1001-00001 · Ardent Capital Partners · Engagement & Administration

matter-opening-memorandum.docx DOCUMENT Antitrust

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CALDERWOOD & HARKNESS LLP

MEMORANDUM — CONFIDENTIAL / ATTORNEY WORK PRODUCT

TO: New Matter Committee / General Counsel's Office, Calderwood & Harkness LLP

FROM: Howard Bellamy, Partner, Antitrust & Competition Practice Group

DATE: February 1, 2024

RE: Matter Opening — New Matter No. 1001-00001: HSR Filing and Antitrust Clearance — Ardent Capital Partners III LP Acquisition of Pinnacle Health Systems, Inc.

I. Purpose of Memorandum

This memorandum is submitted to the New Matter Committee and the General Counsel's Office to establish new matter number 1001-00001 in the firm's matter management system. The matter encompasses the full scope of the Hart-Scott-Rodino premerger notification filing and antitrust clearance workstream in connection with the proposed acquisition of Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS") by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III").

The engagement letter governing this representation was executed on January 29, 2024, between Calderwood & Harkness LLP and Ardent Capital Management LLC, acting on behalf of Ardent Capital Partners III LP, and the matter has been opened effective February 1, 2024.

The principal purpose of this engagement is to prepare and file the Hart-Scott-Rodino premerger notification forms on behalf of the acquiring person, to request early termination of the statutory thirty-day waiting period under the HSR Act, and to provide substantive antitrust analysis of the transaction to our client and, as appropriate, to the staff of the Federal Trade Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice ("DOJ"). The engagement may also encompass responding to any requests for additional information or documentary material ("Second Requests") issued by the reviewing agency, though at this time our preliminary assessment is that a Second Request is unlikely for this transaction.

This memorandum provides the New Matter Committee with the client information, transaction overview, team composition, billing arrangements, conflicts clearance status, anticipated deliverables, and other administrative details necessary for proper matter opening and oversight.

II. Client Information

The following information identifies the client entity, its organizational structure, and the principal client contacts for purposes of this engagement.

Client Entity: Ardent Capital Partners III LP

Short Names / Alternate References: Ardent Capital, Ardent CP, Fund III

Entity Type: Delaware limited partnership, formed under the Delaware Revised Uniform Limited Partnership Act

Employer Identification Number (EIN): 87-3421098

Principal Office: 399 Park Avenue, 41st Floor, New York, NY 10022

General Partner: Ardent Capital GP III LLC, a Delaware limited liability company (EIN: 86-2198403), whose sole member is Ardent Capital Management LLC. Ardent Capital GP III LLC serves as the general partner of Fund III and holds all management authority over Fund III's investment activities, including the authority to authorize the acquisition of Pinnacle and to engage legal counsel in connection therewith.

Investment Manager / Fund Sponsor: Ardent Capital Management LLC, a Delaware limited liability company (EIN: 84-5567312). Ardent Capital Management LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser under File No. 801-119247. Ardent Capital Management LLC serves as the investment manager to Fund III and the other investment vehicles in the Ardent Capital fund family, providing portfolio management, deal origination, due diligence oversight, and post-acquisition operational support to each fund.

Managing Partners / Primary Client Contacts:

• Julian Desmond, Co-Founder & Managing Partner, Ardent Capital Management LLC. Mr. Desmond serves as the primary client contact for this engagement and has day-to-day responsibility for the Pinnacle acquisition. Direct telephone: (212) 555-4801. Email: jdesmond@ardentcap.com.

• Priya Chandrasekar, Co-Founder & Managing Partner, Ardent Capital Management LLC. Ms. Chandrasekar co-leads the firm's healthcare services investment strategy and has been the deal lead on the Pinnacle transaction since origination. Direct telephone: (212) 555-4802. Email: pchandrasekar@ardentcap.com.

Fund Size (Fund III): $4.8 billion in committed capital. Fund III held its final close in November 2021. At the time of this engagement, Fund III has deployed approximately $3.1 billion of committed capital across twelve platform investments and numerous add-on acquisitions. The Pinnacle acquisition, at $534 million in equity value, represents one of the largest single platform investments made by Fund III.

Firm Focus: Ardent Capital Management LLC is a middle-market private equity firm focused on three core sectors: healthcare services, business services, and specialty industrials. Across all funds (Funds I through III), Ardent Capital has completed twenty-three platform acquisitions and over sixty add-on acquisitions. In the healthcare services sector specifically, Ardent Capital has significant operational experience, having previously invested in behavioral health, post-acute care, and outpatient rehabilitation platforms. The firm's existing healthcare portfolio companies in Fund III that are relevant to the antitrust analysis of this transaction are discussed in detail in Section VI below.

III. Engagement Team

The following Calderwood & Harkness LLP attorneys have been assigned to this matter and will serve as the primary engagement team. All billing rates reflect the firm's 2024 standard rates as agreed in the engagement letter dated January 29, 2024.

Responsible Partner & Billing Partner:

Howard Bellamy, Partner, Antitrust & Competition Practice Group. Mr. Bellamy will serve as the responsible partner for this engagement, maintaining overall supervision of all workstreams, serving as the principal point of contact with the client's Managing Partners and in-house legal team, and bearing responsibility for all filings and submissions to the FTC or DOJ. Mr. Bellamy has led more than 120 HSR filings during his career and has particular experience in healthcare services transactions, having represented acquirers in numerous transactions involving ambulatory surgical centers, physician practice management platforms, and outpatient services companies. Hourly rate: $1,650/hr.

Lead Associate:

Monica Reyes, Antitrust & Competition Practice Group. Ms. Reyes will serve as the lead associate on this engagement, with primary responsibility for the preparation of the HSR notification form, coordination of the Item 4(c) and 4(d) document collection and review process, and drafting of the preliminary antitrust risk assessment memorandum and the competitive analysis white paper to be submitted with the early termination request. Ms. Reyes has been with the firm for five years and has worked on approximately forty-five HSR filings, including several in the healthcare services sector. Hourly rate: $875/hr.

Working Associate:

Elliot Nguyen, Antitrust & Competition Practice Group. Mr. Nguyen will assist Ms. Reyes in the preparation of the HSR notification form, conduct market research and competitor identification for the substantive antitrust analysis, perform the HHI concentration analysis for each relevant geographic market, and assist in the review of Item 4(c) and 4(d) documents. Mr. Nguyen joined the firm in 2022 and has participated in approximately fifteen HSR filings. Hourly rate: $725/hr.

Billing Arrangements: This engagement will be billed on an hourly basis at the standard 2024 rates set forth above, in accordance with the terms of the engagement letter dated January 29, 2024. Invoices will be rendered monthly. Out-of-pocket expenses, including the HSR filing fee, travel expenses, and database research charges, will be billed at cost. The HSR filing fee of $280,000 will be advanced by the firm and billed through to the client, consistent with our standard practice for premerger notification engagements.

Matter Number: 1001-00001

IV. Transaction Overview

A. Transaction Structure

The proposed transaction is structured as a 100% equity acquisition in the form of a stock purchase, pursuant to which Ardent Capital Partners III LP (or a newly formed acquisition subsidiary thereof) will acquire all of the outstanding shares of capital stock of Pinnacle Health Systems, Inc. from its existing stockholders.

Acquirer: Ardent Capital Partners III LP. We note that the definitive Equity Purchase Agreement (discussed in Section IV.E below) contemplates that Ardent Capital may designate a newly formed acquisition subsidiary to serve as the direct purchaser of the Pinnacle shares at closing. For HSR purposes, however, the "acquiring person" will be determined by reference to the "ultimate parent entity" of the acquirer, which we have preliminarily identified as Ardent Capital GP III LLC, based on the control chain described in Section II above. We will finalize the UPE determination as part of the filing preparation process and will coordinate with Whitfield & Crane LLP (transaction counsel to the acquirer) to confirm the anticipated acquisition structure.

Target / Acquired Person: Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS")

• Entity Type: Delaware corporation

• Employer Identification Number (EIN): 56-4389201

• Principal Office: 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202

• Registered Agent: National Registered Agents of Delaware, Inc., 160 Greentree Drive, Suite 101, Dover, DE 19904

For HSR purposes, the "acquired person" will be determined by reference to Pinnacle's current ultimate parent entity. Because Veltrano Equity Partners Fund V LP holds 62.3% of the pre-transaction equity of Pinnacle, the UPE of the acquired person is expected to be the ultimate parent entity of the Veltrano fund structure. We will coordinate with Greenvale Durneval LLP (acquired person antitrust counsel) to confirm the appropriate UPE designation for the acquired person's filing.

B. Seller. Selling Sponsor: Veltrano Equity Holdings LLC

• Entity Type: Delaware limited liability company

• Employer Identification Number (EIN): 75-6012389

• Principal Office: 1400 Elm Street, Suite 3200, Dallas, TX 75201

Veltrano Equity Holdings LLC is the management company of the Veltrano Equity Partners fund family. The selling fund vehicle is Veltrano Equity Partners Fund V LP, a $3.2 billion fund. The Managing Member and Senior Partner of Veltrano Equity Holdings LLC is Theodore "Ted" Hargrove, who has been the lead deal partner on the Veltrano investment in Pinnacle since its original acquisition.

The pre-transaction equity capitalization of Pinnacle is held as follows:

• Veltrano Equity Partners Fund V LP: 62.3% of pre-transaction equity

• Founder and management rollover holders: 23.1% of pre-transaction equity

• Minority physician investors: 14.6% of pre-transaction equity

Veltrano originally acquired its interest in Pinnacle in 2017 at an enterprise value of approximately $340 million. During Veltrano's ownership period, Pinnacle completed nineteen add-on acquisitions, more than tripling the company's revenue base and expanding its geographic footprint from four states to nine. The transaction represents a significant return for Veltrano, with an enterprise value at exit of $952 million representing approximately 2.8x the original entry enterprise value.

C. Target Description

Pinnacle Health Systems, Inc. is a specialty healthcare services platform focused on ambulatory surgical centers and physician practice management. Pinnacle was co-founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon, who continues to serve as the company's Chief Executive Officer and Chairman of the Board.

Pinnacle currently operates:

• 42 ambulatory surgical centers ("ASCs"): Pinnacle's ASC portfolio includes multi-specialty, single-specialty, and hospital joint-venture facilities. The ASCs perform a range of outpatient surgical procedures across multiple specialties, including orthopedics, ophthalmology, gastroenterology, pain management, and general surgery. Pinnacle's ASC operations constitute the core of its business, representing approximately 72% of total revenue.

• 31 affiliated physician practice management entities: Pinnacle provides management services to affiliated physician practices through management services agreements. These arrangements typically involve Pinnacle providing administrative, billing, staffing, and operational support services to physician practices in exchange for management fees. The physician practice management entities account for approximately 28% of total revenue.

Geographic Footprint: Pinnacle's operations span nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The company's principal concentration is in the Southeastern United States, with its largest operational clusters in the Charlotte, NC metropolitan area (corporate headquarters and eight ASCs), the Atlanta, GA metropolitan area (six ASCs), and the Nashville, TN metropolitan area (five ASCs).

Key Management:

• CEO & Chairman: Dr. Marcus Ellsworth, board-certified orthopedic surgeon. Dr. Ellsworth co-founded Pinnacle in 2009 and has served as CEO continuously since inception. He holds 11.4% of the pre-transaction equity and will be rolling approximately $28.5 million of equity value into the post-closing entity, representing approximately 3.0% of post-closing equity. Dr. Ellsworth is expected to continue in his role as CEO following closing.

• CFO: Sandra Trevino. Ms. Trevino has served as CFO since 2018 and has overseen the financial integration of Pinnacle's nineteen add-on acquisitions under Veltrano's ownership. Ms. Trevino is also expected to continue in her role following closing.

Employees: Pinnacle employs approximately 4,700 individuals, including physicians, nurses, surgical technicians, administrative staff, and management personnel across its nine-state footprint.

NAICS Codes: The following North American Industry Classification System codes are applicable to Pinnacle's operations and will be used in the HSR notification filing:

• 621111 — Offices of Physicians (Except Mental Health Specialists)

• 621493 — Freestanding Ambulatory Surgical and Emergency Centers

Year Founded: 2009

D. Transaction Economics

The key financial parameters of the transaction are as follows:

The enterprise value of $952 million represents a purchase price multiple of approximately 9.7x Pinnacle's fiscal year 2023 Adjusted EBITDA of $98.2 million. The Adjusted EBITDA figure is derived from the quality of earnings report prepared by Apex Advisory Group LLC, the acquirer's financial due diligence advisor, and is reconciled to the audited financial statements of Pinnacle for the fiscal year ended December 31, 2023, as prepared by Harland & Marsh CPAs LLP.

The equity value of $534 million is comprised of $505.5 million in cash consideration payable at closing to the selling stockholders and $28.5 million in management rollover equity contributed by Dr. Marcus Ellsworth. Dr. Ellsworth's rollover represents approximately 3.0% of the post-closing equity of the acquisition vehicle. The cash consideration will be funded through a combination of equity from Fund III and the debt financing described in Section IV.F below.

E. Equity Purchase Agreement

The definitive Equity Purchase Agreement ("EPA") was executed on January 31, 2024, by and among Ardent Capital Partners III LP (or its designee), the stockholders of Pinnacle Health Systems, Inc. (including Veltrano Equity Partners Fund V LP as the majority selling stockholder), and Pinnacle Health Systems, Inc.

The EPA provides for an outside date of June 30, 2024, by which the closing must occur or either party may terminate the agreement (subject to certain conditions). This outside date establishes the overall timeline within which HSR clearance must be obtained.

Transaction Counsel to Acquirer: Whitfield & Crane LLP, 51 West 52nd Street, New York, NY 10019. The lead partner on the buy-side corporate and M&A workstream is David Ostrander. Our engagement team will coordinate closely with Mr. Ostrander's team on all matters relating to the HSR filing and antitrust clearance, including the preparation of closing deliverables and the satisfaction of the regulatory condition precedent under the EPA.

Transaction Counsel to Target/Seller: Fendowell Thornton LLP, 227 West Trade Street, Suite 2800, Charlotte, NC 28202. The lead partner on the sell-side M&A workstream is Catherine "Kate" Yardley. We will coordinate with Ms. Yardley's team and with Greenvale Durneval LLP (acquired person antitrust counsel) on matters requiring seller cooperation, including the simultaneous submission of the acquired person's HSR filing and the collection of any documents or data required from the target.

F. Financing. The acquisition will be financed through a combination of equity from Fund III and third-party debt. The debt financing commitments are summarized below:

Senior Secured First Lien Term Loan B: $410,000,000

Lead Arranger and Administrative Agent: Provident National Bank, N.A., 1500 JFK Boulevard, Philadelphia, PA 19102. The relationship manager at Provident National Bank is Paul Ewing. The Term Loan B is expected to be syndicated to a group of institutional lenders prior to or contemporaneously with closing.

Revolving Credit Facility: $55,000,000

Lender and Administrative Agent: Provident National Bank, N.A. The revolving credit facility is expected to be undrawn at closing and will be available to fund working capital needs and general corporate purposes post-closing.

Second Lien Term Loan: $95,000,000

Lender: Atlas Credit Opportunities Fund LP, 200 Clarendon Street, 47th Floor, Boston, MA 02116. The managing director at Atlas Credit responsible for this investment is Rebecca Solis.

Total Debt Commitments: $560,000,000 (consisting of the $410 million Term Loan B, the $55 million revolving credit facility, and the $95 million second lien term loan). At closing, approximately $505 million in total funded debt is anticipated ($410 million Term Loan B plus $95 million second lien term loan), with net debt at close of approximately $418 million after giving effect to transaction adjustments, including estimated closing cash balances and working capital true-up provisions.

The commitment letters for each of the foregoing facilities were executed concurrently with the EPA. Financing is not a condition to closing under the EPA; however, the availability of the financing commitments is subject to customary "certain funds" conditions.

V. HSR Filing Parameters

A. Threshold Analysis (2024)

The following analysis confirms that the proposed transaction meets the applicable thresholds under Section 7A of the Clayton Act, 15 U.S.C. § 18a, as amended (the "HSR Act"), and the implementing regulations promulgated thereunder, 16 C.F.R. Parts 801–803, and that a premerger notification filing is required.

Size-of-Transaction Test: The aggregate total amount of voting securities and assets of Pinnacle to be held by Ardent Capital as a result of the acquisition, valued at the enterprise value of $952 million, significantly exceeds the 2024 size-of-transaction threshold of $111.4 million. The size-of-transaction test is satisfied.

Size-of-Person Test (Acquiring Person): Ardent Capital Partners III LP has total assets of approximately $4.8 billion (based on committed capital), which exceeds the $22.3 million threshold applicable to the acquiring person under the 2024 thresholds. We note that because the size-of-transaction value exceeds $445.5 million (the higher size-of-transaction threshold for 2024), the size-of-person test need not be independently satisfied. Nevertheless, for completeness, both the acquiring person and the acquired person independently satisfy the size-of-person test.

Size-of-Person Test (Acquired Person): Pinnacle Health Systems, Inc. had annual net sales of $637.4 million and total assets of approximately $812 million in its most recently completed fiscal year, both of which exceed the $22.3 million threshold. The size-of-person test is satisfied with respect to the acquired person as well.

Conclusion: Filing of HSR premerger notification forms by both the acquiring person and the acquired person is required under Section 7A of the Clayton Act prior to consummation of the proposed transaction.

B. Filing Fee

Under the 2024 fee schedule established by the FTC pursuant to the HSR Act and the Merger Filing Fee Modernization Act of 2022, the filing fee is determined based on the aggregate total value of the transaction. The enterprise value of the proposed transaction is $952 million, which falls within the $500,000,000 to $999,999,999 tier.

The applicable filing fee for this transaction is $280,000.

Pursuant to Section 5.4(a) of the EPA, the filing fee is to be borne by Ardent Capital (as the acquirer). The fee will be advanced by Calderwood & Harkness LLP and billed through to the client as a disbursement, consistent with our standard practice and the terms of the engagement letter.

C. Key EPA Provisions Relevant to HSR

The Equity Purchase Agreement contains several provisions that are directly relevant to the HSR filing and antitrust clearance workstream. The key provisions are summarized below for ease of reference by the engagement team and for coordination with transaction counsel:

EPA §5.4(a) — Filing Obligation and Deadline: The parties are obligated to file their respective HSR notification forms within fifteen (15) business days following the execution of the EPA. The EPA was executed on January 31, 2024; accordingly, the contractual filing deadline is February 22, 2024. We are targeting a filing date of February 16, 2024, which provides a margin of approximately four business days before the contractual deadline.

EPA §5.4(b) — Cooperation and Filing Fees: The parties are required to cooperate in good faith in responding to any requests for information or documentary material from governmental authorities in connection with the HSR filing. The acquirer is responsible for all filing fees associated with the HSR process.

EPA §5.4(c) — Efforts Standard: The acquirer is required to use "reasonable best efforts" to obtain HSR clearance and to cause the HSR waiting period to expire or be terminated as promptly as practicable. Notably, the EPA explicitly provides that the acquirer shall have no obligation to accept, agree to, or propose any divestiture, hold-separate arrangement, or behavioral remedy as a condition to obtaining HSR clearance. This limitation on the acquirer's efforts obligation is significant and reflects a negotiated position that is favorable to our client, as it effectively places a ceiling on the level of antitrust risk that Ardent Capital is required to bear.

EPA §6.1(c) — Condition to Closing: The expiration or early termination of the HSR waiting period (including any extensions thereof resulting from the issuance of a Second Request) is a mutual condition to closing. Neither party is obligated to close until HSR clearance has been obtained.

EPA §7.1(b)(ii) — Termination Right: Either party may terminate the EPA if HSR clearance has not been obtained by the outside date of June 30, 2024, provided that the terminating party is not then in material breach of its obligations under the EPA.

EPA §7.3(b) — Reverse Termination Fee: In the event that the EPA is terminated because of a failure to obtain antitrust regulatory clearance (including an antitrust regulatory block by the FTC or DOJ), Ardent Capital is obligated to pay a reverse termination fee of $28,560,000 (calculated as 3.0% of the $952 million enterprise value) to the selling stockholders. This reverse termination fee represents the agreed-upon measure of damages for a regulatory failure and is the sole and exclusive remedy of the seller in such circumstances.

D. Filing Timeline (Anticipated)

Based on the contractual filing deadline and our current assessment of the preparation timeline, we anticipate the following filing schedule:

• Target Filing Date: February 16, 2024. This date falls well within the February 22, 2024 contractual deadline under EPA §5.4(a) and allows sufficient time for the preparation of the HSR notification form, the collection and review of Item 4(c) and 4(d) documents, and coordination with the acquired person's antitrust counsel.

• Simultaneous Filing: Both the acquiring person filing and the acquired person filing will be submitted simultaneously. We will coordinate with Greenvale Durneval LLP, counsel to the acquired person for antitrust purposes, to ensure consistency of filing content (including NAICS code designations), and to arrange for simultaneous electronic submission through the FTC's e-filing portal.

• Acquired Person Antitrust Counsel: Greenvale Durneval LLP, 1800 M Street NW, Suite 1100, Washington, DC 20036. The lead partner responsible for the acquired person's HSR filing is Jonathan Felder. Mr. Felder and I have worked together on numerous prior transactions, and I anticipate a smooth coordination process.

• Initial Waiting Period Expiration: Assuming filing on February 16, 2024, the initial thirty-day statutory waiting period under the HSR Act would be expected to expire on or about March 17, 2024, absent early termination or the issuance of a Second Request.

• Early Termination Request: We intend to request early termination of the waiting period concurrently with the filing of the HSR notification forms. If granted, early termination could result in clearance prior to the expiration of the full thirty-day waiting period, potentially shortening the timeline by one to two weeks.

At this stage, based on our preliminary review of the transaction and the competitive landscape (discussed further in Section VI below), we do not anticipate a significant risk of a Second Request. However, the overlap between Pinnacle's ASC operations and Ardent Capital's existing portfolio company, Marlowe Asset Management Rehabilitation Holdings LLC, in certain metropolitan statistical areas warrants careful analysis, and our substantive antitrust assessment will address this overlap in detail.

VI. Acquirer's Existing Healthcare Portfolio Companies (Overlap Considerations)

For purposes of the antitrust analysis and the HSR filing, it is necessary to identify and evaluate the existing healthcare portfolio companies held by Ardent Capital Partners III LP (and its affiliates) that may present horizontal or vertical competitive overlaps with Pinnacle's business. Based on our review of Ardent Capital's current portfolio, two portfolio companies in the healthcare services sector are relevant:

1. Marlowe Asset Management Rehabilitation Holdings LLC

Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab") operates a chain of outpatient physical therapy and rehabilitation clinics. The company currently operates 74 clinic locations across three states: Texas, Florida, and Georgia. Marlowe Asset Management Rehab is headquartered at 8950 Westheimer Road, Suite 600, Houston, TX 77063.

Overlap Concern: Marlowe Asset Management Rehab's outpatient physical therapy services are not horizontally competitive with Pinnacle's ambulatory surgical center or physician practice management services. However, there is a potential vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs. Specifically, twelve of Marlowe Asset Management Rehab's clinic locations are co-located with or adjacent to Pinnacle ASCs in Texas, Florida, and Georgia. Post-surgical physical therapy and rehabilitation services are a common downstream service for patients who undergo orthopedic and other surgical procedures at ASCs. Accordingly, the combination of Pinnacle and Marlowe Asset Management Rehab under common ownership could raise questions regarding vertical referral patterns, potential foreclosure of competing physical therapy providers, and potential tying or bundling arrangements.

Our substantive antitrust analysis will include a detailed examination of: (i) the nature and extent of the co-location and adjacency relationships between Marlowe Asset Management Rehab clinics and Pinnacle ASCs; (ii) existing referral patterns between the Pinnacle ASCs and Marlowe Asset Management Rehab clinics in the affected markets; (iii) the availability of alternative post-surgical rehabilitation providers in each affected geographic market; and (iv) any contractual arrangements or business practices that could suggest vertical coordination. We will also evaluate whether the vertical relationship warrants disclosure in the voluntary submission (white paper) accompanying the early termination request.

2. Clearpath Diagnostics Inc.

Clearpath Diagnostics Inc. ("Clearpath") provides independent clinical laboratory services across Pennsylvania, New Jersey, and New York. The company generates approximately $218 million in annual revenue and is headquartered at 1700 Market Street, Suite 3400, Philadelphia, PA 19103.

Overlap Assessment: Clearpath's operations are exclusively in Pennsylvania, New Jersey, and New York. Pinnacle does not operate any facilities in those states. Accordingly, there is no geographic overlap between Clearpath and Pinnacle, and the combination of Pinnacle and Clearpath under common ownership does not present any horizontal competitive concerns. While clinical laboratory services may be characterized as complementary to ASC services in a broad sense, the absence of any geographic overlap eliminates any meaningful risk of vertical foreclosure or other competitive harm. We do not anticipate that the Clearpath portfolio company will require significant analysis in the antitrust assessment or the HSR filing, though we will disclose the relationship in the filing as required by the HSR form instructions.

VII. Other Transaction Advisors and Service Providers

The following table identifies the other principal advisors and service providers engaged in connection with the transaction. This information is provided for conflicts clearance purposes, for coordination among workstreams, and for reference by the engagement team.

We will coordinate with Whitfield & Crane LLP on all matters relating to the interplay between the antitrust workstream and the broader transaction timeline, including the preparation of closing deliverables and the satisfaction of closing conditions. We will also establish a coordination protocol with Greenvale Durneval LLP for the preparation and simultaneous submission of the HSR filings and for any subsequent communications with the reviewing agency.

VIII. Anticipated Deliverables and Workstreams

The following is a summary of the principal deliverables and workstreams that we anticipate will be required in connection with this engagement. This list is not exhaustive and may be supplemented as the engagement progresses, particularly if the reviewing agency issues a Second Request or otherwise seeks additional information.

1. HSR Notification Form Preparation (Acquiring Person)

We will prepare the complete HSR Premerger Notification and Report Form for the acquiring person, including all required items (Items 1 through 8). The filing will include the entity structure chart depicting the acquiring person's organizational structure (including the UPE, the general partner, the investment manager, and the acquisition vehicle), revenue and asset data for the acquiring person and all entities within the acquiring person's control, and the identification of all applicable NAICS codes for the acquiring person and its controlled entities. The primary NAICS codes for Pinnacle are 621111 (Offices of Physicians) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers). We will coordinate with Greenvale Durneval LLP to ensure consistency in NAICS code designations between the acquiring person and acquired person filings.

2. Item 4(c) / 4(d) Document Collection and Review

We will instruct the client on the scope and requirements of the Item 4(c) and 4(d) document production obligations, which require the submission of certain documents prepared by or for officers and directors of the acquiring person that analyze the proposed transaction with respect to markets, market shares, competition, competitors, potential for sales growth, or expansion into new product or geographic markets. We will also identify and collect responsive Item 4(d) documents, which include certain studies, surveys, analyses, and reports prepared by third-party advisors evaluating the proposed transaction.

We will review all potentially responsive documents for privilege and work-product protection, prepare a privilege-reviewed document index, and coordinate the production of all responsive non-privileged documents with the HSR filing. We anticipate that the principal sources of responsive documents will include: (i) Ardent Capital's internal investment committee memoranda and presentations; (ii) the confidential information memorandum and management presentations prepared by Crestline Baird & Co. (sell-side financial advisor); (iii) the quality of earnings report prepared by Apex Advisory Group LLC; and (iv) any board materials, strategic plans, or competitive analyses prepared by Pinnacle's management.

3. Substantive Antitrust Analysis

The substantive antitrust analysis will encompass the following components:

• Preliminary Antitrust Risk Assessment Memorandum: We will prepare a comprehensive memorandum assessing the overall antitrust risk profile of the transaction for the client's internal use. This memorandum will evaluate the likelihood of agency challenge, the potential theories of competitive harm, and the risk of a Second Request.

• Market Definition and Competitive Analysis: We will define the relevant product markets and relevant geographic markets for purposes of the antitrust analysis. Based on our preliminary review, we anticipate that the relevant product markets will include: (a) ambulatory surgical center services (potentially further segmented by surgical specialty); and (b) physician practice management services. The relevant geographic markets are expected to be local or metropolitan-area markets, and we will analyze competitive conditions in each of the nine metropolitan statistical areas ("MSAs") in which Pinnacle operates.

• Portfolio Company Overlap Analysis: We will conduct a detailed analysis of the competitive overlaps between Pinnacle and Ardent Capital's existing healthcare portfolio companies, Marlowe Asset Management Rehabilitation Holdings LLC and Clearpath Diagnostics Inc. As discussed in Section VI above, the primary area of concern is the vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs in twelve co-located or adjacent locations in Texas, Florida, and Georgia.

• HHI Concentration Analysis: For each of the nine MSAs in which Pinnacle operates, we will calculate the Herfindahl-Hirschman Index ("HHI") pre- and post-transaction and assess whether the transaction raises any presumptive concerns under the 2023 Merger Guidelines. This analysis will require the identification and sizing of all significant competitors in each geographic market.

• Vertical Relationships Analysis: We will analyze the vertical relationships between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs, including referral patterns, co-location arrangements, and the potential for foreclosure of competing physical therapy providers.

• Competitor Identification and Market Participant Mapping: We will identify and map the principal competitors in each relevant geographic and product market, including other ASC operators (both independent and hospital-affiliated), physician practice management organizations, and other outpatient healthcare service providers.

• State Regulatory / Certificate of Need Analysis: Several of the states in which Pinnacle operates maintain Certificate of Need ("CON") programs or other state-level regulatory requirements that may affect the competitive landscape for ASC services. We will analyze the CON requirements in Virginia, North Carolina, Tennessee, Georgia, Alabama, and Ohio, and assess whether these regulatory barriers to entry are relevant to the antitrust analysis.

4. Early Termination Request and Voluntary Submission (White Paper)

Concurrently with the HSR filing, we will submit a formal letter to the Premerger Notification Office requesting early termination of the statutory waiting period. In support of the early termination request, we will prepare a substantive competitive analysis white paper for submission to FTC staff. The white paper will summarize the transaction, describe the relevant markets, present the results of our competitive analysis, and explain why the transaction does not raise competitive concerns warranting further investigation. The white paper will also address the Marlowe Asset Management Rehab overlap to preempt any questions from reviewing staff.

5. Coordination with Counterparty Antitrust Counsel

We will establish a formal coordination protocol with Jonathan Felder at Greenvale Durneval LLP, who is serving as antitrust counsel to the acquired person. The coordination protocol will address: (i) consistency of NAICS code designations and market definitions between the two filings; (ii) simultaneous filing logistics and submission timing; (iii) coordination of responses to any questions or requests from the reviewing agency; and (iv) information sharing regarding the acquired person's competitive data to the extent permitted under antitrust gun-jumping restrictions and the applicable confidentiality provisions of the EPA.

6. FTC/DOJ Correspondence

We will prepare the cover letter to the Premerger Notification Office accompanying the HSR filing and will handle all communications with FTC staff throughout the review process. If the transaction is cleared to the DOJ rather than the FTC through the interagency clearance process, we will redirect our communications accordingly, though based on the healthcare services focus of the transaction, we expect the FTC to retain review jurisdiction.

7. Client Reporting

We will provide bi-weekly written status reports to Julian Desmond and Priya Chandrasekar summarizing the status of the HSR filing, any communications with the reviewing agency, and the progress of our substantive antitrust analysis. We will also provide real-time updates on any significant developments, including the assignment of reviewing staff, any informal requests for information, and the grant of early termination or expiration of the waiting period.

8. Closing Deliverables

Upon the expiration or early termination of the HSR waiting period, we will prepare the following closing deliverables: (i) an HSR clearance certificate in the form of an officer's certificate confirming the satisfaction of the regulatory condition precedent under EPA §6.1(c); and (ii) confirmation letters to transaction counsel (Whitfield & Crane LLP) and seller's counsel (Fendowell Thornton LLP) confirming that the regulatory condition to closing has been satisfied.

9. Matter Wrap-Up

Following the closing of the transaction (or the termination of the EPA, as the case may be), we will prepare a closing memorandum summarizing the HSR process and the antitrust analysis performed, render a final invoice, and issue a matter closing letter. All files and work product will be archived in the firm's document management system under Matter No. 1001-00001 in accordance with the firm's document retention policies.

IX. Regulatory Contacts

The following regulatory contacts are relevant to this engagement:

Federal Trade Commission, Bureau of Competition, Premerger Notification Office ("PNO"):

The PNO is responsible for the administration of the HSR premerger notification program, including the receipt and processing of HSR filings, the assignment of reviewing staff, and the administration of requests for early termination of the waiting period. Upon the filing of the HSR notification forms, a compliance specialist will be assigned to the matter by the PNO. We will identify the assigned compliance specialist and the assigned reviewing attorney after filing and will update the engagement team accordingly.

Address: Federal Trade Commission, Bureau of Competition, Premerger Notification Office, 600 Pennsylvania Avenue NW, Washington, DC 20580.

U.S. Department of Justice, Antitrust Division:

Under the interagency clearance process between the FTC and the DOJ, each transaction is assigned to one of the two agencies for substantive review. Based on the healthcare services focus of this transaction, we expect the FTC to retain review jurisdiction, as the FTC has historically asserted primary jurisdiction over healthcare mergers and acquisitions. In the event that the transaction is cleared to the DOJ Antitrust Division, we will adjust our coordination strategy accordingly.

We will update this section of the memorandum with specific staff contacts after the HSR filings have been submitted and agency assignments have been made.

X. Conflicts Clearance

Conflicts clearance for this engagement was conducted in accordance with the firm's standard conflicts clearance procedures. A Conflicts Check Memorandum was prepared and circulated on January 28, 2024, and the results of the conflicts check have been reviewed by the undersigned and by the firm's General Counsel's Office.

Based on the results of the conflicts check, the firm has confirmed that no conflicts of interest exist with respect to any of the following parties to or participants in the proposed transaction:

• Ardent Capital Partners III LP

• Ardent Capital GP III LLC

• Ardent Capital Management LLC

• Pinnacle Health Systems, Inc.

• Veltrano Equity Holdings LLC

• Veltrano Equity Partners Fund V LP

• Whitfield & Crane LLP (transaction counsel to acquirer)

• Fendowell Thornton LLP (transaction counsel to seller/target)

• Greenvale Durneval LLP (acquired person antitrust counsel)

• Meridian Partners LLC (buy-side financial advisor)

• Crestline Baird & Co. (sell-side financial advisor)

• Provident National Bank, N.A. (senior secured lender)

• Atlas Credit Opportunities Fund LP (second lien lender)

• Marlowe Asset Management Rehabilitation Holdings LLC (portfolio company)

• Clearpath Diagnostics Inc. (portfolio company)

Conflicts have been cleared for engagement. The Conflicts Check Memorandum dated January 28, 2024 is on file with the firm's General Counsel's Office and is incorporated herein by reference.

XI. Administrative Notes

The following administrative items are noted for the record and for the information of the New Matter Committee:

Matter Number: Matter number 1001-00001 has been opened in the firm's time and billing system (Aderant) as of February 1, 2024.

Timekeeper Assignments: All three timekeepers assigned to this engagement — Howard Bellamy (Partner), Monica Reyes (Associate), and Elliot Nguyen (Associate) — have been assigned to the matter in the time and billing system and are authorized to record time against Matter No. 1001-00001 effective immediately.

Client Billing Address: Ardent Capital Management LLC, 399 Park Avenue, 41st Floor, New York, NY 10022, Attention: Julian Desmond / Priya Chandrasekar. All invoices should be directed to this address and should reference Matter No. 1001-00001 and the Pinnacle Health Systems acquisition.

Engagement Letter Reference: The engagement letter governing this representation is dated January 29, 2024, and was executed by Julian Desmond on behalf of Ardent Capital Management LLC. A copy of the fully executed engagement letter is maintained in the firm's document management system under Matter No. 1001-00001.

Document Retention: All work product, correspondence, filings, and other documents generated in connection with this engagement are to be maintained in the firm's document management system (Tidewater Systems) under Matter No. 1001-00001. All team members are reminded to observe the firm's standard document retention and information security protocols, including the designation of all matter-related documents as "Confidential — Attorney Work Product" where appropriate.

Anticipated Matter Duration: The matter is expected to remain active from February 1, 2024 through the closing of the transaction, which is currently anticipated to occur on or before June 30, 2024 (the outside date under the EPA). In the event that the transaction is terminated prior to closing, the matter will remain open until all closing memoranda, final invoices, and matter closing letters have been completed and the matter has been formally closed in the firm's matter management system.

This memorandum is submitted for the consideration and approval of the New Matter Committee and the General Counsel's Office.

CALDERWOOD & HARKNESS LLP Antitrust & Competition Practice Group

By: ________

Name: Howard Bellamy

Title: Partner

Date: February 1, 2024

CONFIDENTIAL — ATTORNEY WORK PRODUCT. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. It is intended solely for the internal use of Calderwood & Harkness LLP in connection with the administration of Matter No. 1001-00001 and should not be disclosed to any person outside the firm without the prior written consent of the responsible partner.

Metric	Value
Enterprise Value	$952,000,000
Net Debt (at signing)	$418,000,000
Equity Value	$534,000,000
Cash Consideration	$505,500,000
Management Rollover Equity	$28,500,000
EV/EBITDA Multiple	Approximately 9.7x
Pinnacle FY2023 Revenue	$637,400,000
Pinnacle FY2023 Adjusted EBITDA	$98,200,000
Pinnacle Total Assets	Approximately $812,000,000
Role	Entity (Address)	Key Contact
Buy-side Financial Advisor	Meridian Partners LLC (280 Park Avenue, 18th Floor, New York, NY 10017)	Grant Hollister, Managing Director
Sell-side Financial Advisor	Crestline Baird & Co. (300 South Tryon Street, Suite 2500, Charlotte, NC 28202)	Natasha Khoury, Managing Director
Auditor (Target)	Harland & Marsh CPAs LLP (100 South Elm Street, Suite 400, Greensboro, NC 27401)	Timothy Griggs, Engagement Partner
Quality of Earnings (Acquirer)	Apex Advisory Group LLC (One Liberty Plaza, 165 Broadway, New York, NY 10006)	Christine Varga, Managing Director
Transaction Counsel (Acquirer)	Whitfield & Crane LLP (51 West 52nd Street, New York, NY 10019)	David Ostrander, Lead Partner, Corporate/M&A
Transaction Counsel (Seller/Target)	Fendowell Thornton LLP (227 West Trade Street, Suite 2800, Charlotte, NC 28202)	Catherine "Kate" Yardley, Lead Partner, M&A
Antitrust Counsel (Acquired Person)	Greenvale Durneval LLP (1800 M Street NW, Suite 1100, Washington, DC 20036)	Jonathan Felder, Lead Partner, Antitrust
Senior Secured Lender	Provident National Bank, N.A. (1500 JFK Boulevard, Philadelphia, PA 19102)	Paul Ewing, Relationship Manager
Second Lien Lender	Atlas Credit Opportunities Fund LP (200 Clarendon Street, 47th Floor, Boston, MA 02116)	Rebecca Solis, Managing Director

CALDERWOOD & HARKNESS LLP
MEMORANDUM — CONFIDENTIAL / ATTORNEY WORK PRODUCT
TO: New Matter Committee / General Counsel's Office, Calderwood & Harkness LLP
FROM: Howard Bellamy, Partner, Antitrust & Competition Practice Group
DATE: February 1, 2024
RE: Matter Opening — New Matter No. 1001-00001: HSR Filing and Antitrust Clearance — Ardent Capital Partners III LP Acquisition of Pinnacle Health Systems, Inc.
I. Purpose of Memorandum
This memorandum is submitted to the New Matter Committee and the General Counsel's Office to establish new matter number 1001-00001 in the firm's matter management system. The matter encompasses the full scope of the Hart-Scott-Rodino premerger notification filing and antitrust clearance workstream in connection with the proposed acquisition of Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS") by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III").
The engagement letter governing this representation was executed on January 29, 2024, between Calderwood & Harkness LLP and Ardent Capital Management LLC, acting on behalf of Ardent Capital Partners III LP, and the matter has been opened effective February 1, 2024.
The principal purpose of this engagement is to prepare and file the Hart-Scott-Rodino premerger notification forms on behalf of the acquiring person, to request early termination of the statutory thirty-day waiting period under the HSR Act, and to provide substantive antitrust analysis of the transaction to our client and, as appropriate, to the staff of the Federal Trade Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice ("DOJ"). The engagement may also encompass responding to any requests for additional information or documentary material ("Second Requests") issued by the reviewing agency, though at this time our preliminary assessment is that a Second Request is unlikely for this transaction.
This memorandum provides the New Matter Committee with the client information, transaction overview, team composition, billing arrangements, conflicts clearance status, anticipated deliverables, and other administrative details necessary for proper matter opening and oversight.
II. Client Information
The following information identifies the client entity, its organizational structure, and the principal client contacts for purposes of this engagement.
Client Entity: Ardent Capital Partners III LP
Short Names / Alternate References: Ardent Capital, Ardent CP, Fund III
Entity Type: Delaware limited partnership, formed under the Delaware Revised Uniform Limited Partnership Act
Employer Identification Number (EIN): 87-3421098
Principal Office: 399 Park Avenue, 41st Floor, New York, NY 10022
General Partner: Ardent Capital GP III LLC, a Delaware limited liability company (EIN: 86-2198403), whose sole member is Ardent Capital Management LLC. Ardent Capital GP III LLC serves as the general partner of Fund III and holds all management authority over Fund III's investment activities, including the authority to authorize the acquisition of Pinnacle and to engage legal counsel in connection therewith.
Investment Manager / Fund Sponsor: Ardent Capital Management LLC, a Delaware limited liability company (EIN: 84-5567312). Ardent Capital Management LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser under File No. 801-119247. Ardent Capital Management LLC serves as the investment manager to Fund III and the other investment vehicles in the Ardent Capital fund family, providing portfolio management, deal origination, due diligence oversight, and post-acquisition operational support to each fund.
Managing Partners / Primary Client Contacts:
•  Julian Desmond, Co-Founder & Managing Partner, Ardent Capital Management LLC. Mr. Desmond serves as the primary client contact for this engagement and has day-to-day responsibility for the Pinnacle acquisition. Direct telephone: (212) 555-4801. Email: jdesmond@ardentcap.com.
•  Priya Chandrasekar, Co-Founder & Managing Partner, Ardent Capital Management LLC. Ms. Chandrasekar co-leads the firm's healthcare services investment strategy and has been the deal lead on the Pinnacle transaction since origination. Direct telephone: (212) 555-4802. Email: pchandrasekar@ardentcap.com.
Fund Size (Fund III): $4.8 billion in committed capital. Fund III held its final close in November 2021. At the time of this engagement, Fund III has deployed approximately $3.1 billion of committed capital across twelve platform investments and numerous add-on acquisitions. The Pinnacle acquisition, at $534 million in equity value, represents one of the largest single platform investments made by Fund III.
Firm Focus: Ardent Capital Management LLC is a middle-market private equity firm focused on three core sectors: healthcare services, business services, and specialty industrials. Across all funds (Funds I through III), Ardent Capital has completed twenty-three platform acquisitions and over sixty add-on acquisitions. In the healthcare services sector specifically, Ardent Capital has significant operational experience, having previously invested in behavioral health, post-acute care, and outpatient rehabilitation platforms. The firm's existing healthcare portfolio companies in Fund III that are relevant to the antitrust analysis of this transaction are discussed in detail in Section VI below.
III. Engagement Team
The following Calderwood & Harkness LLP attorneys have been assigned to this matter and will serve as the primary engagement team. All billing rates reflect the firm's 2024 standard rates as agreed in the engagement letter dated January 29, 2024.
Responsible Partner & Billing Partner:
Howard Bellamy, Partner, Antitrust & Competition Practice Group. Mr. Bellamy will serve as the responsible partner for this engagement, maintaining overall supervision of all workstreams, serving as the principal point of contact with the client's Managing Partners and in-house legal team, and bearing responsibility for all filings and submissions to the FTC or DOJ. Mr. Bellamy has led more than 120 HSR filings during his career and has particular experience in healthcare services transactions, having represented acquirers in numerous transactions involving ambulatory surgical centers, physician practice management platforms, and outpatient services companies. Hourly rate: $1,650/hr.
Lead Associate:
Monica Reyes, Antitrust & Competition Practice Group. Ms. Reyes will serve as the lead associate on this engagement, with primary responsibility for the preparation of the HSR notification form, coordination of the Item 4(c) and 4(d) document collection and review process, and drafting of the preliminary antitrust risk assessment memorandum and the competitive analysis white paper to be submitted with the early termination request. Ms. Reyes has been with the firm for five years and has worked on approximately forty-five HSR filings, including several in the healthcare services sector. Hourly rate: $875/hr.
Working Associate:
Elliot Nguyen, Antitrust & Competition Practice Group. Mr. Nguyen will assist Ms. Reyes in the preparation of the HSR notification form, conduct market research and competitor identification for the substantive antitrust analysis, perform the HHI concentration analysis for each relevant geographic market, and assist in the review of Item 4(c) and 4(d) documents. Mr. Nguyen joined the firm in 2022 and has participated in approximately fifteen HSR filings. Hourly rate: $725/hr.
Billing Arrangements: This engagement will be billed on an hourly basis at the standard 2024 rates set forth above, in accordance with the terms of the engagement letter dated January 29, 2024. Invoices will be rendered monthly. Out-of-pocket expenses, including the HSR filing fee, travel expenses, and database research charges, will be billed at cost. The HSR filing fee of $280,000 will be advanced by the firm and billed through to the client, consistent with our standard practice for premerger notification engagements.
Matter Number: 1001-00001
IV. Transaction Overview
A. Transaction Structure
The proposed transaction is structured as a 100% equity acquisition in the form of a stock purchase, pursuant to which Ardent Capital Partners III LP (or a newly formed acquisition subsidiary thereof) will acquire all of the outstanding shares of capital stock of Pinnacle Health Systems, Inc. from its existing stockholders.
Acquirer: Ardent Capital Partners III LP. We note that the definitive Equity Purchase Agreement (discussed in Section IV.E below) contemplates that Ardent Capital may designate a newly formed acquisition subsidiary to serve as the direct purchaser of the Pinnacle shares at closing. For HSR purposes, however, the "acquiring person" will be determined by reference to the "ultimate parent entity" of the acquirer, which we have preliminarily identified as Ardent Capital GP III LLC, based on the control chain described in Section II above. We will finalize the UPE determination as part of the filing preparation process and will coordinate with Whitfield & Crane LLP (transaction counsel to the acquirer) to confirm the anticipated acquisition structure.
Target / Acquired Person: Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS")
•  Entity Type: Delaware corporation
•  Employer Identification Number (EIN): 56-4389201
•  Principal Office: 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202
•  Registered Agent: National Registered Agents of Delaware, Inc., 160 Greentree Drive, Suite 101, Dover, DE 19904
For HSR purposes, the "acquired person" will be determined by reference to Pinnacle's current ultimate parent entity. Because Veltrano Equity Partners Fund V LP holds 62.3% of the pre-transaction equity of Pinnacle, the UPE of the acquired person is expected to be the ultimate parent entity of the Veltrano fund structure. We will coordinate with Greenvale Durneval LLP (acquired person antitrust counsel) to confirm the appropriate UPE designation for the acquired person's filing.
B. Seller.  Selling Sponsor: Veltrano Equity Holdings LLC
•  Entity Type: Delaware limited liability company
•  Employer Identification Number (EIN): 75-6012389
•  Principal Office: 1400 Elm Street, Suite 3200, Dallas, TX 75201
Veltrano Equity Holdings LLC is the management company of the Veltrano Equity Partners fund family. The selling fund vehicle is Veltrano Equity Partners Fund V LP, a $3.2 billion fund. The Managing Member and Senior Partner of Veltrano Equity Holdings LLC is Theodore "Ted" Hargrove, who has been the lead deal partner on the Veltrano investment in Pinnacle since its original acquisition.
The pre-transaction equity capitalization of Pinnacle is held as follows:
•  Veltrano Equity Partners Fund V LP: 62.3% of pre-transaction equity
•  Founder and management rollover holders: 23.1% of pre-transaction equity
•  Minority physician investors: 14.6% of pre-transaction equity
Veltrano originally acquired its interest in Pinnacle in 2017 at an enterprise value of approximately $340 million. During Veltrano's ownership period, Pinnacle completed nineteen add-on acquisitions, more than tripling the company's revenue base and expanding its geographic footprint from four states to nine. The transaction represents a significant return for Veltrano, with an enterprise value at exit of $952 million representing approximately 2.8x the original entry enterprise value.
C. Target Description
Pinnacle Health Systems, Inc. is a specialty healthcare services platform focused on ambulatory surgical centers and physician practice management. Pinnacle was co-founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon, who continues to serve as the company's Chief Executive Officer and Chairman of the Board.
Pinnacle currently operates:
•  42 ambulatory surgical centers ("ASCs"): Pinnacle's ASC portfolio includes multi-specialty, single-specialty, and hospital joint-venture facilities. The ASCs perform a range of outpatient surgical procedures across multiple specialties, including orthopedics, ophthalmology, gastroenterology, pain management, and general surgery. Pinnacle's ASC operations constitute the core of its business, representing approximately 72% of total revenue.
•  31 affiliated physician practice management entities: Pinnacle provides management services to affiliated physician practices through management services agreements. These arrangements typically involve Pinnacle providing administrative, billing, staffing, and operational support services to physician practices in exchange for management fees. The physician practice management entities account for approximately 28% of total revenue.
Geographic Footprint: Pinnacle's operations span nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The company's principal concentration is in the Southeastern United States, with its largest operational clusters in the Charlotte, NC metropolitan area (corporate headquarters and eight ASCs), the Atlanta, GA metropolitan area (six ASCs), and the Nashville, TN metropolitan area (five ASCs).
Key Management:
•  CEO & Chairman: Dr. Marcus Ellsworth, board-certified orthopedic surgeon. Dr. Ellsworth co-founded Pinnacle in 2009 and has served as CEO continuously since inception. He holds 11.4% of the pre-transaction equity and will be rolling approximately $28.5 million of equity value into the post-closing entity, representing approximately 3.0% of post-closing equity. Dr. Ellsworth is expected to continue in his role as CEO following closing.
•  CFO: Sandra Trevino. Ms. Trevino has served as CFO since 2018 and has overseen the financial integration of Pinnacle's nineteen add-on acquisitions under Veltrano's ownership. Ms. Trevino is also expected to continue in her role following closing.
Employees: Pinnacle employs approximately 4,700 individuals, including physicians, nurses, surgical technicians, administrative staff, and management personnel across its nine-state footprint.
NAICS Codes: The following North American Industry Classification System codes are applicable to Pinnacle's operations and will be used in the HSR notification filing:
•  621111 — Offices of Physicians (Except Mental Health Specialists)
•  621493 — Freestanding Ambulatory Surgical and Emergency Centers
Year Founded: 2009
D. Transaction Economics
The key financial parameters of the transaction are as follows:
The enterprise value of $952 million represents a purchase price multiple of approximately 9.7x Pinnacle's fiscal year 2023 Adjusted EBITDA of $98.2 million. The Adjusted EBITDA figure is derived from the quality of earnings report prepared by Apex Advisory Group LLC, the acquirer's financial due diligence advisor, and is reconciled to the audited financial statements of Pinnacle for the fiscal year ended December 31, 2023, as prepared by Harland & Marsh CPAs LLP.
The equity value of $534 million is comprised of $505.5 million in cash consideration payable at closing to the selling stockholders and $28.5 million in management rollover equity contributed by Dr. Marcus Ellsworth. Dr. Ellsworth's rollover represents approximately 3.0% of the post-closing equity of the acquisition vehicle. The cash consideration will be funded through a combination of equity from Fund III and the debt financing described in Section IV.F below.
E. Equity Purchase Agreement
The definitive Equity Purchase Agreement ("EPA") was executed on January 31, 2024, by and among Ardent Capital Partners III LP (or its designee), the stockholders of Pinnacle Health Systems, Inc. (including Veltrano Equity Partners Fund V LP as the majority selling stockholder), and Pinnacle Health Systems, Inc.
The EPA provides for an outside date of June 30, 2024, by which the closing must occur or either party may terminate the agreement (subject to certain conditions). This outside date establishes the overall timeline within which HSR clearance must be obtained.
Transaction Counsel to Acquirer: Whitfield & Crane LLP, 51 West 52nd Street, New York, NY 10019. The lead partner on the buy-side corporate and M&A workstream is David Ostrander. Our engagement team will coordinate closely with Mr. Ostrander's team on all matters relating to the HSR filing and antitrust clearance, including the preparation of closing deliverables and the satisfaction of the regulatory condition precedent under the EPA.
Transaction Counsel to Target/Seller: Fendowell Thornton LLP, 227 West Trade Street, Suite 2800, Charlotte, NC 28202. The lead partner on the sell-side M&A workstream is Catherine "Kate" Yardley. We will coordinate with Ms. Yardley's team and with Greenvale Durneval LLP (acquired person antitrust counsel) on matters requiring seller cooperation, including the simultaneous submission of the acquired person's HSR filing and the collection of any documents or data required from the target.
F. Financing.  The acquisition will be financed through a combination of equity from Fund III and third-party debt. The debt financing commitments are summarized below:
Senior Secured First Lien Term Loan B: $410,000,000
Lead Arranger and Administrative Agent: Provident National Bank, N.A., 1500 JFK Boulevard, Philadelphia, PA 19102. The relationship manager at Provident National Bank is Paul Ewing. The Term Loan B is expected to be syndicated to a group of institutional lenders prior to or contemporaneously with closing.
Revolving Credit Facility: $55,000,000
Lender and Administrative Agent: Provident National Bank, N.A. The revolving credit facility is expected to be undrawn at closing and will be available to fund working capital needs and general corporate purposes post-closing.
Second Lien Term Loan: $95,000,000
Lender: Atlas Credit Opportunities Fund LP, 200 Clarendon Street, 47th Floor, Boston, MA 02116. The managing director at Atlas Credit responsible for this investment is Rebecca Solis.
Total Debt Commitments: $560,000,000 (consisting of the $410 million Term Loan B, the $55 million revolving credit facility, and the $95 million second lien term loan). At closing, approximately $505 million in total funded debt is anticipated ($410 million Term Loan B plus $95 million second lien term loan), with net debt at close of approximately $418 million after giving effect to transaction adjustments, including estimated closing cash balances and working capital true-up provisions.
The commitment letters for each of the foregoing facilities were executed concurrently with the EPA. Financing is not a condition to closing under the EPA; however, the availability of the financing commitments is subject to customary "certain funds" conditions.
V. HSR Filing Parameters
A. Threshold Analysis (2024)
The following analysis confirms that the proposed transaction meets the applicable thresholds under Section 7A of the Clayton Act, 15 U.S.C. § 18a, as amended (the "HSR Act"), and the implementing regulations promulgated thereunder, 16 C.F.R. Parts 801–803, and that a premerger notification filing is required.
Size-of-Transaction Test: The aggregate total amount of voting securities and assets of Pinnacle to be held by Ardent Capital as a result of the acquisition, valued at the enterprise value of $952 million, significantly exceeds the 2024 size-of-transaction threshold of $111.4 million. The size-of-transaction test is satisfied.
Size-of-Person Test (Acquiring Person): Ardent Capital Partners III LP has total assets of approximately $4.8 billion (based on committed capital), which exceeds the $22.3 million threshold applicable to the acquiring person under the 2024 thresholds. We note that because the size-of-transaction value exceeds $445.5 million (the higher size-of-transaction threshold for 2024), the size-of-person test need not be independently satisfied. Nevertheless, for completeness, both the acquiring person and the acquired person independently satisfy the size-of-person test.
Size-of-Person Test (Acquired Person): Pinnacle Health Systems, Inc. had annual net sales of $637.4 million and total assets of approximately $812 million in its most recently completed fiscal year, both of which exceed the $22.3 million threshold. The size-of-person test is satisfied with respect to the acquired person as well.
Conclusion: Filing of HSR premerger notification forms by both the acquiring person and the acquired person is required under Section 7A of the Clayton Act prior to consummation of the proposed transaction.
B. Filing Fee
Under the 2024 fee schedule established by the FTC pursuant to the HSR Act and the Merger Filing Fee Modernization Act of 2022, the filing fee is determined based on the aggregate total value of the transaction. The enterprise value of the proposed transaction is $952 million, which falls within the $500,000,000 to $999,999,999 tier.
The applicable filing fee for this transaction is $280,000.
Pursuant to Section 5.4(a) of the EPA, the filing fee is to be borne by Ardent Capital (as the acquirer). The fee will be advanced by Calderwood & Harkness LLP and billed through to the client as a disbursement, consistent with our standard practice and the terms of the engagement letter.
C. Key EPA Provisions Relevant to HSR
The Equity Purchase Agreement contains several provisions that are directly relevant to the HSR filing and antitrust clearance workstream. The key provisions are summarized below for ease of reference by the engagement team and for coordination with transaction counsel:
EPA §5.4(a) — Filing Obligation and Deadline: The parties are obligated to file their respective HSR notification forms within fifteen (15) business days following the execution of the EPA. The EPA was executed on January 31, 2024; accordingly, the contractual filing deadline is February 22, 2024. We are targeting a filing date of February 16, 2024, which provides a margin of approximately four business days before the contractual deadline.
EPA §5.4(b) — Cooperation and Filing Fees: The parties are required to cooperate in good faith in responding to any requests for information or documentary material from governmental authorities in connection with the HSR filing. The acquirer is responsible for all filing fees associated with the HSR process.
EPA §5.4(c) — Efforts Standard: The acquirer is required to use "reasonable best efforts" to obtain HSR clearance and to cause the HSR waiting period to expire or be terminated as promptly as practicable. Notably, the EPA explicitly provides that the acquirer shall have no obligation to accept, agree to, or propose any divestiture, hold-separate arrangement, or behavioral remedy as a condition to obtaining HSR clearance. This limitation on the acquirer's efforts obligation is significant and reflects a negotiated position that is favorable to our client, as it effectively places a ceiling on the level of antitrust risk that Ardent Capital is required to bear.
EPA §6.1(c) — Condition to Closing: The expiration or early termination of the HSR waiting period (including any extensions thereof resulting from the issuance of a Second Request) is a mutual condition to closing. Neither party is obligated to close until HSR clearance has been obtained.
EPA §7.1(b)(ii) — Termination Right: Either party may terminate the EPA if HSR clearance has not been obtained by the outside date of June 30, 2024, provided that the terminating party is not then in material breach of its obligations under the EPA.
EPA §7.3(b) — Reverse Termination Fee: In the event that the EPA is terminated because of a failure to obtain antitrust regulatory clearance (including an antitrust regulatory block by the FTC or DOJ), Ardent Capital is obligated to pay a reverse termination fee of $28,560,000 (calculated as 3.0% of the $952 million enterprise value) to the selling stockholders. This reverse termination fee represents the agreed-upon measure of damages for a regulatory failure and is the sole and exclusive remedy of the seller in such circumstances.
D. Filing Timeline (Anticipated)
Based on the contractual filing deadline and our current assessment of the preparation timeline, we anticipate the following filing schedule:
•  Target Filing Date: February 16, 2024. This date falls well within the February 22, 2024 contractual deadline under EPA §5.4(a) and allows sufficient time for the preparation of the HSR notification form, the collection and review of Item 4(c) and 4(d) documents, and coordination with the acquired person's antitrust counsel.
•  Simultaneous Filing: Both the acquiring person filing and the acquired person filing will be submitted simultaneously. We will coordinate with Greenvale Durneval LLP, counsel to the acquired person for antitrust purposes, to ensure consistency of filing content (including NAICS code designations), and to arrange for simultaneous electronic submission through the FTC's e-filing portal.
•  Acquired Person Antitrust Counsel: Greenvale Durneval LLP, 1800 M Street NW, Suite 1100, Washington, DC 20036. The lead partner responsible for the acquired person's HSR filing is Jonathan Felder. Mr. Felder and I have worked together on numerous prior transactions, and I anticipate a smooth coordination process.
•  Initial Waiting Period Expiration: Assuming filing on February 16, 2024, the initial thirty-day statutory waiting period under the HSR Act would be expected to expire on or about March 17, 2024, absent early termination or the issuance of a Second Request.
•  Early Termination Request: We intend to request early termination of the waiting period concurrently with the filing of the HSR notification forms. If granted, early termination could result in clearance prior to the expiration of the full thirty-day waiting period, potentially shortening the timeline by one to two weeks.
At this stage, based on our preliminary review of the transaction and the competitive landscape (discussed further in Section VI below), we do not anticipate a significant risk of a Second Request. However, the overlap between Pinnacle's ASC operations and Ardent Capital's existing portfolio company, Marlowe Asset Management Rehabilitation Holdings LLC, in certain metropolitan statistical areas warrants careful analysis, and our substantive antitrust assessment will address this overlap in detail.
VI. Acquirer's Existing Healthcare Portfolio Companies (Overlap Considerations)
For purposes of the antitrust analysis and the HSR filing, it is necessary to identify and evaluate the existing healthcare portfolio companies held by Ardent Capital Partners III LP (and its affiliates) that may present horizontal or vertical competitive overlaps with Pinnacle's business. Based on our review of Ardent Capital's current portfolio, two portfolio companies in the healthcare services sector are relevant:
1. Marlowe Asset Management Rehabilitation Holdings LLC
Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab") operates a chain of outpatient physical therapy and rehabilitation clinics. The company currently operates 74 clinic locations across three states: Texas, Florida, and Georgia. Marlowe Asset Management Rehab is headquartered at 8950 Westheimer Road, Suite 600, Houston, TX 77063.
Overlap Concern: Marlowe Asset Management Rehab's outpatient physical therapy services are not horizontally competitive with Pinnacle's ambulatory surgical center or physician practice management services. However, there is a potential vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs. Specifically, twelve of Marlowe Asset Management Rehab's clinic locations are co-located with or adjacent to Pinnacle ASCs in Texas, Florida, and Georgia. Post-surgical physical therapy and rehabilitation services are a common downstream service for patients who undergo orthopedic and other surgical procedures at ASCs. Accordingly, the combination of Pinnacle and Marlowe Asset Management Rehab under common ownership could raise questions regarding vertical referral patterns, potential foreclosure of competing physical therapy providers, and potential tying or bundling arrangements.
Our substantive antitrust analysis will include a detailed examination of: (i) the nature and extent of the co-location and adjacency relationships between Marlowe Asset Management Rehab clinics and Pinnacle ASCs; (ii) existing referral patterns between the Pinnacle ASCs and Marlowe Asset Management Rehab clinics in the affected markets; (iii) the availability of alternative post-surgical rehabilitation providers in each affected geographic market; and (iv) any contractual arrangements or business practices that could suggest vertical coordination. We will also evaluate whether the vertical relationship warrants disclosure in the voluntary submission (white paper) accompanying the early termination request.
2. Clearpath Diagnostics Inc.
Clearpath Diagnostics Inc. ("Clearpath") provides independent clinical laboratory services across Pennsylvania, New Jersey, and New York. The company generates approximately $218 million in annual revenue and is headquartered at 1700 Market Street, Suite 3400, Philadelphia, PA 19103.
Overlap Assessment: Clearpath's operations are exclusively in Pennsylvania, New Jersey, and New York. Pinnacle does not operate any facilities in those states. Accordingly, there is no geographic overlap between Clearpath and Pinnacle, and the combination of Pinnacle and Clearpath under common ownership does not present any horizontal competitive concerns. While clinical laboratory services may be characterized as complementary to ASC services in a broad sense, the absence of any geographic overlap eliminates any meaningful risk of vertical foreclosure or other competitive harm. We do not anticipate that the Clearpath portfolio company will require significant analysis in the antitrust assessment or the HSR filing, though we will disclose the relationship in the filing as required by the HSR form instructions.
VII. Other Transaction Advisors and Service Providers
The following table identifies the other principal advisors and service providers engaged in connection with the transaction. This information is provided for conflicts clearance purposes, for coordination among workstreams, and for reference by the engagement team.
We will coordinate with Whitfield & Crane LLP on all matters relating to the interplay between the antitrust workstream and the broader transaction timeline, including the preparation of closing deliverables and the satisfaction of closing conditions. We will also establish a coordination protocol with Greenvale Durneval LLP for the preparation and simultaneous submission of the HSR filings and for any subsequent communications with the reviewing agency.
VIII. Anticipated Deliverables and Workstreams
The following is a summary of the principal deliverables and workstreams that we anticipate will be required in connection with this engagement. This list is not exhaustive and may be supplemented as the engagement progresses, particularly if the reviewing agency issues a Second Request or otherwise seeks additional information.
1. HSR Notification Form Preparation (Acquiring Person)
We will prepare the complete HSR Premerger Notification and Report Form for the acquiring person, including all required items (Items 1 through 8). The filing will include the entity structure chart depicting the acquiring person's organizational structure (including the UPE, the general partner, the investment manager, and the acquisition vehicle), revenue and asset data for the acquiring person and all entities within the acquiring person's control, and the identification of all applicable NAICS codes for the acquiring person and its controlled entities. The primary NAICS codes for Pinnacle are 621111 (Offices of Physicians) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers). We will coordinate with Greenvale Durneval LLP to ensure consistency in NAICS code designations between the acquiring person and acquired person filings.
2. Item 4(c) / 4(d) Document Collection and Review
We will instruct the client on the scope and requirements of the Item 4(c) and 4(d) document production obligations, which require the submission of certain documents prepared by or for officers and directors of the acquiring person that analyze the proposed transaction with respect to markets, market shares, competition, competitors, potential for sales growth, or expansion into new product or geographic markets. We will also identify and collect responsive Item 4(d) documents, which include certain studies, surveys, analyses, and reports prepared by third-party advisors evaluating the proposed transaction.
We will review all potentially responsive documents for privilege and work-product protection, prepare a privilege-reviewed document index, and coordinate the production of all responsive non-privileged documents with the HSR filing. We anticipate that the principal sources of responsive documents will include: (i) Ardent Capital's internal investment committee memoranda and presentations; (ii) the confidential information memorandum and management presentations prepared by Crestline Baird & Co. (sell-side financial advisor); (iii) the quality of earnings report prepared by Apex Advisory Group LLC; and (iv) any board materials, strategic plans, or competitive analyses prepared by Pinnacle's management.
3. Substantive Antitrust Analysis
The substantive antitrust analysis will encompass the following components:
•  Preliminary Antitrust Risk Assessment Memorandum: We will prepare a comprehensive memorandum assessing the overall antitrust risk profile of the transaction for the client's internal use. This memorandum will evaluate the likelihood of agency challenge, the potential theories of competitive harm, and the risk of a Second Request.
•  Market Definition and Competitive Analysis: We will define the relevant product markets and relevant geographic markets for purposes of the antitrust analysis. Based on our preliminary review, we anticipate that the relevant product markets will include: (a) ambulatory surgical center services (potentially further segmented by surgical specialty); and (b) physician practice management services. The relevant geographic markets are expected to be local or metropolitan-area markets, and we will analyze competitive conditions in each of the nine metropolitan statistical areas ("MSAs") in which Pinnacle operates.
•  Portfolio Company Overlap Analysis: We will conduct a detailed analysis of the competitive overlaps between Pinnacle and Ardent Capital's existing healthcare portfolio companies, Marlowe Asset Management Rehabilitation Holdings LLC and Clearpath Diagnostics Inc. As discussed in Section VI above, the primary area of concern is the vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs in twelve co-located or adjacent locations in Texas, Florida, and Georgia.
•  HHI Concentration Analysis: For each of the nine MSAs in which Pinnacle operates, we will calculate the Herfindahl-Hirschman Index ("HHI") pre- and post-transaction and assess whether the transaction raises any presumptive concerns under the 2023 Merger Guidelines. This analysis will require the identification and sizing of all significant competitors in each geographic market.
•  Vertical Relationships Analysis: We will analyze the vertical relationships between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs, including referral patterns, co-location arrangements, and the potential for foreclosure of competing physical therapy providers.
•  Competitor Identification and Market Participant Mapping: We will identify and map the principal competitors in each relevant geographic and product market, including other ASC operators (both independent and hospital-affiliated), physician practice management organizations, and other outpatient healthcare service providers.
•  State Regulatory / Certificate of Need Analysis: Several of the states in which Pinnacle operates maintain Certificate of Need ("CON") programs or other state-level regulatory requirements that may affect the competitive landscape for ASC services. We will analyze the CON requirements in Virginia, North Carolina, Tennessee, Georgia, Alabama, and Ohio, and assess whether these regulatory barriers to entry are relevant to the antitrust analysis.
4. Early Termination Request and Voluntary Submission (White Paper)
Concurrently with the HSR filing, we will submit a formal letter to the Premerger Notification Office requesting early termination of the statutory waiting period. In support of the early termination request, we will prepare a substantive competitive analysis white paper for submission to FTC staff. The white paper will summarize the transaction, describe the relevant markets, present the results of our competitive analysis, and explain why the transaction does not raise competitive concerns warranting further investigation. The white paper will also address the Marlowe Asset Management Rehab overlap to preempt any questions from reviewing staff.
5. Coordination with Counterparty Antitrust Counsel
We will establish a formal coordination protocol with Jonathan Felder at Greenvale Durneval LLP, who is serving as antitrust counsel to the acquired person. The coordination protocol will address: (i) consistency of NAICS code designations and market definitions between the two filings; (ii) simultaneous filing logistics and submission timing; (iii) coordination of responses to any questions or requests from the reviewing agency; and (iv) information sharing regarding the acquired person's competitive data to the extent permitted under antitrust gun-jumping restrictions and the applicable confidentiality provisions of the EPA.
6. FTC/DOJ Correspondence
We will prepare the cover letter to the Premerger Notification Office accompanying the HSR filing and will handle all communications with FTC staff throughout the review process. If the transaction is cleared to the DOJ rather than the FTC through the interagency clearance process, we will redirect our communications accordingly, though based on the healthcare services focus of the transaction, we expect the FTC to retain review jurisdiction.
7. Client Reporting
We will provide bi-weekly written status reports to Julian Desmond and Priya Chandrasekar summarizing the status of the HSR filing, any communications with the reviewing agency, and the progress of our substantive antitrust analysis. We will also provide real-time updates on any significant developments, including the assignment of reviewing staff, any informal requests for information, and the grant of early termination or expiration of the waiting period.
8. Closing Deliverables
Upon the expiration or early termination of the HSR waiting period, we will prepare the following closing deliverables: (i) an HSR clearance certificate in the form of an officer's certificate confirming the satisfaction of the regulatory condition precedent under EPA §6.1(c); and (ii) confirmation letters to transaction counsel (Whitfield & Crane LLP) and seller's counsel (Fendowell Thornton LLP) confirming that the regulatory condition to closing has been satisfied.
9. Matter Wrap-Up
Following the closing of the transaction (or the termination of the EPA, as the case may be), we will prepare a closing memorandum summarizing the HSR process and the antitrust analysis performed, render a final invoice, and issue a matter closing letter. All files and work product will be archived in the firm's document management system under Matter No. 1001-00001 in accordance with the firm's document retention policies.
IX. Regulatory Contacts
The following regulatory contacts are relevant to this engagement:
Federal Trade Commission, Bureau of Competition, Premerger Notification Office ("PNO"):
The PNO is responsible for the administration of the HSR premerger notification program, including the receipt and processing of HSR filings, the assignment of reviewing staff, and the administration of requests for early termination of the waiting period. Upon the filing of the HSR notification forms, a compliance specialist will be assigned to the matter by the PNO. We will identify the assigned compliance specialist and the assigned reviewing attorney after filing and will update the engagement team accordingly.
Address: Federal Trade Commission, Bureau of Competition, Premerger Notification Office, 600 Pennsylvania Avenue NW, Washington, DC 20580.
U.S. Department of Justice, Antitrust Division:
Under the interagency clearance process between the FTC and the DOJ, each transaction is assigned to one of the two agencies for substantive review. Based on the healthcare services focus of this transaction, we expect the FTC to retain review jurisdiction, as the FTC has historically asserted primary jurisdiction over healthcare mergers and acquisitions. In the event that the transaction is cleared to the DOJ Antitrust Division, we will adjust our coordination strategy accordingly.
We will update this section of the memorandum with specific staff contacts after the HSR filings have been submitted and agency assignments have been made.
X. Conflicts Clearance
Conflicts clearance for this engagement was conducted in accordance with the firm's standard conflicts clearance procedures. A Conflicts Check Memorandum was prepared and circulated on January 28, 2024, and the results of the conflicts check have been reviewed by the undersigned and by the firm's General Counsel's Office.
Based on the results of the conflicts check, the firm has confirmed that no conflicts of interest exist with respect to any of the following parties to or participants in the proposed transaction:
•  Ardent Capital Partners III LP
•  Ardent Capital GP III LLC
•  Ardent Capital Management LLC
•  Pinnacle Health Systems, Inc.
•  Veltrano Equity Holdings LLC
•  Veltrano Equity Partners Fund V LP
•  Whitfield & Crane LLP (transaction counsel to acquirer)
•  Fendowell Thornton LLP (transaction counsel to seller/target)
•  Greenvale Durneval LLP (acquired person antitrust counsel)
•  Meridian Partners LLC (buy-side financial advisor)
•  Crestline Baird & Co. (sell-side financial advisor)
•  Provident National Bank, N.A. (senior secured lender)
•  Atlas Credit Opportunities Fund LP (second lien lender)
•  Marlowe Asset Management Rehabilitation Holdings LLC (portfolio company)
•  Clearpath Diagnostics Inc. (portfolio company)
Conflicts have been cleared for engagement. The Conflicts Check Memorandum dated January 28, 2024 is on file with the firm's General Counsel's Office and is incorporated herein by reference.
XI. Administrative Notes
The following administrative items are noted for the record and for the information of the New Matter Committee:
Matter Number: Matter number 1001-00001 has been opened in the firm's time and billing system (Aderant) as of February 1, 2024.
Timekeeper Assignments: All three timekeepers assigned to this engagement — Howard Bellamy (Partner), Monica Reyes (Associate), and Elliot Nguyen (Associate) — have been assigned to the matter in the time and billing system and are authorized to record time against Matter No. 1001-00001 effective immediately.
Client Billing Address: Ardent Capital Management LLC, 399 Park Avenue, 41st Floor, New York, NY 10022, Attention: Julian Desmond / Priya Chandrasekar. All invoices should be directed to this address and should reference Matter No. 1001-00001 and the Pinnacle Health Systems acquisition.
Engagement Letter Reference: The engagement letter governing this representation is dated January 29, 2024, and was executed by Julian Desmond on behalf of Ardent Capital Management LLC. A copy of the fully executed engagement letter is maintained in the firm's document management system under Matter No. 1001-00001.
Document Retention: All work product, correspondence, filings, and other documents generated in connection with this engagement are to be maintained in the firm's document management system (Tidewater Systems) under Matter No. 1001-00001. All team members are reminded to observe the firm's standard document retention and information security protocols, including the designation of all matter-related documents as "Confidential — Attorney Work Product" where appropriate.
Anticipated Matter Duration: The matter is expected to remain active from February 1, 2024 through the closing of the transaction, which is currently anticipated to occur on or before June 30, 2024 (the outside date under the EPA). In the event that the transaction is terminated prior to closing, the matter will remain open until all closing memoranda, final invoices, and matter closing letters have been completed and the matter has been formally closed in the firm's matter management system.
This memorandum is submitted for the consideration and approval of the New Matter Committee and the General Counsel's Office.
CALDERWOOD & HARKNESS LLP Antitrust & Competition Practice Group
By: ________
Name: Howard Bellamy
Title: Partner
Date: February 1, 2024
CONFIDENTIAL — ATTORNEY WORK PRODUCT. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. It is intended solely for the internal use of Calderwood & Harkness LLP in connection with the administration of Matter No. 1001-00001 and should not be disclosed to any person outside the firm without the prior written consent of the responsible partner.
Metric | Value
Enterprise Value | $952,000,000
Net Debt (at signing) | $418,000,000
Equity Value | $534,000,000
Cash Consideration | $505,500,000
Management Rollover Equity | $28,500,000
EV/EBITDA Multiple | Approximately 9.7x
Pinnacle FY2023 Revenue | $637,400,000
Pinnacle FY2023 Adjusted EBITDA | $98,200,000
Pinnacle Total Assets | Approximately $812,000,000
Role | Entity (Address) | Key Contact
Buy-side Financial Advisor | Meridian Partners LLC (280 Park Avenue, 18th Floor, New York, NY 10017) | Grant Hollister, Managing Director
Sell-side Financial Advisor | Crestline Baird & Co. (300 South Tryon Street, Suite 2500, Charlotte, NC 28202) | Natasha Khoury, Managing Director
Auditor (Target) | Harland & Marsh CPAs LLP (100 South Elm Street, Suite 400, Greensboro, NC 27401) | Timothy Griggs, Engagement Partner
Quality of Earnings (Acquirer) | Apex Advisory Group LLC (One Liberty Plaza, 165 Broadway, New York, NY 10006) | Christine Varga, Managing Director
Transaction Counsel (Acquirer) | Whitfield & Crane LLP (51 West 52nd Street, New York, NY 10019) | David Ostrander, Lead Partner, Corporate/M&A
Transaction Counsel (Seller/Target) | Fendowell Thornton LLP (227 West Trade Street, Suite 2800, Charlotte, NC 28202) | Catherine "Kate" Yardley, Lead Partner, M&A
Antitrust Counsel (Acquired Person) | Greenvale Durneval LLP (1800 M Street NW, Suite 1100, Washington, DC 20036) | Jonathan Felder, Lead Partner, Antitrust
Senior Secured Lender | Provident National Bank, N.A. (1500 JFK Boulevard, Philadelphia, PA 19102) | Paul Ewing, Relationship Manager
Second Lien Lender | Atlas Credit Opportunities Fund LP (200 Clarendon Street, 47th Floor, Boston, MA 02116) | Rebecca Solis, Managing Director

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