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PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Beatrice Holloway, Partner, and Derek Okonkwo, Associate Calderwood & Harkness LLP One World Financial Center, 200 Liberty Street, 40th Floor New York, NY 10281

TO: Marcus Ainsworth, Managing Partner Priya Mehta-Sullivan, Partner, Head of Healthcare Investments Connor Briggs, Vice President, Healthcare Deal Team Ardent Capital Management LLC

DATE: April 8, 2024

RE: Representations and Warranties Insurance — Analysis of Policy Terms, Coverage Gaps, and Recommendations; Sentinel Specialty Insurance Company Policy No. SSI-RWI-2024-05178

MATTER NO.: 2024-M&A-0142

This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. Distribution to the R&W insurance broker (Alder Risk Partners LLC) or to the underwriting counsel (Caldwell Strand LLP) should be made only as specifically authorized by Ardent Capital Management LLC.

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I. Executive Summary

This memorandum analyzes the representations and warranties ("R&W") insurance policy issued by Sentinel Specialty Insurance Company (Policy No. SSI-RWI-2024-05178) in connection with the proposed acquisition by Ardent Healthcare Acquisition Corp. (the "Buyer") of substantially all of the assets of Cardinal Peak Industries, Inc. ("CPI" or the "Seller") for a base purchase price of $620,000,000 (the "Transaction"). The Asset Purchase Agreement (the "APA") was executed on April 2, 2024, with a target closing date of June 20, 2024. This memorandum is based on the final binder terms confirmed by Alder Risk Partners LLC, our R&W insurance broker, as of the date of this memorandum; the policy was formally bound on April 10, 2024.

The R&W policy is structured as a buy-side representations and warranties insurance policy, naming Ardent Healthcare Acquisition Corp. as the Named Insured, with Ardent Capital Partners III LP and Ardent Capital Management LLC as Additional Insureds. The policy provides an aggregate coverage limit of $62,000,000, equal to 10% of the base purchase price and corresponding to the escrow holdback amount established under the APA. The policy features a total retention of $6,200,000 (equal to 1% of the base purchase price), which is allocated evenly between the Seller's direct indemnification basket under the APA ($3,100,000) and the Buyer's self-insured retention ($3,100,000).

Key Takeaway. The R&W policy provides meaningful supplemental protection for breaches of the Seller's representations and warranties set forth in Article IV of the APA. However, the policy contains important exclusions and coverage gaps that must be addressed through the APA's direct indemnification provisions and other protective mechanisms. Of particular significance, the policy specifically excludes coverage for (i) losses arising from the pending matter styled Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847 (M.D. Tenn.), a putative wage-and-hour class action with estimated exposure of $2,800,000 to $5,100,000; (ii) known tax matters, including pre-closing tax liabilities and aggressive tax positions identified during diligence; and (iii) certain healthcare regulatory issues, including Anti-Kickback Statute and Stark Law violations that were known or should have been known to the Buyer based on diligence conducted. These gaps underscore the importance of ensuring that the APA's indemnification provisions, specific indemnities, and escrow mechanisms are drafted and implemented to provide comprehensive protection for excluded matters.

This memorandum is organized as follows: Section II provides an overview of the Transaction; Section III describes the key terms of the R&W policy; Section IV analyzes the coordination between the R&W policy and the APA's indemnification provisions; Section V identifies and assesses key exclusions and coverage gaps; Section VI summarizes the claims process and notification requirements; Section VII addresses premium and cost considerations; Section VIII sets forth our recommendations; and Section IX provides a brief conclusion. Supplemental charts and calendars are referenced in the Appendices.

The R&W insurance brokerage services for this Transaction were provided by Alder Risk Partners LLC (Philip Yuen, Senior Vice President, 452 Fifth Avenue, 12th Floor, New York, NY 10018). The underwriting diligence was conducted by Caldwell Strand LLP (155 North Wacker Drive, Suite 3200, Chicago, IL 60606), engaged by Sentinel as underwriting counsel.

II. Transaction Overview

The following summary of the Transaction is provided for context in analyzing the R&W policy terms and coverage.

Buyer. The acquiring entity is Ardent Healthcare Acquisition Corp., a Delaware corporation formed as a special purpose vehicle for the Transaction. Ardent Healthcare Acquisition Corp. is wholly owned by Ardent Capital Partners III LP, a Delaware limited partnership, which is managed by Ardent Capital Management LLC (collectively, "Ardent" or the "Buyer"). Ardent Capital Partners III LP is the third institutional fund managed by Ardent Capital Management and focuses on healthcare services investments in the lower-middle-market and middle-market segments.

Seller. The Seller is Cardinal Peak Industries, Inc. ("CPI"), a Delaware corporation headquartered at 8400 Crescent Ridge Parkway, Suite 200, Nashville, Tennessee 37215. CPI is a multi-site healthcare-services provider that operates 37 outpatient rehabilitation and behavioral health facilities across seven states: Tennessee, Georgia, North Carolina, South Carolina, Alabama, Virginia, and Kentucky. CPI employs approximately 2,100 individuals across its network of facilities, including licensed therapists, clinical psychologists, social workers, administrative staff, and corporate personnel.

CPI Financial Profile. For the last twelve months ("LTM") period, CPI reported net revenue of approximately $412,000,000 and Adjusted EBITDA of approximately $74,160,000, reflecting an Adjusted EBITDA margin of approximately 18.0%. The implied purchase price multiple based on the $620,000,000 base purchase price is approximately 8.36x LTM Adjusted EBITDA. These financial metrics were derived from the audited and unaudited financial statements of CPI reviewed and verified by the Buyer's accounting advisor, Ashford & Creighton LLP (Gregory Nolan), and confirmed against the audit reports prepared by CPI's independent auditor, Linden Hayes & Co., P.C. (Roberta Chen).

CPI Shareholders. CPI's equity ownership is held by the following: Dr. Randall J. Whitfield, CPI's founder and Chief Executive Officer (52%); Elaine Whitfield-Torres, CPI's Chief Operating Officer and Dr. Whitfield's sister (18%); Ridgeline Growth Equity Fund II LP, a private equity growth fund that invested in CPI in 2019 (22%); and other management shareholders (8%). Each of the foregoing shareholders is party to the APA and, together with CPI, will provide representations, warranties, and indemnification obligations in connection with the Transaction.

Transaction Structure. The Transaction is structured as an asset purchase pursuant to which the Buyer will acquire substantially all of the assets of CPI and assume specified liabilities. The selection of an asset purchase structure was driven by considerations relating to CPI's regulatory footprint, tax planning objectives, and the Buyer's desire to leave behind certain legacy liabilities, including the pending Dawson litigation and pre-closing tax obligations. The base purchase price of $620,000,000 is payable at closing, subject to customary adjustments for net working capital, cash, indebtedness, and transaction expenses. In addition, the APA provides for an earnout of up to $45,000,000 in the aggregate, payable based on the achievement of specified financial performance targets over two post-closing measurement periods.

Key Transaction Dates and Milestones. The APA was executed on April 2, 2024. The target closing date is June 20, 2024, subject to the satisfaction or waiver of customary closing conditions, including receipt of all required regulatory approvals and consents. State-specific healthcare licensing filings for Tennessee, Georgia, and North Carolina were submitted on March 4, 2024; additional change-of-ownership filings for the remaining four states (South Carolina, Alabama, Virginia, and Kentucky) are in progress and are expected to be completed prior to the target closing date.

Key Advisors.

• Seller's Counsel: Barrow, Kensington & Pratt LLP, with Catherine "Kit" Barrow serving as lead partner and Samuel Otieno as lead associate.

• Buyer's Counsel: Calderwood & Harkness LLP (this firm).

• Buyer's Financial Advisor: Graystone Partners LLC (Nathaniel Prescott).

• Buyer's Accounting Advisor: Ashford & Creighton LLP (Gregory Nolan).

• Seller's Independent Auditor: Linden Hayes & Co., P.C. (Roberta Chen).

• R&W Insurance Broker: Alder Risk Partners LLC (Philip Yuen, Senior Vice President).

• Underwriting Counsel (for Sentinel): Caldwell Strand LLP (Chicago, Illinois).

Escrow Arrangements. At closing, $62,000,000 of the base purchase price (equal to 10% of the purchase price) will be deposited into an escrow account maintained by Commonwealth Trust & Escrow Company (Martin Galbraith, Vice President) pursuant to the terms of the Escrow Agreement. The escrow is designed to provide a readily accessible source of recovery for post-closing indemnification claims under the APA. The escrow release schedule provides for two tranches: Tranche 1 of $31,000,000 to be released on June 30, 2025 (the 12-month anniversary of closing), and Tranche 2 of $31,000,000 to be released on December 30, 2025 (the 18-month anniversary of closing and the expiration of the general representations survival period), in each case net of any pending or unresolved claims.

III. Overview of the R&W Insurance Policy

A. Policy Details

The following table summarizes the key identifying details of the R&W insurance policy:

The R&W policy is a buy-side policy, meaning it is purchased by and for the benefit of the Buyer. This is the standard structure in private M&A transactions and provides several important advantages over a sell-side policy, including: (i) the Buyer controls the claims process and has a direct contractual relationship with the insurer; (ii) the policy provides coverage for the Buyer's own losses arising from Seller's breaches, rather than indemnifying the Seller against the Buyer's claims; and (iii) the policy can provide coverage beyond what the Seller is willing or able to offer through direct indemnification.

The policy expiration is structured to be coterminous with the survival periods applicable to the various categories of representations and warranties under the APA. Specifically:

• General Representations: The policy covers claims arising from breaches of general representations and warranties through 18 months post-closing (through approximately December 30, 2025, assuming a June 30, 2024 closing date).

• Fundamental Representations: The policy covers claims arising from breaches of fundamental representations and warranties through 36 months post-closing (through approximately June 30, 2027).

• Tax Representations: The policy covers claims arising from breaches of tax representations and warranties until 60 days after the expiration of the applicable statute of limitations, subject to the significant exclusions discussed in Section V.C below.

The coterminous expiration structure ensures that the R&W policy provides coverage for the same duration as the Buyer's direct indemnification rights under the APA, thereby eliminating timing gaps that could otherwise leave the Buyer without a recovery source.

B. Coverage Limit

The aggregate policy limit under the R&W policy is $62,000,000, which is equal to 10% of the $620,000,000 base purchase price. This aggregate limit also equals the escrow holdback amount established under the APA, providing a structural symmetry between the two primary recovery mechanisms available to the Buyer.

Several important features of the coverage limit should be noted:

• Claims-Made Basis. Coverage is provided on a claims-made basis, meaning the policy responds only to claims first made during the policy period (i.e., between the policy effective date and the applicable expiration date for the category of representation at issue). Claims that are not noticed within the applicable policy period will not be covered, regardless of when the underlying breach occurred. This underscores the importance of timely claims identification and reporting, as discussed in Section VI below.

• Aggregate Limit. The $62,000,000 limit is an aggregate limit, not a per-claim limit. This means that all covered losses under the policy, regardless of the number of individual claims, are subject to a single $62,000,000 cap. Once covered losses (including defense costs and investigation expenses paid by the insurer) reach the $62,000,000 aggregate limit, the policy is exhausted and no further coverage is available.

• No Sublimits. The policy does not impose sublimits for specific categories of representations. All covered representations share the single $62,000,000 aggregate limit. While the absence of sublimits provides flexibility (the Buyer is not constrained by category-specific caps), it also means that a large claim under one category of representations could deplete the aggregate limit and reduce or eliminate coverage for claims under other categories.

C. Retention (Self-Insured Retention)

The policy provides for a total retention amount of $6,200,000, which is equal to 1% of the $620,000,000 base purchase price. The retention functions as a deductible — the insurer's obligation to pay covered losses attaches only after the total retention has been satisfied.

The retention is allocated as follows:

(a) First Layer — Seller's Indemnification Basket ($3,100,000). The first $3,100,000 of the retention is satisfied through the Seller's direct indemnification obligations under the APA. The APA establishes a $3,100,000 basket (equal to 0.5% of the purchase price), structured as a first-dollar tipping basket. Once aggregate indemnifiable losses exceed $3,100,000, the Seller is obligated to indemnify the Buyer from dollar one (i.e., the basket "tips" and the Buyer recovers the full amount of its losses, not merely the excess over $3,100,000). The first layer of the R&W retention is treated as satisfied when the Buyer's aggregate losses reach $3,100,000, regardless of whether the Seller has actually paid those amounts.

(b) Second Layer — Buyer's Self-Insured Retention ($3,100,000). The second $3,100,000 of the retention represents the Buyer's self-insured retention ("SIR"). After the first layer is satisfied (i.e., aggregate losses exceed $3,100,000), the Buyer bears the next $3,100,000 of covered losses before the R&W policy responds. This SIR is an economic cost borne entirely by the Buyer and is not recoverable from either the Seller or the insurer.

Practical Application. In practice, the retention mechanics operate as follows: losses must first exhaust the APA indemnification basket ($3,100,000), at which point the Buyer absorbs its own $3,100,000 SIR, and only then does the R&W policy begin to respond for covered losses. The R&W policy covers losses above $6,200,000 up to the $62,000,000 aggregate limit, providing a maximum net recovery from the insurer of $55,800,000 (i.e., $62,000,000 minus $6,200,000). It is important to note, however, that the retention is satisfied on an aggregate basis — individual claims are aggregated for purposes of determining whether the retention threshold has been met.

Retention Drop-Down. The policy includes a standard market feature providing that the retention amount drops to 50% of the stated amount — i.e., from $6,200,000 to $3,100,000 — on the 12-month anniversary of the closing date (expected to be June 30, 2025) for claims first made after such date. This drop-down feature reflects the general underwriting assumption that the most significant representation breaches are likely to be discovered within the first year following closing, and that claims arising after the first anniversary are statistically less likely to be severe. After the retention drop-down, the effective retention for new claims will be $3,100,000, allocated evenly between the Seller's basket ($1,550,000) and the Buyer's SIR ($1,550,000).

D. Covered Representations

The R&W policy covers breaches of all representations and warranties made by the Seller in Article IV of the APA. The scope of covered representations is comprehensive and includes the following categories:

• Organization, Good Standing, and Qualification — Representations that CPI is duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification.

• Authorization and Enforceability — Representations that CPI has the requisite corporate power and authority to execute, deliver, and perform its obligations under the APA and the ancillary agreements, and that the APA and ancillary agreements constitute legal, valid, and binding obligations of CPI.

• Capitalization and Ownership — Representations regarding CPI's capital structure, the ownership of CPI's outstanding equity interests, and the absence of outstanding options, warrants, or other rights to acquire equity interests (classified as a fundamental representation).

• Financial Statements and Absence of Undisclosed Liabilities — Representations that CPI's historical financial statements were prepared in accordance with GAAP and fairly present the financial condition and results of operations of CPI, and that CPI has no undisclosed liabilities other than those arising in the ordinary course of business since the date of the most recent balance sheet.

• Absence of Material Adverse Effect — Representations that, since the date of the most recent audited financial statements, there has been no event, occurrence, or development that has had or would reasonably be expected to have a Material Adverse Effect on CPI's business, financial condition, or results of operations.

• Tax Matters — Representations regarding CPI's tax compliance, the filing of tax returns, and the payment of taxes, subject to the significant exclusions discussed in Section V.C below.

• Real Property and Leases — Representations regarding CPI's owned and leased real property, including the 37 facility locations, the validity and enforceability of leases, and compliance with lease terms.

• Material Contracts — Representations regarding CPI's material contracts, including payor agreements, vendor agreements, management services agreements, and other significant commercial relationships.

• intellectual Property — Representations regarding CPI's owned and licensed intellectual property, including the PeakConnect proprietary technology platform used for patient scheduling, electronic health records, and billing management (U.S. Trademark Registration No. 5,412,887). This category also covers representations regarding the absence of infringement of third-party intellectual property rights and the adequacy of CPI's cybersecurity and data protection measures.

• Employment and Labor Matters — Representations regarding CPI's compliance with employment and labor laws, the absence of pending or threatened labor disputes, and the accuracy of employee-related information provided during diligence.

• Employee Benefit Plans — Representations regarding the establishment, maintenance, and administration of CPI's employee benefit plans, including the CPI 401(k) plan, health and welfare benefit plans, and any deferred compensation arrangements.

• Healthcare Regulatory Compliance — Representations regarding CPI's compliance with applicable healthcare laws and regulations, including state licensing and permitting requirements, Medicare and Medicaid certification and enrollment, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the Physician Self-Referral Law (the "Stark Law") (42 U.S.C. § 1395nn), and other federal and state healthcare regulatory requirements. This is a particularly significant category given CPI's operating profile as a multi-state healthcare services provider, and is subject to the carve-outs discussed in Section V.D below.

• Environmental Matters — Representations regarding CPI's compliance with environmental laws, the absence of environmental contamination at CPI's facilities, and the absence of pending or threatened environmental enforcement actions.

• Insurance — Representations regarding the adequacy of CPI's insurance coverage and the absence of claims that would cause CPI's insurance policies to be cancelled or not renewed.

• Litigation and Proceedings — Representations regarding pending and threatened litigation, arbitration, administrative proceedings, and governmental investigations involving CPI, including the Dawson litigation discussed in Section V.B below.

• Brokers and Finders — Representations that no broker, finder, or investment banker (other than CPI's retained advisors) is entitled to a fee or commission in connection with the Transaction (classified as a fundamental representation).

• Title to Assets — Representations that CPI has good and valid title to all of the assets being acquired by the Buyer, free and clear of all liens and encumbrances other than permitted liens (classified as a fundamental representation).

E. Fundamental Representations — Extended Coverage

Certain representations classified as "fundamental representations" under the APA are afforded an extended survival period and, correspondingly, an extended coverage period under the R&W policy. The fundamental representations covered under the extended 36-month survival period (through approximately June 30, 2027) are:

(a) Organization and existence;

(b) Authorization and enforceability;

(d) Title to assets;

(e) Brokers and finders; and

(f) Tax representations (subject to the exclusions described in Section V.C below; tax representations survive until 60 days after the expiration of the applicable statute of limitations, which may extend beyond the 36-month period for certain tax years).

All other representations — i.e., the general representations — are covered for the standard 18-month general survival period (through approximately December 30, 2025). After the expiration of the general survival period, claims for breaches of general representations will no longer be covered by the R&W policy, and the Buyer's recovery for such breaches will be limited to whatever indemnification rights remain available under the APA (which will also expire at that time for general representations).

The distinction between fundamental and general representations is significant from a recovery planning perspective. Because the R&W policy mirrors the APA's survival periods, the Buyer should prioritize the identification and notice of potential general representation breaches well in advance of the December 30, 2025 expiration date. Claims relating to fundamental representations have a longer runway, but should nonetheless be identified and reserved against on a rolling basis.

IV. Coordination with APA Indemnification Provisions

A. APA Indemnification Framework Summary

The APA establishes a comprehensive post-closing indemnification framework that operates in conjunction with the R&W insurance policy. The key parameters of the APA's indemnification provisions are summarized as follows:

The APA's indemnification framework employs a first-dollar tipping basket mechanism. Under this structure, the Seller has no indemnification obligation for aggregate losses below $3,100,000. However, once aggregate losses exceed $3,100,000, the Seller is obligated to indemnify the Buyer from dollar one — meaning the Buyer recovers the full amount of its losses, including the first $3,100,000. This structure is more favorable to the Buyer than a traditional deductible basket, under which only losses in excess of the basket amount would be recoverable.

The $100,000 de minimis threshold prevents individual claims of less than $100,000 from being counted toward the aggregate basket amount. This provision is designed to filter out nuisance claims and immaterial breaches, and reflects a negotiated balance between the parties. The Buyer should be mindful that individual losses below $100,000 are effectively unrecoverable under the APA indemnification framework (unless they relate to a specific indemnity not subject to the de minimis threshold) and similarly will not count toward satisfaction of the R&W policy's retention.

The exclusive remedy provision is an important feature of the APA's indemnification framework. Post-closing, the Buyer's sole remedy for breaches of representations and warranties is through the indemnification provisions — the Buyer may not bring separate breach-of-contract, tort, or other claims (except in cases of fraud, willful breach, or where equitable relief is sought). This exclusive remedy provision channels all post-closing disputes through the indemnification framework and, indirectly, through the R&W insurance policy.

B. Interplay Between R&W Policy and APA Indemnification

The R&W policy is designed to function as a supplemental layer of protection, operating in addition to — not in lieu of — the Seller's direct indemnification obligations under the APA. The interplay between the two recovery mechanisms is structured to maximize the Buyer's available recovery while minimizing duplication and coordination complexity.

Total Theoretical Maximum Recovery. The Buyer's total theoretical maximum recovery for breaches of the Seller's representations and warranties is as follows:

• Up to $124,000,000 from the Seller under the APA's indemnification cap; plus

• Up to $62,000,000 from Sentinel under the R&W policy (after satisfaction of the $6,200,000 retention);

• For an aggregate theoretical maximum of $186,000,000.

In practice, the actual recoverable amount will depend on the nature and extent of the breaches, the applicability of exclusions under the R&W policy, the Seller's financial capacity to satisfy indemnification obligations, and the availability of escrow funds.

No Requirement to Exhaust Seller Indemnification. A critical feature of the R&W policy is that it does not require the Buyer to first exhaust the Seller's indemnification cap before making a claim under the policy. Once the $6,200,000 retention is satisfied (through a combination of the Seller's basket and the Buyer's SIR), the R&W policy responds for covered losses regardless of whether the Buyer has pursued or recovered amounts from the Seller. This independence from the APA indemnification framework is particularly valuable in scenarios where: (i) the Seller becomes financially unable to satisfy its indemnification obligations (e.g., due to insolvency or asset dissipation); (ii) the escrow funds have been depleted by earlier claims; or (iii) the Buyer wishes to preserve its commercial relationship with the Seller's principals and prefers to recover from the insurer rather than pursuing the Seller directly.

Backstop for Escrow Depletion. The $62,000,000 R&W coverage provides a backstop equivalent to the escrow holdback amount. This structural alignment means that, in a scenario where the escrow funds are entirely depleted by indemnification claims, the Buyer retains access to up to $62,000,000 of additional coverage under the R&W policy (subject to the retention and applicable exclusions). Conversely, if the Buyer recovers from the R&W insurer first, the escrow funds remain available for other claims or for release to the Seller on schedule.

Post-Survival Period Coverage. After the general R&W survival period expires on approximately December 30, 2025, the Buyer's direct claims against the Seller for breaches of general representations will be time-barred under the APA. The R&W policy's coverage similarly expires for general representations at that time. However, the R&W policy's coverage for fundamental representations continues through June 30, 2027, providing a continuing source of recovery for fundamental representation breaches during the period between December 30, 2025 and June 30, 2027 — a period during which the escrow will have been fully released and the Seller's general representation indemnification obligations will have expired.

C. Escrow and R&W Policy Coordination

The coordination between the escrow mechanism and the R&W policy requires careful management to optimize the Buyer's recovery position. Several considerations bear on this coordination:

Overlapping Coverage Period. The escrow release schedule (Tranche 1 at 12 months, Tranche 2 at 18 months) partially overlaps with the R&W policy coverage period. During the first 18 months post-closing, the Buyer has access to both the escrow funds and the R&W policy as sources of recovery. After December 30, 2025 (when the escrow is fully released and general representation coverage expires), the Buyer's sources of recovery narrow to: (i) the R&W policy for fundamental representation breaches (through June 30, 2027); and (ii) direct claims against the Seller for fundamental representation breaches under the APA (through June 30, 2027), subject to the Seller's continued financial capacity.

Simultaneous Notice. We recommend that any pending indemnification claim be noticed to both the escrow agent (Commonwealth Trust & Escrow Company) and the R&W insurer (Sentinel Specialty Insurance Company) simultaneously. This dual-notice approach ensures that: (i) the Buyer preserves its rights under both the escrow and the R&W policy; (ii) pending claims are reflected in the escrow calculations for purposes of the release schedule; and (iii) the R&W insurer is on notice of potential claims, even if the Buyer initially seeks recovery from the escrow.

Strategic Use of Escrow vs. R&W Coverage. The Buyer should consider a strategic approach to the sequencing of escrow claims and R&W claims. Specifically, the Buyer may wish to reserve the escrow funds for known or potential claims (including claims for matters excluded from the R&W policy, such as the Dawson litigation and tax matters) while pursuing R&W coverage for larger, unexpected breaches of representations and warranties. This approach maximizes the utility of both recovery mechanisms and avoids premature depletion of the escrow for matters that could be covered by insurance.

Effective Doubling of Recovery Pool. When viewed holistically, the R&W policy's aggregate limit of $62,000,000 effectively doubles the Buyer's available recovery pool beyond the escrow alone. The combined $124,000,000 available from the escrow ($62,000,000) and the R&W policy ($62,000,000) provides a substantial buffer against post-closing losses, provided that the claims at issue fall within covered categories under the R&W policy. For matters excluded from the R&W policy, the Buyer must rely on the APA's direct indemnification provisions, the escrow, and (where applicable) the Seller's specific indemnity obligations.

V. Key Exclusions and Coverage Gaps

While the R&W policy provides comprehensive coverage for most categories of Seller representations, it contains a number of important exclusions and coverage gaps that limit the scope of available protection. This Section identifies and assesses each significant exclusion and provides recommendations for mitigating the resulting coverage gaps through the APA's indemnification provisions and other mechanisms.

A. Known Matters / Disclosed Matters Exclusion

General Rule. Consistent with standard market practice for R&W insurance policies, the Sentinel policy excludes losses arising from matters actually known to the deal team of the Insured (Buyer) prior to the policy inception date. The policy defines "Knowledge" for this purpose as the actual knowledge (not constructive or imputed knowledge) of the following designated "Deal Team Members":

(i) Marcus Ainsworth, Managing Partner, Ardent Capital Management LLC;

(ii) Priya Mehta-Sullivan, Partner, Head of Healthcare Investments, Ardent Capital Management LLC; and

(iii) Connor Briggs, Vice President, Healthcare Deal Team, Ardent Capital Management LLC.

Scope and Implications. The known-matters exclusion operates to remove from R&W coverage any loss arising from a breach of a Seller representation that was known to any of the three designated Deal Team Members as of the policy inception date (April 10, 2024). The exclusion applies regardless of whether the known matter was disclosed in the Seller's disclosure schedules, identified in the data room, or flagged in the Buyer's diligence reports. The critical question is whether any of the designated individuals had actual knowledge of the matter — if so, it is excluded from coverage.

This exclusion is standard and commercially reasonable, as R&W insurance is intended to protect against unknown risks rather than to provide coverage for matters that the Buyer was aware of at the time of the transaction. However, the scope of the knowledge scrape requires careful monitoring. The Buyer should ensure that any matters known to the designated Deal Team Members are addressed through other protective mechanisms, such as specific indemnities in the APA, purchase price adjustments, or escrow reservations.

Items Addressed Through Specific Indemnities or Price Adjustments. Items identified during due diligence that were addressed through specific indemnification obligations or purchase price adjustments are generally not covered by the R&W policy. This is because: (i) the known-matters exclusion would apply to such items in any event; and (ii) the policy contains a separate exclusion (discussed in Section V.G below) for losses for which the Buyer has received a purchase price credit or adjustment. The Buyer should confirm that all material diligence findings addressed through specific indemnities or price adjustments are adequately documented and that the specific indemnity provisions are sufficiently broad to cover the full scope of potential losses.

B. Dawson Litigation Exclusion

Specific Exclusion. The R&W policy contains a specific, named exclusion for any losses arising out of, related to, or in connection with the pending matter styled Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847 (M.D. Tenn.) (the "Dawson Litigation"). This exclusion is drafted broadly to encompass not only the specific claims asserted in the Dawson case but also any related claims, counterclaims, settlements, judgments, and defense costs arising from or in connection with the subject matter of the Dawson Litigation.

Background. The Dawson Litigation is a putative class action filed in the United States District Court for the Middle District of Tennessee, alleging violations of the Fair Labor Standards Act ("FLSA") on behalf of a proposed class of non-exempt employees at CPI's outpatient rehabilitation facilities. The complaint, filed on October 12, 2023, alleges that CPI failed to properly compensate non-exempt employees for overtime hours worked and improperly classified certain positions as exempt. Based on information provided by the Seller's counsel (Catherine "Kit" Barrow of Barrow, Kensington & Pratt LLP), the estimated exposure for the Dawson Litigation ranges from $2,800,000 to $5,100,000, depending on the scope of the putative class and the outcome of any class certification proceedings. Discovery in the case is ongoing, and no class certification motion has yet been filed.

APA Treatment. The Dawson Litigation is treated as an Excluded Liability under the APA — meaning the Buyer does not assume any responsibility for the Dawson Litigation, and the Seller retains full responsibility for the defense, resolution, and payment of any liabilities arising from the case. In addition, the Seller has provided a specific indemnification obligation for the Dawson Litigation, which is not subject to the basket, de minimis threshold, or indemnification cap. This specific indemnity is the Buyer's primary source of recovery for Dawson-related losses and is appropriate given the R&W policy exclusion.

Recommendation. We recommend confirming that the specific Dawson indemnity in the APA is drafted broadly enough to capture not only the existing case as currently styled but also any related claims, settlements, judgments, consent decrees, regulatory actions, and defense costs that may arise from the same facts and circumstances. In particular, the indemnity should cover: (i) any expansion of the class or addition of new named plaintiffs; (ii) any companion or derivative claims filed in other jurisdictions; (iii) any investigation or enforcement action by the U.S. Department of Labor or state labor agencies arising from the same alleged FLSA violations; and (iv) all reasonable attorneys' fees and costs incurred by the Buyer in connection with any of the foregoing. We will review the current draft of the specific indemnity provision and propose any necessary revisions prior to closing.

C. Tax Matters Exclusions

The R&W policy contains several exclusions relating to tax matters, reflecting the insurer's standard underwriting position that certain tax-related risks are more appropriately addressed through direct contractual protections and tax-specific indemnities rather than through R&W insurance. The policy excludes losses arising from the following:

(a) Pre-Closing Tax Liabilities. Any tax liability of CPI or its affiliates for pre-closing tax periods. These liabilities are treated as Excluded Liabilities under the APA, and the Seller retains full responsibility for all tax obligations attributable to periods ending on or before the closing date (and for the pre-closing portion of any Straddle Period, as defined in the APA).

(b) Transaction-Related Taxes. Transfer taxes, sales taxes, and use taxes arising directly from the consummation of the asset purchase transaction. The allocation and payment of such transfer taxes is governed by the APA's tax provisions, which provide for a 50/50 split between the Buyer and the Seller.

(c) Known Aggressive Tax Positions. Any tax position or filing position known to the Insured to be aggressive or contrary to applicable law. This exclusion is a subset of the broader known-matters exclusion but is specifically focused on tax matters. It would apply if the Buyer's tax advisors (including Sylvia Hartwell at Calderwood & Harkness LLP and Gregory Nolan at Ashford & Creighton LLP) identified during diligence any tax positions taken by CPI that were aggressive, lacking in substantial authority, or contrary to applicable tax law or regulations.

(d) 401(k) Plan Tax Liabilities. Tax liabilities related to CPI's 401(k) plan, including any liability arising from a failure to maintain the plan's qualified status under Section 401(a) of the Internal Revenue Code or from prohibited transactions under Section 4975 of the Code. This exclusion is consistent with the APA's treatment of CPI's 401(k) plan liabilities as Excluded Liabilities.

Coverage Gap Assessment. The exclusion for "known" aggressive tax positions is the most significant coverage gap in the tax area. This exclusion could be triggered if the Buyer's tax advisors identified any questionable tax positions during the due diligence process. To our knowledge, the tax due diligence workstream led by Ashford & Creighton LLP identified certain areas of potential concern, including CPI's treatment of certain independent contractor arrangements and its state income tax filing positions in Georgia and North Carolina. If these matters were known to any of the designated Deal Team Members as of the policy inception date, they would fall within both the known-matters exclusion and the specific aggressive-tax-position exclusion.

Mitigation. The APA's tax representations survive for 60 days past the applicable statute of limitations, providing a longer direct indemnification window than the general or fundamental representation survival periods. In addition, the APA contains a specific tax indemnity covering pre-closing tax liabilities, which is structured as a fundamental representation not subject to the general indemnification cap (though it is subject to a separate tax indemnification cap equal to the full purchase price). These APA protections partially address the coverage gap created by the R&W policy's tax exclusions. We recommend that the Buyer's tax team (Sylvia Hartwell and Gregory Nolan) complete their review of all open tax matters and document the conclusions in the tax due diligence summary prior to closing.

D. Healthcare Regulatory Exclusions

Given CPI's status as a multi-state healthcare services provider, the healthcare regulatory exclusions in the R&W policy represent a particularly important coverage gap. The policy contains a carve-out that limits coverage for losses arising from the following healthcare regulatory matters:

(a) Anti-Kickback Statute and Stark Law Violations. The policy limits coverage for losses arising from violations of the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) or the Physician Self-Referral Law (the "Stark Law") (42 U.S.C. § 1395nn) that were known or should have been known to the Insured based on the due diligence conducted in connection with the Transaction. This exclusion employs a "known or should have been known" standard, which is broader than the actual-knowledge standard applicable to the general known-matters exclusion. Under this standard, the insurer may deny coverage not only for matters of which the designated Deal Team Members had actual knowledge, but also for matters that would have been identified through the exercise of reasonable diligence.

(b) Loss of Medicare or Medicaid Certification. The policy limits coverage for losses arising from the loss of Medicare or Medicaid certification or enrollment that results from actions or omissions occurring pre-closing that were disclosed or discoverable through standard due diligence. This exclusion is focused on the risk that CPI's Medicare or Medicaid certifications could be revoked, suspended, or otherwise adversely affected as a result of pre-closing conduct that was identified (or identifiable) during the Buyer's diligence process.

Coverage Gap Assessment. These healthcare regulatory exclusions are significant because CPI derives approximately 31% of its net revenue from Medicare and Medicaid combined. Any pre-closing compliance deficiency that was identified or identifiable during diligence — including issues related to billing practices, referral arrangements, medical necessity documentation, or compliance program adequacy — could fall outside the R&W policy's coverage. The "known or should have been known" standard applicable to the Anti-Kickback and Stark Law exclusion is particularly concerning, as it imposes a heightened duty of inquiry that extends beyond the actual knowledge of the designated Deal Team Members.

Mitigation. Several measures should be taken to address this coverage gap:

First, the healthcare regulatory compliance memorandum prepared jointly with Hargrove, Sinclair & Demarest LLP (Angela Demarest), dated March 20, 2024, should be reviewed in detail to confirm the scope of disclosed versus undisclosed regulatory issues. Any issues identified in that memorandum that were within the scope of due diligence conducted would be subject to the "known or should have been known" exclusion, and the Buyer's recovery for those matters would need to be pursued through the APA's direct indemnification provisions rather than the R&W policy.

Second, the Buyer's specific indemnification rights under the APA for healthcare regulatory breaches provide an alternative recovery path. The APA's healthcare regulatory representations are drafted as general representations (subject to the 18-month survival period), but breaches of healthcare regulatory representations that give rise to government enforcement actions, False Claims Act liability, or exclusion from federal healthcare programs are treated as matters subject to the APA's specific indemnity provisions.

Third, given that CPI operates across seven states, the state-specific licensing, certificate-of-need, and change-of-ownership requirements present varying regulatory risk profiles. State regulatory filings for Tennessee, Georgia, and North Carolina were submitted on March 4, 2024, and additional filings for South Carolina, Alabama, Virginia, and Kentucky are in progress. The Buyer should monitor the progress of these filings and confirm that any conditions or requirements imposed by state regulators do not give rise to additional regulatory exposure that could implicate the R&W policy's healthcare regulatory exclusions.

E. Interim/Pre-Closing Covenant Breaches

The R&W policy covers only breaches of the Seller's representations and warranties as stated in Article IV of the APA. Specifically, the policy covers breaches of representations as of the signing date (April 2, 2024) and, for "bring-down" purposes, as of the closing date (expected to be June 20, 2024). The policy does not cover losses arising from the Seller's breach of pre-closing operating covenants set forth in Article V of the APA.

Coverage Gap Assessment. The pre-closing operating covenants require the Seller to operate CPI's business in the ordinary course consistent with past practice during the interim period between signing and closing, and to refrain from taking certain specified actions without the Buyer's prior written consent (e.g., entering into material contracts, making capital expenditures above specified thresholds, granting compensation increases, or settling litigation). Breaches of these covenants could result in material losses to the Buyer — for example, if the Seller enters into an unfavorable long-term contract during the interim period, or if the Seller fails to maintain CPI's licensure or certification in one or more states. Such losses would not be covered by the R&W policy.

Mitigation. Covenant breaches are addressed through the APA's separate indemnification provisions for compliance with covenants and agreements. The Seller's covenant indemnification is not subject to the basket but is subject to the general indemnification cap. In addition, the Seller's closing certificate will include a bring-down certification confirming that all representations and warranties are true and correct as of the closing date and that all pre-closing covenants have been complied with in all material respects. The bring-down certification provides an additional layer of contractual protection and serves as a closing condition that the Buyer can enforce.

F. Earnout and Purchase Price Adjustment Exclusions

The R&W policy excludes any disputes relating to the calculation, payment, or amount of the earnout (up to $45,000,000 in the aggregate) and the net working capital adjustment. These exclusions are standard in R&W insurance policies and reflect the view that earnout and purchase price adjustment disputes are commercial matters governed by the contractual mechanics of the APA rather than insurance coverage matters.

Net Working Capital. The APA establishes a net working capital target of $28,000,000 (the "NWC Target"), with an estimated closing NWC of $29,200,000. The NWC adjustment mechanism includes a $500,000 de minimis collar, meaning no adjustment will be made if the difference between actual closing NWC and the NWC Target is less than $500,000. If the closing NWC exceeds the NWC Target by more than $500,000, the purchase price is adjusted upward; if it falls below the NWC Target by more than $500,000, the purchase price is adjusted downward. Disputes regarding the calculation of closing NWC are resolved through the accounting arbitration procedures set forth in the APA and are not subject to R&W coverage.

Earnout. The earnout is structured as two measurement periods: Earnout Period 1 (closing through June 30, 2025) and Earnout Period 2 (July 1, 2025 through June 30, 2026), with the earnout payments contingent on CPI's achievement of specified Adjusted EBITDA targets during each period. The maximum earnout payment is $45,000,000 in the aggregate. Earnout disputes — including disputes regarding the Buyer's operation of the business during the earnout period, the calculation of Adjusted EBITDA, and the application of the change of control acceleration provision — are governed exclusively by the Earnout Agreement and the APA's dispute resolution mechanisms, and are outside the scope of R&W coverage.

G. Other Standard Exclusions

The R&W policy contains several additional standard exclusions that are consistent with market practice:

• Fraud or Willful Misconduct by the Insured. The policy excludes losses arising from fraud or willful misconduct by the Insured (i.e., the Buyer). This exclusion does not limit coverage for the Seller's fraud — the R&W policy covers losses arising from the Seller's fraudulent misrepresentations. Rather, the exclusion applies only to the Buyer's own fraud, such as a situation where the Buyer knowingly made a false claim under the policy.

• Purchase Price Credit or Adjustment. The policy excludes losses for which the Insured has received a purchase price credit or adjustment. This exclusion prevents double recovery — if a matter was already reflected in a reduction of the purchase price, the Buyer cannot also recover for the same matter under the R&W policy.

• Consequential, Punitive, or Multiplied Damages. The policy excludes consequential, punitive, or multiplied damages, except to the extent such damages are awarded to a third party in a third-party claim. This carve-out ensures that the Buyer can recover under the R&W policy for punitive or multiplied damages that it is required to pay to a third party (e.g., in a regulatory enforcement action or third-party lawsuit), but cannot recover its own consequential damages (such as lost profits) directly from the insurer.

• Asbestos, Lead Paint, and PFAS Contamination. The policy excludes losses arising from asbestos, lead paint, or per- and polyfluoroalkyl substances ("PFAS") contamination. Environmental due diligence was conducted by Whitmore Environmental Sciences Inc. in connection with the Transaction; the Buyer should confirm that the environmental diligence report does not identify any asbestos, lead paint, or PFAS issues at CPI's facilities that would otherwise have been covered by the R&W policy.

• Pension or Multiemployer Plan Withdrawal Liability. The policy excludes losses arising from pension or multiemployer plan withdrawal liability. To our knowledge, CPI does not participate in any multiemployer pension plan, and this exclusion is unlikely to be relevant to the Transaction.

• Product Liability or Professional Malpractice Claims. The policy excludes product liability or professional malpractice claims arising pre-closing, except to the extent such claims are covered by the Seller's litigation representations. Given CPI's business as a healthcare services provider, professional malpractice claims (e.g., claims arising from patient treatment at CPI's outpatient facilities) are an inherent risk. Pre-closing malpractice claims that were disclosed in the Seller's disclosure schedules would be excluded under the known-matters exclusion as well. Post-closing malpractice claims arising from pre-closing conduct may be subject to a coverage dispute depending on whether they fall within the scope of the Seller's litigation representation or are characterized as "known" matters.

VI. Claims Process and Notification Requirements

A. Notice Requirements

The R&W policy requires the Insured to provide written notice of a claim to Sentinel Specialty Insurance Company promptly, and in any event within 30 days of the Insured becoming aware of facts or circumstances that could reasonably give rise to a claim under the policy. The notice requirement applies to both actual claims (i.e., a formal demand or lawsuit asserting a breach of representation) and "circumstances" notices (i.e., notice of facts or circumstances that the Insured reasonably believes may give rise to a future claim).

The notice must be in writing and should include the following information:

(a) A description of the breach or potential breach of the applicable Seller representation;

(b) The specific representation(s) alleged to have been breached;

(d) Copies of any relevant documents, including correspondence, demand letters, complaints, and diligence reports; and

(e) A statement of the Insured's basis for believing that the loss is covered under the policy.

Notice should be directed to Sentinel Specialty Insurance Company's claims department at the address specified in the policy, with a copy to Alder Risk Partners LLC (Philip Yuen, SVP). We recommend that Calderwood & Harkness LLP prepare and submit all notices on behalf of the Buyer to ensure that the notice requirements are satisfied and that the notice is framed in a manner that maximizes the likelihood of coverage.

Late Notice. The policy provides that late notice does not automatically void coverage; rather, the insurer's obligation to pay is excused only if Sentinel is "actually and materially prejudiced" by the delay. While this prejudice-based standard is more favorable to the Insured than a strict-compliance standard, we strongly recommend strict compliance with the 30-day notice window. Late notice creates unnecessary risk of a coverage dispute and may shift the burden of proof to the Insured to demonstrate the absence of prejudice.

B. Cooperation and Consent

Cooperation Obligation. The Buyer is required to cooperate with Sentinel in the investigation and defense of any claim under the policy. This cooperation obligation includes: (i) providing Sentinel with access to relevant documents, records, and information; (ii) making relevant personnel available for interviews and depositions; (iii) assisting Sentinel in the evaluation and adjustment of the claim; and (iv) not taking any action that would prejudice Sentinel's position or increase Sentinel's exposure under the policy.

Settlement Consent. Sentinel has the right to consent to any settlement of a third-party claim that would be covered under the policy. The policy provides that Sentinel's consent to settlement shall not be unreasonably withheld, delayed, or conditioned. In practice, this means that the Buyer should consult with Sentinel before agreeing to any settlement of a third-party claim for which R&W coverage may be sought, and should obtain Sentinel's written consent prior to finalizing any settlement. Failure to obtain Sentinel's consent could jeopardize the Buyer's ability to recover the settlement amount under the policy.

Pursuit of Recovery Obligation. The policy contains a standard "pursuit of recovery" obligation, requiring the Buyer to first pursue recovery from the escrow (through the indemnification claim process under the APA) before submitting a claim to the R&W insurer. This provision reflects the insurer's expectation that the Buyer will exhaust available contractual remedies (including the escrow) before seeking recovery under the insurance policy. However, the policy expressly provides that the Buyer's failure to recover from the escrow does not bar a claim under the R&W policy — the pursuit of recovery obligation requires the Buyer to make a good-faith effort to recover from the escrow, but does not condition R&W coverage on successful recovery from the escrow.

In practice, we recommend that the Buyer submit claims to the escrow agent and the R&W insurer simultaneously (as discussed in Section IV.C above), notify Sentinel of the status of the escrow claim, and provide Sentinel with an opportunity to participate in the escrow claim process. This approach satisfies the pursuit of recovery obligation while preserving the Buyer's right to recover under the R&W policy if the escrow claim is unsuccessful or if the escrow funds are insufficient to cover the full amount of the loss.

C. Subrogation. Sentinel retains standard subrogation rights under the policy. If Sentinel pays a covered loss to the Buyer, Sentinel is subrogated to the Buyer's rights against any person or entity that may be liable for the loss, and may pursue recovery from such person or entity in the Buyer's name.

No-Subrogation Carve-Out for the Seller. Importantly, the policy contains a no-subrogation carve-out for the Seller, meaning that Sentinel will not exercise its subrogation rights against the Seller or the Seller's shareholders (including Dr. Randall J. Whitfield, Elaine Whitfield-Torres, Ridgeline Growth Equity Fund II LP, or other management shareholders) for amounts paid under the policy, except in cases of Seller fraud. This no-subrogation carve-out is a standard and commercially important feature of buy-side R&W policies. It preserves the deal dynamic by preventing the insurer from pursuing the Seller for amounts paid to the Buyer, which would undermine the fundamental purpose of the R&W policy — namely, to shift the risk of post-closing indemnification claims from the Seller to the insurer. The fraud exception is narrowly drawn and applies only where the Seller committed actual fraud in making its representations and warranties.

The no-subrogation carve-out was a negotiated point during the underwriting process, and was confirmed by Alder Risk Partners LLC (Philip Yuen) in the final binder terms. The Buyer should ensure that the no-subrogation carve-out is reflected accurately in the final policy documentation and that it covers all Seller parties, including individual shareholders and affiliated entities.

VII. Premium and Cost Considerations

The R&W insurance premium, underwriting fees, and related costs associated with the policy are borne by the Buyer (Ardent Healthcare Acquisition Corp.). This is consistent with market practice for buy-side R&W policies, where the buyer is the named insured and the primary beneficiary of the coverage.

Brokerage services for the placement of the R&W policy were provided by Alder Risk Partners LLC (Philip Yuen, Senior Vice President). Alder Risk Partners conducted the marketing process, solicited quotes from multiple R&W insurers, negotiated the policy terms and premium, and coordinated the underwriting diligence process on behalf of the Buyer. The underwriting diligence was conducted by Caldwell Strand LLP (Chicago, Illinois), engaged by Sentinel Specialty Insurance Company as underwriting counsel. Caldwell Strand reviewed the APA, the disclosure schedules, the due diligence reports, and other transaction materials as part of the underwriting process.

The specific amount of the R&W insurance premium is not addressed in detail in this memorandum, as it is a commercially sensitive matter that is more appropriately documented in the closing cost allocation. For a detailed breakdown of the R&W premium, underwriting fees, broker commissions, and other related costs, reference should be made to the Funds Flow Memorandum prepared by Graystone Partners LLC (Nathaniel Prescott) and the closing cost allocation schedule maintained by Calderwood & Harkness LLP.

We note for general reference that R&W insurance premiums in the current market for healthcare-services transactions of this siz

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Beatrice Holloway, Partner, and Derek Okonkwo, Associate Calderwood & Harkness LLP One World Financial Center, 200 Liberty Street, 40th Floor New York, NY 10281
TO: Marcus Ainsworth, Managing Partner Priya Mehta-Sullivan, Partner, Head of Healthcare Investments Connor Briggs, Vice President, Healthcare Deal Team Ardent Capital Management LLC
DATE: April 8, 2024
RE: Representations and Warranties Insurance — Analysis of Policy Terms, Coverage Gaps, and Recommendations; Sentinel Specialty Insurance Company Policy No. SSI-RWI-2024-05178
MATTER NO.: 2024-M&A-0142
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. Distribution to the R&W insurance broker (Alder Risk Partners LLC) or to the underwriting counsel (Caldwell Strand LLP) should be made only as specifically authorized by Ardent Capital Management LLC.
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I. Executive Summary
This memorandum analyzes the representations and warranties ("R&W") insurance policy issued by Sentinel Specialty Insurance Company (Policy No. SSI-RWI-2024-05178) in connection with the proposed acquisition by Ardent Healthcare Acquisition Corp. (the "Buyer") of substantially all of the assets of Cardinal Peak Industries, Inc. ("CPI" or the "Seller") for a base purchase price of $620,000,000 (the "Transaction"). The Asset Purchase Agreement (the "APA") was executed on April 2, 2024, with a target closing date of June 20, 2024. This memorandum is based on the final binder terms confirmed by Alder Risk Partners LLC, our R&W insurance broker, as of the date of this memorandum; the policy was formally bound on April 10, 2024.
The R&W policy is structured as a buy-side representations and warranties insurance policy, naming Ardent Healthcare Acquisition Corp. as the Named Insured, with Ardent Capital Partners III LP and Ardent Capital Management LLC as Additional Insureds. The policy provides an aggregate coverage limit of $62,000,000, equal to 10% of the base purchase price and corresponding to the escrow holdback amount established under the APA. The policy features a total retention of $6,200,000 (equal to 1% of the base purchase price), which is allocated evenly between the Seller's direct indemnification basket under the APA ($3,100,000) and the Buyer's self-insured retention ($3,100,000).
Key Takeaway. The R&W policy provides meaningful supplemental protection for breaches of the Seller's representations and warranties set forth in Article IV of the APA. However, the policy contains important exclusions and coverage gaps that must be addressed through the APA's direct indemnification provisions and other protective mechanisms. Of particular significance, the policy specifically excludes coverage for (i) losses arising from the pending matter styled Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847 (M.D. Tenn.), a putative wage-and-hour class action with estimated exposure of $2,800,000 to $5,100,000; (ii) known tax matters, including pre-closing tax liabilities and aggressive tax positions identified during diligence; and (iii) certain healthcare regulatory issues, including Anti-Kickback Statute and Stark Law violations that were known or should have been known to the Buyer based on diligence conducted. These gaps underscore the importance of ensuring that the APA's indemnification provisions, specific indemnities, and escrow mechanisms are drafted and implemented to provide comprehensive protection for excluded matters.
This memorandum is organized as follows: Section II provides an overview of the Transaction; Section III describes the key terms of the R&W policy; Section IV analyzes the coordination between the R&W policy and the APA's indemnification provisions; Section V identifies and assesses key exclusions and coverage gaps; Section VI summarizes the claims process and notification requirements; Section VII addresses premium and cost considerations; Section VIII sets forth our recommendations; and Section IX provides a brief conclusion. Supplemental charts and calendars are referenced in the Appendices.
The R&W insurance brokerage services for this Transaction were provided by Alder Risk Partners LLC (Philip Yuen, Senior Vice President, 452 Fifth Avenue, 12th Floor, New York, NY 10018). The underwriting diligence was conducted by Caldwell Strand LLP (155 North Wacker Drive, Suite 3200, Chicago, IL 60606), engaged by Sentinel as underwriting counsel.
II. Transaction Overview
The following summary of the Transaction is provided for context in analyzing the R&W policy terms and coverage.
Buyer. The acquiring entity is Ardent Healthcare Acquisition Corp., a Delaware corporation formed as a special purpose vehicle for the Transaction. Ardent Healthcare Acquisition Corp. is wholly owned by Ardent Capital Partners III LP, a Delaware limited partnership, which is managed by Ardent Capital Management LLC (collectively, "Ardent" or the "Buyer"). Ardent Capital Partners III LP is the third institutional fund managed by Ardent Capital Management and focuses on healthcare services investments in the lower-middle-market and middle-market segments.
Seller. The Seller is Cardinal Peak Industries, Inc. ("CPI"), a Delaware corporation headquartered at 8400 Crescent Ridge Parkway, Suite 200, Nashville, Tennessee 37215. CPI is a multi-site healthcare-services provider that operates 37 outpatient rehabilitation and behavioral health facilities across seven states: Tennessee, Georgia, North Carolina, South Carolina, Alabama, Virginia, and Kentucky. CPI employs approximately 2,100 individuals across its network of facilities, including licensed therapists, clinical psychologists, social workers, administrative staff, and corporate personnel.
CPI Financial Profile. For the last twelve months ("LTM") period, CPI reported net revenue of approximately $412,000,000 and Adjusted EBITDA of approximately $74,160,000, reflecting an Adjusted EBITDA margin of approximately 18.0%. The implied purchase price multiple based on the $620,000,000 base purchase price is approximately 8.36x LTM Adjusted EBITDA. These financial metrics were derived from the audited and unaudited financial statements of CPI reviewed and verified by the Buyer's accounting advisor, Ashford & Creighton LLP (Gregory Nolan), and confirmed against the audit reports prepared by CPI's independent auditor, Linden Hayes & Co., P.C. (Roberta Chen).
CPI Shareholders. CPI's equity ownership is held by the following: Dr. Randall J. Whitfield, CPI's founder and Chief Executive Officer (52%); Elaine Whitfield-Torres, CPI's Chief Operating Officer and Dr. Whitfield's sister (18%); Ridgeline Growth Equity Fund II LP, a private equity growth fund that invested in CPI in 2019 (22%); and other management shareholders (8%). Each of the foregoing shareholders is party to the APA and, together with CPI, will provide representations, warranties, and indemnification obligations in connection with the Transaction.
Transaction Structure. The Transaction is structured as an asset purchase pursuant to which the Buyer will acquire substantially all of the assets of CPI and assume specified liabilities. The selection of an asset purchase structure was driven by considerations relating to CPI's regulatory footprint, tax planning objectives, and the Buyer's desire to leave behind certain legacy liabilities, including the pending Dawson litigation and pre-closing tax obligations. The base purchase price of $620,000,000 is payable at closing, subject to customary adjustments for net working capital, cash, indebtedness, and transaction expenses. In addition, the APA provides for an earnout of up to $45,000,000 in the aggregate, payable based on the achievement of specified financial performance targets over two post-closing measurement periods.
Key Transaction Dates and Milestones. The APA was executed on April 2, 2024. The target closing date is June 20, 2024, subject to the satisfaction or waiver of customary closing conditions, including receipt of all required regulatory approvals and consents. State-specific healthcare licensing filings for Tennessee, Georgia, and North Carolina were submitted on March 4, 2024; additional change-of-ownership filings for the remaining four states (South Carolina, Alabama, Virginia, and Kentucky) are in progress and are expected to be completed prior to the target closing date.
Key Advisors.
• Seller's Counsel: Barrow, Kensington & Pratt LLP, with Catherine "Kit" Barrow serving as lead partner and Samuel Otieno as lead associate.
• Buyer's Counsel: Calderwood & Harkness LLP (this firm).
• Buyer's Financial Advisor: Graystone Partners LLC (Nathaniel Prescott).
• Buyer's Accounting Advisor: Ashford & Creighton LLP (Gregory Nolan).
• Seller's Independent Auditor: Linden Hayes & Co., P.C. (Roberta Chen).
• R&W Insurance Broker: Alder Risk Partners LLC (Philip Yuen, Senior Vice President).
• Underwriting Counsel (for Sentinel): Caldwell Strand LLP (Chicago, Illinois).
Escrow Arrangements. At closing, $62,000,000 of the base purchase price (equal to 10% of the purchase price) will be deposited into an escrow account maintained by Commonwealth Trust & Escrow Company (Martin Galbraith, Vice President) pursuant to the terms of the Escrow Agreement. The escrow is designed to provide a readily accessible source of recovery for post-closing indemnification claims under the APA. The escrow release schedule provides for two tranches: Tranche 1 of $31,000,000 to be released on June 30, 2025 (the 12-month anniversary of closing), and Tranche 2 of $31,000,000 to be released on December 30, 2025 (the 18-month anniversary of closing and the expiration of the general representations survival period), in each case net of any pending or unresolved claims.
III. Overview of the R&W Insurance Policy
A. Policy Details
The following table summarizes the key identifying details of the R&W insurance policy:
The R&W policy is a buy-side policy, meaning it is purchased by and for the benefit of the Buyer. This is the standard structure in private M&A transactions and provides several important advantages over a sell-side policy, including: (i) the Buyer controls the claims process and has a direct contractual relationship with the insurer; (ii) the policy provides coverage for the Buyer's own losses arising from Seller's breaches, rather than indemnifying the Seller against the Buyer's claims; and (iii) the policy can provide coverage beyond what the Seller is willing or able to offer through direct indemnification.
The policy expiration is structured to be coterminous with the survival periods applicable to the various categories of representations and warranties under the APA. Specifically:
• General Representations: The policy covers claims arising from breaches of general representations and warranties through 18 months post-closing (through approximately December 30, 2025, assuming a June 30, 2024 closing date).
• Fundamental Representations: The policy covers claims arising from breaches of fundamental representations and warranties through 36 months post-closing (through approximately June 30, 2027).
• Tax Representations: The policy covers claims arising from breaches of tax representations and warranties until 60 days after the expiration of the applicable statute of limitations, subject to the significant exclusions discussed in Section V.C below.
The coterminous expiration structure ensures that the R&W policy provides coverage for the same duration as the Buyer's direct indemnification rights under the APA, thereby eliminating timing gaps that could otherwise leave the Buyer without a recovery source.
B. Coverage Limit
The aggregate policy limit under the R&W policy is $62,000,000, which is equal to 10% of the $620,000,000 base purchase price. This aggregate limit also equals the escrow holdback amount established under the APA, providing a structural symmetry between the two primary recovery mechanisms available to the Buyer.
Several important features of the coverage limit should be noted:
• Claims-Made Basis. Coverage is provided on a claims-made basis, meaning the policy responds only to claims first made during the policy period (i.e., between the policy effective date and the applicable expiration date for the category of representation at issue). Claims that are not noticed within the applicable policy period will not be covered, regardless of when the underlying breach occurred. This underscores the importance of timely claims identification and reporting, as discussed in Section VI below.
• Aggregate Limit. The $62,000,000 limit is an aggregate limit, not a per-claim limit. This means that all covered losses under the policy, regardless of the number of individual claims, are subject to a single $62,000,000 cap. Once covered losses (including defense costs and investigation expenses paid by the insurer) reach the $62,000,000 aggregate limit, the policy is exhausted and no further coverage is available.
• No Sublimits. The policy does not impose sublimits for specific categories of representations. All covered representations share the single $62,000,000 aggregate limit. While the absence of sublimits provides flexibility (the Buyer is not constrained by category-specific caps), it also means that a large claim under one category of representations could deplete the aggregate limit and reduce or eliminate coverage for claims under other categories.
C. Retention (Self-Insured Retention)
The policy provides for a total retention amount of $6,200,000, which is equal to 1% of the $620,000,000 base purchase price. The retention functions as a deductible — the insurer's obligation to pay covered losses attaches only after the total retention has been satisfied.
The retention is allocated as follows:
(a) First Layer — Seller's Indemnification Basket ($3,100,000). The first $3,100,000 of the retention is satisfied through the Seller's direct indemnification obligations under the APA. The APA establishes a $3,100,000 basket (equal to 0.5% of the purchase price), structured as a first-dollar tipping basket. Once aggregate indemnifiable losses exceed $3,100,000, the Seller is obligated to indemnify the Buyer from dollar one (i.e., the basket "tips" and the Buyer recovers the full amount of its losses, not merely the excess over $3,100,000). The first layer of the R&W retention is treated as satisfied when the Buyer's aggregate losses reach $3,100,000, regardless of whether the Seller has actually paid those amounts.
(b) Second Layer — Buyer's Self-Insured Retention ($3,100,000). The second $3,100,000 of the retention represents the Buyer's self-insured retention ("SIR"). After the first layer is satisfied (i.e., aggregate losses exceed $3,100,000), the Buyer bears the next $3,100,000 of covered losses before the R&W policy responds. This SIR is an economic cost borne entirely by the Buyer and is not recoverable from either the Seller or the insurer.
Practical Application. In practice, the retention mechanics operate as follows: losses must first exhaust the APA indemnification basket ($3,100,000), at which point the Buyer absorbs its own $3,100,000 SIR, and only then does the R&W policy begin to respond for covered losses. The R&W policy covers losses above $6,200,000 up to the $62,000,000 aggregate limit, providing a maximum net recovery from the insurer of $55,800,000 (i.e., $62,000,000 minus $6,200,000). It is important to note, however, that the retention is satisfied on an aggregate basis — individual claims are aggregated for purposes of determining whether the retention threshold has been met.
Retention Drop-Down. The policy includes a standard market feature providing that the retention amount drops to 50% of the stated amount — i.e., from $6,200,000 to $3,100,000 — on the 12-month anniversary of the closing date (expected to be June 30, 2025) for claims first made after such date. This drop-down feature reflects the general underwriting assumption that the most significant representation breaches are likely to be discovered within the first year following closing, and that claims arising after the first anniversary are statistically less likely to be severe. After the retention drop-down, the effective retention for new claims will be $3,100,000, allocated evenly between the Seller's basket ($1,550,000) and the Buyer's SIR ($1,550,000).
D. Covered Representations
The R&W policy covers breaches of all representations and warranties made by the Seller in Article IV of the APA. The scope of covered representations is comprehensive and includes the following categories:
• Organization, Good Standing, and Qualification — Representations that CPI is duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification.
• Authorization and Enforceability — Representations that CPI has the requisite corporate power and authority to execute, deliver, and perform its obligations under the APA and the ancillary agreements, and that the APA and ancillary agreements constitute legal, valid, and binding obligations of CPI.
• Capitalization and Ownership — Representations regarding CPI's capital structure, the ownership of CPI's outstanding equity interests, and the absence of outstanding options, warrants, or other rights to acquire equity interests (classified as a fundamental representation).
• Financial Statements and Absence of Undisclosed Liabilities — Representations that CPI's historical financial statements were prepared in accordance with GAAP and fairly present the financial condition and results of operations of CPI, and that CPI has no undisclosed liabilities other than those arising in the ordinary course of business since the date of the most recent balance sheet.
• Absence of Material Adverse Effect — Representations that, since the date of the most recent audited financial statements, there has been no event, occurrence, or development that has had or would reasonably be expected to have a Material Adverse Effect on CPI's business, financial condition, or results of operations.
• Tax Matters — Representations regarding CPI's tax compliance, the filing of tax returns, and the payment of taxes, subject to the significant exclusions discussed in Section V.C below.
• Real Property and Leases — Representations regarding CPI's owned and leased real property, including the 37 facility locations, the validity and enforceability of leases, and compliance with lease terms.
• Material Contracts — Representations regarding CPI's material contracts, including payor agreements, vendor agreements, management services agreements, and other significant commercial relationships.
• intellectual Property — Representations regarding CPI's owned and licensed intellectual property, including the PeakConnect proprietary technology platform used for patient scheduling, electronic health records, and billing management (U.S. Trademark Registration No. 5,412,887). This category also covers representations regarding the absence of infringement of third-party intellectual property rights and the adequacy of CPI's cybersecurity and data protection measures.
• Employment and Labor Matters — Representations regarding CPI's compliance with employment and labor laws, the absence of pending or threatened labor disputes, and the accuracy of employee-related information provided during diligence.
• Employee Benefit Plans — Representations regarding the establishment, maintenance, and administration of CPI's employee benefit plans, including the CPI 401(k) plan, health and welfare benefit plans, and any deferred compensation arrangements.
• Healthcare Regulatory Compliance — Representations regarding CPI's compliance with applicable healthcare laws and regulations, including state licensing and permitting requirements, Medicare and Medicaid certification and enrollment, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the Physician Self-Referral Law (the "Stark Law") (42 U.S.C. § 1395nn), and other federal and state healthcare regulatory requirements. This is a particularly significant category given CPI's operating profile as a multi-state healthcare services provider, and is subject to the carve-outs discussed in Section V.D below.
• Environmental Matters — Representations regarding CPI's compliance with environmental laws, the absence of environmental contamination at CPI's facilities, and the absence of pending or threatened environmental enforcement actions.
• Insurance — Representations regarding the adequacy of CPI's insurance coverage and the absence of claims that would cause CPI's insurance policies to be cancelled or not renewed.
• Litigation and Proceedings — Representations regarding pending and threatened litigation, arbitration, administrative proceedings, and governmental investigations involving CPI, including the Dawson litigation discussed in Section V.B below.
• Brokers and Finders — Representations that no broker, finder, or investment banker (other than CPI's retained advisors) is entitled to a fee or commission in connection with the Transaction (classified as a fundamental representation).
• Title to Assets — Representations that CPI has good and valid title to all of the assets being acquired by the Buyer, free and clear of all liens and encumbrances other than permitted liens (classified as a fundamental representation).
E. Fundamental Representations — Extended Coverage
Certain representations classified as "fundamental representations" under the APA are afforded an extended survival period and, correspondingly, an extended coverage period under the R&W policy. The fundamental representations covered under the extended 36-month survival period (through approximately June 30, 2027) are:
(a) Organization and existence;
(b) Authorization and enforceability;
(c) Capitalization and ownership;
(d) Title to assets;
(e) Brokers and finders; and
(f) Tax representations (subject to the exclusions described in Section V.C below; tax representations survive until 60 days after the expiration of the applicable statute of limitations, which may extend beyond the 36-month period for certain tax years).
All other representations — i.e., the general representations — are covered for the standard 18-month general survival period (through approximately December 30, 2025). After the expiration of the general survival period, claims for breaches of general representations will no longer be covered by the R&W policy, and the Buyer's recovery for such breaches will be limited to whatever indemnification rights remain available under the APA (which will also expire at that time for general representations).
The distinction between fundamental and general representations is significant from a recovery planning perspective. Because the R&W policy mirrors the APA's survival periods, the Buyer should prioritize the identification and notice of potential general representation breaches well in advance of the December 30, 2025 expiration date. Claims relating to fundamental representations have a longer runway, but should nonetheless be identified and reserved against on a rolling basis.
IV. Coordination with APA Indemnification Provisions
A. APA Indemnification Framework Summary
The APA establishes a comprehensive post-closing indemnification framework that operates in conjunction with the R&W insurance policy. The key parameters of the APA's indemnification provisions are summarized as follows:
The APA's indemnification framework employs a first-dollar tipping basket mechanism. Under this structure, the Seller has no indemnification obligation for aggregate losses below $3,100,000. However, once aggregate losses exceed $3,100,000, the Seller is obligated to indemnify the Buyer from dollar one — meaning the Buyer recovers the full amount of its losses, including the first $3,100,000. This structure is more favorable to the Buyer than a traditional deductible basket, under which only losses in excess of the basket amount would be recoverable.
The $100,000 de minimis threshold prevents individual claims of less than $100,000 from being counted toward the aggregate basket amount. This provision is designed to filter out nuisance claims and immaterial breaches, and reflects a negotiated balance between the parties. The Buyer should be mindful that individual losses below $100,000 are effectively unrecoverable under the APA indemnification framework (unless they relate to a specific indemnity not subject to the de minimis threshold) and similarly will not count toward satisfaction of the R&W policy's retention.
The exclusive remedy provision is an important feature of the APA's indemnification framework. Post-closing, the Buyer's sole remedy for breaches of representations and warranties is through the indemnification provisions — the Buyer may not bring separate breach-of-contract, tort, or other claims (except in cases of fraud, willful breach, or where equitable relief is sought). This exclusive remedy provision channels all post-closing disputes through the indemnification framework and, indirectly, through the R&W insurance policy.
B. Interplay Between R&W Policy and APA Indemnification
The R&W policy is designed to function as a supplemental layer of protection, operating in addition to — not in lieu of — the Seller's direct indemnification obligations under the APA. The interplay between the two recovery mechanisms is structured to maximize the Buyer's available recovery while minimizing duplication and coordination complexity.
Total Theoretical Maximum Recovery. The Buyer's total theoretical maximum recovery for breaches of the Seller's representations and warranties is as follows:
• Up to $124,000,000 from the Seller under the APA's indemnification cap; plus
• Up to $62,000,000 from Sentinel under the R&W policy (after satisfaction of the $6,200,000 retention);
• For an aggregate theoretical maximum of $186,000,000.
In practice, the actual recoverable amount will depend on the nature and extent of the breaches, the applicability of exclusions under the R&W policy, the Seller's financial capacity to satisfy indemnification obligations, and the availability of escrow funds.
No Requirement to Exhaust Seller Indemnification. A critical feature of the R&W policy is that it does not require the Buyer to first exhaust the Seller's indemnification cap before making a claim under the policy. Once the $6,200,000 retention is satisfied (through a combination of the Seller's basket and the Buyer's SIR), the R&W policy responds for covered losses regardless of whether the Buyer has pursued or recovered amounts from the Seller. This independence from the APA indemnification framework is particularly valuable in scenarios where: (i) the Seller becomes financially unable to satisfy its indemnification obligations (e.g., due to insolvency or asset dissipation); (ii) the escrow funds have been depleted by earlier claims; or (iii) the Buyer wishes to preserve its commercial relationship with the Seller's principals and prefers to recover from the insurer rather than pursuing the Seller directly.
Backstop for Escrow Depletion. The $62,000,000 R&W coverage provides a backstop equivalent to the escrow holdback amount. This structural alignment means that, in a scenario where the escrow funds are entirely depleted by indemnification claims, the Buyer retains access to up to $62,000,000 of additional coverage under the R&W policy (subject to the retention and applicable exclusions). Conversely, if the Buyer recovers from the R&W insurer first, the escrow funds remain available for other claims or for release to the Seller on schedule.
Post-Survival Period Coverage. After the general R&W survival period expires on approximately December 30, 2025, the Buyer's direct claims against the Seller for breaches of general representations will be time-barred under the APA. The R&W policy's coverage similarly expires for general representations at that time. However, the R&W policy's coverage for fundamental representations continues through June 30, 2027, providing a continuing source of recovery for fundamental representation breaches during the period between December 30, 2025 and June 30, 2027 — a period during which the escrow will have been fully released and the Seller's general representation indemnification obligations will have expired.
C. Escrow and R&W Policy Coordination
The coordination between the escrow mechanism and the R&W policy requires careful management to optimize the Buyer's recovery position. Several considerations bear on this coordination:
Overlapping Coverage Period. The escrow release schedule (Tranche 1 at 12 months, Tranche 2 at 18 months) partially overlaps with the R&W policy coverage period. During the first 18 months post-closing, the Buyer has access to both the escrow funds and the R&W policy as sources of recovery. After December 30, 2025 (when the escrow is fully released and general representation coverage expires), the Buyer's sources of recovery narrow to: (i) the R&W policy for fundamental representation breaches (through June 30, 2027); and (ii) direct claims against the Seller for fundamental representation breaches under the APA (through June 30, 2027), subject to the Seller's continued financial capacity.
Simultaneous Notice. We recommend that any pending indemnification claim be noticed to both the escrow agent (Commonwealth Trust & Escrow Company) and the R&W insurer (Sentinel Specialty Insurance Company) simultaneously. This dual-notice approach ensures that: (i) the Buyer preserves its rights under both the escrow and the R&W policy; (ii) pending claims are reflected in the escrow calculations for purposes of the release schedule; and (iii) the R&W insurer is on notice of potential claims, even if the Buyer initially seeks recovery from the escrow.
Strategic Use of Escrow vs. R&W Coverage. The Buyer should consider a strategic approach to the sequencing of escrow claims and R&W claims. Specifically, the Buyer may wish to reserve the escrow funds for known or potential claims (including claims for matters excluded from the R&W policy, such as the Dawson litigation and tax matters) while pursuing R&W coverage for larger, unexpected breaches of representations and warranties. This approach maximizes the utility of both recovery mechanisms and avoids premature depletion of the escrow for matters that could be covered by insurance.
Effective Doubling of Recovery Pool. When viewed holistically, the R&W policy's aggregate limit of $62,000,000 effectively doubles the Buyer's available recovery pool beyond the escrow alone. The combined $124,000,000 available from the escrow ($62,000,000) and the R&W policy ($62,000,000) provides a substantial buffer against post-closing losses, provided that the claims at issue fall within covered categories under the R&W policy. For matters excluded from the R&W policy, the Buyer must rely on the APA's direct indemnification provisions, the escrow, and (where applicable) the Seller's specific indemnity obligations.
V. Key Exclusions and Coverage Gaps
While the R&W policy provides comprehensive coverage for most categories of Seller representations, it contains a number of important exclusions and coverage gaps that limit the scope of available protection. This Section identifies and assesses each significant exclusion and provides recommendations for mitigating the resulting coverage gaps through the APA's indemnification provisions and other mechanisms.
A. Known Matters / Disclosed Matters Exclusion
General Rule. Consistent with standard market practice for R&W insurance policies, the Sentinel policy excludes losses arising from matters actually known to the deal team of the Insured (Buyer) prior to the policy inception date. The policy defines "Knowledge" for this purpose as the actual knowledge (not constructive or imputed knowledge) of the following designated "Deal Team Members":
(i) Marcus Ainsworth, Managing Partner, Ardent Capital Management LLC;
(ii) Priya Mehta-Sullivan, Partner, Head of Healthcare Investments, Ardent Capital Management LLC; and
(iii) Connor Briggs, Vice President, Healthcare Deal Team, Ardent Capital Management LLC.
Scope and Implications. The known-matters exclusion operates to remove from R&W coverage any loss arising from a breach of a Seller representation that was known to any of the three designated Deal Team Members as of the policy inception date (April 10, 2024). The exclusion applies regardless of whether the known matter was disclosed in the Seller's disclosure schedules, identified in the data room, or flagged in the Buyer's diligence reports. The critical question is whether any of the designated individuals had actual knowledge of the matter — if so, it is excluded from coverage.
This exclusion is standard and commercially reasonable, as R&W insurance is intended to protect against unknown risks rather than to provide coverage for matters that the Buyer was aware of at the time of the transaction. However, the scope of the knowledge scrape requires careful monitoring. The Buyer should ensure that any matters known to the designated Deal Team Members are addressed through other protective mechanisms, such as specific indemnities in the APA, purchase price adjustments, or escrow reservations.
Items Addressed Through Specific Indemnities or Price Adjustments. Items identified during due diligence that were addressed through specific indemnification obligations or purchase price adjustments are generally not covered by the R&W policy. This is because: (i) the known-matters exclusion would apply to such items in any event; and (ii) the policy contains a separate exclusion (discussed in Section V.G below) for losses for which the Buyer has received a purchase price credit or adjustment. The Buyer should confirm that all material diligence findings addressed through specific indemnities or price adjustments are adequately documented and that the specific indemnity provisions are sufficiently broad to cover the full scope of potential losses.
B. Dawson Litigation Exclusion
Specific Exclusion. The R&W policy contains a specific, named exclusion for any losses arising out of, related to, or in connection with the pending matter styled Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847 (M.D. Tenn.) (the "Dawson Litigation"). This exclusion is drafted broadly to encompass not only the specific claims asserted in the Dawson case but also any related claims, counterclaims, settlements, judgments, and defense costs arising from or in connection with the subject matter of the Dawson Litigation.
Background. The Dawson Litigation is a putative class action filed in the United States District Court for the Middle District of Tennessee, alleging violations of the Fair Labor Standards Act ("FLSA") on behalf of a proposed class of non-exempt employees at CPI's outpatient rehabilitation facilities. The complaint, filed on October 12, 2023, alleges that CPI failed to properly compensate non-exempt employees for overtime hours worked and improperly classified certain positions as exempt. Based on information provided by the Seller's counsel (Catherine "Kit" Barrow of Barrow, Kensington & Pratt LLP), the estimated exposure for the Dawson Litigation ranges from $2,800,000 to $5,100,000, depending on the scope of the putative class and the outcome of any class certification proceedings. Discovery in the case is ongoing, and no class certification motion has yet been filed.
APA Treatment. The Dawson Litigation is treated as an Excluded Liability under the APA — meaning the Buyer does not assume any responsibility for the Dawson Litigation, and the Seller retains full responsibility for the defense, resolution, and payment of any liabilities arising from the case. In addition, the Seller has provided a specific indemnification obligation for the Dawson Litigation, which is not subject to the basket, de minimis threshold, or indemnification cap. This specific indemnity is the Buyer's primary source of recovery for Dawson-related losses and is appropriate given the R&W policy exclusion.
Recommendation. We recommend confirming that the specific Dawson indemnity in the APA is drafted broadly enough to capture not only the existing case as currently styled but also any related claims, settlements, judgments, consent decrees, regulatory actions, and defense costs that may arise from the same facts and circumstances. In particular, the indemnity should cover: (i) any expansion of the class or addition of new named plaintiffs; (ii) any companion or derivative claims filed in other jurisdictions; (iii) any investigation or enforcement action by the U.S. Department of Labor or state labor agencies arising from the same alleged FLSA violations; and (iv) all reasonable attorneys' fees and costs incurred by the Buyer in connection with any of the foregoing. We will review the current draft of the specific indemnity provision and propose any necessary revisions prior to closing.
C. Tax Matters Exclusions
The R&W policy contains several exclusions relating to tax matters, reflecting the insurer's standard underwriting position that certain tax-related risks are more appropriately addressed through direct contractual protections and tax-specific indemnities rather than through R&W insurance. The policy excludes losses arising from the following:
(a) Pre-Closing Tax Liabilities. Any tax liability of CPI or its affiliates for pre-closing tax periods. These liabilities are treated as Excluded Liabilities under the APA, and the Seller retains full responsibility for all tax obligations attributable to periods ending on or before the closing date (and for the pre-closing portion of any Straddle Period, as defined in the APA).
(b) Transaction-Related Taxes. Transfer taxes, sales taxes, and use taxes arising directly from the consummation of the asset purchase transaction. The allocation and payment of such transfer taxes is governed by the APA's tax provisions, which provide for a 50/50 split between the Buyer and the Seller.
(c) Known Aggressive Tax Positions. Any tax position or filing position known to the Insured to be aggressive or contrary to applicable law. This exclusion is a subset of the broader known-matters exclusion but is specifically focused on tax matters. It would apply if the Buyer's tax advisors (including Sylvia Hartwell at Calderwood & Harkness LLP and Gregory Nolan at Ashford & Creighton LLP) identified during diligence any tax positions taken by CPI that were aggressive, lacking in substantial authority, or contrary to applicable tax law or regulations.
(d) 401(k) Plan Tax Liabilities. Tax liabilities related to CPI's 401(k) plan, including any liability arising from a failure to maintain the plan's qualified status under Section 401(a) of the Internal Revenue Code or from prohibited transactions under Section 4975 of the Code. This exclusion is consistent with the APA's treatment of CPI's 401(k) plan liabilities as Excluded Liabilities.
Coverage Gap Assessment. The exclusion for "known" aggressive tax positions is the most significant coverage gap in the tax area. This exclusion could be triggered if the Buyer's tax advisors identified any questionable tax positions during the due diligence process. To our knowledge, the tax due diligence workstream led by Ashford & Creighton LLP identified certain areas of potential concern, including CPI's treatment of certain independent contractor arrangements and its state income tax filing positions in Georgia and North Carolina. If these matters were known to any of the designated Deal Team Members as of the policy inception date, they would fall within both the known-matters exclusion and the specific aggressive-tax-position exclusion.
Mitigation. The APA's tax representations survive for 60 days past the applicable statute of limitations, providing a longer direct indemnification window than the general or fundamental representation survival periods. In addition, the APA contains a specific tax indemnity covering pre-closing tax liabilities, which is structured as a fundamental representation not subject to the general indemnification cap (though it is subject to a separate tax indemnification cap equal to the full purchase price). These APA protections partially address the coverage gap created by the R&W policy's tax exclusions. We recommend that the Buyer's tax team (Sylvia Hartwell and Gregory Nolan) complete their review of all open tax matters and document the conclusions in the tax due diligence summary prior to closing.
D. Healthcare Regulatory Exclusions
Given CPI's status as a multi-state healthcare services provider, the healthcare regulatory exclusions in the R&W policy represent a particularly important coverage gap. The policy contains a carve-out that limits coverage for losses arising from the following healthcare regulatory matters:
(a) Anti-Kickback Statute and Stark Law Violations. The policy limits coverage for losses arising from violations of the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) or the Physician Self-Referral Law (the "Stark Law") (42 U.S.C. § 1395nn) that were known or should have been known to the Insured based on the due diligence conducted in connection with the Transaction. This exclusion employs a "known or should have been known" standard, which is broader than the actual-knowledge standard applicable to the general known-matters exclusion. Under this standard, the insurer may deny coverage not only for matters of which the designated Deal Team Members had actual knowledge, but also for matters that would have been identified through the exercise of reasonable diligence.
(b) Loss of Medicare or Medicaid Certification. The policy limits coverage for losses arising from the loss of Medicare or Medicaid certification or enrollment that results from actions or omissions occurring pre-closing that were disclosed or discoverable through standard due diligence. This exclusion is focused on the risk that CPI's Medicare or Medicaid certifications could be revoked, suspended, or otherwise adversely affected as a result of pre-closing conduct that was identified (or identifiable) during the Buyer's diligence process.
Coverage Gap Assessment. These healthcare regulatory exclusions are significant because CPI derives approximately 31% of its net revenue from Medicare and Medicaid combined. Any pre-closing compliance deficiency that was identified or identifiable during diligence — including issues related to billing practices, referral arrangements, medical necessity documentation, or compliance program adequacy — could fall outside the R&W policy's coverage. The "known or should have been known" standard applicable to the Anti-Kickback and Stark Law exclusion is particularly concerning, as it imposes a heightened duty of inquiry that extends beyond the actual knowledge of the designated Deal Team Members.
Mitigation. Several measures should be taken to address this coverage gap:
First, the healthcare regulatory compliance memorandum prepared jointly with Hargrove, Sinclair & Demarest LLP (Angela Demarest), dated March 20, 2024, should be reviewed in detail to confirm the scope of disclosed versus undisclosed regulatory issues. Any issues identified in that memorandum that were within the scope of due diligence conducted would be subject to the "known or should have been known" exclusion, and the Buyer's recovery for those matters would need to be pursued through the APA's direct indemnification provisions rather than the R&W policy.
Second, the Buyer's specific indemnification rights under the APA for healthcare regulatory breaches provide an alternative recovery path. The APA's healthcare regulatory representations are drafted as general representations (subject to the 18-month survival period), but breaches of healthcare regulatory representations that give rise to government enforcement actions, False Claims Act liability, or exclusion from federal healthcare programs are treated as matters subject to the APA's specific indemnity provisions.
Third, given that CPI operates across seven states, the state-specific licensing, certificate-of-need, and change-of-ownership requirements present varying regulatory risk profiles. State regulatory filings for Tennessee, Georgia, and North Carolina were submitted on March 4, 2024, and additional filings for South Carolina, Alabama, Virginia, and Kentucky are in progress. The Buyer should monitor the progress of these filings and confirm that any conditions or requirements imposed by state regulators do not give rise to additional regulatory exposure that could implicate the R&W policy's healthcare regulatory exclusions.
E. Interim/Pre-Closing Covenant Breaches
The R&W policy covers only breaches of the Seller's representations and warranties as stated in Article IV of the APA. Specifically, the policy covers breaches of representations as of the signing date (April 2, 2024) and, for "bring-down" purposes, as of the closing date (expected to be June 20, 2024). The policy does not cover losses arising from the Seller's breach of pre-closing operating covenants set forth in Article V of the APA.
Coverage Gap Assessment. The pre-closing operating covenants require the Seller to operate CPI's business in the ordinary course consistent with past practice during the interim period between signing and closing, and to refrain from taking certain specified actions without the Buyer's prior written consent (e.g., entering into material contracts, making capital expenditures above specified thresholds, granting compensation increases, or settling litigation). Breaches of these covenants could result in material losses to the Buyer — for example, if the Seller enters into an unfavorable long-term contract during the interim period, or if the Seller fails to maintain CPI's licensure or certification in one or more states. Such losses would not be covered by the R&W policy.
Mitigation. Covenant breaches are addressed through the APA's separate indemnification provisions for compliance with covenants and agreements. The Seller's covenant indemnification is not subject to the basket but is subject to the general indemnification cap. In addition, the Seller's closing certificate will include a bring-down certification confirming that all representations and warranties are true and correct as of the closing date and that all pre-closing covenants have been complied with in all material respects. The bring-down certification provides an additional layer of contractual protection and serves as a closing condition that the Buyer can enforce.
F. Earnout and Purchase Price Adjustment Exclusions
The R&W policy excludes any disputes relating to the calculation, payment, or amount of the earnout (up to $45,000,000 in the aggregate) and the net working capital adjustment. These exclusions are standard in R&W insurance policies and reflect the view that earnout and purchase price adjustment disputes are commercial matters governed by the contractual mechanics of the APA rather than insurance coverage matters.
Net Working Capital. The APA establishes a net working capital target of $28,000,000 (the "NWC Target"), with an estimated closing NWC of $29,200,000. The NWC adjustment mechanism includes a $500,000 de minimis collar, meaning no adjustment will be made if the difference between actual closing NWC and the NWC Target is less than $500,000. If the closing NWC exceeds the NWC Target by more than $500,000, the purchase price is adjusted upward; if it falls below the NWC Target by more than $500,000, the purchase price is adjusted downward. Disputes regarding the calculation of closing NWC are resolved through the accounting arbitration procedures set forth in the APA and are not subject to R&W coverage.
Earnout. The earnout is structured as two measurement periods: Earnout Period 1 (closing through June 30, 2025) and Earnout Period 2 (July 1, 2025 through June 30, 2026), with the earnout payments contingent on CPI's achievement of specified Adjusted EBITDA targets during each period. The maximum earnout payment is $45,000,000 in the aggregate. Earnout disputes — including disputes regarding the Buyer's operation of the business during the earnout period, the calculation of Adjusted EBITDA, and the application of the change of control acceleration provision — are governed exclusively by the Earnout Agreement and the APA's dispute resolution mechanisms, and are outside the scope of R&W coverage.
G. Other Standard Exclusions
The R&W policy contains several additional standard exclusions that are consistent with market practice:
• Fraud or Willful Misconduct by the Insured. The policy excludes losses arising from fraud or willful misconduct by the Insured (i.e., the Buyer). This exclusion does not limit coverage for the Seller's fraud — the R&W policy covers losses arising from the Seller's fraudulent misrepresentations. Rather, the exclusion applies only to the Buyer's own fraud, such as a situation where the Buyer knowingly made a false claim under the policy.
• Purchase Price Credit or Adjustment. The policy excludes losses for which the Insured has received a purchase price credit or adjustment. This exclusion prevents double recovery — if a matter was already reflected in a reduction of the purchase price, the Buyer cannot also recover for the same matter under the R&W policy.
• Consequential, Punitive, or Multiplied Damages. The policy excludes consequential, punitive, or multiplied damages, except to the extent such damages are awarded to a third party in a third-party claim. This carve-out ensures that the Buyer can recover under the R&W policy for punitive or multiplied damages that it is required to pay to a third party (e.g., in a regulatory enforcement action or third-party lawsuit), but cannot recover its own consequential damages (such as lost profits) directly from the insurer.
• Asbestos, Lead Paint, and PFAS Contamination. The policy excludes losses arising from asbestos, lead paint, or per- and polyfluoroalkyl substances ("PFAS") contamination. Environmental due diligence was conducted by Whitmore Environmental Sciences Inc. in connection with the Transaction; the Buyer should confirm that the environmental diligence report does not identify any asbestos, lead paint, or PFAS issues at CPI's facilities that would otherwise have been covered by the R&W policy.
• Pension or Multiemployer Plan Withdrawal Liability. The policy excludes losses arising from pension or multiemployer plan withdrawal liability. To our knowledge, CPI does not participate in any multiemployer pension plan, and this exclusion is unlikely to be relevant to the Transaction.
• Product Liability or Professional Malpractice Claims. The policy excludes product liability or professional malpractice claims arising pre-closing, except to the extent such claims are covered by the Seller's litigation representations. Given CPI's business as a healthcare services provider, professional malpractice claims (e.g., claims arising from patient treatment at CPI's outpatient facilities) are an inherent risk. Pre-closing malpractice claims that were disclosed in the Seller's disclosure schedules would be excluded under the known-matters exclusion as well. Post-closing malpractice claims arising from pre-closing conduct may be subject to a coverage dispute depending on whether they fall within the scope of the Seller's litigation representation or are characterized as "known" matters.
VI. Claims Process and Notification Requirements
A. Notice Requirements
The R&W policy requires the Insured to provide written notice of a claim to Sentinel Specialty Insurance Company promptly, and in any event within 30 days of the Insured becoming aware of facts or circumstances that could reasonably give rise to a claim under the policy. The notice requirement applies to both actual claims (i.e., a formal demand or lawsuit asserting a breach of representation) and "circumstances" notices (i.e., notice of facts or circumstances that the Insured reasonably believes may give rise to a future claim).
The notice must be in writing and should include the following information:
(a) A description of the breach or potential breach of the applicable Seller representation;
(b) The specific representation(s) alleged to have been breached;
(c) The nature and estimated amount of the loss or potential loss;
(d) Copies of any relevant documents, including correspondence, demand letters, complaints, and diligence reports; and
(e) A statement of the Insured's basis for believing that the loss is covered under the policy.
Notice should be directed to Sentinel Specialty Insurance Company's claims department at the address specified in the policy, with a copy to Alder Risk Partners LLC (Philip Yuen, SVP). We recommend that Calderwood & Harkness LLP prepare and submit all notices on behalf of the Buyer to ensure that the notice requirements are satisfied and that the notice is framed in a manner that maximizes the likelihood of coverage.
Late Notice. The policy provides that late notice does not automatically void coverage; rather, the insurer's obligation to pay is excused only if Sentinel is "actually and materially prejudiced" by the delay. While this prejudice-based standard is more favorable to the Insured than a strict-compliance standard, we strongly recommend strict compliance with the 30-day notice window. Late notice creates unnecessary risk of a coverage dispute and may shift the burden of proof to the Insured to demonstrate the absence of prejudice.
B. Cooperation and Consent
Cooperation Obligation. The Buyer is required to cooperate with Sentinel in the investigation and defense of any claim under the policy. This cooperation obligation includes: (i) providing Sentinel with access to relevant documents, records, and information; (ii) making relevant personnel available for interviews and depositions; (iii) assisting Sentinel in the evaluation and adjustment of the claim; and (iv) not taking any action that would prejudice Sentinel's position or increase Sentinel's exposure under the policy.
Settlement Consent. Sentinel has the right to consent to any settlement of a third-party claim that would be covered under the policy. The policy provides that Sentinel's consent to settlement shall not be unreasonably withheld, delayed, or conditioned. In practice, this means that the Buyer should consult with Sentinel before agreeing to any settlement of a third-party claim for which R&W coverage may be sought, and should obtain Sentinel's written consent prior to finalizing any settlement. Failure to obtain Sentinel's consent could jeopardize the Buyer's ability to recover the settlement amount under the policy.
Pursuit of Recovery Obligation. The policy contains a standard "pursuit of recovery" obligation, requiring the Buyer to first pursue recovery from the escrow (through the indemnification claim process under the APA) before submitting a claim to the R&W insurer. This provision reflects the insurer's expectation that the Buyer will exhaust available contractual remedies (including the escrow) before seeking recovery under the insurance policy. However, the policy expressly provides that the Buyer's failure to recover from the escrow does not bar a claim under the R&W policy — the pursuit of recovery obligation requires the Buyer to make a good-faith effort to recover from the escrow, but does not condition R&W coverage on successful recovery from the escrow.
In practice, we recommend that the Buyer submit claims to the escrow agent and the R&W insurer simultaneously (as discussed in Section IV.C above), notify Sentinel of the status of the escrow claim, and provide Sentinel with an opportunity to participate in the escrow claim process. This approach satisfies the pursuit of recovery obligation while preserving the Buyer's right to recover under the R&W policy if the escrow claim is unsuccessful or if the escrow funds are insufficient to cover the full amount of the loss.
C. Subrogation. Sentinel retains standard subrogation rights under the policy. If Sentinel pays a covered loss to the Buyer, Sentinel is subrogated to the Buyer's rights against any person or entity that may be liable for the loss, and may pursue recovery from such person or entity in the Buyer's name.
No-Subrogation Carve-Out for the Seller. Importantly, the policy contains a no-subrogation carve-out for the Seller, meaning that Sentinel will not exercise its subrogation rights against the Seller or the Seller's shareholders (including Dr. Randall J. Whitfield, Elaine Whitfield-Torres, Ridgeline Growth Equity Fund II LP, or other management shareholders) for amounts paid under the policy, except in cases of Seller fraud. This no-subrogation carve-out is a standard and commercially important feature of buy-side R&W policies. It preserves the deal dynamic by preventing the insurer from pursuing the Seller for amounts paid to the Buyer, which would undermine the fundamental purpose of the R&W policy — namely, to shift the risk of post-closing indemnification claims from the Seller to the insurer. The fraud exception is narrowly drawn and applies only where the Seller committed actual fraud in making its representations and warranties.
The no-subrogation carve-out was a negotiated point during the underwriting process, and was confirmed by Alder Risk Partners LLC (Philip Yuen) in the final binder terms. The Buyer should ensure that the no-subrogation carve-out is reflected accurately in the final policy documentation and that it covers all Seller parties, including individual shareholders and affiliated entities.
VII. Premium and Cost Considerations
The R&W insurance premium, underwriting fees, and related costs associated with the policy are borne by the Buyer (Ardent Healthcare Acquisition Corp.). This is consistent with market practice for buy-side R&W policies, where the buyer is the named insured and the primary beneficiary of the coverage.
Brokerage services for the placement of the R&W policy were provided by Alder Risk Partners LLC (Philip Yuen, Senior Vice President). Alder Risk Partners conducted the marketing process, solicited quotes from multiple R&W insurers, negotiated the policy terms and premium, and coordinated the underwriting diligence process on behalf of the Buyer. The underwriting diligence was conducted by Caldwell Strand LLP (Chicago, Illinois), engaged by Sentinel Specialty Insurance Company as underwriting counsel. Caldwell Strand reviewed the APA, the disclosure schedules, the due diligence reports, and other transaction materials as part of the underwriting process.
The specific amount of the R&W insurance premium is not addressed in detail in this memorandum, as it is a commercially sensitive matter that is more appropriately documented in the closing cost allocation. For a detailed breakdown of the R&W premium, underwriting fees, broker commissions, and other related costs, reference should be made to the Funds Flow Memorandum prepared by Graystone Partners LLC (Nathaniel Prescott) and the closing cost allocation schedule maintained by Calderwood & Harkness LLP.
We note for general reference that R&W insurance premiums in the current market for healthcare-services transactions of this siz

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