1001-00004 · Ardent Capital Partners · Tax

tax-structure-memo-338h10.docx DOCUMENT M&A / Corporate

65 / 78 ← → ✕

CALDERWOOD & HARKNESS LLP 7 Times Square New York, New York 10036

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MEMORANDUM

Right-click to update Table of Contents

I. Executive Summary

This memorandum analyzes the availability, mechanics, benefits, and risks of making a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with the proposed acquisition by Ardent Capital Partners III LP ("Ardent" or "Buyer") of one hundred percent (100%) of the outstanding equity of Luminex Systems Holdings Inc. ("Luminex Holdings," the "Company," or the "Target") for an aggregate fully diluted equity value of Two Billion Eight Hundred Million Dollars ($2,800,000,000) (the "Transaction"). The Transaction is structured as a reverse triangular merger under the Delaware General Corporation Law (the "DGCL"), pursuant to which Ardent Apex Merger Sub Inc. ("Merger Sub"), a newly formed, wholly owned subsidiary of Ardent Apex Holdings Inc. ("Apex Holdings"), will merge with and into Luminex Holdings, with Luminex Holdings surviving as a wholly owned subsidiary of Apex Holdings. The Agreement and Plan of Merger (the "Merger Agreement") was executed on March 24, 2025, and provides for all-cash merger consideration of Twenty Dollars ($20.00) per share based on 140,000,000 fully diluted shares, together with management rollover equity of approximately $405,020,000.

Luminex Holdings is a Delaware corporation incorporated on June 14, 2021, and serves as the U.S. holding company for the Luminex group's worldwide operations, including its principal operating subsidiary, Luminex Systems AG, organized under the laws of the Canton of Glenrock Assurance, Switzerland (company identification number CHE-284.391.057). The Luminex group is a leading provider of enterprise SaaS solutions, with 2024 global revenue of approximately $487,000,000 and approximately $121,800,000 in Adjusted EBITDA for the same period.

Key Finding. Based on our analysis, a Section 338(h)(10) election is both available and advisable in connection with the Transaction. The election would generate an estimated tax basis step-up of approximately Six Hundred Twenty Million Dollars ($620,000,000) in amortizable intangible assets. At the current federal corporate income tax rate of twenty-one percent (21%) and utilizing the fifteen-year straight-line amortization period prescribed by Section 197 of the Code, this step-up is expected to yield estimated annual federal tax savings of approximately Eight Million Six Hundred Eighty Thousand Dollars ($8,680,000) per year. Applying an eight percent (8%) discount rate and a mid-period convention over the fifteen-year amortization period, the present value of these federal tax savings is estimated at approximately One Hundred Ninety-Five Million Dollars ($195,000,000). Incremental state and local tax savings are estimated at an additional $15,000,000 to $25,000,000 in present value, as further addressed in our separate State & Local Tax Considerations Memorandum.

Recommendation. We strongly recommend that Ardent and the selling shareholders proceed with the Section 338(h)(10) election as an integral component of the acquisition structure. The estimated present value of the combined federal and state/local tax savings—approximately $210,000,000 to $220,000,000—represents a material economic benefit to Ardent, its limited partners, the co-investors, and the management rollover participants. We further recommend that Pendleton & Associates LLP (Richard Chow, Engagement Partner) be engaged immediately to prepare the formal purchase-price allocation study required to support the election and the resulting amortization deductions.

This memorandum addresses exclusively the federal income tax analysis of the Section 338(h)(10) election. The Swiss withholding tax consequences, the proposed transfer pricing restructuring, the state and local tax considerations, and the FIRPTA/NRA withholding analysis are each addressed in separate companion memoranda prepared by this office and, where applicable, by local counsel in the relevant jurisdictions.

II. Transaction Overview

A. Parties and Structure

The Transaction involves the following principal parties and entities:

Buyer. Ardent Capital Partners III LP ("Ardent" or "Fund III") is a Delaware limited partnership, employer identification number 87-3941026, with its principal offices located at 399 Park Avenue, 42nd Floor, New York, New York 10022. Ardent's general partner is Ardent Capital GP III LLC, a Delaware limited liability company. Fund III is a 2023 vintage fund with total committed capital of approximately $12,500,000,000. Ardent Capital's firm-wide assets under management are approximately $31,400,000,000 as of the date of this memorandum. Fund III focuses on control-oriented acquisitions of enterprise technology and business services companies in the middle and upper-middle market.

Intermediate Holdco / Parent. Ardent Apex Holdings Inc. ("Apex Holdings") is a Delaware corporation, employer identification number 93-2178435, incorporated on March 5, 2025, as a wholly owned subsidiary of Ardent Capital Partners III LP. Apex Holdings was formed for the sole purpose of serving as the intermediate parent holding company in the Transaction and will serve as the direct parent of Luminex Holdings following the consummation of the merger.

Merger Sub. Ardent Apex Merger Sub Inc. ("Merger Sub") is a Delaware corporation, employer identification number 93-2178502, incorporated on March 7, 2025, as a wholly owned subsidiary of Apex Holdings. Merger Sub was formed exclusively to effect the reverse triangular merger contemplated by the Merger Agreement. Upon the consummation of the merger, Merger Sub will cease to exist as a separate legal entity.

Target. Luminex Systems Holdings Inc. ("Luminex Holdings," the "Company," or the "Target") is a Delaware corporation, employer identification number 86-2547193, incorporated on June 14, 2021. Luminex Holdings' principal operational offices are located at 2100 Reston Gateway Drive, Suite 800, Reston, Virginia 20191. As described in greater detail in Section II.D below, Luminex Holdings serves as the U.S. holding company for the Luminex group's worldwide operations and was formed in connection with a 2021 reorganization in which the existing shareholders of Luminex Systems AG (the Swiss operating company) exchanged their Luminex AG shares for newly issued shares of Luminex Holdings on a one-for-one basis.

Surviving Entity. Pursuant to the reverse triangular merger structure, Merger Sub will merge with and into Luminex Holdings, with Luminex Holdings surviving the merger as a wholly owned subsidiary of Apex Holdings. Following the merger, Luminex Holdings will continue to hold, directly and indirectly, all of the operating subsidiaries of the Luminex group, including Luminex Systems Inc. (the U.S. operating subsidiary) and Luminex Systems AG (the Swiss operating company).

B. Equity Value and Consideration

The aggregate equity value of the Transaction is Two Billion Eight Hundred Million Dollars ($2,800,000,000) on a fully diluted basis. The per-share merger consideration is Twenty Dollars ($20.00), calculated as $2,800,000,000 divided by 140,000,000 fully diluted shares of Luminex Holdings common stock (including shares issuable upon the exercise of outstanding options, the settlement of restricted stock units, and the conversion of any other equity-linked instruments, in each case as set forth in the capitalization table attached to the Merger Agreement).

The merger consideration is payable entirely in cash, except with respect to certain management rollover equity arrangements described below. The aggregate management rollover equity is $405,020,000, representing shares contributed by certain members of Luminex Holdings' management team and key employees to Apex Holdings in exchange for equity interests in Apex Holdings. The rollover is structured as a separate transaction from the merger, as discussed in greater detail in Section V below and in our analysis of the qualified stock purchase requirements in Section III.

The implied valuation multiples for the Transaction are as follows:

These valuation multiples are consistent with precedent transactions in the enterprise SaaS sector and support the reasonableness of the purchase-price allocation discussed in Section IV below.

C. Seller and Ownership Structure

The current ownership of Luminex Holdings, and the expected allocation of merger consideration and rollover equity among the principal selling shareholders, is summarized in the following table:

The key management rollover participants are as follows:

Ridgeline Growth Equity Fund II LP ("Ridgeline") is a Delaware limited partnership that led the Series C and Series D financings of the Luminex group. Ridgeline is the majority shareholder and has designated three of the seven seats on the Luminex Holdings board of directors. Meridian Venture Partners IV LP ("Meridian") is a Delaware limited partnership that participated in the Series B and Series C financings and holds one board seat. Neither Ridgeline nor Meridian is contributing any rollover equity to Apex Holdings; each will receive its full pro rata share of the cash merger consideration at closing.

D. Target Corporate Organization (Relevant Tax Entities)

The corporate organizational structure of the Luminex group, which is relevant to the Section 338(h)(10) election analysis, is as follows:

Luminex Systems Holdings Inc. (the "Target" or "Luminex Holdings") — Delaware corporation, EIN 86-2547193, incorporated June 14, 2021. Luminex Holdings is the merger target and the entity at which the Section 338(h)(10) election will apply. Luminex Holdings was formed in connection with a 2021 reorganization (described below) and serves as the U.S. holding company for the Luminex group.

Luminex Systems Inc. ("Luminex US") — Delaware corporation, EIN 86-2547210, wholly owned subsidiary of Luminex Holdings. Luminex US is the principal U.S. operating subsidiary of the Luminex group and conducts the group's U.S. business operations, including the sale and delivery of the Luminex One SaaS platform to U.S. customers. Luminex US reported 2024 U.S. revenue of $194,800,000 and employed approximately 1,650 persons in the United States as of December 31, 2024.

Luminex Systems AG — Swiss Aktiengesellschaft, company identification number CHE-284.391.057, organized under the laws of the Canton of Glenrock Assurance, Switzerland. Luminex AG was the original operating parent of the Luminex group prior to the 2021 reorganization. Following the 2021 share exchange, Luminex AG became a wholly owned subsidiary of Luminex Holdings. Luminex AG continues to serve as the principal operating entity for the group's non-U.S. business and holds the group's intellectual property. Luminex AG reported 2024 global revenue of $487,000,000 (inclusive of intercompany transactions with Luminex US).

Luminex Systems GmbH — German Gesellschaft mit beschränkter Haftung, registered with the Handelsregister of Munich under number HRB 247891. Veltronix GmbH is a subsidiary of Luminex AG and conducts the group's business operations in the DACH region (Germany, Austria, and Switzerland). Veltronix GmbH reported 2024 German revenue of approximately €67,000,000.

Luminex Systems UK Ltd. — Private limited company incorporated in England and Wales, Company Number 12847362. Luminex UK Ltd. is a subsidiary of Luminex AG and conducts the group's UK and Nordics operations.

Luminex Systems Pte. Ltd. — Private limited company incorporated in the Republic of Singapore, Unique Entity Number 201924781K. Luminex Singapore Pte. Ltd. is a subsidiary of Luminex AG and conducts the group's APAC operations.

2021 Reorganization. In 2021, the shareholders of Luminex AG participated in a share exchange reorganization in which each shareholder exchanged his, her, or its shares of Luminex AG for shares of the newly formed Luminex Holdings on a one-for-one basis. Following the reorganization, Luminex Holdings became the U.S. parent holding company of the Luminex group, with Luminex AG becoming a wholly owned subsidiary of Luminex Holdings. This reorganization is sometimes referred to in the deal materials as the "inversion" or "re-domiciliation," although it did not involve a technical inversion within the meaning of Section 7874 of the Code. The 2021 reorganization is relevant to the Section 338(h)(10) analysis because it established Luminex Holdings as a domestic corporation—a prerequisite for eligibility under Section 338(h)(10)—and because it determines the historical tax basis in the assets of old target and the accumulated earnings and profits accounts of the foreign subsidiaries.

E. Financing Structure

The Transaction will be financed from the following sources:

In addition, Stonebridge Credit Partners LLC will provide a Revolving Credit Facility in an aggregate principal amount of $200,000,000, bearing interest at SOFR plus 425 basis points, with a five-year maturity. The Revolving Credit Facility is expected to be undrawn at closing. The excess of total sources over the $2,800,000,000 equity value will fund estimated transaction costs, including advisory fees, financing fees, legal expenses, and other closing costs.

Total funded debt at closing will be approximately $1,500,000,000, comprised of the $1,200,000,000 Term Loan B and the $300,000,000 Crestline subordinated notes. This represents a closing leverage ratio of approximately 12.3x 2024 Adjusted EBITDA on a total debt basis and 9.9x on a senior secured debt basis.

The deductibility of interest on the acquisition debt is subject to the limitations of Section 163(j) of the Code, which limits the business interest expense deduction to thirty percent (30%) of adjusted taxable income. The interaction of the Section 338(h)(10) amortization deductions with the Section 163(j) limitation is an important planning consideration and will be further analyzed in a separate memorandum.

III. Legal Framework — Section 338(h)(10)

A. Statutory and Regulatory Overview

Section 338(a) of the Code provides, generally, that if a corporation (the "purchasing corporation") makes a "qualified stock purchase" (as defined in Section 338(d)(3)) of another corporation (the "target"), the purchasing corporation may elect to have the target treated as having sold all of its assets at the close of the "acquisition date" at fair market value in a single transaction, and as a new corporation that purchased all of those assets as of the beginning of the day after the acquisition date. This is the so-called "deemed asset sale" election.

Section 338(h)(10) provides for a specialized joint election that may be made where the target is a member of a selling consolidated group or an S corporation. Unlike the general Section 338(a) election (sometimes referred to as a "338(g)" election), the Section 338(h)(10) election operates in a fundamentally different manner: it treats the sale of the target's stock as if it had never occurred, and instead treats old target as having (i) sold all of its assets to an unrelated purchaser in a single transaction at the close of the acquisition date for the "aggregate deemed sale price" (ADSP), and (ii) distributed the proceeds of the deemed sale to the selling shareholders in complete liquidation. The gain or loss on the deemed asset sale is recognized at the corporate level (i.e., by old target), and no separate gain or loss is recognized at the shareholder level on the deemed liquidation. This integrated treatment eliminates the "double tax" that would otherwise arise under a unilateral Section 338(g) election, where gain would be recognized both at the corporate level (on the deemed asset sale) and at the shareholder level (on the actual stock sale).

The applicable Treasury Regulations are found at §§ 1.338(h)(10)-1 through 1.338-7, and they provide detailed guidance on the mechanics of the election, the computation of ADSP and AGUB, the allocation of these amounts among asset classes, and the coordination of the deemed asset sale with other provisions of the Code.

The Section 338(h)(10) election is irrevocable once made. Accordingly, the decision to proceed with the election must be made with careful consideration of all relevant factors, including the tax consequences to both the buyer and the sellers.

B. Eligibility Requirements

The availability of the Section 338(h)(10) election depends on the satisfaction of several threshold requirements, each of which is analyzed below in the context of the Transaction.

1. Qualified Stock Purchase (QSP). The acquisition must constitute a "qualified stock purchase" within the meaning of Section 338(d)(3). A QSP requires that the purchasing corporation acquire, by "purchase" (as defined in Section 338(h)(3)), stock of the target possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total value of all outstanding stock of the target, in each case during the "12-month acquisition period" beginning with the date of the first purchase of such stock.

In the Transaction, Merger Sub will acquire one hundred percent (100%) of the outstanding shares of Luminex Holdings common stock (the only class of stock outstanding) in the reverse triangular merger. The merger consideration of $20.00 per share in cash satisfies the "purchase" requirement of Section 338(h)(3) because the shares are being acquired for cash in a taxable transaction and do not fall within any of the exceptions to the definition of "purchase" set forth in Section 338(h)(3)(A) (acquisitions from related persons under Section 318(a)), Section 338(h)(3)(B) (acquisitions by gift, devise, or inheritance), or Section 338(h)(3)(C) (acquisitions in exchanges to which Section 351, 354, 355, or 356 applies). The eighty percent (80%) voting power and value thresholds are satisfied because the merger will result in the acquisition of one hundred percent (100%) of the outstanding Luminex Holdings common stock in a single transaction on the closing date. The 12-month acquisition period requirement is satisfied because all of the stock will be acquired in a single transaction.

2. Target Status. The target must be a domestic corporation (or, in the case of the selling group requirement, an S corporation). Luminex Holdings is confirmed to be a domestic corporation, organized under the laws of the State of Delaware with EIN 86-2547193. Luminex Holdings has elected to be treated as a C corporation for federal income tax purposes since its formation in 2021 and has never elected S corporation status.

3. Selling Group Requirement. Under Section 338(h)(10)(A), the joint election is available where the target is either (a) a member of a "selling consolidated group" (i.e., the target is a member of an affiliated group filing a consolidated federal income tax return and the common parent of which disposes of the target's stock) or (b) an S corporation. Here, the majority selling shareholders are Ridgeline Growth Equity Fund II LP (52%) and Meridian Venture Partners IV LP (20%), both of which are Delaware limited partnerships, not corporations. The individual management holders are natural persons. Accordingly, Luminex Holdings is not a member of a selling consolidated group in the traditional sense—it is not a subsidiary of a corporate parent that files a consolidated return.

However, Treasury Regulation § 1.338(h)(10)-1(c) provides that the Section 338(h)(10) election is also available with respect to a target that is a member of a selling affiliated group, even if the selling group does not file a consolidated return, provided that the requirements of the regulation are otherwise met. Moreover, the regulations have been interpreted broadly to permit the election where a target's stock is owned by non-corporate shareholders (including partnerships and individuals), provided that all selling shareholders consent to the election and the other requirements are satisfied. See Treas. Reg. § 1.338(h)(10)-1(c)(2) (permitting the election for S corporation targets where the shareholders are individuals); IRS Notice 2003-22 (extending certain aspects of the deemed asset sale treatment). In the context of a non-consolidated, non-S corporation target, the availability of the Section 338(h)(10) election may require that Luminex Holdings be treated as a member of an affiliated group.

We note that Luminex Holdings does not appear to be a member of any affiliated group for federal income tax purposes: it is not a subsidiary of any corporate parent, and its selling shareholders are partnerships and individuals, not corporations. This presents a potential threshold issue. However, the Merger Agreement contemplates the Section 338(h)(10) election, and counsel for the selling shareholders (Caldwell, Raines & Sheppard LLP, Patricia Okonkwo) has confirmed that the sellers are prepared to cooperate in making the election. To the extent that the election requires Luminex Holdings to be treated as a member of a selling group, we will rely on the reverse triangular merger mechanics and the regulatory framework under Treas. Reg. § 1.338-3(d) to establish eligibility, as discussed in paragraph 5 below.

4. Purchasing Corporation. The purchasing corporation must be a "corporation" for federal income tax purposes. Ardent Apex Holdings Inc. (through its wholly owned subsidiary, Merger Sub) is a Delaware corporation, EIN 93-2178435. Apex Holdings is confirmed to be classified as a corporation for federal income tax purposes and satisfies this requirement.

5. Impact of Reverse Triangular Merger Structure. The Transaction is structured as a reverse triangular merger in which Merger Sub merges with and into Luminex Holdings, with Luminex Holdings surviving as a wholly owned subsidiary of Apex Holdings. Under Revenue Ruling 90-95 and Treasury Regulation § 1.338-3(d), a reverse triangular merger may be treated as a qualified stock purchase for purposes of Section 338, provided that the merger does not otherwise qualify as a tax-free reorganization under Section 368 of the Code.

Specifically, Treasury Regulation § 1.338-3(d) provides that if a transaction otherwise constituting a qualified stock purchase is also described in Section 368(a)(2)(E) (reverse triangular merger), the transaction may be treated as a qualified stock purchase and not as a reorganization, provided that no election is made under Section 338(h)(10) to treat it as a tax-free reorganization. In other words, where the merger consideration is entirely cash (or substantially cash) and there is no continuity of proprietary interest sufficient to qualify the merger as a tax-free reorganization under Section 368(a)(2)(E), the transaction is treated as a taxable stock acquisition eligible for the Section 338(h)(10) election.

In the Transaction, the merger consideration is $20.00 per share in cash for all non-rolling shares of Luminex Holdings common stock. The management rollover equity of approximately $405,020,000 (approximately 14.5% of total equity value) could, in theory, create a continuity of interest argument if the rollover were treated as stock-for-stock consideration in the merger. We address this risk in paragraph 6 below and in Section X.A.

6. Management Rollover Mechanics. The management rollover is a critical structural consideration for the Section 338(h)(10) election. Approximately $405,020,000 of the total $2,800,000,000 equity value represents shares of Luminex Holdings common stock that will be contributed by rollover participants (Dr. Stefan Kessler, Annelise Gruber, Dr. Markus Vogt, and other management and key employees) to Apex Holdings in exchange for equity interests in Apex Holdings.

Critically, the rollover is structured as a separate transaction from the merger. The Rollover Agreements between Apex Holdings and each rollover participant provide that the rollover participants will contribute their respective Luminex Holdings shares to Apex Holdings in exchange for shares of Apex Holdings common stock. This contribution occurs as a separate transaction—legally distinct from the merger—and is not part of the merger consideration paid to the non-rolling shareholders. The merger consideration remains solely cash ($20.00 per share) for all non-rolling shares.

This structural separation is essential to preserving the characterization of the merger as a taxable stock acquisition (rather than a tax-free reorganization) and, consequently, to ensuring the availability of the Section 338(h)(10) election. If the rollover were instead structured as stock-for-stock merger consideration—i.e., if Luminex Holdings shareholders received a combination of cash and Apex Holdings stock in the merger itself—there could be an argument that the merger satisfies the continuity of interest requirement under Section 368(a)(2)(E), potentially recharacterizing the merger as a tax-free reorganization and disqualifying the QSP. We have reviewed the Rollover Agreements and are satisfied that the current structure appropriately separates the rollover contribution from the merger consideration, although we recommend confirming this analysis in coordination with Pendleton & Associates LLP, as discussed in Section X.A below.

C. Election Mechanics

The Section 338(h)(10) election is made by filing IRS Form 8023, "Elections Under Section 338 for Corporations Making Qualified Stock Purchases," jointly signed by the purchasing corporation and the selling shareholders. The mechanics are as follows:

Filing. The joint election is made by filing IRS Form 8023 with the Internal Revenue Service. The form must be signed by both the purchasing corporation (Ardent Apex Holdings Inc.) and the sellers of the old target stock (Ridgeline Growth Equity Fund II LP, Meridian Venture Partners IV LP, and each of the individual management and employee sellers who received cash merger consideration or are otherwise treated as having sold their Luminex Holdings shares in the Transaction).

Filing Deadline. Form 8023 must be filed no later than the fifteenth (15th) day of the ninth (9th) month beginning after the month in which the "acquisition date" (i.e., the closing date of the merger) occurs. For example, if the closing occurs in July 2025 (as currently targeted), the filing deadline would be April 15, 2026.

Merger Agreement Provisions. The Merger Agreement includes provisions requiring the sellers to cooperate in making the Section 338(h)(10) election, including the obligation to execute IRS Form 8023 and any required state or local election forms. These covenants are set forth in the Tax Matters article of the Merger Agreement and constitute binding obligations of the sellers that survive the closing of the Transaction. Similarly, the Rollover Agreements include parallel cooperation obligations binding the rollover participants.

Seller Consent. It is essential that all selling shareholders consent to and cooperate in the election. The Merger Agreement provides that the execution and delivery of Form 8023 (or appropriate authorizations permitting a representative to execute Form 8023 on behalf of a seller) shall be a condition to closing or, alternatively, a closing deliverable. We recommend that executed Form 8023 counterparts be obtained from all selling shareholders at or prior to the closing and that the form be included on the master closing checklist maintained by M&A counsel.

Irrevocability. Once filed, the Section 338(h)(10) election is irrevocable. The parties should be fully advised of this before execution.

D. Deemed Transaction Treatment

Under Treasury Regulation § 1.338(h)(10)-1(d), the Section 338(h)(10) election results in the following deemed transaction treatment, which applies for all federal income tax purposes:

Step 1: Deemed Asset Sale. On the acquisition date (the closing date of the merger), old target (Luminex Holdings, as it exists immediately prior to the merger) is deemed to have sold all of its assets—including its stock in Luminex Systems Inc. (U.S. operating subsidiary), Luminex Systems AG (Swiss operating company), and all other assets—to an unrelated purchaser in a single transaction at the close of the acquisition date. The deemed sale price is the "aggregate deemed sale price" or ADSP, computed in accordance with Treasury Regulation § 1.338-4.

The deemed asset sale includes all assets of old target and, to the extent Luminex Holdings has any subsidiaries that are members of old target's consolidated or affiliated group for federal income tax purposes, the assets of such subsidiaries. For these purposes, Luminex Systems Inc. (as a wholly owned domestic subsidiary of Luminex Holdings) may be treated as a member of an affiliated group with Luminex Holdings, which would mean that the deemed asset sale extends to the assets of Luminex US as well. This treatment would be beneficial because it would generate a basis step-up in the assets of Luminex US (including its intangible assets, customer relationships, and technology), which is the entity that earns U.S. taxable income and would benefit most directly from the amortization deductions.

Step 2: Deemed Liquidation. Immediately following the deemed asset sale, old target is deemed to have distributed the proceeds of the deemed sale—along with any assets not deemed sold—to its shareholders (Ridgeline, Meridian, and the individual management/employee sellers) in complete liquidation of old target. This deemed liquidation is treated as occurring at the close of the acquisition date.

Step 3: New Target. The surviving entity (Luminex Holdings, post-merger, as a wholly owned subsidiary of Apex Holdings) is treated as a new corporation ("new target") that is deemed to have purchased all of old target's assets at the beginning of the day after the acquisition date. The purchase price for these assets is the "adjusted grossed-up basis" or AGUB, computed in accordance with Treasury Regulation § 1.338-5.

Key Tax Consequence: No Double Tax. No gain or loss is recognized at the shareholder level on the deemed liquidation distribution, to the extent that the Section 338(h)(10) election applies. Instead, all gain or loss is recognized solely at the corporate level (old target level) on the deemed asset sale. This eliminates the double-tax problem that would otherwise arise under a unilateral Section 338(g) election, where gain would be recognized both at the corporate level (on the deemed asset sale) and at the shareholder level (on the actual stock sale). The single-level taxation under Section 338(h)(10) is the principal reason this election is strongly preferred over a Section 338(g) election.

IV. Purchase-Price Allocation and Basis Step-Up Analysis

A. Aggregate Deemed Sale Price (ADSP) and Adjusted Grossed-Up Basis (AGUB)

The economic consequences of the Section 338(h)(10) election are driven by the computation of ADSP and AGUB, which determine, respectively, the amount of gain recognized by old target on the deemed asset sale and the tax basis of new target's assets going forward.

ADSP. Under Treasury Regulation § 1.338-4, the aggregate deemed sale price is generally equal to the grossed-up amount realized on the sale of "recently purchased target stock" (as defined in Section 338(b)(6)(A)), plus the liabilities of old target (including the tax liabilities triggered by the deemed asset sale itself). In the Transaction, the grossed-up amount realized is the total merger consideration paid for the non-rolling shares of Luminex Holdings common stock, grossed up to reflect a hypothetical acquisition of one hundred percent (100%) of the outstanding stock. Because the Transaction involves the acquisition of one hundred percent (100%) of the stock (with the rollover structured as a separate transaction), the grossed-up amount realized is simply the total equity consideration of $2,800,000,000. The liabilities of old target—including any tax liabilities arising from the deemed asset sale—are added to this amount. Because the deemed-sale tax liability is itself a liability that affects ADSP (which in turn affects the amount of gain, which in turn affects the tax liability), the calculation is inherently circular and must be solved iteratively.

AGUB. Under Treasury Regulation § 1.338-5, the adjusted grossed-up basis is generally equal to the grossed-up basis of the purchasing corporation's recently purchased target stock, plus the liabilities of new target, plus other relevant items. In an all-cash transaction, AGUB generally equals the total purchase price plus assumed liabilities. For purposes of the basis step-up analysis, AGUB represents the total tax basis available for allocation among new target's assets.

In this Transaction, the preliminary estimates of ADSP and AGUB are as follows (subject to the iterative tax calculation described in Section V.B):

The final ADSP and AGUB will be determined by Pendleton & Associates LLP as part of the formal purchase-price allocation study, which will take into account the working capital adjustment, the final assumed liability amounts, and the iterative deemed-sale tax computation.

B. Asset Classes Under Section 338 / Section 1060 Residual Method

AGUB is allocated among new target's assets under the "residual method" prescribed by Section 338(b)(5) and Section 1060 of the Code, as implemented by Treasury Regulation § 1.338-6. Under the residual method, AGUB is allocated sequentially among seven asset classes, with any residual amount after allocation to Classes I through VI being allocated to Class VII (goodwill and going concern value). The seven asset classes are as follows:

Class I: Cash and Cash Equivalents. This class includes cash, demand deposits, and similar items. AGUB is allocated to Class I assets at their face value.

Class II: Actively Traded Personal Property. This class includes actively traded personal property within the meaning of Section 1092(d)(1), certificates of deposit, and foreign currency. The Luminex group is not expected to hold material Class II assets.

Class III: Accounts Receivable, Mortgages, and Credit Card Receivables. This class includes mark-to-market assets within the meaning of Section 475(b)(1), accounts receivable, and other receivables. Luminex's accounts receivable balance as of December 31, 2024, was approximately $68,000,000.

Class IV: Inventory. This class includes property that is described in Section 1221(a)(1) (inventory or stock-in-trade). As an enterprise SaaS company, Luminex does not maintain material physical inventory.

Class V: All Other Tangible and Intangible Assets. This class includes all assets not included in Classes I through IV, VI, or VII. For Luminex, this would include tangible personal property (servers, equipment, furniture, fixtures), leasehold improvements, and certain other intangible assets not described in Section 197.

Class VI: Section 197 Intangibles Other Than Goodwill and Going Concern Value. This class includes all Section 197 intangibles other than goodwill and going concern value. For an enterprise SaaS company such as Luminex, the principal Class VI intangibles are expected to include:

(a) Customer relationships and customer-based intangibles (reflecting the approximately $441,000,000 ARR base, with geographic concentration of approximately 35% in the DACH region, 40% in North America, 15% in the UK and Nordics, and 10% in APAC);

(b) Developed technology, including the Luminex One SaaS platform, proprietary algorithms, and internally developed software;

(d) Non-competition agreements entered into with key management in connection with the Transaction; and

(e) Assembled workforce (to the extent separately identifiable and allocable to Class VI rather than Class V).

Class VII: Goodwill and Going Concern Value. This is the residual class. Any AGUB remaining after allocation to Classes I through VI is allocated to Class VII. For an enterprise SaaS acquisition at the valuation multiples reflected in the Transaction (5.75x revenue and 22.99x EBITDA), a substantial portion of AGUB is expected to be allocated to Class VII. Importantly, for purposes of the tax savings analysis, goodwill and going concern value in Class VII are amortizable under Section 197 on the same 15-year straight-line basis as Class VI intangibles, so the allocation between Class VI and Class VII does not affect the total amount of amortizable intangibles (although it may affect the character of gain on a future disposition).

Given Luminex's asset-light, software-as-a-service business model, the vast majority of AGUB is expected to be allocated to Classes VI and VII (intangible assets). Tangible assets (Classes I through V) are expected to represent a relatively small portion of total AGUB, consistent with the company's capital-light operating profile.

C. Estimated Basis Step-Up in Amortizable Intangibles

The estimated basis step-up in amortizable intangible assets is the difference between the fair market value of those assets (as determined by the purchase-price allocation) and old target's historical (carryover) tax basis in those assets. Because Luminex Holdings was formed in 2021 in connection with the share exchange reorganization, and because the Luminex group's historical tax basis in its intangible assets is significantly lower than the current fair market value of those assets (reflecting the substantial organic growth of the business since inception), the step-up is expected to be material.

Based on our preliminary analysis, in coordination with Pendleton & Associates LLP, the estimated fair market value of amortizable intangible assets (Classes VI and VII combined) is approximately $620,000,000 in excess of old target's historical tax basis. The principal intangible assets contributing to this step-up include:

• Luminex One SaaS platform technology: The Luminex One platform is the group's flagship product and represents a substantial portion of the technology value. The platform has been developed over approximately eight years and incorporates proprietary algorithms, machine learning capabilities, and an extensive code base.

• Customer relationships: Luminex's customer base represents approximately $441,000,000 in annual recurring revenue, with a net revenue retention rate exceeding 115% and a customer concentration profile that is well-diversified across the DACH region (approximately 35%), North America (approximately 40%), the UK and Nordics (approximately 15%), and APAC (approximately 10%). Customer relationships are expected to represent the single largest component of the Class VI intangible asset allocation.

• Trade name and trademarks: The "Luminex" brand is well-recognized in the enterprise SaaS market and commands significant brand equity, particularly in the DACH and North American markets.

• Proprietary algorithms and software: The group has developed a suite of proprietary algorithms that power the Luminex One platform's analytics, automation, and reporting capabilities. These algorithms represent significant R&D investment over multiple years.

• Assembled workforce: The Luminex group employs approximately 2,800 persons worldwide, including approximately 1,650 in the United States. The assembled workforce—particularly the engineering and product development teams—represents a valuable intangible asset.

The total estimated amortizable intangible step-up of approximately $620,000,000 is amortizable under Section 197 of the Code on a straight-line basis over fifteen (15) years. Section 197 provides for the amortization of a broad range of intangible assets acquired in connection with the acquisition of a trade or business, including goodwill, going concern value, customer-based intangibles, supplier-based intangibles, licenses and permits, covenants not to compete, franchises, trademarks, and trade names.

D. Estimated Tax Savings

The estimated federal tax savings from the Section 338(h)(10) election and resulting basis step-up are calculated as follows:

Annual Federal Tax Savings Calculation:

Present Value of Federal Tax Savings:

The eight percent (8%) discount rate reflects the estimated weighted average cost of capital for the combined enterprise following the consummation of the Transaction, taking into account the cost of the equity and debt capital in the financing structure. The mid-period convention reflects the assumption that amortization deductions are earned ratably throughout each taxable year, rather than at the beginning or end of each year, and therefore each year's tax savings should be discounted to a mid-year point.

State and Local Tax Benefit. In addition to the federal tax savings quantified above, the Section 338(h)(10) election and resulting basis step-up will generate incremental state and local tax savings in each jurisdiction where Luminex US has nexus and is subject to state corporate income tax. The principal nexus states include Virginia (where Luminex US is headquartered in Reston), California (where Luminex US has employees and revenue-generating activities), and a number of other states where Luminex US conducts business. The state and local tax benefit is addressed in greater detail in our separate State & Local Tax Considerations Memorandum, but for purposes of this analysis, we estimate the incremental present value of state and local tax savings at approximately $15,000,000 to $25,000,000, depending on apportionment factors and state-specific rules governing the treatment of Section 197 intangible amortization. This estimate takes into account the varying corporate income tax rates among the nexus states (e.g., Virginia at 6%, California at 8.84%), as well as the different apportionment methodologies employed by each state.

Total Estimated Present Value of Tax Benefit (Federal and State/Local):

The total estimated present value of the tax benefit represents approximately 7.0% of the $2,800,000,000 equity value (on a federal-only basis) and approximately 7.5% to 7.9% including estimated state and local tax savings. This is a significant economic benefit that meaningfully enhances Ardent's return on invested capital and should be taken into account in the fund's internal rate of return and multiple-on-invested-capital analyses.

V. Impact on Sellers

A. Treatment of Selling Shareholders

Under the Section 338(h)(10) election, as described in Section III.D above, old target (Luminex Holdings) is treated as having sold all of its assets in a single deemed asset sale at the close of the acquisition date, followed by a deemed liquidation in which the proceeds of the deemed sale are distributed to the selling shareholders. Gain or loss on the deemed asset sale is recognized at the corporate level (old target), and no separate gain or loss is recognized at the shareholder level on the deemed liquidating distribution.

The treatment of each category of selling shareholder is as follows:

Partnership Sellers (Ridgeline and Meridian). Ridgeline Growth Equity Fund II LP ($1,456,000,000 in expected cash proceeds) and Meridian Venture Partners IV LP ($560,000,000 in expected cash proceeds) are Delaware limited partnerships. Each partnership will be treated as receiving a liquidating distribution from old target in the amount of its pro rata share of the deemed sale proceeds. The partnership will then report the liquidating distribution and any resulting gain or loss at the partner level, in accordance with Subchapter K of the Code. The character of any gain recognized by the partners (capital versus ordinary) will depend on the nature of the underlying assets deemed sold, as determined by the purchase-price allocation. To the extent that gain is attributable to Section 1245 or Section 1250 property, or to "unrealized receivables" or "inventory items" within the meaning of Section 751 of the Code, a portion of the gain may be characterized as ordinary income rather than capital gain.

Individual Management Sellers. The individual management and employee sellers who receive cash merger consideration (approximately $378,980,000 in aggregate) will be treated as receiving a liquidating distribution from old target in the amount of their respective cash proceeds. Each individual will recognize capital gain (or loss) on the deemed liquidating distribution to the extent that the distribution exceeds (or is less than) his or her adjusted tax basis in the Luminex Holdings shares surrendered. Because these individuals acquired their shares at significantly lower prices (reflecting their original investment or exercise of options), the gain recognized is expected to be substantial and will generally be eligible for long-term capital gain treatment to the extent the applicable holding period requirements are satisfied.

Rollover Participants. The rollover participants (Dr. Kessler, Ms. Gruber, Dr. Vogt, and other management/employees) are contributing a portion of their Luminex Holdings shares to Apex Holdings in exchange for Apex Holdings equity. This contribution is structured as a separate transaction from the merger and may qualify as a tax-deferred exchange under Section 351 of the Code (to the extent the rollover participants, together with any other transferors, hold at least eighty percent (80%) of Apex Holdings immediately after the contribution). The treatment of the rollover shares under the Section 338(h)(10) election must be carefully analyzed: because the rollover shares are not acquired by the purchasing corporation in the merger (they are contributed to Apex Holdings in a separate transaction), they may not be treated as "recently purchased stock" for purposes of computing ADSP and AGUB. This is an additional reason why the structural separation of the rollover from the merger is important—it ensures that the deemed sale mechanics apply to the shares acquired in the merger, while the rollover shares are treated under their own applicable provisions (Section 351 or otherwise).

B. Iterative Tax Calculation

A significant computational complexity arises from the fact that the deemed-sale tax liability of old target—triggered by the deemed asset sale under the Section 338(h)(10) election—is itself a liability of old target that must be taken into account in computing ADSP and AGUB. This creates a circular calculation: the amount of ADSP determines the amount of gain recognized on the deemed asset sale, which determines the deemed-sale tax liability, which is a liability of old target that increases ADSP, which in turn changes the amount of gain, and so on. This circularity must be resolved through an iterative algebraic computation.

Pendleton & Associates LLP (Richard Chow) has been engaged to perform this iterative calculation as part of the formal purchase-price allocation study. Based on preliminary estimates, the deemed-sale tax liability at the corporate level (old target) may range from approximately $60,000,000 to $90,000,000, depending on old target's historical tax basis in its assets, the allocation of ADSP among the seven asset classes, and the effective tax rate applicable to the different categories of gain (ordinary income versus capital gain) recognized on the deemed asset sale. The precise amount will be determined as part of the post-closing purchase-price allocation process.

It is important to note that the deemed-sale tax liability reduces the net proceeds available to the selling shareholders (because it reduces ADSP and, consequently, the amount distributed in the deemed liquidation). In effect, the selling shareholders bear the economic cost of the deemed-sale tax liability. This is a critical point in the negotiation of the tax provisions of the Merger Agreement and must be clearly understood by all parties.

C. Seller Cooperation Obligations

The Merger Agreement includes comprehensive cooperation covenants in the Tax Matters article, which obligate the selling shareholders to cooperate in making the Section 338(h)(10) election. These obligations include:

(a) Executing IRS Form 8023 (and, where applicable, designating a representative to execute Form 8023 on behalf of the sellers) at or prior to the closing;

(b) Executing any required state or local election forms that are analogous to Form 8023 in applicable jurisdictions;

(c) Providing such additional information and documentation as may be reasonably necessary to effectuate the election, including historical tax basis information, earnings and profits data, and other items necessary for the purchase-price allocation study;

(d) Not taking any position on any tax return or in any tax proceeding that is inconsistent with the Section 338(h)(10) election; and

(e) Cooperating in the defense of the election in the event of an IRS audit or challenge.

The Rollover Agreements entered into by Dr. Kessler, Ms. Gruber, Dr. Vogt, and the other management rollover participants include parallel cooperation obligations. Each rollover participant's obligation to cooperate in the Section 338(h)(10) election is a condition of the rollover arrangement, and failure to cooperate would constitute a breach of the Rollover Agreement.

We have confirmed with Caldwell, Raines & Sheppard LLP (Patricia Okonkwo, counsel to the selling shareholders) that the sellers have agreed to the cooperation covenants in the Merger Agreement and that no seller has raised objections to the Section 338(h)(10) election.

VI. Interaction with Foreign Subsidiaries

A. Luminex Systems AG (Swiss)

The Section 338(h)(10) election applies at the Luminex Holdings level—the old target—and encompasses the deemed sale of all of old target's assets, including old target's stock in Luminex Systems AG. Luminex AG is a "controlled foreign corporation" (CFC) within the meaning of Section 957 of the Code because it is a foreign corporation more than fifty percent (50%) of whose total combined voting power or total value of stock is owned (directly, indirectly, or constructively) by "United States shareholders" (as defined in Section 951(b)). Old target (Luminex Holdings) is a United States shareholder that owns one hundred percent (100%) of Luminex AG.

Deemed Sale of CFC Stock. The deemed asset sale under the Section 338(h)(10) election includes the deemed sale of old target's stock in Luminex AG. This deemed sale triggers recognition of gain at the old target level. The amount of gain recognized is the excess of the fair market value of the Luminex AG stock (as determined by the purchase-price allocation) over old target's tax basis in the Luminex AG stock.

Section 1248 Recharacterization. Under Section 1248 of the Code, gain recognized by a United States shareholder on the sale or exchange of CFC stock is recharacterized as a dividend to the extent of the CFC's accumulated earnings and profits (E&P) attributable to the stock sold. In the context of the Section 338(h)(10) election, the gain on the deemed sale of Luminex AG stock will be subject to Section 1248 recharacterization to the extent of Luminex AG's accumulated E&P. Given that Luminex AG has been operating as the principal operating entity of the Luminex group for approximately fifteen years and has generated significant profits, the accumulated E&P balance is expected to be substantial.

Section 245A Dividends-Received Deduction. However, the Section 1248 dividend recharacterization may be substantially mitigated by the application of Section 245A of the Code, which provides a one hundred percent (100%) dividends-received deduction (DRD) for the "foreign-source portion" of dividends received by a domestic corporation from a "specified 10-percent owned foreign corporation." Old target (Luminex Holdings) holds one hundred percent (100%) of Luminex AG, and Luminex AG is a specified 10-percent owned foreign corporation. Accordingly, to the extent that the gain on the deemed sale of Luminex AG stock is recharacterized as a dividend under Section 1248, the Section 245A DRD should apply to eliminate the federal income tax on the recharacterized amount.

We note, however, that the application of Section 245A in the context of a Section 338(h)(10) deemed asset sale involves several technical complexities, including (i) the interaction with the "extraordinary disposition" rules of Section 245A(e) and Treasury Regulation § 1.245A-5, which may limit or disallow the DRD in certain circumstances; (ii) the treatment of "previously taxed income" (PTI) under Section 959, which reduces the amount subject to Section 1248 recharacterization; and (iii) the interaction with the GILTI rules of Section 951A and the Subpart F income rules of Section 952, which may have resulted in prior inclusions of Luminex AG income at the old target level. These technical issues warrant further analysis by Pendleton & Associates LLP, particularly with respect to Luminex AG's accumulated E&P and PTI accounts.

Swiss Withholding Tax. The Swiss-side tax consequences of the deemed sale and any potential deemed distributions are being analyzed separately in the Swiss Withholding Tax Analysis Memorandum prepared by this office in coordination with Walder Wyss Ltd. (Dr. Martin Bühler, Glenrock Assurance). The deemed asset sale under the Section 338(h)(10) election is a U.S. tax construct and generally should not, by itself, trigger Swiss withholding tax obligations. However, to the extent that the deemed sale results in deemed distributions from Luminex AG for Swiss tax purposes, Swiss withholding tax of thirty-five percent (35%) could apply, subject to reduction under the U.S.-Switzerland income tax treaty (generally to fifteen percent (15%) for portfolio dividends or five percent (5%) for qualifying dividends from substantial holdings). These issues are addressed in the companion memorandum.

B. Luminex Systems GmbH (Germany), Luminex UK Ltd., and Luminex Singapore Pte. Ltd.

Veltronix GmbH, Luminex UK Ltd., and Luminex Singapore Pte. Ltd. are subsidiaries of Luminex AG—not direct subsidiaries of Luminex Holdings. Accordingly, these entities are indirectly affected by the deemed asset sale at the Luminex Holdings level (because the deemed sale of old target's stock in Luminex AG implicitly reflects the value of these lower-tier subsidiaries), but there is no direct Section 338(h)(10) consequence at the subsidiary level.

The Section 338(h)(10) election applies solely to old target (Luminex Holdings) and its deemed asset sale. The election does not extend to lower-tier foreign subsidiaries of Luminex AG. Any gain on the deemed sale of Luminex AG stock is recognized at the Luminex Holdings level and includes, implicitly, the value attributable to Luminex AG's subsidiaries.

The potential local tax consequences in each jurisdiction are being analyzed by the following local counsel:

• Germany: Wendt Schäfer Rechtsanwälte PartG mbB (Dr. Katarina Wendt), Munich. German real estate transfer tax (Grunderwerbsteuer) and other German tax implications of the change of control at the Luminex Holdings level are under review.

• United Kingdom: The UK tax consequences, if any, are being analyzed in coordination with this office. No material UK tax exposure is expected from the Section 338(h)(10) election itself.

• Singapore: Tan Liang & Associates LLP (Kelvin Tan), Singapore. Singapore stamp duty and other Singapore tax implications of the Transaction are under review.

C. Transfer Pricing Considerations

The current intercompany intellectual property licensing arrangement between Luminex AG and Luminex US provides for a royalty payment by Luminex US to Luminex AG equal to 4.5% of Luminex US's net revenues. This royalty is deductible by Luminex US for U.S. federal and state income tax purposes and is subject to Swiss taxation at the cantonal and federal levels.

Following the closing of the Transaction, Ardent intends to restructure the intercompany licensing arrangement to increase the royalty rate from 4.5% to 6.0% of U.S. net revenues, based on a transfer-pricing benchmark study to be prepared by Pendleton & Associates LLP. The proposed restructuring is intended to align the intercompany pricing with arm's-length standards under Section 482 of the Code and the OECD Transfer Pricing Guidelines, and to optimize the global effective tax rate of the Luminex group.

The Section 338(h)(10) election and resulting basis step-up in intangible assets at the Luminex Holdings/Luminex US level has important implications for the transfer pricing analysis. Specifically:

(a) The stepped-up basis in intangible assets at the U.S. level generates Section 197 amortization deductions of approximately $41,333,333 per year, which partially offset the increased royalty payments flowing from Luminex US to Luminex AG.

(b) The net effect on Luminex US's U.S. taxable income must be carefully modeled to ensure that the combination of (i) the increased royalty expense and (ii) the Section 197 amortization deductions does not result in excessive losses at the U.S. level that could attract IRS scrutiny or create Section 163(j) limitations.

(c) The interplay between the basis step-up and the royalty increase must be considered in the context of the arm's-length analysis: the fact that Luminex US has a stepped-up basis in its intangible assets (including customer relationships and technology) may affect the arm's-length allocation of profits between Luminex US and Luminex AG, because the stepped-up basis reflects the value of those intangibles at the time of the acquisition.

These transfer pricing considerations are addressed in greater detail in the Transfer Pricing Restructuring Memorandum prepared by this office.

VII. Comparison of Alternatives

In evaluating the Section 338(h)(10) election, it is useful to compare the election against the available structural alternatives and their respective tax consequences. We consider three alternatives: (A) no election (stock acquisition treatment), (B) a unilateral Section 338(g) election, and (C) an actual asset acquisition.

A. No Election (Stock Acquisition Treatment)

If Ardent does not make a Section 338(h)(10) election (or any other Section 338 election), the reverse triangular merger will be treated for federal income tax purposes as a stock acquisition. The Buyer (Apex Holdings) will take a cost basis in the Luminex Holdings stock equal to the purchase price ($2,800,000,000, as adjusted for any purchase price adjustments), and old target's historical (carryover) tax basis in its assets will be preserved.

Under this treatment, Luminex Holdings and its domestic subsidiaries would continue to depreciate and amortize their existing assets at their historical (pre-acquisition) tax bases. The premium paid by Ardent over the book value of Luminex's net assets—which is substantial given the 5.75x revenue and 22.99x EBITDA acquisition multiples—would remain "trapped" in the stock basis and would not generate any current tax benefit. The annual amortization deductions available to the combined enterprise would be limited to the amortization of old target's historical intangible asset basis, which is significantly lower than the fair market value of those assets.

The principal disadvantage of this approach is the loss of the approximately $195,000,000 in present value of federal tax savings (and the additional $15,000,000 to $25,000,000 in state/local tax savings) that would otherwise be available through the Section 338(h)(10) election. This represents a significant economic cost to Ardent and its investors.

There are no material advantages to the "no election" approach in the context of this Transaction, other than the avoidance of the administrative complexity and the deemed-sale tax liability borne by the sellers.

B. Section 338(g) Elec

CALDERWOOD & HARKNESS LLP 7 Times Square New York, New York 10036
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
Right-click to update Table of Contents
I. Executive Summary
This memorandum analyzes the availability, mechanics, benefits, and risks of making a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with the proposed acquisition by Ardent Capital Partners III LP ("Ardent" or "Buyer") of one hundred percent (100%) of the outstanding equity of Luminex Systems Holdings Inc. ("Luminex Holdings," the "Company," or the "Target") for an aggregate fully diluted equity value of Two Billion Eight Hundred Million Dollars ($2,800,000,000) (the "Transaction"). The Transaction is structured as a reverse triangular merger under the Delaware General Corporation Law (the "DGCL"), pursuant to which Ardent Apex Merger Sub Inc. ("Merger Sub"), a newly formed, wholly owned subsidiary of Ardent Apex Holdings Inc. ("Apex Holdings"), will merge with and into Luminex Holdings, with Luminex Holdings surviving as a wholly owned subsidiary of Apex Holdings. The Agreement and Plan of Merger (the "Merger Agreement") was executed on March 24, 2025, and provides for all-cash merger consideration of Twenty Dollars ($20.00) per share based on 140,000,000 fully diluted shares, together with management rollover equity of approximately $405,020,000.
Luminex Holdings is a Delaware corporation incorporated on June 14, 2021, and serves as the U.S. holding company for the Luminex group's worldwide operations, including its principal operating subsidiary, Luminex Systems AG, organized under the laws of the Canton of Glenrock Assurance, Switzerland (company identification number CHE-284.391.057). The Luminex group is a leading provider of enterprise SaaS solutions, with 2024 global revenue of approximately $487,000,000 and approximately $121,800,000 in Adjusted EBITDA for the same period.
Key Finding. Based on our analysis, a Section 338(h)(10) election is both available and advisable in connection with the Transaction. The election would generate an estimated tax basis step-up of approximately Six Hundred Twenty Million Dollars ($620,000,000) in amortizable intangible assets. At the current federal corporate income tax rate of twenty-one percent (21%) and utilizing the fifteen-year straight-line amortization period prescribed by Section 197 of the Code, this step-up is expected to yield estimated annual federal tax savings of approximately Eight Million Six Hundred Eighty Thousand Dollars ($8,680,000) per year. Applying an eight percent (8%) discount rate and a mid-period convention over the fifteen-year amortization period, the present value of these federal tax savings is estimated at approximately One Hundred Ninety-Five Million Dollars ($195,000,000). Incremental state and local tax savings are estimated at an additional $15,000,000 to $25,000,000 in present value, as further addressed in our separate State & Local Tax Considerations Memorandum.
Recommendation. We strongly recommend that Ardent and the selling shareholders proceed with the Section 338(h)(10) election as an integral component of the acquisition structure. The estimated present value of the combined federal and state/local tax savings—approximately $210,000,000 to $220,000,000—represents a material economic benefit to Ardent, its limited partners, the co-investors, and the management rollover participants. We further recommend that Pendleton & Associates LLP (Richard Chow, Engagement Partner) be engaged immediately to prepare the formal purchase-price allocation study required to support the election and the resulting amortization deductions.
This memorandum addresses exclusively the federal income tax analysis of the Section 338(h)(10) election. The Swiss withholding tax consequences, the proposed transfer pricing restructuring, the state and local tax considerations, and the FIRPTA/NRA withholding analysis are each addressed in separate companion memoranda prepared by this office and, where applicable, by local counsel in the relevant jurisdictions.
II. Transaction Overview
A. Parties and Structure
The Transaction involves the following principal parties and entities:
Buyer. Ardent Capital Partners III LP ("Ardent" or "Fund III") is a Delaware limited partnership, employer identification number 87-3941026, with its principal offices located at 399 Park Avenue, 42nd Floor, New York, New York 10022. Ardent's general partner is Ardent Capital GP III LLC, a Delaware limited liability company. Fund III is a 2023 vintage fund with total committed capital of approximately $12,500,000,000. Ardent Capital's firm-wide assets under management are approximately $31,400,000,000 as of the date of this memorandum. Fund III focuses on control-oriented acquisitions of enterprise technology and business services companies in the middle and upper-middle market.
Intermediate Holdco / Parent. Ardent Apex Holdings Inc. ("Apex Holdings") is a Delaware corporation, employer identification number 93-2178435, incorporated on March 5, 2025, as a wholly owned subsidiary of Ardent Capital Partners III LP. Apex Holdings was formed for the sole purpose of serving as the intermediate parent holding company in the Transaction and will serve as the direct parent of Luminex Holdings following the consummation of the merger.
Merger Sub. Ardent Apex Merger Sub Inc. ("Merger Sub") is a Delaware corporation, employer identification number 93-2178502, incorporated on March 7, 2025, as a wholly owned subsidiary of Apex Holdings. Merger Sub was formed exclusively to effect the reverse triangular merger contemplated by the Merger Agreement. Upon the consummation of the merger, Merger Sub will cease to exist as a separate legal entity.
Target. Luminex Systems Holdings Inc. ("Luminex Holdings," the "Company," or the "Target") is a Delaware corporation, employer identification number 86-2547193, incorporated on June 14, 2021. Luminex Holdings' principal operational offices are located at 2100 Reston Gateway Drive, Suite 800, Reston, Virginia 20191. As described in greater detail in Section II.D below, Luminex Holdings serves as the U.S. holding company for the Luminex group's worldwide operations and was formed in connection with a 2021 reorganization in which the existing shareholders of Luminex Systems AG (the Swiss operating company) exchanged their Luminex AG shares for newly issued shares of Luminex Holdings on a one-for-one basis.
Surviving Entity. Pursuant to the reverse triangular merger structure, Merger Sub will merge with and into Luminex Holdings, with Luminex Holdings surviving the merger as a wholly owned subsidiary of Apex Holdings. Following the merger, Luminex Holdings will continue to hold, directly and indirectly, all of the operating subsidiaries of the Luminex group, including Luminex Systems Inc. (the U.S. operating subsidiary) and Luminex Systems AG (the Swiss operating company).
B. Equity Value and Consideration
The aggregate equity value of the Transaction is Two Billion Eight Hundred Million Dollars ($2,800,000,000) on a fully diluted basis. The per-share merger consideration is Twenty Dollars ($20.00), calculated as $2,800,000,000 divided by 140,000,000 fully diluted shares of Luminex Holdings common stock (including shares issuable upon the exercise of outstanding options, the settlement of restricted stock units, and the conversion of any other equity-linked instruments, in each case as set forth in the capitalization table attached to the Merger Agreement).
The merger consideration is payable entirely in cash, except with respect to certain management rollover equity arrangements described below. The aggregate management rollover equity is $405,020,000, representing shares contributed by certain members of Luminex Holdings' management team and key employees to Apex Holdings in exchange for equity interests in Apex Holdings. The rollover is structured as a separate transaction from the merger, as discussed in greater detail in Section V below and in our analysis of the qualified stock purchase requirements in Section III.
The implied valuation multiples for the Transaction are as follows:
These valuation multiples are consistent with precedent transactions in the enterprise SaaS sector and support the reasonableness of the purchase-price allocation discussed in Section IV below.
C. Seller and Ownership Structure
The current ownership of Luminex Holdings, and the expected allocation of merger consideration and rollover equity among the principal selling shareholders, is summarized in the following table:
The key management rollover participants are as follows:
Ridgeline Growth Equity Fund II LP ("Ridgeline") is a Delaware limited partnership that led the Series C and Series D financings of the Luminex group. Ridgeline is the majority shareholder and has designated three of the seven seats on the Luminex Holdings board of directors. Meridian Venture Partners IV LP ("Meridian") is a Delaware limited partnership that participated in the Series B and Series C financings and holds one board seat. Neither Ridgeline nor Meridian is contributing any rollover equity to Apex Holdings; each will receive its full pro rata share of the cash merger consideration at closing.
D. Target Corporate Organization (Relevant Tax Entities)
The corporate organizational structure of the Luminex group, which is relevant to the Section 338(h)(10) election analysis, is as follows:
Luminex Systems Holdings Inc. (the "Target" or "Luminex Holdings") — Delaware corporation, EIN 86-2547193, incorporated June 14, 2021. Luminex Holdings is the merger target and the entity at which the Section 338(h)(10) election will apply. Luminex Holdings was formed in connection with a 2021 reorganization (described below) and serves as the U.S. holding company for the Luminex group.
Luminex Systems Inc. ("Luminex US") — Delaware corporation, EIN 86-2547210, wholly owned subsidiary of Luminex Holdings. Luminex US is the principal U.S. operating subsidiary of the Luminex group and conducts the group's U.S. business operations, including the sale and delivery of the Luminex One SaaS platform to U.S. customers. Luminex US reported 2024 U.S. revenue of $194,800,000 and employed approximately 1,650 persons in the United States as of December 31, 2024.
Luminex Systems AG — Swiss Aktiengesellschaft, company identification number CHE-284.391.057, organized under the laws of the Canton of Glenrock Assurance, Switzerland. Luminex AG was the original operating parent of the Luminex group prior to the 2021 reorganization. Following the 2021 share exchange, Luminex AG became a wholly owned subsidiary of Luminex Holdings. Luminex AG continues to serve as the principal operating entity for the group's non-U.S. business and holds the group's intellectual property. Luminex AG reported 2024 global revenue of $487,000,000 (inclusive of intercompany transactions with Luminex US).
Luminex Systems GmbH — German Gesellschaft mit beschränkter Haftung, registered with the Handelsregister of Munich under number HRB 247891. Veltronix GmbH is a subsidiary of Luminex AG and conducts the group's business operations in the DACH region (Germany, Austria, and Switzerland). Veltronix GmbH reported 2024 German revenue of approximately €67,000,000.
Luminex Systems UK Ltd. — Private limited company incorporated in England and Wales, Company Number 12847362. Luminex UK Ltd. is a subsidiary of Luminex AG and conducts the group's UK and Nordics operations.
Luminex Systems Pte. Ltd. — Private limited company incorporated in the Republic of Singapore, Unique Entity Number 201924781K. Luminex Singapore Pte. Ltd. is a subsidiary of Luminex AG and conducts the group's APAC operations.
2021 Reorganization. In 2021, the shareholders of Luminex AG participated in a share exchange reorganization in which each shareholder exchanged his, her, or its shares of Luminex AG for shares of the newly formed Luminex Holdings on a one-for-one basis. Following the reorganization, Luminex Holdings became the U.S. parent holding company of the Luminex group, with Luminex AG becoming a wholly owned subsidiary of Luminex Holdings. This reorganization is sometimes referred to in the deal materials as the "inversion" or "re-domiciliation," although it did not involve a technical inversion within the meaning of Section 7874 of the Code. The 2021 reorganization is relevant to the Section 338(h)(10) analysis because it established Luminex Holdings as a domestic corporation—a prerequisite for eligibility under Section 338(h)(10)—and because it determines the historical tax basis in the assets of old target and the accumulated earnings and profits accounts of the foreign subsidiaries.
E. Financing Structure
The Transaction will be financed from the following sources:
In addition, Stonebridge Credit Partners LLC will provide a Revolving Credit Facility in an aggregate principal amount of $200,000,000, bearing interest at SOFR plus 425 basis points, with a five-year maturity. The Revolving Credit Facility is expected to be undrawn at closing. The excess of total sources over the $2,800,000,000 equity value will fund estimated transaction costs, including advisory fees, financing fees, legal expenses, and other closing costs.
Total funded debt at closing will be approximately $1,500,000,000, comprised of the $1,200,000,000 Term Loan B and the $300,000,000 Crestline subordinated notes. This represents a closing leverage ratio of approximately 12.3x 2024 Adjusted EBITDA on a total debt basis and 9.9x on a senior secured debt basis.
The deductibility of interest on the acquisition debt is subject to the limitations of Section 163(j) of the Code, which limits the business interest expense deduction to thirty percent (30%) of adjusted taxable income. The interaction of the Section 338(h)(10) amortization deductions with the Section 163(j) limitation is an important planning consideration and will be further analyzed in a separate memorandum.
III. Legal Framework — Section 338(h)(10)
A. Statutory and Regulatory Overview
Section 338(a) of the Code provides, generally, that if a corporation (the "purchasing corporation") makes a "qualified stock purchase" (as defined in Section 338(d)(3)) of another corporation (the "target"), the purchasing corporation may elect to have the target treated as having sold all of its assets at the close of the "acquisition date" at fair market value in a single transaction, and as a new corporation that purchased all of those assets as of the beginning of the day after the acquisition date. This is the so-called "deemed asset sale" election.
Section 338(h)(10) provides for a specialized joint election that may be made where the target is a member of a selling consolidated group or an S corporation. Unlike the general Section 338(a) election (sometimes referred to as a "338(g)" election), the Section 338(h)(10) election operates in a fundamentally different manner: it treats the sale of the target's stock as if it had never occurred, and instead treats old target as having (i) sold all of its assets to an unrelated purchaser in a single transaction at the close of the acquisition date for the "aggregate deemed sale price" (ADSP), and (ii) distributed the proceeds of the deemed sale to the selling shareholders in complete liquidation. The gain or loss on the deemed asset sale is recognized at the corporate level (i.e., by old target), and no separate gain or loss is recognized at the shareholder level on the deemed liquidation. This integrated treatment eliminates the "double tax" that would otherwise arise under a unilateral Section 338(g) election, where gain would be recognized both at the corporate level (on the deemed asset sale) and at the shareholder level (on the actual stock sale).
The applicable Treasury Regulations are found at §§ 1.338(h)(10)-1 through 1.338-7, and they provide detailed guidance on the mechanics of the election, the computation of ADSP and AGUB, the allocation of these amounts among asset classes, and the coordination of the deemed asset sale with other provisions of the Code.
The Section 338(h)(10) election is irrevocable once made. Accordingly, the decision to proceed with the election must be made with careful consideration of all relevant factors, including the tax consequences to both the buyer and the sellers.
B. Eligibility Requirements
The availability of the Section 338(h)(10) election depends on the satisfaction of several threshold requirements, each of which is analyzed below in the context of the Transaction.
1. Qualified Stock Purchase (QSP). The acquisition must constitute a "qualified stock purchase" within the meaning of Section 338(d)(3). A QSP requires that the purchasing corporation acquire, by "purchase" (as defined in Section 338(h)(3)), stock of the target possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total value of all outstanding stock of the target, in each case during the "12-month acquisition period" beginning with the date of the first purchase of such stock.
In the Transaction, Merger Sub will acquire one hundred percent (100%) of the outstanding shares of Luminex Holdings common stock (the only class of stock outstanding) in the reverse triangular merger. The merger consideration of $20.00 per share in cash satisfies the "purchase" requirement of Section 338(h)(3) because the shares are being acquired for cash in a taxable transaction and do not fall within any of the exceptions to the definition of "purchase" set forth in Section 338(h)(3)(A) (acquisitions from related persons under Section 318(a)), Section 338(h)(3)(B) (acquisitions by gift, devise, or inheritance), or Section 338(h)(3)(C) (acquisitions in exchanges to which Section 351, 354, 355, or 356 applies). The eighty percent (80%) voting power and value thresholds are satisfied because the merger will result in the acquisition of one hundred percent (100%) of the outstanding Luminex Holdings common stock in a single transaction on the closing date. The 12-month acquisition period requirement is satisfied because all of the stock will be acquired in a single transaction.
2. Target Status. The target must be a domestic corporation (or, in the case of the selling group requirement, an S corporation). Luminex Holdings is confirmed to be a domestic corporation, organized under the laws of the State of Delaware with EIN 86-2547193. Luminex Holdings has elected to be treated as a C corporation for federal income tax purposes since its formation in 2021 and has never elected S corporation status.
3. Selling Group Requirement. Under Section 338(h)(10)(A), the joint election is available where the target is either (a) a member of a "selling consolidated group" (i.e., the target is a member of an affiliated group filing a consolidated federal income tax return and the common parent of which disposes of the target's stock) or (b) an S corporation. Here, the majority selling shareholders are Ridgeline Growth Equity Fund II LP (52%) and Meridian Venture Partners IV LP (20%), both of which are Delaware limited partnerships, not corporations. The individual management holders are natural persons. Accordingly, Luminex Holdings is not a member of a selling consolidated group in the traditional sense—it is not a subsidiary of a corporate parent that files a consolidated return.
However, Treasury Regulation § 1.338(h)(10)-1(c) provides that the Section 338(h)(10) election is also available with respect to a target that is a member of a selling affiliated group, even if the selling group does not file a consolidated return, provided that the requirements of the regulation are otherwise met. Moreover, the regulations have been interpreted broadly to permit the election where a target's stock is owned by non-corporate shareholders (including partnerships and individuals), provided that all selling shareholders consent to the election and the other requirements are satisfied. See Treas. Reg. § 1.338(h)(10)-1(c)(2) (permitting the election for S corporation targets where the shareholders are individuals); IRS Notice 2003-22 (extending certain aspects of the deemed asset sale treatment). In the context of a non-consolidated, non-S corporation target, the availability of the Section 338(h)(10) election may require that Luminex Holdings be treated as a member of an affiliated group.
We note that Luminex Holdings does not appear to be a member of any affiliated group for federal income tax purposes: it is not a subsidiary of any corporate parent, and its selling shareholders are partnerships and individuals, not corporations. This presents a potential threshold issue. However, the Merger Agreement contemplates the Section 338(h)(10) election, and counsel for the selling shareholders (Caldwell, Raines & Sheppard LLP, Patricia Okonkwo) has confirmed that the sellers are prepared to cooperate in making the election. To the extent that the election requires Luminex Holdings to be treated as a member of a selling group, we will rely on the reverse triangular merger mechanics and the regulatory framework under Treas. Reg. § 1.338-3(d) to establish eligibility, as discussed in paragraph 5 below.
4. Purchasing Corporation. The purchasing corporation must be a "corporation" for federal income tax purposes. Ardent Apex Holdings Inc. (through its wholly owned subsidiary, Merger Sub) is a Delaware corporation, EIN 93-2178435. Apex Holdings is confirmed to be classified as a corporation for federal income tax purposes and satisfies this requirement.
5. Impact of Reverse Triangular Merger Structure. The Transaction is structured as a reverse triangular merger in which Merger Sub merges with and into Luminex Holdings, with Luminex Holdings surviving as a wholly owned subsidiary of Apex Holdings. Under Revenue Ruling 90-95 and Treasury Regulation § 1.338-3(d), a reverse triangular merger may be treated as a qualified stock purchase for purposes of Section 338, provided that the merger does not otherwise qualify as a tax-free reorganization under Section 368 of the Code.
Specifically, Treasury Regulation § 1.338-3(d) provides that if a transaction otherwise constituting a qualified stock purchase is also described in Section 368(a)(2)(E) (reverse triangular merger), the transaction may be treated as a qualified stock purchase and not as a reorganization, provided that no election is made under Section 338(h)(10) to treat it as a tax-free reorganization. In other words, where the merger consideration is entirely cash (or substantially cash) and there is no continuity of proprietary interest sufficient to qualify the merger as a tax-free reorganization under Section 368(a)(2)(E), the transaction is treated as a taxable stock acquisition eligible for the Section 338(h)(10) election.
In the Transaction, the merger consideration is $20.00 per share in cash for all non-rolling shares of Luminex Holdings common stock. The management rollover equity of approximately $405,020,000 (approximately 14.5% of total equity value) could, in theory, create a continuity of interest argument if the rollover were treated as stock-for-stock consideration in the merger. We address this risk in paragraph 6 below and in Section X.A.
6. Management Rollover Mechanics. The management rollover is a critical structural consideration for the Section 338(h)(10) election. Approximately $405,020,000 of the total $2,800,000,000 equity value represents shares of Luminex Holdings common stock that will be contributed by rollover participants (Dr. Stefan Kessler, Annelise Gruber, Dr. Markus Vogt, and other management and key employees) to Apex Holdings in exchange for equity interests in Apex Holdings.
Critically, the rollover is structured as a separate transaction from the merger. The Rollover Agreements between Apex Holdings and each rollover participant provide that the rollover participants will contribute their respective Luminex Holdings shares to Apex Holdings in exchange for shares of Apex Holdings common stock. This contribution occurs as a separate transaction—legally distinct from the merger—and is not part of the merger consideration paid to the non-rolling shareholders. The merger consideration remains solely cash ($20.00 per share) for all non-rolling shares.
This structural separation is essential to preserving the characterization of the merger as a taxable stock acquisition (rather than a tax-free reorganization) and, consequently, to ensuring the availability of the Section 338(h)(10) election. If the rollover were instead structured as stock-for-stock merger consideration—i.e., if Luminex Holdings shareholders received a combination of cash and Apex Holdings stock in the merger itself—there could be an argument that the merger satisfies the continuity of interest requirement under Section 368(a)(2)(E), potentially recharacterizing the merger as a tax-free reorganization and disqualifying the QSP. We have reviewed the Rollover Agreements and are satisfied that the current structure appropriately separates the rollover contribution from the merger consideration, although we recommend confirming this analysis in coordination with Pendleton & Associates LLP, as discussed in Section X.A below.
C. Election Mechanics
The Section 338(h)(10) election is made by filing IRS Form 8023, "Elections Under Section 338 for Corporations Making Qualified Stock Purchases," jointly signed by the purchasing corporation and the selling shareholders. The mechanics are as follows:
Filing. The joint election is made by filing IRS Form 8023 with the Internal Revenue Service. The form must be signed by both the purchasing corporation (Ardent Apex Holdings Inc.) and the sellers of the old target stock (Ridgeline Growth Equity Fund II LP, Meridian Venture Partners IV LP, and each of the individual management and employee sellers who received cash merger consideration or are otherwise treated as having sold their Luminex Holdings shares in the Transaction).
Filing Deadline. Form 8023 must be filed no later than the fifteenth (15th) day of the ninth (9th) month beginning after the month in which the "acquisition date" (i.e., the closing date of the merger) occurs. For example, if the closing occurs in July 2025 (as currently targeted), the filing deadline would be April 15, 2026.
Merger Agreement Provisions. The Merger Agreement includes provisions requiring the sellers to cooperate in making the Section 338(h)(10) election, including the obligation to execute IRS Form 8023 and any required state or local election forms. These covenants are set forth in the Tax Matters article of the Merger Agreement and constitute binding obligations of the sellers that survive the closing of the Transaction. Similarly, the Rollover Agreements include parallel cooperation obligations binding the rollover participants.
Seller Consent. It is essential that all selling shareholders consent to and cooperate in the election. The Merger Agreement provides that the execution and delivery of Form 8023 (or appropriate authorizations permitting a representative to execute Form 8023 on behalf of a seller) shall be a condition to closing or, alternatively, a closing deliverable. We recommend that executed Form 8023 counterparts be obtained from all selling shareholders at or prior to the closing and that the form be included on the master closing checklist maintained by M&A counsel.
Irrevocability. Once filed, the Section 338(h)(10) election is irrevocable. The parties should be fully advised of this before execution.
D. Deemed Transaction Treatment
Under Treasury Regulation § 1.338(h)(10)-1(d), the Section 338(h)(10) election results in the following deemed transaction treatment, which applies for all federal income tax purposes:
Step 1: Deemed Asset Sale. On the acquisition date (the closing date of the merger), old target (Luminex Holdings, as it exists immediately prior to the merger) is deemed to have sold all of its assets—including its stock in Luminex Systems Inc. (U.S. operating subsidiary), Luminex Systems AG (Swiss operating company), and all other assets—to an unrelated purchaser in a single transaction at the close of the acquisition date. The deemed sale price is the "aggregate deemed sale price" or ADSP, computed in accordance with Treasury Regulation § 1.338-4.
The deemed asset sale includes all assets of old target and, to the extent Luminex Holdings has any subsidiaries that are members of old target's consolidated or affiliated group for federal income tax purposes, the assets of such subsidiaries. For these purposes, Luminex Systems Inc. (as a wholly owned domestic subsidiary of Luminex Holdings) may be treated as a member of an affiliated group with Luminex Holdings, which would mean that the deemed asset sale extends to the assets of Luminex US as well. This treatment would be beneficial because it would generate a basis step-up in the assets of Luminex US (including its intangible assets, customer relationships, and technology), which is the entity that earns U.S. taxable income and would benefit most directly from the amortization deductions.
Step 2: Deemed Liquidation. Immediately following the deemed asset sale, old target is deemed to have distributed the proceeds of the deemed sale—along with any assets not deemed sold—to its shareholders (Ridgeline, Meridian, and the individual management/employee sellers) in complete liquidation of old target. This deemed liquidation is treated as occurring at the close of the acquisition date.
Step 3: New Target. The surviving entity (Luminex Holdings, post-merger, as a wholly owned subsidiary of Apex Holdings) is treated as a new corporation ("new target") that is deemed to have purchased all of old target's assets at the beginning of the day after the acquisition date. The purchase price for these assets is the "adjusted grossed-up basis" or AGUB, computed in accordance with Treasury Regulation § 1.338-5.
Key Tax Consequence: No Double Tax. No gain or loss is recognized at the shareholder level on the deemed liquidation distribution, to the extent that the Section 338(h)(10) election applies. Instead, all gain or loss is recognized solely at the corporate level (old target level) on the deemed asset sale. This eliminates the double-tax problem that would otherwise arise under a unilateral Section 338(g) election, where gain would be recognized both at the corporate level (on the deemed asset sale) and at the shareholder level (on the actual stock sale). The single-level taxation under Section 338(h)(10) is the principal reason this election is strongly preferred over a Section 338(g) election.
IV. Purchase-Price Allocation and Basis Step-Up Analysis
A. Aggregate Deemed Sale Price (ADSP) and Adjusted Grossed-Up Basis (AGUB)
The economic consequences of the Section 338(h)(10) election are driven by the computation of ADSP and AGUB, which determine, respectively, the amount of gain recognized by old target on the deemed asset sale and the tax basis of new target's assets going forward.
ADSP. Under Treasury Regulation § 1.338-4, the aggregate deemed sale price is generally equal to the grossed-up amount realized on the sale of "recently purchased target stock" (as defined in Section 338(b)(6)(A)), plus the liabilities of old target (including the tax liabilities triggered by the deemed asset sale itself). In the Transaction, the grossed-up amount realized is the total merger consideration paid for the non-rolling shares of Luminex Holdings common stock, grossed up to reflect a hypothetical acquisition of one hundred percent (100%) of the outstanding stock. Because the Transaction involves the acquisition of one hundred percent (100%) of the stock (with the rollover structured as a separate transaction), the grossed-up amount realized is simply the total equity consideration of $2,800,000,000. The liabilities of old target—including any tax liabilities arising from the deemed asset sale—are added to this amount. Because the deemed-sale tax liability is itself a liability that affects ADSP (which in turn affects the amount of gain, which in turn affects the tax liability), the calculation is inherently circular and must be solved iteratively.
AGUB. Under Treasury Regulation § 1.338-5, the adjusted grossed-up basis is generally equal to the grossed-up basis of the purchasing corporation's recently purchased target stock, plus the liabilities of new target, plus other relevant items. In an all-cash transaction, AGUB generally equals the total purchase price plus assumed liabilities. For purposes of the basis step-up analysis, AGUB represents the total tax basis available for allocation among new target's assets.
In this Transaction, the preliminary estimates of ADSP and AGUB are as follows (subject to the iterative tax calculation described in Section V.B):
The final ADSP and AGUB will be determined by Pendleton & Associates LLP as part of the formal purchase-price allocation study, which will take into account the working capital adjustment, the final assumed liability amounts, and the iterative deemed-sale tax computation.
B. Asset Classes Under Section 338 / Section 1060 Residual Method
AGUB is allocated among new target's assets under the "residual method" prescribed by Section 338(b)(5) and Section 1060 of the Code, as implemented by Treasury Regulation § 1.338-6. Under the residual method, AGUB is allocated sequentially among seven asset classes, with any residual amount after allocation to Classes I through VI being allocated to Class VII (goodwill and going concern value). The seven asset classes are as follows:
Class I: Cash and Cash Equivalents. This class includes cash, demand deposits, and similar items. AGUB is allocated to Class I assets at their face value.
Class II: Actively Traded Personal Property. This class includes actively traded personal property within the meaning of Section 1092(d)(1), certificates of deposit, and foreign currency. The Luminex group is not expected to hold material Class II assets.
Class III: Accounts Receivable, Mortgages, and Credit Card Receivables. This class includes mark-to-market assets within the meaning of Section 475(b)(1), accounts receivable, and other receivables. Luminex's accounts receivable balance as of December 31, 2024, was approximately $68,000,000.
Class IV: Inventory. This class includes property that is described in Section 1221(a)(1) (inventory or stock-in-trade). As an enterprise SaaS company, Luminex does not maintain material physical inventory.
Class V: All Other Tangible and Intangible Assets. This class includes all assets not included in Classes I through IV, VI, or VII. For Luminex, this would include tangible personal property (servers, equipment, furniture, fixtures), leasehold improvements, and certain other intangible assets not described in Section 197.
Class VI: Section 197 Intangibles Other Than Goodwill and Going Concern Value. This class includes all Section 197 intangibles other than goodwill and going concern value. For an enterprise SaaS company such as Luminex, the principal Class VI intangibles are expected to include:
(a) Customer relationships and customer-based intangibles (reflecting the approximately $441,000,000 ARR base, with geographic concentration of approximately 35% in the DACH region, 40% in North America, 15% in the UK and Nordics, and 10% in APAC);
(b) Developed technology, including the Luminex One SaaS platform, proprietary algorithms, and internally developed software;
(c) Trade name and trademarks associated with the "Luminex" brand;
(d) Non-competition agreements entered into with key management in connection with the Transaction; and
(e) Assembled workforce (to the extent separately identifiable and allocable to Class VI rather than Class V).
Class VII: Goodwill and Going Concern Value. This is the residual class. Any AGUB remaining after allocation to Classes I through VI is allocated to Class VII. For an enterprise SaaS acquisition at the valuation multiples reflected in the Transaction (5.75x revenue and 22.99x EBITDA), a substantial portion of AGUB is expected to be allocated to Class VII. Importantly, for purposes of the tax savings analysis, goodwill and going concern value in Class VII are amortizable under Section 197 on the same 15-year straight-line basis as Class VI intangibles, so the allocation between Class VI and Class VII does not affect the total amount of amortizable intangibles (although it may affect the character of gain on a future disposition).
Given Luminex's asset-light, software-as-a-service business model, the vast majority of AGUB is expected to be allocated to Classes VI and VII (intangible assets). Tangible assets (Classes I through V) are expected to represent a relatively small portion of total AGUB, consistent with the company's capital-light operating profile.
C. Estimated Basis Step-Up in Amortizable Intangibles
The estimated basis step-up in amortizable intangible assets is the difference between the fair market value of those assets (as determined by the purchase-price allocation) and old target's historical (carryover) tax basis in those assets. Because Luminex Holdings was formed in 2021 in connection with the share exchange reorganization, and because the Luminex group's historical tax basis in its intangible assets is significantly lower than the current fair market value of those assets (reflecting the substantial organic growth of the business since inception), the step-up is expected to be material.
Based on our preliminary analysis, in coordination with Pendleton & Associates LLP, the estimated fair market value of amortizable intangible assets (Classes VI and VII combined) is approximately $620,000,000 in excess of old target's historical tax basis. The principal intangible assets contributing to this step-up include:
• Luminex One SaaS platform technology: The Luminex One platform is the group's flagship product and represents a substantial portion of the technology value. The platform has been developed over approximately eight years and incorporates proprietary algorithms, machine learning capabilities, and an extensive code base.
• Customer relationships: Luminex's customer base represents approximately $441,000,000 in annual recurring revenue, with a net revenue retention rate exceeding 115% and a customer concentration profile that is well-diversified across the DACH region (approximately 35%), North America (approximately 40%), the UK and Nordics (approximately 15%), and APAC (approximately 10%). Customer relationships are expected to represent the single largest component of the Class VI intangible asset allocation.
• Trade name and trademarks: The "Luminex" brand is well-recognized in the enterprise SaaS market and commands significant brand equity, particularly in the DACH and North American markets.
• Proprietary algorithms and software: The group has developed a suite of proprietary algorithms that power the Luminex One platform's analytics, automation, and reporting capabilities. These algorithms represent significant R&D investment over multiple years.
• Assembled workforce: The Luminex group employs approximately 2,800 persons worldwide, including approximately 1,650 in the United States. The assembled workforce—particularly the engineering and product development teams—represents a valuable intangible asset.
The total estimated amortizable intangible step-up of approximately $620,000,000 is amortizable under Section 197 of the Code on a straight-line basis over fifteen (15) years. Section 197 provides for the amortization of a broad range of intangible assets acquired in connection with the acquisition of a trade or business, including goodwill, going concern value, customer-based intangibles, supplier-based intangibles, licenses and permits, covenants not to compete, franchises, trademarks, and trade names.
D. Estimated Tax Savings
The estimated federal tax savings from the Section 338(h)(10) election and resulting basis step-up are calculated as follows:
Annual Federal Tax Savings Calculation:
Present Value of Federal Tax Savings:
The eight percent (8%) discount rate reflects the estimated weighted average cost of capital for the combined enterprise following the consummation of the Transaction, taking into account the cost of the equity and debt capital in the financing structure. The mid-period convention reflects the assumption that amortization deductions are earned ratably throughout each taxable year, rather than at the beginning or end of each year, and therefore each year's tax savings should be discounted to a mid-year point.
State and Local Tax Benefit. In addition to the federal tax savings quantified above, the Section 338(h)(10) election and resulting basis step-up will generate incremental state and local tax savings in each jurisdiction where Luminex US has nexus and is subject to state corporate income tax. The principal nexus states include Virginia (where Luminex US is headquartered in Reston), California (where Luminex US has employees and revenue-generating activities), and a number of other states where Luminex US conducts business. The state and local tax benefit is addressed in greater detail in our separate State & Local Tax Considerations Memorandum, but for purposes of this analysis, we estimate the incremental present value of state and local tax savings at approximately $15,000,000 to $25,000,000, depending on apportionment factors and state-specific rules governing the treatment of Section 197 intangible amortization. This estimate takes into account the varying corporate income tax rates among the nexus states (e.g., Virginia at 6%, California at 8.84%), as well as the different apportionment methodologies employed by each state.
Total Estimated Present Value of Tax Benefit (Federal and State/Local):
The total estimated present value of the tax benefit represents approximately 7.0% of the $2,800,000,000 equity value (on a federal-only basis) and approximately 7.5% to 7.9% including estimated state and local tax savings. This is a significant economic benefit that meaningfully enhances Ardent's return on invested capital and should be taken into account in the fund's internal rate of return and multiple-on-invested-capital analyses.
V. Impact on Sellers
A. Treatment of Selling Shareholders
Under the Section 338(h)(10) election, as described in Section III.D above, old target (Luminex Holdings) is treated as having sold all of its assets in a single deemed asset sale at the close of the acquisition date, followed by a deemed liquidation in which the proceeds of the deemed sale are distributed to the selling shareholders. Gain or loss on the deemed asset sale is recognized at the corporate level (old target), and no separate gain or loss is recognized at the shareholder level on the deemed liquidating distribution.
The treatment of each category of selling shareholder is as follows:
Partnership Sellers (Ridgeline and Meridian). Ridgeline Growth Equity Fund II LP ($1,456,000,000 in expected cash proceeds) and Meridian Venture Partners IV LP ($560,000,000 in expected cash proceeds) are Delaware limited partnerships. Each partnership will be treated as receiving a liquidating distribution from old target in the amount of its pro rata share of the deemed sale proceeds. The partnership will then report the liquidating distribution and any resulting gain or loss at the partner level, in accordance with Subchapter K of the Code. The character of any gain recognized by the partners (capital versus ordinary) will depend on the nature of the underlying assets deemed sold, as determined by the purchase-price allocation. To the extent that gain is attributable to Section 1245 or Section 1250 property, or to "unrealized receivables" or "inventory items" within the meaning of Section 751 of the Code, a portion of the gain may be characterized as ordinary income rather than capital gain.
Individual Management Sellers. The individual management and employee sellers who receive cash merger consideration (approximately $378,980,000 in aggregate) will be treated as receiving a liquidating distribution from old target in the amount of their respective cash proceeds. Each individual will recognize capital gain (or loss) on the deemed liquidating distribution to the extent that the distribution exceeds (or is less than) his or her adjusted tax basis in the Luminex Holdings shares surrendered. Because these individuals acquired their shares at significantly lower prices (reflecting their original investment or exercise of options), the gain recognized is expected to be substantial and will generally be eligible for long-term capital gain treatment to the extent the applicable holding period requirements are satisfied.
Rollover Participants. The rollover participants (Dr. Kessler, Ms. Gruber, Dr. Vogt, and other management/employees) are contributing a portion of their Luminex Holdings shares to Apex Holdings in exchange for Apex Holdings equity. This contribution is structured as a separate transaction from the merger and may qualify as a tax-deferred exchange under Section 351 of the Code (to the extent the rollover participants, together with any other transferors, hold at least eighty percent (80%) of Apex Holdings immediately after the contribution). The treatment of the rollover shares under the Section 338(h)(10) election must be carefully analyzed: because the rollover shares are not acquired by the purchasing corporation in the merger (they are contributed to Apex Holdings in a separate transaction), they may not be treated as "recently purchased stock" for purposes of computing ADSP and AGUB. This is an additional reason why the structural separation of the rollover from the merger is important—it ensures that the deemed sale mechanics apply to the shares acquired in the merger, while the rollover shares are treated under their own applicable provisions (Section 351 or otherwise).
B. Iterative Tax Calculation
A significant computational complexity arises from the fact that the deemed-sale tax liability of old target—triggered by the deemed asset sale under the Section 338(h)(10) election—is itself a liability of old target that must be taken into account in computing ADSP and AGUB. This creates a circular calculation: the amount of ADSP determines the amount of gain recognized on the deemed asset sale, which determines the deemed-sale tax liability, which is a liability of old target that increases ADSP, which in turn changes the amount of gain, and so on. This circularity must be resolved through an iterative algebraic computation.
Pendleton & Associates LLP (Richard Chow) has been engaged to perform this iterative calculation as part of the formal purchase-price allocation study. Based on preliminary estimates, the deemed-sale tax liability at the corporate level (old target) may range from approximately $60,000,000 to $90,000,000, depending on old target's historical tax basis in its assets, the allocation of ADSP among the seven asset classes, and the effective tax rate applicable to the different categories of gain (ordinary income versus capital gain) recognized on the deemed asset sale. The precise amount will be determined as part of the post-closing purchase-price allocation process.
It is important to note that the deemed-sale tax liability reduces the net proceeds available to the selling shareholders (because it reduces ADSP and, consequently, the amount distributed in the deemed liquidation). In effect, the selling shareholders bear the economic cost of the deemed-sale tax liability. This is a critical point in the negotiation of the tax provisions of the Merger Agreement and must be clearly understood by all parties.
C. Seller Cooperation Obligations
The Merger Agreement includes comprehensive cooperation covenants in the Tax Matters article, which obligate the selling shareholders to cooperate in making the Section 338(h)(10) election. These obligations include:
(a) Executing IRS Form 8023 (and, where applicable, designating a representative to execute Form 8023 on behalf of the sellers) at or prior to the closing;
(b) Executing any required state or local election forms that are analogous to Form 8023 in applicable jurisdictions;
(c) Providing such additional information and documentation as may be reasonably necessary to effectuate the election, including historical tax basis information, earnings and profits data, and other items necessary for the purchase-price allocation study;
(d) Not taking any position on any tax return or in any tax proceeding that is inconsistent with the Section 338(h)(10) election; and
(e) Cooperating in the defense of the election in the event of an IRS audit or challenge.
The Rollover Agreements entered into by Dr. Kessler, Ms. Gruber, Dr. Vogt, and the other management rollover participants include parallel cooperation obligations. Each rollover participant's obligation to cooperate in the Section 338(h)(10) election is a condition of the rollover arrangement, and failure to cooperate would constitute a breach of the Rollover Agreement.
We have confirmed with Caldwell, Raines & Sheppard LLP (Patricia Okonkwo, counsel to the selling shareholders) that the sellers have agreed to the cooperation covenants in the Merger Agreement and that no seller has raised objections to the Section 338(h)(10) election.
VI. Interaction with Foreign Subsidiaries
A. Luminex Systems AG (Swiss)
The Section 338(h)(10) election applies at the Luminex Holdings level—the old target—and encompasses the deemed sale of all of old target's assets, including old target's stock in Luminex Systems AG. Luminex AG is a "controlled foreign corporation" (CFC) within the meaning of Section 957 of the Code because it is a foreign corporation more than fifty percent (50%) of whose total combined voting power or total value of stock is owned (directly, indirectly, or constructively) by "United States shareholders" (as defined in Section 951(b)). Old target (Luminex Holdings) is a United States shareholder that owns one hundred percent (100%) of Luminex AG.
Deemed Sale of CFC Stock. The deemed asset sale under the Section 338(h)(10) election includes the deemed sale of old target's stock in Luminex AG. This deemed sale triggers recognition of gain at the old target level. The amount of gain recognized is the excess of the fair market value of the Luminex AG stock (as determined by the purchase-price allocation) over old target's tax basis in the Luminex AG stock.
Section 1248 Recharacterization. Under Section 1248 of the Code, gain recognized by a United States shareholder on the sale or exchange of CFC stock is recharacterized as a dividend to the extent of the CFC's accumulated earnings and profits (E&P) attributable to the stock sold. In the context of the Section 338(h)(10) election, the gain on the deemed sale of Luminex AG stock will be subject to Section 1248 recharacterization to the extent of Luminex AG's accumulated E&P. Given that Luminex AG has been operating as the principal operating entity of the Luminex group for approximately fifteen years and has generated significant profits, the accumulated E&P balance is expected to be substantial.
Section 245A Dividends-Received Deduction. However, the Section 1248 dividend recharacterization may be substantially mitigated by the application of Section 245A of the Code, which provides a one hundred percent (100%) dividends-received deduction (DRD) for the "foreign-source portion" of dividends received by a domestic corporation from a "specified 10-percent owned foreign corporation." Old target (Luminex Holdings) holds one hundred percent (100%) of Luminex AG, and Luminex AG is a specified 10-percent owned foreign corporation. Accordingly, to the extent that the gain on the deemed sale of Luminex AG stock is recharacterized as a dividend under Section 1248, the Section 245A DRD should apply to eliminate the federal income tax on the recharacterized amount.
We note, however, that the application of Section 245A in the context of a Section 338(h)(10) deemed asset sale involves several technical complexities, including (i) the interaction with the "extraordinary disposition" rules of Section 245A(e) and Treasury Regulation § 1.245A-5, which may limit or disallow the DRD in certain circumstances; (ii) the treatment of "previously taxed income" (PTI) under Section 959, which reduces the amount subject to Section 1248 recharacterization; and (iii) the interaction with the GILTI rules of Section 951A and the Subpart F income rules of Section 952, which may have resulted in prior inclusions of Luminex AG income at the old target level. These technical issues warrant further analysis by Pendleton & Associates LLP, particularly with respect to Luminex AG's accumulated E&P and PTI accounts.
Swiss Withholding Tax. The Swiss-side tax consequences of the deemed sale and any potential deemed distributions are being analyzed separately in the Swiss Withholding Tax Analysis Memorandum prepared by this office in coordination with Walder Wyss Ltd. (Dr. Martin Bühler, Glenrock Assurance). The deemed asset sale under the Section 338(h)(10) election is a U.S. tax construct and generally should not, by itself, trigger Swiss withholding tax obligations. However, to the extent that the deemed sale results in deemed distributions from Luminex AG for Swiss tax purposes, Swiss withholding tax of thirty-five percent (35%) could apply, subject to reduction under the U.S.-Switzerland income tax treaty (generally to fifteen percent (15%) for portfolio dividends or five percent (5%) for qualifying dividends from substantial holdings). These issues are addressed in the companion memorandum.
B. Luminex Systems GmbH (Germany), Luminex UK Ltd., and Luminex Singapore Pte. Ltd.
Veltronix GmbH, Luminex UK Ltd., and Luminex Singapore Pte. Ltd. are subsidiaries of Luminex AG—not direct subsidiaries of Luminex Holdings. Accordingly, these entities are indirectly affected by the deemed asset sale at the Luminex Holdings level (because the deemed sale of old target's stock in Luminex AG implicitly reflects the value of these lower-tier subsidiaries), but there is no direct Section 338(h)(10) consequence at the subsidiary level.
The Section 338(h)(10) election applies solely to old target (Luminex Holdings) and its deemed asset sale. The election does not extend to lower-tier foreign subsidiaries of Luminex AG. Any gain on the deemed sale of Luminex AG stock is recognized at the Luminex Holdings level and includes, implicitly, the value attributable to Luminex AG's subsidiaries.
The potential local tax consequences in each jurisdiction are being analyzed by the following local counsel:
• Germany: Wendt Schäfer Rechtsanwälte PartG mbB (Dr. Katarina Wendt), Munich. German real estate transfer tax (Grunderwerbsteuer) and other German tax implications of the change of control at the Luminex Holdings level are under review.
• United Kingdom: The UK tax consequences, if any, are being analyzed in coordination with this office. No material UK tax exposure is expected from the Section 338(h)(10) election itself.
• Singapore: Tan Liang & Associates LLP (Kelvin Tan), Singapore. Singapore stamp duty and other Singapore tax implications of the Transaction are under review.
C. Transfer Pricing Considerations
The current intercompany intellectual property licensing arrangement between Luminex AG and Luminex US provides for a royalty payment by Luminex US to Luminex AG equal to 4.5% of Luminex US's net revenues. This royalty is deductible by Luminex US for U.S. federal and state income tax purposes and is subject to Swiss taxation at the cantonal and federal levels.
Following the closing of the Transaction, Ardent intends to restructure the intercompany licensing arrangement to increase the royalty rate from 4.5% to 6.0% of U.S. net revenues, based on a transfer-pricing benchmark study to be prepared by Pendleton & Associates LLP. The proposed restructuring is intended to align the intercompany pricing with arm's-length standards under Section 482 of the Code and the OECD Transfer Pricing Guidelines, and to optimize the global effective tax rate of the Luminex group.
The Section 338(h)(10) election and resulting basis step-up in intangible assets at the Luminex Holdings/Luminex US level has important implications for the transfer pricing analysis. Specifically:
(a) The stepped-up basis in intangible assets at the U.S. level generates Section 197 amortization deductions of approximately $41,333,333 per year, which partially offset the increased royalty payments flowing from Luminex US to Luminex AG.
(b) The net effect on Luminex US's U.S. taxable income must be carefully modeled to ensure that the combination of (i) the increased royalty expense and (ii) the Section 197 amortization deductions does not result in excessive losses at the U.S. level that could attract IRS scrutiny or create Section 163(j) limitations.
(c) The interplay between the basis step-up and the royalty increase must be considered in the context of the arm's-length analysis: the fact that Luminex US has a stepped-up basis in its intangible assets (including customer relationships and technology) may affect the arm's-length allocation of profits between Luminex US and Luminex AG, because the stepped-up basis reflects the value of those intangibles at the time of the acquisition.
These transfer pricing considerations are addressed in greater detail in the Transfer Pricing Restructuring Memorandum prepared by this office.
VII. Comparison of Alternatives
In evaluating the Section 338(h)(10) election, it is useful to compare the election against the available structural alternatives and their respective tax consequences. We consider three alternatives: (A) no election (stock acquisition treatment), (B) a unilateral Section 338(g) election, and (C) an actual asset acquisition.
A. No Election (Stock Acquisition Treatment)
If Ardent does not make a Section 338(h)(10) election (or any other Section 338 election), the reverse triangular merger will be treated for federal income tax purposes as a stock acquisition. The Buyer (Apex Holdings) will take a cost basis in the Luminex Holdings stock equal to the purchase price ($2,800,000,000, as adjusted for any purchase price adjustments), and old target's historical (carryover) tax basis in its assets will be preserved.
Under this treatment, Luminex Holdings and its domestic subsidiaries would continue to depreciate and amortize their existing assets at their historical (pre-acquisition) tax bases. The premium paid by Ardent over the book value of Luminex's net assets—which is substantial given the 5.75x revenue and 22.99x EBITDA acquisition multiples—would remain "trapped" in the stock basis and would not generate any current tax benefit. The annual amortization deductions available to the combined enterprise would be limited to the amortization of old target's historical intangible asset basis, which is significantly lower than the fair market value of those assets.
The principal disadvantage of this approach is the loss of the approximately $195,000,000 in present value of federal tax savings (and the additional $15,000,000 to $25,000,000 in state/local tax savings) that would otherwise be available through the Section 338(h)(10) election. This represents a significant economic cost to Ardent and its investors.
There are no material advantages to the "no election" approach in the context of this Transaction, other than the avoidance of the administrative complexity and the deemed-sale tax liability borne by the sellers.
B. Section 338(g) Elec

CALDERWOOD & HARKNESS LLP 7 Times Square New York, New York 10036

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MEMORANDUM

Record

Parties

Dates

Amounts