agreement, the LLC agreement, and other documents as appropriate, and will coordinate closely with Mr. Kundra and Ms. Cho on the integration of tax provisions into the definitive documentation.
•  Whitford & Gaines LLP — Counsel to the sellers and the target. Lead partner (Tax): Patricia Engelman. Associate (M&A/Tax): Kevin Driscoll. Address: 1735 Market Street, Suite 2800, Philadelphia, PA 19103. We anticipate significant interaction with Whitford & Gaines on purchase price allocation, earnout tax treatment, the Tax Receivable Agreement, and state tax withholding matters.
Other Key Advisors. In addition to outside counsel, we will coordinate as necessary with the following advisors engaged in connection with the transaction:
•  Meridian Tuck Partners LLC — Financial advisor to the buyer (Managing Director: Daniel Kessler);
•  Caldwell Pratt & Moorehouse LLP — Accounting and audit firm to the buyer;
•  Northmark Advisory Group LLC — Quality of earnings provider engaged by the buyer;
•  Larchmont & Co. — Financial advisor to the sellers (Managing Director: Sarah Quinlan).
Coordination with these advisors is expected to be particularly important in connection with the purchase price allocation, the quality of earnings analysis (insofar as it informs the tax basis of acquired assets), and the computation of net debt and working capital adjustments at closing.
II. Staffing Plan
A. Team Composition
The engagement team consists of four timekeepers: two partners and two associates. Set forth below is a detailed description of each team member's role, hourly rate, estimated hours, and key responsibilities.
Leonard Cross — Responsible Partner, Tax
Leonard Cross will serve as the responsible partner for this engagement and will be the lead client interface for all structuring matters. Mr. Cross has over twenty-five years of experience advising private equity sponsors and their portfolio companies on the tax aspects of leveraged buyouts, recapitalizations, and management equity programs, with particular depth in healthcare services transactions. Mr. Cross has represented Fund III on two prior acquisitions (the 2023 acquisition of NovaCare Rehabilitation Holdings and the 2023 acquisition of Pacific Diagnostics Group), and accordingly has a well-established working relationship with the client team, including Mr. Pellegrino, Ms. Ashworth, and Mr. Ferrera.
Hourly Rate: $1,450
Estimated Hours: 180–220 hours
Role: Overall engagement supervision, lead client interface, structuring strategy development, sign-off on all deliverables, and tax opinion letter signatory.
Key Responsibilities:
1.  Lead development of the preliminary tax structure memorandum, including entity selection for the acquisition vehicle, partnership versus corporate classification analysis, and blocker entity considerations;
2.  Section 338(h)(10) versus Section 754 election analysis, including quantification of the after-tax economic impact of each alternative on Fund III and the rollover participants;
3.  Earnout characterization guidance, including determination of appropriate treatment under the open transaction doctrine, the installment method, and the closed transaction method, with consideration of imputed interest under Section 483;
4.  Drafting and execution of the tax opinion letter to be delivered at closing;
5.  Oversight of the purchase price allocation methodology and review of the Section 1060 allocation schedule and the Section 743(b) step-up computation;
6.  Development of state tax strategy, including review and approval of the state and local tax memorandum prepared by Ms. Hartwell;
7.  Review and approval of all merger agreement tax provision markups, including representations and warranties, pre-closing covenants, tax indemnification provisions, and escrow mechanics;
8.  Direct coordination with Thomas Kundra and Allison Cho at Harcourt Shaw & DeVries LLP on the integration of tax provisions into the merger agreement and ancillary transaction documents;
9.  Participation in key client calls and structuring meetings throughout the engagement.
Sylvia Hartwell — Billing Partner, Tax
Sylvia Hartwell will serve as the billing partner for this engagement and will lead the state and local tax analysis work stream. Ms. Hartwell has extensive experience in multi-state tax planning for private equity portfolio companies in the healthcare sector, including prior engagements involving urgent care platforms with operations in the Mid-Atlantic and Southeast regions.
Hourly Rate: $1,375
Estimated Hours: 100–130 hours
Role: Budget oversight, billing management, secondary partner-level review on selected deliverables, and lead partner for the state and local tax work stream.
Key Responsibilities:
1.  Preparation of the state and local tax memorandum, addressing the tax implications of the proposed acquisition structure in each of Pennsylvania, Virginia, Maryland, North Carolina, and Georgia;
2.  Development of state tax structuring recommendations, including optimization of the holding company structure to minimize aggregate state tax liability;
3.  Analysis of Philadelphia Business Income and Receipts Tax ("BIRT") exposure arising from Pinnacle's operations in Philadelphia and surrounding suburbs;
4.  Analysis of potential New York nexus for the proposed Holdings LLC, given Fund III's New York-based operations and the Managing Partners' New York residency;
5.  Budget and staffing management for the engagement, including review of all pre-bills, monitoring of actual hours against budget, and escalation of budget concerns;
6.  Review of nonresident withholding computations for selling partners who are residents of states imposing withholding on pass-through entity distributions or sales of partnership interests;
7.  Coordination with Ardent Capital's internal accounting team and with Caldwell Pratt & Moorehouse LLP on state tax compliance matters;
8.  Secondary partner-level review of selected deliverables, including the rollover equity memorandum and the purchase price allocation schedule.
Robert Jansen — Lead Associate (Senior Associate), Tax
Robert Jansen will serve as the lead associate and day-to-day project manager for this engagement. Mr. Jansen is in his seventh year of practice and has significant experience in private equity M&A tax matters, having worked on twelve leveraged buyout transactions during his tenure at the firm. Mr. Jansen will be responsible for the first drafts of all substantive memoranda and for day-to-day coordination with co-counsel and opposing counsel on the tax provisions of the transaction documents.
Hourly Rate: $1,050
Estimated Hours: 380–450 hours
Role: Primary drafter of memoranda and analysis, day-to-day project management, coordination with opposing counsel (Whitford & Gaines LLP) and M&A counsel (Harcourt Shaw & DeVries LLP) on tax provisions of transaction documents.
Key Responsibilities:
1.  First drafts of all substantive memoranda, including:
(a) Preliminary Tax Structure Memorandum;
(b) Section 338(h)(10) versus Section 754 Election Analysis Memorandum;
(c) Rollover Equity Tax Memorandum (Section 721 versus Section 351 analysis);
(d) Earnout Tax Characterization Memorandum;
(e) Open Transaction versus Closed Transaction / Installment Method Memorandum;
(f) blocker Entity Analysis Memorandum;
(g) Purchase Price Allocation Memorandum and Schedule;
(h) Profits Interest / Unvested Equity Memorandum;
(i) Closing Tax Memorandum;
(j) Post-Closing Tax Integration Memorandum;
2.  Drafting of tax provisions markups for the merger agreement, including representations and warranties, pre-closing covenants, and tax indemnification provisions;
3.  Drafting of the Tax Receivable Agreement, including computation methodology, dispute resolution mechanisms, and termination provisions;
4.  Drafting of the Section 754 election for the target entity;
5.  Preparation of Section 83(b) election forms and transmittal letters for each rollover participant;
6.  Markup of the LLC agreement tax provisions (distribution waterfall, tax allocation provisions, tax matters partner designation, withholding provisions);
7.  Preparation of the IRS Reporting Obligations Checklist;
8.  Preparation of the state withholding computation schedule, in coordination with Ms. Hartwell;
9.  Coordination with Kevin Driscoll and Patricia Engelman at Whitford & Gaines LLP on seller-side tax matters, including purchase price allocation, earnout characterization, and nonresident withholding;
10.  Day-to-day project management, including tracking of deliverable deadlines, coordination of internal reviews, and management of the engagement work plan.
Garrett Simmons — Working Associate, Tax
Garrett Simmons will serve as the working associate on this engagement, providing research and computational support. Mr. Simmons is in his fourth year of practice and has experience in partnership tax, including Section 704(b) allocation computations, Section 743(b) step-up calculations, and entity formation matters.
Hourly Rate: $825
Estimated Hours: 300–370 hours
Role: Research, computational support, document assembly, and entity formation matters.
Key Responsibilities:
1.  Tax research and citation for all substantive memoranda, including research of relevant authorities under Subchapter K, Subchapter C, and the applicable Treasury Regulations;
2.  Computational analyses, including:
(a) Section 743(b) inside basis step-up computation of approximately $224.4 million, including allocation of step-up to individual assets and amortizable intangibles;
(b) Amortization schedules for Section 197 intangibles and other stepped-up assets;
(c) Tax Receivable Agreement payment modeling, based on 85% sharing of an estimated $5.01 million annual tax benefit stream, including present value calculations and sensitivity analyses;
(d) Earnout imputed interest computations under Section 483, using applicable federal rates of 5.12% (short-term) and 4.67% (mid-term) as of January 2024;
(e) State nonresident withholding computations, estimated to total approximately $4.74 million in aggregate across Virginia, Maryland, and Georgia;
(f) Purchase price allocation across Section 1060 asset classes (Classes I through VII), including fair market value analysis for each class;
3.  Entity formation checklist and filing instructions for the three acquisition entities:
(a) Holdings LLC (Delaware File No. 7834219, EIN 93-2187445);
(b) Intermediate Inc. (Delaware File No. 7834223, EIN 93-2187512);
(c) Merger Sub LLC (Delaware File No. 7834227);
4.  Preparation of FIRPTA certificate templates for use at closing;
5.  Analysis of Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests) and Form 8594 (Asset Acquisition Statement Under Section 1060) filing requirements;
6.  Proofreading and cite-checking of all substantive memoranda prior to partner review;
7.  Assembly of the closing binder, including organization and indexing of all tax-related closing deliverables.
B. Staffing Rationale
The staffing plan reflects the complexity and scope of this engagement, which involves a number of discrete but interrelated tax structuring challenges. Healthcare services M&A tax structuring requires significant partner involvement due to the complexity inherent in multi-state operations, the analysis of partnership versus corporate classification elections, and the structuring of rollover equity programs for physician-founders who are both operating executives and equity participants.
Several features of this transaction drive the staffing requirements:
Rollover Equity Complexity. The transaction involves three rollover participants — Dr. Raymond Carvallo (Pinnacle's Chief Medical Officer and co-founder), Dr. Nadia Ostrowski (Pinnacle's Chief Operating Officer and co-founder), and Jonathan Farnsworth (Pinnacle's Chief Executive Officer) — with a total rollover of $59.54 million into Class B Units of Holdings LLC. The rollover equity program requires careful analysis of profits interest treatment under Revenue Procedure 93-27 and Revenue Procedure 2001-43, the availability and advisability of Section 83(b) elections, and the vesting schedule (50% vesting at closing and 50% vesting ratably over 36 months). The interaction of partnership tax principles with the deferred compensation rules adds a layer of complexity that requires substantial partner-level attention.
Multi-State Tax Exposure. Pinnacle's operations span five states — Pennsylvania, Virginia, Maryland, North Carolina, and Georgia — with potential additional New York nexus exposure for Holdings LLC. Each state presents distinct tax considerations, including varying treatment of pass-through entity income, nonresident withholding obligations, and entity-level taxes (such as the Philadelphia BIRT). The dedicated SALT analysis led by Ms. Hartwell is essential to ensure that the acquisition structure is optimized across all relevant jurisdictions.
Earnout Structure. The earnout of up to $35 million, payable in two periods ($15 million for the first earnout period and $20 million for the second earnout period), requires careful characterization and reporting analysis. The tax treatment of earnout payments — whether as additional purchase price, as ordinary income, or as a combination — has significant economic consequences for both the buyer and the sellers. The imputed interest analysis under Section 483, the open versus closed transaction analysis, and the installment method reporting analysis are each substantial work streams.
Engagement Duration. The engagement is anticipated to span approximately 5.5 months, from January 10 through late June 2024, with the most intensive period expected to be from mid-February through the anticipated signing date in mid-March and the anticipated closing date at the end of May. The timeline is driven by the transaction timetable, including the regulatory approval process for the ambulatory surgery center licenses and the Hart-Scott-Rodino waiting period.
Additional Staffing. No additional staffing is anticipated at this time unless scope expansion arises. Potential scope expansion scenarios are discussed in Section VI below. If additional staffing becomes necessary — for example, if unexpected state audit issues surface during diligence or if the financing structure is materially revised in a manner that impacts the tax analysis — the staffing plan will be updated and any budget implications will be promptly communicated to the client.
III. Budget Estimate
A. Estimated Fee Breakdown by Timekeeper
The following table sets forth the estimated professional fees for this engagement, broken down by timekeeper, based on the estimated hours set forth in Section II.A above:
The blended hourly rate across the team is approximately $1,088 per hour at the low end of the range and approximately $1,090 per hour at the high end. This blended rate is consistent with the blended rates for comparable healthcare M&A tax structuring engagements that our tax practice group has undertaken for similarly situated private equity sponsors in recent quarters.
B. Estimated Fee by Work Stream
The following table provides an alternative view of the estimated professional fees, allocated across the principal work streams of the engagement. The allocation is approximate, as certain timekeepers will work across multiple work streams during the same time periods.
The midpoint estimate across all work streams is approximately $1,175,000 in professional fees. The slight difference between the high end of the work stream total ($1,300,000) and the high end of the timekeeper total ($1,275,500) reflects the possibility that certain work streams — particularly the earnout negotiation and state tax analysis — may require modestly more time than reflected in the per-timekeeper estimates if negotiations with Whitford & Gaines LLP prove to be more protracted than anticipated.
C. Estimated Disbursements and Expenses
In addition to professional fees, the engagement will involve the following categories of disbursements and expenses:
The online research estimate reflects the anticipated volume of federal and state tax research required for this engagement, including queries on partnership tax issues, state-specific pass-through entity taxation, healthcare regulatory tax matters, and earnout characterization authorities. This estimate is consistent with comparable prior engagements. Travel expenses are estimated conservatively, assuming two to three in-person meetings at Ardent Capital's New York offices and one potential visit to Pinnacle's headquarters in King of Prussia, Pennsylvania.
D. Total Estimated Engagement Cost
The following table summarizes the total estimated engagement cost, combining professional fees and disbursements:
Point Estimate (Budgeting Purposes): $1,850,000. For internal budgeting and client communication purposes, we recommend utilizing a point estimate of $1,850,000, inclusive of a contingency reserve for scope changes, additional negotiation rounds, and potential complexity in the SALT analysis. This point estimate exceeds the high end of the core scope range set forth above because our experience with transactions of this nature — particularly those involving multiple rollover participants, multi-period earnouts, and operations across five or more states — is that several work streams are likely to extend beyond the initial estimates as negotiations progress and as the parties' respective advisors engage in iterative discussions on purchase price allocation, earnout mechanics, and Tax Receivable Agreement terms.
In particular, we anticipate that the following factors may cause actual fees to exceed the core scope range:
(a) The earnout negotiation process with Whitford & Gaines LLP is likely to involve multiple rounds of comments and counterproposals on the tax treatment and reporting obligations associated with the contingent consideration;
(b) The state withholding coordination, including the preparation and filing of nonresident withholding computations in Virginia, Maryland, and Georgia, may involve significant back-and-forth with state taxing authorities and with the sellers' counsel;
(c) The Tax Receivable Agreement negotiation with Whitford & Gaines LLP, including the computation methodology, dispute resolution procedures, and early termination payment provisions, is typically one of the more protracted negotiations in a transaction of this type;
(d) Potential changes to the acquisition structure or financing terms during the period between signing and closing may require updates to previously completed analyses.
Fee Cap per Engagement Letter: $2,000,000. The engagement letter provides for a fee cap of $2,000,000, inclusive of professional fees and expenses but exclusive of filing fees. Based on the point estimate of $1,850,000, the budget cushion below the fee cap is approximately $150,000, or approximately 7.5% of the cap. This cushion provides a reasonable margin for unanticipated developments but is not large enough to accommodate a material scope expansion without client communication and approval.
Any anticipated scope expansion that would cause total fees and expenses to approach or exceed the $2,000,000 cap will be identified and escalated in accordance with the procedures set forth in Section V below.
IV. Anticipated Deliverable Timeline
The following table sets forth the anticipated delivery dates for the principal deliverables of the engagement. All dates are targets and are subject to adjustment based on the overall transaction timetable, the pace of negotiations with counterparties, and the receipt of information from the client, the target, and other advisors. Any material changes to the deliverable timeline will be communicated promptly to the client.
The timeline above reflects an anticipated signing date of March 15, 2024 and an anticipated closing date of May 31, 2024. The approximately 2.5-month gap between signing and closing reflects the expected regulatory approval timeline for the ambulatory surgery center license transfers in Pennsylvania and Virginia, the Hart-Scott-Rodino antitrust waiting period, and the lender closing conditions. If the closing date shifts materially, the deliverable timeline for post-signing work streams will be adjusted accordingly.
The most intensive period of the engagement is expected to be the approximately five-week period from early February through mid-March, during which the team will prepare the core structuring memoranda, complete the entity formation filings, and deliver the initial tax provision markups in advance of the signing date. A second period of intensive activity is expected in the final two weeks of May, as the team prepares closing deliverables, finalizes the Tax Receivable Agreement, and delivers the tax opinion letter.
V. Billing Procedures
The following billing procedures will govern this engagement:
Monthly Billing. Invoices will be prepared and submitted monthly, in arrears, for professional fees incurred and disbursements advanced during the preceding calendar month. All invoices will be directed to Marcus Pellegrino at Ardent Capital Partners III LP, 600 Lexington Avenue, 38th Floor, New York, NY 10022, or to such other address or attention line as the client may designate in writing.
Pre-Bill Review. Sylvia Hartwell, as billing partner, will review all pre-bills before submission to the client. Pre-bill review will include verification that all time entries contain sufficient narrative detail, that time entries accurately reflect the work performed, and that the billing is consistent with the engagement letter terms and the budget parameters set forth in this memorandum.
Matter and Engagement Number. All time entries must reference Matter No. 1001-00006 and Engagement No. 1001-00006. Timekeepers should ensure that time entries are recorded promptly and contain a description sufficient to identify the specific work stream and deliverable to which the time relates.
Disbursements. Disbursements will be billed at cost, with no markup on expenses. This is consistent with the engagement letter terms and with the firm's standard billing practices for private equity fund clients.
Fee Cap. The fee cap of $2,000,000, as set forth in the engagement letter, applies to aggregate professional fees plus expenses. Filing fees for entity formations and state qualifications are excluded from the cap per the express terms of the engagement letter. The fee cap is a hard cap, and the firm may not incur fees or expenses in excess of the cap without prior written authorization from the client.
Scope Expansion Protocol. Any anticipated scope expansion that would cause total fees and expenses to approach or exceed the fee cap must be identified and flagged promptly. The following protocol will apply:
(a) The responsible timekeeper (typically Mr. Jansen or Mr. Simmons) will notify Ms. Hartwell of any scope expansion issue as soon as it is identified;
(b) Ms. Hartwell will assess the budget impact and, if the scope expansion is expected to cause total fees to exceed $1,750,000, will escalate the matter to Mr. Cross;
(c) Mr. Cross will communicate with the client (Mr. Pellegrino) in advance of performing additional work to obtain authorization for the expanded scope and, if necessary, an increase in the fee cap;
(d) All scope expansion communications with the client will be documented in writing and retained in the engagement file.
VI. Risk and Scope Considerations
Potential Scope Expansion Areas. While the engagement scope set forth in Section I above is intended to be comprehensive, the following areas present potential for scope expansion that could increase the total engagement cost beyond the core scope estimates:
(i) Additional State Tax Filings or Audits. Diligence may reveal additional state tax filing obligations, unreported nexus in states beyond the five identified operating states, or pending or threatened state tax audits that require analysis and response. If material state tax issues are identified during diligence, the scope of the SALT work stream may need to be expanded to address remediation, voluntary disclosure applications, or audit defense planning.
(ii) Material Changes to Earnout Structure. The earnout structure (two periods, up to $35 million aggregate) is subject to ongoing negotiation between the parties. If the earnout structure is materially revised — for example, if additional earnout periods are added, if the earnout metrics are changed from financial to operational milestones, or if an acceleration mechanism is introduced — the earnout tax characterization analysis may need to be substantially revised or supplemented.
(iii) Additional Rollover Participants. The current engagement scope contemplates three rollover participants (Dr. Carvallo, Dr. Ostrowski, and Mr. Farnsworth). If additional members of the Pinnacle management team are added as rollover participants, each additional participant will require a separate analysis of his or her rollover equity treatment, preparation of additional Section 83(b) election forms, and potentially additional state tax withholding computations.
(iv) Changes in Financing Structure. The current financing structure includes senior secured debt and mezzanine financing from Cascadia Mezzanine Fund IV LP. If the terms of the Cascadia mezzanine facility are modified — for example, if warrant terms are revised to include a put or call option, or if an additional financing tranche is introduced — the tax implications of such modifications may need to be analyzed, including potential original issue discount computations, debt-equity characterization issues, and the interaction of the financing terms with the partnership tax allocation provisions.
(v) Purchase Price Allocation Disputes. If the sellers' counsel, Whitford & Gaines LLP, disputes the proposed purchase price allocation or insists on an allocation methodology that is inconsistent with our analysis, extended negotiation may be required. Purchase price allocation disputes are a common source of scope expansion in transactions of this type, particularly where the allocation has significant consequences for both the buyer (amortization and depreciation benefits) and the sellers (character of gain).
Complexity Factors. Several features of this transaction contribute to its overall complexity and the associated engagement cost:
•  Multi-state operations across five states, each with distinct tax regimes, filing requirements, and nonresident withholding rules;
•  Total rollover equity of $59.54 million, with a vesting component (50% at closing, 50% over 36 months) that implicates the intersection of Section 83 and Subchapter K;
•  A two-period earnout of up to $35 million in aggregate, requiring careful characterization and reporting analysis under multiple alternative approaches;
•  blocker entity analysis for potential future IPO optionality, which requires the team to design a structure that is tax-efficient for the private equity holding period while preserving the ability to restructure for a public offering without triggering material adverse tax consequences;
•  A Tax Receivable Agreement with an 85% sharing percentage, which requires detailed payment modeling and generates its own set of complex tax issues, including the treatment of TRA payments themselves.
Mitigation Measures. To manage the risks of scope expansion and budget overruns, the engagement team will implement the following mitigation measures:
•  Regular status updates with Marcus Pellegrino at Ardent Capital, including bi-weekly written status reports and monthly budget-to-actual reports;
•  Prompt escalation of budget concerns to Sylvia Hartwell, with immediate escalation to Leonard Cross if total fees are projected to exceed $1,750,000;
•  Tight coordination with Thomas Kundra and Allison Cho at Harcourt Shaw & DeVries LLP to avoid duplication of effort in areas where M&A and tax responsibilities overlap, particularly with respect to the drafting and negotiation of merger agreement provisions and the LLC agreement;
•  Clear delineation of responsibilities between our firm (tax counsel) and Harcourt Shaw & DeVries LLP (M&A counsel), with a shared responsibility matrix to be prepared and circulated within the first two weeks of the engagement;
•  Prompt identification and communication of any scope expansion triggers, with client authorization obtained before additional work is performed.
VII. Approval
This memorandum sets forth the staffing plan, budget estimate, deliverable timeline, billing procedures, and risk and scope considerations for the Ardent Capital Partners III LP / Pinnacle Health Services Group LLC tax structuring engagement. By signing below, the undersigned confirm their review and approval of this memorandum and authorize the engagement team to proceed on the terms described herein.
APPROVED:
By: ________
Name: Leonard Cross
Title: Responsible Partner, Tax
Date: January 10, 2024
APPROVED:
By: ________
Name: Sylvia Hartwell
Title: Billing Partner, Tax
Date: January 10, 2024
Distribution: File (Matter No. 1001-00006); copy to Robert Jansen (Senior Associate) and Garrett Simmons (Associate).
This memorandum is an internal firm document prepared for engagement management purposes. It is privileged and confidential and should not be shared with the client or with any third party without the prior approval of Leonard Cross or Sylvia Hartwell.
Timekeeper | Rate | Estimated Low Hours | Estimated High Hours | Estimated Low Fees | Estimated High Fees
Leonard Cross (Partner) | $1,450/hr | 180 | 220 | $261,000 | $319,000
Sylvia Hartwell (Partner) | $1,375/hr | 100 | 130 | $137,500 | $178,750
Robert Jansen (Senior Associate) | $1,050/hr | 380 | 450 | $399,000 | $472,500
Garrett Simmons (Associate) | $825/hr | 300 | 370 | $247,500 | $305,250
Total | 960 | 1,170 | $1,045,000 | $1,275,500
Work Stream | Estimated Fees | Primary Timekeepers
Preliminary structuring analysis (entity selection, partnership vs. corporate, blocker analysis) | $200,000–$240,000 | Cross, Jansen, Simmons
Section 338(h)(10) vs. Section 754 election analysis | $120,000–$150,000 | Cross, Jansen, Simmons
Rollover equity / profits interest / Section 83(b) analysis and documentation | $150,000–$185,000 | Cross, Jansen, Simmons
Earnout tax characterization and reporting (including Section 483, installment method, open/closed transaction) | $100,000–$130,000 | Cross, Jansen
Purchase price allocation (Section 1060 / 743(b)) and Tax Receivable Agreement | $110,000–$140,000 | Cross, Jansen, Simmons
State and local tax analysis (PA, VA, MD, NC, GA, NY nexus) and nonresident withholding | $120,000–$150,000 | Hartwell, Jansen, Simmons
Merger Agreement tax provisions review (representations, covenants, indemnity, escrow) | $80,000–$100,000 | Cross, Jansen
Entity formations, closing deliverables, opinion letter, and IRS reporting | $100,000–$125,000 | Cross, Jansen, Simmons
Post-closing integration memorandum and engagement close-out | $65,000–$80,000 | Jansen, Simmons, Hartwell
Total | $1,045,000–$1,300,000
Category | Estimated Amount
Filing fees (Delaware entity formations, state qualifications in PA, VA, MD, NC, GA) | $5,000–$8,000
Online research (Checkpoint, Severin Data Systems, Tidewater Technologies, state law databases) | $15,000–$25,000
Travel (client meetings in New York; potential site visit to King of Prussia, PA) | $3,000–$5,000
Document production, copying, courier services | $2,000–$4,000
Miscellaneous (conference calls, overnight delivery, other out-of-pocket costs) | $1,000–$3,000
Total Estimated Disbursements | $26,000–$45,000
Component | Low | High
Professional fees | $1,045,000 | $1,300,000
Disbursements and expenses | $26,000 | $45,000
Total | $1,071,000 | $1,345,000
Target Date | Deliverable
February 12, 2024 | Preliminary Tax Structure Memorandum
February 16, 2024 | Blocker Entity Analysis Memorandum
February 20, 2024 | State & Local Tax Memorandum
February 22, 2024 | Rollover Equity Tax Memorandum (Section 721 vs. Section 351 Analysis)
February 28, 2024 | Section 338(h)(10) vs. Section 754 Election Analysis Memorandum
March 1, 2024 | Earnout Tax Characterization Memorandum; Entity Formation Checklist
March 5, 2024 | Open Transaction vs. Closed Transaction / Installment Method Memorandum; Entity Formation Filings (Holdings LLC, Intermediate Inc., Merger Sub LLC)
March 8, 2024 | Profits Interest / Unvested Equity Memorandum; Tax Representations and Covenants Markup
March 10, 2024 | Tax Indemnity Provisions Markup; LLC Agreement Tax Provisions Markup
March 12, 2024 | Earnout Provisions Tax Review and Comment Letter to Harcourt Shaw & DeVries LLP
March 15, 2024 | Signing Date (Merger Agreement) — support as needed
March 18, 2024 | State Tax Structuring Recommendations Letter
March 20, 2024 | Tax Receivable Agreement — Draft
April 18, 2024 | Purchase Price Allocation Schedule and Memorandum
May 15, 2024 | Nonresident Withholding Computation Schedule (upon receipt of state regulatory approvals)
May 28–29, 2024 | Tax Receivable Agreement — Execution Version; Section 83(b) Election Forms; Tax Opinion Letter
May 30, 2024 | IRS Reporting Obligations Checklist
May 31, 2024 | Closing Deliverables: Tax Closing Certificate, Section 754 Election Draft, FIRPTA Certificates, Section 83(b) Transmittal Letters, Closing Tax Memorandum
June 14, 2024 | Post-Closing Tax Integration Memorandum
June 25, 2024 | Engagement Close-Out; Engagement Summary and Lessons Learned Memorandum

CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM PRIVILEGED & CONFIDENTIAL

ENGAGEMENT NUMBER: 1001-00006

APPROVED:

APPROVED:

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