Contract analysis

I. Executive Summary Calderwood & Harkness LLP has been engaged by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III") to advise on the tax structuring of the proposed acquisition of 100% of the membership interests in Pinnacle Health Services Group LLC ("Pinnacle" or the "Company") at an aggregate enterprise value of approximately $412 million. This memorandum sets forth our preliminary analysis of the p

II. Transaction Overview A. Parties The following is a summary of the principal parties to the proposed transaction and their respective advisors: Buyer / Sponsor. Ardent Capital Partners III LP ("Ardent Capital" or "Fund III") is a Delaware limited partnership with a vintage year of 2022 and total committed capital of approximately $3.2 billion. Fund III is managed by its general partner, Ardent Capital GP III LLC,

III. Current Tax Classification of Pinnacle Pinnacle Health Services Group LLC is organized as a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. § 18-101 et seq.). For federal income tax purposes, the classification of a domestic limited liability company with two or more members is determined under the entity classification rules set forth in Treasury Regulations Section 301.770

IV. Alternative Acquisition Structures A. Structure Alternative 1: Partnership Acquisition (Recommended)

1. Overview of the Structure Under the recommended partnership acquisition structure, the buyer will acquire 100% of the membership interests in Pinnacle through a reverse merger, with Pinnacle surviving as a partnership for federal income tax purposes. The post-closing organizational structure will consist of three tiers: Tier 1 — Ardent Healthcare Holdings LLC. A newly formed Delaware limited liability company, cla

2. Federal Income Tax Consequences to Sellers Sale of Partnership Interests Under Section 741. Each selling member of Pinnacle will recognize gain or loss upon the sale or exchange of their membership interest in Pinnacle in the reverse merger. Under Section 741 of the Internal Revenue Code, gain or loss from the sale or exchange of a partnership interest is recognized as if the interest were a capital asset, except

Section 751(a) Recharacterization — "Hot Assets." Notwithstanding the general capital gain characterization under Section 741, Section 751(a) requires that any portion of the gain attributable to the selling member's share of the partnership's "unrealized receivables" (as defined in Section 751(c)) or "inventory" (as defined in Section 751(d)(1), including substantially appreciated inventory) shall be treated as ordi

3. Federal Income Tax Consequences to Buyer — Section 754 Election and Section 743(b) Basis Step-Up

Section 754 Election. A critical element of the recommended partnership acquisition structure is the making of a Section 754 election by Pinnacle. Under Section 754, a partnership may elect to adjust the basis of its assets in the case of a transfer of a partnership interest by sale or exchange (under Section 743(b)) or a distribution of partnership property (under Section 734(b)). The Section 754 election is made by

Section 743(b) Basis Adjustment. Upon the transfer of a partnership interest by sale or exchange, if a Section 754 election is in effect, Section 743(b) provides that the partnership shall adjust the basis of its assets with respect to the transferee partner. The adjustment is equal to the difference between (i) the transferee partner's outside basis in the partnership interest (generally equal to the purchase price

4. Advantages of Partnership Acquisition Structure The recommended partnership acquisition structure offers the following principal advantages: (a) Automatic basis step-up via Section 743(b). The buyer obtains a full basis step-up in its share of Pinnacle's assets without requiring a taxable transaction at the entity level. Unlike the Section 338(h)(10) alternative (discussed in Section IV.B below), the Section 743(b

5. Disadvantages and Risks of Partnership Acquisition Structure The partnership acquisition structure also presents certain disadvantages and risks that should be carefully considered: (a) Irrevocability of Section 754 election. Once made, the Section 754 election is irrevocable absent the consent of the Internal Revenue Service, which is granted only in limited circumstances. The election applies to all future trans

1. Overview. Under the corporate acquisition alternative, Pinnacle would file a Form 8832 (Entity Classification Election) with the Internal Revenue Service, electing to be classified as an association taxable as a corporation (i.e., a C-corporation) for federal income tax purposes, effective immediately prior to the closing date of the acquisition. This election is commonly referred to as a "check-the-box" election.

2. Section 338(h)(10) Election — Preliminary Analysis If the corporate acquisition structure were adopted and the stock of the deemed corporation were acquired, the buyer and sellers could jointly elect under Section 338(h)(10) of the Internal Revenue Code to treat the qualified stock purchase as a deemed asset acquisition for tax purposes. A detailed comparison memorandum analyzing Section 338(h)(10) versus Section

3. Disadvantages of Corporate Acquisition Structure In addition to the unfavorable economics of the Section 338(h)(10) election discussed above, the corporate acquisition structure presents the following additional disadvantages: (a) Incremental seller-level gain. As described above, the corporate acquisition structure with a Section 338(h)(10) election would trigger approximately $48.3 million in incremental seller-

V. Rollover Equity — Structural Considerations (Preliminary) As described in Section II.D above, three of Pinnacle's existing members — Dr. Carvallo, Dr. Ostrowski, and Mr. Farnsworth — will contribute a portion of their equity proceeds to Ardent Healthcare Holdings LLC in exchange for Class B Units. The aggregate rollover amount is approximately $59.54 million. This section provides a preliminary analysis of the tax

Section 721 — Partnership Contribution. If Holdings LLC is classified as a partnership for federal income tax purposes (as recommended), the contribution of property (including partnership interests in Pinnacle) to Holdings LLC in exchange for Class B Units is governed by Section 721(a), which provides that no gain or loss shall be recognized by a partnership or any of its partners upon the contribution of property t

Section 351 — Corporate Contribution. If a corporate structure were used at the holding company level — that is, if Holdings LLC were organized as a corporation rather than a partnership — the contribution of property in exchange for stock would be governed by Section 351(a), which provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange f

VI. Blocker Entity — Ardent Healthcare Intermediate Inc. The recommended acquisition structure interposes a C-corporation blocker entity — Ardent Healthcare Intermediate Inc. — between Holdings LLC and Pinnacle (the surviving operating entity). This section describes the purposes and benefits of the blocker entity. Purposes of the blocker Entity. (a) blocking UBTI for Tax-Exempt Limited Partners. Fund III's limited p