TAX RECEIVABLE AGREEMENT
Dated as of May 28, 2024
Among
ARDENT HEALTHCARE HOLDINGS LLC, a Delaware limited liability company,
ARDENT HEALTHCARE INTERMEDIATE INC., a Delaware corporation,
and
THE TRA HOLDERS PARTY HERETO
________________________________________
Relating to the Acquisition of 100% of the Membership Interests in Pinnacle Health Services Group LLC, a Delaware limited liability company, pursuant to the Agreement and Plan of Merger dated March 15, 2024
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RECITALS
WHEREAS, Ardent Capital Partners III LP, a Delaware limited partnership ("Fund III"), acting through its general partner, Ardent Capital GP III LLC, a Delaware limited liability company ("Ardent GP III"), formed Ardent Healthcare Holdings LLC (EIN: 93-2187445), a Delaware limited liability company ("Holdings"), as the top-level acquisition holding company for the purpose of consummating the acquisition of Pinnacle Health Services Group LLC (EIN: 82-1947632), a Delaware limited liability company ("Pinnacle" or "PHSG"), and the direct and indirect subsidiaries thereof;
WHEREAS, Holdings is the sole equity holder of Ardent Healthcare Intermediate Inc. (EIN: 93-2187512), a Delaware C-corporation ("Intermediate" or the "Corporate Taxpayer"), which in turn acquired one hundred percent (100%) of the issued and outstanding membership interests in Pinnacle pursuant to the reverse merger of Ardent Healthcare Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Intermediate, with and into Pinnacle, with Pinnacle surviving as a wholly owned subsidiary of Intermediate (the "Merger"), all as contemplated by and in accordance with the Agreement and Plan of Merger dated as of March 15, 2024 (together with all schedules, exhibits, and amendments thereto, the "Merger Agreement"), among Holdings, Ardent Healthcare Merger Sub LLC, Pinnacle, and the other parties thereto;
WHEREAS, the transactions contemplated by the Merger Agreement closed on May 31, 2024 (the "Closing Date"), at an enterprise value of Four Hundred Twelve Million Dollars ($412,000,000), with an equity value of Three Hundred Thirty-Nine Million Four Hundred Thousand Dollars ($339,400,000) (representing the enterprise value minus Seventy-Two Million Six Hundred Thousand Dollars ($72,600,000) of net debt assumed or refinanced in connection with the Merger);
WHEREAS, Pinnacle is, and at all times since its formation has been, classified as a partnership for United States federal income tax purposes, and Pinnacle has made (or will make) an election under Section 754 of the Internal Revenue Code of 1986, as amended (the "Code"), with its partnership federal income tax return (IRS Form 1065) for the taxable year ending December 31, 2024;
WHEREAS, as a result of such Section 754 election, Intermediate, as the acquirer of one hundred percent (100%) of the membership interests in Pinnacle, is entitled to a basis adjustment under Section 743(b) of the Code with respect to the assets of Pinnacle (the "Basis Adjustment"), estimated at Two Hundred Twenty-Four Million Four Hundred Thousand Dollars ($224,400,000), representing the excess of the Four Hundred Twelve Million Dollar ($412,000,000) enterprise value (treated as the purchase price for purposes of the Basis Adjustment computation) over the One Hundred Eighty-Seven Million Six Hundred Thousand Dollars ($187,600,000) of Pinnacle's aggregate inside tax basis in its assets as of the Closing Date;
WHEREAS, the Basis Adjustment is expected to produce annual amortization deductions of approximately Twenty Million Forty Thousand Dollars ($20,040,000) per year over a weighted-average useful life of approximately 11.2 years, generating estimated annual tax benefits of approximately Five Million Ten Thousand Dollars ($5,010,000) per year, calculated at a twenty-five percent (25%) blended federal and state corporate income tax rate;
WHEREAS, certain pre-Closing members of Pinnacle contributed their Pinnacle membership interests to Holdings in exchange for Class B Units of Holdings (the "Rollover") and are party to this Agreement as TRA Holders, consisting of: (i) Dr. Raymond Carvallo, who contributed membership interests with a value of Thirty-Two Million Four Hundred Ten Thousand Dollars ($32,410,000) in exchange for Class B Units; (ii) Dr. Nadia Ostrowski, who contributed membership interests with a value of Twenty-Four Million One Hundred Eighty Thousand Dollars ($24,180,000) in exchange for Class B Units; and (iii) Jonathan Farnsworth, who contributed membership interests with a value of Two Million Nine Hundred Fifty Thousand Dollars ($2,950,000) in exchange for Class B Units, representing a total Rollover amount of Fifty-Nine Million Five Hundred Forty Thousand Dollars ($59,540,000);
WHEREAS, the remaining pre-Closing members of Pinnacle, consisting of fourteen (14) minority physician-investors who collectively held twenty-seven and one-half percent (27.5%) of the issued and outstanding membership interests in Pinnacle immediately prior to the Closing Date, received solely cash consideration in the Merger and are also TRA Holders entitled to payments hereunder on account of the Basis Adjustments attributable to the acquisition of their respective interests; and
WHEREAS, the parties hereto desire to provide for payments by the Corporate Taxpayer to the TRA Holders equal to eighty-five percent (85%) of the Realized Tax Benefits (as defined herein) attributable to the Basis Adjustments, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS
The following terms shall have the meanings set forth below for purposes of this Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
"Actual Tax Liability" means, for any Taxable Year, the actual aggregate liability of the Corporate Taxpayer for federal, state, and local income taxes, as reflected on the Corporate Taxpayer's filed Tax Returns for such Taxable Year, taking into account all items of income, gain, loss, deduction, and credit, including the amortization deductions attributable to the Basis Adjustments.
"Agreed Rate" means, for any date of determination, a per annum rate equal to the Secured Overnight Financing Rate ("SOFR") as published by the Federal Reserve Bank of New York (or any successor administrator) on the applicable date, plus one hundred (100) basis points, compounded annually. In the event that SOFR is discontinued or is otherwise unavailable, the Agreed Rate shall be determined by reference to the replacement rate designated by the Federal Reserve Bank of New York or, in the absence of such designation, by reference to such other comparable benchmark rate as the Corporate Taxpayer and the TRA Holder Representative shall mutually agree.
"Basis Adjustment" means the adjustment to the tax basis of the assets of Pinnacle under Section 743(b) of the Code resulting from the Section 754 election made by Pinnacle for its taxable year ending December 31, 2024, and applicable to Intermediate as the acquirer of one hundred percent (100%) of the membership interests in Pinnacle. The Basis Adjustment is estimated at Two Hundred Twenty-Four Million Four Hundred Thousand Dollars ($224,400,000), allocated among the assets of Pinnacle in accordance with Section 755 of the Code and the Purchase Price Allocation set forth on Schedule A hereto.
"Blended Tax Rate" means, for any Taxable Year, the sum of (a) the applicable federal corporate income tax rate (currently twenty-one percent (21%)) plus (b) the estimated blended state and local income tax rate, weighted by the allocation of Pinnacle's earnings before interest, taxes, depreciation, and amortization across the states in which the Corporate Taxpayer or Pinnacle files income tax returns (currently estimated at six and forty-two hundredths percent (6.42%), reflecting the weighted average of the applicable tax rates in the Commonwealth of Pennsylvania, the Commonwealth of Virginia, the State of Maryland, the State of North Carolina, and the State of Georgia), net of the federal tax benefit of state income tax deductions to the extent applicable. As of the date hereof, the Blended Tax Rate is estimated at twenty-five percent (25%). The Blended Tax Rate shall be recomputed for each Taxable Year based on the actual applicable federal and state tax rates in effect for such year.
"Board" means the board of directors of the Corporate Taxpayer (if Intermediate is governed by a board of directors) or the board of managers of Holdings (if the applicable governance determination is made at the Holdings level), as the context requires.
"Change of Control" means the occurrence of any of the following: (i) any merger, consolidation, recapitalization, business combination, or sale of all or substantially all of the assets of Holdings, the Corporate Taxpayer, or Pinnacle (whether in a single transaction or a series of related transactions); (ii) any direct or indirect transfer, sale, assignment, or other disposition (whether by merger, consolidation, or otherwise) of more than fifty percent (50%) of the voting equity interests of Holdings or the Corporate Taxpayer to any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than Fund III or its affiliates; or (iii) any transaction or series of related transactions resulting in any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) becoming the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of all outstanding voting securities of Holdings or the Corporate Taxpayer. The definition of "Change of Control" is intended to be interpreted consistently with the earnout acceleration provision set forth in Section 2.7(c) of the Merger Agreement, and the parties shall construe this definition and such provision harmoniously.
"Closing Date" means May 31, 2024.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto.
"Corporate Taxpayer" means Ardent Healthcare Intermediate Inc., a Delaware corporation (EIN: 93-2187512), and any successor thereto.
"Determination" shall have the meaning ascribed to such term in Section 1313(a) of the Code (or any similar provision of state or local tax law), including a final decision, judgment, decree, or other order of a court of competent jurisdiction that is not subject to further appeal or review, a closing agreement or compromise under Section 7121 of the Code (or any similar provision of state or local tax law), or any other final resolution of an issue resulting from an audit, examination, or other tax proceeding.
"Early Termination Date" means the date on which an Early Termination Notice is delivered by the Corporate Taxpayer to the TRA Holder Representative in accordance with Article V hereof.
"Early Termination Notice" means a written notice delivered by the Corporate Taxpayer to the TRA Holder Representative pursuant to Section 5.1 hereof, electing to terminate this Agreement and pay the Early Termination Payment.
"Early Termination Payment" means the amount computed in accordance with Article V hereof, representing the present value of all remaining future Tax Benefit Payments as of the Early Termination Date.
"Exchange Date" means the Closing Date or any subsequent date on which a TRA Holder exchanges, redeems, or is deemed to exchange or redeem its interests in Holdings (including Class B Units) for cash or other consideration in a transaction that gives rise to additional Basis Adjustments under Section 743(b) of the Code.
"Holdings" means Ardent Healthcare Holdings LLC, a Delaware limited liability company (EIN: 93-2187445), and any successor thereto.
"Hypothetical Tax Liability" means, for any Taxable Year, the aggregate liability of the Corporate Taxpayer for federal, state, and local income taxes, computed without regard to any amortization or depreciation deductions attributable to the Basis Adjustments or any Realized Tax Benefits arising under this Agreement. For the avoidance of doubt, the Hypothetical Tax Liability shall be computed as if the Corporate Taxpayer had acquired the assets of Pinnacle at their historical inside tax basis ($187,600,000) rather than at the stepped-up basis resulting from the Section 754 election.
"Independent Firm" has the meaning set forth in Section 8.2 hereof.
"Merger Agreement" means the Agreement and Plan of Merger dated as of March 15, 2024, among Ardent Healthcare Holdings LLC, Ardent Healthcare Merger Sub LLC, Pinnacle Health Services Group LLC, and the other parties thereto, as such agreement may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Net Tax Benefit" means, for any Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the Actual Tax Liability for such Taxable Year, to the extent such excess is attributable to the amortization or depreciation deductions resulting from the Basis Adjustments.
"Pinnacle" means Pinnacle Health Services Group LLC, a Delaware limited liability company (EIN: 82-1947632), and any successor thereto.
"Purchase Price Allocation" means the allocation of the Four Hundred Twelve Million Dollar ($412,000,000) enterprise value across asset classes, as set forth on Schedule A hereto, prepared in accordance with Section 1060 of the Code and the methodology prescribed by Section 743(b) and Section 755 of the Code, as follows: Class I (Cash and Cash Equivalents): $8,700,000; Class II (Actively Traded Personal Property): $0; Class III (Accounts Receivable, Mortgages, and Similar Items): $32,400,000; Class IV (Tangible Property): $67,500,000; Class V (Intangible Assets other than Goodwill and Going Concern Value): $146,200,000; and Class VI (Section 197 Intangibles—Goodwill and Going Concern Value): $157,200,000.
"Realized Tax Benefit" means, for any Taxable Year, the Net Tax Benefit for such Taxable Year, as determined in accordance with Article II hereof.
"Sharing Percentage" means eighty-five percent (85%).
"SOFR" means the Secured Overnight Financing Rate as published by the Federal Reserve Bank of New York (or any successor administrator), or such replacement rate as contemplated by the definition of "Agreed Rate."
"Tax Benefit Payment" means, for any Taxable Year, the amount required to be paid by the Corporate Taxpayer to a TRA Holder pursuant to Article III hereof, equal to the product of (a) the Sharing Percentage (85%), multiplied by (b) the applicable Realized Tax Benefit for such Taxable Year, multiplied by (c) such TRA Holder's TRA Holder Percentage.
"Tax Benefit Schedule" means the schedule prepared by the Corporate Taxpayer for each Taxable Year in accordance with Section 4.1 hereof, setting forth in reasonable detail the computation of the Realized Tax Benefit and the Tax Benefit Payment owed to each TRA Holder.
"Tax Return" means any return, declaration, report, claim for refund, information return, or statement relating to taxes, including any schedule or attachment thereto and any amendment thereof, that is filed or required to be filed with any taxing authority.
"Taxable Year" means any taxable year (or portion thereof) of the Corporate Taxpayer ending on or after the Closing Date. The Corporate Taxpayer's taxable year is the calendar year.
"TRA Holder" means each of Dr. Raymond Carvallo, Dr. Nadia Ostrowski, Jonathan Farnsworth, and the fourteen (14) pre-Closing minority physician-investor members of Pinnacle listed on Exhibit A hereto, and, in each case, any permitted transferee of such person who has executed and delivered a Joinder Agreement in the form attached hereto as Exhibit C.
"TRA Holder Percentage" means, for each TRA Holder, such TRA Holder's pro rata share of the aggregate Tax Benefit Payment, based on the percentage of the aggregate issued and outstanding Pinnacle membership interests held by such TRA Holder immediately prior to the Closing Date, as set forth on Exhibit A hereto. The TRA Holder Percentages are as follows: Dr. Raymond Carvallo: 38.2%; Dr. Nadia Ostrowski: 28.5%; Jonathan Farnsworth: 5.8%; and the fourteen (14) minority physician-investors: collectively 27.5% (allocated among such individuals as set forth on Exhibit A).
"TRA Holder Representative" means Dr. Raymond Carvallo, or such other person or persons as may be designated in writing by TRA Holders collectively holding a majority of the aggregate TRA Holder Percentages. The TRA Holder Representative shall act on behalf of the TRA Holders for all purposes under this Agreement, including the receipt of notices, the review and approval of Tax Benefit Schedules, and the resolution of disputes.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
"Valuation Assumptions" means, solely for purposes of computing Early Termination Payments under Article V hereof, the following assumptions: (a) a discount rate equal to the Agreed Rate in effect as of the Early Termination Date; (b) a Blended Tax Rate of twenty-five percent (25%); (c) the remaining amortization deductions determined by reference to the asset class useful lives set forth in the Purchase Price Allocation (Schedule A); and (d) the assumption that the Corporate Taxpayer will have sufficient taxable income in each future Taxable Year to fully utilize all amortization deductions attributable to the Basis Adjustments, with no haircut, probability discount, or other reduction for the likelihood of realization.
ARTICLE II — DETERMINATION OF REALIZED TAX BENEFIT
Section 2.1 — Basis Adjustments.
(a) The parties acknowledge and agree that, as a result of the Section 754 election made (or to be made) by Pinnacle for its taxable year ending December 31, 2024, Intermediate is entitled to a Basis Adjustment under Section 743(b) of the Code with respect to the assets of Pinnacle. The Basis Adjustment represents the excess of the amount paid for the Pinnacle membership interests (which, for purposes of Section 743(b), includes the Corporate Taxpayer's share of Pinnacle's liabilities) over the Corporate Taxpayer's proportionate share of Pinnacle's inside tax basis in its assets.
(b) The total estimated Basis Adjustment is Two Hundred Twenty-Four Million Four Hundred Thousand Dollars ($224,400,000), computed as the excess of Four Hundred Twelve Million Dollars ($412,000,000) (the enterprise value, which serves as the purchase price for purposes of this calculation, inclusive of assumed debt) over One Hundred Eighty-Seven Million Six Hundred Thousand Dollars ($187,600,000) (Pinnacle's aggregate inside tax basis in its assets as of the Closing Date).
(c) The Basis Adjustment shall be allocated among the assets of Pinnacle in accordance with Section 755 of the Code and the Treasury Regulations thereunder, consistent with the Purchase Price Allocation set forth on Schedule A hereto. The allocation shall be updated to reflect any adjustments required by applicable law or as a result of any Determination. The allocation among asset classes, and the useful lives applicable to each class, are as follows:
(i) Payor contracts: Seventy-Eight Million Three Hundred Thousand Dollars ($78,300,000), amortizable over a useful life of fifteen (15) years under Section 197 of the Code;
(ii) Assembled workforce: Twelve Million One Hundred Thousand Dollars ($12,100,000), amortizable over a useful life of three (3) years;
(iii) Trade name: Thirty-Eight Million Four Hundred Thousand Dollars ($38,400,000), amortizable over a useful life of fifteen (15) years under Section 197 of the Code;
(iv) Non-compete agreements: Seventeen Million Four Hundred Thousand Dollars ($17,400,000), amortizable over a useful life of five (5) years under Section 197 of the Code;
(v) Goodwill: One Hundred Fifty-Seven Million Two Hundred Thousand Dollars ($157,200,000), amortizable over a useful life of fifteen (15) years under Section 197 of the Code; and
(vi) Tangible property (including medical equipment, leasehold improvements, and furniture): Sixty-Seven Million Five Hundred Thousand Dollars ($67,500,000), depreciated over the specific useful lives applicable to each individual asset, as determined under the Modified Accelerated Cost Recovery System (MACRS) provisions of the Code;
resulting in a weighted-average useful life across all asset classes of approximately 11.2 years.
(d) If any Exchange Date occurs after the Closing Date (including upon any exchange, redemption, or deemed exchange of Class B Units by a Rollover TRA Holder), additional Basis Adjustments may arise under Section 743(b) of the Code. Any such additional Basis Adjustments shall be computed in the same manner as set forth in this Section 2.1 and shall be taken into account in the computation of Realized Tax Benefits for the applicable Taxable Year and all subsequent Taxable Years.
Section 2.2 — Computation of Realized Tax Benefits.
(a) For each Taxable Year, the Corporate Taxpayer shall compute the Realized Tax Benefit as the excess, if any, of (i) the Hypothetical Tax Liability (i.e., the income tax liability of the Corporate Taxpayer computed without regard to amortization or depreciation deductions attributable to the Basis Adjustments) over (ii) the Actual Tax Liability (i.e., the actual income tax liability of the Corporate Taxpayer after taking into account such amortization and depreciation deductions). The Realized Tax Benefit for any Taxable Year shall not be less than zero.
(b) For illustrative purposes only, and based on estimates as of the date hereof:
(i) Estimated annual aggregate amortization deduction attributable to the Basis Adjustments: $224,400,000 ÷ 11.2 years = approximately $20,040,000 per year;
(ii) Estimated annual Realized Tax Benefit: $20,040,000 × 25% (Blended Tax Rate) = approximately $5,010,000 per year.
The parties acknowledge that the actual annual amortization deduction will vary from year to year as individual asset classes become fully amortized (e.g., assembled workforce after three years, non-compete agreements after five years) and that the actual Realized Tax Benefit will depend upon the Corporate Taxpayer's actual taxable income, applicable tax rates, and other factors.
(c) The computation of the Realized Tax Benefit for each Taxable Year shall take into account: (i) the actual federal corporate income tax rate in effect for such Taxable Year (currently twenty-one percent (21%)); (ii) the actual state and local income tax rates applicable to the Corporate Taxpayer or Pinnacle for each state in which a Tax Return is filed, including:
• Pennsylvania: 8.99% (declining to 7.99% for 2024, 6.99% for 2025, 5.99% for 2026, and 4.99% for 2031 and thereafter, pursuant to Act 53 of 2022);
• Virginia: 6.0%;
• Maryland: 8.25%;
• North Carolina: 2.5% (effective January 1, 2024, declining to 0% by January 1, 2030, pursuant to S.L. 2021-180);
• Georgia: 5.75%;
(iii) the federal deductibility of state and local income taxes to the extent applicable under Section 164 of the Code; and (iv) the apportionment factors used to apportion the Corporate Taxpayer's or Pinnacle's taxable income among such states (including changes in apportionment methodology or the opening or closing of facilities in particular states).
(d) The computation of the Realized Tax Benefit shall be adjusted for any changes in applicable tax law, changes in federal or state income tax rates, changes in the Corporate Taxpayer's state tax apportionment, or any other changes that affect the amount of tax benefit actually realized by the Corporate Taxpayer in any Taxable Year. In no event shall the Realized Tax Benefit for any Taxable Year exceed the actual reduction in the Corporate Taxpayer's aggregate income tax liability attributable to the Basis Adjustments for such year.
Section 2.3 — Carryforwards and Carrybacks.
(a) If, for any Taxable Year, the amortization or depreciation deductions attributable to the Basis Adjustments generate or increase a net operating loss ("NOL") of the Corporate Taxpayer (or would generate or increase an NOL if such deductions were the last deductions taken into account), the Realized Tax Benefit for such Taxable Year shall be zero with respect to the portion of such deductions that contribute to the NOL. The tax benefit attributable to such portion shall instead be recognized in the Taxable Year (or Taxable Years) in which the resulting NOL carryforward is actually utilized to reduce the Corporate Taxpayer's income tax liability.
(b) Similar treatment shall apply to any tax credits, capital loss carryforwards, or other tax attributes generated or increased by reason of the Basis Adjustments. The Realized Tax Benefit associated with any such credit or attribute shall be recognized in the Taxable Year in which such credit or attribute is actually utilized to reduce the Corporate Taxpayer's income tax liability.
(c) The Corporate Taxpayer shall use commercially reasonable efforts to utilize NOLs, credits, and other tax attributes in the earliest Taxable Year permitted by applicable law, and shall not intentionally defer the utilization of such attributes in a manner that would delay Tax Benefit Payments to the TRA Holders.
Section 2.4 — Amended Returns and Audit Adjustments.
(a) If any amended Tax Return filed by the Corporate Taxpayer, or any audit adjustment, Determination, or other change, results in an increase or decrease in the Realized Tax Benefit for any prior Taxable Year, the Tax Benefit Payment for the current Taxable Year (or, if no payment is otherwise due in the current Taxable Year, the next Taxable Year in which a payment is due) shall be adjusted upward or downward, as applicable, to reflect the cumulative correction (a "true-up" or "clawback," as the case may be).
(b) Any true-up payment shall include interest at the Agreed Rate from the date the original Tax Benefit Payment was made (in the case of an underpayment) or from the date the relevant refund or credit was received by the Corporate Taxpayer (in the case of an overpayment).
(c) In the event that a clawback results in a net amount owed by a TRA Holder to the Corporate Taxpayer, such TRA Holder shall pay the clawback amount to the Corporate Taxpayer within thirty (30) days following receipt of written notice setting forth the computation of such amount. Notwithstanding the foregoing, no TRA Holder shall be required to return aggregate amounts in excess of the aggregate Tax Benefit Payments previously received by such TRA Holder under this Agreement.
Section 2.5 — Imputed Interest.
(a) To the extent that any Tax Benefit Payment (or any portion thereof) is treated as imputed interest for federal income tax purposes under Section 483 or Section 1274 of the Code or any similar provision of state or local tax law, the Corporate Taxpayer and the TRA Holders shall report such amount consistently as interest income to the recipient and as an interest deduction to the Corporate Taxpayer (to the extent deductible), and shall not take any inconsistent position on any Tax Return.
(b) For purposes of any imputed interest analysis under the Code, the parties note that, as of the date hereof, the applicable federal rates published by the Internal Revenue Service are: (i) short-term AFR: 5.12%; (ii) mid-term AFR: 4.67%; and (iii) long-term AFR: 4.89%. The parties shall use the AFR in effect for the month in which each Tax Benefit Payment is made for purposes of determining the imputed interest component, if any, of such payment.
ARTICLE III — TAX BENEFIT PAYMENTS
Section 3.1 — Payments.
(a) Within ninety (90) days following the filing of the Corporate Taxpayer's federal income Tax Return for each Taxable Year (or, if earlier, the extended due date thereof, taking into account any valid extensions of time to file), the Corporate Taxpayer shall prepare and deliver to each TRA Holder and to the TRA Holder Representative a Tax Benefit Schedule setting forth in reasonable detail the Realized Tax Benefit for such Taxable Year and the Tax Benefit Payment owed to each TRA Holder.
(b) The Tax Benefit Payment owed to each TRA Holder for any Taxable Year shall be computed as follows:
Tax Benefit Payment = Sharing Percentage (85%) × Realized Tax Benefit × TRA Holder Percentage
(c) Based on the estimates set forth in Section 2.2(b) hereof, the estimated aggregate annual Tax Benefit Payment is approximately Four Million Two Hundred Sixty Thousand Dollars ($4,260,000) per year (i.e., 85% × $5,010,000), declining over the amortization period as individual asset classes become fully amortized. The Corporate Taxpayer retains the remaining fifteen percent (15%) of the Realized Tax Benefit.
(d) The aggregate Tax Benefit Payment for each Taxable Year shall be allocated among the TRA Holders on a pro rata basis in accordance with their respective TRA Holder Percentages, as further set forth in Section 3.4 hereof.
Section 3.2 — Timing of Payments.
(a) Tax Benefit Payments shall be due and payable within five (5) business days following the later of (i) the date of delivery of the Tax Benefit Schedule for the applicable Taxable Year and (ii) the date that is ninety (90) days after the filing of the Corporate Taxpayer's federal income Tax Return for such Taxable Year (taking into account any valid extensions).
(b) All Tax Benefit Payments shall be made in cash by wire transfer of immediately available funds to the bank account or accounts designated in writing by each TRA Holder (or, in the case of the minority physician-investors, to the accounts designated on Exhibit A hereto or as subsequently updated in writing). Each TRA Holder shall provide wire transfer instructions to the Corporate Taxpayer at least ten (10) business days prior to the anticipated payment date.
(c) The Corporate Taxpayer shall provide each TRA Holder with a written remittance advice accompanying each Tax Benefit Payment, specifying the Taxable Year to which the payment relates, the amount of the Realized Tax Benefit, and the computation of the TRA Holder's pro rata share.
Section 3.3 — Late Payments.
If any Tax Benefit Payment is not made when due, interest shall accrue on the unpaid amount at the Agreed Rate (SOFR plus one hundred (100) basis points, compounded annually) from the original due date until the date such amount is paid in full. Such interest shall be payable in cash at the time the overdue Tax Benefit Payment is made and shall be in addition to, and not in lieu of, any other rights or remedies available to the TRA Holders under this Agreement or applicable law.
Section 3.4 — Pro Rata Allocation.
The aggregate Tax Benefit Payment for each Taxable Year shall be allocated among the TRA Holders in proportion to their respective TRA Holder Percentages, as follows:
(a) Dr. Raymond Carvallo: 38.2% of the aggregate Tax Benefit Payment;
(b) Dr. Nadia Ostrowski: 28.5% of the aggregate Tax Benefit Payment;
(c) Jonathan Farnsworth: 5.8% of the aggregate Tax Benefit Payment; and
(d) The fourteen (14) minority physician-investors: collectively 27.5% of the aggregate Tax Benefit Payment (allocated among such individuals in accordance with their respective individual TRA Holder Percentages set forth on Exhibit A).
If any TRA Holder transfers all or a portion of its TRA Holder Percentage to a permitted transferee in accordance with Section 9.1 hereof, the transferee shall succeed to the corresponding portion of the transferor's TRA Holder Percentage for purposes of computing future Tax Benefit Payments.
Section 3.5 — No Duplication.
No TRA Holder shall be entitled to receive duplicative Tax Benefit Payments for the same Basis Adjustment, amortization deduction, or Realized Tax Benefit. In the event that any Basis Adjustment or Realized Tax Benefit is attributable to more than one Exchange Date or more than one transaction, the Corporate Taxpayer shall allocate such Basis Adjustment or Realized Tax Benefit in a manner that avoids duplication, consistent with the principles of the Code and the Treasury Regulations.
ARTICLE IV — TAX BENEFIT SCHEDULE; PROCEDURES
Section 4.1 — Tax Benefit Schedule.
(a) For each Taxable Year during the term of this Agreement, the Corporate Taxpayer shall prepare and deliver to the TRA Holder Representative a Tax Benefit Schedule showing in reasonable detail the following information:
(i) the Basis Adjustment amounts amortized or depreciated during the Taxable Year, broken down by asset class (payor contracts, assembled workforce, trade name, non-compete agreements, goodwill, and tangible property);
(ii) the aggregate amortization and depreciation deduction attributable to the Basis Adjustments for the Taxable Year;
(iii) the Hypothetical Tax Liability for the Taxable Year (computed without regard to the Basis Adjustments);
(iv) the Actual Tax Liability for the Taxable Year (computed with the Basis Adjustments);
(v) the Realized Tax Benefit for the Taxable Year (being the excess of clause (iii) over clause (iv));
(vi) each TRA Holder's Tax Benefit Payment, computed as 85% × Realized Tax Benefit × TRA Holder Percentage;
(vii) the due date for payment; and
(viii) cumulative Tax Benefit Payments made to date under this Agreement, in the aggregate and to each TRA Holder individually.
(b) The Tax Benefit Schedule shall be prepared by the Corporate Taxpayer with the assistance of a nationally recognized independent accounting firm. As of the date hereof, the parties agree that such firm shall be Caldwell Pratt & Moorehouse LLP, or such other nationally recognized independent accounting firm as the Corporate Taxpayer and the TRA Holder Representative may mutually agree in writing.
(c) The Tax Benefit Schedule shall be accompanied by a certification of the Chief Financial Officer (or equivalent officer) of the Corporate Taxpayer that the Tax Benefit Schedule has been prepared in good faith and in accordance with the terms of this Agreement.
Section 4.2 — TRA Holder Representative Review.
(a) The TRA Holder Representative (initially Dr. Raymond Carvallo) shall be entitled to review the Tax Benefit Schedule within thirty (30) calendar days of receipt thereof (the "Review Period"). During the Review Period, the Corporate Taxpayer shall provide the TRA Holder Representative with reasonable access to the supporting workpapers, computations, and relevant portions of the Corporate Taxpayer's Tax Returns (including IRS Form 1065 and Schedules K-1 of Pinnacle, and the Corporate Taxpayer's IRS Form 1120 and applicable state income tax returns), subject to the confidentiality obligations set forth in Section 9.9 hereof. The TRA Holder Representative and its advisors (including Whitford & Gaines LLP and any independent accounting firm retained by the TRA Holder Representative) may review such materials at the offices of the Corporate Taxpayer or its advisors, or copies thereof may be provided electronically, at the Corporate Taxpayer's election.
(b) If the TRA Holder Representative objects to any item or computation reflected in the Tax Benefit Schedule, the TRA Holder Representative shall deliver a written objection to the Corporate Taxpayer setting forth in reasonable detail the basis for such objection within the thirty (30)-day Review Period. Any items not objected to within the Review Period shall be deemed accepted and final.
(c) If the TRA Holder Representative delivers a timely written objection, the Corporate Taxpayer and the TRA Holder Representative shall use good faith efforts to resolve such objection within thirty (30) calendar days following delivery of the written objection. If the parties are unable to resolve the objection within such period, the dispute shall be referred to the Independent Firm in accordance with Article VIII hereof.
Section 4.3 — Consistency.
(a) The Corporate Taxpayer covenants and agrees that it shall file (and shall cause Pinnacle and all other relevant entities to file) all Tax Returns consistently with the Basis Adjustments, the Purchase Price Allocation set forth on Schedule A hereto, and the Section 754 election made by Pinnacle, in each case as contemplated by this Agreement.
(b) The Corporate Taxpayer shall not take any position on any Tax Return, and shall not take any action or make any election, that is inconsistent with the Basis Adjustments, the Purchase Price Allocation, or the Section 754 election, unless required to do so by a Determination or by a change in applicable law that renders such position or action mandatory. If the Corporate Taxpayer is required by a Determination to take a position inconsistent with the Basis Adjustments or the Purchase Price Allocation, the Corporate Taxpayer shall promptly notify the TRA Holder Representative in writing.
(c) The Corporate Taxpayer shall coordinate with the tax matters partner (or partnership representative) of Pinnacle to ensure that the Section 743(b) step-up computation is properly reflected on Pinnacle's IRS Form 1065 and accompanying schedules for the taxable year ending December 31, 2024, and that the Section 754 election is properly filed therewith.
Section 4.4 — Tax Return Filing Cooperation.
(a) Each TRA Holder shall cooperate reasonably and in good faith with the Corporate Taxpayer in the preparation and filing of Tax Returns and in connection with any tax proceedings, audits, examinations, or litigation relating to the Basis Adjustments or the Realized Tax Benefits, including by providing information, executing documents, and making representatives available as reasonably requested by the Corporate Taxpayer. The Corporate Taxpayer shall reimburse each TRA Holder for reasonable out-of-pocket costs incurred in connection with such cooperation.
(b) The Corporate Taxpayer shall provide (or cause Pinnacle to provide) each TRA Holder with an IRS Schedule K-1 (Form 1065) or equivalent information statement reflecting each TRA Holder's allocable share of Pinnacle's income, gain, loss, deduction, and credit for each taxable year of Pinnacle during the term of this Agreement, including any information necessary for the TRA Holder to report the Tax Benefit Payments received hereunder on such TRA Holder's own Tax Returns.
ARTICLE V — EARLY TERMINATION
Section 5.1 — Early Termination Election.
(a) The Corporate Taxpayer may, at any time, irrevocably elect to terminate this Agreement with respect to all remaining obligations to all TRA Holders by delivering an Early Termination Notice to the TRA Holder Representative. Upon delivery of such notice, the Corporate Taxpayer shall pay each TRA Holder an Early Termination Payment.
(b) The Early Termination Payment shall equal the present value, as of the Early Termination Date, of all remaining future Tax Benefit Payments that would be owed to each TRA Holder under this Agreement if this Agreement were to remain in effect through the expiration of all applicable amortization periods. The Early Termination Payment shall be calculated using the Valuation Assumptions, as follows:
(i) Remaining Amortization Deductions: The aggregate remaining amortization and depreciation deductions attributable to the Basis Adjustments, determined by reference to the asset class useful lives set forth in the Purchase Price Allocation (Schedule A) and the remaining unamortized basis as of the Early Termination Date;
(ii) Blended Tax Rate: A Blended Tax Rate of twenty-five percent (25%), regardless of the actual tax rates in effect as of the Early Termination Date or expected to be in effect in future years;
(iii) Taxable Income Assumption: The assumption that the Corporate Taxpayer will have sufficient taxable income in each future Taxable Year to fully utilize all remaining amortization deductions attributable to the Basis Adjustments, with no haircut, probability discount, or other reduction for the likelihood of realization;
(iv) discount Rate: The Agreed Rate (SOFR plus 100 basis points) in effect as of the Early Termination Date;
(v) Tax Benefit Payment: For each future Taxable Year, the estimated Tax Benefit Payment shall equal 85% × (remaining amortization deduction for such year × 25%);
(vi) Present Value: The present value of the stream of estimated future Tax Benefit Payments, discounted to the Early Termination Date at the Agreed Rate.
(c) The Corporate Taxpayer shall prepare a computation of the Early Termination Payment and deliver such computation to the TRA Holder Representative together with the Early Termination Notice. The TRA Holder Representative shall have thirty (30) calendar days to review such computation, and any disputes shall be resolved in accordance with Article VIII hereof.
Section 5.2 — Mandatory Early Termination Upon Change of Control.
(a) Upon the occurrence of a Change of Control of Holdings or the Corporate Taxpayer, the obligations of the Corporate Taxpayer under this Agreement shall automatically accelerate, and the Corporate Taxpayer (or its successor-in-interest) shall be obligated to pay each TRA Holder the Early Termination Payment within fifteen (15) business days following the closing of such Change of Control transaction.
(b) The Early Termination Payment upon a Change of Control shall be computed in the same manner as set forth in Section 5.1(b) hereof, using the Valuation Assumptions as of the date of the closing of the Change of Control transaction.
(c) The obligation to pay the Early Termination Payment upon a Change of Control shall be a condition to the closing of such Change of Control transaction, and the Corporate Taxpayer shall use its best efforts to cause the acquirer or successor entity to assume the obligation to make such payment. The definition of "Change of Control" is to be interpreted consistently with the earnout acceleration provisions set forth in Section 2.7(c) of the Merger Agreement.
Section 5.3 — Material Breach.
If the Corporate Taxpayer materially breaches any of its obligations under this Agreement (including the obligation to prepare and deliver Tax Benefit Schedules, the obligation to make Tax Benefit Payments when due, or the covenant of consistency under Section 4.3) and fails to cure such breach within sixty (60) calendar days following receipt of written notice from the TRA Holder Representative specifying in reasonable detail the nature of the breach, then the TRA Holders (acting through the TRA Holder Representative) shall have the right, exercisable by written notice delivered to the Corporate Taxpayer within thirty (30) days following the expiration of the cure period, to elect early termination of this Agreement and receive the Early Termination Payment, calculated as of the date of such election in accordance with Section 5.1(b) hereof. The right to elect early termination under this Section 5.3 shall be in addition to, and not in limitation of, any other rights or remedies available to the TRA Holders under this Agreement or applicable law.
Section 5.4 — Payment Mechanics.
(a) All Early Termination Payments shall be made in cash by wire transfer of immediately available funds to the bank accounts designated by the applicable TRA Holders in accordance with Section 3.2(b) hereof.
(b) Partial early termination shall not be permitted. Any election to terminate this Agreement under Section 5.1 or Section 5.3, and any mandatory acceleration under Section 5.2, shall apply to all remaining obligations of the Corporate Taxpayer to all TRA Holders under this Agreement. The Corporate Taxpayer may not selectively terminate its obligations with respect to fewer than all of the TRA Holders.
(c) Upon payment in full of all Early Termination Payments, this Agreement shall terminate and no further Tax Benefit Payments shall be owed by the Corporate Taxpayer to any TRA Holder, and the TRA Holders shall have no further rights or claims under this Agreement, except for any rights accrued prior to the Early Termination Date with respect to Tax Benefit Payments previously due but unpaid (including interest thereon).
ARTICLE VI — TAX MATTERS; COOPERATION
Section 6.1 — Tax Treatment of Payments.
(a) The parties hereto agree to treat Tax Benefit Payments (and Early Termination Payments) as additional purchase price paid by the Corporate Taxpayer for the Pinnacle membership interests acquired in the Merger for federal, state, and local income tax purposes, to the maximum extent permitted by applicable law. The parties shall file all Tax Returns consistently with such treatment and shall not take any contrary position on any Tax Return, in any tax proceeding, or otherwise, unless required to do so by a Determination.
(b) To the extent that any Tax Benefit Payment (or any portion thereof) is recharacterized by any taxing authority as other than additional purchase price (including, without limitation, as ordinary income, compensation, a distribution, or a dividend), the Corporate Taxpayer shall gross up such payment so that the net amount received by the TRA Holder, after giving effect to any additional taxes imposed on the TRA Holder as a result of such recharacterization, equals the amount that the TRA Holder would have received if such recharacterization had not occurred; provided, however, that the aggregate gross-up obligation of the Corporate Taxpayer with respect to any individual Tax Benefit Payment shall not exceed one hundred fifteen percent (115%) of the original Tax Benefit Payment amount.
Section 6.2 — Section 754 Election.
(a) Holdings shall cause Pinnacle to file (or maintain in effect) the election under Section 754 of the Code with Pinnacle's partnership federal income tax return (IRS Form 1065, filed under EIN: 82-1947632) for the taxable year ending December 31, 2024, and for all subsequent taxable years of Pinnacle during the term of this Agreement.
(b) Neither Holdings, the Corporate Taxpayer, nor any of their affiliates shall take any action to revoke, terminate, or otherwise render ineffective the Section 754 election without the prior written consent of the TRA Holder Representative (which consent may be withheld in the TRA Holder Representative's sole and absolute discretion).
Section 6.3 — Tax Proceedings.
(a) The Corporate Taxpayer shall provide prompt written notice (and in no event later than fifteen (15) business days) to the TRA Holder Representative of any tax proceeding, audit, examination, investigation, or litigation (or notice thereof) by any federal, state, or local taxing authority that relates to or could reasonably be expected to affect the Basis Adjustments, the Purchase Price Allocation, the Realized Tax Benefits, or the Tax Benefit Payments.
(b) The Corporate Taxpayer shall not settle, compromise, concede, or abandon any claim, issue, or position in any such tax proceeding that would have the effect of reducing future Realized Tax Benefits or Tax Benefit Payments without the prior written consent of the TRA Holder Representative, which consent shall not be unreasonably withheld, conditioned, or delayed. For purposes of this Section 6.3(b), it shall be deemed reasonable for the TRA Holder Representative to withhold consent if the proposed settlement, compromise, or concession would reduce the aggregate present value of remaining Tax Benefit Payments by more than Five Hundred Thousand Dollars ($500,000).
(c) The TRA Holder Representative (and its designated advisors, including Whitford & Gaines LLP) shall have the right, at the TRA Holders' sole cost and expense, to participate in any tax proceeding relating to the Basis Adjustments or the Realized Tax Benefits, including the right to attend meetings and conferences with the relevant taxing authority, review and comment on submissions and correspondence, and consult with the Corporate Taxpayer's advisors (including Calderwood & Harkness LLP and Caldwell Pratt & Moorehouse LLP), in each case subject to applicable privileges and confidentiality obligations.
Section 6.4 — Coordination with Tax Indemnity.
(a) This Agreement is independent of, and shall not be construed as modifying, supplementing, or superseding, the tax indemnification provisions of the Merger Agreement (including the tax indemnity escrow of Four Million One Hundred Twenty Thousand Dollars ($4,120,000) held at Ironbridge Trust Company, N.A. (reference: ITC-ESC-2024-05312)).
(b) Payments made under this Agreement shall not reduce, offset, or otherwise affect any indemnification obligations arising under the Merger Agreement, and payments or indemnification amounts received under the Merger Agreement shall not reduce, offset, or otherwise affect any obligations arising under this Agreement. The rights and obligations of the parties under this Agreement and under the Merger Agreement are separate and independent, and the exercise or enforcement of rights under one agreement shall not preclude or limit the exercise or enforcement of rights under the other.
ARTICLE VII — REPRESENTATIONS AND WARRANTIES
Section 7.1 — Representations and Warranties of the Corporate Taxpayer and Holdings.
Each of the Corporate Taxpayer and Holdings hereby represents and warrants to each TRA Holder as follows:
(a) Organization and Good Standing. Each of the Corporate Taxpayer and Holdings is duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate or limited liability company power and authority to own, operate, and lease its properties and to carry on its business as currently conducted.
(b) Authority; Binding Obligation. Each of the Corporate Taxpayer and Holdings has full corporate or limited liability company power and authority to execute, deliver, and perform its obligations under this Agreement. The execution, delivery, and performance of this Agreement have been duly authorized by all necessary corporate or limited liability company action on the part of each of the Corporate Taxpayer and Holdings, including the approval of the Board. This Agreement has been duly executed and delivered by each of the Corporate Taxpayer and Holdings and constitutes a legal, valid, and binding obligation of each of the Corporate Taxpayer and Holdings, enforceable against each in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
(c) No Conflict. The execution, delivery, and performance of this Agreement by each of the Corporate Taxpayer and Holdings does not and will not (i) conflict with, violate, or result in a breach of any provision of the organizational documents (including the certificate of incorporation, bylaws, certificate of formation, or limited liability company agreement, as applicable) of the Corporate Taxpayer, Holdings, or Pinnacle; (ii) conflict with, violate, or result in a breach of, or constitute a default (or an event that, with the giving of notice or lapse of time or both, would become a default) under, or result in the creation of any lien upon any property or asset pursuant to, any provision of the Merger Agreement or any credit agreement to which the Corporate Taxpayer, Holdings, or Pinnacle is a party, including the senior secured credit facility with Graystone National Bank, N.A. (as administrative agent and lender) and the mezzanine credit facility with Cascadia Mezzanine Fund IV LP (as mezzanine lender); or (iii) violate any applicable law, rule, regulation, order, judgment, or decree of any governmental authority.
(d) Partnership Classification. Pinnacle is, and at all relevant times since its formation has been, classified as a partnership for United States federal income tax purposes. Neither the Corporate Taxpayer, Holdings, nor any of their affiliates has made, or will make, an election to treat Pinnacle as an association taxable as a corporation under Treasury Regulations Section 301.7701-3 (the "check-the-box regulations").
(e) Section 754 Election. Pinnacle has made (or will make, no later than the due date (including extensions) for filing Pinnacle's IRS Form 1065 for the taxable year ending December 31, 2024) a valid election under Section 754 of the Code, and such election is (or will be) in full force and effect.
Section 7.2 — Representations and Warranties of the TRA Holders.
Each TRA Holder, severally and not jointly, hereby represents and warrants to the Corporate Taxpayer and Holdings as follows:
(a) Capacity and Authority. Such TRA Holder has the legal capacity and authority to execute, deliver, and perform its obligations under this Agreement. If such TRA Holder is a natural person, such TRA Holder has reached the age of majority and is legally competent to enter into binding agreements. If such TRA Holder is an entity, such TRA Holder is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization.
(b) Contingent Nature of Payments. Such TRA Holder acknowledges and agrees that the Tax Benefit Payments and Early Termination Payments are contingent upon the Corporate Taxpayer's actual realization of tax benefits attributable to the Basis Adjustments, and that there can be no assurance that the Corporate Taxpayer will realize any particular amount of tax benefits in any Taxable Year. The Tax Benefit Payments are not guaranteed, and the amount and timing thereof may differ materially from the estimates set forth herein.
(c) Ownership Percentages. The TRA Holder Percentages set forth herein and on Exhibit A accurately reflect the percentage of the aggregate issued and outstanding Pinnacle membership interests held by each TRA Holder immediately prior to the Closing Date: Dr. Raymond Carvallo: 38.2%; Dr. Nadia Ostrowski: 28.5%; Jonathan Farnsworth: 5.8%; and the fourteen (14) minority physician-investors: collectively 27.5%.
(d) No Conflict. The execution, delivery, and performance of this Agreement by such TRA Holder does not and will not conflict with, violate, or result in a breach of any agreement to which such TRA Holder is a party or by which such TRA Holder is bound.
ARTICLE VIII — DISPUTE RESOLUTION
Section 8.1 — Dispute Notice.
Any party desiring to submit a dispute relating to the computation of Realized Tax Benefits, Tax Benefit Payments, Early Termination Payments, or any other matter arising under this Agreement shall deliver a written notice (a "Dispute Notice") to each other party, setting forth in reasonable detail the nature of the dispute, the specific provisions of this Agreement to which the dispute relates, and the disputing party's proposed resolution. The parties shall use good faith efforts to resolve any such dispute through direct negotiation within thirty (30) calendar days following delivery of the Dispute Notice.
Section 8.2 — Independent Accounting Firm.
(a) If the parties are unable to resolve any dispute within thirty (30) calendar days following delivery of the Dispute Notice, the dispute shall be referred to a nationally recognized independent accounting firm (the "Independent Firm") mutually agreed upon by the Corporate Taxpayer and the TRA Holder Representative. The Independent Firm shall not be Caldwell Pratt & Moorehouse LLP (the current auditor and tax advisor of the Corporate Taxpayer) or Brewer Stanfield & Associates LLP (the former auditor and tax advisor of Pinnacle). If the parties cannot agree on the identity of the Independent Firm within ten (10) business days following the expiration of the negotiation period, each party shall designate one nationally recognized accounting firm, and the two designated firms shall jointly select the Independent Firm within five (5) business days.
(b) The Independent Firm shall render its determination in writing within forty-five (45) calendar days following its engagement (or such longer period as the Corporate Taxpayer and the TRA Holder Representative may agree). The determination of the Independent Firm shall be final and binding on all parties, absent manifest error. The parties and their respective advisors shall cooperate fully with the Independent Firm and shall provide access to all relevant books, records, workpapers, and other information reasonably requested by the Independent Firm.
(c) The costs, fees, and expenses of the Independent Firm shall be borne equally by the Corporate Taxpayer, on the one hand, and the TRA Holders (collectively), on the other hand. Each party shall bear its own costs of advisors in connection with any dispute.
Section 8.3 — Governing Law.
This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
Section 8.4 — Jurisdiction and Venue.
(a) Each party hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware declines to accept jurisdiction over any particular matter, the Superior Court of the State of Delaware, or, if jurisdiction is not available in the state courts of Delaware, the United States District Court for the District of Delaware) in connection with any action, suit, or proceeding arising out of or relating to this Agreement. Each party hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any such action, suit, or proceeding: (i) any claim that such party is not personally subject to the jurisdiction of such courts; (ii) any objection based on inconvenient forum; and (iii) any objection to the laying of venue in such courts.