1001-00006 · Ardent Capital Partners · Transaction Documents — Tax Sections

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CALDERWOOD & HARKNESS LLP Attorneys at Law

One Liberty Plaza, 45th Floor New York, New York 10006 Telephone: (212) 504-6000 Facsimile: (212) 504-6100 www.calderwoodharkness.com

May 29, 2024

Ardent Capital Partners III LP 600 Lexington Avenue, 38th Floor New York, New York 10022

Attention: Marcus Pellegrino, Partner, Healthcare

Copy to: Claire Ashworth, Co-Founder & Managing Partner Dominic Ferrera, Co-Founder & Managing Partner

Re: Tax Opinion Regarding Tax-Deferred Treatment of Rollover Contributions to Ardent Healthcare Holdings LLC in Connection with the Acquisition of Pinnacle Health Services Group LLC

Matter Number: 1001-00006 Engagement Number: 1001-00006

Ladies and Gentlemen:

I. INTRODUCTION AND ENGAGEMENT

Calderwood & Harkness LLP ("we," "us," or the "Firm") has been engaged by Ardent Capital Partners III LP ("Ardent Capital" or the "Fund") as tax counsel in connection with the acquisition (the "Acquisition") of one hundred percent (100%) of the issued and outstanding membership interests in Pinnacle Health Services Group LLC ("Pinnacle" or the "Company"), a Delaware limited liability company classified as a partnership for federal income tax purposes (Employer Identification Number 82-1947632). The responsible partner for this engagement is Leonard Cross of the Firm's Tax Department.

The Acquisition contemplates an enterprise value for Pinnacle of Four Hundred Twelve Million Dollars ($412,000,000), and, after giving effect to net debt of Seventy-Two Million Six Hundred Thousand Dollars ($72,600,000), implies an equity value of Three Hundred Thirty-Nine Million Four Hundred Thousand Dollars ($339,400,000). The transaction is structured as a reverse merger of Ardent Healthcare Merger Sub LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Ardent Healthcare Intermediate Inc. (a Delaware C-corporation), with and into Pinnacle, with Pinnacle surviving as a wholly owned subsidiary of Ardent Healthcare Intermediate Inc. following the effective time of the merger (the "Merger").

This opinion specifically addresses the federal income tax treatment of the contribution of certain Pinnacle membership interests by certain rollover participants (the "Rollover Participants," as further defined in Section III.A below) to Ardent Healthcare Holdings LLC (Employer Identification Number 93-2187445), a Delaware limited liability company classified as a partnership for federal income tax purposes ("Holdings LLC"), in exchange for Class B Units of Holdings LLC. This opinion is delivered in connection with, and contingent upon, the closing of the Acquisition, which is scheduled to occur on May 31, 2024 (the "Closing Date").

We have prepared this opinion in accordance with our engagement letter dated February 5, 2024, and the supplemental engagement letter dated March 12, 2024, each executed between the Firm and Ardent Capital. This opinion supersedes any prior preliminary or draft analyses furnished by the Firm regarding the tax treatment of the rollover contributions.

II. SUMMARY OF RELEVANT TRANSACTION DOCUMENTS REVIEWED

In connection with the preparation of this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents, instruments, certificates, and other materials (collectively, the "Transaction Documents"):

1. Agreement and Plan of Merger, dated as of March 15, 2024 (the "Merger Agreement"), by and among Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc. (a Delaware C-corporation, EIN 93-2187512), Ardent Healthcare Merger Sub LLC, Pinnacle Health Services Group LLC, and each of the members of Pinnacle identified on Schedule A thereto, including all exhibits, schedules, disclosure schedules, and ancillary agreements attached thereto or delivered in connection therewith;

2. Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC (the "Holdings LLC Agreement"), dated as of March 15, 2024, and as further amended and restated on May 28, 2024, including all schedules and exhibits thereto, and in particular those provisions relating to the authorization, designation, rights, preferences, and obligations of Class A Units and Class B Units, capital account maintenance, allocations of net income and net loss, distribution mechanics, and governance;

3. Rollover Contribution Agreements, each dated as of March 15, 2024, by and between each of the Rollover Participants (namely, Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth) and Ardent Healthcare Holdings LLC, together with all schedules, exhibits, and side letters annexed thereto, including the schedule of contributed interests and the schedule of Class B Units to be issued;

4. Operating Agreement of Pinnacle Health Services Group LLC, originally dated as of August 12, 2016, as amended on March 3, 2020 (the "Pinnacle Operating Agreement"), together with all amendments, supplements, and joinder agreements entered into prior to the date of this opinion;

5. Certificate of Formation of Ardent Healthcare Holdings LLC, filed with the Secretary of State of the State of Delaware on March 5, 2024, under Delaware File Number 7834219;

6. Tax Receivable Agreement, dated as of May 28, 2024 (the "TRA"), by and among Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc., and each of the TRA Holders identified therein, together with all schedules and exhibits thereto;

7. Such other documents, certificates, records, organizational filings, IRS correspondence, prior tax returns of Pinnacle Health Services Group LLC (including Form 1065 and Schedule K-1s for taxable years 2020, 2021, 2022, and 2023), and corporate records as we deemed necessary, relevant, or appropriate for purposes of rendering this opinion; and

8. Written representations and certifications provided by each of the Rollover Participants (dated May 20, 2024) and by Ardent Capital (dated May 22, 2024), in each case in response to representation letters prepared by the Firm and delivered in connection with this engagement (collectively, the "Tax Representation Letters").

We have also had discussions with Marcus Pellegrino and other representatives of Ardent Capital, with Thomas Kundra of Harcourt Shaw & DeVries LLP (M&A counsel to Ardent Capital), and with personal counsel to each of the Rollover Participants, regarding the structure, business purposes, and economic terms of the Acquisition and the rollover transactions described herein. We have relied upon the representations and factual statements contained in the Transaction Documents and the Tax Representation Letters without undertaking any independent investigation or verification thereof, and we have assumed the accuracy, completeness, and truthfulness of all such representations and statements for purposes of this opinion.

III. DESCRIPTION OF THE ROLLOVER TRANSACTIONS

A. The Rollover Participants

The following individuals (collectively, the "Rollover Participants") hold membership interests in Pinnacle and have agreed, pursuant to the Rollover Contribution Agreements, to contribute a portion of such membership interests to Holdings LLC in connection with the Merger:

Dr. Raymond Carvallo. Dr. Carvallo is a co-founder and the Chief Executive Officer of Pinnacle. As of the date immediately prior to the Closing Date, Dr. Carvallo holds a 38.2% membership interest in Pinnacle. Based on the equity value of $339,400,000, Dr. Carvallo's gross equity proceeds total approximately $129,650,800 (38.2% × $339,400,000). Pursuant to his Rollover Contribution Agreement, Dr. Carvallo has agreed to roll over twenty-five percent (25%) of his gross equity proceeds, representing approximately $32,412,700 in fair market value of contributed Pinnacle membership interests. Dr. Carvallo will receive the balance of his equity proceeds, approximately $97,238,100, in cash at the Closing.

Dr. Nadia Ostrowski. Dr. Ostrowski is a co-founder and the Chief Medical Officer of Pinnacle. As of the date immediately prior to the Closing Date, Dr. Ostrowski holds a 28.5% membership interest in Pinnacle. Based on the equity value of $339,400,000, Dr. Ostrowski's gross equity proceeds total approximately $96,729,000 (28.5% × $339,400,000). Pursuant to her Rollover Contribution Agreement, Dr. Ostrowski has agreed to roll over twenty-five percent (25%) of her gross equity proceeds, representing approximately $24,182,250 in fair market value of contributed Pinnacle membership interests. Dr. Ostrowski will receive the balance of her equity proceeds, approximately $72,546,750, in cash at the Closing.

Jonathan Farnsworth. Mr. Farnsworth serves as the Chief Financial Officer of Pinnacle and is not a founder of the Company. As of the date immediately prior to the Closing Date, Mr. Farnsworth holds a 5.8% membership interest in Pinnacle. Based on the equity value of $339,400,000, Mr. Farnsworth's gross equity proceeds total approximately $19,685,200 (5.8% × $339,400,000). Pursuant to his Rollover Contribution Agreement, Mr. Farnsworth has agreed to roll over fifteen percent (15%) of his gross equity proceeds, representing approximately $2,952,780 in fair market value of contributed Pinnacle membership interests. Mr. Farnsworth will receive the balance of his equity proceeds, approximately $16,732,420, in cash at the Closing.

The total rollover equity contributed by the Rollover Participants to Holdings LLC is thus approximately $59,547,730 ($32,412,700 + $24,182,250 + $2,952,780), representing the aggregate fair market value of the Pinnacle membership interests contributed to Holdings LLC by the Rollover Participants in exchange for Class B Units.

B. Structure of the Rollover

Simultaneously with the closing of the Merger on May 31, 2024, each Rollover Participant will contribute a specified portion of his or her Pinnacle membership interests to Ardent Healthcare Holdings LLC. In exchange for such contribution, each Rollover Participant will receive Class B Units of Holdings LLC, as determined in accordance with the valuation and unit allocation methodology set forth in the Rollover Contribution Agreements and the Holdings LLC Agreement. The remaining portions of each Rollover Participant's Pinnacle membership interests that are not contributed to Holdings LLC will be converted into the right to receive cash merger consideration in the Merger, as described in the Merger Agreement.

Holdings LLC is a Delaware limited liability company with more than one member and is classified as a partnership for federal income tax purposes under the default classification rules of Treasury Regulations Section 301.7701-3. No election under Form 8832 (Entity Classification Election) has been filed by or on behalf of Holdings LLC to be classified as a corporation or an association taxable as a corporation, and we have been advised that no such election will be filed.

Ardent Capital Partners III LP, acting through its general partner Ardent Capital GP III LLC, has committed One Hundred Ninety-Eight Million Five Hundred Thousand Dollars ($198,500,000) in Fund III equity capital for the Acquisition. This commitment is reflected in the issuance of Class A Units to Ardent Capital at the Closing. The Rollover Participants' Class B Units, representing aggregate contributed value of $59,547,730, together with the Fund III equity of $198,500,000, result in total post-closing equity of $258,047,730 on a pre-dilution basis.

Accordingly, the Rollover Participants' Class B Units represent approximately 23.08% of total post-closing equity on a pre-dilution basis ($59,547,730 ÷ $258,047,730). However, on a fully diluted basis, after giving effect to the equity warrants representing 2.5% of fully diluted equity issued to Cascadia Mezzanine Fund IV LP ("Cascadia") in connection with the $30,000,000 mezzanine credit facility provided by Cascadia in support of the Acquisition, the Rollover Participants hold approximately 22.50% of total post-closing equity on a fully diluted basis. The Cascadia warrants are exercisable for Class C Units of Holdings LLC and are addressed in a separate instrument.

C. Vesting Terms of Class B Units

The Class B Units issued to the Rollover Participants are subject to the following vesting provisions, as set forth in the Holdings LLC Agreement and the individual Rollover Contribution Agreements:

Fifty percent (50%) of each Rollover Participant's Class B Units vest immediately upon issuance at the Closing (the "Vested Units"). The remaining fifty percent (50%) of each Rollover Participant's Class B Units (the "Unvested Units") vest ratably on a monthly basis over a period of thirty-six (36) months from the Closing Date, subject, in the case of Dr. Carvallo and Dr. Ostrowski, to the Rollover Participant's continued employment with the Company or its affiliates through each applicable vesting date. Mr. Farnsworth's Unvested Units are also subject to continued service, consistent with the terms of his employment agreement entered into contemporaneously with the Merger.

The following table summarizes the allocation of vested and unvested Class B Units among the Rollover Participants:

The Unvested Units are treated as "profits interests" for federal income tax purposes within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191. Each Rollover Participant has agreed, pursuant to the Rollover Contribution Agreement, to file an election under Section 83(b) of the Internal Revenue Code with the Internal Revenue Service within thirty (30) days of the Closing Date (i.e., no later than June 30, 2024), electing to include in gross income the fair market value of the Unvested Units (less any amount paid therefor) as of the date of grant. The specific federal income tax treatment of the Section 83(b) election, and the consequences of the profits interest characterization of the Unvested Units, is addressed in our separate Profits Interest / Unvested Equity Memorandum dated March 8, 2024 (the "83(b) Memorandum"), and is outside the scope of this opinion except to the extent that the Section 83(b) election and the profits interest characterization interrelate with the application of Section 721 to the contributions described herein.

IV. APPLICABLE LAW

The following is a summary of the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations promulgated thereunder (the "Regulations"), that are relevant to our analysis of the tax-deferred treatment of the Rollover Participants' contributions to Holdings LLC.

A. Section 721 — Nonrecognition of Gain on Contribution to a Partnership

Section 721(a) of the Code provides:

"No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership."

This nonrecognition rule is a cornerstone of subchapter K and reflects the principle that a contribution of property to a partnership in exchange for a partnership interest is not an appropriate occasion for the recognition of gain or loss because the contributing partner merely changes the form of ownership while retaining a continuing economic interest in the contributed property through the partnership. See United States v. Stafford, 727 F.2d 1043 (11th Cir. 1984); see also Rev. Rul. 99-5, 1999-1 C.B. 434.

The nonrecognition rule of Section 721(a) applies broadly and without limitation as to the amount of gain or loss that would otherwise be recognized, provided that three conditions are satisfied: (i) the transferee entity must be classified as a "partnership" for federal income tax purposes; (ii) the transfer must constitute a "contribution of property" to such partnership; and (iii) the transferor must receive "an interest in the partnership" in exchange for the contributed property.

The term "property" for purposes of Section 721 is construed broadly and includes cash, tangible property, intangible property, and interests in other entities, including membership interests in a limited liability company classified as a partnership. See Treas. Reg. § 1.721-1(a). A membership interest in a limited liability company classified as a partnership constitutes "property" for purposes of Section 721. The nonrecognition rule applies regardless of whether the contributing partner receives a capital interest or a profits interest in the partnership, and regardless of the character of the contributed property (i.e., whether such property is a capital asset, Section 1231 property, or ordinary income property). See Treas. Reg. § 1.721-1(a); Rev. Proc. 93-27, 1993-2 C.B. 343.

There are limited exceptions to the nonrecognition rule of Section 721(a), including the investment company exception of Section 721(b) (discussed in Section IV.G below), and the special rules applicable to the contribution of services or the contribution of property subject to liabilities in excess of basis (under Section 752). Neither exception is implicated by the rollover transactions described in this opinion.

B. Section 721 vs. Section 351

Section 351 of the Code provides a parallel nonrecognition rule for transfers of property to a corporation by one or more transferors in exchange for stock of the corporation, subject to certain control requirements. Because Holdings LLC is classified as a partnership for federal income tax purposes under the default classification rules of Treasury Regulations Section 301.7701-3, and not as a corporation or an association taxable as a corporation, Section 351 is inapplicable to the contributions described herein. The analysis under Section 721, rather than Section 351, governs the tax treatment of the Rollover Participants' contributions to Holdings LLC.

The use of a partnership-classified holding entity (Holdings LLC) rather than a corporate holding entity was a deliberate structural choice made by Ardent Capital upon the recommendation of the Firm. This structure was selected, among other reasons, to preserve the basis step-up available under Section 743(b) of the Code in connection with the Acquisition. The estimated aggregate Section 743(b) basis step-up attributable to the Acquisition is approximately Two Hundred Twenty-Four Million Four Hundred Thousand Dollars ($224,400,000), calculated as the excess of the enterprise value of $412,000,000 over the estimated aggregate inside basis of Pinnacle's assets of approximately $187,600,000. This basis step-up, which is available only in a partnership structure (upon a valid Section 754 election), generates substantial amortization and depreciation deductions that enhance the after-tax returns to Ardent Capital and, indirectly, to the Rollover Participants.

If Holdings LLC were instead classified as a corporation (whether by election or by default), Section 351 would govern the contributions, and the partnership-level tax attributes described above, including the Section 743(b) basis adjustments, would not be available. Moreover, a corporate holding structure would subject the combined enterprise to entity-level taxation, resulting in a double layer of tax on income earned through Pinnacle. The partnership structure avoids this result and was thus recommended by the Firm as the preferred structure from a federal income tax perspective.

C. Section 722 — Basis of Contributing Partner's Interest

Section 722 of the Code provides the rule for determining the basis of a partnership interest acquired in exchange for a contribution of property:

"The basis of an interest in a partnership acquired by a contribution of property, including money, to the partnership shall be the amount of such money and the adjusted basis of such property to the contributing partner at the time of the contribution, increased by the amount (if any) of gain recognized under Section 721(b) to the contributing partner at such time."

Because no gain or loss is recognized by the Rollover Participants under Section 721(a) (and Section 721(b) is inapplicable, as discussed below), each Rollover Participant's tax basis in the Class B Units received will equal the adjusted tax basis of the Pinnacle membership interests contributed to Holdings LLC, determined immediately prior to the contribution. This is commonly referred to as a "substituted basis" or "exchanged basis" and ensures that the unrealized gain or loss inherent in the contributed Pinnacle membership interests is preserved in the Class B Units received in the exchange.

D. Section 723 — Basis of Property Contributed to Partnership

Section 723 of the Code provides the complementary rule for determining the basis of contributed property in the hands of the partnership:

"The basis of property contributed to a partnership by a partner shall be the adjusted basis of such property to the contributing partner at the time of the contribution, increased by the amount (if any) of gain recognized under Section 721(b) to the contributing partner at such time."

Under this provision, Holdings LLC will take a "carryover basis" in the Pinnacle membership interests contributed by each Rollover Participant, equal to the adjusted basis of such interests in the hands of the contributing Rollover Participant immediately prior to the contribution. This carryover basis rule, together with the substituted basis rule of Section 722, ensures that no built-in gain or loss is eliminated or duplicated as a result of the contribution.

E. Section 704(c) — Allocation of Built-in Gain or Loss

To the extent that the fair market value of the contributed Pinnacle membership interests exceeds their adjusted basis in the hands of the contributing Rollover Participants at the time of contribution, Section 704(c)(1)(A) of the Code requires that income, gain, loss, and deduction with respect to such property be allocated among the partners so as to take account of the variation between the adjusted basis and the fair market value of such property at the time of contribution. The purpose of Section 704(c) is to prevent the shifting of pre-contribution gain or loss from the contributing partner to other partners of the partnership.

Treasury Regulations Section 1.704-3 prescribes three permissible methods for making Section 704(c) allocations: (i) the traditional method, (ii) the traditional method with curative allocations, and (iii) the remedial method. The Holdings LLC Agreement provides that the remedial method under Treasury Regulations Section 1.704-3(d) shall be used for all Section 704(c) allocations. The remedial method eliminates the "ceiling rule" limitation inherent in the traditional method by creating notional tax items to allocate to non-contributing partners, thereby ensuring that the non-contributing partners receive the full tax benefit of the partnership's book depreciation and amortization deductions. This method is widely recognized as the most complete and accurate method of accounting for built-in gain or loss under Section 704(c), and its use is consistent with prevailing market practice in private equity transactions of this type.

F. Disguised Sale Rules — Section 707(a)(2)(B)

Section 707(a)(2)(B) of the Code and the Treasury Regulations thereunder (Treas. Reg. §§ 1.707-3 through 1.707-9) provide rules for determining whether a transfer of property by a partner to a partnership and a related transfer of money or other consideration by the partnership to the partner should be treated, in substance, as a sale of property by the partner to the partnership (a "disguised sale") rather than a tax-free contribution and a separate distribution.

Under Treasury Regulations Section 1.707-3(b)(1), if within a two-year period a partner transfers property to a partnership and the partnership makes a transfer of money or other consideration to the partner, the transfers are presumed to be a sale of the property to the partnership unless the facts and circumstances clearly establish otherwise. Conversely, if the transfers occur more than two years apart, they are presumed not to be a sale unless the facts and circumstances clearly establish otherwise. See Treas. Reg. § 1.707-3(c) and (d).

We have carefully considered the application of the disguised sale rules to the rollover contributions described herein and have concluded that such rules do not apply to recharacterize the contributions as disguised sales. Our conclusion is based on the following considerations:

First, the cash consideration received by each Rollover Participant for the cashed-out portion of their Pinnacle membership interests is received directly as merger consideration in the Merger transaction. The cash payments flow from Ardent Healthcare Intermediate Inc. (the acquiring corporation) to the Rollover Participants pursuant to the Merger Agreement, and not from Holdings LLC. The rollover contributions to Holdings LLC and the receipt of cash merger consideration are structurally separate transactions, and the cash proceeds are not transfers from Holdings LLC to the Rollover Participants.

Second, the rollover contribution of Pinnacle membership interests to Holdings LLC is structured as a standalone contribution that does not involve, and is not conditioned upon, any distribution, payment, or guaranteed payment from Holdings LLC to any Rollover Participant in connection with the contribution. The Rollover Contribution Agreements expressly provide that the Rollover Participants are not entitled to receive any distribution from Holdings LLC at or in connection with the Closing, other than such tax distributions as may be made to all members proportionally.

Third, the tax distributions to Rollover Participants under Article VI of the Holdings LLC Agreement, which are calculated based on each member's allocable share of the partnership's taxable income and the applicable combined tax rate, are made to all members of Holdings LLC on a pro rata basis in accordance with their respective allocations of taxable income. Such tax distributions are not treated as part of a disguised sale under the Treasury Regulations because they are (a) not made in connection with the contribution of property, (b) not based on the fair market value or the amount of property contributed, and (c) made to all members proportionally based on their respective tax obligations. See Treas. Reg. § 1.707-4(a)(2) (providing that certain "guaranteed payments for capital" are not treated as part of a disguised sale); see also Treas. Reg. § 1.707-4(b) (preferred returns).

Accordingly, we have determined that the disguised sale rules of Section 707(a)(2)(B) do not apply to recharacterize any of the rollover contributions described herein.

G. Investment Company Rules — Section 721(b)

Section 721(b) of the Code provides an exception to the nonrecognition rule of Section 721(a) for certain contributions to investment companies. Specifically, Section 721(b) provides:

"Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351(e)) if the partnership were incorporated."

Under Section 351(e)(1) and Treasury Regulations Section 1.351-1(c), a transfer is treated as a transfer to an investment company if (i) the transfer results, directly or indirectly, in diversification of the transferors' interests, and (ii) the transferee is a regulated investment company, a real estate investment trust, or a corporation more than eighty percent (80%) of the value of whose assets (excluding cash and nonconvertible debt obligations from both the numerator and denominator) consists of "readily marketable stocks or securities" held for investment.

Holdings LLC will hold, as its primary and substantially sole asset, a one hundred percent (100%) membership interest in Pinnacle Health Services Group LLC, an operating healthcare services platform that operates thirty-four (34) urgent care clinics and eight (8) ambulatory surgery centers across five states, employing approximately 1,620 employees. The assets of Holdings LLC consist of interests in a single operating healthcare services business and do not consist of readily marketable stocks or securities held for investment. Holdings LLC does not satisfy the diversification requirement of Section 351(e) because substantially all of its assets are attributable to a single operating enterprise. Moreover, the contribution of Pinnacle membership interests by the Rollover Participants does not result in any diversification of the Rollover Participants' interests, as the contributed property and the property held by the partnership are interests in the same enterprise.

Accordingly, Section 721(b) is inapplicable, and the investment company exception does not operate to deny nonrecognition treatment to the rollover contributions described herein.

V. ASSUMPTIONS

This opinion is based upon, and is subject to, the following assumptions of fact. We have not independently verified any of these assumptions and have relied upon the Transaction Documents, the Tax Representation Letters, and the oral and written representations of the parties in accepting each of the following as true, correct, and complete:

1. The Transaction Documents have been duly authorized, executed, and delivered by all parties thereto and constitute valid, binding, and enforceable obligations of all parties in accordance with their respective terms under applicable law, including the Delaware Limited Liability Company Act.

2. All representations and certifications made by each of the Rollover Participants and by Ardent Capital in the Tax Representation Letters are true, correct, and complete in all material respects as of the date of this opinion and will remain true, correct, and complete in all material respects as of the Closing Date (May 31, 2024), and no Rollover Participant or representative of Ardent Capital has made any representation or certification that is misleading or that omits material information.

3. The Merger and the rollover transactions will be consummated in accordance with the terms and conditions described in the Merger Agreement and the Rollover Contribution Agreements, without material modification, amendment, or waiver of any term or condition that could affect the federal income tax treatment of the rollover contributions.

4. Ardent Healthcare Holdings LLC is, and at all times through and including the Closing Date will continue to be, classified as a partnership for federal income tax purposes for the taxable year that includes the Closing Date. Holdings LLC has not filed, and will not file, an election under Treasury Regulations Section 301.7701-3 (Form 8832) to be classified as a corporation or as an association taxable as a corporation.

5. Pinnacle Health Services Group LLC has been, and at all times through and including the Closing Date will continue to be, classified as a partnership for federal income tax purposes, consistent with its Employer Identification Number 82-1947632 and its operating history since its formation in August 2016. No election under Treasury Regulations Section 301.7701-3 has been filed by or on behalf of Pinnacle to change its classification from partnership.

6. No Rollover Participant is contributing Pinnacle membership interests to Holdings LLC as part of a plan, arrangement, or understanding, whether formal or informal, written or oral, that includes or contemplates a distribution of money or other consideration from Holdings LLC to such Rollover Participant or to a person related to such Rollover Participant (within the meaning of Section 707(b) of the Code), at or in connection with the contribution, other than tax distributions made to all members of Holdings LLC on a proportional basis in accordance with their respective allocations of taxable income.

7. The Holdings LLC Agreement, including its provisions relating to capital account maintenance, allocations of income, gain, loss, and deduction, and distributions, complies with the requirements of Section 704(b) of the Code and Treasury Regulations Sections 1.704-1(b) and 1.704-2, including the requirement that allocations have substantial economic effect or be in accordance with the partners' interests in the partnership.

8. The Class B Units received by each Rollover Participant constitute bona fide partnership interests in Holdings LLC and are not, in substance, debt instruments, options, warrants, convertible notes, or other contractual rights that are not properly characterized as partnership interests for federal income tax purposes.

9. Each of the Rollover Participants is a "United States person" as defined in Section 7701(a)(30) of the Code, and is a citizen or resident of the United States for federal income tax purposes.

10. The fair market value of the Class B Units received by each Rollover Participant is equal to the fair market value of the Pinnacle membership interests contributed by such Rollover Participant to Holdings LLC, in each case as determined by and set forth in the applicable Rollover Contribution Agreement. No Rollover Participant is receiving Class B Units with a value that is materially greater than or less than the value of the Pinnacle membership interests contributed by such Rollover Participant.

If any of the foregoing assumptions is inaccurate or incomplete in any material respect, the conclusions expressed in this opinion could be adversely affected, and we reserve the right to modify or withdraw this opinion in such event.

VI. OPINION

Based on the facts set forth herein, the Transaction Documents reviewed, the assumptions set forth in Section V above, and the analysis of applicable law set forth in Section IV above, and subject in all respects to the qualifications and limitations set forth in Section VII below, it is our opinion as follows:

A. Classification of Holdings LLC as a Partnership

Based on our review of the Certificate of Formation of Ardent Healthcare Holdings LLC (Delaware File Number 7834219), filed with the Secretary of State of the State of Delaware on March 5, 2024, the Holdings LLC Agreement, the representations of Ardent Capital, and the absence of any check-the-box election under Treasury Regulations Section 301.7701-3 (Form 8832) to classify Holdings LLC as a corporation or an association taxable as a corporation, it is our opinion that Holdings LLC is properly classified as a partnership for federal income tax purposes under the default classification rules applicable to domestic eligible entities with more than one member. See Treas. Reg. § 301.7701-3(b)(1)(i).

Holdings LLC has more than one member for federal income tax purposes: (i) Ardent Capital Partners III LP, which is contributing Fund III equity of $198,500,000 in exchange for Class A Units; (ii) the three Rollover Participants, who are contributing Pinnacle membership interests with an aggregate fair market value of $59,547,730 in exchange for Class B Units; and (iii) Cascadia Mezzanine Fund IV LP, which holds warrants exercisable for equity representing 2.5% of fully diluted Holdings LLC equity. Because Holdings LLC is a domestic eligible entity with at least two members and has not elected to be classified as a corporation, it is classified by default as a partnership under the Treasury Regulations.

B. Qualification of Rollover Contributions Under Section 721(a)

It is our opinion that the contribution by each Rollover Participant of a portion of his or her Pinnacle membership interests to Holdings LLC in exchange for Class B Units constitutes a contribution of "property" to a "partnership" in exchange for "an interest in the partnership" within the meaning of Section 721(a) of the Code, and that, accordingly, no gain or loss is recognized by any Rollover Participant or by Holdings LLC upon such contribution. Specifically:

• Dr. Raymond Carvallo: The contribution by Dr. Carvallo of Pinnacle membership interests with a fair market value of approximately $32,412,700 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Dr. Carvallo upon such contribution.

• Dr. Nadia Ostrowski: The contribution by Dr. Ostrowski of Pinnacle membership interests with a fair market value of approximately $24,182,250 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Dr. Ostrowski upon such contribution.

• Jonathan Farnsworth: The contribution by Mr. Farnsworth of Pinnacle membership interests with a fair market value of approximately $2,952,780 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Mr. Farnsworth upon such contribution.

In addition, no gain or loss is recognized by Holdings LLC upon the receipt of the contributed Pinnacle membership interests from the Rollover Participants. See Section 721(a); Treas. Reg. § 1.721-1(a).

C. Inapplicability of Section 721(b) — Investment Company Exception

It is our opinion that Holdings LLC is not an "investment company" within the meaning of Section 721(b) of the Code (incorporating the definition of Section 351(e)) because Holdings LLC's assets consist of interests in a single operating healthcare services platform — specifically, Pinnacle Health Services Group LLC, which operates thirty-four (34) urgent care clinics and eight (8) ambulatory surgery centers across five states (New York, New Jersey, Connecticut, Pennsylvania, and Massachusetts), employing approximately 1,620 employees — rather than diversified investment securities or readily marketable stocks or securities held for investment. The contribution of Pinnacle membership interests to Holdings LLC does not result in diversification of the Rollover Participants' investment interests. Accordingly, the investment company exception of Section 721(b) does not apply to deny nonrecognition treatment to the rollover contributions described herein.

D. Inapplicability of Disguised Sale Rules

It is our opinion that the rollover contributions described herein are not subject to recharacterization as disguised sales under Section 707(a)(2)(B) of the Code and Treasury Regulations Sections 1.707-3 through 1.707-9. As described in Section IV.F above, the cash consideration received by each Rollover Participant for the cashed-out portion of their Pinnacle membership interests is received directly as merger consideration in the Merger, paid by Ardent Healthcare Intermediate Inc. pursuant to the Merger Agreement, and is not a transfer from Holdings LLC to the Rollover Participants. The rollover contributions are structurally separate from, and are not conditioned upon or related to, any distribution from Holdings LLC to the Rollover Participants, other than tax distributions made proportionally to all members. The disguised sale rules are therefore inapplicable.

E. Basis Consequences

It is our opinion that the basis consequences of the rollover contributions are as follows:

(i) Rollover Participants' Basis in Class B Units (Section 722). Under Section 722 of the Code, each Rollover Participant's initial tax basis in the Class B Units received in exchange for the contributed Pinnacle membership interests equals the adjusted tax basis of such contributed Pinnacle membership interests in the hands of the contributing Rollover Participant immediately prior to the contribution. Each Rollover Participant's adjusted basis in the contributed Pinnacle membership interests will be determined by reference to each Rollover Participant's Schedule K-1 for the taxable year ending on the Closing Date, adjusted for any allocations of income, gain, loss, deduction, or distributions through the Closing Date, and reduced by any liabilities of Pinnacle from which the contributing Rollover Participant is relieved (or deemed relieved) in connection with the contribution. The specific adjusted basis for each Rollover Participant should be confirmed by each Rollover Participant's individual tax advisor.

(ii) Holdings LLC's Basis in Contributed Pinnacle Interests (Section 723). Under Section 723 of the Code, Holdings LLC's tax basis in the Pinnacle membership interests contributed by each Rollover Participant equals the adjusted basis of such interests in the hands of the contributing Rollover Participant immediately prior to the contribution. Holdings LLC will therefore take a carryover basis in the contributed Pinnacle membership interests, which will generally be less than the fair market value of such interests.

(iii) Section 704(c) Allocations. To the extent the fair market value of the contributed Pinnacle membership interests exceeds the adjusted basis of such interests in the hands of the contributing Rollover Participant, Section 704(c) of the Code requires that allocations of income, gain, loss, and deduction with respect to such property take into account the variation between basis and fair market value. Pursuant to Section 5.3 of the Holdings LLC Agreement, the remedial method under Treasury Regulations Section 1.704-3(d) will be used for all Section 704(c) allocations.

F. Holding Period

It is our opinion that, under Section 1223(1) of the Code, each Rollover Participant's holding period for the Class B Units received in exchange for the contributed Pinnacle membership interests includes the holding period of such contributed Pinnacle membership interests, provided that such interests were capital assets or assets described in Section 1231 of the Code in the hands of the contributing Rollover Participant at the time of the contribution. Based on the representations of each Rollover Participant, the contributed Pinnacle membership interests are capital assets within the meaning of Section 1221 of the Code.

VII. QUALIFICATIONS AND LIMITATIONS

The opinion expressed herein is subject to the following qualifications and limitations:

1. Applicability of Current Law. This opinion is based on the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published administrative pronouncements of the Internal Revenue Service (including Revenue Rulings and Revenue Procedures), and judicial decisions of the federal courts, in each case as in effect and available as of the date hereof. Changes in applicable law (whether by legislative action, regulatory amendment, administrative guidance, or judicial decision) occurring after the date of this opinion could affect, and potentially could adversely affect, the conclusions expressed herein. We undertake no obligation to update this opinion to reflect any such changes.

2. Federal Income Tax Consequences Only. This opinion addresses only the federal income tax consequences of the rollover contributions under Section 721 of the Code. This opinion does not address any state, local, or foreign (including non-U.S.) tax consequences of the rollover contributions or of any other aspect of the Acquisition. State and local tax consequences of the Acquisition and the rollover contributions are separately analyzed in our State & Local Tax Memorandum dated February 20, 2024, which has been delivered to Ardent Capital under separate cover.

3. Section 83 and Unvested Equity. This opinion does not address the federal income tax consequences of the vesting provisions applicable to the Unvested Class B Units under Section 83 of the Code, including the consequences of filing (or failing to file) a Section 83(b) election. Those matters are addressed in our separate Profits Interest / Unvested Equity Memorandum dated March 8, 2024. To the extent the treatment of the Unvested Units under Section 83 interacts with the application of Section 721 to the contributions described herein, we have assumed that each Rollover Participant timely files a valid Section 83(b) election.

4. Future Transactions. This opinion does not address the federal income tax consequences of any subsequent disposition, redemption, repurchase, forfeiture, or transfer of Class B Units by any Rollover Participant, any distribution (whether in cash or in kind) by Holdings LLC to any member, or any future transaction, restructuring, recapitalization, or change of control involving Holdings LLC, Pinnacle, or any of their affiliates.

5. Earnout Payments. This opinion does not address the federal income tax treatment of the earnout payments (maximum aggregate amount of Thirty-Five Million Dollars ($35,000,000)) payable to certain former members of Pinnacle under Article III of the Merger Agreement. The tax characterization of such earnout payments is separately addressed in our Earnout Tax Characterization Memorandum dated March 1, 2024.

6. Tax Receivable Agreement and Section 743(b). This opinion does not address the Tax Receivable Agreement dated May 28, 2024, or the Section 743(b) basis step-up available to Ardent Capital in connection with its acquisition of Class A Units, or the amortization or depreciation deductions arising from such basis step-up. Those matters are addressed in separate deliverables furnished by the Firm to Ardent Capital.

7. Scope of Opinion. No opinion is expressed as to any federal, state, local, or foreign tax matter not specifically and expressly addressed in this opinion. The omission of any particular issue or topic from this opinion should not be construed as an indication of our view, whether favorable or unfavorable, on such issue or topic.

8. Reliance and Beneficiaries. This opinion is rendered solely for the benefit of Ardent Capital Partners III LP and may not be relied upon by any other person or entity without our prior written consent. Notwithstanding the foregoing, we acknowledge that the Rollover Participants may need to rely on this opinion for purposes of their own federal income tax reporting with respect to the rollover contributions, and we consent to the Rollover Participants' reliance on this opinion for such limited purpose. Except as expressly provided herein, this opinion may not be furnished to, relied upon by, or cited by any other person or entity.

9. Non-Tax Matters. We express no view or opinion on the business, financial, economic, accounting, or non-tax legal aspects of the Acquisition or the rollover contributions, including without limitation the reasonableness of the enterprise value, the equity value, the rollover percentages, or the terms of the Holdings LLC Agreement.

10. No Guarantee. This opinion represents our best professional judgment as to the matters addressed herein, based on the facts, assumptions, and applicable law described above, but is not a guarantee of any particular tax result. The Internal Revenue Service could take a position contrary to the conclusions expressed herein, and there is no assurance that a court would agree with the conclusions expressed in this opinion if the matter were litigated. No ruling has been sought from the Internal Revenue Service with respect to the matters addressed herein.

VIII. LEVEL OF OPINION

Based on the facts, assumptions, and representations set forth above, and subject in all respects to the qualifications and limitations described in Section VII above, it is our opinion that it is "more likely than not" (i.e., there is a greater than fifty percent (50%) likelihood) that:

(a) the contribution by each Rollover Participant of a portion of his or her Pinnacle membership interests to Ardent Healthcare Holdings LLC in exchange for Class B Units of Holdings LLC will qualify as a tax-deferred contribution under Section 721(a) of the Internal Revenue Code of 1986, as amended;

(b) no gain or loss will be recognized by any Rollover Participant upon such contribution; and

The "more likely than not" standard means that we believe the position described herein, if challenged by the Internal Revenue Service, would prevail on the merits based on the weight of applicable legal authorities. This opinion should not be understood as an opinion at a higher level of confidence (such as "should" or "will"), and should not be relied upon as a guarantee of a particular outcome.

IX. CONSENT AND RELIANCE

This opinion is furnished to Ardent Capital Partners III LP solely in connection with the Acquisition and the rollover transactions described herein and may not be used, quoted, or relied upon for any other purpose or in connection with any other transaction.

We consent to a copy of this opinion being furnished to each of the Rollover Participants (Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth) and their respective personal tax advisors for purposes of their individual federal income tax reporting in connection with the rollover contributions described herein, and to Harcourt Shaw & DeVries LLP, in its capacity as M&A counsel to Ardent Capital, solely for purposes of its review in connection with the Acquisition.

This opinion may not be disclosed, furnished, or made available to any other person or entity, or quoted, excerpted, or referred to in any document, filing, marketing material, prospectus, or communication, in whole or in part, without our prior written consent, except as may be required by applicable law, regulation, or a valid subpoena, court order, or similar legal process. In the event that disclosure is required by law or regulation, Ardent Capital shall, to the extent practicable, provide us with reasonable advance notice of such required disclosure.

We appreciate the opportunity to serve as tax counsel to Ardent Capital Partners III LP in connection with this transaction. Should you have any questions regarding this opinion or require any additional analysis, please do not hesitate to contact the undersigned or Sylvia Hartwell of the Firm's Tax Department.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Leonard Cross

Title: Partner, Tax Department

One Liberty Plaza, 45th Floor New York, New York 10006 Telephone: (212) 504-6000

Date: May 29, 2024

Enclosures:

Tax Representation Letters of the Rollover Participants (dated May 20, 2024) Tax Representation Letter of Ardent Capital Partners III LP (dated May 22, 2024)

cc:

Claire Ashworth, Co-Founder & Managing Partner, Ardent Capital Partners III LP Dominic Ferrera, Co-Founder & Managing Partner, Ardent Capital Partners III LP Thomas Kundra, Partner, Harcourt Shaw & DeVries LLP Sylvia Hartwell, Partner, Calderwood & Harkness LLP Robert Jansen, Senior Associate, Calderwood & Harkness LLP

PRIVILEGED & CONFIDENTIAL — This opinion is protected by the attorney-client privilege and the work product doctrine. It is furnished solely for the use of the addressee and the persons identified herein and may not be disclosed to any other person without the prior written consent of Calderwood & Harkness LLP.

Rollover Participant	Total Rollover Value	Vested at Closing (50%)	Unvested (50%)
Dr. Raymond Carvallo	$32,412,700	$16,206,350	$16,206,350
Dr. Nadia Ostrowski	$24,182,250	$12,091,125	$12,091,125
Jonathan Farnsworth	$2,952,780	$1,476,390	$1,476,390
Total	$59,547,730	$29,773,865	$29,773,865

CALDERWOOD & HARKNESS LLP Attorneys at Law
One Liberty Plaza, 45th Floor New York, New York 10006 Telephone: (212) 504-6000 Facsimile: (212) 504-6100 www.calderwoodharkness.com
May 29, 2024
Ardent Capital Partners III LP 600 Lexington Avenue, 38th Floor New York, New York 10022
Attention: Marcus Pellegrino, Partner, Healthcare
Copy to: Claire Ashworth, Co-Founder & Managing Partner Dominic Ferrera, Co-Founder & Managing Partner
Re: Tax Opinion Regarding Tax-Deferred Treatment of Rollover Contributions to Ardent Healthcare Holdings LLC in Connection with the Acquisition of Pinnacle Health Services Group LLC
Matter Number: 1001-00006 Engagement Number: 1001-00006
Ladies and Gentlemen:
I. INTRODUCTION AND ENGAGEMENT
Calderwood & Harkness LLP ("we," "us," or the "Firm") has been engaged by Ardent Capital Partners III LP ("Ardent Capital" or the "Fund") as tax counsel in connection with the acquisition (the "Acquisition") of one hundred percent (100%) of the issued and outstanding membership interests in Pinnacle Health Services Group LLC ("Pinnacle" or the "Company"), a Delaware limited liability company classified as a partnership for federal income tax purposes (Employer Identification Number 82-1947632). The responsible partner for this engagement is Leonard Cross of the Firm's Tax Department.
The Acquisition contemplates an enterprise value for Pinnacle of Four Hundred Twelve Million Dollars ($412,000,000), and, after giving effect to net debt of Seventy-Two Million Six Hundred Thousand Dollars ($72,600,000), implies an equity value of Three Hundred Thirty-Nine Million Four Hundred Thousand Dollars ($339,400,000). The transaction is structured as a reverse merger of Ardent Healthcare Merger Sub LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Ardent Healthcare Intermediate Inc. (a Delaware C-corporation), with and into Pinnacle, with Pinnacle surviving as a wholly owned subsidiary of Ardent Healthcare Intermediate Inc. following the effective time of the merger (the "Merger").
This opinion specifically addresses the federal income tax treatment of the contribution of certain Pinnacle membership interests by certain rollover participants (the "Rollover Participants," as further defined in Section III.A below) to Ardent Healthcare Holdings LLC (Employer Identification Number 93-2187445), a Delaware limited liability company classified as a partnership for federal income tax purposes ("Holdings LLC"), in exchange for Class B Units of Holdings LLC. This opinion is delivered in connection with, and contingent upon, the closing of the Acquisition, which is scheduled to occur on May 31, 2024 (the "Closing Date").
We have prepared this opinion in accordance with our engagement letter dated February 5, 2024, and the supplemental engagement letter dated March 12, 2024, each executed between the Firm and Ardent Capital. This opinion supersedes any prior preliminary or draft analyses furnished by the Firm regarding the tax treatment of the rollover contributions.
II. SUMMARY OF RELEVANT TRANSACTION DOCUMENTS REVIEWED
In connection with the preparation of this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents, instruments, certificates, and other materials (collectively, the "Transaction Documents"):
1.  Agreement and Plan of Merger, dated as of March 15, 2024 (the "Merger Agreement"), by and among Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc. (a Delaware C-corporation, EIN 93-2187512), Ardent Healthcare Merger Sub LLC, Pinnacle Health Services Group LLC, and each of the members of Pinnacle identified on Schedule A thereto, including all exhibits, schedules, disclosure schedules, and ancillary agreements attached thereto or delivered in connection therewith;
2.  Amended and Restated Limited Liability Company Agreement of Ardent Healthcare Holdings LLC (the "Holdings LLC Agreement"), dated as of March 15, 2024, and as further amended and restated on May 28, 2024, including all schedules and exhibits thereto, and in particular those provisions relating to the authorization, designation, rights, preferences, and obligations of Class A Units and Class B Units, capital account maintenance, allocations of net income and net loss, distribution mechanics, and governance;
3.  Rollover Contribution Agreements, each dated as of March 15, 2024, by and between each of the Rollover Participants (namely, Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth) and Ardent Healthcare Holdings LLC, together with all schedules, exhibits, and side letters annexed thereto, including the schedule of contributed interests and the schedule of Class B Units to be issued;
4.  Operating Agreement of Pinnacle Health Services Group LLC, originally dated as of August 12, 2016, as amended on March 3, 2020 (the "Pinnacle Operating Agreement"), together with all amendments, supplements, and joinder agreements entered into prior to the date of this opinion;
5.  Certificate of Formation of Ardent Healthcare Holdings LLC, filed with the Secretary of State of the State of Delaware on March 5, 2024, under Delaware File Number 7834219;
6.  Tax Receivable Agreement, dated as of May 28, 2024 (the "TRA"), by and among Ardent Healthcare Holdings LLC, Ardent Healthcare Intermediate Inc., and each of the TRA Holders identified therein, together with all schedules and exhibits thereto;
7.  Such other documents, certificates, records, organizational filings, IRS correspondence, prior tax returns of Pinnacle Health Services Group LLC (including Form 1065 and Schedule K-1s for taxable years 2020, 2021, 2022, and 2023), and corporate records as we deemed necessary, relevant, or appropriate for purposes of rendering this opinion; and
8.  Written representations and certifications provided by each of the Rollover Participants (dated May 20, 2024) and by Ardent Capital (dated May 22, 2024), in each case in response to representation letters prepared by the Firm and delivered in connection with this engagement (collectively, the "Tax Representation Letters").
We have also had discussions with Marcus Pellegrino and other representatives of Ardent Capital, with Thomas Kundra of Harcourt Shaw & DeVries LLP (M&A counsel to Ardent Capital), and with personal counsel to each of the Rollover Participants, regarding the structure, business purposes, and economic terms of the Acquisition and the rollover transactions described herein. We have relied upon the representations and factual statements contained in the Transaction Documents and the Tax Representation Letters without undertaking any independent investigation or verification thereof, and we have assumed the accuracy, completeness, and truthfulness of all such representations and statements for purposes of this opinion.
III. DESCRIPTION OF THE ROLLOVER TRANSACTIONS
A. The Rollover Participants
The following individuals (collectively, the "Rollover Participants") hold membership interests in Pinnacle and have agreed, pursuant to the Rollover Contribution Agreements, to contribute a portion of such membership interests to Holdings LLC in connection with the Merger:
Dr. Raymond Carvallo. Dr. Carvallo is a co-founder and the Chief Executive Officer of Pinnacle. As of the date immediately prior to the Closing Date, Dr. Carvallo holds a 38.2% membership interest in Pinnacle. Based on the equity value of $339,400,000, Dr. Carvallo's gross equity proceeds total approximately $129,650,800 (38.2% × $339,400,000). Pursuant to his Rollover Contribution Agreement, Dr. Carvallo has agreed to roll over twenty-five percent (25%) of his gross equity proceeds, representing approximately $32,412,700 in fair market value of contributed Pinnacle membership interests. Dr. Carvallo will receive the balance of his equity proceeds, approximately $97,238,100, in cash at the Closing.
Dr. Nadia Ostrowski. Dr. Ostrowski is a co-founder and the Chief Medical Officer of Pinnacle. As of the date immediately prior to the Closing Date, Dr. Ostrowski holds a 28.5% membership interest in Pinnacle. Based on the equity value of $339,400,000, Dr. Ostrowski's gross equity proceeds total approximately $96,729,000 (28.5% × $339,400,000). Pursuant to her Rollover Contribution Agreement, Dr. Ostrowski has agreed to roll over twenty-five percent (25%) of her gross equity proceeds, representing approximately $24,182,250 in fair market value of contributed Pinnacle membership interests. Dr. Ostrowski will receive the balance of her equity proceeds, approximately $72,546,750, in cash at the Closing.
Jonathan Farnsworth. Mr. Farnsworth serves as the Chief Financial Officer of Pinnacle and is not a founder of the Company. As of the date immediately prior to the Closing Date, Mr. Farnsworth holds a 5.8% membership interest in Pinnacle. Based on the equity value of $339,400,000, Mr. Farnsworth's gross equity proceeds total approximately $19,685,200 (5.8% × $339,400,000). Pursuant to his Rollover Contribution Agreement, Mr. Farnsworth has agreed to roll over fifteen percent (15%) of his gross equity proceeds, representing approximately $2,952,780 in fair market value of contributed Pinnacle membership interests. Mr. Farnsworth will receive the balance of his equity proceeds, approximately $16,732,420, in cash at the Closing.
The total rollover equity contributed by the Rollover Participants to Holdings LLC is thus approximately $59,547,730 ($32,412,700 + $24,182,250 + $2,952,780), representing the aggregate fair market value of the Pinnacle membership interests contributed to Holdings LLC by the Rollover Participants in exchange for Class B Units.
B. Structure of the Rollover
Simultaneously with the closing of the Merger on May 31, 2024, each Rollover Participant will contribute a specified portion of his or her Pinnacle membership interests to Ardent Healthcare Holdings LLC. In exchange for such contribution, each Rollover Participant will receive Class B Units of Holdings LLC, as determined in accordance with the valuation and unit allocation methodology set forth in the Rollover Contribution Agreements and the Holdings LLC Agreement. The remaining portions of each Rollover Participant's Pinnacle membership interests that are not contributed to Holdings LLC will be converted into the right to receive cash merger consideration in the Merger, as described in the Merger Agreement.
Holdings LLC is a Delaware limited liability company with more than one member and is classified as a partnership for federal income tax purposes under the default classification rules of Treasury Regulations Section 301.7701-3. No election under Form 8832 (Entity Classification Election) has been filed by or on behalf of Holdings LLC to be classified as a corporation or an association taxable as a corporation, and we have been advised that no such election will be filed.
Ardent Capital Partners III LP, acting through its general partner Ardent Capital GP III LLC, has committed One Hundred Ninety-Eight Million Five Hundred Thousand Dollars ($198,500,000) in Fund III equity capital for the Acquisition. This commitment is reflected in the issuance of Class A Units to Ardent Capital at the Closing. The Rollover Participants' Class B Units, representing aggregate contributed value of $59,547,730, together with the Fund III equity of $198,500,000, result in total post-closing equity of $258,047,730 on a pre-dilution basis.
Accordingly, the Rollover Participants' Class B Units represent approximately 23.08% of total post-closing equity on a pre-dilution basis ($59,547,730 ÷ $258,047,730). However, on a fully diluted basis, after giving effect to the equity warrants representing 2.5% of fully diluted equity issued to Cascadia Mezzanine Fund IV LP ("Cascadia") in connection with the $30,000,000 mezzanine credit facility provided by Cascadia in support of the Acquisition, the Rollover Participants hold approximately 22.50% of total post-closing equity on a fully diluted basis. The Cascadia warrants are exercisable for Class C Units of Holdings LLC and are addressed in a separate instrument.
C. Vesting Terms of Class B Units
The Class B Units issued to the Rollover Participants are subject to the following vesting provisions, as set forth in the Holdings LLC Agreement and the individual Rollover Contribution Agreements:
Fifty percent (50%) of each Rollover Participant's Class B Units vest immediately upon issuance at the Closing (the "Vested Units"). The remaining fifty percent (50%) of each Rollover Participant's Class B Units (the "Unvested Units") vest ratably on a monthly basis over a period of thirty-six (36) months from the Closing Date, subject, in the case of Dr. Carvallo and Dr. Ostrowski, to the Rollover Participant's continued employment with the Company or its affiliates through each applicable vesting date. Mr. Farnsworth's Unvested Units are also subject to continued service, consistent with the terms of his employment agreement entered into contemporaneously with the Merger.
The following table summarizes the allocation of vested and unvested Class B Units among the Rollover Participants:
The Unvested Units are treated as "profits interests" for federal income tax purposes within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191. Each Rollover Participant has agreed, pursuant to the Rollover Contribution Agreement, to file an election under Section 83(b) of the Internal Revenue Code with the Internal Revenue Service within thirty (30) days of the Closing Date (i.e., no later than June 30, 2024), electing to include in gross income the fair market value of the Unvested Units (less any amount paid therefor) as of the date of grant. The specific federal income tax treatment of the Section 83(b) election, and the consequences of the profits interest characterization of the Unvested Units, is addressed in our separate Profits Interest / Unvested Equity Memorandum dated March 8, 2024 (the "83(b) Memorandum"), and is outside the scope of this opinion except to the extent that the Section 83(b) election and the profits interest characterization interrelate with the application of Section 721 to the contributions described herein.
IV. APPLICABLE LAW
The following is a summary of the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations promulgated thereunder (the "Regulations"), that are relevant to our analysis of the tax-deferred treatment of the Rollover Participants' contributions to Holdings LLC.
A. Section 721 — Nonrecognition of Gain on Contribution to a Partnership
Section 721(a) of the Code provides:
"No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership."
This nonrecognition rule is a cornerstone of subchapter K and reflects the principle that a contribution of property to a partnership in exchange for a partnership interest is not an appropriate occasion for the recognition of gain or loss because the contributing partner merely changes the form of ownership while retaining a continuing economic interest in the contributed property through the partnership. See United States v. Stafford, 727 F.2d 1043 (11th Cir. 1984); see also Rev. Rul. 99-5, 1999-1 C.B. 434.
The nonrecognition rule of Section 721(a) applies broadly and without limitation as to the amount of gain or loss that would otherwise be recognized, provided that three conditions are satisfied: (i) the transferee entity must be classified as a "partnership" for federal income tax purposes; (ii) the transfer must constitute a "contribution of property" to such partnership; and (iii) the transferor must receive "an interest in the partnership" in exchange for the contributed property.
The term "property" for purposes of Section 721 is construed broadly and includes cash, tangible property, intangible property, and interests in other entities, including membership interests in a limited liability company classified as a partnership. See Treas. Reg. § 1.721-1(a). A membership interest in a limited liability company classified as a partnership constitutes "property" for purposes of Section 721. The nonrecognition rule applies regardless of whether the contributing partner receives a capital interest or a profits interest in the partnership, and regardless of the character of the contributed property (i.e., whether such property is a capital asset, Section 1231 property, or ordinary income property). See Treas. Reg. § 1.721-1(a); Rev. Proc. 93-27, 1993-2 C.B. 343.
There are limited exceptions to the nonrecognition rule of Section 721(a), including the investment company exception of Section 721(b) (discussed in Section IV.G below), and the special rules applicable to the contribution of services or the contribution of property subject to liabilities in excess of basis (under Section 752). Neither exception is implicated by the rollover transactions described in this opinion.
B. Section 721 vs. Section 351
Section 351 of the Code provides a parallel nonrecognition rule for transfers of property to a corporation by one or more transferors in exchange for stock of the corporation, subject to certain control requirements. Because Holdings LLC is classified as a partnership for federal income tax purposes under the default classification rules of Treasury Regulations Section 301.7701-3, and not as a corporation or an association taxable as a corporation, Section 351 is inapplicable to the contributions described herein. The analysis under Section 721, rather than Section 351, governs the tax treatment of the Rollover Participants' contributions to Holdings LLC.
The use of a partnership-classified holding entity (Holdings LLC) rather than a corporate holding entity was a deliberate structural choice made by Ardent Capital upon the recommendation of the Firm. This structure was selected, among other reasons, to preserve the basis step-up available under Section 743(b) of the Code in connection with the Acquisition. The estimated aggregate Section 743(b) basis step-up attributable to the Acquisition is approximately Two Hundred Twenty-Four Million Four Hundred Thousand Dollars ($224,400,000), calculated as the excess of the enterprise value of $412,000,000 over the estimated aggregate inside basis of Pinnacle's assets of approximately $187,600,000. This basis step-up, which is available only in a partnership structure (upon a valid Section 754 election), generates substantial amortization and depreciation deductions that enhance the after-tax returns to Ardent Capital and, indirectly, to the Rollover Participants.
If Holdings LLC were instead classified as a corporation (whether by election or by default), Section 351 would govern the contributions, and the partnership-level tax attributes described above, including the Section 743(b) basis adjustments, would not be available. Moreover, a corporate holding structure would subject the combined enterprise to entity-level taxation, resulting in a double layer of tax on income earned through Pinnacle. The partnership structure avoids this result and was thus recommended by the Firm as the preferred structure from a federal income tax perspective.
C. Section 722 — Basis of Contributing Partner's Interest
Section 722 of the Code provides the rule for determining the basis of a partnership interest acquired in exchange for a contribution of property:
"The basis of an interest in a partnership acquired by a contribution of property, including money, to the partnership shall be the amount of such money and the adjusted basis of such property to the contributing partner at the time of the contribution, increased by the amount (if any) of gain recognized under Section 721(b) to the contributing partner at such time."
Because no gain or loss is recognized by the Rollover Participants under Section 721(a) (and Section 721(b) is inapplicable, as discussed below), each Rollover Participant's tax basis in the Class B Units received will equal the adjusted tax basis of the Pinnacle membership interests contributed to Holdings LLC, determined immediately prior to the contribution. This is commonly referred to as a "substituted basis" or "exchanged basis" and ensures that the unrealized gain or loss inherent in the contributed Pinnacle membership interests is preserved in the Class B Units received in the exchange.
D. Section 723 — Basis of Property Contributed to Partnership
Section 723 of the Code provides the complementary rule for determining the basis of contributed property in the hands of the partnership:
"The basis of property contributed to a partnership by a partner shall be the adjusted basis of such property to the contributing partner at the time of the contribution, increased by the amount (if any) of gain recognized under Section 721(b) to the contributing partner at such time."
Under this provision, Holdings LLC will take a "carryover basis" in the Pinnacle membership interests contributed by each Rollover Participant, equal to the adjusted basis of such interests in the hands of the contributing Rollover Participant immediately prior to the contribution. This carryover basis rule, together with the substituted basis rule of Section 722, ensures that no built-in gain or loss is eliminated or duplicated as a result of the contribution.
E. Section 704(c) — Allocation of Built-in Gain or Loss
To the extent that the fair market value of the contributed Pinnacle membership interests exceeds their adjusted basis in the hands of the contributing Rollover Participants at the time of contribution, Section 704(c)(1)(A) of the Code requires that income, gain, loss, and deduction with respect to such property be allocated among the partners so as to take account of the variation between the adjusted basis and the fair market value of such property at the time of contribution. The purpose of Section 704(c) is to prevent the shifting of pre-contribution gain or loss from the contributing partner to other partners of the partnership.
Treasury Regulations Section 1.704-3 prescribes three permissible methods for making Section 704(c) allocations: (i) the traditional method, (ii) the traditional method with curative allocations, and (iii) the remedial method. The Holdings LLC Agreement provides that the remedial method under Treasury Regulations Section 1.704-3(d) shall be used for all Section 704(c) allocations. The remedial method eliminates the "ceiling rule" limitation inherent in the traditional method by creating notional tax items to allocate to non-contributing partners, thereby ensuring that the non-contributing partners receive the full tax benefit of the partnership's book depreciation and amortization deductions. This method is widely recognized as the most complete and accurate method of accounting for built-in gain or loss under Section 704(c), and its use is consistent with prevailing market practice in private equity transactions of this type.
F. Disguised Sale Rules — Section 707(a)(2)(B)
Section 707(a)(2)(B) of the Code and the Treasury Regulations thereunder (Treas. Reg. §§ 1.707-3 through 1.707-9) provide rules for determining whether a transfer of property by a partner to a partnership and a related transfer of money or other consideration by the partnership to the partner should be treated, in substance, as a sale of property by the partner to the partnership (a "disguised sale") rather than a tax-free contribution and a separate distribution.
Under Treasury Regulations Section 1.707-3(b)(1), if within a two-year period a partner transfers property to a partnership and the partnership makes a transfer of money or other consideration to the partner, the transfers are presumed to be a sale of the property to the partnership unless the facts and circumstances clearly establish otherwise. Conversely, if the transfers occur more than two years apart, they are presumed not to be a sale unless the facts and circumstances clearly establish otherwise. See Treas. Reg. § 1.707-3(c) and (d).
We have carefully considered the application of the disguised sale rules to the rollover contributions described herein and have concluded that such rules do not apply to recharacterize the contributions as disguised sales. Our conclusion is based on the following considerations:
First, the cash consideration received by each Rollover Participant for the cashed-out portion of their Pinnacle membership interests is received directly as merger consideration in the Merger transaction. The cash payments flow from Ardent Healthcare Intermediate Inc. (the acquiring corporation) to the Rollover Participants pursuant to the Merger Agreement, and not from Holdings LLC. The rollover contributions to Holdings LLC and the receipt of cash merger consideration are structurally separate transactions, and the cash proceeds are not transfers from Holdings LLC to the Rollover Participants.
Second, the rollover contribution of Pinnacle membership interests to Holdings LLC is structured as a standalone contribution that does not involve, and is not conditioned upon, any distribution, payment, or guaranteed payment from Holdings LLC to any Rollover Participant in connection with the contribution. The Rollover Contribution Agreements expressly provide that the Rollover Participants are not entitled to receive any distribution from Holdings LLC at or in connection with the Closing, other than such tax distributions as may be made to all members proportionally.
Third, the tax distributions to Rollover Participants under Article VI of the Holdings LLC Agreement, which are calculated based on each member's allocable share of the partnership's taxable income and the applicable combined tax rate, are made to all members of Holdings LLC on a pro rata basis in accordance with their respective allocations of taxable income. Such tax distributions are not treated as part of a disguised sale under the Treasury Regulations because they are (a) not made in connection with the contribution of property, (b) not based on the fair market value or the amount of property contributed, and (c) made to all members proportionally based on their respective tax obligations. See Treas. Reg. § 1.707-4(a)(2) (providing that certain "guaranteed payments for capital" are not treated as part of a disguised sale); see also Treas. Reg. § 1.707-4(b) (preferred returns).
Accordingly, we have determined that the disguised sale rules of Section 707(a)(2)(B) do not apply to recharacterize any of the rollover contributions described herein.
G. Investment Company Rules — Section 721(b)
Section 721(b) of the Code provides an exception to the nonrecognition rule of Section 721(a) for certain contributions to investment companies. Specifically, Section 721(b) provides:
"Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351(e)) if the partnership were incorporated."
Under Section 351(e)(1) and Treasury Regulations Section 1.351-1(c), a transfer is treated as a transfer to an investment company if (i) the transfer results, directly or indirectly, in diversification of the transferors' interests, and (ii) the transferee is a regulated investment company, a real estate investment trust, or a corporation more than eighty percent (80%) of the value of whose assets (excluding cash and nonconvertible debt obligations from both the numerator and denominator) consists of "readily marketable stocks or securities" held for investment.
Holdings LLC will hold, as its primary and substantially sole asset, a one hundred percent (100%) membership interest in Pinnacle Health Services Group LLC, an operating healthcare services platform that operates thirty-four (34) urgent care clinics and eight (8) ambulatory surgery centers across five states, employing approximately 1,620 employees. The assets of Holdings LLC consist of interests in a single operating healthcare services business and do not consist of readily marketable stocks or securities held for investment. Holdings LLC does not satisfy the diversification requirement of Section 351(e) because substantially all of its assets are attributable to a single operating enterprise. Moreover, the contribution of Pinnacle membership interests by the Rollover Participants does not result in any diversification of the Rollover Participants' interests, as the contributed property and the property held by the partnership are interests in the same enterprise.
Accordingly, Section 721(b) is inapplicable, and the investment company exception does not operate to deny nonrecognition treatment to the rollover contributions described herein.
V. ASSUMPTIONS
This opinion is based upon, and is subject to, the following assumptions of fact. We have not independently verified any of these assumptions and have relied upon the Transaction Documents, the Tax Representation Letters, and the oral and written representations of the parties in accepting each of the following as true, correct, and complete:
1.  The Transaction Documents have been duly authorized, executed, and delivered by all parties thereto and constitute valid, binding, and enforceable obligations of all parties in accordance with their respective terms under applicable law, including the Delaware Limited Liability Company Act.
2.  All representations and certifications made by each of the Rollover Participants and by Ardent Capital in the Tax Representation Letters are true, correct, and complete in all material respects as of the date of this opinion and will remain true, correct, and complete in all material respects as of the Closing Date (May 31, 2024), and no Rollover Participant or representative of Ardent Capital has made any representation or certification that is misleading or that omits material information.
3.  The Merger and the rollover transactions will be consummated in accordance with the terms and conditions described in the Merger Agreement and the Rollover Contribution Agreements, without material modification, amendment, or waiver of any term or condition that could affect the federal income tax treatment of the rollover contributions.
4.  Ardent Healthcare Holdings LLC is, and at all times through and including the Closing Date will continue to be, classified as a partnership for federal income tax purposes for the taxable year that includes the Closing Date. Holdings LLC has not filed, and will not file, an election under Treasury Regulations Section 301.7701-3 (Form 8832) to be classified as a corporation or as an association taxable as a corporation.
5.  Pinnacle Health Services Group LLC has been, and at all times through and including the Closing Date will continue to be, classified as a partnership for federal income tax purposes, consistent with its Employer Identification Number 82-1947632 and its operating history since its formation in August 2016. No election under Treasury Regulations Section 301.7701-3 has been filed by or on behalf of Pinnacle to change its classification from partnership.
6.  No Rollover Participant is contributing Pinnacle membership interests to Holdings LLC as part of a plan, arrangement, or understanding, whether formal or informal, written or oral, that includes or contemplates a distribution of money or other consideration from Holdings LLC to such Rollover Participant or to a person related to such Rollover Participant (within the meaning of Section 707(b) of the Code), at or in connection with the contribution, other than tax distributions made to all members of Holdings LLC on a proportional basis in accordance with their respective allocations of taxable income.
7.  The Holdings LLC Agreement, including its provisions relating to capital account maintenance, allocations of income, gain, loss, and deduction, and distributions, complies with the requirements of Section 704(b) of the Code and Treasury Regulations Sections 1.704-1(b) and 1.704-2, including the requirement that allocations have substantial economic effect or be in accordance with the partners' interests in the partnership.
8.  The Class B Units received by each Rollover Participant constitute bona fide partnership interests in Holdings LLC and are not, in substance, debt instruments, options, warrants, convertible notes, or other contractual rights that are not properly characterized as partnership interests for federal income tax purposes.
9.  Each of the Rollover Participants is a "United States person" as defined in Section 7701(a)(30) of the Code, and is a citizen or resident of the United States for federal income tax purposes.
10.  The fair market value of the Class B Units received by each Rollover Participant is equal to the fair market value of the Pinnacle membership interests contributed by such Rollover Participant to Holdings LLC, in each case as determined by and set forth in the applicable Rollover Contribution Agreement. No Rollover Participant is receiving Class B Units with a value that is materially greater than or less than the value of the Pinnacle membership interests contributed by such Rollover Participant.
If any of the foregoing assumptions is inaccurate or incomplete in any material respect, the conclusions expressed in this opinion could be adversely affected, and we reserve the right to modify or withdraw this opinion in such event.
VI. OPINION
Based on the facts set forth herein, the Transaction Documents reviewed, the assumptions set forth in Section V above, and the analysis of applicable law set forth in Section IV above, and subject in all respects to the qualifications and limitations set forth in Section VII below, it is our opinion as follows:
A. Classification of Holdings LLC as a Partnership
Based on our review of the Certificate of Formation of Ardent Healthcare Holdings LLC (Delaware File Number 7834219), filed with the Secretary of State of the State of Delaware on March 5, 2024, the Holdings LLC Agreement, the representations of Ardent Capital, and the absence of any check-the-box election under Treasury Regulations Section 301.7701-3 (Form 8832) to classify Holdings LLC as a corporation or an association taxable as a corporation, it is our opinion that Holdings LLC is properly classified as a partnership for federal income tax purposes under the default classification rules applicable to domestic eligible entities with more than one member. See Treas. Reg. § 301.7701-3(b)(1)(i).
Holdings LLC has more than one member for federal income tax purposes: (i) Ardent Capital Partners III LP, which is contributing Fund III equity of $198,500,000 in exchange for Class A Units; (ii) the three Rollover Participants, who are contributing Pinnacle membership interests with an aggregate fair market value of $59,547,730 in exchange for Class B Units; and (iii) Cascadia Mezzanine Fund IV LP, which holds warrants exercisable for equity representing 2.5% of fully diluted Holdings LLC equity. Because Holdings LLC is a domestic eligible entity with at least two members and has not elected to be classified as a corporation, it is classified by default as a partnership under the Treasury Regulations.
B. Qualification of Rollover Contributions Under Section 721(a)
It is our opinion that the contribution by each Rollover Participant of a portion of his or her Pinnacle membership interests to Holdings LLC in exchange for Class B Units constitutes a contribution of "property" to a "partnership" in exchange for "an interest in the partnership" within the meaning of Section 721(a) of the Code, and that, accordingly, no gain or loss is recognized by any Rollover Participant or by Holdings LLC upon such contribution. Specifically:
•  Dr. Raymond Carvallo: The contribution by Dr. Carvallo of Pinnacle membership interests with a fair market value of approximately $32,412,700 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Dr. Carvallo upon such contribution.
•  Dr. Nadia Ostrowski: The contribution by Dr. Ostrowski of Pinnacle membership interests with a fair market value of approximately $24,182,250 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Dr. Ostrowski upon such contribution.
•  Jonathan Farnsworth: The contribution by Mr. Farnsworth of Pinnacle membership interests with a fair market value of approximately $2,952,780 to Holdings LLC in exchange for Class B Units constitutes a tax-deferred contribution under Section 721(a). No gain or loss is recognized by Mr. Farnsworth upon such contribution.
In addition, no gain or loss is recognized by Holdings LLC upon the receipt of the contributed Pinnacle membership interests from the Rollover Participants. See Section 721(a); Treas. Reg. § 1.721-1(a).
C. Inapplicability of Section 721(b) — Investment Company Exception
It is our opinion that Holdings LLC is not an "investment company" within the meaning of Section 721(b) of the Code (incorporating the definition of Section 351(e)) because Holdings LLC's assets consist of interests in a single operating healthcare services platform — specifically, Pinnacle Health Services Group LLC, which operates thirty-four (34) urgent care clinics and eight (8) ambulatory surgery centers across five states (New York, New Jersey, Connecticut, Pennsylvania, and Massachusetts), employing approximately 1,620 employees — rather than diversified investment securities or readily marketable stocks or securities held for investment. The contribution of Pinnacle membership interests to Holdings LLC does not result in diversification of the Rollover Participants' investment interests. Accordingly, the investment company exception of Section 721(b) does not apply to deny nonrecognition treatment to the rollover contributions described herein.
D. Inapplicability of Disguised Sale Rules
It is our opinion that the rollover contributions described herein are not subject to recharacterization as disguised sales under Section 707(a)(2)(B) of the Code and Treasury Regulations Sections 1.707-3 through 1.707-9. As described in Section IV.F above, the cash consideration received by each Rollover Participant for the cashed-out portion of their Pinnacle membership interests is received directly as merger consideration in the Merger, paid by Ardent Healthcare Intermediate Inc. pursuant to the Merger Agreement, and is not a transfer from Holdings LLC to the Rollover Participants. The rollover contributions are structurally separate from, and are not conditioned upon or related to, any distribution from Holdings LLC to the Rollover Participants, other than tax distributions made proportionally to all members. The disguised sale rules are therefore inapplicable.
E. Basis Consequences
It is our opinion that the basis consequences of the rollover contributions are as follows:
(i) Rollover Participants' Basis in Class B Units (Section 722). Under Section 722 of the Code, each Rollover Participant's initial tax basis in the Class B Units received in exchange for the contributed Pinnacle membership interests equals the adjusted tax basis of such contributed Pinnacle membership interests in the hands of the contributing Rollover Participant immediately prior to the contribution. Each Rollover Participant's adjusted basis in the contributed Pinnacle membership interests will be determined by reference to each Rollover Participant's Schedule K-1 for the taxable year ending on the Closing Date, adjusted for any allocations of income, gain, loss, deduction, or distributions through the Closing Date, and reduced by any liabilities of Pinnacle from which the contributing Rollover Participant is relieved (or deemed relieved) in connection with the contribution. The specific adjusted basis for each Rollover Participant should be confirmed by each Rollover Participant's individual tax advisor.
(ii) Holdings LLC's Basis in Contributed Pinnacle Interests (Section 723). Under Section 723 of the Code, Holdings LLC's tax basis in the Pinnacle membership interests contributed by each Rollover Participant equals the adjusted basis of such interests in the hands of the contributing Rollover Participant immediately prior to the contribution. Holdings LLC will therefore take a carryover basis in the contributed Pinnacle membership interests, which will generally be less than the fair market value of such interests.
(iii) Section 704(c) Allocations. To the extent the fair market value of the contributed Pinnacle membership interests exceeds the adjusted basis of such interests in the hands of the contributing Rollover Participant, Section 704(c) of the Code requires that allocations of income, gain, loss, and deduction with respect to such property take into account the variation between basis and fair market value. Pursuant to Section 5.3 of the Holdings LLC Agreement, the remedial method under Treasury Regulations Section 1.704-3(d) will be used for all Section 704(c) allocations.
F. Holding Period
It is our opinion that, under Section 1223(1) of the Code, each Rollover Participant's holding period for the Class B Units received in exchange for the contributed Pinnacle membership interests includes the holding period of such contributed Pinnacle membership interests, provided that such interests were capital assets or assets described in Section 1231 of the Code in the hands of the contributing Rollover Participant at the time of the contribution. Based on the representations of each Rollover Participant, the contributed Pinnacle membership interests are capital assets within the meaning of Section 1221 of the Code.
VII. QUALIFICATIONS AND LIMITATIONS
The opinion expressed herein is subject to the following qualifications and limitations:
1.  Applicability of Current Law. This opinion is based on the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published administrative pronouncements of the Internal Revenue Service (including Revenue Rulings and Revenue Procedures), and judicial decisions of the federal courts, in each case as in effect and available as of the date hereof. Changes in applicable law (whether by legislative action, regulatory amendment, administrative guidance, or judicial decision) occurring after the date of this opinion could affect, and potentially could adversely affect, the conclusions expressed herein. We undertake no obligation to update this opinion to reflect any such changes.
2.  Federal Income Tax Consequences Only. This opinion addresses only the federal income tax consequences of the rollover contributions under Section 721 of the Code. This opinion does not address any state, local, or foreign (including non-U.S.) tax consequences of the rollover contributions or of any other aspect of the Acquisition. State and local tax consequences of the Acquisition and the rollover contributions are separately analyzed in our State & Local Tax Memorandum dated February 20, 2024, which has been delivered to Ardent Capital under separate cover.
3.  Section 83 and Unvested Equity. This opinion does not address the federal income tax consequences of the vesting provisions applicable to the Unvested Class B Units under Section 83 of the Code, including the consequences of filing (or failing to file) a Section 83(b) election. Those matters are addressed in our separate Profits Interest / Unvested Equity Memorandum dated March 8, 2024. To the extent the treatment of the Unvested Units under Section 83 interacts with the application of Section 721 to the contributions described herein, we have assumed that each Rollover Participant timely files a valid Section 83(b) election.
4.  Future Transactions. This opinion does not address the federal income tax consequences of any subsequent disposition, redemption, repurchase, forfeiture, or transfer of Class B Units by any Rollover Participant, any distribution (whether in cash or in kind) by Holdings LLC to any member, or any future transaction, restructuring, recapitalization, or change of control involving Holdings LLC, Pinnacle, or any of their affiliates.
5.  Earnout Payments. This opinion does not address the federal income tax treatment of the earnout payments (maximum aggregate amount of Thirty-Five Million Dollars ($35,000,000)) payable to certain former members of Pinnacle under Article III of the Merger Agreement. The tax characterization of such earnout payments is separately addressed in our Earnout Tax Characterization Memorandum dated March 1, 2024.
6.  Tax Receivable Agreement and Section 743(b). This opinion does not address the Tax Receivable Agreement dated May 28, 2024, or the Section 743(b) basis step-up available to Ardent Capital in connection with its acquisition of Class A Units, or the amortization or depreciation deductions arising from such basis step-up. Those matters are addressed in separate deliverables furnished by the Firm to Ardent Capital.
7.  Scope of Opinion. No opinion is expressed as to any federal, state, local, or foreign tax matter not specifically and expressly addressed in this opinion. The omission of any particular issue or topic from this opinion should not be construed as an indication of our view, whether favorable or unfavorable, on such issue or topic.
8.  Reliance and Beneficiaries. This opinion is rendered solely for the benefit of Ardent Capital Partners III LP and may not be relied upon by any other person or entity without our prior written consent. Notwithstanding the foregoing, we acknowledge that the Rollover Participants may need to rely on this opinion for purposes of their own federal income tax reporting with respect to the rollover contributions, and we consent to the Rollover Participants' reliance on this opinion for such limited purpose. Except as expressly provided herein, this opinion may not be furnished to, relied upon by, or cited by any other person or entity.
9.  Non-Tax Matters. We express no view or opinion on the business, financial, economic, accounting, or non-tax legal aspects of the Acquisition or the rollover contributions, including without limitation the reasonableness of the enterprise value, the equity value, the rollover percentages, or the terms of the Holdings LLC Agreement.
10.  No Guarantee. This opinion represents our best professional judgment as to the matters addressed herein, based on the facts, assumptions, and applicable law described above, but is not a guarantee of any particular tax result. The Internal Revenue Service could take a position contrary to the conclusions expressed herein, and there is no assurance that a court would agree with the conclusions expressed in this opinion if the matter were litigated. No ruling has been sought from the Internal Revenue Service with respect to the matters addressed herein.
VIII. LEVEL OF OPINION
Based on the facts, assumptions, and representations set forth above, and subject in all respects to the qualifications and limitations described in Section VII above, it is our opinion that it is "more likely than not" (i.e., there is a greater than fifty percent (50%) likelihood) that:
(a) the contribution by each Rollover Participant of a portion of his or her Pinnacle membership interests to Ardent Healthcare Holdings LLC in exchange for Class B Units of Holdings LLC will qualify as a tax-deferred contribution under Section 721(a) of the Internal Revenue Code of 1986, as amended;
(b) no gain or loss will be recognized by any Rollover Participant upon such contribution; and
(c) no gain or loss will be recognized by Holdings LLC upon the receipt of such contributions.
The "more likely than not" standard means that we believe the position described herein, if challenged by the Internal Revenue Service, would prevail on the merits based on the weight of applicable legal authorities. This opinion should not be understood as an opinion at a higher level of confidence (such as "should" or "will"), and should not be relied upon as a guarantee of a particular outcome.
IX. CONSENT AND RELIANCE
This opinion is furnished to Ardent Capital Partners III LP solely in connection with the Acquisition and the rollover transactions described herein and may not be used, quoted, or relied upon for any other purpose or in connection with any other transaction.
We consent to a copy of this opinion being furnished to each of the Rollover Participants (Dr. Raymond Carvallo, Dr. Nadia Ostrowski, and Jonathan Farnsworth) and their respective personal tax advisors for purposes of their individual federal income tax reporting in connection with the rollover contributions described herein, and to Harcourt Shaw & DeVries LLP, in its capacity as M&A counsel to Ardent Capital, solely for purposes of its review in connection with the Acquisition.
This opinion may not be disclosed, furnished, or made available to any other person or entity, or quoted, excerpted, or referred to in any document, filing, marketing material, prospectus, or communication, in whole or in part, without our prior written consent, except as may be required by applicable law, regulation, or a valid subpoena, court order, or similar legal process. In the event that disclosure is required by law or regulation, Ardent Capital shall, to the extent practicable, provide us with reasonable advance notice of such required disclosure.
We appreciate the opportunity to serve as tax counsel to Ardent Capital Partners III LP in connection with this transaction. Should you have any questions regarding this opinion or require any additional analysis, please do not hesitate to contact the undersigned or Sylvia Hartwell of the Firm's Tax Department.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Leonard Cross
Title: Partner, Tax Department
One Liberty Plaza, 45th Floor New York, New York 10006 Telephone: (212) 504-6000
Date: May 29, 2024
Enclosures:
Tax Representation Letters of the Rollover Participants (dated May 20, 2024) Tax Representation Letter of Ardent Capital Partners III LP (dated May 22, 2024)
cc:
Claire Ashworth, Co-Founder & Managing Partner, Ardent Capital Partners III LP Dominic Ferrera, Co-Founder & Managing Partner, Ardent Capital Partners III LP Thomas Kundra, Partner, Harcourt Shaw & DeVries LLP Sylvia Hartwell, Partner, Calderwood & Harkness LLP Robert Jansen, Senior Associate, Calderwood & Harkness LLP
PRIVILEGED & CONFIDENTIAL — This opinion is protected by the attorney-client privilege and the work product doctrine. It is furnished solely for the use of the addressee and the persons identified herein and may not be disclosed to any other person without the prior written consent of Calderwood & Harkness LLP.
Rollover Participant | Total Rollover Value | Vested at Closing (50%) | Unvested (50%)
Dr. Raymond Carvallo | $32,412,700 | $16,206,350 | $16,206,350
Dr. Nadia Ostrowski | $24,182,250 | $12,091,125 | $12,091,125
Jonathan Farnsworth | $2,952,780 | $1,476,390 | $1,476,390
Total | $59,547,730 | $29,773,865 | $29,773,865