Exhibit 10.3

 

TAX RECEIVABLE AGREEMENT

 

among

 

ADEPTUS HEALTH INC.

 

and

 

THE PERSONS NAMED HEREIN

 

Dated as of June 25, 2014

 

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TABLE OF CONTENTS

 

 

Page

 

 

ARTICLE I DEFINITIONS

4

 

 

Section 1.1

Definitions

4

 

 

ARTICLE II DETERMINATION OF CERTAIN REALIZED TAX BENEFIT

10

 

 

Section 2.1

Basis Adjustment

10

Section 2.2

Tax Benefit Schedule

11

Section 2.3

Procedures, Amendments

11

 

 

ARTICLE III TAX BENEFIT PAYMENTS

13

 

 

Section 3.1

Payments

13

Section 3.2

No Duplicative Payments

13

Section 3.3

Pro Rata Payments; Coordination of Benefits

14

 

 

ARTICLE IV TERMINATION

14

 

 

Section 4.1

Early Termination and Breach of Agreement

14

Section 4.2

Early Termination Notice

15

Section 4.3

Payment upon Early Termination

15

 

 

ARTICLE V SUBORDINATION AND LATE PAYMENTS

16

 

 

Section 5.1

Subordination

16

Section 5.2

Late Payments by the Corporate Taxpayer

16

 

 

ARTICLE VI NO DISPUTES; CONSISTENCY; COOPERATION

16

 

 

Section 6.1

Participation in the Corporate Taxpayer’s and AHLLC’s Tax Matters

16

Section 6.2

Consistency

16

Section 6.3

Cooperation

17

 

 

ARTICLE VII MISCELLANEOUS

17

 

 

Section 7.1

Notices

17

Section 7.2

Counterparts

18

Section 7.3

Entire Agreement; No Third Party Beneficiaries

18

Section 7.4

Governing Law

18

Section 7.5

Severability

18

Section 7.6

Successors; Assignment; Amendments; Waivers

19

Section 7.7

Titles and Subtitles

19

Section 7.8

Resolution of Disputes

19

Section 7.9

Reconciliation

20

Section 7.10

Withholding

21

Section 7.11

Admission of the Corporate Taxpayer into a Consolidated

 

 

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Group; Transfers of Corporate Assets

21

Section 7.12

Confidentiality

22

Section 7.13

Change in Law

22

Section 7.14

LLC Agreement

23

 

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TAX RECEIVABLE AGREEMENT (EXCHANGES)

 

This TAX RECEIVABLE AGREEMENT (EXCHANGES) (this “Agreement”), dated as of
June 25, 2014, is hereby entered into by and among Adeptus Health Inc., a
Delaware corporation (the “Corporate Taxpayer”) and each of the persons from
time to time party hereto (the “TRA Parties”).

 

RECITALS

 

WHEREAS, certain TRA Parties directly or indirectly hold limited liability
company units (the “Units”) in Adeptus Health, LLC, a Delaware limited liability
company (“AHLLC”), which is classified as a partnership for United States
federal income tax purposes;

 

WHEREAS, the Corporate Taxpayer is the managing member of AHLLC, and holds and
will hold, directly and/or indirectly, Units;

 

WHEREAS, a TRA Party holds stock of SCP III AIV Three-FCER Blocker, Inc., a
Delaware corporation (the “Sterling Corporate Member”), which is classified as a
corporation for United States federal income tax purposes;

 

WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as of
June 24, 2014, among the Corporate Taxpayer and the parties named therein, the
Sterling Corporate Member will merge with and into the Corporate Taxpayer (the
“Merger”);

 

WHEREAS, the Units held by the TRA Parties may be exchanged for Class A common
stock (the “Class A Shares”) of the Corporate Taxpayer, subject to the
provisions of the LLC Agreement (as defined below);

 

WHEREAS, AHLLC and each of its direct and indirect Subsidiaries (as defined
below) treated as a partnership for United States federal income tax purposes
currently have and will have in effect an election under Section 754 of the
United States Internal Revenue Code of 1986, as amended (the “Code”), for each
Taxable Year (as defined below) in which (i) a transfer (including a transfer by
merger or otherwise by operation of law) or (ii) a deemed transfer for U.S.
federal income tax purposes (including pursuant to Section 707(a) of the Code)
of Units to the Corporate Taxpayer from the TRA Parties or the Sterling
Corporate Member (any such transfer, an “Exchange”) occurs;

 

WHEREAS, the income, gain, loss, expense and other Tax (as defined below) items
of the Corporate Taxpayer may be affected by (i) the Basis Adjustments (as
defined below) and (ii) the Imputed Interest (as defined below);

 

WHEREAS, the parties to this Agreement desire to make certain arrangements with
respect to the effect of the Basis Adjustments and Imputed Interest on the
liability for Taxes of the Corporate Taxpayer;

 

WHEREAS, Exchanges by the TRA Parties and by the Sterling Corporate Member, and
payments in respect of Tax savings related to such Exchanges, will result in Tax
savings for the Corporate Taxpayer;

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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NOW, THEREFORE, in consideration of the foregoing and the respective covenants
and agreements set forth herein, and intending to be legally bound hereby, the
parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1                                    Definitions. As used in this
Agreement, the terms set forth in this Article I shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined).

 

“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such first Person.

 

“Agreed Rate” means LIBOR plus 100 basis points.

 

“Agreement” is defined in the Recitals of this Agreement.

 

“Amended Schedule” is defined in Section 2.3(b) of this Agreement.

 

“Basis Adjustment” means the adjustment to the tax basis of a Reference Asset
under Sections 732, 734(b) and 1012 of the Code (in situations where, as a
result of one or more Exchanges, AHLLC becomes an entity that is disregarded as
separate from its owner for United States federal income tax purposes) or under
Sections 734(b), 743(b) and 754 of the Code (in situations where, following an
Exchange, AHLLC remains in existence as an entity for United States federal
income tax purposes) and, in each case, comparable sections of state and local
tax laws, as a result of an Exchange and the payments made pursuant to this
Agreement.  The amount of any Basis Adjustment resulting from an Exchange of one
or more Units shall be determined without regard to any Pre-Exchange Transfer of
such Units (or interests in a predecessor of AHLLC) and as if any such
Pre-Exchange Transfer had not occurred.

 

A “Beneficial Owner” of a security is a Person who directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares: (i) voting power, which includes the power to vote, or to direct the
voting of, such security and/or (ii) investment power, which includes the power
to dispose of, or to direct the disposition of, such security.  The terms
“Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.

 

“Board” means the Board of Directors of the Corporate Taxpayer.

 

“Business Day” means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States of America or
the State of New York shall not be regarded as a Business Day.

 

“Change of Control” means the occurrence of any of the following events:

 

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(i)                                     any Person or any group of Persons
acting together which would constitute a “group” for purposes of
Section 13(d) of the Securities and Exchange Act of 1934, or any successor
provisions thereto (excluding a group of Persons which includes one or more
Affiliates of Sterling Partners), is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Corporate Taxpayer representing more than
50% of the combined voting power of the Corporate Taxpayer’s then outstanding
voting securities; or

 

(ii)                                  the following individuals cease for any
reason to constitute a majority of the number of directors of the Corporate
Taxpayer then serving: individuals who, on the IPO Date, constitute the Board
and any new director whose appointment or election by the Board or nomination
for election by the Corporate Taxpayer’s shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors on the IPO Date or whose appointment,
election or nomination for election was previously so approved or recommended by
the directors referred to in this clause (ii); or

 

(iii)                               there is consummated a merger or
consolidation of the Corporate Taxpayer with any other corporation or other
entity, and, immediately after the consummation of such merger or consolidation,
either (x) the Board immediately prior to the merger or consolidation does not
constitute at least a majority of the board of directors of the company
surviving the merger or, if the surviving company is a Subsidiary, the ultimate
parent thereof, or (y) the voting securities of the Corporate Taxpayer
immediately prior to such merger or consolidation do not continue to represent
or are not converted into more than 50% of the combined voting power of the then
outstanding voting securities of the Person resulting from such merger or
consolidation or, if the surviving company is a Subsidiary, the ultimate parent
thereof; or

 

(iv)                              the shareholders of the Corporate Taxpayer
approve a plan of complete liquidation or dissolution of the Corporate Taxpayer
or there is consummated an agreement or series of related agreements for the
sale, lease or other disposition, directly or indirectly, by the Corporate
Taxpayer of all or substantially all of the Corporate Taxpayer’s assets, other
than such sale or other disposition by the Corporate Taxpayer of all or
substantially all of the Corporate Taxpayer’s assets to an entity, at least 50%
of the combined voting power of the voting securities of which are owned by
shareholders of the Corporate Taxpayer in substantially the same proportions as
their ownership of the Corporate Taxpayer immediately prior to such sale.

 

Notwithstanding the foregoing, except with respect to clause (ii) and clause
(iii)(x) above, a “Change of Control” shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of integrated
transactions immediately following which the record holders of

 

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the shares of the Corporate Taxpayer immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in, and own substantially all of the shares of, an entity which owns
all or substantially all of the assets of the Corporate Taxpayer immediately
following such transaction or series of transactions.

 

“Class A Shares” is defined in the Recitals of this Agreement.

 

“Code” is defined in the Recitals of this Agreement.

 

“Control” means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.

 

“Corporate Taxpayer” is defined in the Recitals of this Agreement.

 

“Corporate Taxpayer Return” means the federal and/or state and/or local Tax
Return, as applicable, of the Corporate Taxpayer filed with respect to Taxes of
any Taxable Year.

 

“Cumulative Net Realized Tax Benefit” for a Taxable Year means the cumulative
amount of Realized Tax Benefits for all Taxable Years of the Corporate Taxpayer,
up to and including such Taxable Year, net of the cumulative amount of Realized
Tax Detriments for the same period.  The Realized Tax Benefit and Realized Tax
Detriment for each Taxable Year shall be determined based on the most recent Tax
Benefit Schedules or Amended Schedules, if any, in existence at the time of such
determination.

 

“Default Rate” means LIBOR plus 500 basis points.

 

“Determination” shall have the meaning ascribed to such term in
Section 1313(a) of the Code or similar provision of state, foreign or local tax
law, as applicable, or any other event (including the execution of IRS
Form 870-AD) that finally and conclusively establishes the amount of any
liability for Tax.

 

“Dispute” has the meaning set forth in Section 7.8(a) of this Agreement.

 

“Early Termination Date” means the date of an Early Termination Notice for
purposes of determining the Early Termination Payment.

 

“Early Termination Effective Date” is defined in Section 4.2 of this Agreement.

 

“Early Termination Notice” is defined in Section 4.2 of this Agreement.

 

“Early Termination Schedule” is defined in Section 4.2 of this Agreement.

 

“Early Termination Payment” is defined in Section 4.3(b) of this Agreement.

 

“Early Termination Rate” means the lesser of (i) 6.5% per annum, compounded
annually, and (ii) LIBOR plus 100 basis points.

 

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“Exchange” is defined in the Recitals of this Agreement. For the avoidance of
doubt, the following transactions shall be treated as Exchanges: (i) the
transfer of Units from the Sterling Corporate Member to the Corporate Taxpayer
by reason of the Merger and (ii) the distribution of cash to the members of
AHLLC on or around the date of the IPO, which will be treated for U.S. federal
income tax purposes, in whole or in part, as a deemed sale of partnership
interests in AHLLC to the Corporate Taxpayer pursuant to Section 707(a) of the
Code.

 

“Exchange Basis Schedule” is defined in Section 2.1 of this Agreement.

 

“Exchange Date” means the date of any Exchange, including the date of the
Merger.

 

“Exchange Notice” shall have the meaning set forth in the LLC Agreement.

 

“Expert” is defined in Section 7.9 of this Agreement.

 

“Hypothetical Tax Liability”  means, with respect to any Taxable Year, the
liability for Taxes of (i) the Corporate Taxpayer and (ii) without duplication,
AHLLC, but only with respect to Taxes imposed on AHLLC and allocable to the
Corporate Taxpayer or to the other members of the consolidated group of which
the Corporate Taxpayer is the parent, in each case using the same methods,
elections, conventions and similar practices used on the relevant Corporate
Taxpayer Return, but (a) using the Non-Stepped Up Tax Basis as reflected on the
Exchange Basis Schedule including amendments thereto for the Taxable Year and
(b) excluding any deduction attributable to Imputed Interest for the Taxable
Year.  For the avoidance of doubt, Hypothetical Tax Liability shall be
determined without taking into account the carryover or carryback of any Tax
item (or portions thereof) that is attributable to the Basis Adjustment or
Imputed Interest, as applicable.

 

“Imputed Interest” in respect of a TRA Party shall mean any interest imputed
under Section 1272, 1274 or 483 or other provision of the Code and any similar
provision of state and local tax law with respect to the Corporate Taxpayer’s
payment obligations in respect of such TRA Party under this Agreement.

 

“IPO” means the initial public offering of Class A Shares by the Corporate
Taxpayer.

 

“IPO Date” means the closing date of the IPO.

 

“IRS” means the United States Internal Revenue Service.

 

“LIBOR” means during any period, an interest rate per annum equal to the
one-year LIBOR reported, on the date two days prior to the first day of such
period, on the Telerate Page 3750 (or if such screen shall cease to be publicly
available, as reported on Reuters Screen page “LIBOR01” or by any other publicly
available source of such market rate) for London interbank offered rates for
United States dollar deposits for such period.

 

“LLC Agreement” means, with respect to AHLLC, the Amended and Restated Limited
Liability Company Agreement of AHLLC, dated on or about the date hereof.

 

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“Market Value” shall mean the closing price of the Class A Shares on the
applicable Exchange Date on the national securities exchange or interdealer
quotation system on which such Class A Shares are then traded or listed, as
reported by the Wall Street Journal; provided, that if the closing price is not
reported by the Wall Street Journal for the applicable Exchange Date, then the
Market Value shall mean the closing price of the Class A Shares on the Business
Day immediately preceding such Exchange Date on the national securities exchange
or interdealer quotation system on which such Class A Shares are then traded or
listed, as reported by the Wall Street Journal; provided, further, that if the
Class A Shares are not then listed on a national securities exchange or
interdealer quotation system, “Market Value” shall mean the cash consideration
paid for Class A Shares, or the fair market value of the other property
delivered for Class A Shares, as determined by the Board in good faith.

 

“Material Objection Notice” has the meaning set forth in Section 4.2 of this
Agreement.

 

“Non-Stepped Up Tax Basis” means, with respect to any Reference Asset at any
time, the Tax basis that such asset would have had at such time if no Basis
Adjustments had been made.

 

“Objection Notice” has the meaning set forth in Section 2.3(a) of this
Agreement.

 

“Payment Date” means any date on which a payment is required to be made pursuant
to this Agreement.

 

“Person” means any individual, corporation, firm, partnership, joint venture,
limited liability company, estate, trust, business association, organization,
governmental entity or other entity.

 

“Pre-Exchange Transfer” means any transfer (including upon the death of a
Member) or distribution (or deemed distribution) in respect of one or more Units
(or interests in a predecessor of AHLLC) (i) that occurs prior to an Exchange of
such Units, and (ii) to which Section 743(b) or 734(b) of the Code applies. 
Pre-Exchange Transfers include, but are not limited to, (i) the acquisition of
interests in the predecessor of AHLLC by First Choice AIV Holding LLC pursuant
to the Securities Purchase Agreement dated September 30, 2011, (ii) the
transfers or distributions of Units on or around the date hereof among First
Choice AIV Holding LLC, SCP III AIV THREE-FCER, LP and the Sterling Corporate
Member and (iii) the transfer of Units from the Sterling Corporate Member to the
Corporate Taxpayer pursuant to the Merger.

 

“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the
Hypothetical Tax Liability over the actual liability for Taxes of (i) the
Corporate Taxpayer and (ii) without duplication, AHLLC, but only with respect to
Taxes imposed on AHLLC and allocable to the Corporate Taxpayer or to the other
members of the consolidated group of which the Corporate Taxpayer is the parent
for such Taxable Year.  If all or a portion of the actual liability for such
Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority
of any Taxable Year, such liability shall not be included in determining the
Realized Tax Benefit unless and until there has been a Determination.

 

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“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of the
actual liability for Taxes of (i) the Corporate Taxpayer and (ii) without
duplication, AHLLC, but only with respect to Taxes imposed on AHLLC and
allocable to the Corporate Taxpayer or to the other members of the consolidated
group of which the Corporate Taxpayer is the parent for such Taxable Year, over
the Hypothetical Tax Liability for such Taxable Year.  If all or a portion of
the actual liability for such Taxes for the Taxable Year arises as a result of
an audit by a Taxing Authority of any Taxable Year, such liability shall not be
included in determining the Realized Tax Detriment unless and until there has
been a Determination.

 

“Reconciliation Dispute” has the meaning set forth in Section 7.9 of this
Agreement.

 

“Reconciliation Procedures” has the meaning set forth in Section 2.3(a) of this
Agreement.

 

“Reference Asset” means an asset that is held by AHLLC, or by any of its direct
or indirect Subsidiaries treated as a partnership or disregarded entity (but
only if such indirect Subsidiaries are held only through Subsidiaries treated as
partnerships or disregarded entities) for purposes of the applicable Tax, at the
time of an Exchange.  A Reference Asset also includes any asset that is
“substituted basis property” under Section 7701(a)(42) of the Code with respect
to a Reference Asset.

 

“Schedule” means any of the following: (i) an Exchange Basis Schedule, (ii) a
Tax Benefit Schedule, or (iii) the Early Termination Schedule.

 

“Senior Obligations” is defined in Section 5.1 of this Agreement.

 

“Sterling Corporate Member” is defined in the Recitals of this Agreement.

 

“Subsidiaries” means, with respect to any Person, as of any date of
determination, any other Person as to which such Person, owns, directly or
indirectly, or otherwise controls more than 50% of the voting power or other
similar interests or the sole general partner interest or managing member or
similar interest of such Person.

 

“Subsidiary Stock” means any stock or other equity interest in any subsidiary
entity of AHLLC that is treated as a corporation for United States federal
income tax purposes.

 

“Tax Benefit Payment” is defined in Section 3.1(b) of this Agreement.

 

“Tax Benefit Schedule” is defined in Section 2.2 of this Agreement.

 

“Tax Return” means any return, declaration, report or similar statement required
to be filed with respect to Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.

 

“Taxable Year” means a taxable year of the Corporate Taxpayer as defined in
Section 441(b) of the Code or comparable section of state or local tax law, as
applicable (and,

 

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therefore, for the avoidance of doubt, may include a period of less than 12
months for which a Tax Return is made), ending on or after the IPO Date.

 

“Taxes” means any and all United States federal, state, local and foreign taxes,
assessments or similar charges that are based on or measured with respect to net
income or profits, and any interest related to such Tax.

 

“Taxing Authority” shall mean any domestic, federal, national, state, county or
municipal or other local government, any subdivision, agency, commission or
authority thereof, or any quasi-governmental body exercising any taxing
authority or any other authority exercising Tax regulatory authority.

 

“TRA Party” is defined in the Recitals of this Agreement.

 

“Treasury Regulations” means the final, temporary and proposed regulations under
the Code promulgated from time to time (including corresponding provisions and
succeeding provisions) as in effect for the relevant taxable period.

 

“Units” is defined in the Recitals of this Agreement.

 

“Valuation Assumptions” shall mean, as of an Early Termination Date, the
assumptions that in each Taxable Year ending on or after such Early Termination
Date, (1) the Corporate Taxpayer will have taxable income sufficient to fully
utilize (i) the deductions arising from the Basis Adjustments and the Imputed
Interest during such Taxable Year or future Taxable Years (including, for the
avoidance of doubt, Basis Adjustments and Imputed Interest that would result
from future Tax Benefit Payments that would be paid in accordance with the
Valuation Assumptions) in which such deductions would become available and
(ii) any loss carryovers generated by deductions arising from Basis Adjustments
or Imputed Interest that are available as of the date of such Early Termination
Date, subject to all applicable limitations on the use of such loss carryovers,
(2) the United States federal, state and local income tax rates that will be in
effect for each such Taxable Year will be those specified for each such Taxable
Year by the Code and other law as in effect on the Early Termination Date,
(3) any non-amortizable assets (other than any Subsidiary Stock) will be
disposed of on the fifteenth anniversary of the applicable Basis Adjustment and
any short-term investments will be disposed of 12 months following the Early
Termination Date; provided, that in the event of a Change of Control, such
non-amortizable assets shall be deemed disposed of at the time of sale of the
relevant asset (if earlier than such fifteenth anniversary), (4) any Subsidiary
Stock will never be disposed of and (5) if, at the Early Termination Date, there
are Units that have not been Exchanged, then each such Unit is Exchanged for the
Market Value of the Class A Shares and the amount of cash that would be
transferred if the Exchange occurred on the Early Termination Date.

 

ARTICLE II

 

DETERMINATION OF CERTAIN REALIZED TAX BENEFIT

 

Section 2.1                                    Basis Adjustment. Within ninety
(90) calendar days after the filing of the United States federal income tax
return of the Corporate Taxpayer for each Taxable Year

 

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in which any Exchange has been effected (including the Taxable Year of the
Merger), the Corporate Taxpayer shall deliver to each TRA Party a schedule (the
“Exchange Basis Schedule”) that shows, in reasonable detail necessary to perform
the calculations required by this Agreement (i) the Non-Stepped Up Tax Basis of
the Reference Assets in respect of such TRA Party as of each applicable Exchange
Date, (ii) the Basis Adjustment with respect to the Reference Assets in respect
of such TRA Party as a result of the Exchanges effected in such Taxable Year by
such TRA Party, calculated in the aggregate, (iii) the period (or periods) over
which the Reference Assets in respect of such TRA Party are amortizable and/or
depreciable and (iv) the period (or periods) over which each Basis Adjustment in
respect of such TRA Party is amortizable and/or depreciable.

 

Section 2.2                                    Tax Benefit Schedule.

 

(a)                                 Tax Benefit Schedule.  Within ninety (90)
calendar days after the filing of the United States federal income tax return of
the Corporate Taxpayer for any Taxable Year in which there is a Realized Tax
Benefit or Realized Tax Detriment in respect of such TRA Party, the Corporate
Taxpayer shall provide to such TRA Party a schedule showing, in reasonable
detail, the calculation of the Tax Benefit Payment in respect of such TRA Party
for such Taxable Year (a “Tax Benefit Schedule”).  Each Tax Benefit Schedule
will become final as provided in Section 2.3(a) and may be amended as provided
in Section 2.3(b) (subject to the procedures set forth in Section 2.3(b)).

 

(b)                                 Applicable Principles.  Subject to
Section 3.3(a), the Realized Tax Benefit or Realized Tax Detriment for each
Taxable Year is intended to measure the decrease or increase in the actual
liability for Taxes of the Corporate Taxpayer for such Taxable Year attributable
to the Basis Adjustments and Imputed Interest, determined using a “with and
without” methodology. For the avoidance of doubt, the actual liability for Taxes
will take into account the deduction of the portion of the Tax Benefit Payment
that must be accounted for as interest under the Code.  Carryovers or carrybacks
of any Tax item attributable to the Basis Adjustments and Imputed Interest shall
be considered to be subject to the rules of the Code and the Treasury
Regulations or the appropriate provisions of U.S. state and local income and
franchise tax law, as applicable, governing the use, limitation and expiration
of carryovers or carrybacks of the relevant type.  If a carryover or carryback
of any Tax item includes a portion that is attributable to the Basis Adjustment
or Imputed Interest and another portion that is not, such portions shall be
considered to be used in accordance with the “with and without” methodology. 
The parties agree that (i) all Tax Benefit Payments attributable to the Basis
Adjustments in respect of a taxable Exchange (other than amounts accounted for
as interest under the Code) will be treated as subsequent upward purchase price
adjustments that have the effect of creating additional Basis Adjustments to
Reference Assets for the Corporate Taxpayer in the year of payment, and (ii) as
a result, such additional Basis Adjustments will be incorporated into the
current year calculation and into future year calculations, as appropriate.

 

Section 2.3                                    Procedures, Amendments.

 

(a)                                  Procedure. Every time the Corporate
Taxpayer delivers to a TRA Party an applicable Schedule under this Agreement,
including any Amended Schedule delivered pursuant to Section 2.3(b), and any
Early Termination Schedule or amended Early Termination Schedule,

 

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the Corporate Taxpayer shall also (x) deliver to such TRA Party schedules,
valuation reports, if any, and work papers, as determined by the Corporate
Taxpayer or requested by such TRA Party,  providing reasonable detail regarding
the preparation of the Schedule and (y) allow such TRA Party reasonable access
at no cost to the appropriate representatives at the Corporate Taxpayer, as
determined by the Corporate Taxpayer or requested by such TRA Party, in
connection with a review of such Schedule.  Without limiting the application of
the preceding sentence, each time the Corporate Taxpayer delivers to a TRA Party
a Tax Benefit Schedule, in addition to the Tax Benefit Schedule duly completed,
the Corporate Taxpayer shall deliver to such TRA Party the Corporate Taxpayer
Return, the reasonably detailed calculation by the Corporate Taxpayer of the
applicable Hypothetical Tax Liability in respect of such TRA Party, the
reasonably detailed calculation by the Corporate Taxpayer of the actual Tax
liability, as well as any other work papers as determined by the Corporate
Taxpayer or requested by such TRA Party, provided that the Corporate Taxpayer
shall be entitled to redact any information that it reasonably believes is
unnecessary for purposes of determining the items in the applicable Schedule or
amendment thereto.  An applicable Schedule or amendment thereto shall become
final and binding on all parties thirty (30) calendar days from the first date
on which the TRA Party has received the applicable Schedule or amendment thereto
unless such TRA Party (i) within thirty (30) calendar days after receiving an
applicable Schedule or amendment thereto, provides the Corporate Taxpayer with
notice of a material objection to such Schedule (“Objection Notice”) made in
good faith or (ii) provides a written waiver of such right of any Objection
Notice within the period described in clause (i) above, in which case such
Schedule or amendment thereto becomes binding on the date the waiver is received
by the Corporate Taxpayer.  If the Corporate Taxpayer and any objecting TRA
Party, for any reason, are unable to successfully resolve the issues raised in
the Objection Notice within thirty (30) calendar days after receipt by the
Corporate Taxpayer of an Objection Notice, the Corporate Taxpayer and such TRA
Party shall employ the reconciliation procedures as described in Section 7.9 of
this Agreement (the “Reconciliation Procedures”).

 

(b)                                 Amended Schedule. The applicable Schedule
for any Taxable Year may be amended from time to time by the Corporate Taxpayer
(i) in connection with a Determination affecting such Schedule, (ii) to correct
inaccuracies in the Schedule identified as a result of the receipt of additional
factual information relating to a Taxable Year after the date the Schedule was
provided to a TRA Party, (iii) to comply with the Expert’s determination under
the Reconciliation Procedures, (iv) to reflect a change in the Realized Tax
Benefit or Realized Tax Detriment for such Taxable Year attributable to a
carryback or carryforward of a loss or other tax item to such Taxable Year,
(v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment
for such Taxable Year attributable to an amended Tax Return filed for such
Taxable Year, or (vi) to adjust an applicable Exchange Basis Schedule to take
into account payments made pursuant to this Agreement (any such Schedule, an
“Amended Schedule”).  The Corporate Taxpayer shall provide an Amended Schedule
to each TRA Party within thirty (30) calendar days of the occurrence of an event
referenced in clauses (i) through (vi) of the preceding sentence.

 

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ARTICLE III

 

TAX BENEFIT PAYMENTS

 

Section 3.1                                    Payments.

 

(a)                                 Payments. Within five (5) calendar days
after a Tax Benefit Schedule delivered to a TRA Party becomes final in
accordance with Section 2.3(a), the Corporate Taxpayer shall pay such TRA Party
for such Taxable Year the Tax Benefit Payment determined pursuant to
Section 3.1(b).  Each such Tax Benefit Payment shall be made by wire transfer of
immediately available funds to the bank account previously designated by such
TRA Party to the Corporate Taxpayer or as otherwise agreed by the Corporate
Taxpayer and such TRA Party.  For the avoidance of doubt, no Tax Benefit Payment
shall be made in respect of estimated tax payments, including, without
limitation, federal estimated income tax payments.  Notwithstanding anything
herein to the contrary, at the election of a TRA Party specified in the Exchange
Notice for the applicable Exchange, the aggregate Tax Benefit Payments in
respect of such Exchange (other than amounts accounted for as interest under the
Code) shall not exceed 50% of the fair market value of the Class A Shares
received on such Exchange.

 

(b)                                 A “Tax Benefit Payment” in respect of a TRA
Party for a Taxable Year means an amount, not less than zero, equal to the sum
of the portion of the Net Tax Benefit that is allocable to such TRA Party and
the Interest Amount with respect thereto.  For the avoidance of doubt, for Tax
purposes, the Interest Amount shall not be treated as interest but instead shall
be treated as additional consideration for the acquisition of Units in
Exchanges, unless otherwise required by law.  Subject to Section 3.3(a), the
“Net Tax Benefit” for a Taxable Year shall be an amount equal to the excess, if
any, of 85% of the Cumulative Net Realized Tax Benefit as of the end of such
Taxable Year, over the total amount of payments previously made under this
Section 3.1 (excluding payments attributable to Interest Amounts); provided, for
the avoidance of doubt, that no such recipient shall be required to return any
portion of any previously made Tax Benefit Payment.  The “Interest Amount” shall
equal the interest on the Net Tax Benefit calculated at the Agreed Rate from the
due date (without extensions) for filing the Corporate Taxpayer Return with
respect to Taxes for such Taxable Year until the payment date under
Section 3.1(a).  Notwithstanding the foregoing, for each Taxable Year ending on
or after the date of a Change of Control that occurs after the IPO Date, all Tax
Benefit Payments, whether paid with respect to the Units that were Exchanged
(i) prior to the date of such Change of Control or (ii) on or after the date of
such Change of Control, shall be calculated by utilizing Valuation Assumptions
(1), (3) and (4), substituting in each case the terms “the closing date of a
Change of Control” for an “Early Termination Date.”

 

Section 3.2                                    No Duplicative Payments. It is
intended that the provisions of this Agreement will not result in duplicative
payment of any amount (including interest) required under this Agreement.  The
provisions of this Agreement shall be construed in the appropriate manner to
ensure such intentions are realized.

 

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Section 3.3                                    Pro Rata Payments; Coordination
of Benefits.

 

(a)                                 Notwithstanding anything in Section 3.1 to
the contrary, to the extent that the aggregate tax benefit of the Corporate
Taxpayer’s deduction with respect to the Basis Adjustments or Imputed Interest
under this Agreement is limited in a particular Taxable Year because the
Corporate Taxpayer does not have sufficient taxable income, the Net Tax Benefit
for the Corporate Taxpayer shall be allocated among all parties eligible for
payments hereunder in proportion to the respective amounts of Net Tax Benefit
that would have been allocated to each such party if the Corporate Taxpayer had
sufficient taxable income so that there were no such limitation.

 

(b)                                 After taking into account Section 3.3(a), if
for any reason the Corporate Taxpayer does not fully satisfy its payment
obligations to make all Tax Benefit Payments due under this Agreement in respect
of a particular Taxable Year, then the Corporate Taxpayer and the TRA Parties
agree that no Tax Benefit Payment shall be made in respect of any Taxable Year
until all Tax Benefit Payments in respect of prior Taxable Years have been made
in full.

 

ARTICLE IV

 

TERMINATION

 

Section 4.1                                    Early Termination and Breach of
Agreement.

 

(a)                                 The Corporate Taxpayer may terminate this
Agreement with respect to all amounts payable to the TRA Parties and with
respect to all of the Units held by the TRA Parties at any time by paying to
each TRA Party the Early Termination Payment in respect of such TRA Party;
provided, however, that this Agreement shall only terminate upon the receipt of
the Early Termination Payment by all TRA Parties, and provided, further, that
the Corporate Taxpayer may withdraw any notice to execute its termination rights
under this Section 4.1(a) prior to the time at which any Early Termination
Payment has been paid.  Upon payment of the Early Termination Payment by the
Corporate Taxpayer, none of the TRA Parties or the Corporate Taxpayer shall have
any further payment obligations under this Agreement, other than for any (a) Tax
Benefit Payment agreed to by the Corporate Taxpayer, on one hand, and the TRA
Party, on the other, as due and payable but unpaid as of the Early Termination
Notice and (b) Tax Benefit Payment due for the Taxable Year ending with or
including the date of the Early Termination Notice (except to the extent that
the amount described in clause (b) is included in the Early Termination
Payment).  If an Exchange occurs after the Corporate Taxpayer makes the Early
Termination Payments with respect to all applicable TRA Parties, the Corporate
Taxpayer shall have no obligations under this Agreement with respect to such
Exchange.

 

(b)                                 In the event that the Corporate Taxpayer
breaches any of its material obligations under this Agreement, whether as a
result of failure to make any payment when due, failure to honor any other
material obligation required hereunder or by operation of law as a result of the
rejection of this Agreement in a case commenced under the Bankruptcy Code or
otherwise, then all obligations hereunder shall be accelerated and such
obligations shall be calculated as if an Early Termination Notice had been
delivered on the date of such breach and shall include, but not be limited to,
(1) the Early Termination Payments calculated as if an Early

 

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Termination Notice had been delivered on the date of a breach, (2) any Tax
Benefit Payment in respect of a TRA Party agreed to by the Corporate Taxpayer
and such TRA Party as due and payable but unpaid as of the date of a breach, and
(3) any Tax Benefit Payment in respect of any TRA Party due for the Taxable Year
ending with or including the date of a breach.  Notwithstanding the foregoing,
in the event that the Corporate Taxpayer breaches this Agreement, each TRA Party
shall be entitled to elect to receive the amounts set forth in clauses (1),
(2) and (3) above or to seek specific performance of the terms hereof.  The
parties agree that the failure to make any payment due pursuant to this
Agreement within three months of the date such payment is due shall be deemed to
be a breach of a material obligation under this Agreement for all purposes of
this Agreement, and that it will not be considered to be a breach of a material
obligation under this Agreement to make a payment due pursuant to this Agreement
within three months of the date such payment is due.   Notwithstanding anything
in this Agreement to the contrary, it shall not be a breach of this Agreement if
the Corporate Taxpayer fails to make any Tax Benefit Payment when due to the
extent that the Corporate Taxpayer has insufficient funds to make such payment
in the Corporate Taxpayer’s sole judgment exercised in good faith; provided that
the interest provisions of Section 5.2 shall apply to such late payment (unless
the Corporate Taxpayer does not have sufficient cash to make such payment as a
result of limitations imposed by existing credit agreements to which AHLLC is a
party, in which case Section 5.2 shall apply, but the Default Rate shall be
replaced by the Agreed Rate).

 

Section 4.2                                    Early Termination Notice. If the
Corporate Taxpayer chooses to exercise its right of early termination under
Section 4.1 above, the Corporate Taxpayer shall deliver to each TRA Party notice
of such intention to exercise such right (“Early Termination Notice”) and a
schedule (the “Early Termination Schedule”) specifying the Corporate Taxpayer’s
intention to exercise such right and showing in reasonable detail the
calculation of the Early Termination Payment(s) due for each TRA Party. Each
Early Termination Schedule shall become final and binding on all parties thirty
(30) calendar days from the first date on which the TRA Party has received such
Schedule or amendment thereto unless the TRA Party (i) within thirty (30)
calendar days after receiving the Early Termination Schedule, provides the
Corporate Taxpayer with notice of a material objection to such Schedule made in
good faith (“Material Objection Notice”) or (ii) provides a written waiver of
such right of a Material Objection Notice within the period described in clause
(i) above, in which case such Schedule becomes binding on the date the waiver is
received by the Corporate Taxpayer (the “Early Termination Effective Date”).  If
the Corporate Taxpayer and the TRA Party, for any reason, are unable to
successfully resolve the issues raised in such notice within thirty (30)
calendar days after receipt by the Corporate Taxpayer of the Material Objection
Notice, the Corporate Taxpayer and the objecting TRA Party shall employ the
Reconciliation Procedures in which case such Schedule becomes binding ten
(10) days after the conclusion of the Reconciliation Procedures.

 

Section 4.3                                    Payment upon Early Termination.

 

(a)                                 Within three (3) calendar days after an
Early Termination Effective Date, the Corporate Taxpayer shall pay to the TRA
Party an amount equal to the Early Termination Payment in respect of such TRA
Party.  Such payment shall be made by wire transfer of immediately available
funds to a bank account or accounts designated by the TRA Party or as otherwise
agreed by the Corporate Taxpayer and such TRA Party.

 

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(b)                                 “Early Termination Payment” in respect of a
TRA Party shall equal the present value, discounted at the Early Termination
Rate as of the applicable Early Termination Effective Date, of all Tax Benefit
Payments in respect of such TRA Party that would be required to be paid by the
Corporate Taxpayer beginning from the Early Termination Date and assuming that
the Valuation Assumptions in respect of such TRA Party are applied.

 

ARTICLE V

 

SUBORDINATION AND LATE PAYMENTS

 

Section 5.1                                    Subordination.  Notwithstanding
any other provision of this Agreement to the contrary, any Tax Benefit Payment
or Early Termination Payment required to be made by the Corporate Taxpayer to
the TRA Parties under this Agreement shall rank subordinate and junior in right
of payment to any principal, interest or other amounts due and payable in
respect of any obligations in respect of indebtedness for borrowed money of the
Corporate Taxpayer and its Subsidiaries (“Senior Obligations”) and shall rank
pari passu with all current or future unsecured obligations of the Corporate
Taxpayer that are not Senior Obligations.

 

Section 5.2                                     Late Payments by the Corporate
Taxpayer. The amount of all or any portion of any Tax Benefit Payment or Early
Termination Payment not made to the TRA Parties when due under the terms of this
Agreement shall be payable together with any interest thereon, computed at the
Default Rate and commencing from the date on which such Tax Benefit Payment or
Early Termination Payment was due and payable.

 

ARTICLE VI

 

NO DISPUTES; CONSISTENCY; COOPERATION

 

Section 6.1                                    Participation in the Corporate
Taxpayer’s and AHLLC’s Tax Matters.  Except as otherwise provided herein, the
Corporate Taxpayer shall have full responsibility for, and sole discretion over,
all Tax matters concerning the Corporate Taxpayer and AHLLC, including without
limitation the preparation, filing or amending of any Tax Return and defending,
contesting or settling any issue pertaining to Taxes. Notwithstanding the
foregoing, the Corporate Taxpayer shall notify a TRA Party of, and keep the TRA
Party reasonably informed with respect to, the portion of any audit of the
Corporate Taxpayer and AHLLC by a Taxing Authority the outcome of which is
reasonably expected to affect the rights and obligations of such TRA Party under
this Agreement, and shall provide to each such TRA Party reasonable opportunity
to provide information and other input to the Corporate Taxpayer, AHLLC and
their respective advisors concerning the conduct of any such portion of such
audit; provided, however, that the Corporate Taxpayer and AHLLC shall not be
required to take any action that is inconsistent with any provision of the LLC
Agreement.

 

Section 6.2                                    Consistency.  The Corporate
Taxpayer and the TRA Parties agree to report and cause to be reported for all
purposes, including federal, state and local Tax purposes and financial
reporting purposes, all Tax-related items (including, without limitation, the
Basis Adjustments and each Tax Benefit Payment) in a manner consistent with that
specified by the

 

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Corporate Taxpayer in any Schedule required to be provided by or on behalf of
the Corporate Taxpayer under this Agreement unless otherwise required by law.

 

Section 6.3                                    Cooperation. Each of the TRA
Parties shall (a) furnish to the Corporate Taxpayer in a timely manner such
information, documents and other materials as the Corporate Taxpayer may
reasonably request for purposes of making any determination or computation
necessary or appropriate under this Agreement, preparing any Tax Return or
contesting or defending any audit, examination or controversy with any Taxing
Authority and (b) make itself available to the Corporate Taxpayer and its
representatives to provide explanations of documents and materials and such
other information as the Corporate Taxpayer or its representatives may
reasonably request in connection with any of the matters described in clause
(a) above.  The TRA Parties and the Corporate Taxpayer shall reasonably
cooperate in connection with any such matter, and the Corporate Taxpayer shall
reimburse each such TRA Party for any reasonable third-party costs and expenses
incurred pursuant to this Section.

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.1                                    Notices. All notices, requests,
claims, demands and other communications hereunder shall be in writing and shall
be deemed duly given and received (a) on the date of delivery if delivered
personally, or by facsimile or email with confirmation of transmission by the
transmitting equipment or (b) on the first Business Day following the date of
dispatch if delivered by a recognized next-day courier service. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:

 

If to the Corporate Taxpayer, to:

 

Adeptus Health Inc.

2941 South Lake Vista, Suite 200

Lewisville, Texas 75067

Telephone:                                   (972) 899-6666

Email:                                                    tim.fielding@adhc.com

Attention:                                         Chief Financial Officer

 

with a copy (which shall not constitute notice to the Corporate Taxpayer) to:

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Telephone:                                   ( 212)455-2948

Email:                                                    jkaufman@stblaw.com

Attention:                                         Joseph H. Kaufman

 

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If to the TRA Parties, to:

 

Adeptus Health Inc.

2941 South Lake Vista, Suite 200

Lewisville, Texas 75067

Telephone:                                   (972) 899-6666

Email:                                                    tim.fielding@adhc.com

Attention:                                         Chief Financial Officer

 

The address, fax number and email address set forth in the records of AHLLC.

 

Any party may change its address, fax number or email by giving the other party
written notice of its new address, fax number or email in the manner set forth
above.

 

Section 7.2                                    Counterparts. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart. Delivery
of an executed signature page to this Agreement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of this Agreement.

 

Section 7.3                                    Entire Agreement; No Third Party
Beneficiaries. This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. Except to the extent provided
under Section 3.3, this Agreement shall be binding upon and inure solely to the
benefit of each party hereto and their respective successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.

 

Section 7.4                                    Governing Law. This Agreement
shall be governed by, and construed in accordance with, the law of the State of
New York, without regard to the conflicts of laws principles thereof that would
mandate the application of the laws of another jurisdiction.

 

Section 7.5                                    Severability. If any term or
other provision of this Agreement is invalid, illegal or incapable of being
enforced by any law or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.

 

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Section 7.6                                    Successors; Assignment;
Amendments; Waivers.

 

(a)                                 Each TRA Party may assign any of its rights
under this Agreement to any Person as long as such transferee has executed and
delivered, or, in connection with such transfer, executes and delivers, a
joinder to this Agreement, in form and substance reasonably satisfactory to the
Corporate Taxpayer, agreeing to become a TRA Party for all purposes of this
Agreement, except as otherwise provided in such joinder.

 

(b)                                 No provision of this Agreement may be
amended unless such amendment is approved in writing by each of the Corporate
Taxpayer and by the TRA Parties who would be entitled to receive at least
two-thirds of the Early Termination Payments payable to all TRA Parties
hereunder if the Corporate Taxpayer had exercised its right of early termination
on the date of the most recent Exchange prior to such amendment (excluding, for
purposes of this sentence, all payments made to any TRA Party pursuant to this
Agreement since the date of such most recent Exchange); provided, that no such
amendment shall be effective if such amendment will have a disproportionate
effect on the payments certain TRA Parties will or may receive under this
Agreement unless such amendment is consented in writing by the TRA Parties
disproportionately affected who would be entitled to receive at least two-thirds
of the Early Termination Payments payable to all TRA Parties disproportionately
affected hereunder if the Corporate Taxpayer had exercised its right of early
termination on the date of the most recent Exchange prior to such amendment
(excluding, for purposes of this sentence, all payments made to any TRA Party
pursuant to this Agreement since the date of such most recent Exchange).  No
provision of this Agreement may be waived unless such waiver is in writing and
signed by the party against whom the waiver is to be effective.

 

(c)                                  All of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the parties hereto and their respective successors, assigns,
heirs, executors, administrators and legal representatives. The Corporate
Taxpayer shall require and cause any direct or indirect successor (whether by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Corporate Taxpayer, by written agreement, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporate Taxpayer would be required to perform if no such
succession had taken place.

 

Section 7.7                                    Titles and Subtitles. The titles
of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.

 

Section 7.8                                    Resolution of Disputes.

 

(a)                                 Any and all disputes which are not governed
by Section 7.9 and cannot be settled amicably, including any ancillary claims of
any party, arising out of, relating to or in connection with the validity,
negotiation, execution, interpretation, performance or non-performance of this
Agreement (including the validity, scope and enforceability of this arbitration
provision) (each a “Dispute”) shall be finally settled by arbitration conducted
by a single arbitrator in New York in accordance with the then-existing Rules of
Arbitration of the International Chamber of Commerce. If the parties to the
Dispute fail to agree on the selection of

 

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an arbitrator within ten (10) calendar days of the receipt of the request for
arbitration, the International Chamber of Commerce shall make the appointment.
The arbitrator shall be a lawyer admitted to the practice of law in the State of
New York and shall conduct the proceedings in the English language.  Performance
under this Agreement shall continue if reasonably possible during any
arbitration proceedings.

 

(b)                                 Notwithstanding the provisions of paragraph
(a), the Corporate Taxpayer may bring an action or special proceeding in any
court of competent jurisdiction for the purpose of compelling a party to
arbitrate, seeking temporary or preliminary relief in aid of an arbitration
hereunder, and/or enforcing an arbitration award and, for the purposes of this
paragraph (b), the TRA Party (i) expressly consents to the application of
paragraph (c) of this Section 7.8 to any such action or proceeding, (ii) agrees
that proof shall not be required that monetary damages for breach of the
provisions of this Agreement would be difficult to calculate and that remedies
at law would be inadequate, and (iii) irrevocably appoints the Corporate
Taxpayer as agent of the TRA Party for service of process in connection with any
such action or proceeding and agrees that service of process upon such agent,
who shall promptly advise the TRA Party of any such service of process, shall be
deemed in every respect effective service of process upon the TRA Party in any
such action or proceeding.

 

(c)                                  (i)  EACH PARTY HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF COURTS LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF
ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS
SECTION 7.8, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR
CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS
AGREEMENT. Such ancillary judicial proceedings include any suit, action or
proceeding to compel arbitration, to obtain temporary or preliminary judicial
relief in aid of arbitration, or to confirm an arbitration award. The parties
acknowledge that the for a designated by this paragraph (c) have a reasonable
relation to this Agreement, and to the parties’ relationship with one another;
and

 

(ii)  The parties hereby waive, to the fullest extent permitted by applicable
law, any objection which they now or hereafter may have to personal jurisdiction
or to the laying of venue of any such ancillary suit, action or proceeding
brought in any court referred to in the preceding paragraph of this Section 7.8
and such parties agree not to plead or claim the same.

 

Section 7.9                                    Reconciliation. In the event that
the Corporate Taxpayer and a TRA Party are unable to resolve a disagreement with
respect to the matters governed by Sections 2.3, 4.2 and 6.2 within the relevant
period designated in this Agreement (“Reconciliation Dispute”), the
Reconciliation Dispute shall be submitted for determination to a nationally
recognized expert (the “Expert”) in the particular area of disagreement mutually
acceptable to both parties. The Expert shall be a partner or principal in a
nationally recognized accounting or law firm, and unless the Corporate Taxpayer
and the TRA Party agree otherwise, the Expert shall not, and the firm that
employs the Expert shall not, have any material relationship with the Corporate
Taxpayer or the TRA Party or other actual or potential conflict of interest.  If
the Corporate Taxpayer and the TRA Party are unable to agree on an Expert within
fifteen (15) calendar days of receipt by the respondent(s) of written notice of
a Reconciliation Dispute, the Expert shall be appointed by the International
Chamber of Commerce Centre for Expertise. The

 

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Expert shall resolve any matter relating to the Exchange Basis Schedule or an
amendment thereto or the Early Termination Schedule or an amendment thereto
within thirty (30) calendar days and shall resolve any matter relating to a Tax
Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as
soon thereafter as is reasonably practicable, in each case after the matter has
been submitted to the Expert for resolution.  Notwithstanding the preceding
sentence, if the matter is not resolved before any payment that is the subject
of a disagreement would be due (in the absence of such disagreement) or any Tax
Return reflecting the subject of a disagreement is due, the undisputed amount
shall be paid on the date prescribed by this Agreement and such Tax Return may
be filed as prepared by the Corporate Taxpayer, subject to adjustment or
amendment upon resolution.  The costs and expenses relating to the engagement of
such Expert or amending any Tax Return shall be borne by the Corporate Taxpayer
except as provided in the next sentence.  The Corporate Taxpayer and the TRA
Party shall bear their own costs and expenses of such proceeding, unless (i) the
Expert adopts the TRA Party’s position, in which case the Corporate Taxpayer
shall reimburse the TRA Party for any reasonable out-of-pocket costs and
expenses in such proceeding, or (ii) the Expert adopts the Corporate Taxpayer’s
position, in which case the TRA Party shall reimburse the Corporate Taxpayer for
any reasonable out-of-pocket costs and expenses in such proceeding.  Any dispute
as to whether a dispute is a Reconciliation Dispute within the meaning of this
Section 7.9 shall be decided by the Expert.  The Expert shall finally determine
any Reconciliation Dispute and the determinations of the Expert pursuant to this
Section 7.9 shall be binding on the Corporate Taxpayer and the TRA Party and may
be entered and enforced in any court having jurisdiction.

 

Section 7.10                             Withholding. The Corporate Taxpayer
shall be entitled to deduct and withhold from any payment payable pursuant to
this Agreement such amounts as the Corporate Taxpayer is required to deduct and
withhold with respect to the making of such payment under the Code or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld and paid over to the appropriate Taxing Authority by the Corporate
Taxpayer, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Person in respect of whom such withholding
was made.

 

Section 7.11                             Admission of the Corporate Taxpayer
into a Consolidated Group; Transfers of Corporate Assets.

 

(a)                                 If the Corporate Taxpayer is or becomes a
member of an affiliated or consolidated group of corporations that files a
consolidated income tax return pursuant to Sections 1501 et seq. of the Code or
any corresponding provisions of state or local law, then: (i) the provisions of
this Agreement shall be applied with respect to the group as a whole; and
(ii) Tax Benefit Payments, Early Termination Payments and other applicable items
hereunder shall be computed with reference to the consolidated taxable income of
the group as a whole.

 

(b)                                 If AHLLC or any of its Subsidiaries, or any
entity that is obligated to make a Tax Benefit Payment or Early Termination
Payment hereunder, transfers one or more assets to a corporation (or a Person
classified as a corporation for United States federal income tax purposes) with
which such entity obligated to make a Tax Benefit Payment or Early Termination
Payment does not file a consolidated tax return pursuant to Section 1501 of the
Code, such entity, for purposes of calculating the amount of any Tax Benefit
Payment or Early Termination Payment (e.g., calculating the gross income of the
entity and determining the

 

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Realized Tax Benefit of such entity) due hereunder, shall be treated as having
disposed of such asset in a fully taxable transaction on the date of such
contribution.  The consideration deemed to be received by such entity shall be
equal to the gross fair market value of the contributed asset.  For purposes of
this Section 7.11, a transfer of a partnership interest shall be treated as a
transfer of the transferring partner’s share of each of the assets and
liabilities of that partnership allocated to such partner.

 

Section 7.12                             Confidentiality.

 

(a)                                 Each TRA Party and each of their assignees
acknowledge and agree that the information of the Corporate Taxpayer is
confidential and, except in the course of performing any duties as necessary for
the Corporate Taxpayer and its Affiliates, as required by law or legal process
or to enforce the terms of this Agreement, such person shall keep and retain in
the strictest confidence and not disclose to any Person any confidential
matters, acquired pursuant to this Agreement, of the Corporate Taxpayer and its
Affiliates and successors, concerning AHLLC and its Affiliates and successors or
the Members, learned by the TRA Party heretofore or hereafter.  This
Section 7.12 shall not apply to (i) any information that has been made publicly
available by the Corporate Taxpayer or any of its Affiliates, becomes public
knowledge (except as a result of an act of the TRA Party in violation of this
Agreement) or is generally known to the business community and (ii) the
disclosure of information to the extent necessary for the TRA Party to prepare
and file its Tax Returns, to respond to any inquiries regarding the same from
any taxing authority or to prosecute or defend any action, proceeding or audit
by any taxing authority with respect to such returns.  Notwithstanding anything
to the contrary herein, each TRA Party and each of their assignees (and each
employee, representative or other agent of the TRA Party or its assignees, as
applicable) may disclose to any and all Persons, without limitation of any kind,
the tax treatment and tax structure of the Corporate Taxpayer, AHLLC and their
Affiliates, and any of their transactions, and all materials of any kind
(including opinions or other tax analyses) that are provided to the TRA Party
relating to such tax treatment and tax structure.

 

(b)                                 If a TRA Party or an assignee commits a
breach, or threatens to commit a breach, of any of the provisions of this
Section 7.12, the Corporate Taxpayer shall have the right and remedy to have the
provisions of this Section 7.12 specifically enforced by injunctive relief or
otherwise by any court of competent jurisdiction without the need to post any
bond or other security, it being acknowledged and agreed that any such breach or
threatened breach shall cause irreparable injury to the Corporate Taxpayer or
any of its Subsidiaries or the TRA Parties and the accounts and funds managed by
the Corporate Taxpayer and that money damages alone shall not provide an
adequate remedy to such Persons.  Such rights and remedies shall be in addition
to, and not in lieu of, any other rights and remedies available at law or in
equity.

 

Section 7.13                             Change in Law.  Notwithstanding
anything herein to the contrary, if, in connection with an actual or proposed
change in law, a TRA Party reasonably believes that the existence of this
Agreement could cause income (other than income arising from receipt of a
payment under this Agreement) recognized by the TRA Party upon any Exchange by
such TRA Party to be treated as ordinary income rather than capital gain (or
otherwise taxed at ordinary income rates) for United States federal income tax
purposes or would have other material adverse tax consequences to such TRA
Party, then at the election of such TRA Party and to the extent specified by
such TRA Party, this Agreement (i) shall cease to have further effect with

 

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respect to such TRA Party, (ii) shall not apply to an Exchange by such TRA Party
occurring after a date specified by such TRA Party, or (iii) shall otherwise be
amended in a manner determined by such TRA Party, provided that such amendment
shall not result in an increase in payments under this Agreement at any time as
compared to the amounts and times of payments that would have been due in the
absence of such amendment.

 

Section 7.14                             LLC Agreement.  This Agreement shall be
treated as part of the partnership agreement of AHLLC as described in
Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of
the Treasury Regulations.

 

[The remainder of this page is intentionally blank]

 

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IN WITNESS WHEREOF, the Corporate Taxpayer and each TRA Party have duly executed
this Agreement as of the date first written above.

 

 

 

ADEPTUS HEALTH INC.

 

 

 

 

 

By:

/s/ Timothy L. Fielding

 

Name:

Timothy L. Fielding

 

Title:

Chief Financial Officer

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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STERLING PARTNERS:

 

 

 

SCP III AIV THREE-FCER, L.P.

 

By: SC Partners III, L.P., its general partner

 

 

 

 

 

By:

/s/ M. Avi Epstein

 

Name: M. Avi Epstein

 

Title: Authorized Signatory

 

 

 

 

 

SCP III AIV THREE-FCER Conduit, L.P.

 

By: SC Partners III, L.P., its general partner

 

 

 

 

 

By:

/s/ M. Avi Epstein

 

Name: M. Avi Epstein

 

Title: Authorized Signatory

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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THOMAS S. HALL

 

 

 

 

 

By:

/s/ Thomas S. Hall

 

Name: Thomas S. Hall

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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GRAHAM B. CHERRINGTON

 

 

 

 

 

By:

/s/ Graham B. Cherrington

 

Name: Graham B. Cherrington

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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TIMOTHY L. FIELDING

 

 

 

 

 

By:

/s/ Timothy L. Fielding

 

Name: Timothy L. Fielding

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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ANDREW M. JORDAN

 

 

 

 

 

By:

/s/ Andrew M. Jordan

 

Name: Andrew M. Jordan

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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TRACI A. BOWEN

 

 

 

 

 

By:

/s/ Traci A. Bowen

 

Name: Traci A. Bowen

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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JAMES M MUZZARELLI

 

 

 

 

 

By:

/s/ James M. Muzzarelli

 

Name: James M. Muzzarelli

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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GREGORY W. SCOTT

 

 

 

 

 

By:

/s/ Gregory W. Scott

 

Name: Gregory W. Scott

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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RONALD L. TAYLOR

 

 

 

 

 

By:

/s/ Ronald L. Taylor

 

Name: Ronald L. Taylor

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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JEFFREY S. VENDER

 

 

 

 

 

By:

/s/ Jeffrey S. Vender

 

Name: Jeffrey S. Vender

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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LAWRENCE BUCKELEW

 

 

 

 

 

By:

/s/ Lawrence Buckelew

 

Name: Lawrence Buckelew

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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MICHAEL R. COREY

 

 

 

 

 

By:

/s/ Michael R. Corey

 

Name: Michael R. Corey

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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TIMOTHY M. MUELLER

 

 

 

 

 

By:

/s/ Timothy M. Mueller

 

Name: Timothy M. Mueller

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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DAVID PYLE

 

 

 

 

 

By:

/s/ David Pyle

 

Name: David Pyle

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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HEATHER L. WEIMER

 

 

 

 

 

By:

/s/ Heather L. Weimer

 

Name: Heather L. Weimer

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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LAWRENCE J. WORLEY

 

 

 

 

 

By:

/s/ Lawrence J. Worley

 

Name: Lawrence J. Worley

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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STEPHEN D. FARBER TRUST UTD AUGUST 18, 2000

 

 

 

 

 

By:

/s/ Stephen D. Farber

 

Name: Stephen D. Farber

 

Time: Trustee

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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COVERT FAMILY LIMITED PARTNERSHIP

 

A Texas limited partnership

 

 

 

By:

Covert Operations, LLC

 

 

A Texas limited liability company

 

 

Its General Partner

 

 

 

 

 

 

By:

/s/ Larry Richard Covert

 

 

Name: Larry Richard Covert, Manager

 

Time:

 

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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5-N INVESTMENTS, LLC

 

 

 

 

 

By:

/s/ John Novak

 

Name: John Novak

 

Time: Manager

 

 

[Adeptus — Signature Page to the Tax Receivable Agreement]

 

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