Document:

Exhibit 4.1

 

STOCKHOLDERS AGREEMENT

 

DATED AS OF [      ], 2014

 

AMONG

 

ADEPTUS HEALTH INC.

 

AND

 

THE OTHER PARTIES HERETO

 

 

Table of Contents

 

	
 
    	
Page
    
	
ARTICLE I INTRODUCTORY   MATTERS
    	
1
    
	
 
    	
 
    
	
1.1.
    	
Defined Terms
    	
1
    
	
 
    	
 
    	
 
    
	
1.2.
    	
Construction
    	
4
    
	
 
    	
 
    	
 
    
	
ARTICLE II CORPORATE   GOVERNANCE MATTERS
    	
4
    
	
 
    	
 
    
	
2.1.
    	
Election of Directors
    	
4
    
	
 
    	
 
    	
 
    
	
2.2.
    	
Committees
    	
6
    
	
 
    	
 
    	
 
    
	
2.3.
    	
Consent Rights
    	
6
    
	
 
    	
 
    	
 
    
	
ARTICLE III INFORMATION
    	
6
    
	
 
    	
 
    
	
3.1.
    	
Books and Records; Access
    	
6
    
	
 
    	
 
    	
 
    
	
3.2.
    	
Sharing of Information
    	
7
    
	
 
    	
 
    	
 
    
	
ARTICLE IV GENERAL   PROVISIONS
    	
8
    
	
 
    	
 
    
	
4.1.
    	
Termination
    	
8
    
	
 
    	
 
    	
 
    
	
4.2.
    	
Notices
    	
8
    
	
 
    	
 
    	
 
    
	
4.3.
    	
Amendment; Waiver
    	
9
    
	
 
    	
 
    	
 
    
	
4.4.
    	
Further Assurances
    	
9
    
	
 
    	
 
    	
 
    
	
4.5.
    	
Assignment
    	
9
    
	
 
    	
 
    	
 
    
	
4.6.
    	
Third Parties
    	
9
    
	
 
    	
 
    	
 
    
	
4.7.
    	
Governing Law
    	
9
    
	
 
    	
 
    	
 
    
	
4.8.
    	
Jurisdiction; Waiver of Jury Trial
    	
9
    
	
 
    	
 
    	
 
    
	
4.9.
    	
Specific Performance
    	
10
    
	
 
    	
 
    	
 
    
	
4.10.
    	
Entire Agreement
    	
10
    
	
 
    	
 
    	
 
    
	
4.11.
    	
Severability
    	
10
    
	
 
    	
 
    	
 
    
	
4.12.
    	
Table of Contents, Headings and Captions
    	
10
    
	
 
    	
 
    	
 
    
	
4.13.
    	
Grant of Consent
    	
10
    
	
 
    	
 
    	
 
    
	
4.14.
    	
Counterparts
    	
10
    
	
 
    	
 
    	
 
    
	
4.15.
    	
Effectiveness
    	
10
    
	
 
    	
 
    	
 
    
	
4.16.
    	
No Recourse
    	
10
    

 

i

 

STOCKHOLDERS AGREEMENT

 

This Stockholders Agreement is entered into as of [      ], 2014 by and among Adeptus Health Inc., a Delaware corporation (the “Company”), and each of the other parties identified on the signature pages hereto (the “Investor Parties”).

 

BACKGROUND:

 

WHEREAS, the Company is currently contemplating an underwritten initial public offering (“IPO”) of shares of its Common Stock;

 

WHEREAS, the Company is the managing member of Adeptus Health LLC, a Delaware limited liability company; and

 

WHEREAS, in connection with, and effective upon, the date of completion of the IPO (the “Closing Date”), the Company and the Investor Parties wish to set forth certain understandings between such parties, including with respect to certain governance matters.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties agree as follows:

 

ARTICLE I
 INTRODUCTORY MATTERS

 

1.1.         Defined Terms.  In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters:

 

“Affiliate” has the meaning set forth in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof.

 

“Agreement” means this Stockholders Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms hereof.

 

“Beneficial Owner” has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.

 

“beneficially own” has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.

 

“Board” means the board of directors of the Company.

 

“Business Day” means a day other than a Saturday, Sunday, federal or New York State holiday or other day on which commercial banks in New York City are authorized or required by law to close.

 

 

“Change of Control” means the occurrence of any of the following events: (i) any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act or any successor provisions thereto, excluding a group of Persons that is party to this Agreement, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’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 Company then serving: individuals who, on the Closing Date, constitute the Company Board and any new Director whose appointment or election by the Company Board or nomination for election by the Company’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 Closing 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 Company with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the Company 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 Company 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 Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement or series of related agreements for the sale, lease or other disposition, directly or indirectly, by the Company of all or substantially all of the Company’s assets, other than such sale or other disposition by the Company of all or substantially all of the Company’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 Company in substantially the same proportions as their ownership of the Company 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 the shares of the Company 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 Company immediately following such transaction or series of transactions.

 

“Closing Date” has the meaning set forth in the Background.

 

“Company” has the meaning set forth in the Preamble.

 

“Company Board” means the board of directors of the Company.

 

“Common Stock” means the shares of common stock, par value $0.01 per share, of the Company, and any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company.

 

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“Control” (including its correlative meanings, “Controlled by” and “under common Control with”) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.

 

“Director” means any member of the Board.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.

 

“Expiration Date” has the meaning set forth in Section 4.1.

 

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Investor Parties” has the meaning set forth in the Preamble.

 

“IPO” has the meaning set forth in the Background.

 

“Law” means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.

 

“Observer” has the meaning set forth in Section 2.1(a).

 

“Permitted Assigns” means with respect to a Sterling Entity, a Transferee of shares of Common Stock that agrees to become party to, and to be bound to the same extent as its Transferor by the terms of, this Agreement.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.

 

“Sterling Designee” has the meaning set forth in Section 2.1(b).

 

“Sterling Entities” means the entities comprising Sterling Partners, their Affiliates and their respective successors and Permitted Assigns.

 

“Sterling Partners” means the entities listed on the signature pages hereto under the heading “Sterling Partners.”

 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of

 

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any contingency) to vote in the election of directors, representatives or trustees thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof.  For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing member, managing director or other governing body or general partner of such limited liability company, partnership, association or other business entity.

 

“Total Number of Directors” means the total number of Directors comprising the Board.

 

“Transfer” (including its correlative meanings, “Transferor,” “Transferee” and “Transferred”) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security.  When used as a noun, “Transfer” shall have such correlative meaning as the context may require.

 

1.2.         Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.  Unless the context otherwise requires: (a) “or” is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the singular, and (c) the words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified.

 

ARTICLE II
 CORPORATE GOVERNANCE MATTERS

 

2.1.         Election of Directors

 

(a)           Following the Closing Date, Sterling Partners shall have the right, but not the obligation, to nominate to the Board a number of designees equal to at least: (i) a majority of the Total Number of Directors, so long as the Sterling Entities collectively beneficially own 50% or more of the Company’s then outstanding voting securities; (ii) 40% of the Total Number of Directors, in the event that the Sterling Entities collectively beneficially own 40% or more, but less than 50%, of the Company’s then outstanding voting securities; (iii) 30% of the Total Number of Directors, in the event that the Sterling Entities collectively beneficially own 30% or more, but less than 40%, of the Company’s then outstanding voting securities; (iv) 20% of the Total Number of Directors, in the event that the Sterling Entities collectively beneficially own 20% or more, but less than 30%, of the Company’s then

 

4

 

outstanding voting securities; and (v) 10% of the Total Number of Directors, in the event that the Sterling Entities collectively beneficially own 5% or more, but less than 20%, of the Company’s then outstanding voting securities. For purposes of calculating the number of directors that Sterling Partners is entitled to designate pursuant to the immediately preceding sentence, any fractional amounts shall automatically be rounded up to the nearest whole number (e.g., one and one quarter (1 1/4) Directors shall equate to two (2) Directors) and any such calculations shall be made after taking into account any increase in the Total Number of Directors. In addition, in the event that Sterling Partners has the right to designate only one Director pursuant to this Section 2.1(a), then Sterling Partners shall also have the right to designate one additional individual (an “Observer”) to attend all Board meetings; provided that such observer shall not have the right to participate in any vote, consent or other action of the Board or its committees.

 

(b)           In the event that Sterling Partners has nominated less than the total number of designees Sterling Partners shall be entitled to nominate pursuant to Section 2.1(a), Sterling Partners shall have the right, at any time, to nominate such additional designees to which it is entitled, in which case, the Company and the Directors shall take all necessary corporation action, to the fullest extent permitted by applicable Law (including with respect to any fiduciary duties under Delaware law), to (x) enable Sterling Partners to nominate and effect the election or appointment of such additional individuals, whether by increasing the size of the Board, or otherwise and (y) to designate such additional individuals nominated by Sterling Partners to fill such newly-created vacancies or to fill any other existing vacancies.  Each such person whom Sterling Partners shall actually nominate pursuant to this Section 2.1 as a Director shall be referred to herein as a “Sterling Designee.”

 

(c)           In the event that a vacancy is created at any time by the death, retirement or resignation of any Director designated by Sterling Partners pursuant to this Section 2.1, the remaining Directors and the Company shall, to the fullest extent permitted by applicable Law (including with respect to any fiduciary duties under Delaware law), cause the vacancy created thereby to be filled by a new designee of Sterling Partners, if such Director was designated by Sterling Partners, as soon as possible, and the Company hereby agrees to take, to the fullest extent permitted by applicable Law (including with respect to any fiduciary duties under Delaware law), at any time and from time to time, all actions necessary to accomplish the same.

 

(d)           The Company agrees, to the fullest extent permitted by applicable Law (including with respect to any fiduciary duties under Delaware law), to include in the slate of nominees recommended by the Board for election at any meeting of stockholders called for the purpose of electing Directors the persons designated pursuant to this Section 2.1 and to nominate and recommend each such individual to be elected as a Director as provided herein, and to solicit proxies or consents in favor thereof.  The Company is entitled to identify such individual as a Sterling Designee pursuant to this Stockholders Agreement.

 

(e)           Each Sterling Entity agrees, to the fullest extent permitted by applicable Law, to vote, or act by written consent with respect thereto, any shares of Common Stock beneficially owned by it that are entitled to vote in the election of Directors at any meeting of stockholders called for the purpose of electing Directors, to cause the Sterling Designees

 

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nominated pursuant to this Section 2.1 to be elected to the Board, and to solicit proxies or consents in favor thereof.

 

(f)            Each of the Investor Parties agrees, to the fullest extent permitted by applicable Law, to refrain from voting to remove from the Board, any Director nominated pursuant to this Section 2.1, other than for cause.

 

2.2.         Committees

 

(a)           For so long as the Sterling Entities benificially own 35% or more of the Company’s then outstanding voting securities and to the fullest extent permitted by applicable Law, Sterling Partners shall have the right, but not the obligation, to designate (i) a majority of the members of any Corporate Governance and Nominating Committee or similar committee of the Board and (ii) up to two members of any Compensation Committee or similar committee of the Board.  In the event that the Sterling Entities cease to beneficially own 35% or more of the Company’s then outstanding voting securities, Sterling Partners shall continue to have the right to designate at least one member of each such committee of the Board for so long as permitted under applicable Law; provided, however, Sterling Partners shall cease to have such right to designate a committee member in the event that Sterling Partners ceases to have the right to designate a Director pursuant to Section 2.1(a).

 

(b)           In the event that Sterling Partners does not have the right to designate a member of any committee of the Board under applicable Law or this Agreement, then Sterling Partners shall have the right, to the fullest extent permitted by applicable Law, to appoint an Observer to any such committee; provided, however, that Sterling Partners shall cease to have the right to designate an Observer to any such committee in the event that Sterling Partners ceases to have the right to designate a Director pursuant to Section 2.1(a).

 

2.3.         Consent Rights

 

For so long as the Sterling Entities beneficially own 35% or more of the Company’s then outstanding voting securities, the following actions by the Company or any of its Subsidiaries shall require the approval of all Sterling Partners, in addition to the Board’s approval (or the approval of the requisite governing body of any Subsidiary of the Company):

 

(a)           the hiring or firing of the chief executive officer of the Company;

 

(b)           any Change of Control;

 

(c)           entering into any agreement providing for the acquisition or divestiture of assets or Persons, in each such case providing for aggregate consideration in excess of $50 million; and

 

(d)           any issuance of equity securities by the Company or any of its Subsidiaries for an aggregate consideration in excess of $50 million.

 

ARTICLE III
 INFORMATION

 

3.1.         Books and Records; Access.  The Company shall, and shall cause its Subsidiaries to, keep proper books, records and accounts, in which full and correct entries shall

 

6

 

be made of all financial transactions and the assets and business of the Company and each of its Subsidiaries in accordance with generally accepted accounting principles.  For so long as the Sterling Entities beneficially own 5% or more of the Company’s then outstanding voting securities, the Company shall, and shall cause its Subsidiaries to, permit the Sterling Entities and their respective designated representatives, at reasonable times and upon reasonable prior notice to the Company, to review the books and records of the Company or any of such Subsidiaries and to discuss the affairs, finances and condition of the Company or any of such Subsidiaries with the officers of the Company or any such Subsidiary.  For so long as the Sterling Entities beneficially own 5% or more of the Company’s then outstanding voting securities, the Company shall, and shall cause its Subsidiaries to, provide the Sterling Entities, in addition to other information that might be reasonably requested by the Sterling Entities from time to time, (i) direct access to the Company’s auditors and officers, (ii) the ability to link Sterling Partners’ systems into the Company’s general ledger and other systems in order to enable the Sterling Entities to retrieve data on a “real-time” basis, (iii) quarter-end reports, in a format to be prescribed by the Sterling Entities, to be provided within 30 days after the end of each quarter, (iv) copies of all materials provided to the Board (or equivalent governing body) at the same time as provided to the Directors (or their equivalent), (v) access to appropriate officers and Directors of the Company at such times as may be requested by the Sterling Entities, as the case may be, for consultation with each of the Sterling Entities with respect to matters relating to the business and affairs of the Company and its Subsidiaries, (vi) information in advance with respect to any significant corporate actions, including, without limitation, extraordinary dividends, mergers, acquisitions or dispositions of assets, issuances of significant amounts of debt or equity and material amendments to the certificate of incorporation or bylaws of the Company or any of its Subsidiaries, and to provide the Sterling Entities, with the right to consult with the Company and its Subsidiaries with respect to such actions, (vii) flash data, in a format to be prescribed by the Sterling Entities, to be provided within ten days after the end of each quarter and (viii) to the extent otherwise prepared by the Company, operating and capital expenditure budgets and periodic information packages relating to the operations and cash flows of the Company and its Subsidiaries (all such information so furnished pursuant to this Section 3.1, the “Information”).  The Company agrees to consider, in good faith, the recommendations of the Sterling Entities in connection with the matters on which the Company is consulted as described above.  Subject to Section 3.2, any Sterling Entity (and any party receiving Information from a Sterling Entity) who shall receive Information shall maintain the confidentiality of such Information, and the Company shall not be required to disclose any privileged Information of the Company so long as the Company has used its commercially reasonable efforts to enter into an arrangement pursuant to which it may provide such information to the Sterling Entities without the loss of any such privilege.

 

3.2.         Sharing of Information.  Individuals associated with Sterling Partners may from time to time serve on the boards of directors of the Company and its Subsidiaries.  The Company, on its behalf and on behalf of its Subsidiaries, recognizes that such individuals (i) will from time to time receive non-public information concerning the Company and its Subsidiaries, and (ii) may (subject to the obligation to maintain the confidentiality of such information in accordance with Section 3.1) share such information with other individuals associated with Sterling Partners.  Such sharing will be for the dual purpose of facilitating support to such individuals in their capacity as directors and enabling the Sterling Entities, as equityholders, to

 

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better evaluate the Company’s performance and prospects.  The Company, on behalf of itself and its Subsidiaries, hereby irrevocably consents to such sharing.

 

ARTICLE IV
 GENERAL PROVISIONS

 

4.1.         Termination.  This Agreement shall terminate on the earlier to occur of (i) the date (the “Expiration Date”) that is one year after the date on which the Sterling Entities cease to beneficially own 35% or more of the Company’s then outstanding voting securities and (ii) upon the delivery of a written notice by Sterling Partners to the Company requesting that this Agreement terminate.

 

4.2.         Notices.  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the Company’s records, or at such address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party.  Notices will be deemed to have been given hereunder when sent by facsimile (receipt confirmed) delivered personally, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service.

 

The Company’s address is:

 

Adeptus Health Inc.
 2941 South Lake Vista, Suite 200
 Lewisville, Texas 75067
 [Attention:  Chief Executive Officer]

 

[with a mandatory copy to:

 

Adeptus Health Inc.
 2941 South Lake Vista, Suite 200
 Lewisville, Texas 75067
 [Attention:  Chief Financial Officer]]

 

The Sterling Entities’ address is:

 

Sterling Partners
 401 N. Michigan Ave., Suite 3300
 Chicago, Illinois 60611
 Fax: [      ]

 

with a copy (not constituting notice) to:

 

Simpson Thacher & Bartlett LLP
 425 Lexington Avenue
 New York, New York 10017

8

 

Attention:  Joseph H. Kaufman, Esq.
 Fax:  (212) 455-2000

 

4.3.         Amendment; Waiver.  This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the other parties hereto.  Neither the failure nor delay on the part of any party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence.  No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

4.4.         Further Assurances.  The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things necessary, proper or advisable in order to give full effect to this Agreement and every provision hereof.  To the fullest extent permitted by law, the Company shall not directly or indirectly take any action that is intended to, or would reasonably be expected to result in, any Sterling Entity being deprived of the rights contemplated by this Agreement.

 

4.5.         Assignment.  This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns.  This Agreement may not be assigned without the express prior written consent of the other parties hereto, and any attempted assignment, without such consents, will be null and void; provided, however, that each Sterling Entity shall be entitled to assign, in whole or in part, to any of its Permitted Assigns without such prior written consent any of its rights hereunder.

 

4.6.         Third Parties.  Except as provided for in Section 3.2 with respect to any Sterling Entity, this Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto.

 

4.7.         Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws thereof.

 

4.8.         Jurisdiction; Waiver of Jury Trial.  In any judicial proceeding involving any dispute, controversy or claim arising out of or relating to this Agreement, each of the parties unconditionally accepts the jurisdiction and venue of or, if the Court of Chancery does not have subject matter jurisdiction over this matter, the Superior Court of the State of Delaware (Complex Commercial Division), or if jurisdiction over the matter is vested exclusively in federal courts, the United States District Court for the District of Delaware, and the appellate courts to which orders and judgments thereof may be appealed.  In any such judicial proceeding, the parties agree that in addition to any method for the service of process permitted or required by such courts, to the fullest extent permitted by law, service of process may be made by delivery provided pursuant to the directions in Section 4.2.  EACH OF THE PARTIES HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY

 

9

 

JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

4.9.         Specific Performance.  Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages.  Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.

 

4.10.       Entire Agreement.  This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof.  There are no agreements, representations, warranties, covenants or understandings with respect to the subject matter hereof or thereof other than those expressly set forth herein and therein.  This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.

 

4.11.       Severability.  If any provision of this Agreement, or the application of such provision to any Person or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such Person or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and (iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby.

 

4.12.       Table of Contents, Headings and Captions.  The table of contents, headings, subheadings and captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.

 

4.13.       Grant of Consent.  Any vote, consent or approval of Sterling Partners or a Sterling Entity hereunder shall be deemed to be given with respect to such entities or entity if such vote, consent or approval is given by members of such entities or entity having a pecuniary interest in a majority of the shares of Common Stock over which all members of such entities or entity then have a pecuniary interest.

 

4.14.       Counterparts.  This Agreement and any amendment hereto may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or amendment, as applicable).

 

4.15.       Effectiveness.  This Agreement shall become effective upon the Closing Date.

 

4.16.       No Recourse.  This Agreement may only be enforced against, and any claims or cause of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities

 

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that are expressly identified as parties hereto and no past, present or future Affiliate, director, officer, employee, incorporator, member, manager, partner, stockholder, agent, attorney or representative of any party hereto shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement on the day and year first above written.

 

 

	
 
    	
ADEPTUS   HEALTH INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

	
STERLING   PARTNERS:
    	
 
    
	
 
    	
 
    
	
First   Choice AIV Holding LLC
    	
 
    
	
By:   SCP III AIV THREE - FCER, L.P., its general partner
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
SCP   III AIV THREE - FCER Conduit, L.P.
    	
 
    
	
By:   SC Partners III, L.P., its general partner
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
[    ]
    	
 
    
	
By:   [    ], its general partner
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    

 

[Signature Page to Stockholders Agreement]Exhibit 10.1

 

TAX RECEIVABLE AGREEMENT

 

among

 

ADEPTUS HEALTH INC.

 

and

 

THE PERSONS NAMED HEREIN

 

Dated as of [                ], 2014

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE I DEFINITIONS
    	
2
    
	
 
    	
 
    
	
Section 1.1
    	
Definitions
    	
2
    
	
 
    	
 
    	
 
    
	
ARTICLE II DETERMINATION OF CERTAIN   REALIZED TAX BENEFIT
    	
8
    
	
 
    	
 
    
	
Section 2.1
    	
Basis Adjustment
    	
8
    
	
Section 2.2
    	
Tax Benefit Schedule
    	
9
    
	
Section 2.3
    	
Procedures, Amendments
    	
9
    
	
 
    	
 
    	
 
    
	
ARTICLE III TAX BENEFIT   PAYMENTS
    	
11
    
	
 
    	
 
    
	
Section 3.1
    	
Payments
    	
11
    
	
Section 3.2
    	
No Duplicative Payments
    	
11
    
	
Section 3.3
    	
Pro Rata Payments; Coordination of Benefits
    	
12
    
	
 
    	
 
    	
 
    
	
ARTICLE IV TERMINATION
    	
12
    
	
 
    	
 
    
	
Section 4.1
    	
Early Termination and Breach of Agreement
    	
12
    
	
Section 4.2
    	
Early Termination Notice
    	
13
    
	
Section 4.3
    	
Payment upon Early Termination
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE V SUBORDINATION AND   LATE PAYMENTS
    	
14
    
	
 
    	
 
    
	
Section 5.1
    	
Subordination
    	
14
    
	
Section 5.2
    	
Late Payments by the Corporate Taxpayer
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE VI NO DISPUTES;   CONSISTENCY; COOPERATION
    	
14
    
	
 
    	
 
    
	
Section 6.1
    	
Participation in the Corporate Taxpayer’s and AHLLC’s Tax   Matters
    	
14
    
	
Section 6.2
    	
Consistency
    	
15
    
	
Section 6.3
    	
Cooperation
    	
15
    
	
 
    	
 
    	
 
    
	
ARTICLE VII MISCELLANEOUS
    	
15
    
	
 
    	
 
    
	
Section 7.1
    	
Notices
    	
15
    
	
Section 7.2
    	
Counterparts
    	
16
    
	
Section 7.3
    	
Entire Agreement; No Third Party Beneficiaries
    	
16
    
	
Section 7.4
    	
Governing Law
    	
16
    
	
Section 7.5
    	
Severability
    	
16
    
	
Section 7.6
    	
Successors; Assignment; Amendments; Waivers
    	
17
    
	
Section 7.7
    	
Titles and Subtitles
    	
17
    
	
Section 7.8
    	
Resolution of Disputes
    	
17
    
	
Section 7.9
    	
Reconciliation
    	
18
    
	
Section 7.10
    	
Withholding
    	
19
    
	
Section 7.11
    	
Admission of the Corporate Taxpayer into a Consolidated
    	
 
    

 

i

 

	
 
    	
Group; Transfers of Corporate Assets
    	
19
    
	
Section 7.12
    	
Confidentiality
    	
20
    
	
Section 7.13
    	
Change in Law
    	
20
    
	
Section 7.14
    	
LLC Agreement
    	
21
    

 

ii

 

TAX RECEIVABLE AGREEMENT (EXCHANGES)

 

This TAX RECEIVABLE AGREEMENT (EXCHANGES) (this “Agreement”), dated as of [              ], 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 [              ], 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;

 

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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,

 

7

 

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.

 

11

 

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 (i) assuming that the Valuation Assumptions in respect of such TRA Party are applied, (ii) for each Taxable Year, the Tax Benefit Payment is paid ninety-five days after the due date, assuming an extension, of the federal income tax return of the Corporate Taxpayer and (iii) for purposes of calculating the Agreed Rate, LIBOR shall be LIBOR as of the date of the Early Termination Notice.

 

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. The Corporate Taxpayer, the TRA Parties and AHLLC agree to treat the distribution of cash to the members of AHLLC (except to the extent that such distribution is made, directly or indirectly, to the Sterling Corporate Member or the Corporate Taxpayer) on or around the date of the IPO consistently as a deemed sale, in whole or in part, of partnership interests in AHLLC to the Corporate Taxpayer pursuant to Section 707(a)(2)(B) of the Code.

 

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:
    
	
 
    	
 
    
	
 
    	
2941   South Lake Vista, Suite 200
    
	
 
    	
Lewisville,   Texas 75067
    
	
 
    	
Telephone:
    	
972-899-6666
    
	
 
    	
Facsimile:
    	
[
    	
]
    
	
 
    	
Email:
    	
[
    	
]
    
	
 
    	
Attention:
    	
[
    	
]
    
	
 
    	
 
    
	
 
    	
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
    
	
 
    	
Facsimile:
    	
212-455-2502
    
	
 
    	
Email:
    	
jkaufman@stblaw.com
    
	
 
    	
Attention:
    	
Joseph H. Kaufman
    
					

 

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If to the TRA Parties, to:

 

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.

 

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

 

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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 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

 

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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 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

 

18

 

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 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.

 

19

 

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.

 

20

 

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 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]

 

21

 

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:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

22

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