Contract analysis

I. Executive Summary This memorandum analyzes and compares two alternative tax election approaches available in connection with the proposed acquisition by Ardent Healthcare Intermediate Inc. (the "Buyer" or "Intermediate Inc."), a newly formed Delaware C-corporation and wholly owned subsidiary of Ardent Healthcare Holdings LLC ("Holdings LLC"), of one hundred percent (100%) of the membership interests of Pinnacle He

1. Section 338(h)(10) Approach. This alternative would require Pinnacle to first file a Form 8832 check-the-box election under Treasury Regulations § 301.7701-3 to reclassify Pinnacle from a partnership to a corporation for federal income tax purposes, followed by a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), to treat the stock acquisition as a deemed asset p

2. Section 754 Approach. This alternative would maintain Pinnacle's existing classification as a partnership for federal income tax purposes. Pinnacle would file a Section 754 election with its partnership tax return (Form 1065) for the taxable year of the acquisition, producing a Section 743(b) basis adjustment equal to the difference between the Buyer's outside basis (its purchase price of $412,000,000) and the Buy

II. Factual Background A. The Target — Pinnacle Health Services Group LLC Pinnacle Health Services Group LLC is a Delaware limited liability company (EIN 82-1947632) formed on August 12, 2016. Pinnacle has not filed a Form 8832 entity classification election with the Internal Revenue Service at any point since its formation, and accordingly maintains its default classification as a partnership for federal income tax

III. Section 338(h)(10) Election Analysis A. Mechanics of Section 338(h)(10) — General Overview

Section 338(h)(10) of the Code permits the buyer and the sellers of a target to make a joint election to treat a qualified stock purchase as a deemed asset purchase for federal income tax purposes. When a Section 338(h)(10) election is in effect, the transaction is recharacterized as though the target sold all of its assets at fair market value in a single transaction, recognized gain or loss on the deemed sale, and

IV. Section 754 Election Analysis A. Mechanics of Section 754 — General Overview

Section 754 of the Code permits a partnership to elect to adjust the basis of partnership property upon the occurrence of certain triggering events, specifically (i) a transfer of a partnership interest (giving rise to an adjustment under Section 743(b)) or (ii) a distribution of partnership property (giving rise to an adjustment under Section 734(b)). The election is made by filing a written statement with the partn

Section 743(b) of the Code provides the mechanism by which a transferee partner's share of the partnership's inside basis is adjusted when a Section 754 election is in effect. Specifically, Section 743(b) provides that the transferee partner's share of the adjusted basis of partnership property is adjusted by an amount equal to the excess of the transferee's outside basis in the partnership interest over the transfer

Section 743(b) Adjustment = Transferee's Outside Basis − Transferee's Share of Partnership Inside Basis The Section 743(b) adjustment is a "special basis adjustment" that is personal to the transferee partner and does not affect the common basis of partnership property, the partnership's computation of income or loss, or any other partner's distributive share. The adjustment is allocated among the partnership's asset

V. Comparative Analysis: Section 338(h)(10) vs. Section 754 A. Side-by-Side Summary Table The following table presents a side-by-side comparison of the key features, consequences, and considerations associated with each election alternative: B. Quantitative Comparison The quantitative comparison of the two alternatives can be summarized as follows: Buyer's Perspective:

1. NPV of Amortization Benefit under 338(h)(10): Approximately $58,800,000.

2. NPV of Amortization Benefit under Section 754: Approximately $37,100,000.

3. Incremental NPV Benefit of 338(h)(10) over 754: Approximately $31,700,000.

4. Grossed-Up Cost of Seller Compensation: Approximately $16,100,000 (assuming the Buyer must compensate the sellers for their incremental tax cost of ~$12.1 million, grossed up to account for the taxability of the gross-up payment itself).

5. Net Benefit of 338(h)(10) after Seller Gross-Up: $31,700,000 − $16,100,000 = approximately $15,600,000. While the net benefit of approximately $15.6 million appears positive in isolation, several factors significantly diminish this apparent benefit: (a) Timing Mismatch. The gross-up payment of approximately $16.1 million would be an immediate cash outflow at or near closing. The $31.7 million of incremental amorti

VI. Recommendation Based on the analysis set forth in this memorandum, Calderwood & Harkness LLP recommends that Pinnacle Health Services Group LLC make a Section 754 election for the taxable year ending December 31, 2024, in connection with the acquisition of Pinnacle's membership interests by Ardent Healthcare Intermediate Inc. The Section 754 election will produce a Section 743(b) basis adjustment of $224,400,000

1. Incremental Seller-Level Gain Exceeds Incremental Buyer Benefit. The approximately $48.3 million in incremental seller-level gain generated by the Section 338(h)(10) approach, and the associated increme