1001-00006 · Ardent Capital Partners · Rollover Equity

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CALDERWOOD & HARKNESS LLP

One Liberty Plaza, 45th Floor New York, New York 10006

DRAFT MARKUP

Tax Provisions of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC

March 10, 2024

DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO REVISION

Engagement Number: 1001-00006 Matter Number: 1001-00006

Responsible Partner: Leonard Cross Billing Partner: Sylvia Hartwell Lead Associate: Robert Jansen Working Associate: Garrett Simmons

Circulated to:

Harcourt Shaw & DeVries LLP (Buyer's M&A Counsel) 51 West 52nd Street New York, New York 10019 Attn: Thomas Kundra, Partner, M&A; Allison Cho, Associate, M&A

Whitford & Gaines LLP (Seller's Counsel) 1735 Market Street, Suite 2800 Philadelphia, Pennsylvania 19103 Attn: Patricia Engelman, Partner, Tax; Kevin Driscoll, Associate, M&A/Tax

Re: Tax allocation, distribution waterfall, Section 704(b) capital account, and related tax provisions for the LLC Agreement of Ardent Healthcare Holdings LLC in connection with the acquisition of Pinnacle Health Services Group LLC

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INTRODUCTORY COVER MEMORANDUM

March 10, 2024

FROM: Leonard Cross and Robert Jansen, Calderwood & Harkness LLP

TO: Thomas Kundra, Harcourt Shaw & DeVries LLP; Patricia Engelman, Whitford & Gaines LLP

RE: Proposed Draft Markup — Tax Provisions (Articles VIII through XII) of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC

Dear Tom and Patricia:

Enclosed please find Calderwood & Harkness's proposed draft markup of the tax provisions (Articles VIII through XII) of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC (EIN: 93-2187445; Delaware File No. 7834219) (the "Company" or "Holdings LLC"). We have prepared this markup in our capacity as tax counsel to Ardent Capital Partners III LP ("Fund III") in connection with the proposed acquisition described below.

These provisions are drafted in connection with the acquisition of 100% of the membership interests in Pinnacle Health Services Group LLC (EIN: 82-1947632) ("Pinnacle") at an enterprise value of $412,000,000 and an equity value of $339,400,000, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") expected to be signed on or about March 15, 2024, by and among Holdings LLC, Ardent Healthcare Intermediate Inc. ("Intermediate"), Pinnacle, and the Members' Representative.

As you are aware, Holdings LLC is classified as a partnership for federal income tax purposes pursuant to its default classification under Treasury Regulations Section 301.7701-3. No check-the-box election has been filed on behalf of Holdings LLC, and none is contemplated.

Holdings LLC will serve as the equity aggregator for the following investors:

(a) Ardent Capital Partners III LP (Fund III; EIN: 87-3491520) — committed equity of $198,500,000, invested through its general partner, Ardent Capital GP III LLC;

(b) Rollover equity from Dr. Raymond Carvallo ($32,410,000), Dr. Nadia Ostrowski ($24,180,000), and Jonathan Marsh ($2,950,000), representing aggregate rollover equity of $59,540,000; and

(c) Cascadia Mezzanine Fund IV LP warrants representing 2.5% of the fully diluted equity of Holdings LLC, issued in connection with the $30,000,000 mezzanine credit facility.

We would appreciate receiving comments from Harcourt Shaw and Whitford & Gaines at your earliest convenience. We anticipate that the final LLC Agreement will be executed concurrently with the closing of the Merger Agreement, which is currently targeted for on or about May 28–31, 2024, subject to satisfaction of customary closing conditions and HSR Act clearance.

For ease of reference, these provisions should be read together with the following memoranda previously circulated to the working group:

(i) Preliminary Tax Structure Memorandum (February 12, 2024);

(ii) Rollover Equity Tax Memorandum (February 22, 2024); and

(iii) Profits Interest / Unvested Equity Memorandum (March 8, 2024).

We remain available to discuss any aspect of the enclosed draft at your convenience and look forward to your comments.

Very truly yours,

CALDERWOOD & HARKNESS LLP

Leonard Cross Partner

Robert Jansen Associate

ARTICLE VIII — DEFINITIONS (TAX-RELATED)

Section 8.1 — Defined Terms

As used in Articles VIII through XII of this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used in this Article and not otherwise defined herein shall have the meanings ascribed to them elsewhere in this Agreement.

"Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:

(a) Credit to such Capital Account any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(b) Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

"AFR" means the Applicable Federal Rate as published monthly by the Internal Revenue Service under Section 1274(d) of the Code. For reference, as of the anticipated signing date of the Merger Agreement (March 15, 2024), the short-term AFR is 5.12% (annual compounding) and the mid-term AFR is 4.67% (annual compounding).

"Book Value" means, with respect to any asset of the Company, the asset's adjusted basis for federal income tax purposes, except as follows:

(a) The initial Book Value of any asset contributed by a Member to the Company shall be the fair market value of such asset as of the date of contribution, as determined by the Managing Member using such reasonable method of valuation as the Managing Member may adopt;

(b) The Book Values of all Company assets shall be adjusted to equal their respective fair market values (taking Section 7701(g) of the Code into account) as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (iv) the grant of a Profits Interest (including any Class B Units or Class C Units) if the Managing Member determines that such grant constitutes a revaluation event for Capital Account purposes; and

(c) The Book Value of any Company asset distributed to any Member shall be the fair market value of such asset on the date of distribution.

If the Book Value of an asset has been determined or adjusted pursuant to clause (a) or (b) above, such Book Value shall thereafter be adjusted by the Book Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.

"Capital Account" means, with respect to any Member, the Capital Account maintained for such Member in accordance with the provisions of Section 9.1 of this Agreement and in compliance with Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv).

"Capital Contribution" means, with respect to any Member, the amount of cash and the fair market value of any property (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code) contributed to the Company by such Member. Without limitation, Capital Contributions include Fund III's equity contribution of $198,500,000 and the rollover contributions of Dr. Raymond Carvallo ($32,410,000), Dr. Nadia Ostrowski ($24,180,000), and Jonathan Marsh ($2,950,000).

"Class A Units" means the Units issued to Ardent Capital Partners III LP (and held indirectly through Ardent Capital GP III LLC) as set forth in Exhibit A hereto, representing the senior equity interests of the Company with the rights, privileges, and preferences set forth in this Agreement.

"Class B Units" means the Units issued to the rollover participants identified herein — Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Marsh — as set forth in Exhibit A hereto, subject to the vesting provisions of Section 12.2 of this Agreement. The Unvested component of the Class B Units shall be treated as Profits Interests for federal income tax purposes under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191.

"Class C Units" means Units reserved for a future management incentive equity pool, to be issued on such terms and conditions as the Managing Member may determine. As of the date hereof, no Class C Units have been authorized or issued.

"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. References herein to specific sections of the Code shall include any corresponding provisions of any successor statute.

"Depreciation" or "Book Depreciation" means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or period, except that (a) with respect to any asset the Book Value of which differs from its adjusted basis for federal income tax purposes and which difference is not being eliminated by use of the remedial allocation method under Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or period shall be an amount that bears the same ratio to such Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or period bears to such tax basis; and (b) if the adjusted basis for federal income tax purposes of an asset is zero, Depreciation shall be determined with reference to Book Value using any reasonable method selected by the Managing Member.

"Distribution" means any distribution of cash or property by the Company to a Member in such Member's capacity as a Member, whether pursuant to the distribution waterfall set forth in Section 11.1 hereof, as a Tax Distribution under Section 11.7 hereof, or otherwise, and whether in the ordinary course or in connection with a dissolution, liquidation, or winding up of the Company.

"Fiscal Year" means the Company's taxable year for federal income tax purposes, which shall be the calendar year (January 1 through December 31), unless otherwise required by the Code.

"Gross Asset Value" means, with respect to any asset of the Company, the asset's Book Value. The Gross Asset Values of all Company assets shall be determined and adjusted in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f) and (g). The initial Gross Asset Values of all Company assets shall be set at their fair market values as of the Closing Date (May 31, 2024), as determined in good faith by the Managing Member, taking into account the purchase price allocation set forth in Exhibit B to the Merger Agreement.

"Intermediate" or "AHI" means Ardent Healthcare Intermediate Inc. (EIN: 93-2187512; Delaware File No. 7834223), a Delaware corporation classified as a C-corporation for federal income tax purposes, which is a wholly owned subsidiary of the Company and through which the Company holds its interest in Pinnacle.

"Liquidation Value" means, as of any date of determination, the hypothetical amount that would be distributable to each Unit (or class of Units) if, on such date, (a) all Company assets were sold for their then-current Book Values (determined in accordance with this Article VIII); (b) all Company liabilities were satisfied in full (limited, with respect to each Nonrecourse Liability, to the Book Value of the assets securing such liability); and (c) the remaining proceeds were distributed in full pursuant to the distribution waterfall set forth in Section 11.1 of this Agreement. The Liquidation Value of the Unvested Class B Units as of the grant date (the Closing Date) shall be zero by design, in order to satisfy the requirements of Revenue Procedure 93-27.

"Member Nonrecourse Debt" means any Company liability (or portion thereof) that constitutes "partner nonrecourse debt" within the meaning of Treasury Regulations Section 1.704-2(b)(4), to the extent that any Member (or a Related Person of such Member) bears the economic risk of loss under Section 752 of the Code and the Treasury Regulations thereunder with respect to such liability.

"Member Nonrecourse Deductions" means the "partner nonrecourse deductions" as defined in Treasury Regulations Section 1.704-2(i)(1), being the amount of Company losses, deductions, and Code Section 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt.

"Minimum Gain" means "partnership minimum gain" as defined in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). Minimum Gain shall be computed separately for each Company Nonrecourse Liability in accordance with the rules set forth in Treasury Regulations Section 1.704-2(d).

"Net Income" and "Net Loss" mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such Fiscal Year or period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:

(a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition shall be added to such taxable income or loss;

(b) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition, shall be subtracted from such taxable income or loss;

(c) In the event the Book Value of any Company asset is adjusted pursuant to clauses (a) or (b) of the definition of Book Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Book Value of the asset) or an item of loss (if the adjustment decreases the Book Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income or Net Loss;

(d) Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Book Value;

(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation (Book Depreciation) for such Fiscal Year or other period, computed in accordance with the definition of "Depreciation" above; and

(f) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code or Section 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as an item of gain or loss, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss.

Any items of income, gain, loss, or deduction that are specially allocated pursuant to Section 10.4 hereof (the Regulatory Allocations) shall not be taken into account in the computation of Net Income or Net Loss.

"Nonrecourse Deductions" has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c). The amount of Nonrecourse Deductions for a Fiscal Year equals the excess, if any, of the net increase in the amount of Minimum Gain during such Fiscal Year over the aggregate amount of any distributions during such Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(c).

"Nonrecourse Liability" has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3), being any Company liability (or portion thereof) for which no Member or Related Person of any Member bears the economic risk of loss.

"Pinnacle" means Pinnacle Health Services Group LLC (EIN: 82-1947632), a Delaware limited liability company classified as a disregarded entity for federal income tax purposes (having been merged into, and survived as a wholly owned subsidiary of, Intermediate on the Closing Date), which operates the healthcare services business acquired pursuant to the Merger Agreement.

"Profits Interest" means an interest in the Company that has a Liquidation Value equal to zero as of the date of grant, such that the holder would receive no distributions if the Company's assets were sold at their then-current Book Values immediately after the grant, the Company's liabilities were satisfied in full, and the net proceeds were distributed in accordance with the distribution waterfall. The term is intended to qualify under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191, such that the receipt of a Profits Interest for services is not a taxable event at the time of grant (subject to the conditions set forth in such Revenue Procedures).

"Regulatory Allocations" means the special allocations set forth in Section 10.4 of this Agreement, including the Minimum Gain Chargeback, the Member Nonrecourse Debt Minimum Gain Chargeback, the Qualified Income Offset, and the allocations of Nonrecourse Deductions and Member Nonrecourse Deductions.

"Section 704(c) Property" means any property contributed to the Company (or any property revalued in connection with a Capital Account revaluation under Section 9.2 hereof) with respect to which there exists a disparity between the Book Value (Gross Asset Value) of such property and its adjusted tax basis at the time of contribution or revaluation.

"Tax Distribution" means a mandatory distribution to Members in amounts sufficient to cover their estimated federal, state, and local income tax liabilities attributable to allocations of Company income, as more fully set forth in Section 11.7 of this Agreement.

"Tax Matters Partner" or "Partnership Representative" means Ardent Capital Partners III LP (or its designee), serving as the "partnership representative" of the Company within the meaning of Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015 (P.L. 114-74, § 1101), and as the "tax matters partner" of the Company for any periods governed by the pre-amendment partnership audit rules of Sections 6221 through 6234 of the Code (as in effect prior to amendment).

"Tax Receivable Agreement" or "TRA" means the Tax Receivable Agreement dated as of the Closing Date, by and among the Company, Intermediate, and the TRA Holders (as defined therein), pursuant to which the Company and Intermediate shall make payments to the TRA Holders in an amount equal to 85% of the realized cash tax savings attributable to the Section 743(b) basis step-up arising from the transactions contemplated by the Merger Agreement.

"Treasury Regulations" means the final, temporary, and (to the extent they can be relied upon) proposed Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time. All references herein to specific sections of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute, proposed, or final Treasury Regulations.

"Unvested Units" means any Class B Units that are subject to time-based vesting in accordance with the vesting schedule set forth in Section 12.2 of this Agreement. Specifically, 50% of the Class B Units issued to each of Dr. Raymond Carvallo and Dr. Nadia Ostrowski on the Closing Date shall constitute Unvested Units, which shall vest ratably over 36 months from the Closing Date (approximately 1.389% per month), subject to such holder's continued employment with the Company or its subsidiaries.

"Vested Units" means any Class B Units that are fully vested and no longer subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code. On the Closing Date (May 31, 2024), 50% of the Class B Units issued to each rollover participant shall be Vested Units.

"Warrant Units" means the Units issuable to Cascadia Mezzanine Fund IV LP upon exercise of the warrants issued to Cascadia Mezzanine Fund IV LP in connection with the $30,000,000 mezzanine credit facility, representing 2.5% of the fully diluted equity of the Company. Until such warrants are exercised, the Warrant Units shall not be treated as issued and outstanding for purposes of allocations and distributions under this Agreement, except as expressly provided herein for purposes of calculating Percentage Interests on a fully diluted basis.

ARTICLE IX — CAPITAL ACCOUNTS

Section 9.1 — Establishment and Maintenance of Capital Accounts

(a) The Company shall establish and maintain a separate Capital Account for each Member in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv). The Capital Account of each Member shall be maintained throughout the full term of the Company and shall be adjusted as set forth in this Section 9.1. The provisions of this Section 9.1 and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event the Managing Member determines that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Company or the Members), are computed in order to comply with such Treasury Regulations, the Managing Member may make such modification; provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Section 11.1 hereof upon the dissolution of the Company.

(b) Each Member's Capital Account shall be increased by:

(i) the amount of cash contributed by such Member to the Company;

(ii) the Gross Asset Value (Book Value) of property contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code);

(iii) allocations to such Member of Net Income and items of Company income and gain (including income and gain exempt from federal income tax and items described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Section 10.4 hereof); and

(iv) the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member.

(i) the amount of cash distributed to such Member by the Company;

(ii) the Gross Asset Value (Book Value) of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Section 752 of the Code);

(iii) allocations to such Member of Net Loss and items of Company deduction and loss (including expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and items described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g), but excluding items described in Section 10.4 hereof); and

(iv) the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company.

(d) The initial Capital Account balances of the Members as of the Closing Date shall be as follows:

The foregoing initial Capital Account balances reflect the Capital Contributions set forth in Exhibit A hereto.

Section 9.2 — Revaluation of Capital Accounts

(a) The Company may, at the election of the Managing Member, revalue the Capital Accounts of all Members to reflect the Gross Asset Values of Company assets (determined on a basis consistent with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv)(f)) upon the occurrence of any of the following events:

(i) the contribution of more than a de minimis amount of money or property to the Company by a new or existing Member as consideration for an interest in the Company;

(ii) the distribution of more than a de minimis amount of money or other property by the Company to a retiring or continuing Member as consideration for an interest in the Company;

(iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) (but not including a constructive termination of the Company under Section 708(b)(1)(B) of the Code, to the extent applicable); or

(iv) the grant of a Profits Interest (including any Class B Units or Class C Units) in the Company, if the Managing Member determines in good faith that such revaluation is necessary to comply with the requirements of Revenue Procedure 93-27 and Revenue Procedure 2001-43 and to properly reflect the Liquidation Value of such Profits Interest as of the grant date.

(b) Upon any revaluation pursuant to this Section 9.2, each Member's Capital Account shall be adjusted upward or downward to reflect such Member's allocable share of the unrealized gain or loss inherent in Company assets (as if such assets had been sold at their respective Gross Asset Values), with such adjustments allocated among the Members in accordance with the distribution waterfall set forth in Section 11.1 of this Agreement (i.e., in a manner that reflects the amount each Member would receive if the Company were to liquidate and distribute all proceeds in accordance with such waterfall).

(c) Without limiting the foregoing, a Capital Account revaluation shall be performed as of the Closing Date to establish fair market value basis for all assets held by the Company, directly or indirectly through Intermediate and Pinnacle, consistent with the purchase price allocation set forth in Exhibit B to the Merger Agreement and the Section 743(b) step-up analysis described in Section 10.4(f) hereof.

Section 9.3 — Transfers and Successor Capital Accounts

(a) Upon the transfer of all or a portion of a Member's interest in the Company in accordance with the provisions of this Agreement, the transferee of such interest shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(l).

(b) In the case of a partial transfer, the transferee shall succeed to a pro rata portion of the transferor's Capital Account, based on the percentage of the transferor's interest that is transferred. The Company shall provide the transferor and the transferee with a written accounting of the Capital Account as of the effective date of the transfer, including a detailed statement of the transferor's Capital Account balance and the components thereof.

(c) Nothing in this Section 9.3 shall relieve any transferor of any obligation arising prior to the effective date of such transfer, including any obligation to make contributions, to return distributions, or to indemnify the Company or the other Members.

Section 9.4 — Negative Capital Accounts; No Obligation to Restore

(a) No Member shall be obligated to restore a deficit balance in its Capital Account upon liquidation of the Company or otherwise, except (i) to the extent required by applicable law (including, without limitation, any non-waivable provision of the Delaware Limited Liability Company Act), or (ii) as specifically provided in this Agreement with respect to any particular Member (including any obligation of the Managing Member set forth in the operative provisions of this Agreement).

(b) For the avoidance of doubt, the foregoing provision does not limit or modify the obligations of any Member under the Minimum Gain Chargeback (Section 10.4(a)), the Member Nonrecourse Debt Minimum Gain Chargeback (Section 10.4(b)), or the Qualified Income Offset (Section 10.4(c)), each of which may require the allocation of items of income and gain to a Member in order to eliminate an Adjusted Capital Account Deficit. The interaction of this Section 9.4 with such provisions is intended to ensure that the economic arrangement of the Members is respected for federal income tax purposes while maintaining the substantial economic effect of the allocations under this Agreement as required by Treasury Regulations Section 1.704-1(b)(2).

ARTICLE X — ALLOCATIONS

Section 10.1 — Allocation of Net Income

After giving effect to the Regulatory Allocations set forth in Section 10.4 hereof, Net Income for each Fiscal Year (or applicable shorter period, including any period resulting from a change in the Members' interests during a Fiscal Year) shall be allocated among the Members as follows:

(a) First, to the Members in proportion to, and to the extent of, their respective shares of previously allocated Net Losses (under Section 10.2 hereof) that have not been offset by prior allocations of Net Income under this Section 10.1(a) (the "Loss Chargeback Layer"). This allocation is intended to reverse the effect of any prior loss allocations before any further income is allocated.

(b) Second, after all allocations under Section 10.1(a) have been made in full, the remaining Net Income shall be allocated to the Members in such a manner as to cause, as closely as possible, the Capital Account balance of each Member to equal the amount that would be distributable to such Member under the distribution waterfall set forth in Section 11.1 of this Agreement if the Company were to sell all of its assets for their respective Book Values, satisfy all of its liabilities (including any liabilities to Members other than in their capacity as Members), and distribute the remaining proceeds to the Members in accordance with Section 11.1. To the extent that the distribution waterfall provides for priority returns or preferred distributions applicable to the Class A Units, this allocation shall reflect such priorities.

The purpose of this Section 10.1 is to ensure that the allocation of Net Income between holders of Class A Units and holders of Class B Units tracks the economic arrangement reflected in the distribution waterfall, so that each Member's Capital Account balance is maintained at a level consistent with its entitlement to distributions upon a hypothetical liquidation of the Company.

Section 10.2 — Allocation of Net Loss

After giving effect to the Regulatory Allocations set forth in Section 10.4 hereof, Net Loss for each Fiscal Year (or applicable shorter period) shall be allocated among the Members as follows:

(a) First, to the Members in proportion to their respective positive Capital Account balances (after taking into account all Capital Contributions, distributions, and prior allocations for such Fiscal Year and all prior Fiscal Years), until all Capital Accounts have been reduced to zero. The intent of this allocation is to reduce the Capital Accounts of all Members to zero before allocating Net Losses that would create or increase a negative Capital Account balance.

(b) Second, to the Members in accordance with their respective Percentage Interests (i.e., pro rata based on relative Unit holdings), subject to the limitation set forth in clause (c) below.

(c) Limitation: Notwithstanding the foregoing, Net Loss (or any item thereof) shall not be allocated to any Member to the extent that such allocation would cause or increase an Adjusted Capital Account Deficit for such Member as of the end of the Fiscal Year. Any Net Loss (or item thereof) not allocable to a Member by reason of this limitation shall be allocated to the other Members in accordance with their respective Percentage Interests (subject to the same limitation with respect to each such other Member). If all Members have reached the Adjusted Capital Account Deficit limitation, any remaining Net Loss shall be allocated in accordance with the Members' respective Percentage Interests (or such other method as the Managing Member determines is consistent with Treasury Regulations Section 1.704-1(b)).

Section 10.3 — General Allocation Principles

(a) Except as otherwise provided in Section 10.5 (Section 704(c) Allocations) and Section 10.4 (Regulatory Allocations), items of Company income, gain, loss, deduction, and credit shall be allocated among the Members for federal, state, and local income tax purposes in the same manner as the corresponding items of Net Income and Net Loss are allocated under Sections 10.1 and 10.2 hereof.

(b) All allocations under this Article X shall be made as of the last day of each Fiscal Year. If a Member's interest in the Company changes during a Fiscal Year (including by reason of the vesting of Unvested Units, the admission of a new Member, the withdrawal of an existing Member, or any transfer of Units), the Company's items of income, gain, loss, deduction, and credit for such Fiscal Year shall be allocated among the Members using the interim closing of the books method under Treasury Regulations Section 1.706-1(c)(2), unless the Managing Member elects, in its sole discretion, to use the proration method (pro rata allocation based on the number of days each Member held its interest during the Fiscal Year). The Managing Member shall notify all Members of any such election within thirty (30) days after the end of the relevant Fiscal Year.

(c) For purposes of determining the items of Company income, gain, loss, deduction, or credit allocable to any period, such items shall be determined on a daily, monthly, or other basis as determined by the Managing Member using any permissible method under Section 706 of the Code and the Treasury Regulations thereunder.

(d) Allocations of tax credits, tax credit recapture, and any items of income, gain, loss, or deduction resulting from elections under the Code (including elections under Sections 108, 168, 195, 709, or 1033 of the Code) shall be allocated in a manner consistent with the principles of this Article X and the requirements of the Code and the Treasury Regulations.

Section 10.4 — Regulatory Allocations (Special Allocations)

The following special allocations (collectively, the "Regulatory Allocations") shall be made in the following order of priority and shall be taken into account before the allocations set forth in Sections 10.1 and 10.2 above are made:

(a) Minimum Gain Chargeback

Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article X, if there is a net decrease in Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). This allocation shall be made before any other allocation under this Article X for such Fiscal Year. Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each of the Members pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). The provisions of this Section 10.4(a) are intended to comply with the minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. This Section 10.4(a) shall not apply to the extent that the exceptions set forth in Treasury Regulations Sections 1.704-2(f)(2), (3), (4), and (5) are applicable.

(b) Member Nonrecourse Debt Minimum Gain Chargeback

Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article X, if there is a net decrease in Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). This allocation shall be made after the allocations under Section 10.4(a) but before any other allocation under this Article X. Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each of the Members pursuant thereto. The provisions of this Section 10.4(b) are intended to comply with the partner nonrecourse debt minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible; provided that an allocation pursuant to this Section 10.4(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article X have been tentatively made as if this Section 10.4(c) were not a part of this Agreement. The provisions of this Section 10.4(c) are intended to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(d) Nonrecourse Deductions

Nonrecourse Deductions for any Fiscal Year shall be allocated among the Members in accordance with their respective Percentage Interests (i.e., pro rata based on their relative Unit holdings on a fully diluted basis). The Managing Member shall determine the amount of Nonrecourse Deductions for each Fiscal Year in accordance with the rules of Treasury Regulations Section 1.704-2(c).

(e) Member Nonrecourse Deductions

Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Treasury Regulations Section 1.704-2(i)(1). If more than one Member bears the economic risk of loss with respect to a Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable thereto shall be allocated among such Members in accordance with the ratios in which they share such economic risk of loss.

(f) Section 754 / Section 743(b) Adjustments

To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment decreases the basis of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income and Net Loss and shall be allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Treasury Regulations.

Note: The Company and Pinnacle intend to file an election under Section 754 of the Code with Pinnacle's federal income tax return (Form 1065) for the taxable year ending December 31, 2024. The resulting Section 743(b) basis step-up is estimated at $224,400,000, calculated as follows:

• Enterprise value: $412,000,000

• Less: inside basis of Pinnacle's assets: ($187,600,000)

• Estimated Section 743(b) basis step-up: $224,400,000

This adjustment is a transferee-level adjustment allocable to Ardent Healthcare Intermediate Inc. and shall be reflected in the Capital Account computations to the extent required by Treasury Regulations Section 1.704-1(b)(2)(iv)(m).

(g) Curative Allocations

The Regulatory Allocations set forth in Sections 10.4(a) through 10.4(f) above (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations under Sections 704(b) and 704(c) of the Code. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 10.4(g). Accordingly, the Managing Member is hereby authorized and directed to make offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Sections 10.1 and 10.2 hereof. In exercising its discretion under this Section 10.4(g), the Managing Member shall take into account future Regulatory Allocations under Sections 10.4(a) and 10.4(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 10.4(d) and 10.4(e).

Section 10.5 — Section 704(c) Allocations

(a) In accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, items of income, gain, loss, and deduction with respect to any property contributed to the Company (or any property the Book Value of which has been revalued in accordance with Section 9.2 hereof) shall, solely for federal income tax purposes, be allocated among the Members so as to take into account any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value at the time of contribution or revaluation, as applicable.

(b) Method: The Company shall use the remedial allocation method described in Treasury Regulations Section 1.704-3(d) to eliminate book-tax disparities with respect to Section 704(c) Property.

Calderwood & Harkness Drafting Note: The remedial allocation method is recommended for the following reasons:

(i) The remedial method ensures that the non-contributing Members (principally Ardent Capital Partners III LP through its Class A Units) are not adversely affected by the "ceiling rule" limitation of Treasury Regulations Section 1.704-3(b)(1), which would otherwise cap the tax deduction allocable to non-contributing Members at the amount of the Company's tax depreciation or amortization with respect to the contributed property.

(ii) Under the remedial method, the Company creates offsetting notional tax items — specifically, remedial items of deduction allocated to the non-contributing Members and corresponding remedial items of income allocated to the contributing Members — to correct for any ceiling rule distortion. This ensures that the non-contributing Members receive the full benefit of their allocable share of depreciation and amortization deductions, including deductions attributable to the Section 743(b) basis step-up and contributed property.

(iii) The remedial method is particularly important in this transaction because the rollover contributions by Dr. Carvallo, Dr. Ostrowski, and Mr. Marsh involve contributed Pinnacle interests with a tax basis that differs from their Book Value (fair market value) at the time of contribution, creating a Section 704(c) layer that must be addressed.

(c) This Section 10.5 applies to all Section 704(c) Property of the Company, including the Pinnacle membership interests contributed by the rollover participants (Dr. Carvallo, Dr. Ostrowski, and Mr. Marsh), where the contributed interests have a tax basis different from their Book Value (fair market value) at the time of contribution. The Managing Member shall maintain detailed schedules identifying all Section 704(c) Property, including the initial Book Value, the adjusted tax basis, the applicable Section 704(c) method, and the remaining Section 704(c) layer as of the end of each Fiscal Year.

(d) Interplay with Section 743(b) Adjustments: The Section 743(b) adjustment arising from the Section 754 election described in Section 10.4(f) hereof is a transferee-level adjustment that is separate and distinct from the Section 704(c) allocations described in this Section 10.5. However, both must be tracked and coordinated to ensure that the Company's allocations comply with the Code and the Treasury Regulations. The Partnership Representative, in consultation with the Company's tax advisors (including Caldwell Pratt & Moorehouse LLP), shall maintain separate schedules tracking both Section 704(c) layers and Section 743(b) adjustments, and shall provide such schedules to any Member upon reasonable request.

Section 10.6 — Allocation of Excess Nonrecourse Liabilities

Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Treasury Regulations Section 1.752-3(a)(3) (i.e., Company Nonrecourse Liabilities in excess of the sum of (i) the amount of Minimum Gain attributable to such liabilities and (ii) the amount of gain that would be recognized by the Members under Section 704(c) of the Code if the Company disposed of all Section 704(c) Property subject to such liabilities in a taxable transaction for no consideration other than satisfaction of such liabilities), the Members' respective interests in Company profits shall be determined in accordance with their Percentage Interests, or such other method as the Managing Member may determine in its reasonable discretion to be consistent with the Treasury Regulations.

This allocation is relevant to the determination of each Member's share of Company liabilities for purposes of computing outside basis under Section 752 of the Code. As of the Closing Date, the Company's share of liabilities at the Intermediate and Pinnacle level includes: (i) the Term Loan B facility in the original principal amount of $155,000,000 with Graystone National Bank, N.A., as administrative agent; (ii) the revolving credit facility in the original committed amount of $35,000,000 with Graystone National Bank, N.A., as administrative agent; and (iii) the subordinated mezzanine notes in the original principal amount of $30,000,000 issued to Cascadia Mezzanine Fund IV LP.

Section 10.7 — Allocations Relating to Unvested Units (Profits Interests)

(a) Class B Units that are Unvested Units and that constitute Profits Interests shall be treated as issued and outstanding Units for purposes of all allocations under this Article X from and after the grant date (i.e., the Closing Date, May 31, 2024). The holders of Unvested Units shall be allocated their distributive share of Company items of income, gain, loss, deduction, and credit in the same manner as holders of Vested Units, consistent with the treatment of such Unvested Units as having been transferred on the grant date for federal income tax purposes.

(b) Each holder of Unvested Units who has filed a timely election under Section 83(b) of the Code (which election must be filed with the Internal Revenue Service no later than thirty (30) days after the Closing Date, i.e., no later than June 30, 2024) shall include in his or her gross income all items of Company income, gain, loss, deduction, and credit allocable to such Unvested Units on his or her personal federal, state, and local income tax returns for the applicable taxable year, beginning with the taxable year that includes the Closing Date.

(c) The Company shall cooperate with each holder of Unvested Units in connection with the filing of Section 83(b) elections and shall maintain records reflecting the Liquidation Value of each class of Units as of each grant date. As of the Closing Date, the Liquidation Value of each Unvested Class B Unit is zero, by design, in order to satisfy the requirements of Revenue Procedure 93-27 and Revenue Procedure 2001-43. Accordingly, holders of Unvested Units who timely file Section 83(b) elections will not recognize income at the time of grant.

Calderwood & Harkness Drafting Note: The vesting schedule for the Unvested Class B Units provides that 50% of the Class B Units vest at the Closing Date (May 31, 2024) and the remaining 50% vest ratably over 36 months (approximately 1.389% per month), subject to continued employment with the Company or its subsidiaries for Dr. Carvallo and Dr. Ostrowski. Mr. Marsh's Unvested Units vest on the same schedule but are not subject to an employment condition. The treatment of forfeited Unvested Units upon termination of employment is addressed in the operative vesting provisions of the LLC Agreement (not in this tax article) and includes cancellation of such forfeited Units without reallocation to other Members.

ARTICLE XI — DISTRIBUTIONS

Section 11.1 — Distribution Waterfall

Available Cash, as determined by the Managing Member in its reasonable discretion, shall be distributed to the Members as set forth in this Section 11.1. For purposes of this Agreement, "Available Cash" means cash on hand of the Company in excess of reserves that the Managing Member determines in good faith to be reasonably necessary for the payment of Company obligations, including (without limitation) (i) debt service on the senior credit facility with Graystone National Bank, N.A. (including the Term Loan B and the revolving credit facility), (ii) interest and principal payments on the mezzanine credit facility with Cascadia Mezzanine Fund IV LP, (iii) working capital needs of the Company and its subsidiaries (including Intermediate and Pinnacle), and (iv) anticipated capital expenditures approved by the Managing Member. Available Cash shall be distributed as follows:

(a) Tax Distributions (Priority)

First, Tax Distributions as set forth in Section 11.7 of this Agreement shall be made to each Member in the amounts and at the times required by such section, to the extent not previously distributed. Tax Distributions shall have priority over all other distributions under this Section 11.1.

(b) Return of Capital — Class A Units

Second, after all Tax Distributions required under Section 11.7 have been made or reserved for, to the holders of Class A Units (Ardent Capital Partners III LP) until each such holder has received aggregate cumulative distributions under this Section 11.1(b) equal to its aggregate Capital Contributions. As of the Closing Date, the aggregate Capital Contributions of Ardent Capital Partners III LP are $198,500,000.

Third, after all distributions required under Section 11.1(b) have been made in full, to the holders of Vested Class B Units (Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Marsh) until each such holder has received aggregate cumulative distributions under this Section 11.1(c) equal to its aggregate Capital Contributions. As of the Closing Date, the aggregate Capital Contributions of the Class B Unit holders are as follows: Dr. Carvallo — $32,410,000; Dr. Ostrowski — $24,180,000; Mr. Farnsworth — $2,950,000.

(d) Preferred Return — Class A Units

Fourth, after all distributions required under Sections 11.1(b) and 11.1(c) have been made in full, to the holders of Class A Units until each such holder has received cumulative distributions under this Section 11.1(d) (together with distributions received under Section 11.1(b) above) yielding an internal rate of return of [__]% per annum (computed from the date of each Capital Contribution through the date of each distribution, using standard IRR methodology) on the aggregate Capital Contributions of such holder. The preferred return hurdle rate shall be as agreed between the parties and inserted in the final, execution version of this Agreement.

Note: The preferred return rate is a key commercial term to be negotiated between Ardent Capital Partners III LP and the rollover participants. A placeholder has been inserted pending resolution of this point. See Drafting Note No. 1 below.

(e) Catch-Up — Class B Units

Fifth, after all distributions required under Section 11.1(d) have been made in full, to the holders of Vested Class B Units until the ratio of (x) aggregate cumulative distributions to all Class B Unit holders (under all sections of this Section 11.1) to (y) aggregate cumulative distributions to all Members (under all sections of this Section 11.1) equals the Class B Units' Percentage Interest on a fully diluted basis (which is 22.50%, after giving effect to the 2.5% dilution resulting from the Warrant Units).

(f) Residual Distributions

Sixth, after all distributions under Sections 11.1(a) through 11.1(e) have been made in full, all remaining Available Cash shall be distributed to all Members (including holders of Class A Units, Vested Class B Units, and, upon exercise, Warrant Units) pro rata in accordance with their respective Percentage Interests on a fully diluted basis, as follows:

For the avoidance of doubt, the Percentage Interests set forth above reflect the fully diluted equity of the Company, assuming exercise of all outstanding warrants. Prior to exercise of the Cascadia Mezzanine Fund IV LP warrants, the pre-dilution Percentage Interests of the Class A Units and Class B Units are approximately 76.92% and 23.08%, respectively.

(g) Unvested Units

Distributions that would otherwise be made in respect of Unvested Class B Units under this Section 11.1 shall not be distributed to the holder of such Unvested Units at the time such distributions are otherwise payable. Instead, such amounts shall be held in reserve by the Company (in a segregated account maintained for such purpose) and shall be distributed to the holder upon the vesting of such Unvested Units, without interest. In the event that any Unvested Units are forfeited (including upon termination of employment of any holder required to satisfy a continued employment condition), any amounts held in reserve with respect to such forfeited Units shall be retained by the Company and shall not be distributed to any Member; such amounts shall be treated as Available Cash of the Company and distributed in accordance with this Section 11.1 (excluding the forfeited Units) at such time as the Managing Member determines in its discretion.

Calderwood & Harkness Comment: The treatment of distributions on Unvested Units is a key structural issue. The approach set forth above (holding distributions in reserve until vesting, with forfeiture upon failure to vest) is one alternative. An alternative approach would be to distribute amounts to holders of Unvested Units currently, subject to a clawback obligation upon forfeiture. The tax implications of each approach differ — specifically, if amounts are distributed currently and later clawed back, the timing of income recognition and the deductibility of the clawback amount may create adverse consequences for the holder. We recommend confirming with Harcourt Shaw & DeVries whether Ardent Capital's preferred approach is the "hold in reserve" method or the "current distribution with clawback" method. See Drafting Note No. 2 below.

Section 11.2 — Distributions in Kind

(a) Distributions of Company assets in kind (as opposed to cash) shall be made only with the prior written consent of the Managing Member. No Member shall have the right to demand a distribution in kind.

(b) Any property distributed in kind to a Member shall be valued at its Gross Asset Value (fair market value) as of the date of distribution, as determined in good faith by the Managing Member.

(c) Upon any distribution in kind, the Capital Accounts of the Members shall be adjusted as if the distributed property had been sold by the Company at its Gross Asset Value, and the resulting gain or loss shall be allocated among the Members in accordance with the allocation provisions of Article X hereof. Following such adjustment, the deemed sale proceeds shall be distributed (constructively) in accordance with the distribution waterfall set forth in Section 11.1 hereof, and the actual property shall be distributed to the Members entitled to receive such deemed proceeds.

Section 11.3 — Withholding

(a) The Company is authorized and directed to withhold from any distributions (or amounts otherwise payable) to any Member any amounts required to be withheld under the Code, the Treasury Regulations, or any applicable provision of state, local, or foreign tax law. Any amounts so withheld shall be paid over to the applicable taxing authority in accordance with applicable law.

(b) All amounts withheld pursuant to this Section 11.3 shall be treated as having been distributed to such Member for all purposes of this Agreement, including for purposes of determining such Member's Capital Account and the amounts distributable to such Member under the distribution waterfall set forth in Section 11.1 hereof.

(c) As of the Closing Date, the Company anticipates the following state withholding obligations with respect to distributions to nonresident individual Members:

(d) Post-closing withholding on ongoing allocations to nonresident individual Members (Dr. Carvallo, Dr. Ostrowski, and Mr. Farnsworth) shall be computed and remitted by the Company in accordance with the requirements of each applicable state. The state of residence of each such Member shall be confirmed by such Member in writing to the Company within thirty (30) days after the Closing Date.

Section 11.7 — Tax Distributions

(a) Prior to any distributions under Sections 11.1(b) through 11.1(f) hereof, the Company shall make quarterly estimated Tax Distributions to each Member in amounts intended to be sufficient to permit such Member to satisfy its estimated federal, state, and local income tax liabilities arising from allocations of Company taxable income to such Member for the applicable taxable year.

CALDERWOOD & HARKNESS LLP
One Liberty Plaza, 45th Floor New York, New York 10006
DRAFT MARKUP
Tax Provisions of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC
March 10, 2024
DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO REVISION
Engagement Number: 1001-00006 Matter Number: 1001-00006
Responsible Partner: Leonard Cross Billing Partner: Sylvia Hartwell Lead Associate: Robert Jansen Working Associate: Garrett Simmons
Circulated to:
Harcourt Shaw & DeVries LLP (Buyer's M&A Counsel) 51 West 52nd Street New York, New York 10019 Attn: Thomas Kundra, Partner, M&A; Allison Cho, Associate, M&A
Whitford & Gaines LLP (Seller's Counsel) 1735 Market Street, Suite 2800 Philadelphia, Pennsylvania 19103 Attn: Patricia Engelman, Partner, Tax; Kevin Driscoll, Associate, M&A/Tax
Re: Tax allocation, distribution waterfall, Section 704(b) capital account, and related tax provisions for the LLC Agreement of Ardent Healthcare Holdings LLC in connection with the acquisition of Pinnacle Health Services Group LLC
Right-click to update Table of Contents
INTRODUCTORY COVER MEMORANDUM
March 10, 2024
FROM: Leonard Cross and Robert Jansen, Calderwood & Harkness LLP
TO: Thomas Kundra, Harcourt Shaw & DeVries LLP; Patricia Engelman, Whitford & Gaines LLP
RE: Proposed Draft Markup — Tax Provisions (Articles VIII through XII) of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC
Dear Tom and Patricia:
Enclosed please find Calderwood & Harkness's proposed draft markup of the tax provisions (Articles VIII through XII) of the Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC (EIN: 93-2187445; Delaware File No. 7834219) (the "Company" or "Holdings LLC"). We have prepared this markup in our capacity as tax counsel to Ardent Capital Partners III LP ("Fund III") in connection with the proposed acquisition described below.
These provisions are drafted in connection with the acquisition of 100% of the membership interests in Pinnacle Health Services Group LLC (EIN: 82-1947632) ("Pinnacle") at an enterprise value of $412,000,000 and an equity value of $339,400,000, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") expected to be signed on or about March 15, 2024, by and among Holdings LLC, Ardent Healthcare Intermediate Inc. ("Intermediate"), Pinnacle, and the Members' Representative.
As you are aware, Holdings LLC is classified as a partnership for federal income tax purposes pursuant to its default classification under Treasury Regulations Section 301.7701-3. No check-the-box election has been filed on behalf of Holdings LLC, and none is contemplated.
Holdings LLC will serve as the equity aggregator for the following investors:
(a) Ardent Capital Partners III LP (Fund III; EIN: 87-3491520) — committed equity of $198,500,000, invested through its general partner, Ardent Capital GP III LLC;
(b) Rollover equity from Dr. Raymond Carvallo ($32,410,000), Dr. Nadia Ostrowski ($24,180,000), and Jonathan Marsh ($2,950,000), representing aggregate rollover equity of $59,540,000; and
(c) Cascadia Mezzanine Fund IV LP warrants representing 2.5% of the fully diluted equity of Holdings LLC, issued in connection with the $30,000,000 mezzanine credit facility.
We would appreciate receiving comments from Harcourt Shaw and Whitford & Gaines at your earliest convenience. We anticipate that the final LLC Agreement will be executed concurrently with the closing of the Merger Agreement, which is currently targeted for on or about May 28–31, 2024, subject to satisfaction of customary closing conditions and HSR Act clearance.
For ease of reference, these provisions should be read together with the following memoranda previously circulated to the working group:
(i) Preliminary Tax Structure Memorandum (February 12, 2024);
(ii) Rollover Equity Tax Memorandum (February 22, 2024); and
(iii) Profits Interest / Unvested Equity Memorandum (March 8, 2024).
We remain available to discuss any aspect of the enclosed draft at your convenience and look forward to your comments.
Very truly yours,
CALDERWOOD & HARKNESS LLP
Leonard Cross Partner
Robert Jansen Associate
ARTICLE VIII — DEFINITIONS (TAX-RELATED)
Section 8.1 — Defined Terms
As used in Articles VIII through XII of this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used in this Article and not otherwise defined herein shall have the meanings ascribed to them elsewhere in this Agreement.
"Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"AFR" means the Applicable Federal Rate as published monthly by the Internal Revenue Service under Section 1274(d) of the Code. For reference, as of the anticipated signing date of the Merger Agreement (March 15, 2024), the short-term AFR is 5.12% (annual compounding) and the mid-term AFR is 4.67% (annual compounding).
"Book Value" means, with respect to any asset of the Company, the asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Book Value of any asset contributed by a Member to the Company shall be the fair market value of such asset as of the date of contribution, as determined by the Managing Member using such reasonable method of valuation as the Managing Member may adopt;
(b) The Book Values of all Company assets shall be adjusted to equal their respective fair market values (taking Section 7701(g) of the Code into account) as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (iv) the grant of a Profits Interest (including any Class B Units or Class C Units) if the Managing Member determines that such grant constitutes a revaluation event for Capital Account purposes; and
(c) The Book Value of any Company asset distributed to any Member shall be the fair market value of such asset on the date of distribution.
If the Book Value of an asset has been determined or adjusted pursuant to clause (a) or (b) above, such Book Value shall thereafter be adjusted by the Book Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.
"Capital Account" means, with respect to any Member, the Capital Account maintained for such Member in accordance with the provisions of Section 9.1 of this Agreement and in compliance with Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv).
"Capital Contribution" means, with respect to any Member, the amount of cash and the fair market value of any property (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code) contributed to the Company by such Member. Without limitation, Capital Contributions include Fund III's equity contribution of $198,500,000 and the rollover contributions of Dr. Raymond Carvallo ($32,410,000), Dr. Nadia Ostrowski ($24,180,000), and Jonathan Marsh ($2,950,000).
"Class A Units" means the Units issued to Ardent Capital Partners III LP (and held indirectly through Ardent Capital GP III LLC) as set forth in Exhibit A hereto, representing the senior equity interests of the Company with the rights, privileges, and preferences set forth in this Agreement.
"Class B Units" means the Units issued to the rollover participants identified herein — Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Marsh — as set forth in Exhibit A hereto, subject to the vesting provisions of Section 12.2 of this Agreement. The Unvested component of the Class B Units shall be treated as Profits Interests for federal income tax purposes under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191.
"Class C Units" means Units reserved for a future management incentive equity pool, to be issued on such terms and conditions as the Managing Member may determine. As of the date hereof, no Class C Units have been authorized or issued.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. References herein to specific sections of the Code shall include any corresponding provisions of any successor statute.
"Depreciation" or "Book Depreciation" means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or period, except that (a) with respect to any asset the Book Value of which differs from its adjusted basis for federal income tax purposes and which difference is not being eliminated by use of the remedial allocation method under Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or period shall be an amount that bears the same ratio to such Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or period bears to such tax basis; and (b) if the adjusted basis for federal income tax purposes of an asset is zero, Depreciation shall be determined with reference to Book Value using any reasonable method selected by the Managing Member.
"Distribution" means any distribution of cash or property by the Company to a Member in such Member's capacity as a Member, whether pursuant to the distribution waterfall set forth in Section 11.1 hereof, as a Tax Distribution under Section 11.7 hereof, or otherwise, and whether in the ordinary course or in connection with a dissolution, liquidation, or winding up of the Company.
"Fiscal Year" means the Company's taxable year for federal income tax purposes, which shall be the calendar year (January 1 through December 31), unless otherwise required by the Code.
"Gross Asset Value" means, with respect to any asset of the Company, the asset's Book Value. The Gross Asset Values of all Company assets shall be determined and adjusted in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f) and (g). The initial Gross Asset Values of all Company assets shall be set at their fair market values as of the Closing Date (May 31, 2024), as determined in good faith by the Managing Member, taking into account the purchase price allocation set forth in Exhibit B to the Merger Agreement.
"Intermediate" or "AHI" means Ardent Healthcare Intermediate Inc. (EIN: 93-2187512; Delaware File No. 7834223), a Delaware corporation classified as a C-corporation for federal income tax purposes, which is a wholly owned subsidiary of the Company and through which the Company holds its interest in Pinnacle.
"Liquidation Value" means, as of any date of determination, the hypothetical amount that would be distributable to each Unit (or class of Units) if, on such date, (a) all Company assets were sold for their then-current Book Values (determined in accordance with this Article VIII); (b) all Company liabilities were satisfied in full (limited, with respect to each Nonrecourse Liability, to the Book Value of the assets securing such liability); and (c) the remaining proceeds were distributed in full pursuant to the distribution waterfall set forth in Section 11.1 of this Agreement. The Liquidation Value of the Unvested Class B Units as of the grant date (the Closing Date) shall be zero by design, in order to satisfy the requirements of Revenue Procedure 93-27.
"Member Nonrecourse Debt" means any Company liability (or portion thereof) that constitutes "partner nonrecourse debt" within the meaning of Treasury Regulations Section 1.704-2(b)(4), to the extent that any Member (or a Related Person of such Member) bears the economic risk of loss under Section 752 of the Code and the Treasury Regulations thereunder with respect to such liability.
"Member Nonrecourse Deductions" means the "partner nonrecourse deductions" as defined in Treasury Regulations Section 1.704-2(i)(1), being the amount of Company losses, deductions, and Code Section 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt.
"Minimum Gain" means "partnership minimum gain" as defined in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). Minimum Gain shall be computed separately for each Company Nonrecourse Liability in accordance with the rules set forth in Treasury Regulations Section 1.704-2(d).
"Net Income" and "Net Loss" mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such Fiscal Year or period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition, shall be subtracted from such taxable income or loss;
(c) In the event the Book Value of any Company asset is adjusted pursuant to clauses (a) or (b) of the definition of Book Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Book Value of the asset) or an item of loss (if the adjustment decreases the Book Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Book Value;
(e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation (Book Depreciation) for such Fiscal Year or other period, computed in accordance with the definition of "Depreciation" above; and
(f) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code or Section 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as an item of gain or loss, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss.
Any items of income, gain, loss, or deduction that are specially allocated pursuant to Section 10.4 hereof (the Regulatory Allocations) shall not be taken into account in the computation of Net Income or Net Loss.
"Nonrecourse Deductions" has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c). The amount of Nonrecourse Deductions for a Fiscal Year equals the excess, if any, of the net increase in the amount of Minimum Gain during such Fiscal Year over the aggregate amount of any distributions during such Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3), being any Company liability (or portion thereof) for which no Member or Related Person of any Member bears the economic risk of loss.
"Pinnacle" means Pinnacle Health Services Group LLC (EIN: 82-1947632), a Delaware limited liability company classified as a disregarded entity for federal income tax purposes (having been merged into, and survived as a wholly owned subsidiary of, Intermediate on the Closing Date), which operates the healthcare services business acquired pursuant to the Merger Agreement.
"Profits Interest" means an interest in the Company that has a Liquidation Value equal to zero as of the date of grant, such that the holder would receive no distributions if the Company's assets were sold at their then-current Book Values immediately after the grant, the Company's liabilities were satisfied in full, and the net proceeds were distributed in accordance with the distribution waterfall. The term is intended to qualify under Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191, such that the receipt of a Profits Interest for services is not a taxable event at the time of grant (subject to the conditions set forth in such Revenue Procedures).
"Regulatory Allocations" means the special allocations set forth in Section 10.4 of this Agreement, including the Minimum Gain Chargeback, the Member Nonrecourse Debt Minimum Gain Chargeback, the Qualified Income Offset, and the allocations of Nonrecourse Deductions and Member Nonrecourse Deductions.
"Section 704(c) Property" means any property contributed to the Company (or any property revalued in connection with a Capital Account revaluation under Section 9.2 hereof) with respect to which there exists a disparity between the Book Value (Gross Asset Value) of such property and its adjusted tax basis at the time of contribution or revaluation.
"Tax Distribution" means a mandatory distribution to Members in amounts sufficient to cover their estimated federal, state, and local income tax liabilities attributable to allocations of Company income, as more fully set forth in Section 11.7 of this Agreement.
"Tax Matters Partner" or "Partnership Representative" means Ardent Capital Partners III LP (or its designee), serving as the "partnership representative" of the Company within the meaning of Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015 (P.L. 114-74, § 1101), and as the "tax matters partner" of the Company for any periods governed by the pre-amendment partnership audit rules of Sections 6221 through 6234 of the Code (as in effect prior to amendment).
"Tax Receivable Agreement" or "TRA" means the Tax Receivable Agreement dated as of the Closing Date, by and among the Company, Intermediate, and the TRA Holders (as defined therein), pursuant to which the Company and Intermediate shall make payments to the TRA Holders in an amount equal to 85% of the realized cash tax savings attributable to the Section 743(b) basis step-up arising from the transactions contemplated by the Merger Agreement.
"Treasury Regulations" means the final, temporary, and (to the extent they can be relied upon) proposed Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time. All references herein to specific sections of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute, proposed, or final Treasury Regulations.
"Unvested Units" means any Class B Units that are subject to time-based vesting in accordance with the vesting schedule set forth in Section 12.2 of this Agreement. Specifically, 50% of the Class B Units issued to each of Dr. Raymond Carvallo and Dr. Nadia Ostrowski on the Closing Date shall constitute Unvested Units, which shall vest ratably over 36 months from the Closing Date (approximately 1.389% per month), subject to such holder's continued employment with the Company or its subsidiaries.
"Vested Units" means any Class B Units that are fully vested and no longer subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code. On the Closing Date (May 31, 2024), 50% of the Class B Units issued to each rollover participant shall be Vested Units.
"Warrant Units" means the Units issuable to Cascadia Mezzanine Fund IV LP upon exercise of the warrants issued to Cascadia Mezzanine Fund IV LP in connection with the $30,000,000 mezzanine credit facility, representing 2.5% of the fully diluted equity of the Company. Until such warrants are exercised, the Warrant Units shall not be treated as issued and outstanding for purposes of allocations and distributions under this Agreement, except as expressly provided herein for purposes of calculating Percentage Interests on a fully diluted basis.
ARTICLE IX — CAPITAL ACCOUNTS
Section 9.1 — Establishment and Maintenance of Capital Accounts
(a) The Company shall establish and maintain a separate Capital Account for each Member in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv). The Capital Account of each Member shall be maintained throughout the full term of the Company and shall be adjusted as set forth in this Section 9.1. The provisions of this Section 9.1 and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event the Managing Member determines that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Company or the Members), are computed in order to comply with such Treasury Regulations, the Managing Member may make such modification; provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Section 11.1 hereof upon the dissolution of the Company.
(b) Each Member's Capital Account shall be increased by:
(i) the amount of cash contributed by such Member to the Company;
(ii) the Gross Asset Value (Book Value) of property contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code);
(iii) allocations to such Member of Net Income and items of Company income and gain (including income and gain exempt from federal income tax and items described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Section 10.4 hereof); and
(iv) the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member.
(c) Each Member's Capital Account shall be decreased by:
(i) the amount of cash distributed to such Member by the Company;
(ii) the Gross Asset Value (Book Value) of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Section 752 of the Code);
(iii) allocations to such Member of Net Loss and items of Company deduction and loss (including expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and items described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g), but excluding items described in Section 10.4 hereof); and
(iv) the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company.
(d) The initial Capital Account balances of the Members as of the Closing Date shall be as follows:
The foregoing initial Capital Account balances reflect the Capital Contributions set forth in Exhibit A hereto.
Section 9.2 — Revaluation of Capital Accounts
(a) The Company may, at the election of the Managing Member, revalue the Capital Accounts of all Members to reflect the Gross Asset Values of Company assets (determined on a basis consistent with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv)(f)) upon the occurrence of any of the following events:
(i) the contribution of more than a de minimis amount of money or property to the Company by a new or existing Member as consideration for an interest in the Company;
(ii) the distribution of more than a de minimis amount of money or other property by the Company to a retiring or continuing Member as consideration for an interest in the Company;
(iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) (but not including a constructive termination of the Company under Section 708(b)(1)(B) of the Code, to the extent applicable); or
(iv) the grant of a Profits Interest (including any Class B Units or Class C Units) in the Company, if the Managing Member determines in good faith that such revaluation is necessary to comply with the requirements of Revenue Procedure 93-27 and Revenue Procedure 2001-43 and to properly reflect the Liquidation Value of such Profits Interest as of the grant date.
(b) Upon any revaluation pursuant to this Section 9.2, each Member's Capital Account shall be adjusted upward or downward to reflect such Member's allocable share of the unrealized gain or loss inherent in Company assets (as if such assets had been sold at their respective Gross Asset Values), with such adjustments allocated among the Members in accordance with the distribution waterfall set forth in Section 11.1 of this Agreement (i.e., in a manner that reflects the amount each Member would receive if the Company were to liquidate and distribute all proceeds in accordance with such waterfall).
(c) Without limiting the foregoing, a Capital Account revaluation shall be performed as of the Closing Date to establish fair market value basis for all assets held by the Company, directly or indirectly through Intermediate and Pinnacle, consistent with the purchase price allocation set forth in Exhibit B to the Merger Agreement and the Section 743(b) step-up analysis described in Section 10.4(f) hereof.
Section 9.3 — Transfers and Successor Capital Accounts
(a) Upon the transfer of all or a portion of a Member's interest in the Company in accordance with the provisions of this Agreement, the transferee of such interest shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(l).
(b) In the case of a partial transfer, the transferee shall succeed to a pro rata portion of the transferor's Capital Account, based on the percentage of the transferor's interest that is transferred. The Company shall provide the transferor and the transferee with a written accounting of the Capital Account as of the effective date of the transfer, including a detailed statement of the transferor's Capital Account balance and the components thereof.
(c) Nothing in this Section 9.3 shall relieve any transferor of any obligation arising prior to the effective date of such transfer, including any obligation to make contributions, to return distributions, or to indemnify the Company or the other Members.
Section 9.4 — Negative Capital Accounts; No Obligation to Restore
(a) No Member shall be obligated to restore a deficit balance in its Capital Account upon liquidation of the Company or otherwise, except (i) to the extent required by applicable law (including, without limitation, any non-waivable provision of the Delaware Limited Liability Company Act), or (ii) as specifically provided in this Agreement with respect to any particular Member (including any obligation of the Managing Member set forth in the operative provisions of this Agreement).
(b) For the avoidance of doubt, the foregoing provision does not limit or modify the obligations of any Member under the Minimum Gain Chargeback (Section 10.4(a)), the Member Nonrecourse Debt Minimum Gain Chargeback (Section 10.4(b)), or the Qualified Income Offset (Section 10.4(c)), each of which may require the allocation of items of income and gain to a Member in order to eliminate an Adjusted Capital Account Deficit. The interaction of this Section 9.4 with such provisions is intended to ensure that the economic arrangement of the Members is respected for federal income tax purposes while maintaining the substantial economic effect of the allocations under this Agreement as required by Treasury Regulations Section 1.704-1(b)(2).
ARTICLE X — ALLOCATIONS
Section 10.1 — Allocation of Net Income
After giving effect to the Regulatory Allocations set forth in Section 10.4 hereof, Net Income for each Fiscal Year (or applicable shorter period, including any period resulting from a change in the Members' interests during a Fiscal Year) shall be allocated among the Members as follows:
(a) First, to the Members in proportion to, and to the extent of, their respective shares of previously allocated Net Losses (under Section 10.2 hereof) that have not been offset by prior allocations of Net Income under this Section 10.1(a) (the "Loss Chargeback Layer"). This allocation is intended to reverse the effect of any prior loss allocations before any further income is allocated.
(b) Second, after all allocations under Section 10.1(a) have been made in full, the remaining Net Income shall be allocated to the Members in such a manner as to cause, as closely as possible, the Capital Account balance of each Member to equal the amount that would be distributable to such Member under the distribution waterfall set forth in Section 11.1 of this Agreement if the Company were to sell all of its assets for their respective Book Values, satisfy all of its liabilities (including any liabilities to Members other than in their capacity as Members), and distribute the remaining proceeds to the Members in accordance with Section 11.1. To the extent that the distribution waterfall provides for priority returns or preferred distributions applicable to the Class A Units, this allocation shall reflect such priorities.
The purpose of this Section 10.1 is to ensure that the allocation of Net Income between holders of Class A Units and holders of Class B Units tracks the economic arrangement reflected in the distribution waterfall, so that each Member's Capital Account balance is maintained at a level consistent with its entitlement to distributions upon a hypothetical liquidation of the Company.
Section 10.2 — Allocation of Net Loss
After giving effect to the Regulatory Allocations set forth in Section 10.4 hereof, Net Loss for each Fiscal Year (or applicable shorter period) shall be allocated among the Members as follows:
(a) First, to the Members in proportion to their respective positive Capital Account balances (after taking into account all Capital Contributions, distributions, and prior allocations for such Fiscal Year and all prior Fiscal Years), until all Capital Accounts have been reduced to zero. The intent of this allocation is to reduce the Capital Accounts of all Members to zero before allocating Net Losses that would create or increase a negative Capital Account balance.
(b) Second, to the Members in accordance with their respective Percentage Interests (i.e., pro rata based on relative Unit holdings), subject to the limitation set forth in clause (c) below.
(c) Limitation: Notwithstanding the foregoing, Net Loss (or any item thereof) shall not be allocated to any Member to the extent that such allocation would cause or increase an Adjusted Capital Account Deficit for such Member as of the end of the Fiscal Year. Any Net Loss (or item thereof) not allocable to a Member by reason of this limitation shall be allocated to the other Members in accordance with their respective Percentage Interests (subject to the same limitation with respect to each such other Member). If all Members have reached the Adjusted Capital Account Deficit limitation, any remaining Net Loss shall be allocated in accordance with the Members' respective Percentage Interests (or such other method as the Managing Member determines is consistent with Treasury Regulations Section 1.704-1(b)).
Section 10.3 — General Allocation Principles
(a) Except as otherwise provided in Section 10.5 (Section 704(c) Allocations) and Section 10.4 (Regulatory Allocations), items of Company income, gain, loss, deduction, and credit shall be allocated among the Members for federal, state, and local income tax purposes in the same manner as the corresponding items of Net Income and Net Loss are allocated under Sections 10.1 and 10.2 hereof.
(b) All allocations under this Article X shall be made as of the last day of each Fiscal Year. If a Member's interest in the Company changes during a Fiscal Year (including by reason of the vesting of Unvested Units, the admission of a new Member, the withdrawal of an existing Member, or any transfer of Units), the Company's items of income, gain, loss, deduction, and credit for such Fiscal Year shall be allocated among the Members using the interim closing of the books method under Treasury Regulations Section 1.706-1(c)(2), unless the Managing Member elects, in its sole discretion, to use the proration method (pro rata allocation based on the number of days each Member held its interest during the Fiscal Year). The Managing Member shall notify all Members of any such election within thirty (30) days after the end of the relevant Fiscal Year.
(c) For purposes of determining the items of Company income, gain, loss, deduction, or credit allocable to any period, such items shall be determined on a daily, monthly, or other basis as determined by the Managing Member using any permissible method under Section 706 of the Code and the Treasury Regulations thereunder.
(d) Allocations of tax credits, tax credit recapture, and any items of income, gain, loss, or deduction resulting from elections under the Code (including elections under Sections 108, 168, 195, 709, or 1033 of the Code) shall be allocated in a manner consistent with the principles of this Article X and the requirements of the Code and the Treasury Regulations.
Section 10.4 — Regulatory Allocations (Special Allocations)
The following special allocations (collectively, the "Regulatory Allocations") shall be made in the following order of priority and shall be taken into account before the allocations set forth in Sections 10.1 and 10.2 above are made:
(a) Minimum Gain Chargeback
Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article X, if there is a net decrease in Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). This allocation shall be made before any other allocation under this Article X for such Fiscal Year. Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each of the Members pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). The provisions of this Section 10.4(a) are intended to comply with the minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. This Section 10.4(a) shall not apply to the extent that the exceptions set forth in Treasury Regulations Sections 1.704-2(f)(2), (3), (4), and (5) are applicable.
(b) Member Nonrecourse Debt Minimum Gain Chargeback
Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article X, if there is a net decrease in Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). This allocation shall be made after the allocations under Section 10.4(a) but before any other allocation under this Article X. Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each of the Members pursuant thereto. The provisions of this Section 10.4(b) are intended to comply with the partner nonrecourse debt minimum gain chargeback requirement of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset
In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible; provided that an allocation pursuant to this Section 10.4(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article X have been tentatively made as if this Section 10.4(c) were not a part of this Agreement. The provisions of this Section 10.4(c) are intended to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) Nonrecourse Deductions
Nonrecourse Deductions for any Fiscal Year shall be allocated among the Members in accordance with their respective Percentage Interests (i.e., pro rata based on their relative Unit holdings on a fully diluted basis). The Managing Member shall determine the amount of Nonrecourse Deductions for each Fiscal Year in accordance with the rules of Treasury Regulations Section 1.704-2(c).
(e) Member Nonrecourse Deductions
Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Treasury Regulations Section 1.704-2(i)(1). If more than one Member bears the economic risk of loss with respect to a Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable thereto shall be allocated among such Members in accordance with the ratios in which they share such economic risk of loss.
(f) Section 754 / Section 743(b) Adjustments
To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment decreases the basis of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Income and Net Loss and shall be allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Treasury Regulations.
Note: The Company and Pinnacle intend to file an election under Section 754 of the Code with Pinnacle's federal income tax return (Form 1065) for the taxable year ending December 31, 2024. The resulting Section 743(b) basis step-up is estimated at $224,400,000, calculated as follows:
•  Enterprise value: $412,000,000
•  Less: inside basis of Pinnacle's assets: ($187,600,000)
•  Estimated Section 743(b) basis step-up: $224,400,000
This adjustment is a transferee-level adjustment allocable to Ardent Healthcare Intermediate Inc. and shall be reflected in the Capital Account computations to the extent required by Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(g) Curative Allocations
The Regulatory Allocations set forth in Sections 10.4(a) through 10.4(f) above (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations under Sections 704(b) and 704(c) of the Code. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 10.4(g). Accordingly, the Managing Member is hereby authorized and directed to make offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Sections 10.1 and 10.2 hereof. In exercising its discretion under this Section 10.4(g), the Managing Member shall take into account future Regulatory Allocations under Sections 10.4(a) and 10.4(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 10.4(d) and 10.4(e).
Section 10.5 — Section 704(c) Allocations
(a) In accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, items of income, gain, loss, and deduction with respect to any property contributed to the Company (or any property the Book Value of which has been revalued in accordance with Section 9.2 hereof) shall, solely for federal income tax purposes, be allocated among the Members so as to take into account any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value at the time of contribution or revaluation, as applicable.
(b) Method: The Company shall use the remedial allocation method described in Treasury Regulations Section 1.704-3(d) to eliminate book-tax disparities with respect to Section 704(c) Property.
Calderwood & Harkness Drafting Note: The remedial allocation method is recommended for the following reasons:
(i) The remedial method ensures that the non-contributing Members (principally Ardent Capital Partners III LP through its Class A Units) are not adversely affected by the "ceiling rule" limitation of Treasury Regulations Section 1.704-3(b)(1), which would otherwise cap the tax deduction allocable to non-contributing Members at the amount of the Company's tax depreciation or amortization with respect to the contributed property.
(ii) Under the remedial method, the Company creates offsetting notional tax items — specifically, remedial items of deduction allocated to the non-contributing Members and corresponding remedial items of income allocated to the contributing Members — to correct for any ceiling rule distortion. This ensures that the non-contributing Members receive the full benefit of their allocable share of depreciation and amortization deductions, including deductions attributable to the Section 743(b) basis step-up and contributed property.
(iii) The remedial method is particularly important in this transaction because the rollover contributions by Dr. Carvallo, Dr. Ostrowski, and Mr. Marsh involve contributed Pinnacle interests with a tax basis that differs from their Book Value (fair market value) at the time of contribution, creating a Section 704(c) layer that must be addressed.
(c) This Section 10.5 applies to all Section 704(c) Property of the Company, including the Pinnacle membership interests contributed by the rollover participants (Dr. Carvallo, Dr. Ostrowski, and Mr. Marsh), where the contributed interests have a tax basis different from their Book Value (fair market value) at the time of contribution. The Managing Member shall maintain detailed schedules identifying all Section 704(c) Property, including the initial Book Value, the adjusted tax basis, the applicable Section 704(c) method, and the remaining Section 704(c) layer as of the end of each Fiscal Year.
(d) Interplay with Section 743(b) Adjustments: The Section 743(b) adjustment arising from the Section 754 election described in Section 10.4(f) hereof is a transferee-level adjustment that is separate and distinct from the Section 704(c) allocations described in this Section 10.5. However, both must be tracked and coordinated to ensure that the Company's allocations comply with the Code and the Treasury Regulations. The Partnership Representative, in consultation with the Company's tax advisors (including Caldwell Pratt & Moorehouse LLP), shall maintain separate schedules tracking both Section 704(c) layers and Section 743(b) adjustments, and shall provide such schedules to any Member upon reasonable request.
Section 10.6 — Allocation of Excess Nonrecourse Liabilities
Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Treasury Regulations Section 1.752-3(a)(3) (i.e., Company Nonrecourse Liabilities in excess of the sum of (i) the amount of Minimum Gain attributable to such liabilities and (ii) the amount of gain that would be recognized by the Members under Section 704(c) of the Code if the Company disposed of all Section 704(c) Property subject to such liabilities in a taxable transaction for no consideration other than satisfaction of such liabilities), the Members' respective interests in Company profits shall be determined in accordance with their Percentage Interests, or such other method as the Managing Member may determine in its reasonable discretion to be consistent with the Treasury Regulations.
This allocation is relevant to the determination of each Member's share of Company liabilities for purposes of computing outside basis under Section 752 of the Code. As of the Closing Date, the Company's share of liabilities at the Intermediate and Pinnacle level includes: (i) the Term Loan B facility in the original principal amount of $155,000,000 with Graystone National Bank, N.A., as administrative agent; (ii) the revolving credit facility in the original committed amount of $35,000,000 with Graystone National Bank, N.A., as administrative agent; and (iii) the subordinated mezzanine notes in the original principal amount of $30,000,000 issued to Cascadia Mezzanine Fund IV LP.
Section 10.7 — Allocations Relating to Unvested Units (Profits Interests)
(a) Class B Units that are Unvested Units and that constitute Profits Interests shall be treated as issued and outstanding Units for purposes of all allocations under this Article X from and after the grant date (i.e., the Closing Date, May 31, 2024). The holders of Unvested Units shall be allocated their distributive share of Company items of income, gain, loss, deduction, and credit in the same manner as holders of Vested Units, consistent with the treatment of such Unvested Units as having been transferred on the grant date for federal income tax purposes.
(b) Each holder of Unvested Units who has filed a timely election under Section 83(b) of the Code (which election must be filed with the Internal Revenue Service no later than thirty (30) days after the Closing Date, i.e., no later than June 30, 2024) shall include in his or her gross income all items of Company income, gain, loss, deduction, and credit allocable to such Unvested Units on his or her personal federal, state, and local income tax returns for the applicable taxable year, beginning with the taxable year that includes the Closing Date.
(c) The Company shall cooperate with each holder of Unvested Units in connection with the filing of Section 83(b) elections and shall maintain records reflecting the Liquidation Value of each class of Units as of each grant date. As of the Closing Date, the Liquidation Value of each Unvested Class B Unit is zero, by design, in order to satisfy the requirements of Revenue Procedure 93-27 and Revenue Procedure 2001-43. Accordingly, holders of Unvested Units who timely file Section 83(b) elections will not recognize income at the time of grant.
Calderwood & Harkness Drafting Note: The vesting schedule for the Unvested Class B Units provides that 50% of the Class B Units vest at the Closing Date (May 31, 2024) and the remaining 50% vest ratably over 36 months (approximately 1.389% per month), subject to continued employment with the Company or its subsidiaries for Dr. Carvallo and Dr. Ostrowski. Mr. Marsh's Unvested Units vest on the same schedule but are not subject to an employment condition. The treatment of forfeited Unvested Units upon termination of employment is addressed in the operative vesting provisions of the LLC Agreement (not in this tax article) and includes cancellation of such forfeited Units without reallocation to other Members.
ARTICLE XI — DISTRIBUTIONS
Section 11.1 — Distribution Waterfall
Available Cash, as determined by the Managing Member in its reasonable discretion, shall be distributed to the Members as set forth in this Section 11.1. For purposes of this Agreement, "Available Cash" means cash on hand of the Company in excess of reserves that the Managing Member determines in good faith to be reasonably necessary for the payment of Company obligations, including (without limitation) (i) debt service on the senior credit facility with Graystone National Bank, N.A. (including the Term Loan B and the revolving credit facility), (ii) interest and principal payments on the mezzanine credit facility with Cascadia Mezzanine Fund IV LP, (iii) working capital needs of the Company and its subsidiaries (including Intermediate and Pinnacle), and (iv) anticipated capital expenditures approved by the Managing Member. Available Cash shall be distributed as follows:
(a) Tax Distributions (Priority)
First, Tax Distributions as set forth in Section 11.7 of this Agreement shall be made to each Member in the amounts and at the times required by such section, to the extent not previously distributed. Tax Distributions shall have priority over all other distributions under this Section 11.1.
(b) Return of Capital — Class A Units
Second, after all Tax Distributions required under Section 11.7 have been made or reserved for, to the holders of Class A Units (Ardent Capital Partners III LP) until each such holder has received aggregate cumulative distributions under this Section 11.1(b) equal to its aggregate Capital Contributions. As of the Closing Date, the aggregate Capital Contributions of Ardent Capital Partners III LP are $198,500,000.
(c) Return of Capital — Class B Units
Third, after all distributions required under Section 11.1(b) have been made in full, to the holders of Vested Class B Units (Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Marsh) until each such holder has received aggregate cumulative distributions under this Section 11.1(c) equal to its aggregate Capital Contributions. As of the Closing Date, the aggregate Capital Contributions of the Class B Unit holders are as follows: Dr. Carvallo — $32,410,000; Dr. Ostrowski — $24,180,000; Mr. Farnsworth — $2,950,000.
(d) Preferred Return — Class A Units
Fourth, after all distributions required under Sections 11.1(b) and 11.1(c) have been made in full, to the holders of Class A Units until each such holder has received cumulative distributions under this Section 11.1(d) (together with distributions received under Section 11.1(b) above) yielding an internal rate of return of [__]% per annum (computed from the date of each Capital Contribution through the date of each distribution, using standard IRR methodology) on the aggregate Capital Contributions of such holder. The preferred return hurdle rate shall be as agreed between the parties and inserted in the final, execution version of this Agreement.
Note: The preferred return rate is a key commercial term to be negotiated between Ardent Capital Partners III LP and the rollover participants. A placeholder has been inserted pending resolution of this point. See Drafting Note No. 1 below.
(e) Catch-Up — Class B Units
Fifth, after all distributions required under Section 11.1(d) have been made in full, to the holders of Vested Class B Units until the ratio of (x) aggregate cumulative distributions to all Class B Unit holders (under all sections of this Section 11.1) to (y) aggregate cumulative distributions to all Members (under all sections of this Section 11.1) equals the Class B Units' Percentage Interest on a fully diluted basis (which is 22.50%, after giving effect to the 2.5% dilution resulting from the Warrant Units).
(f) Residual Distributions
Sixth, after all distributions under Sections 11.1(a) through 11.1(e) have been made in full, all remaining Available Cash shall be distributed to all Members (including holders of Class A Units, Vested Class B Units, and, upon exercise, Warrant Units) pro rata in accordance with their respective Percentage Interests on a fully diluted basis, as follows:
For the avoidance of doubt, the Percentage Interests set forth above reflect the fully diluted equity of the Company, assuming exercise of all outstanding warrants. Prior to exercise of the Cascadia Mezzanine Fund IV LP warrants, the pre-dilution Percentage Interests of the Class A Units and Class B Units are approximately 76.92% and 23.08%, respectively.
(g) Unvested Units
Distributions that would otherwise be made in respect of Unvested Class B Units under this Section 11.1 shall not be distributed to the holder of such Unvested Units at the time such distributions are otherwise payable. Instead, such amounts shall be held in reserve by the Company (in a segregated account maintained for such purpose) and shall be distributed to the holder upon the vesting of such Unvested Units, without interest. In the event that any Unvested Units are forfeited (including upon termination of employment of any holder required to satisfy a continued employment condition), any amounts held in reserve with respect to such forfeited Units shall be retained by the Company and shall not be distributed to any Member; such amounts shall be treated as Available Cash of the Company and distributed in accordance with this Section 11.1 (excluding the forfeited Units) at such time as the Managing Member determines in its discretion.
Calderwood & Harkness Comment: The treatment of distributions on Unvested Units is a key structural issue. The approach set forth above (holding distributions in reserve until vesting, with forfeiture upon failure to vest) is one alternative. An alternative approach would be to distribute amounts to holders of Unvested Units currently, subject to a clawback obligation upon forfeiture. The tax implications of each approach differ — specifically, if amounts are distributed currently and later clawed back, the timing of income recognition and the deductibility of the clawback amount may create adverse consequences for the holder. We recommend confirming with Harcourt Shaw & DeVries whether Ardent Capital's preferred approach is the "hold in reserve" method or the "current distribution with clawback" method. See Drafting Note No. 2 below.
Section 11.2 — Distributions in Kind
(a) Distributions of Company assets in kind (as opposed to cash) shall be made only with the prior written consent of the Managing Member. No Member shall have the right to demand a distribution in kind.
(b) Any property distributed in kind to a Member shall be valued at its Gross Asset Value (fair market value) as of the date of distribution, as determined in good faith by the Managing Member.
(c) Upon any distribution in kind, the Capital Accounts of the Members shall be adjusted as if the distributed property had been sold by the Company at its Gross Asset Value, and the resulting gain or loss shall be allocated among the Members in accordance with the allocation provisions of Article X hereof. Following such adjustment, the deemed sale proceeds shall be distributed (constructively) in accordance with the distribution waterfall set forth in Section 11.1 hereof, and the actual property shall be distributed to the Members entitled to receive such deemed proceeds.
Section 11.3 — Withholding
(a) The Company is authorized and directed to withhold from any distributions (or amounts otherwise payable) to any Member any amounts required to be withheld under the Code, the Treasury Regulations, or any applicable provision of state, local, or foreign tax law. Any amounts so withheld shall be paid over to the applicable taxing authority in accordance with applicable law.
(b) All amounts withheld pursuant to this Section 11.3 shall be treated as having been distributed to such Member for all purposes of this Agreement, including for purposes of determining such Member's Capital Account and the amounts distributable to such Member under the distribution waterfall set forth in Section 11.1 hereof.
(c) As of the Closing Date, the Company anticipates the following state withholding obligations with respect to distributions to nonresident individual Members:
(d) Post-closing withholding on ongoing allocations to nonresident individual Members (Dr. Carvallo, Dr. Ostrowski, and Mr. Farnsworth) shall be computed and remitted by the Company in accordance with the requirements of each applicable state. The state of residence of each such Member shall be confirmed by such Member in writing to the Company within thirty (30) days after the Closing Date.
Section 11.7 — Tax Distributions
(a) Prior to any distributions under Sections 11.1(b) through 11.1(f) hereof, the Company shall make quarterly estimated Tax Distributions to each Member in amounts intended to be sufficient to permit such Member to satisfy its estimated federal, state, and local income tax liabilities arising from allocations of Company taxable income to such Member for the applicable taxable year.
(b) Computation of Tax Distribution Amount. The Tax Distribution payable to each Member for any quarterly estimated tax period shall be computed as follows:
Tax Distribution Amount = (Member's allocable share of Company taxable income for the applicable period) × (Assumed Tax Rate)
(c) Assumed Tax Rate. For purposes of this Section 11.7, the "Assumed Tax Rate" shall be the highest combined marginal rate of federal an

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