Providence Service Corp.
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number 001-34221 The Providence Service Corporation(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction of incorporation or organization) 700 Canal Street, Third Floor, Stamford, CT(Address of principal executive offices)86-0845127(I.R.S. Employer Identification No.) 06902(Zip code)Registrant’s telephone number, including area code: (203) 307-2800 Securities registered pursuant to Section 12(b) of the Act:Title of each ClassCommon Stock, $0.001 par value per shareName of each exchange on which registeredThe NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). ☒ Yes ☐ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer☐Accelerated filer☒Non-accelerated filer☐ (Do not check if a smaller reporting company)Smaller reporting company☐Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates based on the closing price for such common equity as reported onThe NASDAQ Global Select Market on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2017) was $576.8 million. As of March 5, 2018, there were outstanding 12,866,551 shares (excluding treasury shares of 4,656,738) of the registrant’s Common Stock, $0.001 par value per share. DOCUMENTS INCORPORATED BY REFERENCE All or a portion of Items 10 through 14 in Part III of this Annual Report on Form 10-K are incorporated by reference to our definitive proxy statement on Schedule 14A for our2018 stockholder meeting; provided that if such proxy statement is not filed on or before April 30, 2018, such information will be included in an amendment to this Annual Report onForm 10-K filed on or before such date.1TABLE OF CONTENTS Page No.PART I Item 1.Business.3 Item 1A.Risk Factors.16 Item 1B.Unresolved Staff Comments.35 Item 2.Properties.35 Item 3.Legal Proceedings.35 Item 4.Mine Safety Disclosures36 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 37 Item 6.Selected Financial Data. 41 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.45 Item 7A.Quantitative and Qualitative Disclosures About Market Risk. 69 Item 8. Financial Statements and Supplementary Data. 70 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 122 Item 9A.Controls and Procedures.122 Item 9B.Other Information.122 PART III Item 10.Directors, Executive Officers and Corporate Governance.123 Item 11.Executive Compensation. 123 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 123 Item 13. Certain Relationships and Related Transactions, and Director Independence. 123 Item 14. Principal Accounting Fees and Services.123 PART IV Item 15. Exhibits, Financial Statement Schedules. 124 Item 16.Form 10-K Summary.128 SIGNATURES1292Part I In this Annual Report on Form 10-K, the words the “Company”, the “registrant”, “we”, “our”, “us”, “Providence” and similar terms refer to TheProvidence Service Corporation and, except as otherwise specified herein, to our subsidiaries. When such terms are used in reference to the Company’scommon stock, $0.001 par value per share (the “Common Stock), and the Series A Convertible Preferred Stock, $0.001 par value per share (the “PreferredStock”), they refer specifically to The Providence Service Corporation. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fundoperations, profitability, ability to meet financial covenants, contracts or market opportunities. The Company may also make forward-looking statements inother reports filed with the Securities and Exchange Commission (the “SEC”), in materials delivered to stockholders and in press releases. In addition, theCompany’s representatives may from time to time make oral forward-looking statements. In certain cases, you may identify forward looking-statements bywords such as “may”, “will”, “should”, “could”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “seek”, “estimate”, “predict”, “potential”,“target”, “forecast”, “likely”, the negative of such terms or comparable terminology. In addition, statements that are not historical statements of fact shouldalso be considered forward-looking statements. These forward-looking statements are based on the Company’s current expectations, assumptions, estimatesand projections about its business and industry, and involve risks, uncertainties and other factors that may cause actual events to be materially different fromthose expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks described under Item1A in Part I of this Annual Report on Form 10-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. TheCompany is under no obligation to (and expressly disclaims any such obligation to) update any of the information in any forward-looking statement if suchforward-looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise. Item 1.Business. Background The Providence Service Corporation owns subsidiaries and investments primarily engaged in the provision of healthcare services in the UnitedStates and workforce development services internationally. The subsidiaries and other investments in which we hold interests comprise the followingsegments:•Non-Emergency Transportation Services (“NET Services”) – Nationwide manager of non-emergency medical transportation (“NET”) programs forstate governments and managed care organizations.•Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement services, legal offenderrehabilitation services, youth community service programs and certain health related services to eligible participants of government sponsoredprograms.•Matrix Investment – Minority interest in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”), a nationwide provider of in-home careoptimization and management solutions, including comprehensive health assessments (“CHAs”), to members of managed care organizations,accounted for as an equity method investment. On February 16, 2018, Matrix acquired HealthFair, expanding its service offerings to include mobilehealth assessments, advanced diagnostic testing, and additional care optimization services. In addition to its segments’ operations, the Corporate and Other segment includes the Company’s activities at its corporate office that includeexecutive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions and the results of theCompany’s captive insurance company. We are actively monitoring these activities as they relate to our capital allocation and acquisition strategy to ensurealignment with Providence’s overall strategic objectives and its goal of enhancing shareholder value. The Company is a Delaware corporation formed in 1996 and headquartered in Stamford, Connecticut. 3Business StrategiesOur businesses are operated on a decentralized basis and do not share any integrated functions such as sales, marketing, purchasing, humanresources, accounting, finance or legal. They pursue strategies reflective of their respective industries and operating models. Our segments’ core competenciesinclude developing and managing large provider networks, tailoring healthcare and workforce development service offerings to the unique needs of diversecommunities and populations, and implementing technology-enabled delivery models to achieve superior outcomes in low cost settings. We pursue bothorganic and inorganic growth through entry into adjacent markets and complementary service lines, particularly with offerings that may leverage theadvantages inherent in our large-scale, technology-enabled, networks. In particular, as it relates to inorganic growth, we are actively evaluating the optimalindustry sectors, such as the non-emergency medical transportation industry and others in which businesses complementary to our NET Services businessoperate, around which to focus our merger and acquisition activity. This ongoing evaluation takes into consideration and balances a number of factors,including the strategic goals, competitive landscape, and growth opportunities of our current segments, in an attempt to direct our capital towards those areasof our business most likely to drive long-term value creation and generate the highest levels of return for our shareholders. We also may enter into strategicpartnerships or dispose of businesses, as demonstrated by the Matrix Transaction (defined below) and the Human Services Sale (defined below), based on avariety of factors, including availability of alternative opportunities to deploy capital or otherwise maximize shareholder value as well as other strategicconsiderations. The outcome of our active evaluation of the optimal industry sectors around which to focus our merger and acquisition activity as well as thepotential future entry into strategic partnerships or potential disposition of businesses may impact the extent and manner in which we deploy resources acrossProvidence, including strategic and administrative resources between Corporate and Other and our operating segments. Discontinued OperationsOn October 19, 2016, affiliates of Frazier Healthcare Partners purchased a controlling equity interest in Matrix, with Providence retaining anoncontrolling equity interest (the “Matrix Transaction”). Matrix’s financial results prior to October 19, 2016 are presented as a discontinued operation. Inaddition, on November 1, 2015, the Company completed its sale of the Human Services Segment (the “Human Services Sale”), which is accounted for as adiscontinued operation for all periods presented.Description of Our SegmentsThe Company operates in two principal business segments, NET Services and WD Services. In addition, Providence holds a noncontrolling interestin Matrix, which is a reportable segment for financial reporting purposes (the “Matrix Investment”). Financial information about segments and geographicareas, including revenues, operating income (loss), and long-lived assets of each segment, is included in Note 21, Segments, to our consolidated financialstatements and is incorporated herein by reference. See Item 1A, Risk Factors, for a discussion of risks related to our operations and investments. NET Services Services offered. NET Services provides non-emergency transportation solutions to clients in 38 states and the District of Columbia. As ofDecember 31, 2017, approximately 23.6 million individuals were eligible to receive our transportation services, and during 2017, NET Services managed66.8 million trips. For 2017, 2016 and 2015, NET Services accounted for 81.2%, 78.2% and 73.3%, respectively, of Providence’s consolidated servicerevenue, net. NET Services primarily contracts with state Medicaid programs and managed care organizations (“MCOs” and collectively “NET customers”) for thecoordination of their members’ (“NET end-users”) non-emergency transportation needs. NET end-users are typically Medicaid or Medicare eligible members,whose limited mobility or financial resources hinders their ability to access necessary healthcare and social services. We believe our transportation servicesenable access to care that not only improves the quality of life and health of the populations we serve, but also enables many of the individuals we serve topursue independent living in their homes rather than in more expensive institutional care settings. NET Services program delivery is dependent upon a highly-integrated technology platform and business process as well as the management of amultifaceted network of subcontracted transportation providers. Our technology platform is purpose-built for the unique needs of our industry and is highlyscalable, capable of supporting substantial growth in our clients’ current and future membership base. In addition, our technology platform efficientlyprovides a broad interconnectivity among NET end-users, NET customers, and our network of transportation providers. We believe this technologicalcapability and our industry experience uniquely position us as a future focal point in the evolving healthcare industry to introduce valuable populationinsights. In 2016 and 2017, we introduced service offerings and new technological features for NET end-users to improve service levels, lower costs and buildthe foundation for additional data analytics capabilities. 4To fulfill the transportation needs of NET end-users, we apply our proprietary technology platform to an extensive network of approximately 5,100transportation resources. This includes our in-network roster of fully contracted transportation providers who operate sedans, wheelchair equipped vehicles,multi-passenger vans and ambulances. Our system also utilizes partnerships with on-demand transportation network companies, mass transit entities, mileagereimbursement programs, taxis and county-based emergency medical service providers. To promote safety, quality, and compliance, our in-networktransportation providers undergo an in-depth credentialing and education process. Our proprietary technology platform is designed to connect with ourexternal partners’ application program interfaces to improve on-time and on-demand performance, provide real time information and analytics (including livevehicle location data), minimize cancellations and better allow for the scale required to provide an effective, nationwide service.Our transportation management services also include fraud, waste, and abuse and utilization review programs designed to monitor that ourtransportation services are provided in compliance with Medicaid program rules and remediate issues that are identified. Compliance controls includeongoing monitoring, auditing and remediation efforts, such as validating NET end-user eligibility for the requested date of service and employing a series ofgatekeeping questions to check that the treatment type is covered and the appropriate mode of transportation is assigned. We also conduct post-tripconfirmations of attendance directly with the healthcare providers for certain repetitive trips and we employ field monitors to inspect transportation providervehicles and observe some transports in real time. Our claims validation process generally limits payment to trips that are properly documented, have beenauthorized in advance, and are billed at the pre-trip estimated amount.In 2016, NET Services launched a strategic initiative to enhance client and member satisfaction and drive greater operational efficiencies. Thisinitiative focuses on developing and deploying new processes and technologies needed to: progress towards an industry-leading call center and reservationscheduling platform; improve member communication, accessibility, and satisfaction; optimize the utilization of our extensive network of transportationproviders; and build the foundation for additional analytical capabilities. Implementations under this strategic initiative that were completed in 2017 includenew workforce management tools aimed at streamlining our call center operations and decreasing payroll costs, tools and models to better monitortransportation provider performance and capacity availability, and rate setting protocols aimed at lowering transportation costs and improving servicequality. The full implementation of the initiative is expected to be substantially completed by the end of 2018. Revenue and customers. In 2017, contracts with state Medicaid agencies and MCOs represented 55.9% and 44.1%, respectively, of NET Services’revenue. NET Services derived 13.8%, 13.1% and 15.0% of its revenue from a single state Medicaid agency for the years ended December 31, 2017, 2016 and2015, respectively. The next four largest NET Services customers in the aggregate comprised 22.3%, 22.6% and 24.2% of NET Services’ revenue for the yearsended December 31, 2017, 2016 and 2015, respectively. Contracts with state Medicaid agencies are typically for three to five years with multiple renewal options. Contracts with MCOs continue untilterminated by either party upon reasonable notice (as determined in accordance with the contract), and allow for regular price adjustments based uponutilization and transportation cost. As of December 31, 2017, 30.8% of NET Services revenue was generated under state Medicaid contracts that are subject torenewal within the next 12 months. In 2017, NET Services renewed contracts representing 29.5% of its revenue in such year, including its contract with theNew Jersey Department of Human Services, Division of Medical Assistance and Health Services, to provide non-emergency medical transportationmanagement services to Medicaid-eligible New Jersey residents. 77.9% of NET Services’ revenue in 2017 was generated under capitated contracts where we assume the responsibility of meeting the coveredhealthcare related transportation requirements of a specific population based on per-member per-month fees for the number of members in the customer’sprogram. Revenue is recognized based on the population served during the period. Under certain capitated contracts, partial payment is received as aprepayment during the month service is provided. These partial payments may be due back to the customer, or additional payments may be due to theCompany, after each reconciliation period, based on a reconciliation of actual utilization and cost compared to the prepayment made. 22.1% of NETServices’ revenue was generated under other types of fee arrangements, including administrative services only, fee for service (“FFS”), cost plus and flat feecontracts, under which fees are generated based upon billing rates for specific services or defined membership populations. Seasonality. While revenue is generally fixed, primarily as a result of the capitated nature of the majority of our contracts, service expense variesbased on the utilization of our services. The quarterly operating income and cash flows of NET Services normally fluctuate as a result of seasonal variationsin the business, principally due to lower transportation demand during the winter season and higher demand during the summer season. Competition. We compete with a variety of national organizations that provide similar healthcare and social services related transportation, such asMedical Transportation Management, Southeastrans, Veyo, and American Medical Response, as5well as local and regional providers. Most local competitors seek to win contracts for specific counties or small geographic territories whereas we and otherlarger competitors seek to win contracts for an entire state or large regional area. We compete based upon a number of factors, including our nationwidenetwork, technical expertise, experience, service capability, service quality, and price.Business development. Our sales and marketing strategy relies on a concentrated business development effort, with centralized marketingprograms. Due to the critical nature of our services, our customers rely upon our past delivery performance record, network development and managementexpertise, technical expertise and capability, and specialized knowledge. A significant portion of our revenue is generated from long-term, repeat customers.Our long-term strategy is to improve our position as the preferred provider of transportation, complementary network-based services and data analyticsofferings to a broad array of healthcare payers. Key elements of our long-term strategy include continued investment in our technologies, enabling us to bothlower costs and improve service delivery. We also consider acquisitions of businesses that serve our market or leverage our nationwide infrastructure. WD Services Services offered. WD Services is a global provider of employment preparation and placement services, legal offender rehabilitation services, youthcommunity service programs and certain health related services to eligible participants of government sponsored programs. For 2017, 2016 and 2015, WDServices accounted for 18.8%, 21.8% and 26.7%, respectively, of Providence’s consolidated revenue. WD Services’ end user client base (“WD end-users”) is broad and includes the disabled, recently and long-term unemployed and individuals seekingnew skills, as well as individuals that are coping with medical illnesses, are newly graduated from educational institutions, or are being released fromincarceration.As of December 31, 2017, WD Services operated in 10 countries outside of the U.S. These countries included the United Kingdom (“UK”), France,Saudi Arabia, South Korea, Canada, Germany, Australia, Switzerland and Singapore. WD Services also holds a noncontrolling interest in a joint venture inSpain.In order to build upon its leadership position in the UK employment services industry, enhance client satisfaction and drive greater operationalefficiencies, WD Services implemented the Ingeus Futures program, which was substantially completed in 2017. This program included organizationalrestructuring, the development and deployment of new processes and technologies, and increased business development resources. Each aspect of theprogram was aimed at improving operational efficiencies and client services as well as developing the internal capabilities necessary to ensure long-termprofitable growth in the employment, training and healthcare industries. Revenue, customers and clients. The majority of WD Services’ revenue is generated through the provision of employability, legal offenderrehabilitation and training programs to national government entities seeking to reduce unemployment or recidivism rates. For the years ended December 31,2017, 2016 and 2015, 61.4%, 68.3% and 75.5%, respectively, of WD Services’ revenue was derived from operations in the UK, with 38.6%, 31.7% and24.5%, respectively, derived from operations outside the UK. Additionally, during the years ended December 31, 2017, 2016 and 2015, respectively, 19.6%,28.9% and 40.0% of WD Services’ revenue was derived from a contract with the UK government’s Department of Work and Pensions for employabilityservices and 27.1%, 25.9% and 28.2% of WD Services’ revenue was derived from a contract with the UK government’s Ministry of Justice (the “MOJ”), forlegal offender rehabilitation services. Revenue under the UK employability services contract is decreasing as expected, as referrals ended under this programin March 31, 2017. In late 2017, WD Services was awarded three new employability contracts and one sub-contract under the new Work and HealthProgramme in the UK, allowing Ingeus to continue to maintain its position as a leader in the UK workforce development market, although overall thisprogram has a smaller scale than the legacy employability services contract. During 2017, there was negligible revenue under the new Work and HealthProgramme. The revenue earned by WD Services under its contracts is often derived through a combination of different revenue channels including, but notlimited to, fees contingent upon: (1) the volume of WD end-users referred to and/or admitted into a specific program, (2) the achievement of definedoutcomes for specific individuals, such as a job placement or continued employment and (3) the achievement of defined outcomes for a population ofindividuals over a specific time period, such as aggregate employment or recidivism rates. The relative contributions of different revenue channels under aspecific contract can fluctuate meaningfully over the life of a contract and thus contribute to significant earnings volatility. Revenue recognition related toour National Citizen Services (“NCS”) youth programs can be particularly volatile due to the timing of services provided, which typically occur in thesecond and third quarters of each year. WD Services also earns revenue under fixed FFS arrangements, based6upon contractual rates established at the outset of the contract or the applicable contract year, although the rate may be prospectively adjusted during thecontract year based upon actual volumes. Volume levels are typically not guaranteed under contracts. The nature of the services offered by WD Services often relies on our ability to improve a certain set of outcomes at a reduced cost versus previouslyutilized in-sourced delivery models. As a result, as we commence new contracts using transformational delivery models, we are often required to investsignificant upfront capital for information technology, human resources, facilities and other onboarding costs, such as consultants and redundancy payments.The level of upfront funding required is dependent upon the size and nature of the contract. Although significant upfront funding may be required, revenuesare often payable only as services are delivered and, in some cases, only after incentive measures have been achieved over a multi-year period. As a result ofthese two factors, there can be significant variability in our earnings from quarter-to-quarter and year-to-year. In addition, under the majority of WD Services’contracts, the Company relies on its customers, which include government agencies, to provide referrals, for which the Company can provide services andearn revenue. The timing and magnitude of referrals can fluctuate significantly, leading to volatility in revenue. The Company also relies on certaincustomers to periodically provide information regarding the achievement of service delivery targets, which information could result in reductions in futurepayments if targets are not met. As a result, we often measure a contracts success over the entire term of the contract and believe the financial results of WDServices are best viewed from a multi-year perspective.The MOJ is currently reviewing its program for outsourcing probationary services, which includes its contracts with our subsidiary ReducingReoffending Partnership (“RRP”), which is in our WD Services segment. The review includes an investigation regarding sustainability of the economic termsof such contracts, as well as data relating to reoffending statistics and other factors that could impact contractual performance measures. The potential impactof this review on RRP’s agreement with the MOJ, including with respect to any potential payments to the MOJ that may be required, cannot be determined atthis time because the review is ongoing. See also “Risk Factors—Risks Related to our Business—If we fail to satisfy our contractual obligations, we could beliable for damages and financial penalties, which may place existing pledged performance and payment bonds at risk as well as harm our ability to keep ourexisting contracts or obtain new contracts and future bonds.”Seasonality. While there has been period-to-period variability in WD Services’ earnings due to the factors discussed above and also set forth in Item7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Revenues and Expenses – WD Services”, there has not been amaterial seasonal effect on WD Services’ results of operations. Competition. In the UK, U.S., Saudi Arabia and Singapore the workforce development market is served by large, often multi-national, corporations,along with national and regional for-profit and non-profit entities. In Canada, France, Germany, South Korea, Spain and Switzerland, our competition isprimarily companies specific to the geography, nationally or regionally, and both privately owned for-profit and non-profit entities. In the UK, the offenderrehabilitation market is served by large corporations, often working with charitable sector providers. In general our larger competitors internationally includeMaximus, Interserve, Sodexo, The Reed Group and Working Links. The market for services to governments is competitive and subject to change and pricing pressure, particularly during the bidding for new contractsand contract renewals. However, due to the critical nature of our offerings and the WD end-users we serve, market entry can be difficult for new entrants orthose without prior established track-records. Other barriers to entry include operational service complexity and significant upfront investments. This caninclude establishment of complex IT systems which often must interface with government systems, significant monitoring and reporting obligations, deliveryfrom sites across wide geographies, and management and development of supply chains. Business development. Our business development activities are performed both locally and centrally from WD Services’ London headquarters.Through local and global networks and relationships, we become aware of new opportunities for which we develop bids through competitive processes. Thenature of the competitive processes varies from highly competitive to being one of a few providers, or the sole provider, to bid on a contract. We pursue onlythose contracts that meet certain investment criteria, including risk-weighted return on capital thresholds, and involve the provision of services where webelieve our experience will allow us to deliver differentiated and improved outcomes for our clients. Matrix Investment Providence’s Matrix Investment is comprised of our interest in Matrix. Since the completion of the Matrix Transaction, the Company has had anoncontrolling equity interest in Matrix. The Company and an affiliate of Frazier Health Partners (the “Frazier Subscriber”), which holds the controllingequity interest in Matrix, are party to the Second Amended and Restated Limited Liability Company Agreement (the “Operating Agreement”) of MercuryParent, LLC, the company through which the parties hold their equity interests in Matrix. The Operating Agreement sets forth certain terms and conditionsregarding the ownership by the Company and Frazier Subscriber of interests in Mercury Parent and their indirect ownership of common stock of Matrix, and7provides for, among other things, certain liquidity and governance rights and other obligations and rights, in each case, on the terms and conditionscontained therein.At December 31, 2017, the Company owned a 46.6% noncontrolling interest in Matrix. Prior to the closing of the Matrix Transaction, the financialresults of Matrix were included in our Health Assessment Services (“HA Services”) segment. The Company’s proportionate share of Matrix’s net assets andfinancial results for the period following the closing of the Matrix Transaction are presented under the equity method. The assets, liabilities and financialresults of Matrix for the period prior to the closing of the Matrix Transaction are presented within discontinued operations. For additional informationregarding the Matrix Transaction, see Note 20, Discontinued Operations, to our consolidated financial statements. Services offered. Matrix provides in-home care optimization and care management solutions, which include CHAs. As of December 31, 2017, Matrixutilized a national network of over 5,800 clinical providers, including 1,700 nurse practitioners (“NPs”), located across 50 states, to provide its servicesprimarily to members of Medicare Advantage (“MA”) health plans.Matrix recently expanded its provider network and service offerings through a series of acquisitions. In December 2017, Matrix grew its clinicalprovider network through its acquisition of LP Health Services, a provider of quality and wellness visits on behalf of Medicaid/Duals managed care plansacross the U.S., for a purchase price of $3.8 million. LP Health Services’ revenue for the year ended December 31, 2017 was approximately $6 million.In February 2018, Matrix completed its acquisition of HealthFair, a leading operator of mobile clinics which offer preventative health assessmentand advanced diagnostic testing services, including laboratory, ultrasound, EKG and mammography testing, for a purchase price of $160 million plus anearnout payment contingent on HealthFair’s 2018 performance. With the addition of HealthFair, Matrix’s network increased to more than 6,000 community-based providers across all 50 states, including over 1,700 NPs. We believe the combination of the two organizations will provide health plan members withmore convenient access to important care management and preventative health services. As a result of the rollover of certain equity interests of HealthFair,Providence’s equity ownership in Matrix was 43.6% as of February 16, 2018. HealthFair’s revenue for the year ended December 31, 2017 was approximately$45 million.Matrix primarily generates revenue from CHAs, which obtain a health plan members’ information related to health status, social, environmental andmedical risks and help the MA plans improve the accuracy of such information. Matrix’s services typically commence with a member analysis that utilizesclient data, such as medical claims data, to maximize its ability to improve client and member outcomes as a result of the assessment process. ThroughMatrix’s contact centers, which include approximately 160 colleagues, Matrix pursues additional data collection and schedules assessments. Matrix’s NPsthen conduct a CHA, which is comprised of a physical examination and other diagnostic services, in the member’s home. Matrix also operates a caremanagement offering which provides additional data analytics and chronic care management services. Matrix’s services are dependent upon its technology platform which integrates the clinical provider network, operations infrastructure, call centersand clients. Matrix’s platform is designed for the unique needs of its industry, is highly scalable and can support substantial growth. We believe Matrix’snetwork and platform positions Matrix as a future focal point in the evolving healthcare industry in the introduction of both additional population insightsand care management services. With data provided by its health plan clients, Matrix utilizes analytics to determine which members it can most effectivelylower costs and improve outcomes through face-to-face engagements with clinicians. Each program is customized and is served by a comprehensive team ofcase managers, nurse practitioners, registered nurses, and trained call center colleagues. Revenue, customers and clients. As of December 31, 2017, Matrix’s customers included 48 health plans, including for-profit multi-state health plansand non-profit health plans that operate in only one state or several counties within one state. For the year ended December 31, 2017, Matrix’s top fivecustomers accounted for 72.2% of its revenue, as its largest customer accounted for 30.9% of its revenue and its second largest customer account for 26.8% ofits revenue. Matrix enters into annual or multi-annual contracts with its customers under which it is paid on a per assessment basis. Seasonality. The Company attempts to perform CHAs evenly throughout the year to efficiently utilize NP capacity, although the timing ofperformance is driven by client demand. Competition. We believe that Matrix and CenseoHealth, which announced in December 2017 a combination with Advance Health, a smallercompetitor, are the largest independent providers of CHAs to the health plan market. There are many smaller competitors, such as EMSI Healthcare Services,MedXM, which was acquired by Quest Diagnostics on February 1, 2018, and Inovalon. In addition, some health plans in-source CHA services. Matrix’schronic care management competitors include Landmark Healthcare, PopHealthcare and Optum. 8Employees As of December 31, 2017, there were approximately 7,100 employees across Providence and our subsidiaries. Of such employees, approximately3,800 work in NET Services and approximately 3,300 work in WD Services. In addition, 30 employees primarily conduct corporate activities. None of our U.S. employees are members of a union. We have nearly 1,950 and 330 full-time employees in the UK and France, respectively. Certainof our UK employees are members of the NAPO and Unison unions and certain of our employees in France are members of the Confederation Generale duTravail and have collective bargaining rights. In other countries employees may be members of a trade union but these trade unions are not formallyrecognized by us. Participation in unions is confidential under European employment laws. We believe we have good relationships with our employees, bothunionized and non-unionized, in the U.S. and internationally. Regulatory Environment NET Services and Matrix Investment Overview Our NET Services and Matrix Investment segments (the “U.S. Healthcare Segments”) are subject to numerous U.S. federal, state and local laws,regulations and agency guidance (collectively, “Laws”). These Laws significantly affect the way in which these segments operate various aspects of theirbusinesses. Our U.S. Healthcare Segments must also comply with state and local licensing requirements, state and federal requirements for participation inMedicare and Medicaid, requirements for contracting with MA plans, and contractual requirements imposed upon them by the federal, state and localagencies and third-party commercial customers to which they provide services. Failure to follow the rules and requirements of these programs cansignificantly affect our U.S. Healthcare Segments’ ability to be paid for the services they provide and be authorized to provide services on an ongoing basis. The Medicare and Medicaid programs are governed by significant and complex Laws. Both Medicare and Medicaid are financed, at least in part,with federal funds. Therefore, any direct or indirect recipients of those funds are subject to federal fraud, waste and abuse Laws. In addition, there are federalprivacy and security Laws that govern the healthcare industry. State Laws primarily pertain to the licensure of certain categories of healthcare professionalsand providers and the state’s interest in regulating the quality of healthcare in the state, regardless of the source of payment, but may also include state Lawspertaining to fraud, waste and abuse, privacy and security Laws, and the state’s regulation of its Medicaid program. Federal and state regulatory laws that mayaffect our U.S. Healthcare Segments’ businesses, include, but are not limited to the following:•false and other improper claims or false statements Laws pertaining to reimbursement;•the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its privacy, security, breach notification and enforcement andcode set regulations and guidance, along with evolving state Laws protecting patient privacy and requiring notifications of unauthorizedaccess to, or use of, patient medical information;•civil monetary penalties Law;•anti-kickback Laws;•the Stark Law and other self-referral, financial inducement, fee splitting, and patient brokering Laws;•CMS regulations pertaining to Medicare as well as CMS releases applicable to the operation of MA plans, such as reimbursement rates, riskadjustment and data collection methodologies, adjustments to quality management measurements and other relevant factors; and•state licensure laws. A violation of certain of these Laws could result in civil and criminal damages and penalties, the refund of monies paid by government or privatepayers, our U.S. Healthcare Segments’ exclusion from participation in federal healthcare payer programs, or the loss of our segments’ license to conductbusiness within a particular state’s boundaries. Federal Law Federal healthcare Laws apply in any case in which our U.S. Healthcare Segments are providing an item or service that is reimbursable or provideinformation to such segments’ customers that results in reimbursement by a federal healthcare payer program to such segments or to them. The principalfederal Laws that affect our U.S. Healthcare Segments’ businesses include those that prohibit the filing of false or improper claims or other data with federalhealthcare payer programs and those that prohibit unlawful inducements for the referral of business reimbursable under federal healthcare payer programs.9False and Other Improper Claims Under the federal False Claims Act (31 U.S.C. §§ 3729-3733) and similar state Laws, the government may impose civil liability on our U.S.Healthcare Segments if they knowingly submit a false claim to the government or cause another to submit a false claim to the government, or knowinglymake a false record or statement intended to get a false claim paid by the government. The False Claims Act defines a claim as a demand for money orproperty made directly to the government or to a contractor, grantee, or other recipient if the money is to be spent on the government’s behalf or if thegovernment will reimburse the contractor or grantee. Liability can be incurred for submitting (or causing another to submit) false claims with actualknowledge or for submitting false claims with reckless disregard or deliberate ignorance. Liability can also be incurred for knowingly making or using a falserecord or statement to receive payment from the federal government or for knowingly and improperly avoiding or decreasing an obligation to pay or transmitmoney or property to the government. Consequently, a provider need not take an affirmative action to conceal or avoid an obligation to the government, butthe mere retention of an overpayment from the government could lead to potential liability under the False Claims Act. Many states also have similar false claims statutes. In addition, healthcare fraud is a priority of the U.S. Department of Justice, the Department ofHealth and Human Services (“DHHS”), its program integrity contractors and its Office of Inspector General, the Federal Bureau of Investigation and stateAttorneys General. These agencies have devoted a significant amount of resources to investigating healthcare fraud. If our U.S. Healthcare Segments are ever found to have violated the False Claims Act, they could be required to make significant payments to thegovernment (including damages and penalties in addition to the return of reimbursements previously collected) and could be excluded from participating infederal healthcare programs or providing services to entities which contract with those programs. Although our U.S. Healthcare Segments monitor theirbilling practices for compliance with applicable laws, such laws are very complex, and they might not be able to detect all errors or interpret such laws in amanner consistent with a court or an agency’s interpretation. While the criminal statutes generally are reserved for instances evidencing fraudulent intent, thecivil and administrative penalty statutes are being applied by the federal government in an increasingly broad range of circumstances. Examples of the typesof activities giving rise to liability for filing false claims include billing for services not rendered, misrepresenting services rendered (i.e., miscoding),applications for duplicate reimbursement and providing false information that results in reimbursement or impacts reimbursement amounts. Additionally, thefederal government takes the position that a pattern of claiming reimbursement for unnecessary services violates these statutes if the claimant should haveknown that the services were unnecessary. The federal government also takes the position that claiming reimbursement for services that are substandard is aviolation of these statutes if the claimant should have known that the care was substandard. Criminal penalties also are available even in the case of claimsfiled with private insurers if the federal government shows that the claims constitute mail fraud or wire fraud or violate any of the federal criminal healthcarefraud statutes. State Medicaid agencies and state Attorneys General also have authority to seek criminal or civil sanctions for fraud and abuse violations. Inaddition, private insurers may bring actions under state false claim laws. In certain circumstances, federal and state laws authorize private whistleblowers tobring false claim or “qui tam” suits on behalf of the government against providers and reward the whistleblower with a portion of any final recovery. Inaddition, the federal government has engaged a number of private audit organizations to assist it in tracking and recovering claims for healthcare servicesthat may have been improperly submitted. Governmental investigations and whistleblower “qui tam” suits against healthcare companies have increased significantly in recent years, and haveresulted in substantial penalties and fines and exclusions of persons and entities from participating in government healthcare programs. For more informationon the risks related to a failure to comply with applicable government coding and billing rules, see “Risk Factors—Regulatory Risks—Our segments couldbe subject to actions for false claims or recoupment of funds pursuant to certain audits if they do not comply with government coding and billing rules, whichcould have a material adverse impact on our segments’ operating results.” Health Information Practices Under HIPAA, DHHS issued rules to define and implement standards for the electronic transactions and code sets for the submission of transactionssuch as claims, and privacy and security of individually identifiable health information in whatever manner it is maintained. The Final Rule on Enforcement of the HIPAA Administrative Simplification provisions, including the transaction standards, the security standardsand the privacy rule, published by DHHS addresses, among other issues, DHHS’s policies for determining violations and calculating civil monetary penalties,how DHHS will address the statutory limitations on the imposition of civil monetary penalties, and various procedural issues. The rule extends enforcementprovisions currently applicable to the10healthcare privacy regulations to other HIPAA standards, including security, transactions and the appropriate use of service code sets. The Health Information Technology for Economic and Clinical Health Act (“HITECH”), enacted as part of the American Recovery andReinvestment Act of 2009, extends certain of HIPAA’s obligations to parties providing services to healthcare entities covered by HIPAA known as “businessassociates,” imposes new notice of privacy breach reporting obligations, extends enforcement powers to state attorney generals and amends the HIPAAprivacy and security laws to strengthen the civil and criminal enforcement of HIPAA. HITECH establishes four categories of violations that reflect increasinglevels of culpability, four corresponding tiers of penalty amounts that significantly increase the minimum penalty amount for each violation, and a maximumpenalty amount of $1.5 million for all violations of an identical provision. With the additional HIPAA enforcement power under HITECH, the Office of CivilRights of the Department of Health and Human Services and states are increasing their investigations and enforcement of HIPAA compliance. Our U.S.Healthcare Segments have taken steps to ensure compliance with HIPAA and we are monitoring compliance on an ongoing basis. Additionally, the HITECH Final Rule imposes various requirements on covered entities and business associates, and expands the definition of“business associates” to cover contractors of business associates. Even when our U.S. Healthcare Segments are not operating as covered entities, they may bedeemed to be “business associates” for HIPAA rule purposes of such covered entities. Our U.S. Healthcare Segments monitor their compliance obligationsunder HIPAA as modified by HITECH, and implement operational and systems changes, associate training and education, conduct risk assessments andallocate resources as needed. Any noncompliance with HIPPA requirements could expose such segments to the criminal and increased civil penaltiesprovided under HITECH and require them to incur significant costs in order to seek to comply with its requirements or to remediate potential issues that mayarise. Federal and State Anti-Kickback Laws Federal law commonly known as the “Anti-Kickback Statute” prohibits the knowing and willful offer, solicitation, payment or receipt of anything ofvalue (direct or indirect, overt or covert, in cash or in kind) which is intended to induce: the referral of an individual for a service for which payment may bemade by Medicare, Medicaid or certain other federal healthcare programs; or the ordering, purchasing, leasing, or arranging for, or recommending thepurchase, lease or order of, any service or item for which payment may be made by Medicare, Medicaid or certain other federal healthcare programs. Interpretations of the Anti-Kickback Statute have been very broad and under current Law, courts and federal regulatory authorities have stated thatthe Anti-Kickback Statute is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals. Even bona fideinvestment interests in a healthcare provider may be questioned under the Anti-Kickback Statute if the government concludes that the opportunity to investwas offered as an inducement for referrals. This act is subject to numerous statutory and regulatory “safe harbors.” Compliance with the requirements of a safe harbor offers defenses againstAnti-Kickback Statute allegations. Failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not mean that the arrangementis unlawful. However, it may mean that such an arrangement will be subject to scrutiny by the regulatory authorities. Many states, including some where our U.S. Healthcare Segments do business, have adopted anti-kickback laws that are similar to the federal Anti-Kickback Statute. Some of these state laws are very closely patterned on the federal Anti-Kickback Statute; others, however, are broader and reachreimbursement by private payers. If our U.S. Healthcare Segments’ activities were deemed to be inconsistent with state anti-kickback or illegal remunerationlaws, they could face civil and criminal penalties or be barred from such activities, any of which could harm such segments’ businesses.If our U.S. Healthcare Segments’ arrangements are found to violate the Anti-Kickback Statute or applicable state laws, these segments, along withtheir clients would be subject to civil and criminal penalties, and these segments’ arrangements would not be legally enforceable, which could materially andadversely affect their business. For more information on the risks related to failure to comply with applicable anti-bribery and anti-corruption regulations, see“Risk Factors—Regulatory Risks—Our segments’ business could be subject to civil penalties and loss of business if we fail to comply with applicablebribery, corruption and other regulations governing business with governments.” Federal and State Self-Referral Prohibitions Our U.S. Healthcare Segments may be subject to federal and state statutes banning payments for referrals of patients and referrals by physicians tohealthcare providers with whom the physicians have a financial relationship. Section 1877 of the Social Security Act, also known as the “Stark Law”,prohibits physicians from making a “referral” for “designated health services” for11Medicare (and in many cases Medicaid) patients from entities or facilities in which such physicians directly or indirectly hold a “financial relationship”. A financial relationship can take the form of a direct or indirect ownership, investment or compensation arrangement. A referral includes the requestby a physician for, or ordering of, or the certifying or recertifying the need for, any designated health services. Certain services that our U.S. Healthcare Segments provide may be identified as “designated health services” for purposes of the Stark Law. Suchsegments cannot provide assurance that future regulatory changes will not result in other services they provide becoming subject to the Stark Law’sownership, investment or compensation prohibitions in the future. Many states, including some states where our U.S. Healthcare Segments do business, have adopted similar or broader prohibitions against paymentsthat are intended to induce referrals of clients. Moreover, many states where such segments operate have laws similar to the Stark Law prohibiting physicianself-referrals. While our U.S. Healthcare Segments believe that they are operating in compliance with the Stark Law, there can be no guarantee that violationswill not occur. Healthcare Reform On March 23, 2010, the President of the United States signed into law comprehensive health reform through the Patient Protection and AffordableCare Act (Pub. L. 11-148) (“PPACA”). On March 30, 2010, the President signed a reconciliation budget bill that included amendments to the PPACA (Pub. L.11-152). These laws in combination form the “ACA” referred to herein. The changes to various aspects of the healthcare system in the ACA were far-reachingand included, among many others, substantial adjustments to Medicare reimbursement, establishment of individual mandates for healthcare coverage,extension of coverage to certain populations, expansion of Medicaid, restrictions on physician-owned hospitals, and increased efficiency and oversightprovisions. Some of the provisions of the ACA took effect immediately, while others will take effect later or will be phased in over time, ranging from a fewmonths following approval to ten years. Due to the complexity of the ACA, it is likely that additional legislation will be considered and enacted. The ACArequires the promulgation of regulations that will likely have significant effects on the healthcare industry and third-party payers. Thus, the healthcareindustry and our operations may be subjected to significant new statutory and regulatory requirements and contractual terms and conditions, andconsequently to structural and operational changes and challenges. The ACA also implemented significant changes to healthcare fraud and abuse laws that intensify the risks and consequences of enforcement actions.These included expansion of the False Claims Act by: (a) narrowing the public disclosure bar; and (b) explicitly stating that violations of the Anti-KickbackStatute trigger false claims liability. In addition, the ACA lessened the intent requirements under the Anti-Kickback Statute to provide that a person mayviolate the statute without knowledge or specific intent. The ACA also provided new funding and expanded powers to investigate fraud, including throughexpansion of the Medicare Recovery Audit Contractor (“RAC”) program to Medicare Parts C and D and Medicaid and authorizing the suspension ofMedicare and Medicaid payments to a provider of services pending an investigation of a credible allegation of fraud. Finally, the legislation createdenhanced penalties for noncompliance, including increased criminal penalties and expansion of administrative penalties under Medicare and Medicaid.Collectively, such changes could have a material adverse impact on our U.S. Healthcare Segments’ operations. On January 20, 2017, the President of the United States issued an executive order that directed federal agencies to take steps to ensure thegovernment’s implementation of the ACA minimizes the burden on impacted parties (such as individuals and states). The underlying intent of the executiveorder was to take the first steps to repeal and replace the ACA. The executive order specifically instructed agencies to “waive, defer, grant exemptions from, ordelay implementation of provisions” that place a “fiscal burden on any State” or that impose a “cost, fee, tax, penalty, or regulatory burden” on stakeholdersincluding patients, providers, and insurers. The order stated that any changes should be made only to the extent “permitted by law” and should comply withthe law governing administrative rule-making. The executive order did not, however, provide specifics on next steps or provisions that would be reexaminednor was it clear how the executive branch would be reconciled with Republican congressional efforts to repeal and replace the ACA or what portions of theACA may continue in any replacement legislation. There are multiple pending legislative proposals to amend the ACA which, among other effects, couldrepeal all or parts of the ACA without replacing its extension of coverage to expansion populations. In addition, there are pending legislative proposals tomaterially restructure Medicaid and other government health care programs.In 2017, legislation was proposed in the U.S. Congress, but did not advance out of committee and was not passed, which would reduce or eliminatecertain non-emergency medical transportation services provided by NET Services as a required Medicaid12benefit. A similar proposal was made in 2018 by the President of the United States in a federal budget proposal. If additional privatization initiatives are notproposed or enacted, or if previously enacted privatization initiatives are challenged, repealed or invalidated, there could be a material adverse impact on oursegments' operating results. Surveys and Audits Our U.S. Healthcare Segments’ programs are subject to periodic surveys by government authorities or their contractors to ensure compliance withvarious requirements. Regulators conducting periodic surveys often provide reports containing statements of deficiencies for alleged failures to comply withvarious regulatory requirements. In most cases, if a deficiency finding is made by a reviewing agency, our segments will work with the reviewing agency toagree upon the steps to be taken to bring our program into compliance with applicable regulatory requirements. In some cases, however, an agency may takea number of adverse actions against a program, including:•the imposition of fines or penalties or the recoupment of amounts paid;•temporary suspension of admission of new clients to our program’s service;•in extreme circumstances, exclusion from participation in Medicaid, Medicare or other programs;•revocation of our license; or•contract termination. While our U.S. Healthcare Segments believe that our programs are in compliance with Medicare, Medicaid and other program certificationrequirements and state licensure requirements, failure to comply with these requirements could have a material adverse impact on such segments’ businessesand their ability to enter into contracts with other agencies to provide services. Billing/claims Reviews and Audits Agencies and other third-party commercial payers periodically conduct pre-payment or post-payment medical reviews or other audits of our U.S.Healthcare Segments’ claims or other audits in conjunction with their obligations to comply with the requirements of Medicare or Medicaid. In order toconduct these reviews, payers request documentation from our U.S. Healthcare Segments and then review that documentation to determine compliance withapplicable rules and regulations, including the eligibility of clients to receive benefits, the appropriateness of the care provided to those clients, and thedocumentation of that care. Any determination that such segments have not complied with applicable rules and regulations could result in adjustment ofpayments or the incurrence of fines and penalties, or in situations of significant compliance failures review or non-renewal of related contracts. Corporate Practice of Medicine and Fee Splitting Some states in which our U.S. Healthcare Segments operate prohibit general business entities, such as these segments, from “practicing medicine,”which definition varies from state to state and can include employing physicians, as well as engaging in fee-splitting arrangements with these healthcareproviders. Among other things, our U.S. Healthcare Segments currently contract with and employ NPs to perform CHAs. We believe that such segments havestructured their operations appropriately; however, they could be alleged or found to be in violation of some or all of these laws. If a state determines thatsome portion of our U.S. Healthcare Segments’ businesses violate these laws, it may seek to have such segments discontinue or restructure those portions oftheir operations or subject them to increased costs, penalties, fines, certain license requirements or other measures. Any determination that such segmentshave acted improperly in this regard may result in liability to them. In addition, agreements between the corporation and the professional may be consideredvoid and unenforceable. Professional Licensure and Other Requirements Many of our U.S. Healthcare Segments’ employees are subject to federal and state laws and regulations governing the ethics and practice of theirprofessions. For example, our mid-level practitioners (e.g., NPs) are subject to state laws requiring physician supervision and state laws governing mid-levelscope of practice. As the use of mid-level practitioners by physicians increases, state governing boards are implementing more robust regulations governingmid-levels and their scope of practice under physician supervision. Our U.S. Healthcare Segments’ ability to provide mid-level practitioner services may berestricted by the enactment of new state laws governing mid-level scope of practice and by state agency interpretations and enforcement of such existinglaws. In addition, services rendered by mid-level practitioners may not be reimbursed by payors at the same rates as payors may reimburse physicians for thesame services. Lastly, professionals who are eligible to participate in Medicare and Medicaid as individual providers must not have been excluded fromparticipation in government programs at any time. Our U.S. Healthcare Segments’ ability to provide services depends upon the ability of their personnel tomeet individual licensure and other requirements and maintain such licensure in good standing.13WD ServicesOverview As a provider of workforce development services in the U.S. and 10 countries outside the U.S., WD Services is subject to numerous national andlocal laws and regulations. These laws and regulations significantly affect the way in which we operate various aspects of our business. WD Services hasimplemented compliance policies to help assure our compliance with these laws and regulations as they become effective; however, different interpretationsor enforcement of these laws and regulations in the future could subject our practices to allegations of impropriety or illegality or could require us to makechanges in our facilities, equipment, personnel, services or the manner in which we conduct our business.WD Services’ revenue is primarily derived from contracts that are funded by national governments that are seeking to reduce the overallunemployment rate or improve job placement success for targeted cohorts, and to reduce the recidivism rate. Further, the revenue we receive from thesecontracts is typically tied to milestones that are largely uncontrolled by us. Such milestones include the job placement success of clients, duration and tenureof clients in jobs once they are placed, and various other market and industry factors including the overall unemployment rate. For more information on therisks related to failure to satisfy our contractual obligations, see “Risk Factors—Risks Related to Our Business—If we fail to satisfy our contractualobligations, we could be liable for damages and financial penalties, which may place existing pledged performance and payment bonds at risk as well asharm our ability to keep our existing contracts or obtain new contracts and future bonds.” Data Security and ProtectionWD Services is also subject to the European Union’s and other countries’ data security and protection laws and regulations. These laws andregulations impose broad obligations on the organizations that collect such data, as well as confer broad rights on individuals about whom such data iscollected. There are amendments which will come into effect in 2018 with respect to European data privacy legislation which will significantly increase thefines for any breaches. In addition to their power to impose fines, information privacy regulators in Europe have significant powers to require organizationsthat breach regulations to put in place measures to ensure that such breaches do not occur again, and require businesses to stop processing personalinformation until the required measures are in place. For more information on the risks related to a failure to comply with privacy and security regulations, see“Risk Factors—Regulatory Risks—Our segments are subject to regulations relating to privacy and security of patient and service user information. Failure tocomply with privacy and security regulations could result in a material adverse impact on our segments’ operating results.”The data security and protection laws and regulations may also restrict the flow of information, including information about employees or serviceusers, from WD Services to Providence in the U.S. In certain instances, informed consent to the data transfer must be given by the affected employee or serviceuser. Compliance with such laws and regulations is costly and requires our segment management to expend substantial time and resources which couldnegatively impact our segments’ results of operations. Compliance may also make it more difficult for the Company to gather data necessary to ensure theappropriate operation of its internal controls or to detect corruption, resulting in the need for additional controls or increasing the Company’s costs tomaintain appropriate controls.Anti-Bribery and CorruptionWD Services’ international operations are subject to various U.S. and foreign statutes that prohibit bribery and corruption, including the U.S.Foreign Corrupt Practices Act and the UK’s Bribery Act. These statutes generally require organizations to prohibit bribery by or for the organization anddemand the implementation of systems to counter bribery, including risk management, training and guidance and the maintenance of adequate record-keeping and internal accounting practices. The statutes also, among other things, prevent the provision of anything of value to government officials for thepurposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. In addition, many countries in whichwe operate have antitrust or competition regulations which, among other things, prohibit collusive tendering or bid-rigging behavior. For more informationon the risks related to a failure to comply with applicable anti-bribery and anti-corruption regulations, see “Risk Factors—Regulatory Risks—Our segments’business could be subject to civil penalties and loss of business if we fail to comply with applicable bribery, corruption and other regulations governingbusiness with governments.”LicensingIn many of the locations where WD Services operates, it is required by local laws to obtain and maintain licenses. The applicable state and locallicensing requirements govern the services our segments provide, the credentials of staff, record keeping, treatment planning, client monitoring andsupervision of staff. The failure to maintain these licenses or the loss of a license could14have a material adverse impact on WD Services businesses and could prevent them from providing services to clients in a given jurisdiction.Surveys and audits WD Services’ contracts permit clients to review its compliance or performance, as well as its records, at the client’s discretion. In most cases, if adeficiency is found by a reviewing agency, WD Services’ will work with the reviewing agency to agree upon the steps to be taken to bring our program intocompliance with applicable regulatory requirements. In the case of any deficiency, however, a client may take a number of adverse actions against WDServices, including: (i) termination or modification of existing contracts, (ii) prevention of receipt of new contracts or extension of existing contracts or (iii)reduction of fees paid under existing contract. Billing Requirements In WD Services, particularly in Europe, our contracts are subject to stringent claims and invoice processing regimes which vary depending on thecustomer and nature of the payment mechanism. Under European procurement legislation which has been implemented in each EU member state, anyconviction for fraud can result in a ban from participating in public procurement tenders for up to five years, or until the organization in question has put inplace “self clean” measures to the satisfaction of the procuring authority. For more information on the risks related to a failure to comply with applicablegovernment coding and billing rules, see “Risk Factors—Regulatory Risks—Our segments could be subject to actions for false claims or recoupment of fundspursuant to certain audits if they do not comply with government coding and billing rules, which could have a material adverse impact on our segments’operating results.”BrexitOn June 23, 2016, the UK held a referendum in which eligible persons voted in favor of a proposal that the UK leave the EU, also known as “Brexit”.The result of the referendum increased political and economic uncertainty in the UK for the foreseeable future, in particular during any period where the termsof any UK exit from the EU are negotiated. In turn, Brexit could cause disruptions to and create uncertainty surrounding our business, including affecting ourrelationships with our existing and future payers and employees, which could have an adverse effect on our financial results, operations and prospects,including being adversely affected in ways that cannot be anticipated at present. For more information on the risks related to the UK’s exit from the EuropeanUnion, see “Risk Factors—Regulatory Risks—Our business could be adversely affected by the referendum on the UK’s exit from the European Union.”Additional Information The Company’s website at www.prscholdings.com provides access to its periodic reports, certain corporate governance documents, press releases,interim shareholder reports and links to its subsidiaries’ websites. The Company makes available to the public on its website its annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of theExchange Act, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the SEC. Copies are alsoavailable, without charge, upon request to The Providence Service Corporation, 700 Canal Street, Third Floor, Stamford, CT 06902, (203) 307-2800,Attention: Corporate Secretary. The information contained on our website is not part of, and is not incorporated by reference in, this Annual Report on Form10-K or any other report we file with or furnish to the SEC. 15Item 1A.Risk Factors.You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this AnnualReport on Form 10-K, including our consolidated financial statements and related notes. The risks described below are not the only ones facing us. Theoccurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial couldmaterially and adversely affect our business, financial condition and results of operations. This Annual Report on Form 10-K also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in any forward-looking statements as a result of specific factors, including the risks and uncertainties described below. Risks Related to Our Business There can be no assurance that our contracts will survive until the end of their stated terms, or that upon their expiration will be renewed or extended onsatisfactory terms, if at all. Disruptions to, the early expiration of or the failure to renew our contracts could have a material adverse impact on ourfinancial condition and results of operations. Our NET Services contracts, and certain WD Services contracts, are subject to frequent renewal. For example, many of the state Medicaid contractsheld by NET Services, which represented 55.9% of NET Services revenue for the year ended December 31, 2017, have terms ranging from three to five yearsand are typically subject to a competitive bidding process near the end of the term. NET Services also contracts with MCOs, which represented 44.1% of NETServices revenue for the year ended December 31, 2017. MCO contracts typically continue until terminated by either party upon reasonable notice (asdetermined in accordance with the contract). We cannot anticipate if, when or to what extent we will be successful in renewing our state government contractsor retaining our MCO contracts. During 2017, we experienced a decline in operating income as a percentage of revenue due to the nonrenewal of certain statecontracts. In addition, with respect to many of our contracts, the payer may terminate the contract without cause, at will and without penalty to the payer,either immediately or upon the expiration of a short notice period in the event that, among other reasons, government appropriations supporting the programsserviced by the contract are reduced or eliminated or the payer deems our performance under the contract to be unsatisfactory. We cannot anticipate if, when or to what extent a payer might terminate its contract with us prior to its expiration, or fail to renew or extend acontract with us. If we are unable to retain or renew our contracts, or replace lost contracts, on satisfactory terms our financial conditions and results ofoperations could be materially adversely affected. While we pursue new contract awards and also undertake efficiency measures, there can be no assurancethat such measures will fully offset the impact of contracts that are not renewed or are cancelled on our operating income and results of operations. We obtain a significant portion of our business through responses to government requests for proposals and we may not be awarded contracts through thisprocess in the future, or contracts we are awarded may not be profitable. We obtain, and will continue to seek to obtain, a significant portion of our business from national, state, and local government entities. To obtainbusiness from government entities, we are often required to respond to requests for proposals (“RFPs”). To propose effectively, we must accurately estimateour cost structure for servicing a proposed contract, the time required to establish operations and the terms of the proposals submitted by competitors. Wemust also assemble and submit a large volume of information within rigid and often short timetables. Our ability to respond successfully to RFPs will greatlyimpact our business. If we misinterpret bid requirements as to performance criteria or do not accurately estimate performance costs in a binding bid for anRFP, we will seek to correct such mistakes in the final contract. However, there can be no assurance that we will be able to modify the proposed contract andwe may be required to perform under a contract that is not profitable. WD Services’ ability to win contracts to administer and manage programs traditionally administered by government employees is also dependent onthe impact of government unions. Many WD Services government employees belong to labor unions with considerable financial resources and lobbyingnetworks. Union opposition could result in our losing government contracts, being precluded from providing services under government contracts, ormaintaining or renewing existing contracts. If we could not renew certain contracts or obtain new contracts due to opposition political actions, it could havea material adverse impact on our operating results. If we fail to satisfy our contractual obligations, we could be liable for damages and financial penalties, which may place existing pledged performanceand payment bonds at risk as well as harm our ability to keep our existing contracts or obtain new contracts and future bonds. Our failure to comply with our contractual obligations could, in addition to providing grounds for immediate termination of the contract for cause,negatively impact our financial performance and damage our reputation, which, in turn, could have a16material adverse effect on our ability to maintain current contracts or obtain new contracts. The termination of a contract for cause could, for instance, subjectus to liabilities for excess costs incurred by a payer in obtaining similar services from another source. In addition, our contracts require us to indemnify payersfor our failure to meet standards of care, and some of them contain liquidated damages provisions and financial penalties that we must pay if we breach thesecontracts.Our failure to meet contractual obligations could also result in substantial actual and consequential financial damages. For example, on January 25,2018, the MOJ released a report on reoffending statistics for certain offenders who entered probation services during the period October 2015 to March 2016.The report provides statistics for all providers of probation services, including our subsidiary RRP, which is in our WD Services segment. This information isthe second data set that is utilized to determine performance payments under the various providers’ transforming rehabilitation contracts with the MOJ, as theactual rates of recidivism are compared to benchmark rates established by the MOJ. Performance payments and penalties are linked to two separate measuresof recidivism - the binary measure and the frequency measure. The binary measure defines the percentage of offenders within a cohort, formed quarterly, whoreoffend in the following 12 months. The frequency measure defines the average number of offenses committed by reoffenders within the same 12-monthmeasurement period. The performance for the frequency measure for most providers has been below the benchmarks established by the MOJ. As a result, RRPcould be required to make payments to the MOJ and the amounts of such payments could be material. The amount of potential payments to the MOJ, if any,under RRP’s contracts with the MOJ cannot be estimated at this time, as the MOJ is reviewing the data to understand the underlying reasons for the increasein certain rates of recidivism and other factors that could impact the contractual measure.Any acquisition or integration that we undertake could disrupt our business, not generate anticipated results, dilute stockholder value or have a materialadverse impact on our operating results. We endeavor to ensure our acquisition strategy and alignment of resources serves to enhance shareholder value, which could result in changes to ourstrategy or to the way in which we deploy resources across Providence. We have made, and anticipate that we will continue to make, acquisitions. TheCompany typically incurs costs related to acquisitions and integrations, including third-party costs, whether or not the acquisition or integration iscompleted, which can have a material adverse impact on our operating results. The success of an acquisition depends in part on our ability to integrate anacquired company into our business operations. Integration of any acquired companies will place significant demands on our management, systems, internalcontrols and financial and physical resources. This could require us to incur significant expense for, among other things, hiring additional qualifiedpersonnel, retaining professionals to assist in developing the appropriate control systems and expanding our information technology infrastructure. Thenature of our business is such that qualified management personnel can be difficult to find. Our inability to manage growth effectively could have a materialadverse effect on our financial results. There can be no assurance that the companies acquired will generate income or incur expenses at the historical or projected levels on which webased our acquisition decisions, that we will be able to maintain or renew the acquired companies’ contracts, that we will be able to realize operating andeconomic efficiencies upon integration of acquired companies or that the acquisitions will not adversely affect our results of operations or financialcondition. We continually review opportunities to acquire other businesses that would complement our current services, expand our markets or otherwise offerprospects for growth. In connection with our acquisition strategy, we could issue stock that would dilute existing stockholders’ percentage ownership, or wecould incur or assume substantial debt or contingent liabilities. Acquisitions involve numerous risks, including, but not limited to, the following:•challenges and unanticipated costs assimilating the acquired operations;•known and unknown legal or financial liabilities associated with an acquisition;•diversion of management’s attention from our core businesses;•adverse effects on existing business relationships with customers;•entering markets in which we have limited or no experience;•potential loss of key employees of purchased organizations;•incurrence of excessive leverage in financing an acquisition;•failure to maintain and renew contracts and other revenue streams of the acquired business;•costs associated with litigation or other claims arising in connection with the acquired company;•unanticipated operating, accounting or management difficulties in connection with an acquisition; and•dilution to our earnings per share. We cannot assure you that we will be successful in overcoming problems encountered in connection with any acquisition or integration and ourinability to do so could disrupt our operations and adversely affect our business. Our failure to address these risks or other problems encountered inconnection with past or future acquisitions and investments could cause us to fail17to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and harm our business generally. We may be unable to realize the benefits of any strategic initiatives that are adopted by the Company.From time to time we may launch strategic initiatives in order to enhance shareholder value. For example, in 2017, NET Services pursued a strategicinitiative to enhance member satisfaction and drive greater operational efficiencies. The implementation of the initiative is expected to be substantiallycompleted by the end of 2018. Also in 2017, in order to build upon its leadership position in the UK employment services industry, enhance clientsatisfaction and drive greater operational efficiencies, WD Services substantially completed the Ingeus Futures program. In addition, we are activelyevaluating the optimal industry sectors, such as the non-emergency medical transportation industry and others in which businesses complementary to ourNET Services business operate, around which to focus our go-forward merger and acquisition activity, in an attempt to direct our capital towards those areasmost likely to drive long-term value creation and generate the highest levels of return for our shareholders. The outcome of this active evaluation may impactthe extent and manner in which we deploy resources across Providence, including strategic and administrative resources between Corporate and Other andour operating segments. There can be no assurance as to whether any strategic initiatives will be adopted as a result of this evaluation, and the outcome ofany current or future strategic initiatives is uncertain.Our investments in any joint ventures and unconsolidated entities could be adversely affected by our lack of sole decision-making authority, our relianceon our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potentiallosses from the actions of our joint venture partners. We currently hold a noncontrolling interest in Matrix, which constitutes 24.0% of our consolidated assets. We do not have unilateral power to directthe activities that most significantly impact such business’ economic performance. Our future growth may depend, in part, on future similar arrangements, anyof which could be material to our financial condition and results of operations. These arrangements involve risks not present with respect to our wholly-owned subsidiaries, which may negatively impact our financial condition and results of operations or make the arrangements less successful than anticipated,including the following:•we may be unable to take actions that we believe are appropriate but are opposed by our joint venture partners under arrangements thatrequire us to cede or share decision-making authority over major decisions affecting the ownership or operation of the joint venture andany property owned by the joint venture, such as the sale or financing of the business or the making of additional capital contributions forthe benefit of the business;•our joint venture partners may take actions that we oppose;•we may be unable to sell or transfer our interest in a joint venture to a third party if we fail to obtain the prior consent of our joint venturepartners;•our joint venture partners may become bankrupt or fail to fund their share of required capital contributions, which could adversely impactthe joint venture or increase our financial commitment to the joint venture;•our joint venture partners may have business interests or goals with respect to a business that conflict with our business interests and goals,including with respect to the timing, terms and strategies for investment, which could increase the likelihood of disputes regarding theownership, management or disposition of the business;•disagreements with our joint venture partners could result in litigation or arbitration that increases our expenses, distracts our officers anddirectors, and disrupts the day-to-day operations of the business, including the delay of important decisions until the dispute is resolved;and•we may suffer losses as a result of actions taken by our joint venture partners with respect to our joint venture investments. We derive a significant amount of our revenues from a few payers, which puts our financial condition and results of operations at risk. Any changes in thefunding, financial viability or our relationships with these payers could have a material adverse impact on our financial condition and results ofoperations. We generate a significant amount of the revenues in our segments from a few payers under a small number of contracts. For example, for the yearsended December 31, 2017, 2016 and 2015, we generated 46.7%, 47.9% and 54.6%, respectively, of our consolidated revenue from ten payers. Additionally,five payers related to NET Services represented, in the aggregate, 36.1%, 35.6% and 39.2%, respectively, of NET Services revenue for the years endedDecember 31, 2017, 2016 and 2015. A single payer related to WD Services represented 27.1%, 28.9% and 40.0% of our WD Services revenue for the yearsended December 31, 2017, 2016 and 2015, respectively. Additionally, a single payer related to Matrix represented 30.9%, 27.8% and 31.1% of Matrixrevenue for the years ended December 31, 2017, 2016 and 2015, respectively. The loss of, reduction in amounts generated by, or changes in methods orregulations governing payments for our services under these contracts could have a material adverse impact on our18revenue and results of operations. In addition, any consolidation of any of our private payers could increase the impact that any such risks would have on ourrevenue and results of operations. If we fail to estimate accurately the cost of performing certain contracts, we may experience reduced or negative margins. During 2017, 2016 and 2015, 77.9%, 78.3% and 83.6% of our NET Services revenue, respectively, was generated under capitated contracts with theremainder generated through FFS and flat fee contracts. WD Services also provides services under FFS and flat fee contracts. Under most of NET Services’capitated contracts, we assume the responsibility of managing the needs of a specific geographic population by contracting out transportation services tolocal transportation companies on a per ride or per mile basis. We use “pricing models” to determine applicable contract rates, which take into account factorssuch as estimated utilization, state specific data, previous experience in the state or with similar services, the medically covered programs outlined in thecontract, identified populations to be serviced, estimated volume, estimated transportation provider rates and availability of mass transit. The amount of thefixed per-member, monthly fee is determined in the bidding process, but is predicated on actual historical transportation data for the subject geographicregion as provided by the payer, actuarial work performed in-house as well as by third party actuarial firms and actuarial analysis provided by the payer. If theutilization of our services is more than we estimated, the contract may be less profitable than anticipated, or may not be profitable at all. Under our FFScontracts, we receive fees based on our interactions with government-sponsored clients. To earn a profit on these contracts, we must accurately estimate costsincurred in providing services. Our risk relating to these contracts is that our client population is not large enough to cover our fixed costs, such as rent andoverhead. Our FFS contracts are not reimbursed on a cost basis and therefore, if we fail to estimate our costs accurately, we may experience reduced margins orlosses on these contracts. Revenue under certain contracts may be adjusted prospectively if client volumes are below expectations. If the Company is unableto adjust its costs accordingly, our profitability may be negatively impacted. In addition, certain contracts with state Medicaid agencies are renewable at thestate’s option without an adjustment to pricing terms. If such renewed contracts require us to incur higher costs, including inflation or regulatory changes,than originally anticipated, our results of operations and financial condition may be adversely affected. In WD Services, we often provide services to a client based on a unit price for delivery of a service or achievement of a defined outcome. If we fail toestimate costs accurately, we may have minimal ability to change the unit price to ensure profitability. While we may be able to alter our cost structure toreflect lower than anticipated volumes and other changes in service needs, there are certain fixed costs which are difficult to alter while still ensuring we canmeet our contractual obligations. Further, many contracts require us to undertake significant onboarding projects, including making redundancies andchanges to properties and IT. If we fail to anticipate the cost of these change programs, we may be unable to recover startup costs throughout the life of thecontract. During the fourth quarter of 2016, WD Services recorded asset impairment charges of $19.6 million, which related, in part, to lower revenue andunanticipated costs for a recent contract. If WD Services continues to experience lower than expected volumes and unfavorable service mix shifts, it couldresult in additional impairment charges. For more information on the risks related to impairment of goodwill, see “Risk Factors—Risks Related to OurBusiness—Our reported financial results could suffer if there is an impairment of long-lived assets.” We may incur costs before receiving related revenues, which could impact our liquidity. When we are awarded a contract to provide services, we may incur expenses before we receive any contract payments. These expenses includeleasing office space, purchasing office equipment, instituting information technology systems, development of supply chains, hiring personnel and releasingcertain personnel. As a result, in certain contracts where the government does not fund program start-up costs, we may be required to make significantinvestments before receiving any related contract payments or payments sufficient to cover start-up costs. For example, WD Services incurred start-up costs in2017 related to the UK’s Work and Health Programme, and in 2016 related to the offender rehabilitation program in the UK and start-up costs in France. Inaddition, payments due to us from payers may be delayed due to billing cycles or as a result of failures to approve government budgets in a timely manner,which may adversely affect our liquidity. Moreover, any resulting mismatch in expenses and revenue, especially under FFS arrangements, could beexacerbated if we fail either to invoice the payer correctly or to collect our fee in a timely manner. Such amounts may exceed our available cash, and anyresulting liquidity shortages may require additional financing, which may not be available on satisfactory terms, or at all. This could have a material adverseimpact on our ongoing operations and our financial position. Our business is subject to risks of litigation. The services we provide are subject to lawsuits and claims. A substantial award payable by the Company could have a material adverse impact onour operations and cash flows, and could adversely impact our ability to continue to purchase appropriate liability insurance. We can be subject to claims fornegligence or intentional misconduct (in addition to professional liability type claims) by an employee or a third party we engage to assist with the provisionof services, including but not limited to claims arising out of accidents involving vehicle collisions, workforce development placements or CHAs and variousclaims that could19result from employees or contracted third parties driving to or from interactions with clients or while providing direct client services. We can be subject toemployee-related claims such as wrongful discharge, discrimination or a violation of equal employment laws and permitting issues. While we attempt toinsure against for these types of claims, damages exceeding our insurance limits or outside our insurance coverage, such as a claim for fraud, certain wage andhour violations or punitive damages, could adversely affect our cash flow and financial condition. We face risks related to attracting and retaining qualified employees and labor relations. Our success depends to a significant degree on our ability to identify, attract, develop, motivate and retain highly qualified and experiencedprofessionals who possess the skills and experience necessary to deliver high-quality services to our clients, with the continued contributions of our seniormanagement being especially critical to our success. Our objective of providing the highest quality of service to our clients is a significant considerationwhen we evaluate the education, experience and qualifications of potential candidates for employment as direct care and administrative staff. A portion ofour staff are professionals with requisite educational backgrounds and professional certifications. These employees are in great demand and are likely toremain a limited resource for the foreseeable future. Our ability to attract and retain employees with the requisite experience and skills depends on several factors including, but not limited to, ourability to offer competitive wages, benefits and professional growth opportunities. While we have established programs to attract new employees and provideincentives to retain existing employees, particularly our senior management, we cannot assure you that we will be able to attract new employees or retain theservices of our senior management or any other key employees in the future. In particular, we are currently seeking to fill several key management positionsin our NET Services business, and we expect to continue to need to attract key employees to support the growth of our businesses. Some of the companieswith which we compete for experienced personnel may have greater financial, technical, political and marketing resources, name recognition and a largernumber of clients and payers than we do, which may prove more attractive to employment candidates. The inability to attract and retain experiencedpersonnel could have a material adverse effect on our business. The performance of each of our business segments also depends on the talents and efforts of our highly skilled information technology professionals.For example, technological improvement is a key component of the strategic initiative at NET Services to enhance member satisfaction and drive greateroperational efficiencies and as NET Services expands our transportation network capacity beyond its traditional transportation provider network, increaseson-time and on-demand performance, provides real time analytics and minimizes cancellations. Competition for skilled intellectual technology professionalscan be intense. Our success depends on our ability to recruit, retain and motivate these individuals. Effective succession planning is also important to our future success. If we fail to ensure the effective transfer of senior management knowledge andsmooth transitions involving senior management, including the appointment of a new chief executive officer for the Company (as our chief executive officerterminated his role during the fourth quarter of 2017) and the transition of several key management positions, including the chief technology officer, in ourNET Service business, our ability to execute short and long-term strategic, financial and operating goals, as well as our business, financial condition andresults of operations generally, could be adversely affected.In addition, our businesses rely on maintaining strong relationships with our employees and avoiding labor disputes. Certain of our UK employeesare members of the NAPO and Unison unions and certain of our employees in France are members of the Confederation Generale du Travail. Unionizedemployees in both countries have collective bargaining rights. Participation in unions is confidential under European employment laws. While we believewe have good relationships with our employees, both unionized and non-unionized, in the U.S. and internationally, including the unions that represent someof our employees, a work stoppage due to our failure to renegotiate union contracts or for other reasons could have a significant negative effect on us. Inaddition, should additional portions of our workforce be subject to collective bargaining agreements, this could result in increased costs of doing business aswe may be subject to mandatory, binding arbitration of labor scheduling, costs and standards and we may therefore have reduced operating flexibility. We may have difficulty successfully completing divestitures or exiting businesses. As demonstrated in 2017 with the sale of our interests in Mission Providence Pty Ltd to Konekt Limited, in 2016 with the Matrix Transaction and in2015 with the Human Services Sale, we may dispose of all or a portion of our investments or exit businesses based on a variety of factors, includingavailability of alternative opportunities to deploy capital or otherwise maximize shareholder value as well as other strategic considerations. A divestiture orbusiness termination could result in difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention, thedisruption of our business and the potential loss of key employees and customers. A divestiture or business termination may be subject to the satisfaction ofpre-closing conditions as well as to obtaining necessary regulatory and government approvals, which, if not satisfied or obtained,20may prevent us from completing the disposition or business termination, whether or not the disposition or business termination has been publicly announced.A divestiture or business termination may also involve continued financial involvement in the divested assets and businesses, such as indemnities or otherfinancial obligations, including continuing obligations to employees, in which the performance of the divested assets or businesses could impact our resultsof operations. From time to time the Company guarantees the contractual payment or performance obligations of its segments. An inability to obtain waiveror termination of such guarantees may prevent us from completing a disposition or business termination, or may result in continued financial involvement indivested assets and businesses. Further, such divestitures may result in proceeds to us in an amount less than we expect or less than our assessment of thevalue of those assets. Any sale of our assets could result in a loss on divestiture. Any of the foregoing could adversely affect our financial condition andresults of operations. The indemnification provisions of acquisition and disposition agreements by which we have acquired or sold companies may result in liabilities. We rely heavily on the representations and warranties and related indemnities provided to us by the sellers of acquired companies, including as theyrelate to creation, ownership and rights in intellectual property and compliance with laws and contractual requirements. However, the liability of the formerowners is limited under the relevant acquisition agreements, and certain sellers may be unable to meet their indemnification responsibilities. Similarly, thepurchasers of our divested operations may from time to time agree to indemnify us for operations of such businesses after the closing. We cannot be assuredthat any of these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our consolidatedresults of operations, financial condition and cash flows. In addition, we have provided certain indemnifications in connection with the Human Services Sale in 2015 and the Matrix Transaction in 2016. Tothe extent we choose to divest other operations of our businesses in the future, we expect to provide certain indemnifications in connection with thesedivestitures. We may face liabilities in connection with these current or future indemnification obligations that may adversely affect our consolidated resultsof operation, financial condition and cash flows. We have entered into a settlement with Molina Healthcare Inc. (“Molina”), the purchaser of our formerHuman Services segment, regarding the settlement of certain potential indemnification claims. As of December 31, 2017, the accrual is $15.0 million withrespect to an estimate of loss for such potential indemnification claims. Litigation is inherently uncertain, and the losses incurred in the event that the legalproceedings related to such claims were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financialperformance. For more information on these potential indemnification obligations, see Note 18, Commitments and Contingencies, to our consolidatedfinancial statements. Our success depends on our ability to compete effectively in the marketplace. We compete for clients and for contracts with a variety of organizations that offer similar services. Many organizations of varying sizes compete withus, including local not-for-profit organizations and community-based organizations, larger companies, organizations that currently provide or may begin toprovide similar NET management services (including transportation network companies like Uber and Lyft), and large multi-national corporations thatcurrently provide or may begin to provide workforce development services and CHA providers. Some of these companies may have greater financial,technical, political, marketing, name recognition and other resources and a larger number of clients or payers than we do. In addition, some of thesecompanies offer more services than we do. To remain competitive, we must provide superior services and performance on a cost-effective basis to ourcustomers.The market in which we operate is influenced by technological developments that affect cost-efficiency and quality of services, and the needs of ourcustomers change and evolve regularly. Accordingly, our success depends on our ability to develop services that address these changing needs and toprovide technology needed to deliver these services on a cost-effective basis. Our competitors may better utilize technology to change the way services inour industry are designed and delivered and they may be able to provide our customers with different or greater capabilities than we can provide, includingbetter contract terms, technical qualifications, price and availability of qualified professional personnel. In addition, new or disruptive technologies andmethodologies by our competitors may make our services uncompetitive.In conjunction with our initiatives to improve cost-efficiency, we incur substantial costs to develop technology, which may not ultimately serve ourbusiness purposes or lower costs. For example, in 2016, WD Services incurred a write-off of in-process technology of $3.1 million related to our legal offenderrehabilitation services, as it was determined the system would not meet our business needs. As of December 31, 2017, NET Services has incurred $11.9million of development in progress costs related to its LCAD NextGen technology system, which is a critical component of its initiative to progress towardsan industry-leading call center and reservation scheduling platform, improve member communication, accessibility, and satisfaction, optimize the utilizationof our extensive network of transportation providers and build the foundation for additional analytical capabilities.21The system has not been placed into service, and a review of the project is ongoing. In addition, we made a cost-method investment of $3.0 million during2017, in Circulation, a technology-based transportation services provider.We have experienced, and expect to continue to experience, competition from new entrants into the markets in which we operate. Increasedcompetition may result in pricing pressures, loss of or failure to gain market share or loss of or failure to gain clients or payers, any of which could have amaterial adverse effect on our operating results. Our business may also be adversely affected by the consolidation of competitors, which may result inincreased pricing pressure or negotiating leverage with payers, or by the provision of our services by payers or clients directly, including through theacquisition of competitors. We may be adversely impacted by inadequacies in, or security breaches of, our information technology systems. Our information technology systems are critically important to our operations and we must implement and maintain appropriate and sufficientinfrastructure and systems to support growth and business processes. We provide services to individuals, including services that require us to maintainsensitive and personal client information, including information relating to their health, social security numbers and other identifying data. Therefore, ourinformation technology systems store client information protected by numerous federal, state and foreign regulations. We also rely on our informationtechnology systems (some of which are outsourced to third parties) to manage the data, communications and business processes for all other functions,including our marketing, sales, logistics, customer service, accounting and administrative functions. Further, our systems include interfaces to third-partystakeholders, often connected via the Internet. In addition, certain of our services or information related to our services are carried out or hosted within ourcustomers’ IT systems, and any failure or weaknesses in their IT systems may negatively impact our ability to deliver the services, for which we may notreceive relief from contractual performance obligations or compensation for services provided. As a result of the data we maintain and third-party access, weare subject to increasing cybersecurity risks. The nature of our business, where services are often performed outside a secured location, adds additional risk. If we do not allocate and effectively manage the resources necessary to build, sustain and protect an appropriate technology infrastructure, ourbusiness or financial results could be negatively impacted. Furthermore, computer hackers and data thieves are increasingly sophisticated and operate largescale and complex automated attacks and our information technology systems may be vulnerable to material security breaches (including the access to oracquisition of customer, employee or other confidential data), cyber-based attacks or other material system failures. Because the techniques used to obtainunauthorized access or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to implement adequatepreventative measures sufficient to prevent a breach of our systems and protect sensitive data. Any breach of our data security could result in an unauthorizedrelease or transfer of customer or employee information, or the loss of valuable business data or cause a disruption in our business. A failure to prevent, detectand respond in a timely manner to a major breach of our data security or to other cybersecurity threats could result in system disruption, business continuityissues or compromised data integrity. These events or any other failure to safeguard personal data could give rise to unwanted media attention, damage ourreputation, damage our customer relationships and result in lost sales, fines or lawsuits. We may also be required to expend significant capital and otherresources to protect against or respond to or alleviate problems caused by a security breach. If we are unable to prevent material failures, our operations maybe impacted, and we may suffer other negative consequences such as reputational damage, litigation, remediation costs, a requirement not to operate ourbusiness until defects are remedied or penalties under various data privacy laws and regulations, any of which could detrimentally affect our business,financial condition and results of operations. Failure to protect our client’s privacy and confidential information could lead to legal liability, adversely affect our reputation and have a materialadverse effect on our business, financial condition and results of operations.We retain confidential information in our computer systems, including personal information about our customers, such as names, addresses, phonenumbers, email addresses, identification numbers and payment account information. Malicious cyber attacks to gain access to personal information affectmany companies across various industries, including ours. Pursuant to federal and state laws, various government agencies have established rules protectingthe privacy and security of personal information. In addition, most states have enacted laws, which vary significantly from jurisdiction to jurisdiction, tosafeguard the privacy and security of personal information. An increasing number of states require that customers be notified if a security breach results in theinappropriate disclosure of personally identifiable customer information. Any compromise of the security of our systems that results in the disclosure ofpersonally identifiable customer or employee information or inadvertent disclosure of any clients’ personal information could damage our reputation, deterpeople from using our services, expose us to litigation, increase regulatory scrutiny and require us to incur significant technical, legal and other expenses. Inaddition, data breaches impacting other companies, such as our vendors, may allow cybercriminals to obtain personally identifiable information about ourcustomers. Cybercriminals may then use this information to, among other things, attempt to gain unauthorized access to our customers’ accounts, whichcould have a material adverse effect on our reputation, business, results of operations or financial condition.22Failure to maintain or to develop further reliable, efficient and secure information technology systems would be disruptive to our operations and diminishour ability to compete and grow our business successfully.We are highly dependent on efficient and uninterrupted performance of our information technology and business systems. These systems quote,process and service our business, and perform financial functions necessary for pricing and service delivery. These systems must also be able to undergoperiodic modifications and improvements without interruptions or untimely delays in service. Additionally, our ability to integrate our systems with those ofour clients is critical to our success. Our information systems rely on the commitment of significant financial and managerial resources to maintain andenhance existing systems as well as develop and create new systems to keep pace with continuing changes in information processing technology or evolvingindustry and regulatory requirements. However, we still rely on manual processes and procedures, including accounting, reporting and consolidationprocesses that may result in errors and may not scale proportionately with our business growth.A failure or delay to achieve improvements in our information technology platforms could interrupt certain processes or degrade business operationsand could place us at a competitive disadvantage. If we are unable to implement appropriate systems, procedures and controls, we may not be able tosuccessfully offer our services and grow our business and account for transactions in an appropriate and timely manner, which could have an adverse effect onour business, financial condition and results of operations.There are risks associated with our international operations that are different from the risks associated with our operations in the U.S., and our exposureto the risks of a global market could hinder our ability to maintain and expand international operations. We have operation centers in Australia, Canada, France, Germany, Saudi Arabia, Singapore, South Korea, Switzerland, the UK and the U.S. and anoncontrolling interest in a joint venture in Spain. In implementing our international strategy, we may face barriers to entry and competition from localcompanies and other companies that already have established global businesses, as well as the risks generally associated with conducting businessinternationally. The success and profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of ourcontrol, such as:•political or economic instability;•changes in governmental regulation or taxation;•currency exchange fluctuations;•difficulties and costs of staffing and managing operations in certain foreign countries, including potential pension and social planliabilities;•work stoppages or other changes in labor conditions; and•taxes and other restrictions on repatriating foreign profits back to the U.S. In addition, changes in policies or laws of the U.S. or foreign governments resulting in, among other changes, higher taxation, tariffs or similarprotectionist laws could reduce the anticipated benefits of international operations and could have a material adverse effect on our results of operations andfinancial condition. We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompanytransactions outside the U.S., and we currently do not conduct hedging activities. The value of the U.S. dollar against other foreign currencies has seensignificant volatility recently. Our financial condition and results of operations are reported in multiple currencies, and are then translated into U.S. dollars atthe applicable exchange rate for inclusion in our consolidated financial statements. Appreciation of the U.S. dollar against these other currencies will have anegative impact on our reported net revenue and operating income while depreciation of the U.S. dollar against such currencies will have a positive effect onreported net revenue and operating income. We cannot predict with precision the effect of future exchange-rate fluctuations on our business and operatingresults, and significant rate fluctuations could have a material adverse effect on our results of operations and financial condition. Our results of operations will continue to fluctuate due to seasonality. NET Services operating results and operating cash flows normally fluctuate as a result of seasonal variations in our business. Due to higher demandin the summer months and lower demand in the winter months, coupled with a primarily fixed revenue stream based on a per-member, per-month paymentstructure, NET Services normally experiences lower operating margins during the summer season and higher operating margins during the winter season. WDServices typically does not experience seasonal fluctuations in operating results. However, volatility in revenue and earnings is common in the case of WDServices due to the timing of commencement and expiration of certain major contracts as well as fluctuations in referrals provided by its customers. 23Our reported financial results could suffer if there is an impairment of long-lived assets. Goodwill may be impaired if the estimated fair value of one or more of our reporting units is less than the carrying value of the respective reportingunit. As a result of our growth, in part through acquisitions, goodwill and other intangible assets represent a significant portion of our assets. We perform ananalysis on our goodwill balances to test for impairment on an annual basis. Interim impairment tests may also be required in advance of our annualimpairment test if events occur or circumstances change that would more likely than not reduce the fair value, including goodwill, of one or more of ourreporting units below the reporting unit’s carrying value. Such circumstances could include but are not limited to: (1) loss of significant contracts, (2) asignificant adverse change in legal factors or in the climate of our business, (3) unanticipated competition, (4) an adverse action or assessment by a regulatoror (5) a significant decline in our stock price. In the fourth quarter of 2016, we recorded asset impairment charges of $19.6 million related to WD Services andan asset impairment of $1.4 million for Corporate and Other related to the sale of a building, as discussed below in Item 7. “Management’s Discussion andAnalysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates”. As of December 31, 2017, the carrying value ofgoodwill, intangibles and property and equipment, net is $121.7 million, $43.9 million and $50.4 million, respectively. In addition, property and equipmentas of December 31, 2017 includes $13.4 million of construction and development in progress, primarily related to NET Services’ LCAD NextGen technologysystem, as discussed above. We continue to monitor the carrying value of these long-lived assets. Any future impairment charges could have a materialadverse impact on our results of operations and financial position. Our use of a reinsurance program and insurance programs to cover certain claims for losses suffered and costs or expenses incurred could negativelyimpact our business. We reinsured a substantial portion of our automobile, general liability, professional liability and workers’ compensation insurance policies throughMay 15, 2017. Upon renewal of the policies, we made the decision to no longer reinsure these risks, although we continue to resolve claims under thehistorical policy years. Through February 15, 2011, one of our subsidiaries also insured certain general liability, automobile liability, and automobilephysical damage coverage for independent third-party transportation providers. In the event that actual reinsured losses increase unexpectedly andsubstantially exceed actuarially determined estimated reinsured losses under the program, the aggregate of such losses could materially increase our liabilityand adversely affect our financial condition, liquidity, cash flows and results of operations.In addition, under our current insurance policies, we are subject to deductibles, and thus retain exposure within these limits. In the event that actuallosses within our deductible limits increase unexpectedly and substantially exceed our expected losses, the aggregate of such losses could materially increaseour liability and adversely affect our financial condition, liquidity, cash flows and results of operations.As the availability to us of certain traditional insurance coverage diminishes or increases in cost, we will continue to evaluate the levels and types ofinsurance coverage we include in our reinsurance and self-insurance programs, as well as the deductible limits within our traditional insurance programs. Anyincrease to these reinsurance and self-insurance programs or increases in deductible limits increases our risk exposure and therefore increases the risk of apossible material adverse effect on our financial condition, liquidity, cash flows and results of operations. Inaccurate, misleading or negative media coverage could damage our reputation and harm our ability to maintain or procure contracts. There is sometimes media coverage regarding services that we or our competitors provide or contracts that we or our competitors are a party to.Inaccurate, misleading or negative media coverage about us could harm our reputation and, accordingly, our ability to maintain our existing contracts orprocure new contracts. In addition, negative media coverage could influence government officials to slow the pace of privatizing or retendering governmentservices. 24Regulatory Risks Our U.S. Healthcare Segments conduct business in a heavily regulated healthcare industry. Compliance with existing Laws is costly, and changes in Lawsor violations of Laws may result in increased costs or sanctions that could reduce our segments’ revenue and profitability. The U.S. healthcare industry is subject to extensive federal and state Laws relating to, among other things:•professional licensure;•conduct of operations;•addition of facilities, equipment and services, including certificates of need;•coding and billing related to our services; and•payment for services. Both federal and state government agencies have increased coordinated civil and criminal enforcement efforts related to the healthcare industry.Regulations related to the healthcare industry are extremely complex and, in many instances, the industry does not have the benefit of significant regulatoryor judicial interpretation of those laws. The Patient Protection and Affordable Care Act, as well as the anticipated attempts to repeal all or portions of thoselaws by the President and Congress, has also introduced some degree of regulatory uncertainty as the industry does not know how the changes it introducedor changes to it will affect many aspects of the industry. Medicare and Medicaid anti-fraud and abuse laws prohibit certain business practices andrelationships related to items and services reimbursable under Medicare, Medicaid and other governmental healthcare programs, including the payment orreceipt of remuneration to induce or arrange for referral of patients or recommendation for the provision of items or services covered by Medicare or Medicaidor any other federal or state healthcare program. Federal and state Laws prohibit the submission of false or fraudulent claims, including claims to obtainreimbursement under Medicare and Medicaid. Our U.S. Healthcare Segments have implemented compliance policies to help assure their compliance withthese regulations as they become effective; however, different interpretations or enforcement of these laws and regulations in the future could subject ourpractices to allegations of impropriety or illegality or could require such segments to make changes in their facilities, equipment, personnel, services or themanner in which they conduct our business. Changes in budgetary priorities of the government entities that fund the services our segments provide could result in our segments’ loss of contracts or adecrease in amounts payable to them under their contracts. Our segments’ revenue is largely derived from contracts that are directly or indirectly paid or funded by government agencies. All of these contractsare subject to legislative appropriations and state or national budget approval. The availability of funding under NET Services’ contracts with stategovernments is dependent in part upon federal funding to states. Changes in Medicaid methodology may further reduce the availability of federal funds tostates in which our U.S. Healthcare Segments provide services. The President of the United States and Congress have proposed various changes to theMedicaid program, including considering converting the Medicaid program to a block grant format or capping the federal contribution to state Medicaidprograms to a fixed amount per beneficiary. The Centers for Medicare and Medicaid Services (“CMS”) has the ability to grant waivers to states relative to theparameters of their Medicaid programs. Such changes, individually or in the aggregate could have a material adverse effect on our U.S. Healthcare Segmentsoperations. Among the alternative Medicaid funding approaches that states have explored are provider assessments as tools for leveraging increased Medicaidfederal matching funds. Provider assessment plans generate additional federal matching funds to the states for Medicaid reimbursement purposes, andimplementation of a provider assessment plan requires approval by CMS in order to qualify for federal matching funds. These plans usually take the form of abed tax or a quality assessment fee, which were historically required to be imposed uniformly across classes of providers within the state, except that suchtaxes only applied to Medicaid health plans. Changes to provider assessment opportunities, the Medicaid programs in states in which our U.S. Healthcare Segments operate or in the structure ofthe federal government’s support for those programs can impact the amount of funds available in the programs our U.S. Healthcare Segments support. Suchsegments cannot make any assurances that these Medicaid changes will not negatively affect the funding under their contracts. As funding under U.S.Healthcare Segments’ contracts is dependent in part upon federal funding, such funding changes could have a significant effect upon such segments’businesses. Currently, many of the U.S. states and overseas countries in which our segments operate are facing budgetary shortfalls or changes in budgetarypriorities. While many of these states are dealing with budgetary concerns by shifting costs from institutional care to home and community based care such aswe provide, there is no assurance that this trend will continue. 25Likewise, in many of the overseas countries addressed by WD Services, particularly the UK, a continued focus following the global financial crisison austerity measures to reduce national and local budget deficits could lead to further spending cuts or changes to welfare arrangements. This may makeavailability of funding for outsourcing of such services more difficult to obtain from relevant government departments, which may lead to more challengingterms and conditions, including pressure on prices or volumes of services provided. In the UK, the low unemployment rate has led to a change in the government prioritizing employability services, and a consequent reduction inscale of the Work and Health Programme, the successor program to the Work Programme. While we have the ability to alter a portion of our cost structure toreflect the decreasing volume of these contracts during their term, there may be significant redundancy costs and management time additionally invested toreflect these changes, particularly if programs are discontinued. Consequently, a significant decline in government expenditures, shift of expenditures or funding away from programs that call for the types ofservices that we provide, or change in government contracting or funding policies could cause payers to terminate their contracts with our segments or reducetheir expenditures under those contracts, either of which could have a negative impact on our segments’ operating results. Our segments are subject to regulations relating to privacy and security of patient and service user information. Failure to comply with privacy andsecurity regulations could result in a material adverse impact on our segments’ operating results. There are numerous federal and state regulations addressing patient information privacy and security concerns. In particular, the federal regulationsissued under HIPAA contain provisions that:•protect individual privacy by limiting the uses and disclosures of patient information;•require the implementation of security safeguards to ensure the confidentiality, integrity and availability of individually identifiable healthinformation in electronic form; and•prescribe specific transaction formats and data code sets for certain electronic healthcare transactions. Compliance with state and federal laws and regulations is costly and requires our segment management to expend substantial time and resourceswhich could negatively impact our segments’ results of operations. Further, the HIPAA regulations and state privacy laws expose our segments to increasedregulatory risk, as the penalties associated with a failure to comply or with information security breaches, even if unintentional, could have a material adverseeffect on our segments’ results of operations. Our WD Services segment has operations in many countries in Europe, and internationally, and these operations have access to significant amountsof sensitive personal information about individuals. In Europe, these operations are subject to European and national data privacy legislation which imposessignificant obligations on data processors and controllers with respect to such personal information. Similar regimes exist in other WD Service jurisdictionssuch as Australia, Canada and South Korea. Some countries, such as Spain, France and Germany, have particularly strong privacy laws which impose evengreater obligations on people handling personal information. Data protection and privacy law within the EU is changing effective May 25, 2018, from whichdate the EU General Data Protection Regulation (“GDPR”) must be complied with. Amongst other changes the GDPR brings about an increase in thepotential fines for certain breaches of the GDPR, of up to the higher of 4% of an undertaking’s global turnover or €20,000,000. In addition to fining powers,data protection authorities in Europe have significant powers to require organizations that breach regulations to put in place measures to ensure that suchbreaches do not occur again, and require businesses to stop processing personal information until the required measures are in place. Such orders couldsignificantly impact our business given that we are required to handle personal information as part of our service delivery model. The GDPR and other similarlaws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negativepublicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, includingfines or demands or orders that we modify or cease existing business practices.Our segments could be subject to actions for false claims or recoupment of funds pursuant to certain audits if they do not comply with government codingand billing rules, which could have a material adverse impact on our segments’ operating results. If our segments fail to comply with federal and state documentation, coding and billing rules, our segments could be subject to criminal or civilpenalties, loss of licenses and exclusion from the Medicare and Medicaid programs, which could have a material adverse impact on our segments’ operatingresults. In billing for our segments’ services to third-party payers, our segments must follow complex documentation, coding and billing rules. These rules arebased on federal and state laws, rules and regulations, various government pronouncements, and industry practice. In the U.S., failure to follow these rulescould result in26potential criminal or civil liability under the federal False Claims Act, under which extensive financial penalties can be imposed or under various statestatutes which prohibit the submission of false claims for services covered. Compliance failure could further result in criminal liability under various federaland state criminal or civil statutes. Our segments may be subject to audits conducted by our clients or their proxies that may result in recoupment of funds. Inaddition, our segments’ clients may be subject to certain audits that may result in recoupment of funds from our clients that may, in turn, implicate oursegments’ services. Our segments’ businesses could be adversely affected in the event such an audit results in negative findings and recoupment from orpenalties to their customers. Our segment contracts are subject to stringent claims and invoice processing regimes which vary depending on the customer and nature of thepayment mechanism. Government entities in the U.S. may take the position that if a transport cannot be matched to a healthcare event, or is conductedinconsistently with contractual, regulatory or even policy requirements, payment for such transport may be recouped by such customer. Under Europeanprocurement legislation which has been implemented in each EU member state, any conviction for fraud can result in a ban from participating in publicprocurement tenders for up to five years, or until the organization in question has put in place “self clean” measures to the satisfaction of the procuringauthority. This could significantly affect our business given that most of our customers in Europe are governmental organizations. Any such breaches ordeficiencies in paperwork associated with billing may also be subject to contractual clawback regimes and penalties, which can be enforced many years afterthe revenue has been paid by the relevant authority. While our segments carefully and regularly review their documentation, coding and billing practices, the rules are frequently vague and confusingand they cannot assure that governmental investigators, private insurers or private whistleblowers will not challenge their practices. Such a challenge couldresult in a material adverse effect on our segments’ financial position and results of operations.Our segments’ business could be subject to civil penalties and loss of business if we fail to comply with applicable bribery, corruption and otherregulations governing business with governments. Our U.S. Healthcare Segments are subject to the federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any formof remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or servicespayable by a federally funded healthcare program. Any of our U.S. Healthcare Segments’ financial relationships with healthcare providers will be potentiallyimplicated by this statute to the extent Medicare or Medicaid referrals are implicated. Violations of the Anti-Kickback Statute could result in substantial civilor criminal penalties, including criminal fines of up to $25,000 per violation, imprisonment of up to five years, civil penalties under the Civil MonetaryPenalties Law of up to $50,000 per violation, plus three times the remuneration involved, civil penalties under the False Claims Act of up to $11,000 for eachclaim submitted, plus three times the amounts paid for such claims and exclusion from participation in the Medicaid and Medicare programs. Any suchpenalties could have a significant negative effect on our U.S. Healthcare Segments’ operations. Furthermore, the exclusion, if applied to such segments, couldresult in significant reductions in our revenues, which could materially and adversely affect such segments’ businesses, financial condition and results oftheir operations. In addition, many states have adopted laws similar to the federal Anti-Kickback Statute with similar penalties.As an international business whose customers are largely in the public sector, the WD Services segment generally wins work through public tenderprocesses. Various statutes, such as the UK’s Bribery Act and the Foreign Corrupt Practices Act in the U.S., generally require organizations to prohibit briberyby or for the organization and demand the implementation of systems to counter bribery, including risk management, training and guidance and themaintenance of adequate record-keeping and internal accounting practices. These statutes also, among other things, prohibit us from providing anything ofvalue to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. Inaddition, many countries in which we operate have antitrust or competition regulations which, among other things, prohibit collusive tendering or bid-rigging behavior. Policies and procedures we implement to prevent bribery, corruption and anti-competitive conduct may not effectively prevent us fromviolating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, financialcondition and results of operations. Any breach of bribery, corruption and collusive tendering laws could also expose our operations in Europe to a ban fromparticipating in public procurement tenders for up to 5 years, or until the organization in question has put in place “self clean” measures to the satisfaction ofthe procuring authority.In WD Services, we conduct business in several countries, each with its own system of regulation. Compliance with existing regulations is costly, andchanges in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenue and profitability. As of December 31, 2017, our WD Services segment operated in the U.S and 10 countries outside the U.S. Each of these countries has its ownnational and municipal laws and regulations, and some countries such as Australia, Germany and Switzerland,27have both federal and state regulations. In the UK, certain law making powers are being devolved to Scotland, Wales and Northern Ireland. These laws candiffer significantly from country to country. In addition, in Europe, countries (including the UK) are subject to European Union (“EU”) laws and rules. Wehave implemented compliance policies to help assure our compliance with these laws and regulations as they become effective; however, differentinterpretations or enforcement of these laws and regulations in the future could subject our practices to allegations of impropriety or illegality or couldrequire us to make changes in our facilities, equipment, personnel, services or the manner in which we conduct our business. Our segments’ businesses could be adversely affected by future legislative changes that hinder or reverse the privatization of non-emergency transportationservices or workforce development services. The market for certain of our segments’ services depends largely on government sponsored programs. These programs can be modified or amended atany time. Moreover, part of our growth strategy includes aggressively pursuing opportunities created by government initiatives to privatize the delivery ofnon-emergency transportation services and workforce development services. However, there are opponents to the privatization of these services and, as aresult, future privatization is uncertain. In the UK, opposition to the government’s outsourcing of the services provided by WD Services to private companiesmay increase in light of recent events in the UK, including the liquidation of the UK government contractor Carillion plc. In 2017, legislation was proposedin the U.S. Congress, but not passed, which would reduce or eliminate certain non-emergency medical transportation services provided by NET Services as arequired Medicaid benefit. If additional privatization initiatives are not proposed or enacted, or if previously enacted privatization initiatives are challenged,repealed or invalidated, there could be a material adverse impact on our segments’ operating results.Our business could be adversely affected by the referendum on the UK’s exit from the European Union. On June 23, 2016, the UK held a referendum in which eligible persons voted in favor of a proposal that the UK leave the EU, also known as “Brexit”.The result of the referendum increases political and economic uncertainty in the UK for the foreseeable future, in particular during any period where the termsof any UK exit from the EU are negotiated. In turn, Brexit could cause disruptions to and create uncertainty surrounding our business, including affecting ourrelationships with our existing and future payers and employees, which could have an adverse effect on our financial results, operations and prospects,including being adversely affected in ways that cannot be anticipated at present. The impact of Brexit on our business is not yet clear, and will depend onany agreements the UK makes to retain access to EU markets. Such agreements could potentially disrupt and/or destabilize the markets we serve and the taxjurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions. The terms of any UK exit from the EU couldgenerate restriction on the movement of capital and the mobility of personnel. Depending on the outcome of negotiations between the UK and the EuropeanUnion regarding the terms of Brexit (which will be negotiated over a period which may extend at least until March 2019), we may decide to alter the group’sEuropean operations to respond to new business, legal, regulatory, tax and trade environments that may result. In addition, Brexit could lead to legaluncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace, modify or replicate. Following the referendum, there was significant volatility in global stock markets and currency exchange rate fluctuations that resulted in thestrengthening of the U.S. dollar against foreign currencies in which we conduct business. The strengthening of the U.S. dollar relative to the British poundand other currencies may adversely affect our results of operations as we translate sales and other results denominated in foreign currency into U.S. dollars forour financial statements. During periods of a strengthening dollar, our reported international sales and earnings could be reduced because foreign currenciesmay translate into fewer U.S. dollars. For the year ended December 31, 2017, revenue denominated in British pound represented 11.6% of our revenue. Brexit may also create global economic uncertainty, which may cause our payers to closely monitor their costs and reduce their spending budget onour services. Additionally, changes in governmental personnel may impact our current relationships with our payers. Any of these effects and theuncertainties of Brexit, among others, could materially adversely affect our business, business opportunities, results of operations, financial condition, futuregrowth and cash flows. Changes to the regulatory landscape applicable to Matrix could have a material adverse effect on our results of operations and financial condition. The CHA services industry is primarily regulated by federal and state healthcare Laws and the requirements of participation and reimbursement ofthe MA Program established by CMS. From time to time, CMS considers changes to regulatory guidelines with respect to prospective CHAs or the riskadjusted payment system applicable to Matrix’s Medicare Advantage plan customers. CMS could adopt new requirements or guidelines that may, forexample, increase the costs associated with CHAs, limit the opportunities and settings available to administer CHAs, or otherwise change the risk adjustedpayment system in a way that would28adversely impact our business. Further, changes in or adoption of new state laws governing the scope of practice of mid-level practitioners, or more restrictiveinterpretations of such laws, may restrict Matrix’s ability to provide services using nurse practitioners. Any such implementation of additional regulations onthe CHA industry by CMS or other regulatory bodies or further regulation of mid-level practitioners could have a material adverse impact on Matrix’srevenues and margins, which could have a material adverse impact on our consolidated results of operations.If our U.S. Healthcare Segments fail to comply with physician self-referral laws, to the extent applicable to our operations, they could experience asignificant loss of reimbursement revenue. Our U.S. Healthcare Segments may be subject to federal and state statutes and regulations banning payments for referrals of patients and referrals byphysicians to healthcare providers with whom the physicians have a financial relationship and billing for services provided pursuant to such referrals if anyoccur. Violation of these federal and state laws and regulations, to the extent applicable to our U.S. Healthcare Segments’ operations, may result inprohibition of payment for services rendered, loss of licenses, fines, criminal penalties and exclusion from Medicaid and Medicare programs. To the extentsuch segments do maintain such financial relationships with physicians, they rely on certain exceptions to self-referral laws that they believe will beapplicable to such arrangements. Any failure to comply with such exceptions could result in the penalties discussed above. As government contractors, our segments are subject to an increased risk of litigation and other legal actions and liabilities. As government contractors, our segments are subject to an increased risk of investigation, criminal prosecution, civil fraud, whistleblower lawsuitsand other legal actions and liabilities that are not as frequently experienced by companies that do not provide government sponsored services. Companiesproviding government sponsored services can also become involved in public inquiries which can lead to negative media speculation or potentialcancellation or termination of contracts. In WD Services in Europe, European procurement regulations in force in each European Union member state requirepublic procurement authorities to impose a ban from participating in public procurement tenders for up to five years, or until the organization in question hasput in place “self clean” measures to the satisfaction of the procuring authority, where companies are found guilty of fraud or certain other criminal offenses.Authorities can also exercise their discretion to blacklist companies for up to two years where they believe they have been involved in acts of grossmisconduct or until the organization in question has put in place “self clean” measures to the satisfaction of the procuring authority. The occurrence of any ofthese actions, regardless of the outcome, could disrupt our operations and result in increased costs, and could limit our ability to obtain additional contractsin other jurisdictions. Further, government tenders in the U.S., the European Union and other countries can be subject to challenge where the procurer has notfollowed the correct processes, or where they seek to make material amendments to contracts after award. Consequently, it can be very difficult to convincegovernment customers to amend their contracts, even where circumstances have changed significantly, because they are concerned that if challenged theymay have to re-procure the entire service. This can pose significant risks in terms of cost management and profitability. Our segments’ businesses are subject to licensing regulations and other regulatory provisions, including provisions governing surveys and audits. Changesto, or violations of, these regulations could negatively impact our segments’ revenues. In many of the locations where our segments operate, they are required by local laws (both U.S. and foreign) to obtain and maintain licenses. Theapplicable state and local licensing requirements govern the services our segments provide, the credentials of staff, record keeping, treatment planning, clientmonitoring and supervision of staff. The failure to maintain these licenses or the loss of a license could have a material adverse impact on our segments’businesses and could prevent them from providing services to clients in a given jurisdiction. Our segments’ contracts are subject to surveys or audit by theirpayers or their clients. Our segments are also subject to regulations that restrict their ability to contract directly with a government agency in certainsituations. Such restrictions could affect our segments’ ability to contract with certain payers and clients, and could have a material adverse impact on oursegments’ results of operations. 29Our segments’ contracts are subject to audit and modification by the payers with whom our segments contract, at their sole discretion. Our segments’ businesses depend on their ability to successfully perform under various government funded contracts. Under the terms of thesecontracts, payers, government agencies or their proxy contractors can review our segments’ compliance or performance, as well as our segments’ records andgeneral business practices at any time, and may, in their discretion:•suspend or prevent our segments from receiving new contracts or extending existing contracts because of violations or suspected violations ofprocurement laws or regulations;•terminate or modify our segments’ existing contracts;•reduce the amount our segments are paid under our existing contracts; or•audit and object to our segments’ contract related fees. Any increase in the number or scope of audits could increase our segments’ expenses, and the audit process may disrupt the day-to-day operations ofour segments’ businesses and distract their management. If payers have significant audit findings, or if they make material modifications to our segments’contracts, it could have a material adverse impact on our segments’ results of operations.Contract profitability may decline due to actions by governmental agencies or penalties that are based on government generated statistical informationthat may not be known to us in advance. WD Services’ operating costs and profitability may be significantly impacted by actions required by a government agency, such as the availabilityof information systems maintained by the government to streamline enrollment into our service programs. Government generated performance statistics, suchas the MOJ reoffending report, may not be known to us prior to its release by the government agencies. WD Services may be subject to penalties that arebased on such government generated statistics, and we could be required to make material payments, the amounts of which we may not be able to estimateand which could have an adverse effect on our financial condition and results of operations.In addition, certain contracts may require that we hire former government employees, in relation to offering our service programs, or develop newinformation technology systems which would serve to replace legacy systems operated by the government. Lastly, revenue under certain contracts may beadjusted prospectively if client volumes are below expectations or client profiles change materially, which may also lead to cost or productivity changes. Ifthe Company is unable to adjust its costs accordingly, profitability is negatively impacted. Our estimated income taxes could be materially different from income taxes that we ultimately pay. We are subject to income taxation in both the U.S. and 10 foreign countries, including specific states or provinces where we operate. Our overalleffective income tax rate is a function of applicable local tax rates and the geographic mix of our income from continuing operations before taxes, which isitself impacted by currency movements. Consequently, the isolated or combined effects of unfavorable movements in tax rates, geographic mix, or foreignexchange rates could reduce our after-tax income.Our annual tax rate is based on our income and the tax laws in the various jurisdictions in which we operate. Significant judgment and estimation isrequired in determining our annual income tax expense and in evaluating our tax positions and related matters. In the ordinary course of our business, thereare many transactions and calculations for which the ultimate tax determinations are uncertain or otherwise subject to interpretation. Although we believe ourtax estimates are reasonable, the final determination of tax audits and any related disputes could be materially different from our historical income taxprovisions and accruals. In addition, we make judgments regarding the applicability of tax treaties and the appropriate application of transfer pricingregulations. In the event one taxing jurisdiction disagrees with another taxing jurisdiction with respect to the amount or applicability of a particular type oftax, or the amount or availability of a particular type of tax refund or credit, we could experience temporary or permanent double taxation and increasedprofessional fees to resolve such taxation matters. Our determination of our income tax liability is always subject to review by applicable tax authorities, andwe have been audited by various jurisdictions in prior years. Although we believe our income tax estimates and related determinations are reasonable andappropriate, relevant taxing authorities may disagree. The ultimate outcome of any such audits and reviews could be materially different from the estimatesand determinations reflected in our historical income tax provisions and accruals. Any adverse outcome of any such audit or review could have an adverseeffect on our financial condition and the results of our operations.The Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017, significantly affected U.S. income tax law bychanging how the U.S. imposes income tax on multinational corporations. We have recorded in our consolidated financial statements provisional amountsbased on our current estimates of the effects of the Tax Reform Act in30accordance with our current understanding of the Tax Reform Act and currently available guidance. For additional information regarding the Tax Reform Actand the provisional tax amounts recorded in our consolidated financial statements, see “Management's Discussion and Analysis of Financial Condition andResults of Operations – Critical Accounting Policies”. The final amounts may be significantly affected by regulations and interpretive guidance expected tobe issued by the tax authorities, clarifications of the accounting treatment of various items, our additional analysis, and our refinement of our estimates of theeffects of the Tax Reform Act and, therefore, such final amounts may be materially different than our current provisional amounts, which could materiallyaffect our tax obligations and effective tax rate. Risks Related to Our Indebtedness Restrictive covenants in our Credit Agreement may limit our current and future operations, particularly our ability to respond to changes in our businessor to pursue our business strategies. The terms contained in the agreements that govern certain of our indebtedness, including our Amended and Restated Credit and GuarantyAgreement (as amended, supplemented, or modified, the “Credit Agreement”), and the agreements that govern any future indebtedness of ours, may include anumber of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to take actions that webelieve may be in our best interest. These agreements, among other things, limit our ability to:•incur additional debt;•provide guarantees in respect of obligations of other persons;•issue redeemable stock and preferred stock;•pay dividends or distributions or redeem or repurchase capital stock;•make loans, investments and capital expenditures;•enter into transactions with affiliates;•create or incur liens;•make distributions from our subsidiaries;•sell assets and capital stock of our subsidiaries;•make acquisitions; and•consolidate or merge with or into, or sell substantially all of our assets to, another person. A breach of the covenants or restrictions could result in a default under the applicable agreements that govern our indebtedness. Such default maypreclude us from drawing from our senior secured credit facility (the “Credit Facility”) or allow the creditors to accelerate the related debt and may result inthe acceleration of any other debt that we may incur to which a cross acceleration or cross-default provision applies. In the event our lenders accelerate therepayment of our borrowings, we cannot assure that we and our subsidiaries would have sufficient assets to repay such indebtedness. Loss of available financing or an inability to renew, repay or refinance our debt could have an adverse effect on our financial condition and results ofoperations.At December 31, 2017, our available credit under the Credit Facility was $188.9 million. The Credit Facility matures on August 2, 2018. If our cashon hand is insufficient, or we are unable to generate sufficient cash flows in the future, to cover our cash flow and liquidity needs and service our debt, wemay be required to seek additional sources of funds, including refinancing all or a portion of our existing or future debt, incurring additional debt to maintainsufficient cash flow to fund our ongoing operating needs, pay interest and fund anticipated expenditures. There can be no assurance that any refinancing willbe possible or that any additional financing could be obtained on acceptable terms. If we are unable to obtain additional financing, we may (i) be unable tosatisfy our obligations under our outstanding indebtedness, (ii) be unable to pursue future business opportunities or fund acquisitions, (iii) find it moredifficult to fund future operating costs, tax payments or general corporate expenditures and (iv) become vulnerable to adverse general economic, capitalmarkets and industry conditions. Any of these circumstances could have a material adverse effect on our financial position, liquidity and results ofoperations.31We may incur substantial additional indebtedness in the future, which could impair our financial condition. We may incur substantial additional indebtedness in the future to fund activities including but not limited to share repurchases, acquisitions, cashdividends and business expansion. Any existing and future indebtedness increases the risk that we may be unable to generate cash sufficient to pay amountsdue in respect of such indebtedness. Future substantial indebtedness could have other important consequences on our business. For example, it could:•make it more difficult for us to satisfy our obligations;•make it more difficult to renew or enter into new contracts with existing and potential future clients;•limit our ability to borrow additional amounts to fund working capital, capital expenditures, debt service requirements, execution of ourbusiness strategy or acquisitions and other purposes;•require us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our debt, which would reduce thefunds available to us for other purposes;•restrict our ability to dispose of assets and use the proceeds from any such dispositions;•restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due;•make us more vulnerable to adverse changes in general economic, industry and competitive conditions, as well as in government regulationand to our business;•expose us to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of interest, which could result inhigher interest expenses in the event of increases in interest rates; and•make it more difficult to satisfy our financial obligations. Our ability to satisfy and manage our debt obligations depends on our ability to generate cash flow and on overall financial market conditions. Tosome extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, many of which are beyondour control. Our business may not generate sufficient cash flow from operations to permit us to pay principal, premium, if any, or interest on our debtobligations. If we are unable to generate sufficient cash flow from operations to service our debt obligations and meet our other cash needs, we may be forcedto reduce or delay capital expenditures, sell or curtail assets or operations, seek additional capital, or seek to restructure or refinance our indebtedness. If wemust sell or curtail our assets or operations, it may negatively affect our ability to generate revenue. Risks Related to Our Capital Stock Our annual operating results and stock price may be volatile or may decline significantly regardless of our operating performance. Our annual operating results and the market price for our Common Stock may fluctuate significantly in response to a number of factors, many ofwhich we cannot control, including: •changes in rates or coverage for services by payers;•changes in Medicaid, Medicare or other U.S. federal or state rules, regulations, policies or applicable foreign regulations, policies andtechnical guidance, including UK health, employment and criminal justice legislation and guidance, Saudi Arabian licensing and Saudizationrules, as well as other foreign laws applicable to our business;•price and volume fluctuations in the overall stock market;•market conditions or trends in our industry or the economy as a whole;•increased competition in any of our segments, including through insourcing of services by our clients and new entrants to the market;•other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events;•changes in tax law; and•changes in accounting principles. In addition, the stock markets, and in particular the NASDAQ Global Select Market, have experienced considerable price and volume fluctuationsthat have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities classaction litigation following periods of market volatility. If we become involved in securities litigation, we could incur substantial costs, and our resources andthe attention of management could be diverted from our business. 32The Company depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any. Our operations are conducted entirely through our subsidiaries and our ability to generate cash to fund all of our operations and expenses, to paydividends or to meet any debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries via dividends orintercompany loans. We do not currently expect to declare or pay dividends on our Common Stock for the foreseeable future; however, to the extent that wedetermine in the future to pay dividends on our Common Stock, none of our subsidiaries will be obligated to make funds available to us for the payment ofdividends. Further, the agreement governing our Credit Agreement significantly restricts the ability of our subsidiaries to pay dividends, make loans orotherwise transfer assets to us. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our CommonStock. If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and tradingvolume could decline. The trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or ourbusiness. If one or more analysts downgrade our stock or publish misleading or unfavorable research about our business, our stock price would likely decline.If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which couldcause our stock price or trading volume to decline. Future sales of shares by existing stockholders could cause our stock price to decline. Sales of substantial amounts of our Common Stock in the public market, or the perception that these sales could occur, could cause the market priceof our Common Stock to decline. As of March 5, 2018, we had 12,866,551 outstanding shares of Common Stock which are freely transferable withoutrestriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless held by or purchased by our “affiliates” as thatterm is defined in Rule 144 under the Securities Act. Shares of our Common Stock held by or purchased by our affiliates are restricted securities within themeaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, means of sale, holding period and other limitationsof Rule 144 under the Securities Act. As of March 5, 2018, shares of our convertible preferred stock were convertible into 2,014,042 shares of Common Stock, all of which are subject toregistration rights. In addition, as of March 5, 2018, 1,653,755 shares of Common Stock are beneficially owned by entities for which Coliseum CapitalManagement acts as investment adviser. In August 2016, we filed a registration statement under the Securities Act to register additional shares of Common Stock to be issued under ourequity compensation plans and, as a result, all shares of Common Stock acquired upon exercise of stock options granted under our plans will also be freelytradable under the Securities Act, unless purchased by our affiliates. As of December 31, 2017, there were stock options outstanding to purchase a total of606,695 shares of our Common Stock and there were 111,157 shares of our Common Stock subject to restricted stock awards. In addition, 1,938,666 shares ofour Common Stock are reserved for future issuances under the plan.The terms of our Preferred Stock contain restrictive covenants that may impair our ability to conduct business and we may not be able to maintaincompliance with the obligations under our outstanding Preferred Stock which could have a material adverse effect on our future results of operations andour stock price.On February 11, 2015 and March 12, 2015, we issued $65.5 million and $15.8 million, respectively, of Preferred Stock. The terms of the PreferredStock require us to pay mandatory quarterly dividends, either in cash or through an increase in the stated principal value of such stock. Our ability to satisfyand manage our obligations under our outstanding Preferred Stock depends, in part, on our ability to generate cash flow and on overall financial marketconditions. Additionally, the terms of our Preferred Stock contain operating and financial covenants that limit management’s discretion with respect tocertain business matters. Among other things, these covenants, subject to certain limitations and exceptions, restrict our ability to incur additional debt, sellor otherwise dispose of our assets, make acquisitions, and merge or consolidate with other entities. As a result of these covenants and restrictions, we may belimited in how we conduct our business, which could have a material adverse effect on our future results of operations and our stock price. 33Future offerings of debt or equity securities that would rank senior to our Common Stock, may adversely affect the market price of our Common Stock. If, in the future, we decide to issue debt or equity securities that rank senior to our Common Stock, it is likely that such securities will be governedby an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities thatwe issue in the future may have rights, preferences and privileges more favorable than those of our Common Stock and may result in dilution to owners of ourCommon Stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equitysecurities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing ornature of our future offerings. Thus, holders of our Common Stock will bear the risk of our future offerings reducing the market price of our Common Stockand diluting the value of their stock holdings in us. Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-OxleyAct of 2002, is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on ourfuture results of operations and our stock price. We are subject to the reporting and corporate governance requirements, under the listing standards of the NASDAQ Global Select Market(“NASDAQ”) and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), that apply to issuers of listed equity, which impose certain significantcompliance costs and obligations upon us. Being a publicly listed company requires a significant commitment of additional resources and managementoversight resulting in increased operating costs. These requirements also place additional demands on our finance and accounting staff and on our financialaccounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees andexpenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listingfees, as well as other expenses. As a public company, we are required, among other things, to define and expand the roles and the duties of our Board ofDirectors (“Board”) and its committees and institute more comprehensive compliance and investor relations functions.If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may beadversely affected. Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependentupon individual data input or review and require significant management judgment. One or more of these elements may result in errors that may not bedetected and could result in a material misstatement of our consolidated financial statements. If a material misstatement occurs in the future, we may fail tomeet our future reporting obligations. For example, we may fail to file periodic reports in a timely manner or may need to restate our financial results, either ofwhich may cause the price of our common stock to decline. In addition, our WD Services business is subject to the European Union’s and other countries’data security and protection laws and regulations, which may make it more difficult for the Company to maintain the records and internal accountingpractices necessary to ensure the appropriate operation of our internal controls or to detect corruption or increasing the Company’s costs to maintainappropriate controls.If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results maybe adversely affected.Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Thepreparation of these financial statements requires us to make estimates and judgments about, among other things, taxes, revenue recognition, contingentobligations, NET Services transportation expense, recoverability of long-lived assets and doubtful accounts. In addition, our foreign operations report theirresults pursuant to International Financial Reporting Standards, or IFRS, or local accounting standards, which requires judgment to convert into GAAP.Lastly, the implementation of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is effective for the Company beginning January1, 2018, requires a significant level of judgment and estimation, especially in regards to contingent or success-based payments, such as those prevalent at WDServices. These estimates and judgments affect the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges accrued by us,and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe tobe reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying them are not correct, we may need toaccrue additional charges or reduce the value of assets that could adversely affect our results of operations, leading to a loss in investor confidence in ourability to manage our business and our stock price could decline. 34Anti-takeover provisions in our second amended and restated certificate of incorporation and amended and restated by-laws could discourage, delay orprevent a change of control of our company and may affect the trading price of our Common Stock. Our second amended and restated certificate of incorporation and amended and restated bylaws include a number of provisions that may be deemedto have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may discourage, delay or prevent achange in our management or control over us that stockholders may consider favorable. Such provisions may prevent our stockholders from receiving thebenefit from any premium to the market price of our Common Stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, theexistence of these provisions may adversely affect the prevailing market price of our Common Stock if the provisions are viewed as discouraging takeoverattempts in the future. Our second amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult forstockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult orprevent a change in our control, which may not be in the best interests of our stockholders. We do not expect to pay dividends on our Common Stock and, consequently, your ability to achieve a return on your investment will depend onappreciation in the price of our Common Stock. We currently do not expect to declare and pay dividends on our Common Stock for the foreseeable future. We currently intend to invest our futureearnings, if any, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely toreceive any dividends on your Common Stock for the foreseeable future and the success of an investment in shares of our Common Stock will depend uponany future appreciation in their value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at whichstockholders have purchased their shares. Item 1B.Unresolved Staff Comments. None. Item 2.Properties. Our principal executive office is located in Stamford, Connecticut, and we lease additional office space in Tucson, Arizona. As of March 2, 2018,NET Services leases space in approximately 40 locations, WD Services leases space in approximately 220 locations, and Matrix leases space in fivelocations. The lease terms vary and we believe are generally at market rates. We believe that our properties are adequate for our current business needs, andbelieve that we can obtain adequate space, if needed, to meet our foreseeable business needs.Item 3.Legal Proceedings. On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”),captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL (the “Haverhill Litigation”). The complaint named Richard A. Kerley, Kristi L.Meints, Warren S. Rustand, Christopher Shackelton (the “Individual Defendants”) and Coliseum Capital Management, LLC (“Coliseum CapitalManagement”) as defendants, and the Company as a nominal defendant. The complaint purported to allege that the dividend rate increase term originally inthe Company’s outstanding Preferred Stock was an impermissibly coercive measure that impaired the voting rights of the Company’s stockholders inconnection with the vote on the removal of certain voting and conversion caps previously applicable to the Preferred Stock (the “Caps”), and that theIndividual Defendants breached their fiduciary duties by approving the dividend rate increase term and attempting to coerce the stockholder vote relating tothe Company’s Preferred Stock, and by failing to disclose all material information necessary to allow the Company’s stockholders to cast an informed vote onthe Caps. The complaint also purported to allege derivative claims alleging that the Individual Defendants breached their fiduciary duties to the Company byentering into the subordinated note and standby agreement with Coliseum Capital Management, and granting Coliseum Capital Management certain stockoptions. The complaint further alleged that Coliseum Capital Management aided and abetted the Individual Defendants in breaching their fiduciary duties.The complaint sought, among other things, an injunction prohibiting the stockholder vote relating to the dividend rate increase, corporate governancereforms, unspecified damages and other relief. On August 31, 2015, after arms’ length negotiations, the parties reached an agreement in principle and executed a Memorandum of Understanding(“MOU”) providing for the settlement of claims concerning the dividend rate increase term and stockholder vote and related disclosure. The MOU stated thatthe Defendants had entered into the partial settlement of the litigation solely to eliminate the distraction, burden, expense, and potential delay of furtherlitigation involving claims that have been settled. Pursuant to the partial settlement, the Company agreed to supplement the disclosures in its definitiveproxy statement on Schedule3514A (the “2015 Proxy Statement”), Coliseum Capital Management and certain of its affiliates and the Company entered into an amendment to that certainSeries A Preferred Stock Exchange Agreement, by and among Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest,L.P., Blackwell Partners, LLC, and The Providence Service Corporation dated as of February 11, 2015 described in the 2015 Proxy Statement, and the Boardagreed to adopt a policy related to the Board’s determination each quarter as to whether the Company should pay cash dividends or allow dividends to bepaid in the form of PIK dividends on the Preferred Stock, as further described in the supplemental proxy disclosures. On September 2, 2015, Providenceissued supplemental disclosures through a supplement to the 2015 Proxy Statement. On September 16, 2015, Providence stockholders approved the removalof the Caps. The Company provided notice of the proposed partial settlement to Providence’s stockholders by December 11, 2015. At a hearing onFebruary 9, 2016, the court denied approval of the settlement. The Court indicated that plaintiff’s counsel could petition the Court for a mootness fee, andthat defendants would have the opportunity to oppose any such application. On January 12, 2016, the plaintiff filed a verified amended class action and derivative complaint (the “first amended complaint”). In addition to thedefendants named in the earlier complaint, the first amended complaint named David Shackelton, Coliseum Capital Partners, L.P., Coliseum Capital PartnersII, L.P., Blackwell Partners, LLC, Coliseum Capital Co-Invest, L.P. (collectively, and together with Coliseum Capital Management, LLC, “Coliseum”) andRBC Capital Markets, LLC (“RBC Capital Markets”) as additional defendants. The first amended complaint purported to allege direct and derivative claimsfor breach of fiduciary duty against some or all of the Individual Defendants and David Shackelton (collectively, the “Amended Individual Defendants”)regarding the approval of the subordinated note, the rights offering, the standby agreement with Coliseum Capital Management, and the grant to ColiseumCapital Management of certain stock options. The first amended complaint also purported to allege an additional derivative claim for unjust enrichmentagainst Coliseum and further alleged that Coliseum and RBC Capital Markets aided and abetted the Amended Individual Defendants in breaching theirfiduciary duties. The first amended complaint sought, among other things, revision or rescission of the terms of the subordinated note and Preferred Stock,corporate governance reforms, unspecified damages and other relief. On May 6, 2016, the plaintiff filed a verified second amended class action and derivative complaint (the “second amended complaint”). In additionto the defendants named in the earlier complaint, the second amended complaint named Paul Hastings LLP (“Paul Hastings”) and Bank of America, N.A.(“BofA”) as additional defendants. In addition to previously asserted claims, the second amended complaint purported to assert direct and derivative claimsfor breach of fiduciary duties against Coliseum Capital Management, in its capacity as the controlling stockholder of the Company, in connection with thesubordinated note, the Company’s rights offering of Preferred Stock and the standby purchase agreement with Coliseum Capital Management (the“Financing Transactions”). The second amended complaint also alleged that Paul Hastings breached their fiduciary duties as counsel to the Company inconnection with the Financing Transactions and that BofA and Paul Hastings aided and abetted certain of the Amended Individual Defendants in breachingtheir fiduciary duties in connection with the Financing Transactions. The second amended complaint sought, among other things, revision or rescission ofthe terms of the subordinated note and Preferred Stock, corporate governance reforms, disgorgement of fees paid to RBC Capital Markets, Paul Hastings andBofA for work relating to the Financing Transactions, unspecified damages and other relief. On May 20, 2016, the Court granted a six-month stay of the proceeding (which was subsequently extended) to allow a special litigation committee,created by the Board, sufficient time to investigate, review and evaluate the facts, circumstances and claims asserted in or relating to this action anddetermine the Company’s response thereto. On January 20, 2017, the special litigation committee advised the Court that the parties to the litigation and thespecial litigation committee had reached an agreement in principle to settle all of the claims in the litigation. The parties then entered into a proposedsettlement agreement which was submitted to the Court for approval. On September 28, 2017, the Court approved the proposed settlement agreement amongthe parties that provided for a settlement amount of $10 million less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of theSettlement Amount to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s Common Stock other than certainexcluded parties. On November 16, 2017, the Company, as a nominal defendant, received a payment of $5.4 million from the Settlement Amount. Item 4.Mine Safety Disclosures Not applicable.36PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for our Common Stock Our Common Stock, our only class of common equity, has been quoted on NASDAQ under the symbol “PRSC” since August 19, 2003. Prior to thattime there was no public market for our Common Stock. As of March 5, 2018, there were 22 holders of record of our Common Stock. The following table setsforth the high and low sales prices per share of our Common Stock for the period indicated, as reported on NASDAQ Global Select Market: High Low2017 Fourth Quarter$60.59 $53.84Third Quarter$54.99 $49.77Second Quarter$47.47 $43.73First Quarter$41.80 $37.65 2016 Fourth Quarter$49.97 $34.89Third Quarter$50.30 $43.01Second Quarter$53.38 $43.77First Quarter$55.28 $42.0337Stock Performance Graph The following graph shows a comparison of the cumulative total return for our Common Stock, NASDAQ Health Services Index and Russell 2000Index assuming an investment of $100 in each on December 31, 2012. Dividends We have not paid any cash dividends on our Common Stock and currently do not expect to pay dividends on our Common Stock. In addition, ourability to pay dividends on our Common Stock is limited by the terms of our Credit Agreement and our Preferred Stock. The payment of future cashdividends, if any, will be reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, thelevel of our capital and development expenditures, any restrictions imposed by present or future debt or equity instruments, and changes in federal taxpolicies, if any.38Issuer Purchases of Equity Securities Period Total Numberof Shares ofCommon StockPurchased (1) Average PricePaid perShare Total Number ofShares of CommonStock Purchased asPart of PubliclyAnnounced Program (2) Maximum DollarValue of Shares ofCommon Stock thatMay Yet Be PurchasedUnder Program (2)(in thousands)Fourth quarter: October 1, 2017 to October 31, 2017 — $— — $69,640November 1, 2017 to November 30, 2017 247 $56.74 — $69,640December 1, 2017 to December 31, 2017 181,714 $58.27 180,270 $59,137Total 181,961 $58.26 180,270 (1)Includes (i) shares that were acquired from employees in connection with the settlement of income tax and related benefit withholding obligationsarising from vesting in restricted stock awards; and (ii) the repurchase of shares under the repurchase program authorized by the Board on November 2,2017. For more information on these repurchases, see Note 11, Stockholders’ Equity, to our consolidated financial statements.(2)On October 26, 2016, our Board authorized a new repurchase program, under which the Company may repurchase up to $100.0 million in aggregatevalue of the Company’s Common Stock during the twelve-month period following October 26, 2016. Through October 26, 2017, a total of 770,808shares were purchased through this plan for $30.4 million, excluding commission payments.On November 2, 2017, our Board approved the extension of the Company’s prior stock repurchase program, authorizing the Company to engage in arepurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorized in 2016) inaggregate value of our Common Stock through December 31, 2018. Purchases under the repurchase program may be made from time-to-time through acombination of open market repurchases (including Rule 10b5-1 plans), privately negotiated transactions, and accelerated share repurchase transactions,at the discretion of the Company’s officers, and as permitted by securities laws, covenants under existing bank agreements, and other legal requirements.As of December 31, 2017, a total of 180,270 shares were purchased through the extended plan approved on November 2, 2017, for $10.5 million,excluding commission payments. For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and capital resources”. 39Equity Compensation Plan Information The following table provides certain information as of December 31, 2017 with respect to our equity based compensation plans. Plan category (a)Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted-averageexercise priceof outstandingoptions, warrantsand rights (b)Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecurities reflectedin column (a))Equity compensation plans approved by security holders (1) 606,695 $48.70 1,938,666Equity compensation plans not approved by security holders — — —Total 606,695 48.70 1,938,666(1)The number of shares shown in column (b) represents the number of shares available for issuance pursuant to stock options and other stock-based awardsthat could be granted in the future under the Company’s 2006 Long-Term Incentive Plan, as amended (the “2006 Plan”).40Item 6.Selected Financial Data. We have derived the following selected financial data from the consolidated financial statements and related notes. The information set forth belowis not necessarily indicative of future results. This information should be read in conjunction with our consolidated financial statements and the related notes,and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, all of which are included elsewhere in this AnnualReport on Form 10-K.Significant transactions which occurred during the periods presented include the acquisition of Ingeus effective May 30, 2014, which primarilycomprises our WD Services segment, the investment in Mission Providence, a joint venture in Australia, which commenced operations in 2014 but was soldon September 29, 2017, and our equity interest in Matrix effective October 19, 2016. Matrix, which was originally acquired on October 23, 2014, comprisedour HA Services segment through October 19, 2016. The operations of HA Services and Human Services, which was sold effective November 1, 2015, havebeen presented as discontinued operations for all periods presented. 41 Year Ended December 31, 2017 2016 2015 2014 2013 (1)(2)(3)(4)(8)(9) (3)(5)(6)(8)(9) (7)(8)(9)(11) (8)(10)(11) (dollars and shares in thousands, except per share data)Statement of operations data: Service revenue, net$1,623,882 $1,578,245 $1,478,010 $1,092,880 $798,766 Operating expenses: Service expense1,489,044 1,452,110 1,381,154 988,600 736,669 General and administrative expense72,336 69,911 70,986 44,080 25,590 Asset impairment charge— 21,003 — — — Depreciation and amortization26,469 26,604 23,998 17,213 9,331Total operating expenses1,587,849 1,569,628 1,476,138 1,049,893 771,590Operating income36,033 8,617 1,872 42,987 27,176Non-operating expense: Interest expense, net1,278 1,583 1,853 10,224 6,921 Other income(5,363) — — — — Loss on extinguishment of debt— — — — 525 Equity in net (gain) loss of investees(12,054) 10,287 10,970 — — Gain on sale of investment(12,377) — — — — Loss (gain) on foreign currency transactions345 (1,375) (857) (37) —Income (loss) from continuing operations, beforeincome taxes64,204 (1,878) (10,094) 32,800 19,730Provision for income taxes4,401 17,036 14,583 8,289 6,625Income (loss) from continuing operations, net of tax59,803 (18,914) (24,677) 24,511 13,105Discontinued operations, net of tax(5,983) 108,760 107,871 (4,236) 6,333Net income53,820 89,846 83,194 20,275 19,438Net (gain) loss attributable to noncontrolling interests(451) 2,082 502 — —Net income attributable to Providence$53,369 $91,928 $83,696 $20,275 $19,438Diluted earnings (loss) per common share: Continuing operations$3.50 $(1.45) $(1.83) $1.63 $0.95Discontinued operations(0.44) 6.52 6.09 (0.28) 0.46Total$3.06 $5.07 $4.26 $1.35 $1.41Weighted-average number of common shares outstanding: Diluted13,673 14,667 15,961 15,019 13,810 42 As of December 31, 2017 2016 2015 2014 2013 (9) (5)(6) (dollars in thousands)Balance sheet data: Cash and cash equivalents$95,310 $72,262 $79,756 $121,538 $75,156Total assets704,090 685,279 1,050,202 1,168,934 425,954Long-term obligations, including currentportion2,984 3,611 300,071 574,613 123,500Other liabilities287,543 306,428 382,423 372,907 151,817Convertible preferred stock77,546 77,565 77,576 — —Total stockholders' equity336,017 297,675 290,132 221,414 150,637(1)Other income for the year ended December 31, 2017 includes the receipt of the Haverhill Litigation settlement of $5.4 million, see Item 3. LegalProceedings for further information on the settlement.(2)Gain on sale of equity investment of $12.4 million relates to the sale of the Company’s equity interest in Mission Providence in 2017. The investment inMission Providence was part of the WD Services segment.(3)Discontinued operations, net of tax, for the years ended December 31, 2017 and 2016 include losses of $6.0 million and $5.6 million, respectively,related to potential indemnification claims for our historical Human Services segment.(4)The year ended December 31, 2017 includes a net tax benefit of $16.0 million related to the enactment of the Tax Reform Act during the fourth quarterof 2017 due to the re-measurement of deferred tax liabilities by Providence as a result of the reduction in the U.S. corporate tax rate. Providence realizeda benefit of $19.4 million, partially offset by $3.4 million of increased tax expense resulting from additional equity in net gain of Matrix, due to Matrix'sre-measurement of its deferred tax liabilities. In addition, the tax provision was adversely impacted by tax expense of $3.6 million related to theCompany’s 2015 Holding Company LTI Program (the “HoldCo LTIP”), for which expense was incurred for financial reporting purposes, but no shareswere issued due to the market condition of the award not being satisfied and thus no tax deduction was realized.(5)On October 19, 2016, we completed the Matrix Transaction. Included in discontinued operations, net of tax, for 2016 is a gain on the transaction, net oftax, totaling $109.4 million. In conjunction with the completion of this transaction, we fully repaid the amounts outstanding on our term loans andCredit Facility in 2016.(6)During the fourth quarter of 2016, WD Services recorded long-lived asset impairment charges of $10.0 million, $4.4 million and $5.2 million to itsproperty and equipment, intangible assets and goodwill, respectively, primarily due to lower than expected volumes and unfavorable service mix shiftsunder a large contract in the UK impacting future projections; additional clarity into the anticipated size and structure of the Work and HealthProgramme in the UK; and the absence of additional details regarding the restructuring of the offender rehabilitation contract in the UK.(7)On November 1, 2015, we completed the sale of our Human Services segment. Included in discontinued operations, net of tax, for 2015 is a gain on thesale of the Human Services segment, net of tax, totaling $100.3 million.(8)The Company incurred $20.9 million of accelerated expense in 2015 related to restricted shares and cash placed into escrow at the time of the Ingeusacquisition. The shares and cash were placed into escrow concurrent with the payments of the acquisition consideration paid in 2014 for Ingeus;however, because two sellers of Ingeus remained employees post acquisition, the value of the shares and cash was recognized as compensation expenseover the escrow term. Acceleration was triggered in 2015 when the two sellers separated from the Company. In addition, in 2015 and 2014, respectively,the Company incurred $5.9 million and $4.5 million of expense related to the separation of these two employees. Benefits of $2.0 million, $2.5 millionand $16.1 million associated with the favorable resolution of acquisition contingencies and reductions in the fair value of Ingeus contingentconsideration are included in general and administrative expenses for 2017, 2015 and 2014, respectively. 2017, 2016 and 2015 expenses also include$2.6 million, $8.5 million and $12.2 million, respectively, of WD Services’ redundancy costs.43(9)Equity in net (gain) loss of investees primarily relates to our investment in Mission Providence during 2015, 2016 and 2017 and Matrix for the period ofOctober 19, 2016 through December 31, 2017. Matrix became an equity investment upon the completion of the Matrix Transaction. For MissionProvidence, we recorded net loss in investee of $1.4 million, $8.5 million and $11.0 million in 2017, 2016 and 2015, respectively. For Matrix, werecorded $13.4 million in equity in net gain of investee and $1.8 million in equity in net loss of investee related to our equity method investment inMatrix in 2017 and for the period of October 19, 2016 through December 31, 2016, respectively. The equity in net gain from Matrix for the year endedDecember 31, 2017 includes a benefit of $13.6 million related to the re-measurement of deferred tax liabilities arising from a lower U.S. corporate tax rateas a result of the Tax Reform Act. As a result of the increased equity income, Providence incurred higher tax expense of $3.4 million, which is reflected asa component of “Provision for income taxes” in the table above. The investment in Matrix at December 31, 2017 of $169.7 million is included in“Equity investments” in our consolidated balance sheet.(10)2014 includes $4.5 million of financing fees that were deferred and fully expensed within interest expense in the fourth quarter of 2014 in relation tobridge financing commitments and $3.0 million of third-party financing fees that are included in general and administrative expense.(11)2015 includes $2.4 million in Ingeus transaction-related expenses and 2014 includes $11.8 million in acquisition costs primarily related to theacquisitions of Ingeus and Matrix.44Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6. “SelectedFinancial Data” and our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data” of thisreport. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and other factors that may cause actual results todiffer materially from those projected in any forward-looking statements, as discussed in “Disclosure Regarding Forward-Looking Statements”. These risksand uncertainties include but are not limited to those set forth in Item 1A. “Risk Factors”. Overview of Our Business Please refer to Item 1. “Business” of this Annual Report on Form 10-K for a discussion of our services and corporate strategy.Providence owns subsidiaries and investments primarily engaged in the provision of healthcare services in the United States and workforcedevelopment services internationally. The subsidiaries and other investments in which we hold interests comprise the following segments:•NET Services – Nationwide manager of non-emergency medical transportation programs for state governments and managed care organizations.•WD Services – Global provider of employment preparation and placement services, legal offender rehabilitation services, youth community serviceprograms and certain health related services to eligible participants of government sponsored programs.•Matrix Investment – Minority interest in Matrix, a nationwide provider of in-home care optimization and management solutions, including CHAs,to members of managed care organizations, accounted for as an equity method investment. On February 16, 2018, Matrix acquired HealthFair,expanding its service offerings to include mobile health assessments, advanced diagnostic testing, and additional care optimization services.In addition to its segments’ operations, the Corporate and Other segment includes the Company’s activities at its corporate office that includeexecutive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions and the results of theCompany’s captive insurance company. We are actively monitoring these activities as they relate to our capital allocation and acquisition strategy to ensurealignment with Providence’s overall strategic objectives and its goal of enhancing shareholder value. Business Outlook and Trends Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposedto various trends such as healthcare industry and demographic dynamics in the U.S. and international government outsourcing and employment dynamics.Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:•an aging population, which will increase demand for healthcare services;•a movement towards value-based versus fee for service care and budget pressure on governments, both of which may increase the use of privatecorporations to provide necessary and innovative services;•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enablingremote engagement;•technological advancements, which may be utilized by us to improve service and lower costs, but also by others which may increase industrycompetitiveness;•changes in UK government policy driven by opposition to the government’s outsourcing of the services provided by WD Services to privatecompanies, which opposition may increase in light of recent events in the UK, including the liquidation of the UK government contractor Carillionplc;•the results of the referendum on the UK’s exit from the European Union and related political and economic uncertainty in the UK; and•proposals by the President of the United States and Congress to change the Medicaid program, including considering converting the Medicaidprogram to a block grant format or capping the federal contribution to state Medicaid programs45to a fixed amount per beneficiary, and CMS’ grant of waivers to states relative to the parameters of their Medicaid programs. Enactment of adverselegislation, regulation or agency guidance, may reduce the demand for our services, our ability to conduct some or all of our business and/orreimbursement rates for services performed within our segments.Historically, our segments have grown through organic expansion into new markets and service lines, organic expansion within existing marketsand service lines, increases in the number of members served under contracts we have been awarded, the securing of new contracts, and acquisitions. Withrespect to acquisitions, we are actively evaluating the optimal industry sectors, such as the non-emergency medical transportation industry and others inwhich businesses complementary to our NET Services business operate, around which to focus our merger and acquisition activity. This ongoing evaluationtakes into consideration and balances a number of factors, including the strategic goals, competitive landscape, and growth opportunities of our currentsegments, in an attempt to direct our capital towards those areas most likely to drive long-term value creation and generate the highest levels of return for ourshareholders. In addition, as evidenced by the 2016 Matrix Transaction, we may also enter into strategic partnerships if we feel this provides the bestopportunity to maximize shareholder value. The pursuit of our strategy may also result in the disposition of current businesses, as demonstrated in 2017 withour sale of our equity investment in Mission Providence and in 2015 with the sale of our Human Services segment. In making these determinations, we baseour decisions on a variety of factors, including the availability of alternative opportunities to deploy capital, maximize shareholder value or other strategicconsiderations. The outcome of our active evaluation of the optimal industry sectors around which to focus our merger and acquisition activity as well as thepotential future entry into strategic partnerships or potential disposition of businesses may impact the extent and manner in which we deploy resources acrossProvidence, including strategic and administrative resources between Corporate and Other and our operating segments, and we may incur incremental costsin pursuing these efforts.Revenues and Expenses NET Services NET Services primarily contracts with state Medicaid agencies and managed care organizations for the coordination of their members’ non-emergency transportation needs. Most contracts are capitated, which means we are paid on a per-member, per-month basis for each eligible member. For mostcontracts, we arrange for transportation of members through our network of independent transportation providers, whereby we negotiate rates and remitpayment to the transportation providers. However, for certain contracts, we assume no risk for the transportation network, credentialing and/or payments tothese providers. For these contracts, we only provide administrative management services to support the customers efforts to serve its clients. WD Services WD Services primarily provides workforce development and offender rehabilitation services on a global basis that include employment preparationand placement, legal offender rehabilitation services, youth community service programs and certain health related services to eligible participants ofgovernment sponsored programs. Populations served by WD Services are broad and include the disabled, recently and long-term unemployed andindividuals seeking new skills, as well as individuals that are coping with medical illnesses, are newly graduated from educational institutions, or are beingreleased from incarceration. We contract primarily with national and regional government entities that seek to reduce the unemployment and recidivism rates. The revenue earned by WD Services under its contracts is often derived through a combination of different revenue channels including, but notlimited to, fees contingent upon: (1) the volume of WD end-users referred to or admitted into a specific program, (2) the achievement of defined outcomes forspecific individuals, such as a job placement or continued employment, and (3) the achievement of defined outcomes for a population of individuals over aspecific time period, such as aggregate employment or recidivism rates. The relative contributions of different revenue channels under a specific contract canfluctuate meaningfully over the life of a contract and thus contribute to significant earnings volatility. Revenue recognition related to our NCS youthprograms can be particularly volatile due to the timing of services provided, which typically occur in the second and third quarters of each year. WD Servicesalso earns revenue under fixed FFS arrangements, based upon contractual rates established at the outset of the applicable contract year, although the rate maybe prospectively adjusted during the contract year based upon actual volumes. Volume levels are typically not guaranteed under contracts. We billaccording to contractual terms, typically after proof of services have been demonstrated, although certain contracts allow for ratable billings based uponexpected levels of services, and require reconciliation at the conclusion of the contract year. As described above, when WD Services enters into new markets and service lines, it often experiences significant costs, which are expensed asincurred, whereas revenue may not be realized until a later date. As a result, WD Services experiences significant variability in its financial results and wetherefore believe the results of WD Services are best viewed over a multi-year period. 46Classification of Operating Expenses Our “Service expense” line item includes the majority of the operating expenses of NET Services and WD Services as well as our captive insurancecompany, with the exception of certain costs which are classified as “General and administrative expense”. Service expense also excludes asset impairmentcharges and depreciation and amortization expenses. In the discussion below, we present the breakdown of service expense by the following majorcategories: purchased services, payroll and related costs, other operating expenses and stock-based compensation. Purchased services includes the amountswe pay to third-party service providers and are typically dependent upon service volume. Payroll and related costs include all personnel costs of oursegments. Other operating expenses include general overhead costs, excluding facilities and related charges, of our segments. Stock-based compensationrepresents the stock-based compensation expense associated with stock grants to employees of our segments as well as the expense related to restricted stockplaced into escrow at the time of the Ingeus acquisition.Our “General and administrative expense” primarily includes the operating expenses of our corporate office, excluding depreciation andamortization, as well as facilities and related charges of our segments and contingent consideration and acquisition related adjustments, as applicable. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements becausethey require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes inaccordance with GAAP. Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financialstatements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and otherassumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. Weconsider an accounting estimate to be critical if:•it requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at thetime the estimate is made; and•changes in the estimate or different estimates that could have been selected may have had a material impact on our financial condition or resultsof operations. For more information on each of these policies, see Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, to ourconsolidated financial statements. We discuss information about the nature and rationale for our critical accounting estimates below. Transportation Accrual We accrue the cost of transportation expense within NET Services based on request for services and the amount we expect to be billed bytransportation providers, as we generally only pay transportation providers for completed trips based upon documentation submitted after services have beenprovided. The transportation accrual requires significant judgment, as the accrual is based upon contractual rates and mileage estimates, as well as anestimated rate for unknown cancellations, as members may have requested transportation but not notified us of cancellation. Based upon historicalexperience and contract terms, we estimate the amount of expense incurred for invoices which have not yet been submitted as of period end. Actual expensecould be greater or less than the amounts estimated due to changes in member or transportation provider behavior. Business Combinations We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired andliabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price paid over the fair value of the net tangible andintangible assets acquired is allocated to goodwill. When determining the fair values of assets acquired and liabilities assumed, management makessignificant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are notlimited to future expected cash flows from customer relationships and trade names, and discount rates. Management’s estimates of fair value are based uponassumptions believed to be reasonable, but which are inherently uncertain and unpredictable. As a result, actual results may differ significantly fromestimates.47 Recoverability of Goodwill and Definite-Lived Intangible Assets Goodwill. In accordance with ASC 350, Intangibles-Goodwill and Other, we review goodwill for impairment annually, or more frequently, if eventsand circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significantcontracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by aregulator, or (5) a significant decline in the Company’s stock price. We perform the annual goodwill impairment test for all reporting units as of October 1.First, we perform qualitative assessments for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unitis less than its carrying amount. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than itscarrying value amount, we then perform a quantitative assessment and compare the fair value of the reporting unit to its carrying value.We adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”)effective April 1, 2017. ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two ofthe goodwill impairment test. Instead, if we deem it necessary to perform the quantitative goodwill impairment test in an annual or interim period, werecognize an impairment charge equal to the excess, if any, of a reporting unit’s carrying amount over its fair value, not to exceed the total amount ofgoodwill allocated to the reporting unit. Long-Lived Assets Including Intangibles. In accordance with ASC 360, Property, Plant, and Equipment, we review the carrying value of long-livedassets or groups of assets to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets may beimpaired. Factors that may necessitate an impairment assessment include, among others, significant adverse changes in the extent or manner in which an assetor group of assets is used, significant adverse changes in legal factors or the business climate that could affect the value of an asset or group of assets orsignificant declines in the observable market value of an asset or group of assets. The presence or occurrence of those events indicates that an asset or groupof assets may be impaired. In those cases, we assess the recoverability of an asset or group of assets by determining whether the carrying value of the asset orgroup of assets exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over theremaining economic life of the asset or the primary asset in the group of assets. If such testing indicates the carrying value of the asset or group of assets is notrecoverable, we estimate the fair value of the asset or group of assets using appropriate valuation methodologies, which would typically include an estimateof discounted cash flows. If the fair value of those assets or groups of assets is less than carrying value, we record an impairment loss equal to the excess of thecarrying value over the estimated fair value. The use of different estimates or assumptions in determining the fair value of our goodwill and intangible assets may result in different values forthose assets, which could result in an impairment or, in the period in which an impairment is recognized, could result in a materially different impairmentcharge. During the fourth quarter of 2016, the Company reviewed WD Services for impairment, as there were several negative factors impacting the segment,primarily due to lower than expected volumes and unfavorable service mix shifts under a large contract in the UK impacting future projections; additionalclarity into the anticipated size and structure of the Work and Health Programme in the UK; the absence of additional details regarding the restructuring ofthe offender rehabilitation contract in the UK; and a change in senior management at WD Services during the fourth quarter. As a result, the Companyperformed a quantitative test comparing the fair value of the asset groupings comprising WD Services with their carrying amounts and recorded an assetimpairment charge of $10.0 million to property and equipment and $4.4 million to definite-lived customer relationship intangible assets, which is recordedin “Asset impairment charge” on the Company’s consolidated statement of operations for the year ended December 31, 2016. In addition, the Companyreviewed the carrying value of goodwill of WD Services, noting the carrying value exceeded the fair value. Therefore, the Company performed the secondstep of the impairment test, in which the fair value of the reporting unit is allocated to all of the assets and liabilities, on a fair value basis, with any excessrepresenting the implied value of goodwill of the reporting unit. The fair value was determined using an income approach, which estimates the present valueof future cash flows based on management’s forecast of revenue growth rates and operating margins, working capital requirements and capital expenditures.Based on this analysis, the carrying value of goodwill of the WD Services reporting unit exceeded the implied fair value and the Company recorded animpairment charge of $5.2 million, which is included in “Asset impairment charge” on the Company’s consolidated statement of operations for the yearended December 31, 2016. No impairment charges were incurred during the year ended December 31, 2017.48Income Taxes We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences oftemporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on thedifferences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset orliability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense.We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience byjurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors.We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherentcomplexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual andanticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. We record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that we expect to take in a future tax return.The determination for required liabilities is based upon an analysis of each individual tax position, taking into consideration whether it is more likely thannot that our tax position, based on technical merits, will be sustained upon examination. For those positions for which we conclude it is more likely than notit will be sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with thetaxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimate resolution of these taxpositions may be greater or less than the liabilities recorded.On December 22, 2017, the Tax Reform Act was enacted, which significantly changes U.S. tax law by, among other things, lowering corporateincome tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The TaxReform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Tax ReformAct also provides for a one-time deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits through the year ended December 31,2017.On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when aregistrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accountingfor certain income tax effects of the Tax Reform Act. We have recognized the provisional tax impacts related to deemed repatriated earnings and the benefitfor the revaluation of deferred tax assets and liabilities, and included these amounts in our consolidated financial statements for the year ended December 31,2017. The final impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes ininterpretations and assumptions we made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Reform Act. Inaccordance with SAB 118, the financial reporting impact of the Tax Reform Act will be completed no later than the fourth quarter of 2018. Reinsurance and Self-Insurance Liabilities We historically reinsured a substantial portion of our automobile, general and professional liability and workers’ compensation costs underreinsurance programs through our wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurancecompany domiciled in the State of Arizona. In conjunction with the policy renewals on May 16, 2017, SPCIC did not renew the expiring policies. However,SPCIC continues to resolve claims under the historical policy years. In addition, under the current policies, the Company retains liability up to the policydeductibles. In addition, we maintain self-funded health insurance programs for U.S. based employees with a stop-loss umbrella policy with a third partyinsurer to limit the maximum potential liability for individual claims and for a maximum potential claim liability based on member enrollment. We utilizeindependent actuarial reports to determine the expected losses and in order to record the appropriate entries associated with our historical reinsuranceprograms, our retained exposure for the deductibles under our current policies, and self-funded health insurance programs. We regularly analyze our reservesfor incurred but not reported claims, and for reported but not paid claims related to our reinsurance and self-funded insurance programs. We believe ourreserves are adequate. However, significant judgment is involved in assessing these reserves such as evaluating historical paid claims, average lag timesbetween the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actualsettlement amounts and recorded reserves and any resulting adjustments are recorded once a probable amount is known. 49Revenue Recognition NET Services Capitated contracts. The majority of NET Services revenue is generated under capitated contracts with customers where we assume theresponsibility of meeting the covered transportation requirements of a specific geographic population based on per-member per-month fees for the number ofmembers in the customer’s program. Revenue is recognized based on the population served during the period. In some capitated contracts, partial payment isreceived as a prepayment during the month service is provided. These partial payments may be due back to the customer, or additional payments may be dueto the Company, after each reconciliation period, based on a reconciliation of actual utilization and cost compared to the prepayment made. FFS contracts. Revenues earned under FFS contracts are based upon contractually established billing rates. Revenues are recognized when theservice is provided based upon contractual amounts. Flat fee contracts. Revenues earned under flat fee contracts are recognized ratably over the covered service period based upon contractuallyestablished rates which do not fluctuate with any changes in the membership population who are eligible to receive the transportation services. For most contracts, we arrange for transportation of members through our network of independent transportation providers, whereby we remitpayment to the transportation providers; however, for certain contracts, we only provide administrative management services to support the customers effortsto serve its clients. The amount of revenue recognized is based upon the management fee earned.WD Services WD Services revenues are primarily generated from providing workforce development and offender rehabilitation services which includeemployment preparation and placement, apprenticeship and training, and certain health related services to clients on behalf of governmental and privateentities. While the specific terms vary by contract and country, we primarily receive four types of revenue streams under contracts with government entities:referral/attachment fees, job placement and job outcome fees, sustainment fees and incentive fees. Referral/attachment fees are typically upfront paymentsthat are payable when a client is referred by the contracting government entity or that client enters the program. Job placement fees are typically payablewhen a client is employed. Job outcome fees are typically payable when a client attains and holds employment for a specified minimum period of time.Sustainment fees are typically payable when clients maintain a job outcome past specified employment tenure milestones. Incentive fees are generally basedupon a calculation that includes a variety of factors and inputs, such as average sustainment rates and client referral rates. Incentive fees vary greatly bycontract. Referral/attachment fee revenue is recognized ratably over the period of service, based upon an estimated period of time general services will beprovided (i.e., the person is placed in a job or reaches the maximum time period for the program). The estimated period of time for which services will berendered is based upon historical data. Job placement, job outcome and sustainment fee revenue is recognized when certain milestones are achieved, andamounts become billable. Incentive fee revenue is generally recognized when fixed and determinable, frequently at the end of the cumulative calculationperiod, unless contractual terms allow for earned payments on a fixed or ratable basis. Revenue is also earned under fixed FFS arrangements, based upon contractual rates established at the outset of the contract or the applicable contractyear, although the rate may be prospectively adjusted during the contract year based upon actual volumes. If the rate is adjusted but the Company is unable to adjust its costs accordingly, or if the volume or types of referrals are lower than estimated, ourprofitability may be negatively impacted. Volume levels are typically not guaranteed under contracts.Deferred Revenue At times we may receive funding for certain services in advance of services being rendered. These amounts are reflected in the consolidated balancesheets as “Deferred revenue” until the services are rendered. Stock Based Compensation Our primary forms of employee stock-based compensation are stock option awards and restricted stock awards, including certain awards which vestbased upon performance conditions. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuationtechniques, including the Black-Scholes and Monte Carlo option-pricing models. We50recognize the fair value as stock-based compensation expense on a straight-line basis over the requisite service period, which is typically the vesting period.The pricing models require various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used in themodels change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.As a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvementsto Employee Share-Based Payment Accounting (“ASU 2016-09”), effective January 1, 2017, we no longer record stock-based compensation expense net ofestimated forfeitures and the tax effects of awards are treated as discrete items in the period in which tax windfalls or shortfalls occur. The adoption alsoimpacted the presentation of cash flows and the computation of earnings per share.The adoption of ASU 2016-09 will subject our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities,including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reportingpurposes based upon the fair value of the award at the grant date. See additional discussion included in Note 2, Significant Accounting Policies and RecentAccounting Pronouncements, to our consolidated financial statements. Restructuring, Redundancy and Related Reorganization Costs We have engaged in employee headcount optimization actions within WD Services which require management to estimate the timing and amount ofseverance and other employee separation costs for workforce reduction. We accrue for severance and other employee separation costs under these actionswhen it is probable that a liability has been incurred and the amount is reasonably estimable. The amounts used in determining severance accruals are basedon an estimate of the salaries and related benefit costs payable under existing plans for the number of employees impacted, but the final determination of theactual employees to be terminated is subject to a customary consultation process. The estimate of costs that will ultimately be paid requires significantjudgment and to the extent that actual results or updated results differ from our current estimates, such amounts will be recorded as a cumulative adjustmentin the period such amounts are determined.Results of operations Segment reporting. Our operations are organized and reviewed by management along our segment lines. We operate in two principal businesssegments: NET Services and WD Services. Our investment in Matrix is also a reportable segment referred to as the “Matrix Investment”. Segment results arebased on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operatingresults of the two principal business segments include revenue and expenses incurred by the segment, as well as an allocation of direct expenses incurred byour corporate division on behalf of the segment, which primarily relate to insurance and stock-based compensation allocations. Indirect expenses, includingunallocated corporate functions and expenses, such as executive, finance, accounting, human resources, information technology and legal, as well as theresults of our captive insurance company (the “Captive”) and elimination entries recorded in consolidation are reflected in “Corporate and Other”. Discontinued operations. Effective October 19, 2016, we completed the Matrix Transaction resulting in our ownership of a noncontrolling interest inour historical HA Services segment. The HA Services segment results of operations for the periods through October 19, 2016 are separately discussed in the“Discontinued operations, net of tax” section set forth below. For periods subsequent to the transaction, the results of the Matrix Investment are separatelydiscussed in the “Equity in net loss of investees” section set forth below. Additionally, effective November 1, 2015, we completed the sale of our HumanServices segment. The Human Services segment results of operations are separately discussed in the “Discontinued operations, net of tax” section set forthbelow. 51Year ended December 31, 2017 compared to year ended December 31, 2016 The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our consolidatedstatements of income for 2017 and 2016 (in thousands): Year ended December 31, 2017 2016 $ Percentageof Revenue $ Percentageof RevenueService revenue, net1,623,882 100.0 % 1,578,245 100.0 % Operating expenses: Service expense1,489,044 91.7 % 1,452,110 92.0 %General and administrative expense72,336 4.5 % 69,911 4.4 %Asset impairment charge— — % 21,003 1.3 %Depreciation and amortization26,469 1.6 % 26,604 1.7 %Total operating expenses1,587,849 97.8 % 1,569,628 99.5 % Operating income36,033 2.2 % 8,617 0.5 % Non-operating expense: Interest expense, net1,278 0.1 % 1,583 0.1 %Other income(5,363) (0.3)% — — %Equity in net (gain) loss of investees(12,054) (0.7)% 10,287 0.7 %Gain on sale of equity investment(12,377) (0.8)% — — %Loss (gain) on foreign currency transactions345 — % (1,375) (0.1)%Income (loss) from continuing operations before income taxes64,204 4.0 % (1,878) (0.1)%Provision for income taxes4,401 0.3 % 17,036 1.1 %Income (loss) from continuing operations59,803 3.7 % (18,914) (1.2)%Discontinued operations, net of tax(5,983) (0.4)% 108,760 6.9 %Net income53,820 3.3 % 89,846 5.7 %Net (gain) loss attributable to noncontrolling interest(451) — % 2,082 0.1 %Net income attributable to Providence53,369 3.3 % 91,928 5.8 % Service revenue, net. Consolidated service revenue, net for 2017 increased $45.6 million, or 2.9%, compared to 2016. Revenue for 2017 comparedto 2016 includes an increase in revenue of NET Services of $84.5 million, which was partially offset by a decrease in revenue of WD Services of $38.7million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 3.4% in 2017 compared to 2016. Total operating expenses. Consolidated operating expenses for 2017 increased $18.2 million, or 1.2%, compared to 2016. Operating expenses for2017 compared to 2016 included an increase in expenses attributable to NET Services of $95.8 million and Corporate and Other of $2.5 million. Partiallyoffsetting these expense increases was a decrease in WD Services’ operating expenses of $80.2 million. 2016 operating expenses include asset impairmentcharges of $19.6 million at WD Services and $1.4 million at Corporate and Other. Operating income. Consolidated operating income for 2017 increased $27.4 million compared to 2016 due to a decrease in the operating loss of WDServices in 2017 of $41.4 million, as compared to 2016. This change was partially offset by a decrease in operating income of NET Services in 2017 ascompared to 2016 of $11.3 million and an increase in the operating loss for Corporate and Other of $2.7 million in 2017 as compared to 2016. 52Interest expense, net. Consolidated interest expense, net for 2017 decreased $0.3 million, or 19.3%, compared to 2016, and remained consistent as apercentage of revenue.Other income. Other income in 2017 of $5.4 million represents the settlement received from the Haverhill Litigation, see Item 3. Legal Proceedingsfor further information on the settlement.Equity in net (gain) loss of investees. Our equity in net (gain) loss of investees for 2017 of $12.1 million includes an equity in net loss for MissionProvidence of $1.4 million through the sale date on September 29, 2017, and an equity in net gain for Matrix of $13.4 million. Our equity in net loss ofinvestees for 2016 of $10.3 million includes an equity in net loss for Mission Providence of $8.5 million and Matrix of $1.8 million. We began reportingMatrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction, and we record our ownership percentage ofMatrix’s profit or loss in net loss or gain of investees. Included in Matrix’s 2017 full standalone net income of $26.7 million (which is not consolidated withProvidence’s) are depreciation and amortization of $33.5 million, interest expense of $14.8 million, transaction bonuses and other transaction related costs of$3.5 million, equity compensation of $2.6 million, management fees paid to Matrix’s shareholders of $2.3 million, merger and acquisition diligence relatedcosts of $0.7 million and income tax benefit of $29.6 million. Matrix’s significant income tax benefit in 2017 primarily related to the re-measurement ofdeferred tax liabilities arising from a lower U.S. corporate tax rate as a result of the Tax Reform Act. Included in Matrix’s 2016 full standalone net loss of $4.2million (which is not consolidated with Providence’s) are depreciation and amortization of $6.4 million, interest expense of $2.9 million, transaction bonusesand other transaction related costs of $6.4 million, equity compensation of $0.4 million, management fees paid to Matrix’s shareholders of $0.4 million andincome tax benefit of $2.8 million.Gain on sale of equity investment. The gain on sale of equity investment of $12.4 million relates to the sale of the Company’s equity interest inMission Providence in 2017. The investment in Mission Providence was part of the WD Services segment. The sale of Mission Providence is not included asa discontinued operation as the disposition did not represent a strategic shift that has a major effect on our operations and financial results. Loss (gain) on foreign currency transactions. The foreign currency loss of $0.3 million and gain of $1.4 million for 2017 and 2016, respectively,were primarily due to translation adjustments of our foreign subsidiaries. Provision for income taxes. Our effective tax rate from continuing operations for 2017 was 6.9%. The effective tax rate was lower than the U.S.federal statutory rate of 35% primarily due to the impact of the Tax Reform Act. The tax provision includes a benefit of $16.0 million related to theenactment of the Tax Reform Act during the fourth quarter of 2017, consisting of a net tax benefit of $19.4 million from the re-measurement of deferred taxliabilities from the lower U.S. corporate tax rate, partially offset by additional tax expense of $3.4 million due to an increase in our equity in net gain ofMatrix as a result of Matrix's re-measurement of deferred tax liabilities. In addition, the Company incurred tax expense of $3.6 million related to the HoldCoLTIP, for which expense was recorded for financial reporting purposes based upon fair value of the award at the grant date, but no shares will be issued due tothe market condition of the award not being satisfied. This tax expense was the result of the adoption of ASU 2016-09, which subjects our tax rate toquarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awardswhich result in a tax deduction less than the amount recorded for financial reporting purposes.During 2016, we recognized an income tax provision despite having a loss from continuing operations before income taxes. Because of foreign netoperating losses (including equity investee losses) for which the future income tax benefit could not be recognized, and non-deductible expenses, theCompany recognized taxable income for this year upon which the income tax provision for financial reporting is calculated. Discontinued operations, net of tax. Discontinued operations, net of tax, includes the activity of our former Human Services segment and our formerHA Services segment, composed entirely of our 100% ownership in Matrix until the completion of the Matrix Transaction on October 19, 2016. For 2017,discontinued operations, net of tax for our Human Services segment was a loss of $6.0 million, which primarily related to the accrual of a contingent liabilityof $9.0 million related to the settlement of indemnification claims and associated legal costs of $0.7 million, partially offset by a related tax benefit.Discontinued operations, net of tax for our Human Services segment was a loss of $5.6 million in 2016, which included an accrual of $6.0 million withrespect to potential indemnification claims, legal costs of $1.1 million related to these potential claims and transaction related expenses of $0.8 million,partially offset by a related tax benefit. Discontinued operations, net of tax for our HA Services segment was income of $114.3 million for 2016, whichincluded a gain on disposition, net of tax, of $109.4 million. See Note 20, Discontinued Operations, to our consolidated financial statements for additionalinformation. 53Net (income) loss attributable to noncontrolling interests. Net (income) loss attributable to noncontrolling interests primarily relates to a minorityinterest held by a third-party operating partner in our company servicing the offender rehabilitation contract in our WD Services segment. Segment Results. The following analysis includes discussion of each of our segments. NET Services NET Services financial results are as follows for 2017 and 2016 (in thousands): Year Ended December 31, 2017 2016 $ Percentage ofRevenue $ Percentage ofRevenueService revenue, net1,318,220 100.0% 1,233,720 100.0%Service expense1,227,426 93.1% 1,132,857 91.8%General and administrative expense11,779 0.9% 11,406 0.9%Depreciation and amortization13,275 1.0% 12,375 1.0%Operating income65,740 5.0% 77,082 6.2% Service revenue, net. Service revenue, net for NET Services in 2017 increased $84.5 million, or 6.8%, compared to 2016. The increase was related tonet increased revenue from existing contracts, including successfully renewed contracts, of $82.5 million, due to the net impact of membership and ratechanges. Included within net rate changes are the positive impacts of final agreements on rate adjustments related to existing contracts that experiencedincreased utilization in 2017 as well as the release of previously accrued revenue hold-backs based on certain contract performance requirements on asignificant contract. Additionally, the impact of new contracts, including new managed care organization contracts in Florida and New York, contributed$93.8 million of revenue for 2017. These increases were partially offset by the $91.8 million impact on revenue of contracts we no longer serve, including acontract with the state of New York. Service expense. Service expense is comprised of the following for 2017 and 2016 (in thousands): Year Ended December 31, 2017 2016 $ Percentage ofRevenue $ Percentage ofRevenuePurchased services1,009,518 76.6% 927,321 75.2%Payroll and related costs165,666 12.6% 162,000 13.1%Other operating expenses51,720 3.9% 42,478 3.4%Stock-based compensation522 —% 1,058 0.1%Total service expense1,227,426 93.1% 1,132,857 91.8% Service expense for 2017 increased $94.6 million, or 8.3%, compared to 2016. The increase in service expense was primarily attributable to theimpact of new managed care organization contracts in California, Florida and New York. Purchased services as a percentage of revenue increased from 75.2%in 2016 to 76.6% in 2017 primarily attributable to an increase in utilization across multiple contracts. The higher utilization was in part driven by increasedMedicaid reimbursement in New Jersey for certain medical services, increasing the demand for transportation services, and increased utilization acrossmultiple managed care contracts in California. Additionally, due to milder winter weather conditions during the first quarter of 2017, we experienced aboveexpected utilization; however, we experienced lower utilization for contracts in the third quarter of 2017 due in part to the impact of Hurricane Irma. Theincrease in purchased services as a percentage of revenue caused by increased utilization was partially offset by the successful implementation of initiativesaimed at lowering transportation costs on a per trip and per mile basis as well as the release of a reserve based upon the finalization of a contract amendmentwith a state customer.Payroll and related costs as a percentage of revenue decreased from 13.1% in 2016 to 12.6% in 2017 due to efficiencies gained from multipleprocess improvement initiatives, including those aimed at lowering payroll expense across our reservation54and operation center networks, as well as a decrease in chief executive officer compensation expense due to the transition of the chief executive officerposition during 2017. Other operating expenses increased for 2017 as compared to 2016 primarily attributable to an incremental $4.1 million of valueenhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and valueenhancement initiatives in 2017, as well as increased software and hardware maintenance costs associated with increased use of information technology. General and administrative expense. General and administrative expenses in 2017 increased $0.4 million, or 3.3%, as compared to 2016, due toincreased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense remained constantat 0.9%. Depreciation and amortization expense. Depreciation and amortization expenses increased $0.9 million primarily due to the addition of long-livedassets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0%. At December 31,2017, NET Services has $11.9 million of construction and development in progress related to its LCAD NextGen technology system, which is expected to beplaced into service in 2018. WD Services WD Services financial results are as follows for 2017 and 2016 (in thousands): Year Ended December 31, 2017 2016 $ Percentage ofRevenue $ Percentage ofRevenueService revenue, net305,662 100.0% 344,403 100.0 % Service expense265,417 86.8% 320,147 93.0 %General and administrative expense25,438 8.3% 30,300 8.8 %Asset impairment charge— —% 19,588 5.7 %Depreciation and amortization12,851 4.2% 13,824 4.0 %Operating income (loss)1,956 0.6% (39,456) (11.5)%Service revenue, net. Service revenue, net in 2017 decreased $38.7 million, or 11.2%, compared to 2016. Excluding the effects of changes incurrency exchange rates, service revenue decreased 8.9% in 2017 compared to 2016, which was primarily related to the anticipated decline of referrals underthe segment’s Work Programme contracts in the UK, as well as decreased revenue under our offender rehabilitation program. While WD Services hassuccessfully secured contracts under the UK's new Work and Health Programme, the successor program to the Work Programme, with a combined total valueof approximately $195 million over 5 years, revenues under these new contracts were negligible in 2017 and did not offset declines in revenue experiencedunder the Work Programme contracts. These decreases were partially offset by increases across various employability contracts outside the UK, including inAustralia, France, Germany and the U.S., as well as increased revenue from our health services contract in the UK. 2017 includes the impact of $5.2 million ofrevenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the contract year ended March 31,2017, whereas 2016 includes $5.4 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractualadjustment for the prior contract years ended March 31, 2015 and 2016.55 Service expense. Service expense is comprised of the following for 2017 and 2016 (in thousands): Year Ended December 31, 2017 2016 $ Percentage ofRevenue $ Percentage ofRevenuePayroll and related costs177,195 58.0% 210,293 61.1 %Purchased services49,491 16.2% 65,363 19.0 %Other operating expenses38,675 12.7% 44,502 12.9 %Stock-based compensation56 —% (11) — %Total service expense265,417 86.8% 320,147 93.0 %Service expense in 2017 decreased $54.7 million, or 17.1%, compared to 2016. Payroll and related costs decreased primarily as a result of decliningreferrals under the segment’s primary employability program in the UK as well as redundancy plans that better aligned headcount with service deliveryvolumes, resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $2.6 million and $8.5 million in2017 and 2016, respectively, of termination benefits related to redundancy plans. Purchased services decreased in 2017 compared to 2016 primarily as aresult of a decline in client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services. Otheroperating expenses decreased in 2017 compared to 2016 primarily as a result of a decline in consulting related costs and information technologymaintenance costs. General and administrative expense. General and administrative expense in 2017 decreased $4.9 million compared to 2016. The decrease was dueto office closures associated with the restructuring of the UK operations, as well as lower rent for certain offices. Additionally, $2.0 million of the decreaserelated to the impact of acquisition related contingencies that were favorably resolved in 2017, resulting in a benefit to general and administrative expense. Asset impairment charge. During the fourth quarter of 2016, WD Services recorded asset impairment charges of $10.0 million, $4.4 million and $5.2million to its property and equipment, intangible assets and goodwill, respectively, primarily due to lower than expected volumes and unfavorable servicemix shifts under a large contract in the UK impacting future projections; additional clarity into the anticipated size and structure of the Work and HealthProgramme in the UK; and the absence of additional details regarding the restructuring of the offender rehabilitation contract in the UK. No impairmentcharges were incurred in 2017. Depreciation and amortization expense. Depreciation and amortization expense for 2017 decreased $1.0 million compared to 2016, primarily due tothe asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property andequipment.Corporate and Other Corporate and Other includes the headcount and professional service costs incurred at the Providence corporate level, our captive insurancecompany, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for 2017 and 2016 (inthousands): Year Ended December 31, 2017 2016 $ $Service revenue, net— 122 Service expense (a)(3,799) (894)General and administrative expense35,119 28,205Asset impairment charge— 1,415Depreciation and amortization343 405Operating loss(31,663) (29,009)56 (a)Negative amounts are present for this line item due to changes in estimate for claims incurred but not reported, as well as elimination entries thatare included in Corporate and Other. Certain offsetting amounts are reflected in the financial results of our operating segments.Operating loss. Corporate and Other operating loss in 2017 increased by $2.7 million, or 9.1%, as compared to 2016 primarily due to an increase incash settled stock-based compensation expense of $3.6 million, primarily as a result of an increase in the Company’s stock price in 2017 as compared to adecrease in 2016, an increase in share settled stock-based compensation expense of $2.7 million, primarily related to an increase in expense for the HoldCoLTIP despite this program expiring with no shares due to any employees, expense for stock options issued to a former chief executive officer upon separationfrom the Company, and a benefit recorded in 2016 for performance based units, with no corresponding benefit in 2017, as well as an increase of $3.8 millionof professional costs due to activities associated with our increased focus on strategic initiatives. This increase was partially offset by a reduction in insuranceloss reserves of $3.5 million in 2017, versus $2.5 million in 2016, due to favorable claims history of our Captive reinsurance programs, as well as decreasedcosts of the Captive operations due to no longer writing new policies as of May 2017, which is included in “Service expense”, decreased accounting, legaland professional fees included in “General and administrative expense”, and decreased asset impairment charges, as $1.4 million was recorded in 2016 inrelation to the sale of a building.General and administrative expense includes stock-based compensation for the HoldCo LTIP of $4.7 million and $3.3 million for 2017 and 2016,respectively. No shares will be distributed under the HoldCo LTIP as the volume weighted average of Providence’s stock price over the 90-day trading periodended on December 31, 2017 was less than $56.79. As such, as of December 31, 2017, we accelerated all remaining unrecognized compensation expense forthe Holdco LTIP as there was no further requisite service period associated with the award resulting in an acceleration of expense of $1.1 million. General andadministrative expense also includes $0.4 million and $1.6 million for 2017 and 2016, respectively, related to a shareholder lawsuit.Costs associated with the resignation of Mr. Lindstrom during the year ended December 31, 2017 include cash compensation related items of $0.9million, stock-based compensation of $0.7 million, and other costs of $0.2 million. These costs are recorded as part of “General and administrative expense”.57Year ended December 31, 2016 compared to year ended December 31, 2015 The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our consolidatedstatements of income for 2016 and 2015 (in thousands): Year ended December 31, 2016 2015 $ Percentageof Revenue $ Percentageof RevenueService revenue, net1,578,245 100.0 % 1,478,010 100.0 % Operating expenses: Service expense1,452,110 92.0 % 1,381,154 93.4 %General and administrative expense69,911 4.4 % 70,986 4.8 %Asset impairment charge21,003 1.3 % — — %Depreciation and amortization26,604 1.7 % 23,998 1.6 %Total operating expenses1,569,628 99.5 % 1,476,138 99.9 % Operating income8,617 0.5 % 1,872 0.1 % Non-operating expense: Interest expense, net1,583 0.1 % 1,853 0.1 %Equity in net loss of investees10,287 0.7 % 10,970 0.7 %Gain on foreign currency transactions(1,375) (0.1)% (857) (0.1)%Income (loss) from continuing operations before income taxes(1,878) (0.1)% (10,094) (0.7)%Provision for income taxes17,036 1.1 % 14,583 1.0 %Income (loss) from continuing operations(18,914) (1.2)% (24,677) (1.7)%Discontinued operations, net of tax108,760 6.9 % 107,871 7.3 %Net income89,846 5.7 % 83,194 5.6 %Net loss attributable to noncontrolling interest2,082 0.1 % 502 — %Net income attributable to Providence91,928 5.8 % 83,696 5.7 % Service revenue, net. Consolidated service revenue, net for 2016 increased $100.2 million, or 6.8%, compared to 2015. Revenue for 2016 comparedto 2015 included an increase in revenue of NET Services of $150.7 million, which was partially offset by a decrease in revenue of WD Services of $50.7million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 8.8% in 2016 compared to 2015. Total operating expenses. Consolidated operating expenses for 2016 increased $93.5 million, or 6.3%, compared to 2015. Operating expenses for2016 compared to 2015 included an increase in expenses attributable to NET Services of $144.8 million and Corporate and Other of $2.2 million. Partiallyoffsetting these expense increases was a decrease in WD Services’ operating expenses of $53.6 million. Operating expenses included asset impairmentcharges of $19.6 million at WD Services and $1.4 million at Corporate and Other during 2016, while no such charges were incurred in 2015. Operating income. Consolidated operating income for 2016 increased $6.7 million compared to 2015 due to an increase in operating income ofNET Services in 2016 as compared to 2015 of $5.9 million and a decrease in the operating loss of WD Services in 2016 as compared to 2015 of $2.9 million,although WD Services’ new offender rehabilitation program incurred an operating loss in 2016 as compared to operating income in 2015. In addition, Francecontinued to experience a significant operating loss in 2016, consistent with 2015. These changes were partially offset by an increase in the operating loss forCorporate and Other of $2.0 million, driven primarily by the asset impairment charge of $1.4 million in 2016. 58Interest expense, net. Consolidated interest expense, net for 2016 decreased $0.3 million, or 14.6%, compared to 2015. The decrease is primarilyrelated to the repayment of the related party note during 2015, which was partially offset by higher commitment fees on our Credit Facility for 2016 ascompared to 2015.Equity in net loss of investees. Equity in net loss of investees primarily relates to our investments in Mission Providence and Matrix. MissionProvidence, which is part of WD Services, began providing services in July 2015. We record 75% of Mission Providence’s profit or loss in equity in net lossof investees. We began reporting Matrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction. Our equity innet loss of investees related to WD Services and Matrix totaled $8.5 million and $1.8 million, respectively, for 2016. Included in Matrix’s results (which arenot consolidated with Providence's) is interest expense of $2.9 million and transaction related expenses of $6.0 million, which includes $4.0 million oftransaction incentive compensation payable to the Matrix management team. Gain on foreign currency transactions. The foreign currency gains of $1.4 million and $0.9 million for 2016 and 2015, respectively, were primarilydue to translation adjustments of our foreign subsidiaries. Provision for income taxes. We recognized an income tax provision for 2016 and 2015 despite having losses from continuing operations beforeincome taxes. Because of foreign net operating losses (including equity investee losses) for which the future income tax benefit currently cannot berecognized, and non-deductible expenses such as amortization of deferred consideration related to the Ingeus acquisition, the Company recognized taxableincome for these years upon which the income tax provision for financial reporting is calculated. Discontinued operations, net of tax. Discontinued operations, net of tax, includes the activity of our former Human Services segment and our formerHA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016.Discontinued operations, net of tax for our Human Services segment was a loss of $5.6 million in 2016 and income of $101.8 million in 2015, respectively.2016 Human Services results include an accrual of $6.0 million with respect to potential indemnification claims, legal costs of $1.1 million related to thesepotential claims and transaction related expenses of $0.8 million. 2015 Human Services segment results include a gain on disposition, net of tax, of $100.3million. Discontinued operations, net of tax for our HA Services segment was income of $114.3 million and $6.1 million for 2016 and 2015, respectively.2016 HA Services segment results include a gain on disposition, net of tax, of $109.4 million. See Note 20, Discontinued Operations, to our consolidatedfinancial statements for additional information. Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interests primarily relates to the minority interest associatedwith our company servicing the offender rehabilitation contract in our WD Services segment. As this contract is currently experiencing losses, as furtherdiscussed below, we have a net loss attributable to noncontrolling interests. Segment Results. The following analysis includes discussion of each of our segments. NET Services NET Services financial results are as follows for 2016 and 2015 (in thousands): Year Ended December 31, 2016 2015 $ Percentage ofRevenue $ Percentage ofRevenueService revenue, net1,233,720 100.0% 1,083,015 100.0%Service expense1,132,857 91.8% 991,659 91.6%General and administrative expense11,406 0.9% 10,704 1.0%Depreciation and amortization12,375 1.0% 9,429 0.9%Operating income77,082 6.2% 71,223 6.6% Service revenue, net. Service revenue, net for NET Services in 2016 increased $150.7 million, or 13.9%, compared to 2015. The increase related tothe impact of new contracts which contributed $76.4 million of revenue in 2016, including contracts in California and Florida, and an increase in revenueassociated with existing contracts of $119.8 million due to the net impact of membership and rate changes, partially offset by the loss of certain contracts thatresulted in a decrease in revenue of $45.5 million. 59Service expense. Service expense is comprised of the following for 2016 and 2015 (in thousands): Year Ended December 31, 2016 2015 $ Percentage ofRevenue $ Percentage ofRevenuePurchased services927,321 75.2% 814,632 75.2%Payroll and related costs162,000 13.1% 141,669 13.1%Other operating expenses42,478 3.4% 34,634 3.2%Stock-based compensation1,058 0.1% 724 0.1%Total service expense1,132,857 91.8% 991,659 91.6% Service expense for 2016 increased $141.2 million, or 14.2%, compared to 2015. The increase in service expense was primarily attributable to anincrease in purchased transportation services due primarily to higher transportation volume. Purchased services as a percentage of revenue remained constantat 75.2%. Additionally, our payroll and related costs increased for 2016 as compared to 2015 primarily due to the hiring of employees to support newcontracts and increased call volume associated with increased utilization, as well as an increase of $1.2 million in expense for the long-term incentive planfor management put into place in the fourth quarter of 2015 and separation related charges for NET Services’ former chief executive officer during 2016 of$0.8 million. Our other operating expenses also increased for 2016 as compared to 2015. The increase was primarily attributable to increased bad debtexpense, including $2.1 million of expense related to one specific customer, and costs incurred for external resources used in the design and implementationof NET Services member experience and value enhancement initiatives of $2.0 million. Stock-based compensation increased $0.3 million in 2016 ascompared to 2015 primarily due to the expense associated with new stock-based compensation awards granted in 2016 that vested in January 2017. General and administrative expense. General and administrative expenses in 2016 increased $0.7 million, or 6.6%, as compared to 2015, due toincreased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense decreased slightlyfrom 1.0% for 2015 to 0.9% for 2016. Depreciation and amortization expense. Depreciation and amortization expenses increased $2.9 million primarily due to the addition of long-livedassets in our call centers. As a percentage of revenue, depreciation and amortization increased slightly from 0.9% for 2015 to 1.0% for 2016. WD Services WD Services financial results are as follows for 2016 and 2015 (in thousands): Year Ended December 31, 2016 2015 $ Percentage ofRevenue $ Percentage ofRevenueService revenue, net344,403 100.0 % 395,059 100.0 % Service expense320,147 93.0 % 393,803 99.7 %General and administrative expense30,300 8.8 % 29,846 7.6 %Asset impairment charge19,588 5.7 % — — %Depreciation and amortization13,824 4.0 % 13,776 3.5 %Operating income (loss)(39,456) (11.5)% (42,366) (10.7)%Service revenue, net. Service revenue, net in 2016 decreased $50.7 million, or 12.8%, compared to 2015. Excluding the effects of changes incurrency exchange rates, service revenue decreased 5.1% in 2016 compared to 2015, which was primarily related to revenue declines associated withdeclining referrals and an altered pricing structure under the segment’s primary employability program in the UK and a revised bidding strategy in certainmarkets. Implemented in late 2015, the overhauled bidding process emphasized the pursuit of only those contracts that meet certain investment criteria,including risk-weighted return60on capital thresholds, and involve the provision of services where we believe our experience will allow us to deliver differentiated and improved outcomesfor our clients. As a result of this enhanced criteria and a challenging UK outsourcing industry, new contracts have been more infrequent and smaller innature. The decrease was partially offset by two new contracts in France that began in 2015 and growth of NCS youth programs in 2016. WD Servicesadditionally recognized revenue of $5.4 million for 2016 under its offender rehabilitation program related to the finalization of a contractual adjustment forcontract years ended March 31, 2015 and 2016, which partially offset the decline in revenue under this contract for 2016. Service expense. Service expense is comprised of the following for 2016 and 2015 (in thousands): Year Ended December 31, 2016 2015 $ Percentage ofRevenue $ Percentage ofRevenuePayroll and related costs210,293 61.1 % 249,130 63.1%Purchased services65,363 19.0 % 78,498 19.9%Other operating expenses44,502 12.9 % 45,418 11.5%Stock-based compensation(11) — % 20,757 5.3%Total service expense320,147 93.0 % 393,803 99.7%Service expense in 2016 decreased $73.7 million, or 18.7%, compared to 2015. Payroll and related costs decreased primarily as a result of theredundancy plans implemented in the fourth quarter of 2015 that were designed to better align headcount with service delivery volumes as well as decliningreferrals under the segment’s primary employability program in the UK. Partially offsetting these decreases was increased payroll and related costs associatedwith a significant new offender rehabilitation program that began in 2015 and higher payroll expenses in France associated with new programs implementedin 2015 and 2016. As referenced above, both the segment’s new offender rehabilitation program and operations in France had significant operating losses in2016. In addition, $8.5 million in termination benefits related to three redundancy plans contributed to losses in 2016. Purchased services decreased in 2016compared to 2015 primarily as a result of a decline in client referrals under our primary employability program in the UK which required less use ofoutsourced services. Stock-based compensation decreased $20.8 million in 2016 as compared to 2015 primarily due to expenses totaling $16.1 millionrelated to the settlement of outstanding awards in the fourth quarter of 2015 in relation to the separation of two executives, who were also sellers of Ingeus toProvidence, as further described in Note 13, Stock-Based Compensation and Similar Arrangements¸ to our consolidated financial statements. General and administrative expense. General and administrative expense in 2016 increased $0.5 million compared to 2015. $2.5 million of theincrease relates to the impact of the reduction in the fair value of contingent consideration that was recorded in 2015. Offsetting this increase were decreasedfacility costs of $2.0 million primarily due to the closure of numerous sites in the UK, partially offset by the opening of new sites in France during 2016. Asset impairment charge. During the fourth quarter of 2016, WD Services recorded asset impairment charges of $10.0 million, $4.4 million and $5.2million to its property and equipment, intangible assets and goodwill, respectively, primarily due to lower than expected volumes and unfavorable servicemix shifts under a large contract in the UK impacting future projections; additional clarity into the anticipated size and structure of the Work and HealthProgramme in the UK; and the absence of additional details regarding the restructuring of the offender rehabilitation contract in the UK. No impairmentcharges were incurred in 2015. Depreciation and amortization expense. Depreciation and amortization expense for 2016 was flat compared to 2015.61Corporate and Other Corporate and Other includes the headcount and professional service costs incurred at the Providence corporate level, our captive insurancecompany, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for 2016 and 2015 (inthousands): Year Ended December 31, 2016 2015 $ $Service revenue, net (a)122 (64) Service expense (a)(894) (4,308)General and administrative expense28,205 30,436Asset impairment charge1,415 —Depreciation and amortization405 793Operating loss(29,009) (26,985) (a)Negative amounts are present for this line item due to elimination entries that are included in Corporate and Other. Offsetting amounts arereflected in the financial results of our operating segments.Operating loss. Corporate and Other operating loss in 2016 increased by $2.0 million, or 7.5%, as compared to 2015 primarily due to a $4.5 milliondecrease in benefits associated with favorable claims experiences on our reinsurance and self-insured programs, an asset impairment charge of $1.4 million in2016 and a $0.4 million net increase in compensation related expenses. The $0.4 million net increase in compensation expenses in 2016 was primarily due toan increase in short-term incentives and $1.0 million of compensation related to the sale of the Company’s Human Services segment in 2015. Also includedin 2016 were $1.6 million of expenses related to a shareholder lawsuit, an increase of $0.8 million from 2015. These increases in expense were partially offsetby a decrease in various professional fees of $4.0 million. The Company anticipates continued reductions in multiple Corporate and Other expense categoriesin 2017. Seasonality Our quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors, uneven demand for services and thetiming of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations in demand during thesummer and winter seasons. Due to higher demand in the summer months, lower demand during the winter months, and a primarily fixed revenue streambased on a per-member, per-month payment structure, NET Services normally experiences lower operating margins during the summer season and higheroperating margins during the winter. WD Services is impacted by both the timing of commencement and expiration of major contracts. Under many of WDServices’ contracts, we invest significant sums of money in personnel, leased office space, purchased or developed technology, and other costs, and generallyincur these costs prior to commencing services and receiving payments. This results in significant variability in financial performance and cash flowsbetween quarters and for comparative periods. It is expected that future contracts will be structured in a similar fashion. However, the Company does notexpect a large variability in financial performance upon the commencement of WD Service’s newly secured Work and Health Programme contracts as theupfront implementation investments needed for these contracts are expected to be significantly less than those associated with other large contractcommencements undertaken in the past, such as the offender rehabilitation program in 2016. In addition, under the majority of WD Services’ contracts, theCompany relies on its customers, which include government agencies, to provide referrals, for which the Company can provide services and earn revenue.The timing and magnitude of referrals can fluctuate significantly, leading to volatility in revenue.Liquidity and capital resources Short-term capital requirements consist primarily of recurring operating expenses and new contract start-up costs, including workforce restructuringcosts. We expect to meet any cash requirements through available cash on hand, cash generated from our operating segments, and borrowing capacity underour Credit Facility (as defined below).62Cash flow from operating activities was our primary source of cash during 2017, and included $5.4 million received from the settlement of theHaverhill Litigation. Additionally, 2017 included $15.6 million in proceeds from the sale of our equity investment in Mission Providence which is includedin cash provided by investing activities. Our balance of cash and cash equivalents was $95.3 million and $72.3 million at December 31, 2017 and 2016,respectively, including $40.1 million and $21.4 million held in foreign countries, respectively. The December 31, 2017 foreign cash balance includes theproceeds from the sale of Mission Providence of $15.6 million. Such cash held in foreign countries is generally used to fund foreign operations, although itmay also be used to repay intercompany indebtedness existing between Providence and its foreign subsidiaries. As of March 5, 2018, the Companytransferred $13.9 million from its foreign operations to its domestic operations since December 31, 2017.We had restricted cash of $6.3 million and $14.1 million at December 31, 2017 and 2016, respectively, primarily related to contractual obligationsand activities of our captive insurance subsidiary. Given expiring policies under our captive insurance subsidiary were not renewed upon expiration in May2017, we expect our restricted cash balances to decline over time. These restricted cash amounts are not included in our balance of cash and cash equivalents.At both December 31, 2017 and 2016, we had no amounts outstanding under our credit facility.We may, from time to time, access capital markets to raise equity or debt financing for various business reasons, including acquisitions. We may alsoraise debt financing to fund future repurchases of our Common Stock. The timing, term, size, and pricing of any such financing will depend on investorinterest and market conditions, and there can be no assurance that we will be able to obtain any such financing. Our current credit facility expires on August2, 2018. On November 2, 2017, the Company’s Board approved the extension of the Company’s existing stock repurchase program, authorizing theCompany to engage in a repurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorizedin 2016) in aggregate value of our Common Stock through December 31, 2018. Through December 31, 2017, the Company repurchased 180,270 shares, for$10.5 million, and $59.1 million was available under the plan to repurchase shares. During the period January 1, 2018 to March 5, 2018, the Companyrepurchased an additional 527,825 shares for $33.3 million, and $25.8 million was available under the plan to repurchase shares.The cash flow statement for all periods presented includes both continuing and discontinued operations. Discontinued operations includes theactivity of our Human Services and HA Services segments. The loss from discontinued operations totaled $6.0 million for the year ended December 31, 2017,while income from discontinued operations totaled $108.8 million and $107.9 million for the years ended December 31, 2016 and 2015, respectively. For2017, the loss from discontinued operations primarily related to the accrual of a contingent liability of $9.0 million related to the future settlement ofindemnification claims associated with our former Human Services segment, partially offset by a related tax benefit. The significant income fromdiscontinued operations during the years ended December 31, 2016 and 2015 related to the gains on sale of our HA Services segment and Human Servicessegment, respectively. Significant non-cash items of our discontinued operations in 2016 and 2015 included $3.7 million and $5.7 million of depreciationexpense, respectively, $17.5 million and $28.6 million of amortization expense, respectively, and $52.3 million and negative $5.0 million of deferred taxes,respectively. Our discontinued operations also purchased property and equipment totaling $9.2 million and $10.3 million during 2016 and 2015.2017 cash flows compared to 2016Operating activities. Cash provided by operating activities was $55.0 million for 2017, an increase of $13.3 million compared with 2016. 2017 and2016 cash flow from operations was driven by net income of $53.8 million and $89.8 million, respectively, non-cash adjustments to reconcile net income tonet cash provided by operating activities of negative $11.1 million and negative $32.9 million, respectively, and changes in working capital of $12.3 millionand negative $15.2 million, respectively.The change in non-cash adjustments to reconcile net income to net cash provided by operating activities was due primarily to the impact of:•the disposition of HA Services, resulting in decreased gain on sale of business, depreciation, amortization and deferred taxes in 2017 as compared to2016;•the asset impairment charge incurred in 2016 of $21.0 million;•the impact on deferred taxes as a result of the Tax Reform Act passed in 2017;•the gain on sale of Mission Providence of $12.4 million in 2017; and•the impact of the change in equity in net (gain) loss of investees, which was a gain of $12.1 million in 2017 as compared to a loss of $10.3 million in2016.The change in working capital was primarily driven by the following:63•Accounts receivable generated a cash inflow in 2017 of $5.7 million as compared to an outflow of $19.3 million in 2016. The increase in cashinflow of $25.0 million was primarily attributable to NET Services due to the timing of collections as well as an outflow of $3.1 million of HAServices in 2016. These changes were partially offset by cash outflows in 2017 related to an increase in WD Services’ receivables in Germany, SaudiArabia, South Korea and the UK.•Prepaid expenses and other generated a cash inflow of $15.5 million in 2017, as compared to a cash outflow of $4.1 million in 2016. The increase incash inflow of $19.5 million was primarily attributable to a decrease in other receivables related to amounts receivable from insurance carriers inrespect to certain claims paid by the Company, but reimbursable from the respective insurance carrier, decreased receivables related to our captiveinsurance company insurance policy rewrite, decreased prepaid value added taxes in the UK, decreased prepayments in WD Services in relation tocertain contracts and changes in income tax payments.•Accounts payable and accrued expenses generated a cash outflow of $9.1 million in 2017, as compared to a cash inflow of $33.4 million in 2016.The decrease in cash inflow of $42.4 million is due primarily to the impact of NET Services accrued contract payments of $21.5 million, as well asthe disposition of HA Services, which generated a cash inflow of $10.6 million in 2016. Partially offsetting these impacts is the impact of theincrease in the accrued settlement related to our former Human Services segment of $9.0 million during 2017 as compared to an increase of $6.0million in 2016.•Accrued transportation costs of NET Services generated a cash inflow of $11.2 million in 2017, as compared to a cash inflow of $8.7 million in2016. The increase in cash inflow of $2.6 million is due primarily to the timing of payments to NET Services transportation providers and increasedvolume.•Income taxes payable on sale of business for 2016 includes a cash outflow of $30.2 million related to the sale of our Human Services segment.Investing activities. Net cash provided by investing activities of $0.8 million in 2017 decreased by $323.1 million as compared to 2016. Thedecrease was primarily attributable to $371.6 million of proceeds on the Matrix Transaction recorded in 2016, which was partially offset by the impact of$15.6 million in proceeds from the sale of our equity investment in Mission Providence in 2017. Additionally in 2017, we made a cost method investment inCirculation, a technology-based service provider, for $3.0 million. There was also a decrease in funding of our equity investment in Mission Providence of$13.7 million and a decrease in the purchase of property and equipment of $21.3 million. 2016 included purchases of property and equipment of $9.2 millionby our discontinued operations.Financing activities. Net cash used in financing activities of $33.8 million in 2017 decreased $343.0 million as compared to 2016. During 2016,there was a net repayment of debt of $305.0 million, primarily related to the repayment of debt upon the completion of the Matrix Transaction. Additionally,during 2017, we repurchased $41.0 million less of our Common Stock than in 2016. In addition, there was a decrease in proceeds from Common Stock issuedpursuant to stock option exercises of $2.2 million.2016 cash flows compared to 2015Operating activities. Cash provided by operating activities was $41.8 million for 2016, an increase of $25.7 million compared with 2015. 2016 and2015 cash flow from operations was driven by net income of $89.8 million and $83.2 million, respectively, non-cash adjustments to reconcile net income tonet cash provided by operating activities of negative $32.9 million and negative $1.2 million, respectively, and changes in working capital of negative $15.2million and negative $65.9 million, respectively. The change in adjustments to reconcile net income to net cash provided by operating activities was dueprimarily to the impact of the disposition of HA Services in 2016 and Human Services in 2015, as well as, significant stock-based compensation in 2015 andan asset impairment charge in 2016. The change in working capital is primarily driven by the following:•Accounts receivable generated a cash outflow for 2016 of $19.3 million as compared to an outflow of $86.6 million for 2015. The decrease in cashoutflow of $67.3 million was primarily attributable to timing of significant receivable collections of NET Services, increases in WD Servicesaccounts receivable in 2015 related to additional revenue contracts in place during 2015 as compared to 2014, and a cash outflow related to HumanServices in 2015.•Accounts payable and accrued expenses generated a cash inflow of $33.4 million in 2016, as compared to a cash outflow of $21.9 million in 2015.The increase in cash flow of $55.3 million was primarily attributable to our Human Services segment activity included in 2015, but not in 2016, dueto the sale effective November 1, 2015, as well as a decreased change in accrued compensation between periods.•Deferred revenue generated a cash outflow of $4.0 million in 2016, as compared to a cash inflow of $19.0 million in 2015. The significant cashinflow in 2015 primarily related to WD Services in association with cash received in advance of services being rendered for two large contracts.64•Income taxes payable on sale of business for 2016 includes a cash outflow of $30.2 million related to the sale of our Human Services segment.Investing activities. Net cash provided by investing activities of $323.9 million in 2016 increased by $180.6 million as compared to 2015. Theincrease was primarily attributable to $371.6 million of proceeds on the Matrix Transaction recorded in 2016, which was partially offset by the impact of$199.9 million in proceeds from the sale of our Human Services segment in 2015. There was also an increase in the purchase of property and equipment of$6.1 million from 2015 to 2016.Financing activities. Net cash used in financing activities of $376.8 million in 2016 increased $142.7 million as compared to 2015. During 2016,there was a net repayment of debt of $305.0 million, primarily related to the repayment of debt upon the completion of the Matrix Transaction, compared to anet repayment of debt of $271.1 million in 2015 upon the sale of our Human Services segment. Additionally, during 2016, we repurchased $33.5 millionmore of our Common Stock than in 2015. 2015 includes $80.7 million received from the issuance of preferred stock as well as a contingent considerationpayment of $7.5 million associated with our purchase of Ingeus UK Holdings Limited and its wholly and partly-owned subsidiaries and associates. Obligations and commitments Current Credit Facility The Credit Agreement provides for a revolving credit facility of $200.0 million, $25.0 million of which is available for letters of credit. As ofDecember 31, 2017 we had no borrowings outstanding under the Credit Facility and seven letters of credit in the aggregate amount of $11.1 millionoutstanding. At December 31, 2017, our available credit under the Credit Facility was $188.9 million. The Credit Facility matures on August 2, 2018.Under the Credit Agreement, we have an option to request an increase in the amount of the revolving credit facility and/or the term loan facility fromtime to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additionalcommitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent inits reasonable discretion, so long as no default or event of default exists at the time of any such increase. We may not be able to access additional funds underthis increase option as no lender is obligated to participate in any such increase under the Credit Facility. We may prepay any outstanding principal under the Credit Facility in whole or in part, at any time without premium or penalty, subject toreimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of London Interbank Offered Rate, or LIBOR, loans. Theunutilized portion of the commitments under the Credit Facility may be irrevocably reduced or terminated by us at any time without penalty. Interest on the outstanding principal amount of any loans accrues, at our election, at a per annum rate equal to LIBOR, plus an applicable margin orthe base rate plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% in the case of LIBOR loans and 1.25% to 2.25% in the case of thebase rate loans, in each case, based on our consolidated leverage ratio as defined in the Credit Agreement. Interest on any loans is payable quarterly in arrears.In addition, we are obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the CreditFacility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. Thecommitment fee and letter of credit fee range from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case, based on our consolidated leverage ratio. The Credit Facility also requires us (subject to certain exceptions as set forth in the Amended and Restated Credit Agreement) to prepay theoutstanding loans in an aggregate amount equal to 100% of the net cash proceeds received from certain asset dispositions, debt issuances, insurance andcasualty awards and other extraordinary receipts. The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions onour ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, repurchase shares, sellassets, and merge and consolidate. We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants.The Company’s consolidated net leverage ratio may not be greater than 3.00:1.00 as of the end of any fiscal quarter and the Company’s consolidated interestcoverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. We were in compliance with all covenants as of December 31, 2017.Our obligations under the Credit Facility are guaranteed by all of our present and future domestic subsidiaries, excluding certain domesticsubsidiaries, which includes our insurance captive. Our obligations under, and each guarantor’s obligations under its guaranty of, the Credit Facility aresecured by a first priority lien on substantially all of our respective assets, other than our65equity investment in Matrix, including a pledge of 100% of the issued and outstanding stock of our domestic subsidiaries, excluding our insurance captive,and 65% of the issued and outstanding stock of our first tier foreign subsidiaries. Credit Facility Background On August 2, 2013, we entered into the Credit Agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of creditissuer, SunTrust Bank, as syndication agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as joint leadarrangers and joint book managers and other lenders party thereto. The Credit Agreement provided us with a senior secured credit facility, in aggregateprincipal amount of $225.0 million, comprised of a $60.0 million term loan facility and a $165.0 million revolving credit facility. The Credit Facilityincludes sublimits for swingline loans and letters of credit in amounts of up to $10.0 million and $25.0 million, respectively. On August 2, 2013, weborrowed the entire amount available under the term loan facility and $16.0 million under our revolving credit facility and used the proceeds thereof torefinance certain of our existing indebtedness. On May 28, 2014, we entered into the first amendment to the Credit Agreement (the “First Amendment”). The First Amendment provided for, amongother things, an increase in the aggregate amount of the Credit Facility from $165.0 million to $240.0 million and other modifications in connection with theconsummation of the acquisition of Ingeus. On October 23, 2014, we entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) to (i) add a new term loan tranchein aggregate principal amount of up to $250.0 million to partly finance the acquisition of Matrix and make certain other modifications in connection withthe consummation of the acquisition of Matrix and (ii) add an excess cash flow mandatory prepayment provision. On September 3, 2015, we entered into the Third Amendment to the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment,the lenders under the Credit Agreement consented to Providence’s sale of the Human Services segment and certain other amendments to the terms of theCredit Agreement to reflect such consents.On August 28, 2016, we entered into the Fourth Amendment and Consent (the “Fourth Amendment”) to the Credit Agreement. In accordance withthe Fourth Amendment, which provided for the lenders’ consent to the Matrix Transaction, a portion of the net cash proceeds received by the Company inconnection with the Matrix Transaction were applied to the prepayment of outstanding term loans and revolving loans. Additionally, effective following therepayment of the outstanding term loans in full on October 20, 2016, the Fourth Amendment further (i) reduced the aggregate revolving commitments underthe Credit Agreement to $200.0 million, (ii) amended the consolidated net leverage ratio covenant such that the Company’s consolidated net leverage ratiomay not be greater than 3.00:1.00 as of the end of any fiscal quarter and (iii) replaced the existing consolidated fixed charge coverage ratio covenant with acovenant that the Company’s consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. Rights OfferingWe completed a rights offering on February 5, 2015, allowing all of the Company’s existing common stockholders the non-transferrable right topurchase their pro rata share of $65.5 million of Preferred Stock at a price equal to $100.00 per share (the “Rights Offering”). The Preferred Stock wasconvertible into shares of our Common Stock at a conversion price equal to $39.88, which was the closing price of our Common Stock on the NASDAQGlobal Select Market on October 22, 2014. Stockholders exercised subscription rights to purchase 130,884 shares of the Company’s Preferred Stock. Pursuant to the terms and conditions of theStandby Purchase Agreement between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and BlackwellPartners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining 524,116 shares of the Company’s Preferred Stock was purchased bythe Standby Purchasers at the $100.00 per share subscription price. The Standby Purchasers beneficially owned approximately 94% of our outstandingPreferred Stock after giving effect to the Rights Offering and the Standby Purchase Agreement. The Company received $65.5 million in aggregate grossproceeds from the consummation of the Rights Offering and Standby Purchase Agreement, which it used to repay the related party unsecured subordinatedbridge note that was outstanding as of December 31, 2014. Additionally, on March 12, 2015, the Standby Purchasers exercised their right to purchase an additional 150,000 shares of the Company’sconvertible preferred stock at a $105 per share subscription price. We may pay a noncumulative cash dividend on each share of convertible preferred stock, when, as and if declared by a committee of our Board, atthe rate of 5.5% per annum on the liquidation preference then in effect. Following the issue date of the convertible preferred stock, on or before the thirdbusiness day immediately preceding each fiscal quarter, we determine our66intention whether or not to pay a cash dividend with respect to that ensuing quarter and give notice of our intention to each holder of convertible preferredstock as soon as practicable thereafter. In the event we do not declare and pay a cash dividend, the liquidation preference will be increased to an amount equal to the liquidation preferencein effect at the start of the applicable dividend period, plus an amount equal to such then applicable liquidation preference multiplied by 8.5% per annum,computed on the basis of a 365-day year and the actual number of days elapsed from the start of the applicable dividend period to the applicable date ofdetermination. Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and, if declared, will begin to accrue on thefirst day of the applicable dividend period. Payment in kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as set forthabove for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paidupon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the convertible preferred stock. Cash dividends weredeclared each quarter for the years ended December 31, 2017 and 2016 and totaled $4.4 million each year. Reinsurance and Self-Funded Insurance Programs Reinsurance We historically reinsured a substantial portion of our automobile, general and professional liability and workers’ compensation costs underreinsurance programs primarily through our wholly-owned captive insurance subsidiary, Social Services Providers Captive Insurance Company, or SPCIC. Asof May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCIC will continue to resolve claims under the historical policy years. At December 31, 2017, the cumulative reserve for expected losses since inception of these historical automobile, general and professional liabilityand workers’ compensation reinsurance programs was $1.1 million, $0.7 million and $5.0 million, respectively. Based on an independent actuarial report, ourexpected losses related to workers’ compensation, automobile and general and professional liability in excess of our liability under our associated historicalreinsurance programs at December 31, 2017 was $5.7 million. We recorded a corresponding receivable from third-party insurers and liability at December 31,2017 for these expected losses, which would be paid by third-party insurers to the extent losses are incurred. Further, we had restricted cash of $6.3 million and $14.1 million at December 31, 2017 and December 31, 2016, respectively, which was primarilyrestricted to secure the reinsured claims losses under the historical automobile, general and professional liability and workers’ compensation reinsuranceprograms.Health Insurance We offer our NET Services, U.S. based WD Services, and corporate employees an option to participate in self-funded health insurance programs.Additionally, we historically offered this option to our HA Services and Human Services segments’ employees. During the year ended December 31, 2017,health claims were self-funded with a stop-loss umbrella policy with a third-party insurer to limit the maximum potential liability for individual claimsgenerally to $275,000 per person, subject to an aggregating stop-loss limit of $400,000. In addition, the program has a total stop-loss limit for total claims, inorder to limit our exposure to catastrophic claims.Health insurance claims are paid as they are submitted to the plan administrator. We maintain accruals for claims that have been incurred but not yetreported to the plan administrator, and therefore, have not been paid. The incurred but not reported reserve is based on an established cap and currentpayment trends of health insurance claims. The liability for the self-funded health plan of $2.2 million and $3.0 million as of December 31, 2017 and 2016,respectively, was recorded in “Reinsurance liability and related reserve” in our consolidated balance sheets.We charge our employees a portion of the costs of our self-funded group health insurance programs. We determine this charge at the beginning ofeach plan year based upon historical and projected medical utilization data. Any difference between our projections and our actual experience is borne by us,up to the stop-loss limit. We estimate potential obligations for liabilities under this program to reserve what we believe to be a sufficient amount to coverliabilities based on our past experience. Any significant increase in the number of claims or costs associated with claims made under this program above whatwe reserve could have a material adverse effect on our financial results. 67Contractual cash obligations. The following is a summary of our future contractual cash obligations as of December 31, 2017: At December 31, 2017 Less than1-33-5After 5Contractual cash obligations (000's)Total1 YearYearsYearsYearsCapital Leases$2,984$2,400 $584 $— $—Interest (1)467467 — — —Purchased services commitments (2)8,4482,966 5,482 — —Guarantees (3)43,28742,768 519 — —Letters of credit (3)11,07411,074 — — —Operating Leases (4)62,09220,875 23,114 14,164 3,939Total$128,352$80,550$29,699$14,164$3,939 (1)Future interest payments have been calculated at the current rates as of December 31, 2017.(2)Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors. These minimum obligations areless than our projected use for those periods. Payments may be more than the minimum obligations based on actual use.(3)Guarantees and letters of credit (“LOCs”) are commitments that represent funding responsibilities that may require our performance in the event ofthird-party demands or contingent events. Guarantees include surety bonds we provide to certain customers to protect against potential non-deliveryof our non-emergency transportation services. Of the outstanding balance of our stand-by LOCs, $11.1 million directly reduces the amount availableto us from our Credit Facility. The surety bonds and LOC amounts in the above table represent the amount of commitment expiration per period.(4)The operating leases are for office space and related office equipment. We account for these leases on a monthly basis. Certain leases containperiodic rent escalation adjustments and renewal options.Other than the items described above, we do not have any off-balance sheet arrangements as of December 31, 2017.Stock repurchase programs On November 4, 2015, our Board authorized us to engage in a repurchase program to repurchase up to $70.0 million in aggregate value of ourCommon Stock during the twelve-month period following November 4, 2015. This plan terminated on November 3, 2016. A total of 1,360,249 shares werepurchased through this plan for $63.0 million, excluding commission payments. On October 26, 2016, our Board authorized us to engage in a repurchase program to repurchase up to $100.0 million in aggregate value of ourCommon Stock during the twelve-month period following October 26, 2016. As of October 26, 2017, we spent $30.4 million, excluding commissionpayments, to purchase 770,808 shares of our Common Stock under this plan.On November 2, 2017, the Board approved the extension of the Company’s existing stock repurchase program, authorizing the Company to engagein a repurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorized in 2016) inaggregate value of our Common Stock through December 31, 2018. As of December 31, 2017, 180,270 shares were purchased under this plan for $10.5million, excluding commission payments, after it was extended on November 2, 2017. In addition, during the period January 1, 2018 to March 5, 2018, theCompany repurchased an additional 527,825 shares for $33.3 million, and $25.8 million was available under the plan to repurchase shares.Purchases under the repurchase program may be made from time-to-time through a combination of open market repurchases (including Rule 10b5-1plans), privately negotiated transactions, and accelerated share repurchase transactions, at the discretion of our officers, and as permitted by securities laws,covenants under existing bank agreements, and other legal requirements.68Off-balance sheet arrangements As of December 31, 2017 and 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities referredto as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. New Accounting Pronouncements The new accounting pronouncements that impact our business are included in Note 2, Significant Accounting Policies and Recent AccountingPronouncements, to our consolidated financial statements and are incorporated herein by reference. Item 7A.Quantitative and Qualitative Disclosures About Market Risk. Foreign currency risk As of December 31, 2017, we conducted business in 10 countries outside the U.S. As such, our cash flows and earnings are subject to fluctuationsfrom changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. For 2017, we generated$288.5 million of our net operating revenues from operations outside the U.S. A 10% reduction in the foreign currency exchange rate from British Pounds to U.S. dollars would have a $18.8 million negative impact onconsolidated revenue, and a negligible impact on net income. A 10% reduction in other foreign currency exchange rates would not have a significant impacton our financial results. We assess the significance of foreign currency risk on a periodic basis and may implement strategies to manage such risk as we deem appropriate.69Item 8.Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Management’s Report on Internal Control Over Financial Reporting71 Reports of Independent Registered Public Accounting Firm72 Consolidated Balance Sheets at December 31, 2017 and 201674 For the years ended December 31, 2017, 2016 and 2015: Consolidated Statements of Income75 Consolidated Statements of Comprehensive Income76 Consolidated Statements of Stockholders’ Equity77 Consolidated Statements of Cash Flows78 Notes to Consolidated Financial Statements8070Management’s Report on Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the registrant, assuch term is defined in Rule 13a-15(f) of the Exchange Act. We designed our internal control over financial reporting to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that couldhave a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financialstatement preparation and presentation. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controlsmust be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occurand not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company conducts periodic evaluations of itsinternal controls to enhance, where necessary, its procedures and controls. The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financialofficer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the criteriaset forth in the Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based onsuch evaluation, the Company concluded that its internal control over financial reporting was effective as of December 31, 2017. KPMG LLP, an independent registered public accounting firm that audited the Company’s consolidated financial statements included in thisAnnual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting which is presented inPart II, Item 8 of this Annual Report on Form 10-K.71Report of Independent Registered Public Accounting Firm To the stockholders and board of directorsThe Providence Service Corporation:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of The Providence Service Corporation and subsidiaries (the “Company”) as ofDecember 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each ofthe years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the “consolidatedfinancial statements”). In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for eachof the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theCompany’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 9, 2018 expressed anunqualified opinion on the effectiveness of the Company’s internal control over financial reporting. We did not audit the financial statements of Mercury Parent, LLC, (a 46.6 percent owned investee company) as of and for the year ended December 31,2017. The Company’s investment in Mercury Parent, LLC at December 31, 2017 was $169.7 million, and its equity in net gain of Mercury Parent, LLCwas $13.4 million for the year ended December 31, 2017. The financial statements of Mercury Parent, LLC were audited by other auditors whose reporthas been furnished to us, and our opinion, insofar as it relates to the amounts included for Mercury Parent, LLC, is based solely on the report of the otherauditors.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independentwith respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditsincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of theother auditors provide a reasonable basis for our opinion./s/ KPMG LLPWe have served as the Company’s auditor since 2008.Stamford, ConnecticutMarch 9, 201872Report of Independent Registered Public Accounting Firm To the stockholders and board of directorsThe Providence Service Corporation:Opinion on Internal Control Over Financial ReportingWe have audited The Providence Service Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedbalance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II(collectively, the “consolidated financial statements”), and our report dated March 9, 2018 expressed an unqualified opinion on those consolidated financialstatements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ KPMG LLPStamford, ConnecticutMarch 9, 201873The Providence Service CorporationConsolidated Balance Sheets(in thousands except share and per share data) December 31, 2017 2016Assets Current assets: Cash and cash equivalents$95,310 $72,262Accounts receivable, net of allowance of $5,762 in 2017 and $5,901 in 2016158,926 162,115Other receivables5,759 12,639Prepaid expenses and other35,243 37,895Restricted cash1,091 3,192Total current assets296,329 288,103Property and equipment, net50,377 46,220Goodwill121,668 119,624Intangible assets, net43,939 49,124Equity investments169,912 161,363Other assets12,028 8,397Restricted cash, less current portion5,205 10,938Deferred tax asset4,632 1,510Total assets$704,090 $685,279Liabilities, redeemable convertible preferred stock and stockholders' equity Current liabilities: Current portion of long-term obligations$2,400 $1,721Accounts payable15,404 22,177Accrued expenses103,838 102,381Accrued transportation costs83,588 72,356Deferred revenue17,381 20,522Reinsurance and related liability reserves4,319 8,639Total current liabilities226,930 227,796Long-term obligations, less current portion584 1,890Other long-term liabilities21,386 22,380Deferred tax liabilities41,627 57,973Total liabilities290,527 310,039Commitments and contingencies (Note 18) Redeemable convertible preferred stock Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,200 and 803,398 issued and outstanding;5.5%/8.5% dividend rate77,546 77,565Stockholders' equity Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,473,598 and 17,315,661 issued and outstanding (includingtreasury shares)17 17Additional paid-in capital313,955 302,010Retained earnings204,818 156,718Accumulated other comprehensive loss, net of tax(25,805) (33,449)Treasury shares, at cost, 4,126,132 and 3,478,676 shares(154,803) (125,201)Total Providence stockholders' equity338,182 300,095Noncontrolling interest(2,165) (2,420)Total stockholders' equity336,017 297,675Total liabilities, redeemable convertible preferred stock and stockholders' equity$704,090 $685,279 See accompanying notes to the consolidated financial statements74The Providence Service CorporationConsolidated Statements of Income(in thousands except share and per share data) Year ended December 31, 2017 2016 2015 Service revenue, net$1,623,882 $1,578,245 $1,478,010 Operating expenses: Service expense1,489,044 1,452,110 1,381,154General and administrative expense72,336 69,911 70,986Asset impairment charge— 21,003 —Depreciation and amortization26,469 26,604 23,998Total operating expenses1,587,849 1,569,628 1,476,138Operating income36,033 8,617 1,872 Other expenses: Interest expense, net1,278 1,583 1,853Other income(5,363) — —Equity in net (gain) loss of investees(12,054) 10,287 10,970Gain on sale of equity investment(12,377) — —Loss (gain) on foreign currency transactions345 (1,375) (857)Income (loss) from continuing operations before income taxes64,204 (1,878) (10,094)Provision for income taxes4,401 17,036 14,583Income (loss) from continuing operations, net of tax59,803 (18,914) (24,677)Discontinued operations, net of tax(5,983) 108,760 107,871Net income53,820 89,846 83,194Net (gain) loss attributable to noncontrolling interests(451) 2,082 502Net income attributable to Providence$53,369 $91,928 $83,696 Net income available to common stockholders (Note 14)$41,865 $74,374 $67,999 Basic earnings (loss) per common share: Continuing operations$3.52 $(1.45) $(1.83)Discontinued operations(0.44) 6.52 6.09Basic earnings per common share$3.08 $5.07 $4.26 Diluted earnings (loss) per common share: Continuing operations$3.50 $(1.45) $(1.83)Discontinued operations(0.44) 6.52 6.09Diluted earnings per common share$3.06 $5.07 $4.26 Weighted-average number of common shares outstanding: Basic13,602,140 14,666,896 15,960,905Diluted13,673,314 14,666,896 15,960,905 See accompanying notes to the consolidated financial statements75The Providence Service CorporationConsolidated Statements of Comprehensive Income(in thousands) Year ended December 31, 2017 2016 2015Net income$53,820 $89,846 $83,194Net loss (income) attributable to noncontrolling interest(451) 2,082 502Net income attributable to Providence53,369 91,928 83,696Other comprehensive income (loss): Foreign currency translation adjustments, net of tax7,117 (16,618) (8,075)Reclassification of translation loss realized upon sale of equity investment527 — —Other comprehensive income (loss)7,644 (16,618) (8,075)Comprehensive income61,464 73,228 75,119Comprehensive loss (income) attributable to noncontrolling interest(255) 1,968 508Comprehensive income attributable to Providence$61,209 $75,196 $75,627 See accompanying notes to the consolidated financial statements76The Providence Service CorporationConsolidated Statements of Stockholders' Equity (in thousands except share data) Retained AccumulatedOther Common Stock AdditionalPaid-In Earnings(Accumulated ComprehensiveLoss, Net of Treasury Stock Non-Controlling Shares Amount Capital Deficit) Tax Shares Amount Interest TotalBalance at December 31, 201416,870,285 $17 $261,155 $(13,366) $(8,756) 1,014,108 $(17,686) $50 $221,414Stock-based compensation— — 26,622 — — — — — 26,622Exercise of employee stock options,including net tax benefit of $2,706247,333 — 7,899 — — 5,718 (299) — 7,600Restricted stock issued65,447 — — — — 15,961 (759) — (759)Stock repurchase— — — — — 816,468 (34,111) — (34,111)Shares surrendered by employees to payemployee taxes related to shares releasedfrom escrow— — — — — 43,743 (1,968) — (1,968)Conversion of convertible preferred stockto common stock3,715 — 150 — — — — — 150Beneficial conversion feature related topreferred stock— — 1,071 — — — — — 1,071Convertible preferred stock dividends— — (2,814) (1,121) — — — — (3,935)Accretion of convertible preferred stockdiscount— — (1,071) — — — — — (1,071)Foreign currency translation adjustments,net of tax— — — — (8,075) — — — (8,075)Noncontrolling interests— — — — — — — (502) (502)Net income attributable to Providence— — — 83,696 — — — — 83,696Balance at December 31, 201517,186,780 17 293,012 69,209 (16,831) 1,895,998 (54,823) (452) 290,132Stock-based compensation— — 5,154 — — — — — 5,154Exercise of employee stock options,including net tax benefit of $276105,788 — 3,832 — — — — — 3,832Restricted stock issued22,793 — — — — 2,736 (130) — (130)Stock repurchase— — — — — 1,579,942 (70,248) — (70,248)Conversion of convertible preferred stockto common stock300 — 12 — — — — — 12Convertible preferred stock dividends— — — (4,419) — — — — (4,419)Foreign currency translation adjustments,net of tax— — — — (16,618) — — 114 (16,504)Noncontrolling interests— — — — — — — (2,082) (2,082)Net income attributable to Providence— — — 91,928 — — — — 91,928Balance at December 31, 201617,315,661 17 302,010 156,718 (33,449) 3,478,676 (125,201) (2,420) 297,675Stock-based compensation— — 7,619 — — — — — 7,619Exercise of employee stock options91,400 — 2,423 — — 5,665 (238) — 2,185Restricted stock issued36,623 — — — — 19,556 (878) — (878)Performance restricted stock issued3,773 — (96) — — — — — (96)Shares issued for bonus settlement anddirector stipends25,646 — 1,107 — — — — — 1,107Stock repurchase— — — — — 622,235 (28,486) — (28,486)Conversion of convertible preferred stockto common stock495 — 20 (1) — — — — 19Convertible preferred stock dividends— — — (4,418) — — — — (4,418)Foreign currency translation adjustments,net of tax— — — — 7,117 — — (196) 6,921Reclassification of translation lossrealized upon sale of equity investments— — — — 527 — — — 527Noncontrolling interests— — — — — — — 451 451Other— — 22 — — — — — 22Net income attributable to Providence— — — 53,369 — — — — 53,369Cumulative effect adjustment from changein accounting principle— — 850 (850) — — — — —Balance at December 31, 201717,473,598 $17 $313,955 $204,818 $(25,805) 4,126,132 $(154,803) $(2,165) $336,017 See accompanying notes to the consolidated financial statements77The Providence Service Corporation Consolidated Statements of Cash Flows(in thousands) Year ended December 31, 2017 2016 2015Operating activities Net income$53,820 $89,846 $83,194Adjustments to reconcile net income to net cash provided by operating activities: Depreciation18,542 21,699 20,234Amortization7,927 26,026 38,067Provision for doubtful accounts1,372 3,759 2,539Stock-based compensation7,543 5,136 26,622Deferred income taxes(22,996) (14,130) (10)Amortization of deferred financing costs and debt discount682 1,754 2,041Write-off of deferred financing charges— 2,302 —Gains on remeasurement of contingent consideration— — (2,469)Asset impairment charge— 21,003 1,593Equity in net (gain) loss of investee(12,054) 10,287 10,970Gain on sale of equity investment(12,377) — —Gain on sale of business— (167,895) (123,129)Deferred income taxes and income taxes payable on gain on sale of business— 58,492 22,797Other non-cash charges (credits)296 (1,323) (419)Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable5,715 (19,332) (86,627)Prepaid expenses and other15,457 (4,058) 14,654Reinsurance liability reserve(5,731) (4,110) (611)Accounts payable and accrued expenses(9,064) 33,365 (21,900)Income taxes payable on gain from sale of business— (30,153) —Accrued transportation costs11,232 8,654 9,045Deferred revenue(4,691) (4,019) 19,043Other long-term liabilities(629) 4,462 463Net cash provided by operating activities55,044 41,765 16,097Investing activities Purchase of property and equipment(19,923) (41,216) (35,072)Proceeds from sale of property— 1,039 —Proceeds from sale of equity investment15,593 — —Acquisitions, net of cash acquired— — (3,433)Sale of business, net of cash sold— 371,580 199,943Purchase of equity investment— (13,663) (16,072)Purchase of cost method investments(3,000) — —Restricted cash for reinsured claims losses7,834 5,926 (2,058)Other investing activities310 239 (18)Net cash provided by investing activities814 323,905 143,290Financing activities Proceeds from issuance of preferred stock, net of issuance costs— — 80,667Preferred stock dividends(4,418) (4,419) (3,928)Repurchase of common stock, for treasury(29,364) (70,378) (36,838)Proceeds from common stock issued pursuant to stock option exercise1,921 4,108 4,894Proceeds from long-term debt— 52,500 34,000Repayment of long-term debt— (357,450) (305,125)Payment of contingent consideration— — (7,496)Other financing activities(1,927) (1,182) (286)Net cash used in financing activities(33,788) (376,821) (234,112)Effect of exchange rate changes on cash978 (1,357) (911)Net change in cash23,048 (12,508) (75,636)Cash at beginning of period72,262 84,770 160,406Cash at end of period$95,310 $72,262 $84,770 See accompanying notes to the consolidated financial statements78The Providence Service CorporationSupplemental Cash Flow Information(in thousands) Year ended December 31,Supplemental cash flow information2017 2016 2015 Cash included in current assets of discontinued operations held for sale$— $— $5,014Cash paid for interest$987 $9,768 $16,699Cash paid for income taxes$18,128 $55,827 $21,555Proceeds receivable from option exercise$562 $— $—Purchases of equipment in accounts payable and accrued liabilities$1,362 $983 $930Accrued unfunded future equity investment capital contributions$— $— $4,654Note receivable issued for sale of property$— $3,130 $—Purchase of equipment through capital lease obligation$1,474 $4,547 $—Acquisitions: Purchase price$— $— $—Less: Working capital adjustments to purchase price— — (3,433)Acquisitions, net of cash acquired$— $— $3,433 See accompanying notes to the consolidated financial statements79The Providence Service CorporationNotes to Consolidated Financial StatementsDecember 31, 2017(in thousands except share and per share data) 1. Organization and Basis of Presentation Description of BusinessThe Providence Service Corporation (“we”, the “Company” or “Providence”) owns subsidiaries and investments primarily engaged in the provisionof healthcare services in the United States and workforce development services internationally. The subsidiaries and other investments in which theCompany holds interests comprise the following segments:•Non-Emergency Transportation Services (“NET Services”) – Nationwide manager of non-emergency medical transportation (“NET”) programs forstate governments and managed care organizations.•Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement services, legal offenderrehabilitation services, youth community service programs and certain health related services to eligible participants of government sponsoredprograms.•Matrix Investment – Minority interest in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”), a nationwide provider of in-home careoptimization and management solutions, including comprehensive health assessments (“CHAs”), to members of managed care organizations,accounted for as an equity method investment. On February 16, 2018, Matrix acquired HealthFair, expanding its service offerings to include mobilehealth assessments, advanced diagnostic testing, and additional care optimization services.In addition to its segments’ operations, the Corporate and Other segment includes the Company’s activities at its corporate office that includeexecutive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions and the results of theCompany’s captive insurance company.Discontinued OperationsDuring the periods presented, the Company completed the following transactions, which resulted in the presentation of the operations asDiscontinued Operations. On November 1, 2015, the Company completed the sale of its Human Services segment. In addition to the results through the saledate, the Company has recorded additional expenses related to legal proceedings as described in Note 18, Commitment and Contingencies, related to anindemnified legal matter. On October 19, 2016, affiliates of Frazier Healthcare Partners purchased a 53.2% equity interest in Matrix with Providence retaininga 46.8% equity interest (the “Matrix Transaction”). Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in theCompany’s Health Assessment Services (“HA Services”) segment. Basis of Presentation The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accountingprinciples generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) underauthority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these footnotes areto the FASB Accounting Standards Codification (“ASC”), which serves as a single source of authoritative non-SEC accounting and reporting standards to beapplied by non-governmental entities. All amounts are presented in U.S. dollars, unless otherwise noted.The Company holds investments that are accounted for using the equity method. The Company does not control the decision-making process orbusiness management practices of these affiliates. While the Company has access to certain information and performs certain procedures to review thereasonableness of information, the Company relies on management of these affiliates to provide accurate financial information prepared in accordance withGAAP. The Company receives audit reports relating to such financial information from the significant affiliates’ independent auditors on an annual basis.The Company is not aware of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a materialeffect on the Company’s consolidated financial statements. 80Reclassifications The Company has reclassified certain amounts relating to its prior period results to conform to its current period presentation. See Note 2, SignificantAccounting Policies and Recent Accounting Pronouncements, for additional information on other reclassifications. 2. Significant Accounting Policies and Recent Accounting Pronouncements Principles of Consolidation The accompanying consolidated financial statements include The Providence Service Corporation, its wholly-owned subsidiaries, and entities itcontrols, or in which it has a variable interest and is the primary beneficiary of expected cash profits or losses. The Company records its investments inentities that it does not control, but over which it has the ability to exercise significant influence, using the equity method. The Company has eliminatedsignificant intercompany transactions and accounts. Accounting Estimates The Company uses estimates and assumptions in the preparation of the consolidated financial statements in accordance with GAAP. Those estimatesand assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Company’sconsolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. The Company’sactual financial results could differ significantly from these estimates. The significant estimates underlying the Company’s consolidated financial statementsinclude revenue recognition; allowance for doubtful accounts; accrued transportation costs; accrued restructuring; income taxes; recoverability of currentand long-lived assets, including equity method investments; intangible assets and goodwill; loss contingencies; accounting for business combinations,including amounts assigned to definite and indefinite lived intangibles and contingent consideration; loss reserves for reinsurance and self-funded insuranceprograms; and stock-based compensation. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. Investments incash equivalents are carried at cost, which approximates fair value. The Company places its temporary cash investments with high credit quality financialinstitutions. At times, such investments may be in excess of the federally insured limits. At December 31, 2017 and 2016, $40,127 and $21,411, respectively, of cash was held in foreign countries. Such cash is generally used to fundforeign operations, although it may be used also to repay intercompany indebtedness or similar arrangements. As of December 31, 2017, cash held in foreigncountries included approximately $15,593 of proceeds from the sale of the Company's joint venture Mission Providence Pty Ltd ("Mission Providence").Restricted Cash At December 31, 2017 and 2016, the Company had $6,296 and $14,130, respectively, of restricted cash: December 31, 2017 2016Collateral for letters of credit - Reinsured claims losses$— $2,265Escrow/Trust - Reinsured claims losses6,296 11,865Restricted cash for reinsured claims losses6,296 14,130Less current portion1,091 3,192Restricted cash, less current portion$5,205 $10,938 Of the restricted cash amount at December 31, 2017 and 2016:•$0 and $2,265, respectively, served as collateral for irrevocable standby letters of credit to secure any reinsured claims losses under theCompany’s reinsurance program;81•the remaining $6,296 and $11,865, respectively, is primarily related to restricted cash held in trusts for reinsurance claims losses under theCompany’s historical workers’ compensation, general and professional liability and auto liability reinsurance programs, as well as amountsrestricted for withdrawal under our self-insured medical and benefits plans. Accounts Receivable and Allowance for Doubtful AccountsThe Company records accounts receivable amounts at the contractual amount, less an allowance for doubtful accounts. The Company maintains anallowance for doubtful accounts at an amount it estimates to be sufficient to cover the risk that an account will not be collected. The Company regularlyevaluates its accounts receivable, especially receivables that are past due, and reassesses its allowance for doubtful accounts based on identified customercollection issues. In circumstances where the Company is aware of a customer’s inability to meet its financial obligation, the Company records a specificallowance for doubtful accounts to reduce its net recognized receivable to an amount the Company reasonably expects to collect. The Company alsoprovides a general allowance, based upon historical experience. Under certain contracts of NET Services, final payment is based on a reconciliation of actualutilization and cost, and the final reconciliation may require a considerable period of time. As of December 31, 2017 and 2016, accounts receivable underthese reconciliation contracts totaled $42,054 and $45,287, respectively. In addition, certain government entities which WD Services serves remit paymentsubstantially beyond the payment terms. The Company monitors these amounts due to the aging of receivables, but generally believes the balances arecollectible. However, factors within those government entities could change and there can be no assurance that such changes would not result in an inabilityto collect the receivables.The Company’s provision for doubtful accounts expense from continuing operations for the years ended December 31, 2017, 2016 and 2015 was$1,372, $2,892 and $1,369, respectively. Property and Equipment Property and equipment are stated at historical cost, net of accumulated depreciation, or at fair value if the assets were initially recorded as the resultof a business combination or if the asset was remeasured due to an impairment. Depreciation is calculated using the straight-line method over the estimateduseful life of the asset. Maintenance and repairs are expensed as incurred. Gains and losses resulting from the disposition of an asset are reflected in operatingexpense.Recoverability of Goodwill In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews goodwill for impairment annually, or more frequently, if eventsand circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significantcontracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by aregulator, or (5) a significant decline in the Company’s stock price. We perform the annual goodwill impairment test for all reporting units as of October 1.First, we perform qualitative assessments for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unitis less than its carrying amount. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than itscarrying value amount, then we perform a quantitative assessment and compare the fair value of the reporting unit to its carrying value.We adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”)effective April 1, 2017. ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two ofthe goodwill impairment test. Instead, if we deem it necessary to perform the quantitative goodwill impairment test in an annual or interim period, werecognize an impairment charge equal to the excess, if any, of a reporting unit’s carrying amount over its fair value, not to exceed the total amount ofgoodwill allocated to the reporting unit. The Company estimates the fair value of the Company’s reporting units using either an income approach, a market valuation approach, a transactionvaluation approach or a blended approach. The income approach produces an estimated fair value of a reporting unit based on the present value of the cashflows the Company expects the reporting unit to generate in the future. Estimates included in the discounted cash flow model include the discount rate,which the Company determines based on adjusting an industry-wide weighted-average cost of capital for size, geography, and company specific risk factors,long-term rates of growth and profitability of the Company’s business, working capital effects and planned capital expenditures. The market approachproduces an estimated fair value of a reporting unit based on a comparison of the reporting unit to comparable publicly traded entities in similar lines ofbusiness. The transaction valuation approach produces an estimated fair value of a reporting unit82based on a comparison of the reporting unit to publicly available transactional data involving both publicly traded and private entities in similar lines ofbusiness. The Company’s significant estimates in both the market and transaction approach include the selected similar companies with comparable businessfactors such as size, growth, profitability, risk and return on investment and the multiples the Company applies to revenue and earnings before interest, taxes,depreciation and amortization (“EBITDA”) to estimate the fair value of the reporting unit. As discussed in Note 6, Goodwill and Intangibles, the Company determined that goodwill was impaired for the WD Services segment during theyear ended December 31, 2016, and the Company recorded an asset impairment charge related to its goodwill of $5,224. The Company did not record anyimpairment charges for the year ended December 31, 2017. The Company recorded $1,593 of impairment charges related to its Human Services segmentduring the year ended December 31, 2015, which is included in "Discontinued operations, net of tax" in the consolidated statements of income. Recoverability of Intangible Assets Subject to Amortization and Other Long-Lived Assets Intangible assets subject to amortization and other long-lived assets are carried at cost and are amortized or depreciated on a straight-line basis overtheir estimated useful lives of 5 to 15 years. In accordance with ASC 360, Property, Plant, and Equipment, the Company reviews the carrying value of long-lived assets or groups of assets to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets may beimpaired. Factors that may necessitate an impairment assessment include, among others, significant adverse changes in the extent or manner in which an assetor group of assets is used, significant adverse changes in legal factors or the business climate that could affect the value of an asset or group of assets orsignificant declines in the observable market value of an asset or group of assets. The presence or occurrence of those events indicates that an asset or groupof assets may be impaired. In those cases, the Company assesses the recoverability of an asset or group of assets by determining whether the carrying value ofthe asset or group of assets exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assetsover the remaining economic life of the asset or the primary asset in the group of assets. If such testing indicates the carrying value of the asset or group ofassets is not recoverable, the Company estimates the fair value of the asset or group of assets using appropriate valuation methodologies, which wouldtypically include an estimate of discounted cash flows. If the fair value of those assets or groups of assets is less than carrying value, the Company records animpairment loss equal to the excess of the carrying value over the estimated fair value. As discussed in Note 6, Goodwill and Intangibles, the Companydetermined that the WD Services segment’s intangible assets and property and equipment were impaired during the year ended December 31, 2016, and theCompany recorded asset impairment charges of $9,983 and $4,381 to property and equipment and customer relationship intangible assets, respectively. TheCompany did not record any impairment charges for the years ended December 31, 2017 and 2015.Accrued Transportation Costs Eligible members of our customers schedule transportation through the Company’s central reservation system. NET Services generally contractswith third-party providers to provide the transportation. The cost of transportation is recorded in the month the services are rendered, based upon contractualrates and mileage estimates. Transportation providers provide invoices once the trip is completed. Any trips that have not been invoiced require an accrual,based upon the expected cost as well as an estimate for cancellations, as the Company is generally only obligated to pay the transportation provider forcompleted trips. These estimates are based upon the historical trend associated with each contract’s population and the transportation provider networkservicing the program. There may be differences between actual invoiced amounts and estimated costs, and any resulting adjustments are included inexpense. Accrued transportation costs were $83,588 and $72,356 at December 31, 2017 and 2016, respectively. Deferred Financing Costs and Debt Discounts The Company capitalizes direct expenses incurred in connection with its credit facilities and other borrowings, and amortizes such expenses overthe life of the respective credit facility or other borrowings. Fees charged by lenders on the revolving facility and all fees charged by third parties are recordedas deferred financing costs and fees charged by lenders on term loans are recorded as a debt discount. Deferred financing costs, net of amortization, totaling$388 and $1,070 as of December 31, 2017 and 2016, respectively, are included in “Prepaid expenses and other” and “Other assets”, respectively, on theconsolidated balance sheet as there were no borrowings outstanding under the Company’s credit facility. Revenue Recognition The Company recognizes revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists,services have been rendered, the price is fixed or determinable and collectability is reasonably assured. 83NET Services Capitated contracts. The majority of NET Services revenue is generated under capitated contracts with customers where the Company assumes theresponsibility of meeting the covered transportation requirements of a specific geographic population based on per-member per-month fees for the number ofmembers in the customer’s program. Revenue is recognized based on the population served during the period. In some capitated contracts, partial payment isreceived as a prepayment during the month service is provided. These partial payments may be due back to the customer, or additional payments may be dueto the Company, after each reconciliation period, based on a reconciliation of actual utilization and cost compared to the prepayment made. Fee for service contracts. Revenues earned under fee for service (“FFS”) contracts are based upon contractually established billing rates. Revenuesare recognized when the service is provided based upon contractual amounts. Flat fee contracts. Revenues earned under flat fee contracts are recognized ratably over the covered service period based upon contractuallyestablished fees which do not fluctuate with any changes in the membership population who are eligible to receive the transportation services. For most contracts, the Company arranges for transportation of members through its network of independent transportation providers, whereby itremits payment to the transportation providers. However, for certain contracts, the Company only provides administrative management services to supportthe customers’ efforts to serve its clients, and the amount of revenue recognized is based upon the management fee earned. WD Services WD Services revenues are primarily generated from providing workforce development and offender rehabilitation services, both of which includeemployment preparation and placement, apprenticeship and training, youth community service programs and certain health related services to clients onbehalf of governmental and private entities. While the specific terms vary by contract and country, the Company often receives four types of revenue streamsunder contracts with government entities: referral/attachment fees, job placement/job outcome fees, sustainment fees and incentive fees. Referral/attachmentfees are typically upfront payments that are payable when a client is referred by the contracting government entity or that client enters the program. Jobplacement fees are typically payable when a client is employed. Job outcome fees are typically payable when a client attains and holds employment for aspecified minimum period of time. Sustainment fees are typically payable when clients maintain a job outcome past specified employment tenure milestones.Incentive fees are generally based upon a calculation that includes a variety of factors and inputs, such as average sustainment rates and client referral rates.Incentive fees vary greatly by contract.Referral/attachment fee revenue is recognized ratably over the period of service, based upon an estimated period of time general services will beprovided (i.e. the person is placed in a job or reaches the maximum time period for the program). The estimated period of time services will be rendered isbased upon historical data. Job placement, job outcome and sustainment fee revenue is recognized when certain milestones are achieved, and amountsbecome billable. Incentive fee revenue is generally recognized when fixed and determinable, frequently at the end of the cumulative calculation period,unless contractual terms allow for earned payments on a fixed or ratable basis. Revenue is also earned under fixed FFS arrangements, based upon contractual rates established at the outset of the contract or the applicable contractyear, although the rate may be prospectively adjusted during the contract year based upon actual volumes. If the rate is adjusted but the Company is unable to adjust its costs accordingly, or if the volume or types of referrals are lower than estimated, ourprofitability may be negatively impacted. Volume levels are typically not guaranteed under contracts. Deferred Revenue At times we may receive funding for certain services in advance of services being rendered. These amounts are reflected in the consolidated balancesheets as “Deferred revenue” until the services are rendered. Stock-Based Compensation The Company follows the fair value recognition provisions of ASC Topic 718 – Compensation – Stock Compensation (“ASC 718”), which requirescompanies to measure and recognize compensation expense for all share based payments at fair value.84•The Company calculates the fair value of stock options using the Black-Scholes option-pricing formula. The fair value of non-vestedrestricted stock grants is determined based on the closing market price of the Company’s Common Stock on the date of grant. Stock-basedcompensation expense charged against income for stock options and stock grants is based on the grant-date fair value. Forfeitures arerecorded as they occur. The expense for stock-based compensation awards is amortized on a straight-line basis over the requisite serviceperiod, which is typically the vesting period.•The Company records restricted stock units (“RSUs”) that may be settled by the holder in cash, rather than shares, as a liability andremeasures these liabilities at fair value at the end of each reporting period. Upon settlement of these awards, the total compensationexpense recorded over the vesting period of the awards will equal the settlement amount, which is based on the Company’s stock price onthe settlement date.•Performance-based RSUs vest upon achievement of certain company specific performance conditions. On the date of grant, the Companydetermines the fair value of the performance-based award using the fair value of the Company’s Common Stock at that time and it assesseswhether it is probable that the performance targets will be achieved. If assessed as probable, the Company records compensation expense forthese awards over the requisite service period. At each reporting period, the Company reassesses the probability of achieving theperformance targets and the performance period required to meet those targets. The estimation of whether the performance targets will beachieved and of the performance period required to achieve the targets requires judgment, and to the extent actual results or updatedestimates differ from the Company’s current estimates, the cumulative effect on current and prior periods of those changes will be recordedin the period estimates are revised, or the change in estimate will be applied prospectively depending on whether the change affects theestimate of total compensation cost to be recognized or merely affects the period over which compensation cost is to be recognized. Theultimate number of shares issued and the related compensation expense recognized will be based on a comparison of the final performancemetrics to the specified targets.•The Company calculates the fair value of market-based stock awards, including the Company’s 2015 Holding Company LTI Program (the“HoldCo LTIP”) awards, using the Monte-Carlo simulation valuation model. Forfeitures are recorded as they occur. Compensation expensefor market-based awards is recognized over the requisite service period regardless of whether the market conditions are expected to beachieved. Income Taxes Deferred income taxes are determined by the liability method in accordance with ASC Topic 740 - Income Taxes. Under this method, deferred taxassets and liabilities are determined based on differences between the carrying amounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes and are measured using the enacted tax rates and laws that are expected to be in effect when the differences areexpected to reverse. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earningsexperience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevantfactors. The Company establishes a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Due to inherentcomplexities arising from the nature of the Company’s businesses, future changes in income tax law or variances between the Company’s actual andanticipated operating results, the Company makes certain judgments and estimates. Therefore, actual income taxes could materially vary from theseestimates. The Company has recorded a valuation allowance which includes amounts for net operating losses and tax credit carryforwards, as more fullydescribed in Note 17, Income Taxes, for which the Company has concluded that it is more likely than not that these net operating loss and tax creditcarryforwards will not be realized in the ordinary course of operations. The Company recognizes interest and penalties related to income taxes as a component of income tax expense.The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first stepassesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals orlitigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater than50% likely to be realized upon settlement with the tax authority is recognized in the consolidated financial statements.On December 22, 2017, the U.S. bill commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted as more fully described inNote 17, Income Taxes. 85Foreign Currency Translation Local currencies generally are considered the functional currencies outside the U.S. Assets and liabilities for operations in local-currencyenvironments are translated at month-end exchange rates of the period reported. Income and expense items are translated at the average exchange rate foreach applicable month. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive loss, net of tax, instockholders’ equity within the consolidated balance sheets. Loss Reserves for Certain Reinsurance and Self-Funded Insurance Programs The Company historically reinsured a substantial portion of its automobile, general and professional liability and workers’ compensation costsunder reinsurance programs primarily through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), alicensed captive insurance company domiciled in the State of Arizona. As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCICwill continue to resolve claims under the historical policy years.The Company utilizes a report prepared by an independent actuary to estimate the gross expected losses related to historical automobile, generaland professional and workers’ compensation liability reinsurance policies, including the estimated losses in excess of SPCIC’s insurance limits, which wouldbe reimbursed to SPCIC to the extent such losses were incurred. As of December 31, 2017 and 2016, the Company had reserves of $6,699 and $11,240,respectively, for the automobile, general and professional liability and workers’ compensation reinsurance policies, net of expected receivables for losses inexcess of SPCIC’s historical insurance limits. The gross reserve as of December 31, 2017 and 2016 of $12,448 and $16,505, respectively, is classified as“Reinsurance liability reserves” and “Other long-term liabilities” in the consolidated balance sheets. The estimated amount to be reimbursed to SPCIC as ofDecember 31, 2017 and 2016 was $5,749 and $5,265, respectively, and is classified as “Other receivables” and “Other assets” in the consolidated balancesheets. The Company also maintains a self-funded health insurance program with a stop-loss umbrella policy with a third-party insurer to limit themaximum potential liability for individual claims generally to $275 per person, subject to an aggregating stop-loss limit of $400. In addition, the programhas a total stop-loss limit for total claims, in order to limit the Company’s exposure to catastrophic claims. With respect to this program, the Companyconsiders historical and projected medical utilization data when estimating its health insurance program liability and related expense. As of December 31,2017 and 2016, the Company had $2,229 and $3,022, respectively, in reserve for its self-funded health insurance programs. The reserves are classified as“Reinsurance and related liability reserves” in the consolidated balance sheets. The Company utilizes analysis prepared by third-party administrators and independent actuaries based on historical claims information with respectto the general and professional liability coverage, workers’ compensation coverage, automobile liability, automobile physical damage, and health insurancecoverage to determine the amount of required reserves. The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsurance andself-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves, suchas assessing historical paid claims, average lag times between the claims’ incurred date, reported dates and paid dates, and the frequency and severity ofclaims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once aprobable amount is known. Restructuring, Redundancy and Related Reorganization Costs The Company has engaged in employee headcount optimization actions within the WD Services segment which require management to estimate thetiming and amount of severance and other employee separation costs for workforce reduction. The Company accrues for severance and other employeeseparation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The amounts used in determiningseverance accruals are based on an estimate of the salaries and related benefit costs payable under existing plans, and are included in accrued expenses to theextent they have not been paid. Noncontrolling Interests Noncontrolling interests represent the noncontrolling holders’ percentage share of income or losses from a subsidiary in which the Company holds amajority, but less than 100%, ownership interest and the results of which are consolidated and included in the Company’s consolidated financial statements.The Company has a 90% ownership in The Reducing Reoffending Partnership Limited, which commenced operations in 2015. 86Discontinued Operations In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued operation, the Company makes adetermination of whether the criteria for held-for-sale classification is met and whether the disposition represents a strategic shift that has (or will have) amajor effect on the entity’s operations and financial results. If these determinations can be made affirmatively, the results of operations of the group of assetsbeing disposed of (as well as any gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results ofthe Company in the consolidated financial statements. See Note 20, Discontinued Operations, for a summary of discontinued operations.Earnings Per Share The Company computes basic earnings per share by taking net income attributable to the Company available to common stockholders divided by theweighted average number of common shares outstanding during the period, including restricted stock and stock held in escrow if such shares areparticipating securities. Diluted earnings per share includes the potential dilution that may occur from stock-based awards and other stock-basedcommitments using the treasury stock or the as-if converted methods, as applicable. For additional information on how the Company computes earnings pershare, see Note 14, Earnings Per Share. Fair Value of Financial Instruments The Company discloses the fair value of its financial instruments based on the fair value hierarchy using the following three categories: Level 1 – Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are notactive; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company may be required to pay additional consideration in relation to certain acquisitions based on the achievement of certain earningstargets. Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection withan acquisition with subsequent adjustments recognized in “General and administrative expense” in the consolidated statements of income. The Companydetermines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discounted probability-weightedapproach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected future cash flows over theperiod in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changesin these unobservable inputs could significantly impact the fair value of the obligation recorded in the accompanying consolidated balance sheets andoperating expenses in the consolidated statements of income. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value becauseof the relatively short-term maturity of these instruments. Recent Accounting Pronouncements The Company adopted the following accounting pronouncements during the year ended December 31, 2017: In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classificationof Deferred Taxes (“ASU 2015-17”), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the currentrequirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations willbe required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet.For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 16, 2016, and interimperiods within those annual periods. The Company adopted ASU 2015-17 retrospectively on January 1, 2017, which resulted in the reclassification of theDecember 31, 2016 deferred tax assets-current balance of $6,825 and non-current deferred tax assets of $2,493 to long-term deferred tax liabilities in theamount of $9,318.87In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to theEquity Method of Accounting (“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as aresult of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retainedearnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU2016-07 instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’spreviously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU 2016-07 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and should be appliedprospectively. The Company adopted ASU 2016-07 on January 1, 2017. The adoption of ASU 2016-07 had no impact on the Company’s financial statementsor disclosures.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting (“ASU 2016-09”). ASU 2016-09 is intended to improve the accounting for employee share-based payments and affect all organizationsthat issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For publiccompanies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. TheCompany adopted ASU 2016-09 on January 1, 2017, and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effectadjustment of $850 to retained earnings as of January 1, 2017. Upon adoption, all excess tax benefits and tax deficiencies related to employee share-basedpayments are recognized through income tax expense prospectively.The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospectivebasis resulting in a decrease in diluted weighted average shares outstanding of 4,642 shares for the year ended December 31, 2017.The adoption of ASU 2016-09 subjects our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, includingthe adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposesbased upon the fair value of the award at the grant date. For the year ended December 31, 2017, the Company recorded excess tax deficiencies, net, of $3,604as an increase to the provision for income taxes. This deficiency primarily related to the Company's Holdco LTIP. As further explained in Note 12, Stock-Based Compensation and Similar Arrangements, no shares were distributed under the Company’s HoldCo LTIP as the volume weighted average ofProvidence’s stock price over the 90-day trading period ended on December 31, 2017 did not exceed $56.79. As this market condition was not satisfied, arelated tax deficiency was recognized during the year ended December 31, 2017 of $3,590.The Company elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis.This resulted in an increase in cash flows provided by operating activities of $282, offset by an increase of $282 in cash flows used in financing activities inthe consolidated statement of cash flows for the year ended December 31, 2016, and an increase in cash flows provided by operating activities of $2,857,offset by an increase of $2,857 in cash flows used in financing activities in the consolidated statement of cash flows for the year ended December 31, 2015.Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financingactivities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”).ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should beaccounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions,disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods withinthose periods. The Company adopted ASU 2017-01 on April 1, 2017. The adoption of ASU 2017-01 had no impact on the Company’s financial statements ordisclosures.In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method andJoint Ventures (Topic 323) (“ASU 2017-03”). ASU 2017-03 expands required qualitative disclosures when registrants cannot reasonably estimate the impactthat adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accountingpolicies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a descriptionof the significant implementation matters yet to be addressed by the registrant. The Company implemented ASU 2016-15 in its consolidated financialstatements for the year ended December 31, 2017 resulting in enhanced qualitative disclosures regarding future adoption of new ASUs.88In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment(“ASU 2017-04”). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of thegoodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fairvalue of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds thereporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Thisguidance is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairmenttests performed after January 1, 2017. The Company adopted ASU 2017-04 on April 1, 2017. The adoption of ASU 2017-04 had no impact on the Company’sfinancial statements or disclosures. Recent accounting pronouncements that were not yet adopted by the Company through December 31, 2017 are as follows: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 introducedFASB Accounting Standards Codification Topic 606 (“ASC 606”), which will replace most currently applicable existing revenue recognition guidance andis intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The coreprinciple of ASC 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled toreceive for those goods or services. ASC 606 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arisingfrom customer contracts, including significant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis toeach prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at thedate of initial application, which is effective for the Company on January 1, 2018.The Company has substantially completed its adoption plan, under which it performed conceptual and detailed contract reviews to determine theimpact of ASC 606 on its financial statements, internal controls and operational processes. The guidance in ASC 606 on the following topics was critical tothe Company’s analysis:•the effect of specified clauses on the term of many of the Company’s contracts with customers;•the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;•whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;•whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining andallocating the transaction price; and•the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination ofwhether the Company may be able to use certain practical expedients.The impact of adoption on revenue for each segment is as follows:NET Services – For non-emergency transportation solutions, the Company will primarily use the right-to-invoice practical expedient to account forrevenue when the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the entity’s performancecompleted to date. This is consistent with the Company’s current revenue recognition policy. The only impact identified for NET Services is the presentationof one contract on a net basis which is currently accounted for on a gross basis, as the Company does not control the service, as defined under the newstandard.WD Services – WD Services has a number of contracts which include variable consideration, whereby it earns revenues if certain contractuallydefined outcomes occur in the future. When the related performance obligations are satisfied over time, the Company will recognize revenue in theproportion that the outcome has been earned based on services provided. The amount of revenue is based upon the Company’s estimate of the final amountof outcome fees to be earned. The Company will evaluate probability using either the expected value method or the most likely amount method, asappropriate. At each reporting period, the Company will update its estimate of outcome fees, based upon actual results as well as refined estimates of futureresults, and will record an adjustment to revenue, based upon services performed to date. Under the new standard, the Company may recognize revenues foroutcome fees earlier under the new standard, as revenue is currently recognized upon the final resolution of the contingency, i.e. the outcome is able to beinvoiced. However, under certain contracts the Company receives up-front fees, which may be recognized over a longer period under the new standard ascompared to current guidance. As of adoption, such impacts are not material to the consolidated financial statements.89The new standard will require the Company to recognize contract assets and liabilities on its balance sheet as appropriate. Additionally, theCompany will be required to make additional disclosures about the nature of its contracts and the related performance obligations.The Company is in its final stages of quantifying the financial impacts of the new guidance based on the contracts that exist at the date of adoption,as well as evaluating presentation of our revenues and required enhancements to disclosures. We have implemented both process and information systemschanges to identify and assess contracts that are impacted by the new revenue recognition criteria and accumulate data to satisfy new disclosure requirements.As discussed above, we expect the new standard will have an immaterial impact on our consolidated financial statements, other than increased disclosures,upon adoption. Changes to revenue recognition as a result of applying the new standard will largely arise from outcome fees as described above, as well asthe timing of revenue recognition for up-front fees. The Company will use the modified retrospective adoption method, and plans to adopt the standard onJanuary 1, 2018.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 introduced FASB Accounting StandardsCodification Topic 842 (“ASC 842”), which will replace ASC 840, Leases. Under ASC 842, lessees will be required to recognize the following for all leases(with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from alease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified assetfor the lease term. ASU 2016-02 is effective for publicly held entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscalyears. Early application is permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, thebeginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require transitionaccounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. TheCompany has not entered into significant lease agreements in which it is the lessor; however, the Company does have lease agreements in which it is thelessee. The Company is assessing the impact of applying ASC 842 to its lease agreements. It is in the process of developing an adoption plan, assembling across-functional project team and assessing the impacts of applying ASC 842 to the Company’s financial statements, information systems and internalcontrols. The assessment of applying ASU 2016-02 is ongoing and, therefore, the Company has not yet determined whether the impacts will be material tothe Company’s consolidated financial statements.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). The amendments in ASU2016-13 will supersede or clarify much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debtsecurities. The amendments in ASU 2016-13 affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures,reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effectivefor financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15,2018. The Company has not evaluated the impact of ASU 2016-13 on its consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments (“ASU 2016-15”). ASU 2016-15 provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified inthe statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for financial statements issued for fiscal yearsbeginning after December 15, 2017, with early adoption permitted. The Company will adopt ASU 2016-15 on January 1, 2018. The adoption is not expectedto have a significant impact on the Company's consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described asrestricted cash or restricted cash equivalents. ASU 2016-18 is effective for public entities for fiscal years beginning after December 15, 2017, and interimperiods within those fiscal years. Early adoption is permitted, including adoption in an interim period; however, any adjustments must be reflected as of thebeginning of the fiscal year that includes that interim period. ASU 2016-18 must be adopted retrospectively. The Company will adopt ASU 2016-15 onJanuary 1, 2018. The adoption will impact the Company's consolidated statements of cash flow as the Company has restricted cash totaling $6,296 atDecember 31, 2017. Additionally, the Company will be required to make additional disclosures detailing the balance sheet line items that are included in thesum of cash, cash equivalents and restricted cash in the consolidated statements of cash flow.In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award90should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is thesame as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance iseffective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company will adopt ASU 2016-15 on January 1, 2018. Theadoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements. 3. Equity Investment Matrix Prior to the closing of the Matrix Transaction on October 19, 2016, the financial results of Matrix were included in the Company’s HA Servicessegment. Subsequent to the closing of the Matrix Transaction, the Company owned a 46.8% noncontrolling interest in Matrix. As of December 31, 2017, theCompany owned a 46.6% noncontrolling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rightsnecessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting andthe Company’s share of Matrix’s income or losses are recorded as “Equity in net (gain) loss of investees” in the accompanying consolidated statements ofincome.The carrying amount of the assets included in the Company’s consolidated balance sheet and the maximum loss exposure related to the Company’sinterest in Matrix as of December 31, 2017 and 2016 totaled $169,699 and $157,202, respectively.Summary financial information for Matrix on a standalone basis is as follows: December 31, 2017 2016Current assets$37,563 $28,589Long-term assets597,613 614,841Current liabilities27,718 25,791Long-term liabilities240,513 281,348 Twelve monthsended December 31,2017 October 19, 2016throughDecember 31, 2016Revenue$227,872 $41,635Operating income (loss)11,870 (4,079)Net income (loss)26,665 (4,200) Included in Matrix’s standalone net income of $26,665 for the year ended December 31, 2017 is depreciation and amortization of $33,512,transaction related expenses of $3,537, which includes $2,679 of transaction incentive compensation, equity compensation of $2,639, management fees paidto Matrix’s shareholders of $2,331, merger and acquisition due diligence related costs of $685, interest expense of $14,818 and an income tax benefit of$29,613. The income tax benefit primarily related to the re-measurement of deferred tax liabilities arising from a lower U.S. corporate tax rate as a result of theTax Reform Act. Included in Matrix’s standalone net loss of $4,200 for the year ended December 31, 2016 is depreciation and amortization of $6,356,transaction related expenses of $6,367, which includes $4,033 of transaction incentive compensation, equity compensation of $407, management fees paidto Matrix’s shareholders of $396, interest expense of $2,949 and an income tax benefit of $2,828.See Note 20, Discontinued Operations, for Matrix’s January 1, 2016 through October 19, 2016 results of operations, as well as the results ofoperations for the year ended December 31, 2015.Mission Providence The Company entered into a joint venture agreement in November 2014 with Mission Australia ACN (“Mission Australia”) to form MissionProvidence. Mission Providence delivers employment preparation and placement services in Australia. The91Company had a 60% ownership interest in Mission Providence, and had rights to 75% of Mission Providence’s distributions of cash or profit surplus twiceper calendar year. The Company accounted for this investment under the equity method of accounting and the Company’s share of Mission Providence’sincome or losses was recorded as “Equity in net (gain) loss of investees” in the accompanying consolidated statements of income. Cash contributions made toMission Providence in exchange for its equity interests are included in the consolidated statements of cash flows as “Purchase of equity investments”.On September 29, 2017, the Company and Mission Australia completed the sale of 100% of the stock of Mission Providence pursuant to a share saleagreement. Upon the sale of Mission Providence, the Company received AUD 20,184, or $15,823 of proceeds, for its equity interest, net of transaction fees.Subsequently, a working capital adjustment was finalized in December 2017 resulting in the return of $229 of the proceeds. The related gain on sale ofMission Providence totaling $12,377 is recorded as “Gain on sale of equity investment” in the accompanying consolidated statements of income. Thecarrying amount of the assets included in the Company’s consolidated balance sheet related to the Company’s interest in Mission Providence was $4,021 atDecember 31, 2016.Summary financial information for Mission Providence on a standalone basis is as follows: December 31, 2016Current assets$4,640Long-term assets10,473Current liabilities12,844Long-term liabilities1,655 Nine months endedSeptember 30, 2017 Twelve months endedDecember 31, 2016Revenue$30,125 $36,546Operating loss(1,765) (9,664)Net loss(1,934) (8,843) 4. Prepaid Expenses and Other Prepaid expenses and other were comprised of the following: December 31, 2017 2016Prepaid income taxes$1,106 $1,467Escrow funds10,000 10,000Prepaid insurance2,121 3,153Prepaid taxes and licenses906 3,570Note receivable3,224 3,130Prepaid rent2,268 2,013Deposits held for leased premises and bonds2,849 2,609Other12,769 11,953Total prepaid expenses and other$35,243 $37,895 Escrow funds represent amounts related to indemnification claims from the sale of the Human Services segment, which was completed on November1, 2015. The Company has accrued $15,000 as a contingent liability for the settlement of potential indemnification claims, which is included in “Accruedexpenses” in the consolidated balance sheet as of December 31, 2017. The escrow funds will be used to satisfy a portion of this settlement. See Note 18,Commitments and Contingencies, for further information.925. Property and Equipment Property and equipment consisted of the following: EstimatedUseful December 31, Life (years) 2017 2016Computer and telecom equipment3 — 5 $35,915 $31,854Software3 — 5 32,989 26,883Leasehold improvementsShorter of 7 years orlease term 17,890 16,720Furniture and fixtures5 — 10 6,416 8,070Automobiles 5 3,797 3,597Construction and development in progress N/A 13,384 5,831 110,391 92,955Less accumulated depreciation 60,014 46,735Total property and equipment, net $50,377 $46,220 Depreciation expense from continuing operations was $18,542, $18,038 and $14,488 for the years ended December 31, 2017, 2016 and 2015,respectively. The Company sold the building and land that included holding company office space in Arizona effective December 31, 2016 resulting in an assetimpairment charge of $1,415 for the year ended December 31, 2016. The Company recorded an asset impairment charge of $9,983 for the year endedDecember 31, 2016 related to its WD Services segment based on its review of the carrying value of long-lived assets. The impairment charges are reflected in“Asset impairment charge” in the consolidated statement of income for the year ended December 31, 2016. See Note 6, Goodwill and Intangibles¸ for furtherdiscussion of the impairment charges incurred related to the WD Services segment during 2016. Construction in progress as of December 31, 2017 isprimarily comprised of NET Services, which has incurred substantial software development costs for its LCAD NextGen technology system. Such amounts areexpected to be placed into service during 2018.6. Goodwill and Intangibles Impairment The Company did not record any impairment charges for the year ended December 31, 2017. During the fourth quarter of 2016, the Companyreviewed WD Services for impairment, primarily due to lower than expected volumes and unfavorable service mix shifts under a large contract in the UnitedKingdom (“UK”) impacting future projections; additional clarity into the anticipated size and structure of the Work and Health Programme in the UK; theabsence of additional details regarding the restructuring of the offender rehabilitation contract in the UK; and a change in senior management at WD Servicesduring the fourth quarter. As a result, the Company performed a quantitative test comparing the fair value of the asset groupings comprising WD Serviceswith the carrying amounts and recorded an asset impairment charge of $4,381 to definite-lived customer relationship intangible assets, which is recorded in“Asset impairment charge” on the Company’s consolidated statement of operations. In addition, the Company reviewed the carrying value of goodwill ofWD Services, noting the carrying value exceeded the fair value. Therefore, the Company performed the second step of the impairment test, in which the fairvalue of the reporting unit is allocated to all of the assets and liabilities, on a fair value basis, with any excess representing the implied value of goodwill ofthe reporting unit. The fair value was determined using an income approach, which estimates the present value of future cash flows based on management’sforecast of revenue growth rates and operating margins, working capital requirements and capital expenditures. Based on this analysis, the carrying value ofgoodwill of the WD Services reporting unit exceeded the implied fair value and the Company recorded an asset impairment charge of $5,224, which isincluded in “Asset impairment charge” on the Company’s consolidated statement of operations. The Company reviewed the carrying value of other long-lived assets and goodwill, and noted no indicators of impairment for NET Services or the Matrix Investment during the year ended December 31, 2016. TheCompany recorded $1,593 of impairment charges related to its Human Services segment during the year ended December 31, 2015, which is included in“Discontinued operations, net of tax” in the consolidated statements of income. 93Goodwill Changes in goodwill were as follows: NETServices WDServices ConsolidatedTotalBalances at December 31, 2015 Goodwill$191,215 $40,784 $231,999Accumulated impairment losses(96,000) (6,041) (102,041) 95,215 34,743 129,958 Asset impairment charge— (5,224) (5,224)Foreign currency translation adjustment— (5,110) (5,110)Balances at December 31, 2016 Goodwill191,215 35,674 226,889Accumulated impairment losses(96,000) (11,265) (107,265) 95,215 24,409 119,624 Foreign currency translation adjustment— 2,044 2,044Balances at December 31, 2017 Goodwill191,215 37,718 228,933Accumulated impairment losses(96,000) (11,265) (107,265) $95,215 $26,453 $121,668 The total amount of goodwill that was deductible for income tax purposes related to acquisitions as of December 31, 2017 and 2016 was $4,222.Intangible Assets Intangible assets are comprised of acquired customer relationships, trademarks and trade names, and developed technology. Intangible assetsconsisted of the following: December 31, 2017 2016 EstimatedUsefulLife (Yrs) GrossCarryingAmount AccumulatedAmortization GrossCarryingAmount AccumulatedAmortizationCustomer relationships15 $48,128 $(33,136) $48,020 $(29,941)Customer relationships10 30,583 (11,871) 27,915 (8,147)Trademarks and Trade Names10 14,525 (5,205) 13,282 (3,431)Developed technology5 3,228 (2,313) 2,951 (1,525)Total $96,464 $(52,525) $92,168 $(43,044) The gross carrying amount as of December 31, 2017 and 2016 includes the asset impairment charge of $4,381 to definite-lived customer relationshipintangible assets of WD Services recorded during the year ended December 31, 2016. The weighted-average amortization period at December 31, 2017 forintangibles was 12.3 years. No significant residual value is estimated for these intangible assets. Amortization expense from continuing operations was$7,927, $8,566 and $9,510 for the years ended December 31, 2017, 2016 and 2015, respectively.94The total amortization expense is estimated to be as follows for the next five years and thereafter as of December 31, 2017 based upon the applicableforeign exchange rates as of December 31, 2017: Year Amount2018 $8,1262019 7,7492020 7,4732021 7,3872022 7,025Thereafter 6,179Total $43,939 7. Accrued Expenses Accrued expenses consisted of the following: December 31, 2017 2016Accrued compensation and related$33,653 $23,050NET Services accrued contract payments17,487 32,836Accrued settlement15,000 6,000Income taxes payable3,723 372Other33,975 40,123Total accrued expenses$103,838 $102,3818. Restructuring, Redundancy and Related Reorganization Costs WD Services has two active redundancy programs at December 31, 2017. During the year ended December 31, 2017, WD Services had fourredundancy programs. Of these four redundancy plans, two were approved in 2015 and have been completed; a plan related to the termination of employeesdelivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employeesdelivering services under the Company’s employability and skills training programs and certain other employees in the United Kingdom (“UK RestructuringProgram”). In addition, a redundancy plan related to the termination of employees as part of a value enhancement project (“Ingeus Futures’ Program”) tobetter align costs with revenue for certain contracts in the UK and to improve overall operating performance was approved in 2016 and a further redundancyprogram to align costs with revenue for offender rehabilitation services (“Delivery First Program”) was approved in the fourth quarter of 2017. The Companyrecorded severance and related charges of $2,577 and $8,511 during the years ended December 31, 2017 and 2016, respectively, relating to the terminationbenefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as “Serviceexpense” in the accompanying consolidated statements of income. The initial estimates of severance and related charges for the plans were based upon the employee groups impacted, average salary and benefits, andredundancy benefits pursuant to the existing policies. Additional charges above the initial estimates were incurred for the redundancy plans related to theactualization of termination benefits for specifically identified employees impacted under these plans, as well as an increase in the number of individualsimpacted by these plans. The final identification of the employees impacted by each program is subject to customary consultation procedures. In addition,additional phases of value enhancement projects may be undertaken in the future, if costs and revenue are not aligned. 95Summary of Severance and Related Charges January 1,2017 CostsIncurred Cash Payments Foreign ExchangeRate Adjustments December 31, 2017Ingeus Futures' Program$2,486 $1,223 $(3,386) $159 $482Offender Rehabilitation Program1,380 (40) (1,357) 17 —UK Restructuring Program50 (53) — 3 —Delivery First Program— 1,447 (184) 24 1,287Total$3,916 $2,577 $(4,927) $203 $1,769 January 1,2016 CostsIncurred Cash Payments Foreign ExchangeRate Adjustments December 31, 2016Ingeus Futures' Program$— $2,515 $— $(29) $2,486Offender Rehabilitation Program6,538 4,865 (8,924) (1,099) 1,380UK Restructuring Program2,059 1,131 (3,031) (109) 50Total$8,597 $8,511 $(11,955) $(1,237) $3,916 The total of accrued severance and related costs of $1,769 and $3,916 are reflected in “Accrued expenses” in the consolidated balance sheets atDecember 31, 2017 and 2016, respectively. The amount accrued as of December 31, 2017 for the Ingeus Futures’ Program and Delivery First Program isexpected to be settled principally during 2018. 9. Long-Term Obligations The Company’s long-term obligations were as follows: December 31, 2017 December 31, 2016 $200,000 revolving loan, LIBOR plus 2.25% - 3.25% with interest payable at least once every three monthsthrough August 2018$— $—Capital lease obligations2,984 3,611 2,984 3,611Less current portion of capital lease obligations2,400 1,721Total long-term obligations, less current portion$584 $1,890 Annual maturities of capital lease obligations as of December 31, 2017 are as follows: Year Amount2018 $2,4002019 5042020 80Total $2,984 96Credit Facility The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “CreditAgreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. The CreditAgreement provides the Company with a $200,000 revolving credit facility (the “Credit Facility”), including a sub-facility of $25,000 for letters of credit. Asof December 31, 2017, the Company had no borrowings and seven letters of credit in the amount of $11,074 outstanding under the revolving credit facility.At December 31, 2017, the Company’s available credit under the revolving credit facility was $188,926. Under the Credit Agreement, the Company has anoption to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existingfacilities) in an aggregate amount of up to $75,000 with either additional commitments from lenders under the Credit Agreement at such time or newcommitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists atthe time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate inany such increase under the Credit Facility. The Credit Facility matures on August 2, 2018.Interest on the outstanding principal amount of loans accrues, at the Company’s election, at a per annum rate equal to LIBOR, plus an applicablemargin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% in the case of LIBORloans and 1.25% to 2.25% in the case of the base rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the CreditAgreement. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on apercentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of themaximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.25% to 0.50% and2.25% to 3.25%, respectively, in each case, based on the Company’s consolidated leverage ratio.The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s present and future domestic subsidiaries, excludingcertain domestic subsidiaries which include the Company’s insurance captive. The Company’s obligations under, and each guarantor’s obligations under itsguaranty of, the Credit Facility are secured by a first priority lien on substantially all of the Company’s respective assets, including a pledge of 100% of theissued and outstanding stock of the Company’s domestic subsidiaries, excluding the Company’s insurance captive, and 65% of the issued and outstandingstock of the Company’s first tier foreign subsidiaries.The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions onthe Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets, andmerge and consolidate. The Company is subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. Capital Leases NET Services has seven capital leases for information technology hardware and software with termination dates ranging from January 2018 throughOctober 2020. The terms of the leases are between 12 and 36 months, with interest recorded at an incremental borrowing rate of 3.28%. At December 31,2017, $6,045 represents equipment under capital leases and $1,642 represents accumulated depreciation recognized on this leased equipment. 10. Convertible Preferred Stock, Net The Company completed a rights offering on February 5, 2015 (the “Rights Offering”) providing all of the Company’s existing common stockholders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100.00 per share (“PreferredStock”). The Preferred Stock is convertible into shares of Providence’s Company’s common stock, $0.001 par value per share (“Common Stock”) at aconversion price equal to $39.88 per share, which was the closing price of the Company’s Common Stock on the NASDAQ Global Select Market onOctober 22, 2014. Stockholders exercised subscription rights to purchase 130,884 shares of the Company's Preferred Stock. Pursuant to the terms and conditions of theStandby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., ColiseumCapital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining 524,116 shares of theCompany’s Preferred Stock were purchased by the Standby Purchasers at the $100.00 per share subscription price. The Company received $65,500 inaggregate gross proceeds from the consummation of the Rights Offering and Standby Purchase Agreement. Additionally, on March 12, 2015, the StandbyPurchasers exercised their right to purchase an additional 150,000 shares of the Company’s Preferred Stock, at a purchase price of $105.0097per share or a total purchase price of $15,750, of the same series and having the same conversion price as the Preferred Stock sold in the Rights Offering. The Company may pay a noncumulative cash dividend on each share of Preferred Stock, if and when declared by a committee of its Board ofDirectors (“Board”), at the rate of five and one-half percent (5.5%) per annum on the liquidation preference then in effect. On or before the third business dayimmediately preceding each fiscal quarter, the Company must determine its intention whether or not to pay a cash dividend with respect to that ensuingquarter and will give notice of its intention to each holder of Preferred Stock as soon as practicable thereafter. In the event the Company does not declare and pay a cash dividend, the Company will declare a payment in kind (“PIK”) dividend by increasing theliquidation preference of the convertible Preferred Stock to an amount equal to the liquidation preference in effect at the start of the applicable dividendperiod, plus an amount equal to the liquidation preference then in effect multiplied by eight and one-half percent (8.5%) per annum, computed on the basis ofa 365-day year and the actual number of days elapsed from the start of the applicable dividend period to the applicable date of determination. All holders ofthe Company’s Preferred Stock are able to convert their Preferred Stock into shares of Common Stock at a rate of approximately 2.51 shares of Common Stockfor each share of Preferred Stock. As of December 31, 2017, 1,800 shares of Preferred Stock have been converted to 4,510 shares of Common Stock.Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and commenced on April 1, 2015, and, ifdeclared, begin to accrue on the first day of the applicable dividend period. PIK dividends, if applicable, accrue cumulatively on the same schedule as setforth above for cash dividends and are also compounded at the applicable annual rate on each applicable subsequent dividend date. Cash dividends onredeemable convertible preferred stock totaling $4,418, or $5.50 per share, $4,419, or $5.50 per share, and $3,928, or $4.88 per share, were distributed toconvertible preferred stockholders for the years ended December 31, 2017, 2016 and 2015, respectively. The Preferred Stock is accounted for outside of stockholders’ equity as it may be redeemed upon certain change in control events that are not solelyin the control of the Company. Dividends are recorded in stockholders’ equity and consist of the 5.5%/8.5% dividend. At the time of issuance of the PreferredStock, the Company recorded a discount on Preferred Stock related to beneficial conversion features that arose due to the closing price of the Company’sCommon Stock being higher than the conversion price of the Preferred Stock on the commitment date. The amortization of this discount was recorded instockholders’ equity. The discount was fully amortized as of June 30, 2015. The following table summarizes the Preferred Stock activity for the years ended December 31, 2017 and 2016: Dollar Value Share CountBalance at December 31, 2015$77,576 803,518Conversion to common stock(12) (120)Allocation of issuance costs1 —Balance at December 31, 2016$77,565 803,398Conversion to common stock(20) (198)Allocation of issuance costs1 —Balance at December 31, 2017$77,546 803,200 As of December 31, 2017 and 2016, the outstanding shares of Preferred Stock were convertible into 2,014,042 and 2,014,538 shares of CommonStock, respectively. 11. Stockholders’ Equity At December 31, 2017 and 2016 there were 17,473,598 and 17,315,661 shares of the Company’s Common Stock issued, respectively, including4,126,132 and 3,478,676 treasury shares at December 31, 2017 and 2016, respectively. Subject to the rights specifically granted to holders of any then outstanding shares of the Company’s Preferred Stock, the Company’s commonstockholders are entitled to vote together as a class on all matters submitted to a vote of the Company’s common stockholders, and are entitled to anydividends that may be declared by the Board. The Company’s common stockholders do not have cumulative voting rights. Upon the Company’s dissolution,liquidation or winding up, holders of the Company’s Common Stock are entitled to share ratably in the Company’s net assets after payment or provision forall liabilities and any98preferential liquidation rights of the Company’s Preferred Stock then outstanding. The Company’s common stockholders do not have preemptive rights topurchase shares of the Company’s stock. The issued and outstanding shares of the Company’s Common Stock are not subject to any redemption provisionsand are not convertible into any other shares of the Company’s capital stock. The rights, preferences and privileges of holders of the Company’s CommonStock will be subject to those of the holders of any shares of the Company’s Preferred Stock the Company may issue in the future. The following table reflects the total number of shares of the Company’s Common Stock reserved for future issuance as of December 31, 2017: Shares of common stock reserved for: Exercise of stock options and restricted stock awards681,608Conversion of preferred stock to common stock2,014,042Issuance of Performance Restricted Stock Units18,122Total shares of common stock reserved for future issuance2,713,772 Share Repurchases On October 14, 2015, the Company entered into an agreement to repurchase 707,318 of its Common Stock held by former stockholders of Matrix foran aggregate purchase price of $29,000 (or $41.00 per share). The Company funded this purchase through a combination of borrowing on its Credit Facilityand cash on hand. The purchase of these shares was completed on October 30, 2015. On November 4, 2015, the Board authorized the Company to engage in a repurchase program to repurchase up to $70,000 in aggregate value of theCompany’s Common Stock during the twelve-month period following November 4, 2015. This plan terminated on November 3, 2016. A total of 1,360,249shares were purchased through this plan for $62,981, excluding commission payments.On October 26, 2016, the Board authorized a new repurchase program, under which the Company may repurchase up to $100,000 in aggregate valueof the Company’s Common Stock during the twelve-month period following October 26, 2016. Through October 26, 2017, a total of 770,808 shares werepurchased through this plan for $30,360, excluding commission payments.On November 2, 2017, the Board approved the extension of the Company’s October 26, 2016 stock repurchase program, authorizing the Companyto engage in a repurchase program to repurchase up to $69,640 (the amount remaining from the $100,000 repurchase amount authorized in 2016) inaggregate value of our Common Stock through December 31, 2018. As of December 31, 2017, 180,270 shares were purchased under this plan after it wasextended on November 2, 2017 for $10,503, excluding commission payments. During the years ended December 31, 2017, 2016 and 2015, the Company withheld 19,556, 2,736 and 15,961 shares, respectively, from employeesto cover the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock awards. In addition, during the yearsended December 31, 2017 and 2015, the Company withheld 5,665 and 5,718 shares, respectively, from employees to cover the settlement of income tax andrelated benefit withholding obligations and the exercise price upon the exercise of stock options. During the year ended December 31, 2015, the Companywithheld 43,743 shares to cover the settlement of income tax and related benefit withholding obligations arising from shares held by employees that werereleased from escrow related to the Matrix acquisition, which shares are treated as treasury stock.12. Stock-Based Compensation and Similar Arrangements The Company provides stock-based compensation to employees, non-employee directors, consultants and advisors under the Company’s 2006Long-Term Incentive Plan (“2006 Plan”). The 2006 Plan allows the flexibility to grant or award stock options, stock appreciation rights, restricted stock,unrestricted stock, stock units including restricted stock units and performance awards to eligible persons.99The following table summarizes the activity under the 2006 Plan as of December 31, 2017: Number of sharesof the Company'sCommon Stockauthorized for Number of sharesof the Company'sCommon Stockremaining for Number of shares of the Company's CommonStock subject to issuance future grants Stock Options Stock Grants2006 Plan5,400,000 1,938,666 606,695 111,157 The following table reflects the amount of stock-based compensation, for share settled awards issued to employees and non-employee directors,recorded in each financial statement line item for the years ended December 31, 2017, 2016 and 2015: Year Ended December 31, 201720162015Service expense$491 $830 $21,480General and administrative expense7,052 4,324 5,027Equity in net (gain) loss of investees76 18 —Discontinued operations, net of tax— (18) 115Total stock-based compensation$7,619 $5,154 $26,622 Stock-based compensation included in service expense is related to the following segments: Year Ended December 31, 2017 2016 2015NET Services$434 $841 $724WD Services (a)57 (11) 20,756Total stock-based compensation in service expense$491 $830 $21,480 (a)WD Services includes $16,078 for the year ended December 31, 2015 related to the acceleration of awards pursuant to the separation agreementsfor two executives.The amounts above exclude tax benefits of $2,885, $2,072 and $2,322 for the years ended December 31, 2017, 2016 and 2015, respectively.Stock Options During the year ended December 31, 2016, the Company did not grant any stock options. The fair value of each stock option awarded to employeesis estimated on the date of grant using the Black-Scholes option-pricing formula based on the following assumptions for the years ended December 31, 2017and 2015: Year Ended December 31, 2017 2015Expected dividend yield0.0% 0.0%Expected stock price volatility19.45%—42.95% 33.8%—46.14%Risk-free interest rate0.95%—2.23% 0.4%—1.35%Expected life of options (years)0.03—6.50 0.03—4.00The risk-free interest rate was based on the U.S. Treasury security rate in effect as of the date of grant which corresponds to the expected life of theaward. The expected stock price volatility was based on the Company’s historical data. The expected100lives of options were based on the Company’s historical data, a simplified method for plain vanilla options, or the Company’s best estimate whereappropriate.During the fourth quarter of 2017, James Lindstrom resigned from the Company as Chief Executive Officer ("CEO") and board member of theCompany. As a result of Mr. Lindstrom's resignation as CEO, a separation agreement was entered into between the Company and Mr. Lindstrom. As a result ofthis separation agreement, Mr. Lindstrom was granted 125,000 stock options with an exercise price of $61.33 per share that were immediately vested. Theoptions are exercisable through December 31, 2018. During the year ended December 31, 2017, the Company issued 91,400 shares of its Common Stock in connection with the exercise of employeestock options under the Company’s 2006 Plan. The following table summarizes the stock option activity for the year ended December 31, 2017: Year ended December 31, 2017 Numberof SharesUnderOption Weighted-averageExercisePrice Weighted-averageRemainingContractualTerm AggregateIntrinsicValueBalance at beginning of period355,598 $33.48 Granted371,775 57.08 Exercised(115,825) 29.77 Forfeited/Cancelled(854) 46.44 Expired(3,999) 24.59 Outstanding at end of period606,695 $48.70 2.62 $6,705Vested or expected to vest at end of period606,695 $48.70 2.62 $6,705Exercisable at end of period357,984 $44.65 2.10 $5,508 The weighted-average grant-date fair value for options granted, total intrinsic value and cash received by the Company related to options exercisedduring the years ended December 31, 2017, 2016 and 2015 were as follows: Year ended December 31, 2017 2016 2015Weighted-average grant date fair value per share$9.05 $— $8.77Options exercised: Total intrinsic value$2,010 $979 $6,659Cash received$1,921 $4,108 $4,894 Stock Option Modifications During the fourth quarter of 2017, as a result of the separation agreement between the Company and Mr. Lindstrom, Mr. Lindstrom's outstandingstock options from his grants of 11,319 on August 6, 2015 and 9,798 on March 15, 2017 were modified to accelerate the vesting date of both awards toNovember 15, 2017 and allow exercise of the stock options until December 31, 2018. As a result of the modification to the terms of the original stock optionsgranted to Mr. Lindstrom, the Company recognized an accelerated expense of $83 on the award for the year ended December 31, 2017.During the second quarter of 2015, Warren Rustand terminated his role as CEO and board member of the Company, but remained employed as aSenior Advisor through the end of 2015. As a result of Mr. Rustand’s termination as CEO, a separation agreement was entered into between the Company andMr. Rustand. As a result of this separation agreement, Mr. Rustand’s outstanding stock options from his grant of 200,000 stock options on September 11,2014 were modified to accelerate the vesting date for the second tranche of options from June 30, 2015 to June 5, 2015, and the exercise period for all vestedoptions of 133,332 was lengthened. In addition, the third tranche of options, consisting of 66,668 options, was cancelled. As a result of the modifications101to the terms of the original stock options granted to Mr. Rustand, the Company recognized additional stock-based compensation expense of $737 for the yearended December 31, 2015. Restricted Stock Awards During the year ended December 31, 2017, the Company granted 33,420 shares of restricted stock (“RSAs”) to non-employee directors of its Board,executive officers and certain key employees. The awards primarily vest in three equal installments on the first, second and third anniversaries of the date ofgrant.During the year ended December 31, 2017, the Company issued 36,623 shares of its Common Stock to non-employee directors, executive officersand key employees upon the vesting of certain RSAs granted in 2016, 2015 and 2014 under the Company’s 2006 Plan. As of December 31, 2017 and 2016,10,134 shares were vested but not released due to an additional holding period required by the grant agreement. The following table summarizes the activity of the shares and weighted-average grant date fair value of the Company’s unvested restricted CommonStock during the year ended December 31, 2017: Shares Weighted-averagegrant datefair value Non-vested at beginning of period72,198 $44.44Granted33,420 $43.91Vested(36,623) $43.42Forfeited or cancelled(4,216) $47.17Non-vested at end of period64,779 $44.82 As of December 31, 2017, there was $4,331 of unrecognized compensation cost related to unvested share settled stock options and RSAs grantedunder the 2006 Plan. The cost is expected to be recognized over a weighted-average period of 1.2 years. The total fair value of stock options and RSAs vestedwas $3,550, $1,383 and $3,709 for the years ended December 31, 2017, 2016 and 2015, respectively. Other Restricted Stock Award Grants During the year ended December 31, 2014, the Board approved the grant of 596,915 RSAs to two individuals in connection with the Ingeusacquisition. The grants were made outside of the 2006 Plan, as they were related to the acquisition. However, since the term of the awards provided forvesting based on continued employment, the awards were accounted for as stock-based compensation. The shares necessary to settle these awards were placedin an escrow account in 2014, and were releasable from escrow in accordance with the vesting of the awards. Per the original terms of the agreements, theawards vested upon continued employment of the grantees, in four equal installments on the anniversary date of the grant. However, on October 15, 2015, theCompany entered into agreements whereby the executives’ employment was terminated by mutual agreement and vesting was no longer based uponcontinued employment. The Company recognized $16,078 in stock-based compensation expense at the time of the modification, which otherwise wouldhave been recognized over the remainder of the vesting period. Additionally, the Company recognized accelerated deferred compensation expense of $4,714related to these agreements during the year ended December 31, 2015. As of December 31, 2017, 149,228 underlying shares to settle the awards are held inthe escrow account and will be released in 2018, although all expense was recognized as of December 31, 2015. Restricted Stock Units During the year ended December 31, 2016, the Company granted 5,930 restricted stock units to a key employee, related to the terms of a separationagreement, that vested on January 3, 2017. The units were settled through a cash payment of $304 during the year ended December 31, 2017. The award wasliability classified, and the expense recorded was based upon the Company’s closing stock price at the end of each reporting period and the completedrequisite service period. 102Performance Restricted Stock Units The Company had 18,122 performance restricted stock units (“PRSUs”) outstanding at December 31, 2017. These awards vest upon the Company orits segments meeting certain performance criteria over a set performance period as determined, and subject to adjustment, by the Company’s CompensationCommittee of the Board. 13,262 of the outstanding PRSUs at December 31, 2017 have a performance criteria tied to the Company’s return on equity(“ROE”), with performance periods ending on December 31, 2017. The grantees will earn 33% of PRSUs granted if the ROE is 12% but less than 15%, and100% of the PRSUs granted if the ROE is 15% or more. If ROE is less than 12%, no PRSUs will be earned. The Company has determined, subsequent toDecember 31, 2017, that none of these PRSUs, with a performance period ended December 31, 2017, will vest. 4,860 of the outstanding PRSUs atDecember 31, 2017 have a performance criteria tied to NET Services’ EBITDA and the Company’s EBITDA performance with performance periods ending onDecember 31, 2017. The Company expects all of these PRSUs, with a performance period ended December 31, 2017, to vest. Compensation expense (benefit)related to these awards totaled $19, ($270) and $613 for the years ended December 31, 2017, 2016 and 2015, respectively.Cash Settled Awards During the years ended December 31, 2017, 2016 and 2015, respectively, the Company issued 3,097, 3,360 and 4,000 stock equivalent units(“SEUs”), which settle in cash upon vesting, to Coliseum Capital Partners, L.P., in lieu of a grant to Christopher Shackelton, Chairman of the Board, for hisservice on the Board, which vest one-third upon each anniversary of the vesting date. The fair value of the SEUs is based on the closing stock price on the lastday of the period and the completed requisite service period. The Company recorded $235, $287 and $588 of expense for SEUs during the years endedDecember 31, 2017, 2016 and 2015, respectively. During the year ended December 31, 2014, the Company issued 200,000 stock option equivalent units (“SOEUs”), with an exercise price of $43.81per share, which settle in cash, to Coliseum Capital Partners, L.P in lieu of a grant to Christopher Shackelton, for other services rendered. All 200,000 SOEUswere outstanding and exercisable at December 31, 2017. This award vested one-third upon grant, one-third on June 30, 2015 and one-third on June 30, 2016.No additional SOEUs were granted during the years ended December 31, 2017, 2016 and 2015. The Company recorded $2,146 and $1,888 of expense forSOEUs during the years ended December 31, 2017 and 2015, respectively, and a benefit of $1,517 during the year ended December 31, 2016. The expensesand benefit are included in “General and administrative expense” in the consolidated statements of income. The fair value of the SOEUs was estimated as ofDecember 31, 2017, 2016 and 2015 using the Black-Scholes option-pricing formula and amortized over the option’s graded vesting periods with thefollowing assumptions: Year ended December 31, 2017 2016 2015Expected dividend yield0.0% 0.0% 0.0%Expected stock price volatility23.36%—32.09% 35.71%—41.82% 43.75%—45.3%Risk-free interest rate1.75%—1.95% 1.11%—1.64% 1.2%—1.70%Expected life of options (in years)0.75—2.75 1.0—3.00 2.75—4.75 As of December 31, 2017 and 2016, the Company had a short-term liability of $3,938 and $1,764, respectively, in “Accrued expenses” in theconsolidated balance sheet related to unexercised vested and unvested cash settled share-based payment awards. The cash settled share-based compensationbenefit in total excluded tax expense of $492 for the year ended December 31, 2016. The cash settled share-based compensation expense in total excluded atax benefit of $908 and $990 for the years ended December 31, 2017 and 2015. The unrecognized compensation cost for SEUs is expected to be recognizedover a weighted average period of 0.8 years; however, the total expense for both SEUs and SOEUs will continue to be adjusted until the awards are settled. Holdco Long-Term Incentive Plan On August 6, 2015 (the “Award Date”), the Compensation Committee of the Board adopted the HoldCo LTIP under the 2006 Plan. The Holdco LTIPwas designed to provide long-term performance based awards to certain executive officers of Providence. Under the program, executives would receive sharesof Providence Common Stock based on the shareholder value created in excess of an 8.0% compounded annual return between the Award Date and December31, 2017 (the “Extraordinary Shareholder Value”). The Award Date value was calculated on the basis of the Providence stock price equal to the volumeweighted average of the common share price over the 90-day trading period ending on the Award Date. The Extraordinary Shareholder Value was calculatedon the basis of the Providence stock price equal to the volume weighted average of the common share price103over the 90-day trading period ending on December 31, 2017. A pool for use in the allocation of awards was created equal to 8.0% of the ExtraordinaryShareholder Value.Participants in the HoldCo LTIP would receive a percentage allocation of any such pool and, following determination of the size of the pool, wouldbe entitled to a number of shares equal to their pro rata portion of the pool divided by the volume weighted average of the Company’s per share price over the90-day trading period ending on December 31, 2017. Of the shares allocated, 60% would be issued to the participant on or shortly following determination ofthe pool, 25% would vest and be issued on the one-year anniversary of such determination date, subject to continued employment, and the remaining 15%would be issued on the second anniversary of the determination date, subject to continued employment.It was determined that no shares would be distributed under the Holdco LTIP as the calculation of the pool amount was zero. $4,738, $3,319 and$1,353 of expense is included in “General and administrative expense” in the consolidated statements of income for the years ended December 31, 2017,2016 and 2015, respectively. As of December 31, 2017, the Company accelerated all remaining unrecognized compensation expense for the Holdco LTIP asthere was no further requisite service period associated with the award, resulting in an acceleration of expense of $1,053.These awards were equity classified and the fair value of the awards was calculated using a Monte-Carlo simulation valuation model. The fair valueof the awards granted in 2016 and 2015 were estimated using the following assumptions: Year ended December 31, 2016 2015Forward interest rate0.24%—2.71% 0.04%—2.90%Expected Volatility40.0% 45.0%Dividend Yield—% —%Fair Value of Total Pool$12,870 $12,590 13. Vertical Long-Term Incentive Plan The Company established Long-Term Incentive Plans (“Vertical LTIPs”) for the Company’s operating segments, or verticals, during the fourthquarter of 2015. The Vertical LTIPs are consistent in their basic terms, but each were customized for specific aspects of the associated vertical. The awards payin cash, however up to 50% of the award may be paid in unrestricted stock if the recipient elects this option when the Vertical LTIP offer letter is received. Inaddition, at the discretion of the Company, the recipients may be able to elect unrestricted stock in lieu of cash compensation at a later date. The VerticalLTIPs reward participants based on certain measures of free cash flow and EBITDA results adjusted as specified in the plan document. The awards vest inthree installments: 60% of the award will pay out immediately following December 31, 2017, 25% one year following the performance period (i.e. December31, 2018) and 15% two years following the performance period (i.e. December 31, 2019). Payout is subject to the participant remaining employed by theCompany.During 2017, the Company revised the structure of the NET Services long-term incentive plan. As a result, the Company finalized the amountpayable under the plan at $2,956. The total value will be paid to the awarded participants per the terms of the original agreement and thus the remainingunamortized expense relating to this plan continues to be recognized over the remaining service period. As of December 31, 2017, unamortizedcompensation expense is $299. For the years ended December 31, 2017, 2016, and 2015, $816, $1,513 and $328 of expense, respectively, is included in“Service expense” in the consolidated statements of income related to this plan. At December 31, 2017, the liability for long-term incentive plans of theCompany’s operating segments of $2,657 is reflected in “Accrued expenses” and “Other long-term liabilities” in the consolidated balance sheet. AtDecember 31, 2016, the liability for long-term incentive plans of the Company’s operating segments of $1,841 is reflected in “Other long-term liabilities” inthe consolidated balance sheet. 10414. Earnings Per Share The following table details the computation of basic and diluted earnings per share: Year ended December 31, 2017 2016 2015Numerator: Net income attributable to Providence$53,369 $91,928 $83,696Less dividends on convertible preferred stock(4,419) (4,419) (3,935)Less accretion of convertible preferred stock discount— — (1,071)Less income allocated to participating securities(7,085) (13,135) (10,691)Net income available to common stockholders$41,865 $74,374 $67,999 Continuing operations$47,848 $(21,251) $(29,181)Discontinued operations(5,983) 95,625 97,180 $41,865 $74,374 $67,999 Denominator: Denominator for basic earnings per share -- weighted-average shares13,602,140 14,666,896 15,960,905Effect of dilutive securities: Common stock options66,314 — —Performance-based restricted stock units4,860 — —Denominator for diluted earnings per share -- adjusted weighted-average shares assumedconversion13,673,314 14,666,896 15,960,905 Basic earnings (loss) per share: Continuing operations$3.52 $(1.45) $(1.83)Discontinued operations(0.44) 6.52 6.09 $3.08 $5.07 $4.26Diluted earnings (loss) per share: Continuing operations$3.50 $(1.45) $(1.83)Discontinued operations(0.44) 6.52 6.09 $3.06 $5.07 $4.26 The accretion of Preferred Stock discount in the table above related to a beneficial conversion feature of the Company’s Preferred Stock that wasfully amortized as of June 30, 2015. Income allocated to participating securities is calculated by allocating a portion of net income attributable toProvidence, less dividends on convertible stock, to the convertible preferred stockholders on a pro-rata as converted basis; however, the convertible preferredstockholders are not allocated losses.The following weighted-average shares were not included in the computation of diluted earnings per share as the effect of their inclusion wouldhave been anti-dilutive: Year ended December 31, 2017 2016 2015Stock options to purchase common stock362,392 22,638 173,925Convertible preferred stock803,323 803,442 700,241 10515. Operating Leases The Company has non-cancelable contractual obligations in the form of operating leases for office space, related office equipment and otherfacilities. The leases expire in various years and generally provide for renewal options. In the normal course of business, it is expected that these leases will berenewed or replaced by leases on other properties. Certain operating leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index,subject to certain minimum increases. Several of these lease agreements contain provisions for periods in which rent payments are reduced. The total amountof rental payments due over the lease term is being charged to rent expense on a straight-line basis over the term of the lease. The cumulative differencebetween rent expense recorded and the amount paid, for continuing operations, as of December 31, 2017 and 2016 was $3,957 and $3,253, respectively, andis included in “Accrued expenses” and “Other long-term liabilities” in the consolidated balance sheets. Future minimum payments under non-cancelable operating leases for equipment and property with initial terms of one year or more consisted of thefollowing at December 31, 2017: Operating Leases2018$20,875201913,37620209,73820218,02220226,142Thereafter3,939Total future minimum lease payments$62,092 Rent expense for continuing operations related to operating leases was $27,511, $29,316 and $31,191, for the years ended December 31, 2017, 2016and 2015, respectively. Also, the lease agreements generally require the Company to pay executory costs such as real estate taxes, insurance, and repairs,which are recorded to expense as incurred. 16. Retirement Plan The Company maintains a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended, for allemployees of its NET Services operating segment and corporate personnel. The Company, at its discretion, may make a matching contribution to the plan.Any matching contributions vest over 5 years. Unvested matching contributions are forfeitable upon employee termination. Employee contributions are fullyvested and non-forfeitable. The Company’s contributions to the plan for continuing operations were $320, $248 and $221, for the years ended December 31,2017, 2016 and 2015, respectively. WD Services’ employees are entitled to benefits under certain retirement plans. The WD Services’ segment has separate plans in each country itoperates. The plans receive fixed contributions from WD Services’ companies and the legal or constructive obligation is limited to these contributions,although the benefits the employees ultimately receive are determined by the plan administrators, which includes government entities and third-partyadministrators. The Company’s contributions to these plans were $8,219, $9,139 and $10,331 for the years ended December 31, 2017, 2016 and 2015,respectively.The Company also maintains a Deferred Compensation Rabbi Trust Plan for highly compensated employees of NET Services. This plan was put inplace to compensate for the inability of highly compensated employees to take full advantage of the Company’s 401(k) plan. Additional information isincluded in Note 18, Commitments and Contingencies. 10617. Income Taxes The following table summarizes our U.S. and foreign income (loss) from continuing operations before income taxes: Year Ended December 31, 2017 2016 2015US48,719 65,559 43,598Foreign15,485 (67,437) (53,692)Total$64,204 $(1,878) $(10,094) The federal, state and foreign income tax provision is summarized as follows: Year Ended December 31, 2017 2016 2015Federal: Current$18,792 $21,202 $15,161Deferred(19,767) (6,477) (1,606) (975) 14,725 13,555State: Current3,975 4,580 2,644Deferred723 (938) (38) 4,698 3,642 2,606Foreign: Current1,197 266 523Deferred(519) (1,597) (2,101) 678 (1,331) (1,578) Total provision for income taxes$4,401 $17,036 $14,583107A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income (loss)from continuing operations before income taxes is as follows: Year Ended December 31, 2017 2016 2015Federal statutory rates35% 35 % 35 %Federal income tax at statutory rates$22,471 $(657) $(3,533)Revaluation of net deferred tax liabilities due to U.S. tax reform(19,397) — —U.S. tax reform impact on equity income of investee(1,646) — —Change in valuation allowance2,299 9,480 3,574Change in uncertain tax positions7 73 (76)State income taxes, net of federal benefit3,203 2,396 1,785Difference between federal statutory and foreign tax rate(1,648) 9,427 4,642Stock compensation3,400 — (184)Meals and entertainment100 96 81Amortization of deferred consideration— — 9,444Transaction costs159 — (447)Contingent consideration liability reversal— — (854)Nontaxable income(1,203) — (965)Tax credits(354) (947) (456)Legal expense(805) 522 284Depreciation— — 649Equity in net loss of investee569 624 366Sale of joint venture(6,021) — —Asset impairment— 2,353 —Foreign exchange2,925 (7,001) —Other342 670 273Provision for income taxes$4,401 $17,036 $14,583Effective income tax rate7% (907)% (144)% The Company recognized an income tax provision for the years ended December 31, 2016 and December 31, 2015 despite having losses fromcontinuing operations before income taxes. Because of foreign net operating losses (including equity investee losses) for which the future income tax benefitcurrently cannot be recognized, and non-deductible expenses such as amortization of deferred consideration related to the Ingeus acquisition, the Companyrecognized estimated taxable income for these years upon which the income tax provision for financial reporting is calculated.108Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: December 31, 2017 2016Deferred tax assets: Net operating loss carryforwards$20,496 $17,742Tax credit carryforwards486 399Accounts receivable allowance1,134 1,341Accrued items and reserves14,371 18,669Stock compensation1,480 4,224Deferred rent572 915Property and equipment depreciation300 —Other173 180 39,012 43,470Deferred tax liabilities: Deferred financing costs38 154Prepaids1,440 2,103Property and equipment depreciation— 1,238Goodwill and intangibles amortization5,809 9,568Equity investment42,113 59,244Other205 203 49,605 72,510Net deferred tax liabilities(10,593) (29,040)Less valuation allowance(26,402) (27,423)Net deferred tax liabilities$(36,995) $(56,463)Net noncurrent deferred tax assets, net of valuation allowance of $26,402 and $27,423 for 2017 and 2016,respectively4,632 1,510Net noncurrent deferred tax liabilities, net of valuation allowance of $0 and $0 for 2017 and 2016, respectively(41,627) (57,973) $(36,995) $(56,463) At December 31, 2017, the Company had no federal or state net operating loss carryforwards. The Company had net operating loss carryforwards inthe following countries which can be carried forward indefinitely: Australia$41,256Canada728France3,882Saudi Arabia82UK40,090 Realization of the Company’s net operating loss carryforwards is dependent on generating sufficient taxable income. Although realization is notassured, management believes it is more likely than not that all of the deferred tax assets will be realized, to the extent they are not covered by a valuationallowance. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income duringthe carryforward period are reduced. The net change in the total valuation allowance for the year ended December 31, 2017 was negative $1,021, of which positive $2,299 related tocurrent operations and negative $3,320 related to the adjustment of the beginning balance. The valuation109allowance includes $25,929 primarily for Australia, France and UK net operating loss carryforwards, and $473 for state tax credit carryforwards for which theCompany has concluded that it is more likely than not that these net operating loss and tax credit carryforwards will not be realized in the ordinary course ofoperations. The Company will continue to assess the valuation allowance, and to the extent it is determined that the valuation allowance should be changed,an appropriate adjustment will be recorded.U.S. Tax ReformOn December 22, 2017, the Tax Reform Act was enacted which institutes fundamental changes to the taxation of multinational corporations. TheTax Reform Act includes changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferralrules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Tax Reform Act also includes a permanent reduction in thecorporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interestexpense. Furthermore, as part of the transition to the new tax system, a one-time transition tax is imposed on a U.S. shareholder’s historical undistributedearnings and profits (“E&P”) of foreign affiliates. Although the Tax Reform Act is generally effective January 1, 2018, GAAP requires recognition of the taxeffects of new legislation during the reporting period that includes the enactment date, which was December 22, 2017.As a result of the reduction in the U.S. corporate income tax rate, the Company revalued its ending net deferred tax liabilities as of December 31,2017 and recognized a provisional tax benefit of $19,397. The Company has projected net accumulated deficits in foreign E&P; therefore, no provisional taxexpense for deemed repatriation has been recognized. For any future foreign earnings, the Company will generally be free of additional U.S. taxconsequences due to a dividends received deduction implemented as part of the move to a territorial tax system for foreign subsidiary earnings. TheCompany continues to assert indefinite reinvestment in outside basis differences. Determination of the amount of unrecognized deferred tax liability onoutside basis differences is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios,and the variation due to multiple potential assumptions relating to the timing of any future repatriation.The global intangible low taxed income (“GILTI”) provisions of the Tax Reform Act require the Company to include in its U.S. income tax returnforeign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company may be subject to incremental U.S. taxon GILTI income beginning in 2018, and has elected to account for GILTI tax in the period in which it is incurred. Therefore, no deferred tax impacts ofGILTI have been considered in the Company’s consolidated financial statements for the year ended December 31, 2017.On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when aregistrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accountingfor certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, the Company has recognized the provisional tax impactsrelated to the benefit for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017.The final impact of the Tax Reform Act may differ from these provisional amounts, possibly materially, due to, among other things, issuance of additionalregulatory guidance, changes in interpretations and assumptions the Company has made, and actions the Company may take as a result of the Tax ReformAct. In accordance with SAB 118, the financial reporting impact of the Tax Reform Act will be completed in the fourth quarter of 2018.Unrecognized Tax Benefits The Company expects no material amount of the unrecognized tax benefits to be recognized during the next twelve months. The Companyrecognizes interest and penalties as a component of income tax expense. During the years ended December 31, 2017, 2016 and 2015, the Companyrecognized approximately $65, $19 and $27, respectively, in interest and penalties. The Company had approximately $83 and $52 for the payment ofpenalties and interest accrued as of December 31, 2017 and 2016, respectively.110A reconciliation of the liability for unrecognized income tax benefits is as follows: December 31, 2017 2016 2015Unrecognized tax benefits, beginning of year$1,108 $271 $347Balance upon acquisition/disposition— 764 —Increase (decrease) related to prior year positions22 37 (47)Increase related to current year tax positions101 139 48Statute of limitations expiration(116) (103) (77)Unrecognized tax benefits, end of year$1,115 $1,108 $271 The Company is subject to taxation in the U.S. and various foreign and state jurisdictions. The statute of limitations is generally three years for theU.S., two to five years in foreign countries and between three and four years for the various states in which the Company operates. The Company is subject tothe following material taxing jurisdictions: the U.S., UK, Australia, France, Saudi Arabia and Korea. The tax years that remain open for examination by theU.S. and various foreign countries and states principally include the years 2013 to 2017.18. Commitments and Contingencies Legal proceedings On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”),captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL (the “Haverhill Litigation”). The complaint named Richard A. Kerley, Kristi L.Meints, Warren S. Rustand, Christopher Shackelton (the “Individual Defendants”) and Coliseum Capital Management, LLC (“Coliseum CapitalManagement”) as defendants, and the Company as a nominal defendant. The complaint purported to allege that the dividend rate increase term originally inthe Company’s outstanding Preferred Stock was an impermissibly coercive measure that impaired the voting rights of the Company’s stockholders inconnection with the vote on the removal of certain voting and conversion caps previously applicable to the Preferred Stock (the “Caps”), and that theIndividual Defendants breached their fiduciary duties by approving the dividend rate increase term and attempting to coerce the stockholder vote relating tothe Company’s Preferred Stock, and by failing to disclose all material information necessary to allow the Company’s stockholders to cast an informed vote onthe Caps. The complaint also purported to allege derivative claims alleging that the Individual Defendants breached their fiduciary duties to the Company byentering into the subordinated note and standby agreement with Coliseum Capital Management, and granting Coliseum Capital Management certain stockoptions. The complaint further alleged that Coliseum Capital Management aided and abetted the Individual Defendants in breaching their fiduciary duties.The complaint sought, among other things, an injunction prohibiting the stockholder vote relating to the dividend rate increase, corporate governancereforms, unspecified damages and other relief. On August 31, 2015, after arms’ length negotiations, the parties reached an agreement in principle and executed a Memorandum of Understanding(“MOU”) providing for the settlement of claims concerning the dividend rate increase term and stockholder vote and related disclosure. The MOU stated thatthe Defendants had entered into the partial settlement of the litigation solely to eliminate the distraction, burden, expense, and potential delay of furtherlitigation involving claims that have been settled. Pursuant to the partial settlement, the Company agreed to supplement the disclosures in its definitiveproxy statement on Schedule 14A (the “2015 Proxy Statement”), Coliseum Capital Management and certain of its affiliates and the Company entered into anamendment to that certain Series A Preferred Stock Exchange Agreement, by and among Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P.,Coliseum Capital Co-Invest, L.P., Blackwell Partners, LLC, and The Providence Service Corporation dated as of February 11, 2015 described in the 2015Proxy Statement, and the Board of the Company agreed to adopt a policy related to the Board’s determination each quarter as to whether the Companyshould pay cash dividends or allow dividends to be paid in the form of PIK dividends on the Preferred Stock, as further described in the supplemental proxydisclosures. On September 2, 2015, Providence issued supplemental disclosures through a supplement to the 2015 Proxy Statement. On September 16, 2015,Providence stockholders approved the removal of the Caps. The Company provided notice of the proposed partial settlement to Providence’s stockholders byDecember 11, 2015. At a hearing on February 9, 2016, the court denied approval of the settlement. The Court indicated that plaintiff’s counsel could petitionthe Court for a mootness fee, and that defendants would have the opportunity to oppose any such application. On January 12, 2016, the plaintiff filed a verified amended class action and derivative complaint (the “first amended complaint”). In addition to thedefendants named in the earlier complaint, the first amended complaint named David Shackelton,111Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC, Coliseum Capital Co-Invest, L.P. (collectively, and together withColiseum Capital Management, LLC, “Coliseum”) and RBC Capital Markets, LLC (“RBC Capital Markets”) as additional defendants. The first amendedcomplaint purported to allege direct and derivative claims for breach of fiduciary duty against some or all of the Individual Defendants and David Shackelton(collectively, the “Amended Individual Defendants”) regarding the approval of the subordinated note, the rights offering, the standby agreement withColiseum Capital Management, and the grant to Coliseum Capital Management of certain stock options. The first amended complaint also purported toallege an additional derivative claim for unjust enrichment against Coliseum and further alleged that Coliseum and RBC Capital Markets aided and abettedthe Amended Individual Defendants in breaching their fiduciary duties. The first amended complaint sought, among other things, revision or rescission of theterms of the subordinated note and Preferred Stock, corporate governance reforms, unspecified damages and other relief.On May 6, 2016, the plaintiff filed a verified second amended class action and derivative complaint (the “second amended complaint”). In additionto the defendants named in the earlier complaint, the second amended complaint named Paul Hastings LLP (“Paul Hastings”) and Bank of America, N.A.(“BofA”) as additional defendants. In addition to previously asserted claims, the second amended complaint purported to assert direct and derivative claimsfor breach of fiduciary duties against Coliseum Capital Management, in its capacity as the controlling stockholder of the Company, in connection with thesubordinated note, the Company’s rights offering of Preferred Stock and the standby purchase agreement with Coliseum Capital Management (the“Financing Transactions”). The second amended complaint also alleged that Paul Hastings breached their fiduciary duties as counsel to the Company inconnection with the Financing Transactions and that BofA and Paul Hastings aided and abetted certain of the Amended Individual Defendants in breachingtheir fiduciary duties in connection with the Financing Transactions. The second amended complaint sought, among other things, revision or rescission ofthe terms of the subordinated note and Preferred Stock, corporate governance reforms, disgorgement of fees paid to RBC Capital Markets, Paul Hastings andBofA for work relating to the Financing Transactions, unspecified damages and other relief.On May 20, 2016, the Court granted a six-month stay of the proceeding (which was subsequently extended) to allow a special litigation committee,created by the Board, sufficient time to investigate, review and evaluate the facts, circumstances and claims asserted in or relating to this action anddetermine the Company’s response thereto. On January 20, 2017, the special litigation committee advised the Court that the parties to the litigation and thespecial litigation committee had reached an agreement in principle to settle all of the claims in the litigation. The parties then entered into a proposedsettlement agreement which was submitted to the Court for approval. On September 28, 2017, the Court approved the proposed settlement agreement amongthe parties that provided for a settlement amount of $10,000 less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the SettlementAmount to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s Common Stock other than certain excludedparties. In November 2017, the Company received a payment of $5,363 from the Settlement Amount, which is included in “Other income” in theconsolidated statement of income for the year ended December 31, 2017.In addition to the matter described above, in the ordinary course of business, the Company is a party to various lawsuits. Management does notexpect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Providence.Indemnifications related to Haverhill Litigation The Company indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating to orarising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby PurchaseAgreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the 14.0% Unsecured Subordinated Note in aggregate principalamount of $65,500, except to the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willfulmisconduct or fraud of such Standby Purchaser. The Company has also indemnified other third parties from and against any and all losses, claims, damages, expenses and liabilities arising out of orin connection with the Company’s acquisition of CCHN Group Holdings, Inc. (operating under the tradename Matrix, and formerly included in our HAServices segment) in October 2014 and related financing commitments, except to the extent that any such losses, claims, damages, expenses and liabilitiesare found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconductof such third parties, or a material breach of such third parties’ obligations under the related agreements. The Company recorded $318, $1,282 and $310 of such indemnified legal expenses related to the Haverhill Litigation during the years endedDecember 31, 2017, 2016 and 2015, respectively, which is included in “General and administrative expenses” in the consolidated statements of income. Ofthese amounts, $245, $757 and $310 for the years ended December 31, 2017, 2016112and 2015, respectively, were indemnified legal expenses of related parties. Other legal expenses of the Company related to the Haverhill Litigation arecovered under the Company’s insurance policies, subject to applicable deductibles and customary review of the expenses by the carrier. The Companyrecognized expense of $8, $210 and $500 for the years ended December 31, 2017, 2016 and 2015, respectively. While the carrier typically remits paymentdirectly to the respective law firm, the Company accrues for the cost and records a corresponding receivable for the amount to be paid by the carrier. TheCompany has recognized an insurance receivable of $941 and $1,645 in “Other receivables” in the consolidated balance sheets at December 31, 2017 and2016, respectively, with a corresponding liability amount recorded to “Accrued expenses”.Other Indemnifications The Company has provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc.(“Molina”) effective November 1, 2015. All representations and warranties made by the Company in the Membership Interest Purchase Agreement (the“Purchase Agreement”) to sell the Human Services segment ended on February 1, 2017. However, claims made prior to February 1, 2017 by the purchaser ofthe Human Services segment against these representations and warranties may survive until the claims are settled. In addition, certain representations,including tax representations, survive until the expiration of applicable statutes of limitation, and healthcare representations survive until the thirdanniversary of the closing date. The Company has received indications from the purchaser of the Human Services segment regarding potentialindemnification claims. One potential indemnification claim relates to Rodriguez v. Providence Community Corrections (the “Rodriguez Litigation”), acomplaint filed in the District Court for the Middle District of Tennessee, Nashville Division (the “Rodriquez Court”), against Providence CommunityCorrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. On September 18, 2017, the plaintiffs in the Rodriguez Litigation filed anunopposed motion for preliminary approval of a proposed settlement, pursuant to which PCC would pay $14,000 to the plaintiffs and $350 to co-defendantRutherford County, Tennessee. On October 5, 2017, the Rodriguez Court denied preliminary approval of the settlement and requested additionalinformation. On October 18, 2017, the plaintiffs filed a second unopposed motion for approval of the proposed settlement. On January 2, 2018, the RodriguezCourt granted preliminary approval of the proposed settlement and authorized notice to class members. On September 15, 2017, Molina and the Company entered into a memorandum of understanding; and on March 1, 2018, Molina and the Companyentered into a settlement agreement, regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters.As of December 31, 2017, the accrual is $15,000 with respect to an estimate of loss for potential indemnification claims. The Company expects to recover aportion of the settlement through insurance coverage, although this cannot be assured. Litigation is inherently uncertain and the actual losses incurred in the event that the related legal proceedings were to result in unfavorable outcomescould have a material adverse effect on the Company’s business and financial performance.The Company has provided certain standard indemnifications in connection with its Matrix stock subscription transaction whereby Mercury FortunaBuyer, LLC (“Subscriber”), Providence and Matrix entered into a stock subscription agreement (the “Subscription Agreement”), dated August 28, 2016. Therepresentations and warranties made by the Company in the Subscription Agreement ended January 19, 2018; however, certain fundamental representationssurvive through the 36th month following the closing date. The covenants and agreements of the parties to be performed prior to the closing ended January19, 2018, and all other covenants and agreements survive until the expiration of the applicable statute of limitations in the event of a breach, or for suchlesser periods specified therein. The Company is not aware of any indemnification liabilities with respect to Matrix that require accrual at December 31,2017. Other ContingenciesOn January 25, 2018, the UK Ministry of Justice (the “MOJ”) released a report on reoffending statistics for certain offenders who entered probationservices during the period October 2015 to March 2016. The report provides statistics for all providers of probation services, including our subsidiary RRP,which is in our WD Services segment. This information is the second data set that is utilized to determine performance payments under the various providers’transforming rehabilitation contracts with the MOJ, as the actual rates of recidivism are compared to benchmark rates established by the MOJ. Performancepayments and penalties are linked to two separate measures of recidivism - the binary measure and the frequency measure. The binary measure defines thepercentage of offenders within a cohort, formed quarterly, who reoffend in the following 12 months. The frequency measure defines the average number ofoffenses committed by reoffenders within the same 12-month measurement period. The performance for the frequency measure for most providers has beenbelow the benchmarks established by the MOJ. As a result, RRP could be required to make payments to the MOJ and the amounts of such payments could bematerial. The amount of potential payments to the MOJ, if any, under RRP’s contracts with the MOJ cannot be estimated at this time, as the MOJ is113reviewing the data to understand the underlying reasons for the increase in certain rates of recidivism and other factors that could impact the contractualmeasure.Deferred Compensation Plan The Company has one deferred compensation plan for management and highly compensated employees of NET Services as of December 31, 2017.The deferred compensation plan is unfunded, and benefits are paid from the general assets of the Company. The total of participant deferrals, which isreflected in “Other long-term liabilities” in the consolidated balance sheets, was $1,806 and $1,430 at December 31, 2017 and 2016, respectively. 19. Transactions with Related Parties The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further discussed in Note 18,Commitments and Contingencies. Preferred Stock dividends earned by the Standby Purchasers during the years ended December 31, 2017 and 2016 totaled$4,213 each year. During the year ended December 31, 2017, the Company made a $566 loan to Mission Providence. The loan was also repaid during the year endedDecember 31, 2017.20. Discontinued Operations Effective October 19, 2016, the Company completed the Matrix Transaction. At the closing, (i) cash consideration of $180,614 was paid by theSubscriber to Matrix based upon an enterprise value of $537,500 and (ii) Matrix borrowed approximately $198,000 pursuant to a credit and guarantyagreement providing for term loans in an aggregate principal amount of $198,000 and revolving loan commitments in an aggregate principal amount not toexceed $10,000, which was not drawn at the closing. At the closing, Matrix distributed $381,163 to Providence, in full satisfaction of a promissory note andaccumulated interest between Matrix and Providence. At the closing, Providence made a $5,663 capital contribution to Matrix, as described in theSubscription Agreement, as amended, based upon its pro-rata ownership of Matrix, to fund the near-term cash needs of Matrix. On the day that was fifteendays following the closing date, Providence was, to the extent payable pursuant to the terms of the Subscription Agreement, as amended, entitled to receivefrom Matrix, or required to pay to Matrix, subsequent working capital adjustment payments. Providence received an initial payment of $5,172 from Matrix inNovember 2016 which is net of the capital contribution of $5,663 described above, based upon the initial working capital calculation as described in theSubscription Agreement. Additionally, in February 2017, the Company received a $75 payment from Matrix representing the final working capitaladjustment payment. In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations, a component of an entity is reported indiscontinued operations after meeting the criteria for held for sale classification if the disposition represents a strategic shift that has (or will have) a majoreffect on the entity's operations and financial results. The Company analyzed the quantitative and qualitative factors relevant to the Matrix stocksubscription transaction resulting in the Company no longer owning a controlling interest in Matrix, and determined that those held for sale conditions fordiscontinued operations presentation were met during the third quarter of 2016. As such, the historical financial results of Matrix, the Company’s historicalHA Services segment, and the related income tax effects have been presented as discontinued operations for all periods presented in the accompanyingconsolidated financial statements through October 19, 2016. The Company has continuing involvement with Matrix through its ownership of 46.6% of the equity interests in Matrix as of December 31, 2017, aswell as through a management consulting agreement, not to exceed ten years. Prior to the Matrix Transaction, the Company owned 100% of the equityinterest in Matrix. Subsequent to the Matrix Transaction, the Company accounts for its investment in Matrix under the equity method of accounting. TheCompany’s share of Matrix’s losses subsequent to the Matrix Transaction, which totaled $13,445 and $1,789, is recorded as “Equity in net (gain) loss ofinvestees” in its consolidated statement of income for the years ended December 31, 2017 and 2016, respectively. Matrix’s pretax loss for the year endedDecember 31, 2017 totaled $2,948 and includes $3,537 of transaction related expenses. Matrix’s pretax loss for the period of October 19, 2016 throughDecember 31, 2016 totaled $7,027 and includes $6,367 of transaction related expenses. There have been no cash inflows or outflows from or to Matrixsubsequent to the closing of the Matrix Transaction, other than the working capital adjustments discussed above and management fees associated with itsongoing relationship with Matrix, of which $1,103 was received during the year ended December 31, 2017. $247 and $185 are included in “Otherreceivables” in the consolidated balance sheets at December 31, 2017 and 2016, respectively, related to management fees receivable. On September 3, 2015, the Company entered into a Purchase Agreement, pursuant to which the Company agreed to sell all of the membershipinterests in Providence Human Services, LLC and Providence Community Services, LLC, comprising the114Company’s Human Services segment, in exchange for cash proceeds of approximately $200,000 prior to adjustments for estimated working capital, certainseller transaction costs, debt assumed by the buyer, and a $20,099 cash payment received for the Providence Human Services cash and cash equivalents onhand at closing. The net proceeds were $230,703, although $10,000 is held in an indemnity escrow and recorded within “Prepaid expenses and other” in theconsolidated balance sheet at December 31, 2017. Proceeds include a customary working capital adjustment of $13,246. During the years endedDecember 31, 2017 and 2016, the Company recorded additional expenses related to the Human Services segment, principally related to legal proceedings asdescribed in Note 18, Commitment and Contingences, related to an indemnified legal matter.Results of Operations The following table summarizes the results of operations classified as discontinued operations, net of tax, for the years ended December 31, 2017,2016 and 2015. The HA Services segment column in the table below for the year ended December 31, 2016 reflects the financial results for HA Services fromJanuary 1, 2016 through October 19, 2016. Year ended December 31, 2017 Human ServicesSegment HA ServicesSegment Total DiscontinuedOperations Operating expenses: General and administrative expense$9,674 $— $9,674Total operating expenses9,674 — 9,674Loss from discontinued operations before income taxes(9,674) — (9,674)Income tax benefit3,691 — 3,691Discontinued operations, net of tax$(5,983) $— $(5,983) Year ended December 31, 2016 Human ServicesSegment HA ServicesSegment Total DiscontinuedOperations Service revenue, net$— $166,090 $166,090 Operating expenses: Service expense— 120,906 120,906General and administrative expense7,966 2,148 10,114Depreciation and amortization— 21,121 21,121Total operating expenses7,966 144,175 152,141Operating income (loss)(7,966) 21,915 13,949 Other expenses: Write-off of deferred financing fees— 2,302 2,302Interest expense, net— 9,929 9,929Income (loss) from discontinued operations before gain on disposition and incometaxes(7,966) 9,684 1,718Gain on disposition— 167,895 167,895(Provision) benefit for income taxes2,401 (63,254) (60,853)Discontinued operations, net of tax$(5,565) $114,325 $108,760 115 Year ended December 31, 2015 Human ServicesSegment HA ServicesSegment Total DiscontinuedOperations Service revenue, net$291,510 $217,436 $508,946 Operating expenses: Service expense264,293 163,211 427,504General and administrative expense14,975 2,630 17,605Asset impairment charge1,593 — 1,593Depreciation and amortization4,831 29,472 34,303Total operating expenses285,692 195,313 481,005Operating income5,818 22,123 27,941 Other expenses: Interest expense, net2,829 14,359 17,188Income from discontinued operations before gain on disposition and income taxes2,989 7,764 10,753Gain on disposition123,129 — 123,129Provision for income taxes(24,318) (1,693) (26,011)Discontinued operations, net of tax$101,800 $6,071 $107,871Interest expense, net The Company allocated interest expense, including amortization of deferred financing fees, to discontinued operations based on the portion of thedebt that was required to be paid with the proceeds from the sale of the Human Services segment and the Matrix Transaction. The total allocated interestexpense is included in “Interest expense, net” in the tables above. The total allocated interest expense for the years ended December 31, 2016 and 2015 is asfollows: Year ended December 31, 2016 2015Human Services Segment$— $2,871HA Services Segment9,939 14,376Total$9,939 $17,247116Cash Flow Information The following table presents depreciation, amortization, capital expenditures and significant operating noncash items of the discontinuedoperations for the years ended December 31, 2016 and 2015: For the year ended December 31, 2016 HumanServicesSegment HA ServicesSegment TotalDiscontinuedOperations Cash flows from discontinued operating activities: Depreciation$— $3,661 $3,661Amortization— 17,460 17,460Stock-based compensation— (18) (18)Deferred income taxes— 52,338 52,338 Cash flows from discontinued investing activities: Purchase of property and equipment$— $9,174 $9,174 For the year ended December 31, 2015 HumanServicesSegment HA ServicesSegment TotalDiscontinuedOperations Cash flows from discontinued operating activities: Depreciation$2,376 $3,370 $5,746Amortization2,455 26,102 28,557Asset impairment charge1,593 — 1,593Stock-based compensation7 108 115Deferred income taxes(5,680) 730 (4,950) Cash flows from discontinued investing activities: Purchase of property and equipment$2,224 $8,079 $10,303 21. Segments The Providence Service Corporation owns subsidiaries and investments primarily engaged in the provision of healthcare services in the UnitedStates and workforce development services internationally. The subsidiaries and other investments in which the Company holds interests comprise thefollowing segments:•NET Services – Nationwide manager of non-emergency medical transportation programs for state governments and managed care organizations.•WD Services – Global provider of employment preparation and placement services, legal offender rehabilitation services, youth community serviceprograms and certain health related services to eligible participants of government sponsored programs.•Matrix Investment – Minority interest in Matrix, a nationwide provider of in-home care optimization and management solutions, including CHAs,to members of managed care organizations, accounted for as an equity method investment as a result of the Matrix Transaction on October 19, 2016,which is further discussed in Note 20, Discontinued Operations117In addition to its segments’ operations, the Corporate and Other segment includes the Company’s activities at its corporate office that includeexecutive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions, and the Company’s captiveinsurance company. Segment results are based on how the Company’s chief operating decision maker (“CODM”) manages the Company’s business, makes operatingdecisions and evaluates operating performance. The operating results of the segments include revenue and expenses incurred by the segment, as well as anallocation of direct expenses incurred by Corporate on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses,such as executive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions and the results of theCompany's captive insurance company as well as elimination entries recorded in consolidation are reflected in Corporate and Other.The following table sets forth certain financial information from continuing operations attributable to the Company’s business segments for theyears ended December 31, 2017, 2016 and 2015. Year Ended December 31, 2017 NET Services WD Services MatrixInvestment Corporate andOther TotalService revenue, net$1,318,220 $305,662 $— $— $1,623,882Service expense1,227,426 265,417 — (3,799) 1,489,044General and administrative expense11,779 25,438 — 35,119 72,336Depreciation and amortization13,275 12,851 — 343 26,469Operating income (loss)$65,740 $1,956 $— $(31,663) $36,033 Equity in net (gain) loss of investees$— $1,391 $(13,445) $— $(12,054)Investment in equity method investee$— $213 $169,699 $— $169,912Total assets$294,127 $184,805 $169,699 $55,459 $704,090Long-lived asset expenditures$15,319 $4,527 $— $77 $19,923 Year Ended December 31, 2016 NET Services WD Services MatrixInvestment Corporate andOther TotalService revenue, net$1,233,720 $344,403 $— $122 $1,578,245Service expense1,132,857 320,147 — (894) 1,452,110General and administrative expense11,406 30,300 — 28,205 69,911Asset impairment charge— 19,588 — 1,415 21,003Depreciation and amortization12,375 13,824 — 405 26,604Operating income (loss)$77,082 $(39,456) $— $(29,009) $8,617 Equity in net (gain) loss of investees$— $8,498 $1,789 $— $10,287Investment in equity method investee$— $4,161 $157,202 $— $161,363Total assets$313,371 $160,152 $157,202 $54,554 $685,279Long-lived asset expenditures$10,845 $19,810 $— $1,387 $32,042118 Year Ended December 31, 2015 NET Services WD Services Corporate andOther TotalService revenue, net$1,083,015 $395,059 $(64) $1,478,010Service expense991,659 393,803 (4,308) 1,381,154General and administrative expense10,704 29,846 30,436 70,986Depreciation and amortization9,429 13,776 793 23,998Operating income (loss)$71,223 $(42,366) $(26,985) $1,872 Equity in net (gain) loss of investees$— $10,970 $— $10,970Long-lived asset expenditures$12,232 $11,869 $668 $24,769 Geographic Information The following table details the Company’s revenue from continuing operations and long-lived assets by geographic location. For the year ended December 31, 2017 UnitedStates UnitedKingdom OtherForeign ConsolidatedTotalService revenue, net$1,335,389 $187,655 $100,838 $1,623,882Long-lived assets (a)37,700 9,354 3,323 50,377 For the year ended December 31, 2016 UnitedStates UnitedKingdom OtherForeign ConsolidatedTotalService revenue, net$1,250,043 $235,061 $93,141 $1,578,245Long-lived assets (a)32,007 9,823 4,390 46,220 For the year ended December 31, 2015 UnitedStates UnitedKingdom OtherForeign ConsolidatedTotalService revenue, net$1,099,918 $298,386 $79,706 $1,478,010 (a)Represents property and equipment, net.Domestic service revenue, net, totaled 82.2%, 79.2% and 74.4% of service revenue, net for the years ended December 31, 2017, 2016 and 2015,respectively. Foreign service revenue, net, totaled 17.8%, 20.8% and 25.6% of service revenue, net for the years ended December 31, 2017, 2016 and 2015,respectively. At December 31, 2017, $99,071 of the Company’s net assets from continuing operations were located in countries outside of the U.S. AtDecember 31, 2016, $76,579 of the Company’s net assets from continuing operations were located in countries outside of the U.S. Customer Information 11.2%, 10.2% and 11.0% of the Company’s consolidated revenue was derived from one U.S. state Medicaid program for the years endedDecember 31, 2017, 2016 and 2015, respectively. 10.7% of the Company’s consolidated revenue was derived from one UK governmental agency for the yearended December 31, 2015. In addition, substantially all of the Company’s revenues are generated from domestic and foreign governmental agencies orentities that contract with governmental agencies.11922. Quarterly Results (Unaudited) The quarterly consolidated financial statements presented below reflect HA Services and Human Services as discontinued operations for all periodspresented. Quarter ended March 31,2017 (1) June 30,2017 September 30,2017 (2) December 31,2017 (3)(4)(5) Service revenue, net$399,494 $407,983 $409,517 $406,888Operating Income6,788 5,999 6,309 16,937Income from continuing operations, net of tax1,915 3,858 14,964 39,066Discontinued operations, net of tax(5,866) (117) (16) 16Net income (loss) attributable to Providence(4,325) 3,915 14,853 38,926Earnings (loss) per common share (10): Basic$(0.40) $0.18 $0.88 $2.43Diluted$(0.40) $0.18 $0.88 $2.41 Quarter ended March 31,2016 June 30,2016 September 30,2016 (6) December 31,2016 (7)(8)(9) Service revenue, net$382,036 $398,119 $412,271 $385,819Operating Income (loss)8,304 6,712 9,793 (16,192)Income (loss) from continuing operations, net of tax1,376 1,624 3,743 (25,657)Discontinued operations, net of tax753 2,370 (2,791) 108,428Net income attributable to Providence2,235 4,623 650 84,420Earnings (loss) per common share (10): Basic$0.07 $0.21 $(0.05) $4.92Diluted$0.07 $0.21 $(0.05) $4.92(1)The Company recorded expenses, net of tax, of $5,866 in Discontinued operations, net of tax, in the quarter ending March 31, 2017 related tothe Company’s former Human Services segment, which are principally related to an ongoing legal matter. (2)The Company recorded a gain on sale of equity investment of $12,606, net of tax, related to the sale of its equity interest in Mission Providenceduring the quarter ended September 30, 2017. During the quarter ended December 31, 2017, the Company recorded a reduction to the gain onsale of $229, related to the finalization of the working capital adjustment per the sale agreement.(3)Operating income for the quarter ended December 31, 2017 increased as compared to the prior quarters in 2017 as a result of a decrease inservice expense as a percentage of revenue for NET Services and WD Services. This was primarily a result of lower operating costs of bothsegments as well as certain NET Services contractual adjustments recorded in the fourth quarter of 2017.(4)The quarter ended December 31, 2017 includes the receipt of the Haverhill Litigation settlement of $5,363.(5)The quarter ended December 31, 2017 includes a net tax benefit of $16,017 related to the enactment of the Tax Reform Act during the fourthquarter of 2017, due to the re-measurement of deferred tax liabilities by Providence as a result of the reduction in the U.S. corporate tax rate.Providence realized a tax benefit of $19,397, partially offset by $3,379 of increased tax expense resulting from additional equity in net gain ofMatrix, due to Matrix' re-120measurement of its deferred tax liabilities. The equity in net gain from Matrix for the quarter ended December 31, 2017 includes a tax benefit of$13,610 related to Matrix's re-measurement of deferred tax liabilities as a result of the Tax Reform Act.(6)The Company recorded expenses, net of tax, of $5,035 in Discontinued operations, net of tax, in the quarter ended September 30, 2016 relatedto the Company’s former Human Services segment, which are principally related to an ongoing legal matter. (7)Service revenue, net for the quarter ending December 31, 2016 decreased from the quarter ended September 30, 2016 primarily due to decreasedrevenue associated with the WD Services’ National Citizen Service summer youth programs, which are seasonal in nature. Additionally, thequarter ended September 30, 2016 included revenue of $5,367 under the WD Services’ offender rehabilitation program related to thefinalization of a contractual adjustment for the contract years ended March 31, 2015 and 2016.(8)The Company recorded an asset impairment charge of $1,415 related to the building and land utilized by the holding company, which was soldeffective December 30, 2016. Also, the Company recorded asset impairment charges in its WD Services segment of $9,983, $4,381 and $5,224to its property and equipment, intangible assets and goodwill, respectively. (9)The quarter ended December 31, 2016 includes gain on loss of controlling interest in Matrix, net of tax, of $109,403.(10)Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly earnings per share may notequal the total computed for the year.23. Subsequent EventsOn February 16, 2018, Matrix acquired HealthFair, a leading provider of mobile health assessment and advanced diagnostic testing services for apurchase price of $160,000 plus an earnout payment contingent upon HealthFair's 2018 financial performance. Additionally, Matrix entered into a financingtransaction consisting of a $330,000 first lien term loan and a $20,000 revolving line of credit, of which none was drawn, and issued an aggregate ofapproximately 24,200,000 shares of its common units related to a seller roll-over contribution. As a result of the rollover of certain equity interests inHealthFair, Providence’s equity ownership is 43.6% as of February 16, 2018.On November 2, 2017, the Company’s Board approved the extension of the Company’s existing stock repurchase program, authorizing theCompany to engage in a repurchase program to repurchase up to $69,640 (the amount remaining from the $100,000 repurchase amount authorized in 2016)in aggregate value of our Common Stock through December 31, 2018. During the period January 1, 2018 to March 5, 2018, the Company repurchased527,825 shares for $33,330, and $25,807 was available under the plan to repurchase shares.121Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A.Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Company, under the supervision and with the participation of its management (including its principal executive officer and principal financialofficer), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of theExchange Act as of the end of the period covered by this Annual Report on Form 10-K (December 31, 2017). Based upon this evaluation, the Company’sprincipal executive and financial officers have concluded that such disclosure controls and procedures were effective to provide reasonable assurance that (i)information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it filesor submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financialofficers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control Over Financial Reporting Management’s report on internal control over financial reporting is presented in Part II, Item 8, of this Annual Report and is hereby incorporated byreference.Report of Independent Registered Public Accounting Firm The attestation report of the registered public accounting firm on the Company’s internal control over financial reporting is presented in Part II, Item8, of this Annual Report and is hereby incorporated by reference. Changes in Internal Control Over Financial Reporting The principal executive and financial officers also conducted an evaluation of whether any changes in the Company’s internal control over financialreporting occurred during the quarter ended December 31, 2017 that have materially affected or which are reasonably likely to materially affect such control.Such officers have concluded that no such changes have occurred. Item 9B.Other Information. Effective March 12, 2018, Matthew Umscheid, our current Senior Vice President, Strategic Services, is being transferred to employment in such roleat our LogistiCare business, pursuant to an offer letter dated March 6, 2018. In connection with this transfer, Mr. Umscheid is resigning as an officer of theCompany. Under the terms of his offer letter with LogistiCare, Mr. Umscheid’s annual base salary will remain at $350,000, his target annual bonus for 2018will remain at 75% of his base salary, and there is no term of employment. In his new role, Mr. Umscheid will also be eligible to participate in othercompensation and benefit programs made available to LogistiCare’s senior executives, including a long-term incentive plan.122PART III Item 10.Directors, Executive Officers and Corporate Governance. This Item is incorporated by reference from our definitive proxy statement on Schedule 14A to be filed with the SEC and delivered to stockholdersin connection with our 2018 annual meeting of stockholders; provided that if such proxy statement is not filed on or before April 30, 2018, such informationwill be included in an amendment to this Annual Report on Form 10-K filed on or before such date. Code of Ethics We have adopted a code of ethics that applies to our senior management, including our chief executive officer, chief financial officer, controller andpersons performing similar functions, as well as our directors, officers and employees. This code of ethics is part of our broader Compliance and Ethics Planand Code of Conduct, which is available free of charge in the Investor Relations section of our website at www.prscholdings.com. We intend to disclose anyamendment to, or waiver from, a provision of the code of ethics that applies to our principal executive officer, principal financial officer or principalaccounting officer on our website. The information contained on our website is not part of, and is not incorporated in, this Annual Report on Form 10-K orany other report we file with or furnish to the SEC. Item 11.Executive Compensation. This Item is incorporated by reference from our definitive proxy statement on Schedule 14A to be filed with the SEC and delivered to stockholdersin connection with our 2018 annual meeting of stockholders; provided that if such proxy statement is not filed on or before April 30, 2018, such informationwill be included in an amendment to this Annual Report on Form 10-K filed on or before such date. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. This Item is incorporated by reference from our definitive proxy statement on Schedule 14A to be filed with the SEC and delivered to stockholdersin connection with our 2018 annual meeting of stockholders; provided that if such proxy statement is not filed on or before April 30, 2018, such informationwill be included in an amendment to this Annual Report on Form 10-K filed on or before such date. Item 13.Certain Relationships and Related Transactions, and Director Independence. This Item is incorporated by reference from our definitive proxy statement on Schedule 14A to be filed with the SEC and delivered to stockholdersin connection with our 2018 annual meeting of stockholders; provided that if such proxy statement is not filed on or before April 30, 2018, such informationwill be included in an amendment to this Annual Report on Form 10-K filed on or before such date. Item 14.Principal Accounting Fees and Services. This Item is incorporated by reference from our definitive proxy statement on Schedule 14A to be filed with the SEC and delivered to stockholdersin connection with our 2018 annual meeting of stockholders; provided that if such proxy statement is not filed on or before April 30, 2018, such informationwill be included in an amendment to this Annual Report on Form 10-K filed on or before such date. 123PART IV Item 15.Exhibits, Financial Statement Schedules. (a)(1) Financial Statements The following consolidated financial statements including footnotes are included in Item 8. •Consolidated Balance Sheets at December 31, 2017 and 2016; •Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015;•Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015;•Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015; and•Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015.(2) Financial Statement Schedules Schedule II Valuation and Qualifying Accounts Additions Balance atbeginning ofperiodCharged tocosts andexpensesCharged tootheraccountsDeductionsBalance atend ofperiodYear Ended December 31, 2017: Allowance for doubtful accounts$5,901$815$(466)(1)$488(2)$5,762Year Ended December 31, 2016: Allowance for doubtful accounts$4,380$3,298$1,058(1)$2,835(2)$5,901Year Ended December 31, 2015: Allowance for doubtful accounts$3,198$1,928$1,152(1)$1,898(2)$4,380Notes: Schedule above has been recast from prior year to exclude activity related to discontinued operations. (1)Amounts primarily include the allowance for contractual adjustments related to our non-emergency transportation services operating segment thatare recorded as adjustments to non-emergency transportation services revenue. Amount additionally includes impact from change in foreigncurrency rates.(2)Write-offs, net of recoveries.All other schedules are omitted because they are not applicable or the required information is shown in our financial statements or the related notesthereto. 124 (3) ExhibitsExhibitNumber Description2.1 Share Sale Agreement, dated as of March 31, 2014, by and among The Providence Service Corporation, Pinnacle Australia HoldcoPty Ltd, Thérèse Virginia Rein, Gregory Kenneth Ashmead and GK Ashmead Holdings Pty Limited (as trustee of the GK AshmeadNominees Trust) (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC onApril 1, 2014). 2.2 Australian Share Sale Agreement Side Deed, dated as of March 31, 2014, by and among The Providence Service Corporation,Pinnacle Australia Holdco Pty Ltd, Thérèse Virginia Rein, Gregory Kenneth Ashmead, GK Ashmead Holdings Pty Limited (astrustee of the GK Ashmead Nominees Trust) and Deloitte LLP (Incorporated by reference from an exhibit to the registrant’s currentreport on Form 8-K filed with the SEC on April 1, 2014). 2.3 Membership Interest Purchase Agreement, dated September 3, 2015, by and among The Providence Service Corporation, RossInnovative Employment Solutions Corp. and Molina Healthcare, Inc. (Incorporated by reference from an exhibit to the registrant’scurrent report on Form 8-K filed with the SEC on September 8, 2015). 2.4 Amendment to Membership Interest Purchase Agreement, dated October 30, 2015, by and among The Providence ServiceCorporation, Ross Innovative Employment Solutions Corp. and Molina Pathways, LLC, as assignee of Molina Healthcare, Inc.(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on November 5, 2015). 2.5 Stock Subscription Agreement, dated as of August 28, 2016, by and among The Providence Service Corporation, CCHN GroupHoldings, Inc. and Mercury Fortuna Buyer, LLC (Incorporated by reference from an exhibit to the registrant’s current report onForm 8-K filed with the SEC on August 31, 2016). 2.6 Amendment No. 1, dated as of October 19, 2016, to the Stock Subscription Agreement, dated August 28, 2016, by and among TheProvidence Service Corporation, CCHN Group Holdings, Inc. and Mercury Fortuna Buyer, LLC (Incorporated by reference from anexhibit to the registrant’s current report on Form 8-K filed with the SEC on October 25, 2016). 3.1 Second Amended and Restated Certificate of Incorporation of The Providence Service Corporation, including Certificate ofDesignation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of Delaware on December 9, 2011(Incorporated by reference from an exhibit to the registrant’s annual report on Form 10-K for the year ended December 31, 2011filed with the SEC on March 15, 2012). 3.2 Certificate of Amendment of the Certificate of Incorporation of The Providence Service Corporation, dated as of May 6, 2015(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on May 7, 2015). 3.3 Amended and Restated Bylaws of The Providence Service Corporation, effective March 10, 2010 (Incorporated by reference froman exhibit to the registrant’s annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 12,2010). 4.1 Certificate of Designations of Series A Convertible Preferred Stock of The Providence Service Corporation, dated as of February 6,2015 (Incorporated by reference from an exhibit to Amendment No. 1 to the registrant’s annual report on Form 10-K/A for the yearended December 31, 2014 filed with the SEC on April 30, 2015). 10.1 Amended and Restated Credit and Guaranty Agreement, dated as of August 2, 2013 (the “Credit Agreement”), by and among TheProvidence Service Corporation and certain of its subsidiaries party thereto, Bank of America, N.A., SunTrust Bank, BMO HarrisBank, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc. and the lenders party thereto(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on August 5, 2013). 10.2 Amended and Restated Pledge Agreement, dated as of August 2, 2013, by and among The Providence Service Corporation, certainof its subsidiaries party thereto, and Bank of America, N.A., as administrative agent (Incorporated by reference from an exhibit tothe registrant’s current report on Form 8-K filed with the SEC on August 5, 2013). 10.3 Amended and Restated Security Agreement, dated as of August 2, 2013, by and among The Providence Service Corporation,certain of its subsidiaries party thereto, and Bank of America, N.A., as administrative agent (Incorporated by reference from anexhibit to the registrant’s current report on Form 8-K filed with the SEC on August 5, 2013). 12510.4 First Amendment to Amended and Restated Credit and Guaranty Agreement and Consent, dated as of May 28, 2014, by and amongThe Providence Service Corporation, the Guarantors named therein, the New Subsidiaries named therein, the Lenders and NewLender named therein and Bank of America, N.A., as administrative agent (Incorporated by reference from an exhibit to theregistrant’s current report on Form 8-K filed with the SEC on June 3, 2014). 10.5 Second Amendment to the Amended and Restated Credit and Guaranty Agreement and Consent, dated as of October 23, 2014, byand among The Providence Service Corporation, certain of its subsidiaries party thereto, Bank of America, N.A., SunTrust Bank,Royal Bank of Canada, BMO Harris Bank, N.A., HSBC Bank USA, National Association, the other Lenders party thereto, MerrillLynch, Pierce, Fenner & Smith Incorporated, SunTrust Robinson Humphrey, Inc., and RBC Capital Markets (Incorporated byreference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on October 24, 2014). 10.6 Third Amendment and Consent to the Amended and Restated Credit and Guaranty Agreement, dated as of September 3, 2015, byand among The Providence Service Corporation, certain of its subsidiaries party thereto, Bank of America, N.A., Sun Trust Bank,Royal Bank of Canada, BMO Harris Bank, N.A., HSBC Bank USA, National Association, the other lenders party thereto, MerrillLynch Pierce, Fenner & Smith Incorporated, Sun Trust Robinson Humphrey, Inc. and RBC Capital Markets (Incorporated byreference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on September 8, 2015). 10.7 Fourth Amendment and Consent to the Amended and Restated Credit and Guaranty Agreement, dated as of August 28, 2016, byand among The Providence Service Corporation, the guarantors party thereto, the lenders party thereto and Bank of America, N.A.,as Administrative Agent (Incorporated by reference to an exhibit to the registrant’s current report on Form 8-K filed with the SECon August 31, 2016). 10.8+ Employment Agreement, dated January 14, 2015, by and between The Providence Service Corporation and James Lindstrom(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on January 21, 2015). 10.9+ Employment Agreement, dated August 6, 2015, by and between The Providence Service Corporation and James Lindstrom(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on August 11, 2015). 10.10+ Separation Agreement and General Release, dated November 15, 2017, between The Providence Service Corporation and JamesLindstrom (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on November15, 2017). 10.11+ Employment Agreement, dated as of September 28, 2015, by and between The Providence Service Corporation and DavidShackelton (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC onNovember 20, 2015). 10.12+ Amended & Restated Employment Agreement, dated January 9, 2018, by and between The Providence Service Corporation andDavid Shackelton (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC onJanuary 16, 2018). 10.13+ Employment Agreement, dated April 4, 2016, between The Providence Service Corporation and Sophia Tawil (Incorporated byreference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2016 filed with the SECon May 6, 2016). 10.14+ Amended & Restated Employment Agreement, dated January 9, 2018, by and between The Providence Service Corporation andSophia Tawil (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC onJanuary 16, 2018). 10.15+ Employment Agreement, dated November 15, 2017, between The Providence Service Corporation and R. Carter Pate (Incorporatedby reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on November 15, 2017). 10.16+ Letter agreement, dated January 10, 2018, by and between The Providence Service Corporation and William Severance(Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the SEC on January 16, 2018). 10.17+ The Providence Service Corporation 2006 Long-Term Incentive Plan, as amended and restated, effective June 30, 2015(Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended September 30,2015 filed with the SEC on November 9, 2015). 10.18+ The Providence Service Corporation 2006 Long-Term Incentive Plan, as amended and restated effective July 27, 2016(Incorporated by reference from an appendix to the registrant’s definitive proxy statement on Schedule 14A filed with the SEC onJune 14, 2016). 10.19+ Form of Restricted Stock Agreements (Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Qfor the quarter ended March 31, 2011 filed with the SEC on May 6, 2011).126 10.20+ Form of Stock Option Agreements (Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q forthe quarter ended March 31, 2011 filed with the SEC on May 6, 2011). 10.21+ Form of Special Incentive Stock Option Award Agreement (Incorporated by reference from an exhibit to the registrant’s currentreport on Form 8-K filed with the SEC on August 11, 2015). 10.22+ Form of Matching Incentive Stock Option Award Agreement (Incorporated by reference from an exhibit to the registrant’s currentreport on Form 8-K filed with the SEC on August 11, 2015). 10.23+ 2015 Holding Company LTI Program (Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filedwith the SEC on August 11, 2015). 10.24+ 2015 Holding Company LTI Program, as amended and effective on November 4, 2016 (Incorporated by reference from an exhibit tothe registrant’s quarterly report on Form 10-Q for the quarter ended September 30, 2016 filed with the SEC on November 9, 2016). 10.25 Amended and Restated Limited Liability Company Agreement of Mercury Parent, LLC, by and between Prometheus Holdco,LLC and Mercury Fortuna Buyer, LLC, dated as of October 19, 2016 (Incorporated by reference from an exhibit to the registrant’scurrent report on Form 8-K filed with the SEC on October 25, 2016). 10.26* Second Amended and Restated Limited Liability Company Agreement of Mercury Parent, LLC, by and between PrometheusHoldco, LLC and Mercury Fortuna Buyer, LLC, dated February 16, 2018. 10.27+ Form of Matching Stock Option Agreement (Incorporated by reference from an exhibit to the registrant’s quarterly report on Form10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017). 10.28+* Form of Stock Option Agreement. 10.29+* Letter agreement, dated September 21, 2015, between The Providence Service Corporation and Matthew Umscheid. 12.1* Statement re Computation of Ratios of Earnings to Fixed Charges. 21.1* Subsidiaries of the Registrant. 23.1* Consent of KPMG LLP. 23.2* Consent of Deloitte & Touche LLP (Mercury Parent, LLC financial statements). 23.3* Consent of KPMG LLP (Mercury Parent, LLC financial statements). 31.1* Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer. 31.2* Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer. 32.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of theChief Executive Officer. 32.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of theChief Financial Officer. 99.1* Financial Statements of Mercury Parent, LLC. 101. INS* XBRL Instance Document 101.SCH* XBRL Schema Document 101.CAL* XBRL Calculation Linkbase Document 101.LAB* XBRL Label Linkbase Document 101.PRE* XBRL Presentation Linkbase Document 101.DEF* XBRL Definition Linkbase Document +Management contract or compensatory plan or arrangement. *Filed herewith.127Item 16. Form 10-K Summary.None.128SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. THE PROVIDENCE SERVICE CORPORATION By:/s/ R. Carter Pate R. Carter PateInterim Chief Executive Officer Dated: March 9, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date/S/ R. CARTER PATE Interim Chief Executive Officer March 9, 2018R. Carter Pate (Principal Executive Officer) /S/ DAVID C. SHACKELTON Chief Financial Officer March 9, 2018David C. Shackelton (Principal Financial Officer) /S/ WILLIAM SEVERANCE Chief Accounting Officer March 9, 2018William Severance (Principal Accounting Officer) /S/ CHRISTOPHER S. SHACKELTON Chairman of the Board March 9, 2018Christopher S. Shackelton /S/ TODD J. CARTER Director March 9, 2018Todd J. Carter /S/ DAVID A. COULTER Director March 9, 2018David A. Coulter /S/ RICHARD A. KERLEY Director March 9, 2018Richard A. Kerley /S/ KRISTI L. MEINTS Director March 9, 2018Kristi L. Meints /S/ LESLIE V. NORWALK Director March 9, 2018Leslie V. Norwalk /S/ FRANK J. WRIGHT Director March 9, 2018Frank J. Wright 129Exhibit 10.26 ​ ​ ​ ​ ​ Mercury Parent, LLC ​ ​ SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY ​ AGREEMENT ​ ​ ​ Dated as of February 16, 2018 ​ ​ THE UNITS REFERRED TO IN THIS AMENDED AND RESTATED LIMITED ​ LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER ​ THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ​ ANY OTHER APPLICABLE SECURITIES LAWS. SUCH UNITS MAY NOT BE ​ SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME ​ WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR ​ EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER ​ SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN. ​ ​ ​ ​ ​ ​ ​ ​ TABLE OF CONTENTS ​ Page ​ ARTICLE I ​ ​ CERTAIN DEFINITIONS ​ ARTICLE II ​ ​ ORGANIZATIONAL MATTERS ​ 2.1. Formation ................................................................................................................. 20 ​ 2.2. The Certificate, Etc .................................................................................................. 21 ​ 2.3. Name.......................................................................................................................... 21 ​ 2.4. Purpose...................................................................................................................... 21 ​ 2.5. Powers of the LLC ................................................................................................... 21 ​ 2.6. Foreign Qualification ............................................................................................... 22 ​ 2.7. Principal Office; Registered Office ........................................................................ 23 ​ 2.8. Term .......................................................................................................................... 23 ​ 2.9. No State-Law Partnership ....................................................................................... 23 ​ ARTICLE III ​ ​ UNITS; CAPITAL ACCOUNTS ​ 3.1. Units; Unitholders .................................................................................................... 24 ​ 3.2. Unitholder Meetings ................................................................................................ 28 ​ 3.3. Action of Unitholders by Written Consent or Telephone Conference ................ 31 ​ 3.4. Issuance of Additional Units and Interests ............................................................ 32 ​ 3.5. Preemptive Rights .................................................................................................... 33 ​ 3.6. Capital Accounts ...................................................................................................... 35 ​ 3.7. Negative Capital Accounts ...................................................................................... 36 ​ 3.8. No Withdrawal ......................................................................................................... 36 ​ 3.9. Loans From Unitholders ......................................................................................... 36 ​ 3.10. Additional Terms Applicable to Value Units ...................................................... 36 ​ 3.11. Effects of a Trigger Event ..................................................................................... 36 ​ 3.12. Effects of an Excess Escrow Loss ......................................................................... 36 ​ ​ ​ ​ ​ ​ ​ ​ ARTICLE IV ​ ​ DISTRIBUTIONS; ALLOCATIONS AND REDEMPTIONS ​ 4.1. Distributions ............................................................................................................. 41 ​ 4.2. Allocations ................................................................................................................ 44 ​ 4.3. Tax Allocations ......................................................................................................... 44 ​ 4.4. Indemnification and Reimbursement for Payments on Behalf of a ​ Unitholder ............................................................................................................ 45 ​ 4.5. Transfer of Capital Accounts .................................................................................. 45 ​ 4.6. Withholding .............................................................................................................. 45 ​ ARTICLE V ​ ​ BOARD OF MANAGERS; OFFICERS ​ 5.1. Management by the Board of Managers ............................................................... 47 ​ 5.2. Composition and Election of the Board of Managers .......................................... 52 ​ 5.3. Board Meetings and Actions by Written Consent ................................................ 55 ​ 5.4. Committees; Delegation of Authority and Duties ................................................. 58 ​ 5.5. Officers ...................................................................................................................... 59 ​ ARTICLE VI ​ ​ GENERAL RIGHTS AND OBLIGATIONS OF UNITHOLDERS ​ 6.1. Limitation of Liability ............................................................................................. 60 ​ 6.2. Lack of Authority ..................................................................................................... 60 ​ 6.3. No Right of Partition ............................................................................................... 60 ​ 6.4. Unitholders Right to Act ......................................................................................... 61 ​ 6.5. Right to Financial Information ............................................................................... 61 ​ 6.6. Public Filing Information Rights ............................................................................ 62 ​ 6.7. Non-Competition ...................................................................................................... 65 ​ 6.8. Non-Solicitation ........................................................................................................ 65 ​ 6.9. Statements by the Unitholder ................................................................................. 65 ​ 6.10. Publicity .................................................................................................................. 66 ​ 6.11. Transactions Between the LLC and the Unitholders ......................................... 67 ​ 6.12. Initial Public Offering............................................................................................ 67 ​ 6.13. Interests in Providence .......................................................................................... 67 ​ ​ ​ ​ ​ ARTICLE VII ​ ​ EXCULPATION AND INDEMNIFICATION ​ 7.1. Exculpation ............................................................................................................... 68 ​ 7.2. Right to Indemnification ......................................................................................... 68 ​ 7.3. Advance Payment..................................................................................................... 69 ​ 7.4. Indemnification of Employees and Agents ............................................................ 69 ​ 7.5. Appearance as a Witness ......................................................................................... 69 ​ 7.6. Nonexclusivity of Rights .......................................................................................... 69 ​ 7.7. Insurance .................................................................................................................. 70 ​ 7.8. Savings Clause .......................................................................................................... 70 ​ 7.9. Certain Dealings and Opportunities ...................................................................... 70 ​ ARTICLE VIII ​ ​ BOOKS, RECORDS, ACCOUNTING AND REPORTS ​ 8.1. Records and Accounting.......................................................................................... 71 ​ 8.2. Fiscal Year ................................................................................................................ 71 ​ 8.3. Tax Information ....................................................................................................... 71 ​ 8.4. Transmission of Communications .......................................................................... 71 ​ 8.5. LLC Funds ................................................................................................................ 71 ​ ARTICLE IX ​ ​ TAXES ​ 9.1. Tax Returns .............................................................................................................. 71 ​ 9.2. Tax Elections ............................................................................................................ 72 ​ 9.3. Tax Matters Partner ................................................................................................ 72 ​ ARTICLE X ​ ​ TRANSFERS ​ 10.1. Transfers by Unitholders ...................................................................................... 73 ​ 10.2. Effect of Assignment .............................................................................................. 74 ​ 10.3. Restrictions on Transfer ........................................................................................ 75 ​ 10.4. Participation Rights ............................................................................................... 75 ​ 10.5. First Negotiation Rights ........................................................................................ 78 ​ 10.6. Drag-Along Rights ................................................................................................. 79 ​ 10.7. Transfer of Consent and Designation Rights ...................................................... 81 ​ 10.8. Void Transfers ........................................................................................................ 82 ​ ​ ​ ​ ​ 10.9. Legends ................................................................................................................... 82 ​ ARTICLE XI ​ ​ ADMISSION OF UNITHOLDERS ​ 11.1. Substituted Unitholders ......................................................................................... 82 ​ 11.2. Additional Unitholders .......................................................................................... 83 ​ 11.3. Optionholders ......................................................................................................... 83 ​ ARTICLE XII ​ ​ WITHDRAWAL AND RESIGNATION OF UNITHOLDERS ​ 12.1. Withdrawal and Resignation of Unitholders ....................................................... 83 ​ 12.2. Withdrawal of a Unitholder .................................................................................. 83 ​ ARTICLE XIII ​ ​ DISSOLUTION AND LIQUIDATION ​ 13.1. Dissolution .............................................................................................................. 84 ​ 13.2. Liquidation and Termination ............................................................................... 84 ​ 13.3. Cancellation of Certificate .................................................................................... 85 ​ 13.4. Reasonable Time for Winding Up ........................................................................ 85 ​ 13.5. Return of Capital ................................................................................................... 85 ​ 13.6. Reserves Against Distributions ............................................................................. 85 ​ ARTICLE XIV ​ ​ VALUATION ​ 14.1. Determination ......................................................................................................... 86 ​ 14.2. Fair Market Value ................................................................................................. 86 ​ ARTICLE XV ​ ​ GENERAL PROVISIONS ​ 15.1. Power of Attorney .................................................................................................. 88 ​ 15.2. Confidentiality ........................................................................................................ 88 ​ 15.3. Amendments ........................................................................................................... 90 ​ 15.4. Title to LLC Assets ................................................................................................ 91 ​ 15.5. Remedies ................................................................................................................. 91 ​ ​ ​ ​ ​ 15.6. Successors and Assigns .......................................................................................... 91 ​ 15.7. Severability ............................................................................................................. 91 ​ 15.8. Regulatory Matters ................................................................................................ 91 ​ 15.9. Notice to Unitholder of Provisions........................................................................ 92 ​ 15.10. Counterparts ........................................................................................................ 92 ​ 15.11. Consent to Jurisdiction ........................................................................................ 92 ​ 15.12. Descriptive Headings; Interpretation ................................................................ 92 ​ 15.13. Applicable Law..................................................................................................... 93 ​ 15.14. MUTUAL WAIVER OF JURY TRIAL ............................................................ 93 ​ 15.15. Addresses and Notices ......................................................................................... 94 ​ 15.16. Creditors ............................................................................................................... 94 ​ 15.17. Waiver ................................................................................................................... 94 ​ 15.18. Further Action ...................................................................................................... 94 ​ 15.19. Offset ..................................................................................................................... 94 ​ 15.20. Entire Agreement ................................................................................................. 95 ​ 15.21. Delivery by Facsimile ........................................................................................... 95 ​ 15.22. Survival ................................................................................................................. 95 ​ 15.23. Deemed Transfer of Units ................................................................................... 95 ​ 15.24. Recapitalization .................................................................................................... 95 ​ 15.25. Acknowledgement ................................................................................................ 95 ​ ​ ​ SCHEDULE A Unitholders, Capital Contributions and Units ​ SCHEDULE B Management Equity and Employee Incentive Plan Units ​ EXHIBIT A Key Terms of Registration Rights Agreement ​ ​ ​ ​ 1 ​ Mercury Parent, LLC ​ SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY ​ AGREEMENT ​ This SECOND AMENDED AND RESTATED LIMITED LIABILITY ​ COMPANY AGREEMENT, dated as of February 16, 2018, is entered into by and among ​ Mercury Parent, LLC (the “LLC”) and the Unitholders party hereto. ​ WHEREAS, the LLC and certain of the Unitholders are party to that certain ​ Amended and Restated Limited Liability Company Agreement dated October 19, 2016 ​ (the “Existing LLC Agreement”); and ​ WHEREAS, the Unitholders wish to enter into this Second Amended and Restated ​ Limited Liability Company Agreement to amend and restate the Existing LLC Agreement ​ in its entirety and admit certain new Unitholders and wish for this Agreement to constitute ​ the limited liability company agreement of the LLC in accordance with the Delaware Act, ​ and to provide for, among other things, the management of the business and affairs of the ​ LLC, the allocation of profits and losses among the Unitholders, the respective rights and ​ obligations of the Unitholders to each other and to the LLC, and certain other matters. ​ NOW, THEREFORE, in consideration of the mutual covenants contained herein ​ and other good and valuable consideration, the receipt and sufficiency of which are hereby ​ acknowledged, the parties hereto, intending to be legallybound, hereby enter into this ​ Agreement as follows: ​ ARTICLE I ​ ​ CERTAIN DEFINITIONS ​ Capitalized terms used but not otherwise defined herein shall have the following ​ meanings: ​ “Absent Manager” shall have the meaning set forth in Section 5.3(b). ​ “Accredited Investor” has the meaning given to such term in Regulation D ​ promulgated under the Securities Act. ​ “Additional Securities” shall have the meaning set forth in Section 3.4. ​ “Additional Unitholder” means a Person admitted to the LLC as a Unitholder ​ pursuant to Section 11.2. ​ ​ ​ 2 ​ “Advisory Agreement” means that certain Management Consulting Agreement, ​ dated as of the Effective Date, by and among the Borrower, Frazier Management, LLC and ​ The Providence Service Corporation. ​ “Affiliate” of any particular Person means (i) any other Person controlling, ​ controlled by, or under common control with such particular Person, where “control” ​ means the possession, directly or indirectly, of the power to direct the management and ​ policies of a Person whether through the ownership of voting securities, by contract, or ​ otherwise, (ii) if such Person is a partnership, any general partner thereof or any limited ​ partner thereof who, alone or together with its Affiliates, owns at least 50% of the ​ outstanding limited partnership interests of such partnership and (iii) without limiting the ​ foregoing, with respect to Frazier only, any Person advised, managed or sub-advised by an ​ investment adviser affiliated with such Persons; provided, that for purposes of this ​ Agreement (x) none of the members of the Company Group shall be deemed an Affiliate ​ of Frazier or Providence (and vice versa) and (y) Coliseum shall not be considered an ​ Affiliate of Providence; provided, that Coliseum shall be deemed an Affiliate of Providence ​ for purposes of Section 10.6 and the definitions of “Sale of the LLC” and “Approved Sale” ​ for so long as Coliseum owns, directly or indirectly, at least five percent (5%) of thedebt ​ or equity Securities of Providence Parent and/or Providence. ​ “Agreement” means this Second Amended and Restated Limited Liability ​ Company Agreement, as amended or modified from time to time in accordance with the ​ terms hereof. ​ “Annual Financial Statements” shall have the meaning set forth in Section 6.6(a)(i). ​ “Approved Sale” means: ​ (a) any Sale of the LLC approved by each Principal Investor; ​ (b) prior to the seventh (7th) anniversary of the Effective Date, any Sale of the LLC ​ approved by Frazier at such time that Frazier (together with its Affiliates) holds no less ​ than fifty percent (50%) of the LLC’s outstanding Units (without giving effect to any ​ dilution resulting from issuances that are not subject to the preemptive rights set forth in ​ Section 3.5) (i) that occurs prior to an initial Public Offering, (ii) that would result (with ​ respect to each Principal Investor) in Proceeds to the Principal Investors of not less than ​ one times (1.0x) the Principal Investor Investment as of the date thereof if all Units ​ outstanding were Transferred in such Sale of the LLC, (iii) pursuant to which all of the ​ consideration received is cash or marketable securities (unless the Principal Investors ​ otherwise agree) and (iv) pursuant to which Frazier proposes to Transfer to any Person or ​ Group that is not an Affiliate of Frazier all of its Units in a single Sale of the LLC; and ​ (c) after the seventh (7th) anniversary of the Effective Date, any Sale of the LLC ​approved by either Principal Investor at such time that such Principal Investor (together ​ ​ ​ 3 ​ with its Affiliates) holds no less than thirty percent (30%) of the LLC’s outstanding Units ​ (without giving effect to any dilution resulting from issuances that are not subject to the ​ preemptive rights set forth in Section 3.5) (i) that occurs prior to an initial Public Offering, ​ (ii) pursuant to which all of the consideration received is cash or marketable securities ​ (unless the Principal Investors otherwise agree) and (iii) pursuant to which such Principal ​ Investor proposes to Transfer to any Person or Group that is not an Affiliate of such ​ Principal Investor all of its Units in a single Sale of the LLC. ​ For the avoidance of doubt, (A) the approval of the Board shall not be required to ​ consummate, commit to or enter into any agreement to effectuate an Approved Sale, and ​ (B) to the maximum extent permitted by applicable law, no Manager will owe, or be ​ deemed to have breached, any fiduciary duty with respect to any action or inaction in ​ connection with effectuating any such Approved Sale. ​ “Assignee” means a Person to whom an LLC Interest has been transferred in ​ accordance with the terms of this Agreement and the other agreements contemplated ​ hereby, but who has not become a Unitholder pursuant to Article XI. ​ “Benchmark Amount” shall have the meaning set forth in Section 3.10(a)(iv). ​ “Board” means the Board of Managers established pursuant to Section 5.2. ​ “Board Observer” shall have the meaning set forthin Section 5.3(i). ​ “Borrower” means Community Care Health Network, LLC. ​ “Business Day” shall mean any day that is not a Saturday, a Sunday or a day on ​ which banks are required or permitted to be closed in the State of New York. ​ “Buyer” shall have the meaning set forth in the DPN Purchase Agreement. ​ “Capital Account” shall have the meaning set forth in Section 3.6(a). ​ “Capital Contributions” means any cash, cash equivalents, promissory obligations, ​ or the Fair Market Value of other property that a Unitholder contributes or is deemed to ​ have contributed to the LLC with respect to any Unit pursuant to Sections 3.1 or 3.4. ​ “Cause” means, with respect to any Other Unitholder (i) if such term is defined in ​ an employment or Service agreement with such Other Unitholder, the definition used in ​ such agreement, (ii) if such term is defined in an award agreement or other document ​ pursuant to which equity-based awards are granted to such Other Unitholder, the definition ​ used in such agreement and (iii) in all other circumstances, a termination of an Other ​ Unitholder’s employment by the LLC or any Subsidiary of the LLC that employs such ​ individual (or by the LLC on behalf of any such Subsidiary), or a termination of such Other ​ Unitholder’s Service, as applicable, by reason of one or more of the following having ​ ​ ​ 4 ​ occurred (as reasonably determined by the Board (excluding such Other Unitholder, if he ​ is then a member of the Board) based on information then known to it): ​ (a) such Other Unitholder having been charged by a court of competent ​ jurisdiction with felony or a lesser crime involving dishonesty or moral ​ turpitude (under the laws of the United States or any relevant state, or a ​ similar crime or offense under the applicable laws of any relevant foreign ​ jurisdiction); ​ (b) such Other Unitholder having engaged in acts of fraud, embezzlement, ​ theft, misappropriation, dishonesty or other acts of willful misconduct, ​ malfeasance or gross negligence in the course of his duties hereunder or ​ otherwise with respect to the LLC or any of its Subsidiaries; ​ (c) such Other Unitholder having failed to perform or uphold his or her material ​ duties under this Agreement and/or such Other Unitholder’s employment or ​ Service agreement (if any) with the LLC or any of its Subsidiaries after ​ being informed of and given the opportunity and at least thirty (30) days to ​ remedy such failure to comply; ​ (d) if such Other Unitholder is a Management Unitholder, such Management ​ Unitholder having failed to materially comply with reasonable directives of ​ the Board or any senior executive officer of the LLC or any Subsidiary of ​ the LLC who holds a supervisory capacity over the Management Unitholder ​ after being informed of and giventhe opportunity to remedy such failure to ​ comply; ​ (e) any breach by such Other Unitholder of any provision of Sections 6.7, 6.8, ​ 6.9 or 15.2 of this Agreement, or any material breach by such Other ​ Unitholder of any other contract to which he or she is a party with the LLC ​ or any Subsidiary of the LLC (excluding the DPN Purchase Agreement (but ​ including Sections 7.07 (Confidentiality) and 7.08 (Releases) thereof)) after ​ being informed of and given the opportunity and at least thirty (30) days to ​ remedy such breach; ​ (f) if such Other Unitholder is a Management Unitholder, such Management ​ Unitholder having violated the substance abuse policy of the LLC or any of ​ its Subsidiaries; ​ (g) if such Other Unitholder is a Management Unitholder, such Management ​ Unitholder’s willful and material failure to adhere to any policy applicable ​ generally to all executive employees of the LLC or any of its Subsidiaries ​ after being informed of and given the opportunity and at least thirty (30) ​ days to remedy such failure; ​ ​ ​ 5 ​ (h) such Other Unitholder having appropriated a material business opportunity ​ of the LLC or any of its Subsidiaries, including attempting to secure or ​ securing any personal profit in connection with any transaction entered into ​ with or on behalf of the LLC or any of its Subsidiaries but excluding any ​ bona-fide arm’s length transaction approved by the Board; or ​ (i) if such Other Unitholder is a Management Unitholder, such Management ​ Unitholder having been debarred or excluded from any federal or state ​ contracting or healthcare program. ​ “CEO Board Seat” shall have the meaning set forth in Section 5.2.(a)(vii). ​ “Certificate” means the LLC’s Certificate of Formation as filed with the Secretary ​ of State of Delaware. ​ “Chairperson” shall have the meaning set forth in Section 5.3.(g). ​ “Change of Control” shall have the meaning set forth in the definition of ​ “Transfer”. ​ “Class A Common Holder” means a Unitholder in regard to such Unitholder’s ​ particular LLC Interest in Class A Common Units. ​ “Class A Common Units” means a sub-class of Common Units, as described in ​ Section 3.1(b). ​ “Class B Common Holder” means a Unitholder in regard to such Unitholder’s ​ particular LLC Interest in Class B Common Units. ​ “Class B Common Units” means a sub-class of Common Units, as described in ​ Section 3.1(b). ​ “Closing Equity” means the number of Units held by a Unitholder as of the date of ​ its initial Capital Contribution,provided that for purposes of any calculation comparing a ​ Unitholder’s ownership of equity in the LLC with such Unitholder’s Closing Equity, the ​ effect of (i) any recapitalization or exchange or conversion of securities of the LLC, (ii) ​ any redemption or repurchase of securities of the LLC or (iii) any subdivision (by Unit split ​ or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding ​ Units, in each case which occurs between the date of its initial Capital Contribution and ​ the date of such calculation and which is pro rata in effect, shall be disregarded. ​ “Code” means the United States Internal Revenue Code of 1986, as amended. ​ “Coliseum” means Coliseum Capital Management LLC and its related funds. ​ ​ ​ 6 ​ “Common Holder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Common Units. ​ “Common Units” means a class of LLC Interests, as described in Section 3.1(b). ​ For the avoidance of doubt, Common Units shall (i) include Class A Common Units and ​ Class B Common Units, and (ii) exclude Value Units. ​ “Company Group” means, collectively, the LLC and each of its direct or indirect ​ Subsidiaries. ​ “Company Sub” means CCHN Group Holdings, Inc. ​ “Competing Business” shall have the meaning set forth in Section 6.7. ​ “Competitor” means Person that competes with the Business. For purposes of this ​ definition only, the term “Business” shall mean the business of contracting with health ​ plans to provide health assessments for health evaluation and/or plan risk adjustment ​ purposes and care management or care coordination for Commercial, Managed Medicaid ​ and Medicare Advantage members. ​ “Confidential Information” shall have the meaning set forth in Section 15.2. ​ “Consultation Rights” shall have the meaning set forth in Section 6.10. ​ “Credit Agreement” means (i) the Existing Credit Agreement and (ii) any ​ agreement (including any credit agreement, loan agreement, indenture or other financing ​ agreement) extending the maturity of, consolidating, restructuring, refunding, replacing or ​ refinancing all or any portion of the obligations under the ExistingCredit Agreement, ​ whether by the same or any other lender, debt holder or group of lenders or debt holders or ​ the same or any other agent, trustee or representative therefor and whether or not increasing ​ or decreasing the amount of any Indebtedness (as defined in the Existing Credit ​ Agreement) that may be incurred thereunder. ​ “Deficiency” shall have the meaning set forth in Section 6.6(a)(v). ​ “Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. L. ​ § 18-101, et seq., as it may be amended from time to time, and any successor to the ​ Delaware Act. ​ “Distribution” means each distribution made by the LLC to a Unitholder with ​ respect to such Person’s Units, whether in cash, property or securities of the LLC or ​ otherwise and whether by liquidating distribution, redemption, repurchase, or otherwise; ​ provided that any pro rata recapitalization or exchange or conversion of securities of the ​ LLC, or any redemption or repurchase of securities of the LLC, in each case, pursuant to ​ ​ ​ 7 ​ this Agreement and any subdivision (by Unit split or otherwise) or any combination (by ​ reverse Unit split or otherwise) of any outstanding Units shall not be deemed a Distribution. ​ “DPN” means DPN USA, LLC (d/b/a “HealthFair”), a Florida limited liability ​ company. ​ “DPN Purchase Agreement” means the Securities Purchase Agreement, dated ​ January 4, 2018, by and among Buyer, DPN, the Sellers, and the Sellers’ Representative, ​ as may be amended, supplemented or modified from time to time. ​ “Draft Tax Forms” shall have the meaning set forth in Section 9.1. ​ “Economic Capital Account” means, with respect to any Unitholder, such ​ Unitholder’s Capital Account balance as of the date of determination, after crediting to ​ such Capital Account any amounts that the Unitholder is deemed obligated to restore under ​ Treasury Regulations Section 1.704-2. ​ “Effective Date” means October 19, 2016. ​ “Ekbatani” means Shahriar “James” Ekbatani. ​ “Ekbatani Holder” means (i) Ekbatani, as long as he holds Units, and (ii) any ​ Affiliate or Permitted Transferee of Ekbatani that hereafter becomes an Additional ​ Unitholder pursuant to Section 11.2. ​ “Ekbatani Repurchase Option” shall have the meaning set forth in Section 3.11(a). ​ “Ekbatani Repurchase Price” shall have the meaning set forth in Section 3.11(a). ​ “Equity Securities” means (i) Units or other equity interests in the LLC or a legal ​ successor thereto(including other classes or groups thereof having such relative rights, ​ powers, and duties as may from time to time be established by the Board, including rights, ​ powers, and/or duties senior to existing classes and groups of Units and other equity ​ interests in the LLC), (ii) obligations, evidences of indebtedness, or other securities or ​ interests convertible or exchangeable into Units or other equity interests in the LLC or a ​ legal successor thereto, and (iii) warrants, options, or other rights to purchase or otherwise ​ acquire Units or other equity interests in the LLC or a legal successor thereto. ​ “Event of Withdrawal” means the death, retirement, resignation, expulsion, ​ bankruptcy or dissolution of a Unitholder or the occurrence of any other event that ​ terminates the continued membership of a Unitholder in the LLC. ​ “Excess Escrow Loss” shall have the meaning set forth in the DPN Purchase ​ Agreement. ​ ​ ​ 8 ​ “Excessive Leverage Event” means, the incurrence or guarantee of any Restricted ​ Debt by the LLC or any of its Subsidiaries, unless, after giving pro forma effect to such ​ incurrence or guarantee and the use of proceeds thereof, the Total Net Leverage Ratio (as ​ defined in the Existing Credit Agreement as in effect on the Effective Date, unless such ​ changes are otherwise approved by the Principal Investors for purposes of this definition, ​ and to be calculated in manner consistent with such version of the Existing Credit ​ Agreement and as if all references to the Borrower and its Subsidiaries (as defined in such ​ version of the Existing Credit Agreement) in such version of the Existing Credit Agreement ​ were references to the LLC and its Subsidiaries on a consolidated basis) of the LLC would ​ be less than or equal to 5.50:1.00 as of the last day of the most recently ended fiscal quarter ​ for which the LLC’s financial statements are available. ​ “Existing LLC Agreement” shall have the meaning set forth in the Recitals. ​ “Existing Credit Agreement” means, that Credit Agreement, dated as of February ​ 16, 2018, among the Borrower, the banks and other financial institutions party thereto, ​ SunTrust Bank, as Administrative Agent, CCHN Holdings, LLC and the Subsidiaries of ​ the Borrower party thereto, as in effect on the Effective Date. ​ “Fair Market Value” means, with respect to any asset orequity interest, its fair ​ market value determined according to Article XIV. ​ “Family Group” means a Unitholder’s parents, spouse and lineal descendants ​ (whether natural or adopted), and any trust, limited partnership, limited liability company ​ or other entity wholly owned and controlled, directly or indirectly, by such Unitholder or ​ such Unitholder’s parents, spouse and/or lineal descendants (whether natural or adopted) ​ that is and remains solely for the benefit of such Unitholder and/or such Unitholder’s ​ parents, spouse and/or lineal descendants (whether natural or adopted). ​ “FATCA” shall mean (a) Sections 1471 through 1474 of the Code, the Treasury ​ Regulations thereunder, and official interpretations thereof; (b) any legislation, regulations ​ or guidance enacted in any jurisdiction that seeks to implement a similar tax reporting or ​ withholding tax regime; (c) any intergovernmental agreement, treaty or other agreement ​ between any jurisdictions (including any government bodies in such jurisdiction) entered ​ into in order to comply with, facilitate, supplement or implement any legislation, ​ regulations or guidance described in clause (a) or (b) above; and (d) any legislation, ​ regulations or guidance that gives effect to any matter described in clauses (a) through (c) ​ above. ​ “Filing Schedule” shall have the meaning set forth in Section 6.6(b). ​ “Fiscal Quarter” means each calendar quarter endingMarch 31, June 30, September ​ 30, and December 31. ​ ​ ​ 9 ​ “Fiscal Year” shall have the meaning set forth in Section 8.2. ​ “Frazier” means (i) Mercury Fortuna Buyer, LLC and (ii) any of its Affiliates or ​ Permitted Transferees that become an Additional Unitholder pursuant to Section 11.2. ​ Unless otherwise agreed by the holder(s) of a majority of the Units collectively held by ​ Frazier, any action taken or contemplated to be taken by Frazier pursuant to this Agreement ​ shall be taken by the holder(s) of a majority of the Units collectively held by Frazier at ​ such time. ​ “Frazier Managers” shall have the meaning set forth in Section 5.2.(a). ​ “GAAP” shall have the meaning set forth in Section 5.1(b)(iv)(C). ​ “Governmental Entity” means the United States of America or any other nation, ​ any state or other political subdivision thereof, or any entity exercising executive, ​ legislative, judicial, regulatory or administrative functions of government or any agency or ​ department or subdivision of any governmental authority, including the United States ​ federal government or any state or local government. ​ “Grant Date” means, with respect to any Value Units, the date on which such Value ​ Units are granted to the applicable Management Unitholder or Operating Unitholder, in ​ each case as set forth opposite such Unitholder’s name on the row corresponding to such ​ grant on Schedule A hereto. ​ “Group” shall have the meaning set forth in Sections 13(d)(3) and 14(d)(2) of the ​ SecuritiesExchange Act of 1934, as amended. ​ “Imputed Underpayment Amount” shall have the meaning set forth in Section ​ 4.6(f). ​ “Inactive Unitholder” shall have the meaning set forth in Section 3.10(b)(ii). ​ “Independent Auditor” shall have the meaning set forth in Section 14.3. ​ “Information” shall have the meaning set forth in Section 6.6. ​ “Information Recipient” means (i) the Principal Investors and (ii) each Unitholder ​ holding ten percent (10%) or more of any class of Units outstanding. ​ “Initial Value” means, as of any date of determination, an amount equal to the ​ aggregate Capital Contributions made by the Common Holders to the LLC on or prior to ​ such date of determination in respect of the Common Units held by such Common Holders. ​ “Investor Group” shall have the meaning set forth in Section 7.9. ​ ​ ​ 10 ​ “Issuance Notice” shall have the meaning set forth in Section 3.5(b). ​ “Liens” means any mortgage, pledge, security interest, encumbrance, lien, or ​ charge of any kind (including any conditional sale or other title retention agreement or ​ lease in the nature thereof), any sale of receivables with recourse against the applicable ​ Person, or any Subsidiary or any Affiliate thereof, any filing or agreement to file a ​ financing statement as debtor under the Uniform Commercial Code or any similar statute ​ other than to reflect ownership by a third party of property leased to the applicable Person, ​ any Subsidiary or any Affiliate under an operating lease which is not in the nature of a ​ conditional sale or title retention agreement. ​ “LLC” has the meaning set forth in the Preamble. ​ “LLC Interest” means the limited liability interest in the LLC which represents the ​ interest of each Unitholder in and to the Profits and Losses of the LLC, and such ​ Unitholder’s right to receive Distributions of the LLC’s assets, as set forth in this ​ Agreement. ​ “Losses” means items of LLC loss and deduction determined in accordance with ​ U.S. tax principles as applied to the maintenance of capital accounts. ​ “Management Unitholder” means any Unitholder that is employed by the LLC or ​ any of its Subsidiaries, and is designated as such on Schedule A hereto. ​ “Manager” means a manager on the Board, who, for purposes of theDelaware Act, ​ will be deemed a “manager” (as defined in the Delaware Act) but will be subject to the ​ rights, obligations, limitations and duties set forth in this Agreement. A “member” of the ​ Board shall be a Manager for purposes of this Agreement. ​ “Material Change” shall have the meaning set forth in Section 6.6(a)(vi). ​ “Member Nonrecourse Debt” has the same meaning as “partner nonrecourse debt” ​ as set forth in Treasury Regulations Section 1.704-2(b)(4). ​ ​ “Member Nonrecourse Debt Minimum Gain” has the same meaning as “partner ​ nonrecourse debt minimum gain” as set forth in Treasury Regulations Section 1.704-​ 2(i)(2). ​ “Monthly Financial Information” shall have the meaning set forth in Section ​ 6.6(a)(iii). ​ “Negotiation Notice” shall have the meaning set forth in Section 10.5. ​ “Negotiation Parties” shall have the meaning set forth in Section 10.5. ​ ​ ​ 11 ​ “Officers” means each person designated as an officer of the LLC to whom ​ authority and duties have been delegated pursuant to Section 5.5, subject to any resolution ​ of the Board appointing such person as an officer or relating to such appointment. ​ “Operating Unitholder” means a Unitholder that provides Services to the LLC or ​ its Subsidiaries, and is designated as such on Schedule A hereto. ​ “Other Accredited Unitholders” shall have the meaning set forth in Section 3.5(a). ​ “Other Unitholders” means, collectively, the Management Unitholders and the ​ Operating Unitholders. ​ “Participating Purchaser” shall have the meaning set forth in Section 3.5(b). ​ “Partnership Minimum Gain” shall have the meaning set forth in Sections 1.704-​ 2(b)(2) and 1.704-2(d) of the Treasury Regulations. ​ “Permitted Transferee” means (i) with respect to any Unitholder who is a natural ​ person, a member of such Unitholder’s Family Group, (ii) with respect to any Unitholder ​ which is an entity, any entity which is a Subsidiary of such Unitholder or any Person of ​ which such Unitholder is a Subsidiary and (iii) with respect to any current or former ​ Principal Investor, such current or former Principal Investor’s Affiliates (in each case, it ​ being understood that any Transfer to such Persons shall be conditioned on the receipt of ​ an undertaking by such Transferee to Transfer such Units back to the Transferor if such ​Transferee ceases to otherwise qualify as a Permitted Transferee); provided that portfolio ​ companies of Frazier’s investment manager or any other financial sponsor whose funds ​ become a Unitholder shall not be Permitted Transferees of such Unitholder. For the ​ avoidance of doubt, none of the members of the Company Group shall be deemed a ​ Permitted Transferee of Frazier or Providence. ​ “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, any other business entity, or a Governmental Entity. ​ “Plan” mean the Mercury Parent, LLC 2016 Value Unit Plan (as amended and in ​ effect from time to time). ​ “Preemptive Portion” shall have the meaning set forth in Section 3.5(a). ​ “Preemptive Pro Rata Percentage” means, at any time, the percentage obtained by ​ dividing the total number of Units then held by the applicable holder by the aggregate ​ number of Units then held by all of the Unitholders who are Accredited Investors. ​ “Preemptive Securities” shall have the meaning set forth in Section 3.5(a). ​ ​ ​ 12 ​ “Principal Investor” means (a) Frazier and/or (b) Providence; provided, that (i) each ​ of Frazier and Providence shall cease to be deemed a “Principal Investor” if it ceases to ​ hold at least twenty percent (20%) of its Closing Equity and (ii) Providence shall cease to ​ be deemed a “Principal Investor” upon the consummation of a Change of Control of The ​ Providence Service Corporation or its successor to a Competitor. Any action requiring the ​ consent or approval of the Principal Investors collectively pursuant to this Agreement shall ​ require the approval of each of Frazier and Providence (unless and until either or both has ​ ceased to be a Principal Investor pursuant to the preceding sentence). ​ “Principal Investor Investment” means, without duplication, as of any measurement ​ date, the aggregate payments or investment (including the contribution of shares of the ​ Company Sub by Providence and Frazier, valued in accordance with the Subscription ​ Agreement at the time of their contribution) by each of the Principal Investors with respect ​ to or in exchange for Units (including securities that are convertible into Units) of the LLC ​ (whether such payments are made to the LLC or any third party) from the Effective Date ​ until such measurement date (including any Capital Contributions). ​ “Principal Investor Managers” shall have the meaning set forth in Section 5.3(b). ​ “Principal Investor Ratio”means, with respect to any Principal Investor, at the time ​ of determination, the ratio obtained by dividing the number of Units owned by such ​ Principal Investor by the aggregate number of outstanding Units owned by all Principal ​ Investors at the time such determination. ​ “Proceeding” shall have the meaning set forth in Section 7.2. ​ “Proceeds to the Principal Investors” means the aggregate cash return to each of the ​ Principal Investors in respect of their Units, taking into account the amount of all previous ​ cash dividends and cash distributions to the Principal Investors in respect of such Units and ​ all cash proceeds to the Principal Investors from the sale or other disposition of such Units. ​ “Profits” means items of LLC income and gain determined in accordance with U.S. ​ tax principles as applied to the maintenance of capital accounts. ​ “Providence” means, (i) Prometheus Holdco, LLC and (ii) any of its Affiliates or ​ Permitted Transferees or any Affiliates or Permitted Transferees of The Providence Service ​ Corporation that hereafter becomes an Additional Unitholder pursuant to Section 11.2. ​ Unless otherwise agreed by the holder(s) of a majority of the Units collectively held by ​ Providence, any action taken or contemplated to be taken by Providence pursuant to this ​ Agreement shall be taken by the holder(s) of a majority of the Units collectively held by ​ Providence at such time. ​“Providence Parent” means The Providence Service Corporation or any successor ​ entity thereof, whether by recapitalization, reorganization or otherwise, and any Subsidiary ​ ​ ​ 13 ​ thereof that may from time to time be subject to reporting or filing obligations under the ​ Securities Act or the Securities Exchange Act or offer or sell securities exempt from ​ registration under the Securities Act. ​ “Providence Managers” shall have the meaning set forth in Section 5.2(a). ​ “Public Offering” means any sale of the common equity securities of the LLC or ​ another member of the Company Group (or a successor thereto) pursuant to an effective ​ registration statement under the Securities Act filed with the Securities and Exchange ​ Commission; provided that the following shall not be considered a Public Offering: (i) any ​ issuance of common equity securities as consideration for a merger, consolidation, ​ amalgamation or acquisition of an entity or a division of an entity or all or substantially all ​ of the assets thereof, and (ii) any issuance of common equity securities or options or rights ​ to acquire (or the exercise thereof) common equity securities to employees, directors, ​ officers or consultants of the LLC or its Subsidiaries as part of an incentive or ​ compensation plan or arrangement, in each case, that has been approved pursuant to ​ Section 5.1(b)(iv). ​ “Qualified IPO” means an underwritten IPO with aggregate gross cash proceeds ​ (without regard to any underwriting discount or commission) of at least $200 million ​ (whether to the LLC (or a successor entity), its equity holders, or both). ​ “Quarterly FinancialStatements” shall have the meaning set forth in Section ​ 6.6(a)(ii). ​ “Ray Ekbatani Trust” means the Nobility Trust. ​ “Registration Rights Agreement” shall have the meaning set forth in Section 6.12. ​ “Relative Ownership Percentage” means (a) with respect to the Units held by a ​ Unitholder, a fraction (expressed as a percentage) (i) the numerator of which is the number ​ of Units owned by such Unitholder immediately following the effective time of a Transfer ​ and (ii) the denominator of which is the aggregate number of Units owned by such ​ Unitholder at the time of the initial Public Offering and (b) with respect to the Units held ​ by the Principal Investors, a fraction (expressed as a percentage) (i) the numerator of which ​ is the aggregate number of Units owned by all of the Principal Investors immediately ​ following the effective time of such Transfer and (ii) the denominator of which is the ​ aggregate number of Units owned by all of the Principal Investors at the time of the initial ​ Public Offering. ​ “Report” means any: (i) registration statement, prospectus or private placement ​ memorandum for use in connection with any registration, offering or sale of Providence ​ Parent securities under the Securities Act (including Form S-1, Form S-3, Form S-4 and ​ Form S-8), or with any offering or sale of Providence Parent securities exempt from ​ ​ ​ 14 ​ registration under the Securities Act (in each case, at Providence’s sole cost and expense); ​ (ii) report of Providence Parent (including any related exhibits) filed or furnished with the ​ Securities and Exchange Commission pursuant to the Securities Exchange Act, including ​ Form 10-Q, Form 10-K, Form 8-K and Schedule 14A; (iii) listing application or report of ​ Providence Parent required by any securities exchange and (iv) annual report, proxy ​ statement, press release, investor presentation or other communication required to be ​ transmitted to Providence Parent shareholders or reasonably determined to be necessary. ​ “Required Interest” means a majority of the Units. ​ “Requisite Board Meeting Notice” shall have the meaning set forth in Section ​ 5.3(f). ​ “Restricted Debt” means any Indebtedness (as defined in the Existing Credit ​ Agreement as in effect on the Effective Date but excluding from the calculation thereof ​ any Disqualified Capital Stock as defined therein, unless such changes are otherwise ​ approved for purposes of this definition by the Principal Investors) of the LLC or its ​ Subsidiaries, but excluding any (i) revolving credit indebtedness and letter of credit ​ obligations incurred under any credit agreement in an aggregate principal and/or face ​ amount not to exceed $20 million outstanding at any one time and (ii) intercompany ​ indebtedness. ​ “Restricted Period” shallhave the meaning set forth in Section 6.7. ​ “Restrictive Covenant Agreements” means the Restrictive Covenant Agreements, ​ dated January 4, 2018, by and among DPN, Borrower, and each of Ekbatani, Ray Ekbatani, ​ Shawn Ekbatani and Terry Diaz, as applicable. ​ “Rollover Call Option” shall have the meaning set forth in Section 3.12(a). ​ “Rollover Holders” means (i) any Unitholder holding Class B Common Units, and ​ designated as such on Schedule A hereto, and (ii) any Affiliate or Permitted Transferee of ​ any Person specified in clause (i) that hereafter becomes an Additional Unitholder pursuant ​ to Section 11.2. For the avoidance of doubt, in the event that any Rollover Holder that is ​ also a Seller under the DPN Purchase Agreement Transfers any Units to any Person in ​ accordance with the terms of this Agreement (including as Permitted Transfer), such ​ Transferee of the Units shall be deemed a Rollover Holder and Seller for purposes of ​ Section 3.12, and shall hold such Units subject to the obligations under Section 3.12 as if ​ such Transferee were the initial Transferring Rollover Holder. ​ “Rule 144” means Rule 144 promulgated under the Securities Act, or any successor ​ rule. ​ ​ ​ 15 ​ “Sale of the LLC” means any transaction or series of transactions pursuant to which ​ any Person or group of related Persons (other than the Principal Investors and their ​ respective Affiliates) in the aggregate acquire(s), directly or indirectly, (i) Equity Securities ​ possessing the voting power (other than voting rights accruing only in the event of a default ​ or breach) to elect a majority of the LLC’s Board (whether by merger, consolidation, ​ reorganization, combination, sale or transfer of the Equity Securities, securityholder or ​ voting agreement, proxy, power of attorney or otherwise) or (ii) all or substantially all of ​ the Company Group’s assets determined on a consolidated basis. ​ “Securities” means notes, stocks, limited liability company equity interests, bonds, ​ debentures, evidences of indebtedness, certificates of interest or participation in any profit-​ sharing agreement, partnership interests, beneficial interests in trusts, collateral-trust ​ certificates, pre-organization certificates or subscriptions, transferable shares, investment ​ contracts, voting-trust certificates, certificates of deposit for securities, equity interests, ​ notional principal contracts and certificates of interest or participation in, temporary or ​ interim certificates for, receipts for or warrants or rights or options to subscribe to or ​ purchase or sell any of the foregoing, and any other items commonly referred to as ​ securities. ​ “Securities Act” means the Securities Act of 1933, asamended, and applicable rules ​ and regulations thereunder, and any successor to such statute, rules, or regulations. Any ​ reference herein to a specific section, rule, or regulation of the Securities Act shall be ​ deemed to include any corresponding provisions of future law. ​ “Securities Exchange Act” means the Securities Exchange Act of 1934, as ​ amended, and applicable rules and regulations thereunder, and any successor to such ​ statute, rules, or regulations. Any reference herein to a specific section, rule, or regulation ​ of the Securities Exchange Act shall be deemed to include any corresponding provisions ​ of future law. ​ “Seller” shall have the meaning set forth in the DPN Purchase Agreement. ​ “Sellers’ Representative” shall have the meaning set forth in the DPN Purchase ​ Agreement. ​ “Service” means, with respect to any Operating Unitholder, service to the LLC or ​ any of its Subsidiaries (including service as a consultant, director or officer of such Person), ​ in each case to the extent such Operating Unitholder was appointed to such position directly ​ or indirectly by the Board. ​ “Shawn Ekbatani Trust” means the Dignity Trust. ​ “Subject Holders” means, collectively, the Principal Investors and the Rollover ​ Holders. ​ ​ ​ 16 ​ “Subscription Agreement” means that certain Subscription Agreement, dated as of ​ August 28, 2016, by and between Mercury Fortuna Buyer, LLC, the Company Sub and ​ The Providence Service Corporation. ​ “Subsidiary” means, with respect to any Person, any corporation, limited liability ​ company, partnership, association, or 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 any contingency) to vote in the election of directors, managers, 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 (other than a ​ corporation), a majority of partnership or other similar ownership interest thereof is at the ​ time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries ​ of that Person or a combination thereof; provided, that none of the members of the ​ Company Group shall be deemed a Subsidiary of Frazier or Providence for purposes of ​ this Agreement. 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 (other than a corporation) 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 any managing director or general partner of such ​ limited liability company, partnership, association, or other business entity. For purposes ​ hereof, references to a “Subsidiary” of any Person shall be given effect only at such times ​ that such Person has one or more Subsidiaries, and, unless otherwise indicated herein, the ​ term “Subsidiary” refers to a Subsidiary of the LLC. ​ “Substituted Unitholder” means a Person that is admitted as a Unitholder to the ​ LLC pursuant to Section 11.1. ​ “Tag-Along Escrow Amount” shall have the meaning set forth in Section 10.4(f). ​ “Tag-Along Escrow Notice” shall have the meaning set forth in Section 10.4(f). ​ “Tag-Along Notice” shall have the meaning set forth in Section 10.4(a). ​ “Tag-Along Offer” shall have the meaning set forth in Section 10.4(a). ​ “Tag-Along Pro Rata Percentage” means, with respect to any Unitholder, at the ​ time a Tag-Along Notice is delivered by the Tag-Along Seller in accordance with Section ​ 10.4.(a), the percentage obtained by dividing the number of Units owned by such ​ Unitholder by the aggregate number of outstanding Units owned by all Unitholders at the ​ time such Tag-Along Notice is delivered. ​ “Tag-Along Response Notice” shall have the meaning set forth in Section 10.4(a). ​ ​ ​ 17 ​ “Tag-Along Seller” shall have the meaning set forth in Section 10.4(a). ​ “Tag-Along Unitholders” shall have the meaning set forth in Section 10.4(a). ​ “Target Balance” means, with respect to any Unitholder as of the close of any Fiscal ​ Year (or other relevant period) for which allocations are made under Article IV, the amount ​ such Unitholder would receive (or be required to contribute) in a hypothetical liquidation ​ of the LLC as of the close of such period, assuming for purposes of any hypothetical ​ liquidation (i) a sale of all of the assets of the LLC at prices equal to their then book values ​ (as maintained by the LLC for purposes of, and as maintained pursuant to, the capital ​ account maintenance provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)) and ​ (ii) the distribution of the net proceeds thereof to the Unitholders pursuant to the provisions ​ of Article IV (after the payment of all actual LLC indebtedness, and any other liabilities ​ related to the LLC’s assets, limited, in the case of non-recourse liabilities, to the collateral ​ securing or otherwise available to satisfy such liabilities). ​ “Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, ​ franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, ​ registration, value added, excise, natural resources, severance, stamp, occupation, ​ premium, windfall profit, environmental, customs, duties, real property, personalproperty, ​ capital stock, social security, unemployment, disability, payroll, license, employee, or ​ other withholding, or other tax, of any kind whatsoever, including any interest, penalties, ​ or additions to tax or additional amounts in respect of the foregoing. ​ “Tax Matters Partner” shall have the meaning set forth in Section 9.3. ​ “Transfer” means any direct or indirect sale, transfer, assignment, pledge, ​ mortgage, exchange, hypothecation, grant of a security interest in or other disposition or ​ encumbrance of, including any swap, participation or other arrangement that transfers to ​ another Person, in whole or in part, any economic consequences of ownership of, a Unit or ​ other interest in the LLC (whether voluntary, involuntary, by operation of law or ​ otherwise); provided, that (i) any Transfer of Securities of The Providence Service ​ Corporation or its successor (including any parent entity resulting from such Transfer) ​ (whether by consolidation, merger, reorganization or otherwise) or (ii) a Change of Control ​ of The Providence Service Corporation or its successor, in each case, shall not be deemed ​ a “Transfer” of any Units or other interest in the LLC held thereby. As used herein, the ​ term “Change of Control” means, with respect to any Person, (i) any liquidation, ​ dissolution or winding up of such Person, whether voluntary or involuntary, other than a ​ liquidation, dissolution or winding up for purposes of effecting acorporate restructuring or ​ reorganization as a result of which the holders of such Person’s outstanding equity interests ​ possessing the voting power (under ordinary circumstances) to elect a majority of such ​ Person’s board of directors (or similar governing body) immediately prior to such ​ liquidation, dissolution or winding up (or their Affiliates) beneficially own, directly or ​ indirectly, the outstanding equity securities of the surviving entity possessing the voting ​ ​ ​ 18 ​ power (under ordinary circumstances) to elect a majority of the surviving entity’s board of ​ directors (or similar governing body), (ii) any sale, transfer, assignment or other disposition ​ by such Person of all or substantially all of its assets (other than to an Affiliate), (iii) any ​ consolidation, merger or reorganization of such Person with or into any other entity or ​ entities as a result of which the holders of such Person’s outstanding equity interests ​ possessing the voting power (under ordinary circumstances) to elect a majority of such ​ Person’s board of directors (or similar governing body) immediately prior to such ​ consolidation, merger or reorganization (or their Affiliates) no longer beneficially own, ​ directly or indirectly, the outstanding equity securities of the surviving entity possessing ​ the voting power (under ordinary circumstances) to elect a majority of the surviving ​ entity’s board of directors (or similar governing body) or (iv) any sale, transfer, assignment ​ or other disposition to any third party of such Person’s equity securities by the holders ​ thereof as a result of which the holders of such Person’s equity securities possessing the ​ voting power (under ordinary circumstances) to elect a majority of such Person’s board of ​ directors (or similar governing body) immediately prior to such sale, transfer, assignment ​ or other disposition (or their Affiliates) no longer beneficially own, directly or indirectly, ​ the outstanding equitysecurities of such Person possessing the voting power (under ​ ordinary circumstances) to elect a majority of such Person’s board of directors (or similar ​ governing body). The terms “Transferee,” “Transferred,” and other forms of the word ​ “Transfer” shall have correlative meanings. ​ “Transferor’s Owner” shall have the meaning set forth in Section 10.1(e). ​ “Transferring Unitholder” shall have the meaning set forth in Section 10.5. ​ “Treasury Regulations” means the income tax regulations promulgated under the ​ Code. ​ “Trigger Event” means the occurrence of one or more of the following events: ​ (a) Ekbatani has, at any time, prior to his reinstatement to Medicare effective ​ April 1, 2013, been determined by a court or Governmental Entity to have violated ​ the terms of his exclusion from Medicare; ​ (b) Other than in connection with United States v. Campo, No. :99-cr-14015 ​ (S.D. Fl. ) (the “Campo Matter”), Ekbatani has (i) pled guilty or nolo contendere ​ to, or been convicted of, a misdemeanor or felony described in 42 U.S.C. §1320a-​ 7; or (ii) been determined by a court or Governmental Entity to have otherwise ​ engaged in conduct that is grounds for mandatory exclusion or permissive ​ exclusion, in each case, described in 42 U.S.C. §1320a-7; ​ (c) Other than in connection with the Campo Matter, Ekbatani has, to the ​ detriment (whether economic or otherwise) of the LLC or any of its Subsidiaries ​ (or, by virtue ofEkbatani’s ownership in the LLC, the LLC or any of its ​ ​ ​ 19 ​ Subsidiaries has), pled guilty or nolo contendere to, or been convicted of, a ​ misdemeanor or felony involving fraud, embezzlement, theft or misappropriation; ​ or ​ (d) Ekbatani to the detriment (whether economic or otherwise) of the LLC or ​ any of its Subsidiaries (or, by virtue of Ekbatani’s ownership in the LLC, the LLC ​ or any of its Subsidiaries): ​ (i) becomes suspended, debarred or otherwise disqualified or ​ ineligible to participate in any federal health care program ​ (as defined in 42 U.S.C. §1320a-7b(f)) or any state ​ healthcare program or is determined by a court or ​ Governmental Entity to be ineligible to provide management ​ or administrative services to a healthcare provider; or ​ (ii) becomes subject to sanction or indictment (with respect to ​ any criminal investigation), in each case, related to health ​ care by any federal, state, or local enforcement, regulatory, ​ administrative or licensing agency, or is named in a ​ complaint by a Governmental Entity under the False Claims ​ Act. ​ “Unit” means an LLC Interest of a Unitholder or an Assignee in the LLC ​ representing a fractional part of the LLC Interests of all Unitholders and Assignees. With ​ respect to any Unit, to “hold” such Unit means to own such Unit and a “holder” thereof ​ means an owner of such Unit. For the avoidance of doubt, “Units” shall include Common ​ Units and Value Units. ​ “Unit Transfer Agreement” shall have the meaning set forth in Section 15.23. ​“Unitholder” means any owner of one or more Units as reflected on the LLC’s ​ books and records, and any Person admitted to the LLC as an Additional Unitholder or ​ Substituted Unitholder; but only for so long as such Person is shown on the LLC’s books ​ and records as the owner of one or more Units. ​ “Unpaid Equity Value Amount” means, as of any given date of determination with ​ respect to all Unitholders (other than Class B Holders), an amount of distributions, in the ​ aggregate, equal to $531,309,972.27, less an amount equal to the cumulative distributions ​ made by the LLC in respect of all Units (other than Class B Common Units) as of such ​ date pursuant to Section 4.1, provided that, for purposes of this definition, notwithstanding ​ anything to the contrary contained in this Agreement, the Unpaid Equity Value Amount ​ may never be less than Zero Dollars ($0). ​ ​ “USRPHC” shall have the meaning set forth in Section 2.10(b). ​ ​ ​ 20 ​ ​ “Value A Holder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Value A Units. ​ ​ “Value B Holder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Value B Units. ​ ​ “Value C Holder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Value C Units. ​ ​ “Value D Holder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Value D Units. ​ ​ “Value B Threshold” shall have the meaning set forth in the Plan. ​ ​ “Value C Threshold” shall have the meaning set forth in the Plan. ​ ​ “Value D Threshold” shall have the meaning set forth in the Plan. ​ ​ “Value A Units” means a sub-class of Value Units, as described in Section 3.1(c). ​ ​ “Value B Units” means a sub-class of Value Units, as described in Section 3.1(c). ​ ​ “Value C Units” means a sub-class of Value Units, as described in Section 3.1(c). ​ ​ “Value D Units” means a sub-class of Value Units, as described in Section 3.1(c). ​ ​ “Value Unitholder” means a Unitholder in regard to such Unitholder’s particular ​ LLC Interest in Value Units. ​ ​ “Value Units” means the Value A Units, Value B Units, Value C Units and Value ​ D Units. ​ “Withheld Amount” shall have the meaning set forth in Section 4.6(b). ​ “Withholding Payment” shall have the meaning set forth in Section 4.6(a). ​ ARTICLE II ​ ​ ORGANIZATIONAL MATTERS ​ 2.1. Formation. The LLC has been organized as a Delaware limited liability ​ companyby the filing with the Secretary of State of the State of Delaware of the Certificate ​ ​ ​ 21 ​ under and pursuant to the Delaware Act and shall be continued in accordance with this ​ Agreement. ​ 2.2. The Certificate, Etc. The Certificate was filed with the Secretary of State ​ of the State of Delaware on October 17, 2016. The Unitholders hereby agree to execute, ​ file and record all such other certificates and documents, including amendments to the ​ Certificate, and to do such other acts as may be appropriate to comply with all requirements ​ for the formation, continuation and operation of a limited liability company, the ownership ​ of property, and the conduct of business under the laws of the State of Delaware and any ​ other jurisdiction in which the LLC may own property or conduct business, in each case, ​ as reasonably requested by the Board. ​ 2.3. Name. The name of the LLC shall be “Mercury Parent, LLC”. The Board ​ in its sole discretion may change the name of the LLC at any time and from time to time. ​ Notification of any such change shall be given to all Unitholders. The LLC’s business may ​ be conducted under its name and/or any other name or names deemed advisable by the ​ Board. ​ 2.4. Purpose. The sole purpose of the LLC is, and the nature of the business to ​ be conducted and promoted by the LLC shall be, (a) to directly or indirectly invest in, own ​ and dispose of securities of its Subsidiaries and any assets ancillary to such investment, ​ownership and disposal and (b) to engage in all lawful acts or activities necessary, advisable ​ or incidental and in furtherance of the foregoing, subject to the terms of this Agreement. ​ 2.5. Powers of the LLC. Subject to the provisions of this Agreement ​ (including, for the avoidance of doubt, Section 5.1(b)(iv)) and the agreements ​ contemplated hereby, the LLC shall have the power and authority to take any and all actions ​ necessary, appropriate, proper, advisable, convenient or incidental to or for the furtherance ​ of the purposes set forth in Section 2.4, including the power: ​ (a) to carry on its operations and have and exercise the powers granted ​ to a limited liability company by the Delaware Act in any state, territory, district or ​ possession of the United States, or in any foreign country that may be necessary, ​ convenient or incidental to the accomplishment of the purpose of the LLC; ​ (b) to acquire by purchase, lease, contribution of property or otherwise, ​ own, hold, operate, maintain, finance, refinance, improve, lease, sell, convey, mortgage, ​ transfer, demolish or dispose of any real or personal property that may be necessary, ​ convenient or incidental to the accomplishment of the purpose of the LLC; ​ (c) to enter into, perform and carry out contracts of any kind, including ​ contracts with any Unitholder or any Affiliate thereof, or any agent of the LLC necessary ​ to, in connection with, convenient toor incidental to the accomplishment of the purpose of ​ the LLC; ​ ​ ​ 22 ​ (d) to purchase, take, receive, subscribe for or otherwise acquire, own, ​ hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise ​ use and deal in and with, shares or other interests in or obligations of domestic or foreign ​ corporations, associations, general or limited partnerships (including the power to be ​ admitted as a partner thereof and to exercise the rights and perform the duties created ​ thereby), trusts, limited liability companies (including the power to be admitted as an ​ equityholder or appointed as a manager thereof and to exercise the rights and perform the ​ duties created thereby) or individuals or direct or indirect obligations of the United States ​ or of any government, state, territory, governmental district or municipality or of any ​ instrumentality of any of them; ​ (e) to lend money for any proper purpose, to invest and reinvest its ​ funds and to take and hold real and personal property for the payment of funds so loaned ​ or invested; ​ (f) to sue and be sued, complain and defend, and participate in ​ administrative or other proceedings in its name; ​ (g) to indemnify any Person in accordance with the Delaware Act and ​ to obtain any and all types of insurance; ​ (h) to cease its activities and cancel its Certificate; ​ (i) to negotiate, enter into, renegotiate, extend, renew, terminate, ​ modify, amend, waive, execute, acknowledge or take any other action with respect to any ​ lease,contract or security agreement in respect of any assets of the LLC; ​ (j) to borrow money and issue evidences of indebtedness and guarantee ​ indebtedness (whether of the LLC or any of its Subsidiaries), and to secure the same by a ​ Lien on the assets of the LLC or its Subsidiaries or a pledge of the stock of any Subsidiary ​ of the LLC; ​ (k) to pay, collect, compromise, litigate, arbitrate or otherwise adjust or ​ settle any and all other claims or demands of or against the LLC or to hold such proceeds ​ against the payment of contingent liabilities; and ​ (l) to make, execute, acknowledge and file any and all documents or ​ instruments necessary, convenient or incidental to the accomplishment of the purpose of ​ the LLC. ​ 2.6. Foreign Qualification. Prior to the LLC’s conducting activities in any ​ jurisdiction other than Delaware, the Board shall cause the LLC to comply, to the extent ​ procedures are available and those matters are reasonably within the control of the Board, ​ with all requirements necessary to qualify the LLC as a foreign limited liability company ​ ​ ​ 23 ​ in that jurisdiction. At the reasonable request of the Board or any Officer, each Unitholder ​ shall execute, acknowledge, swear to and deliver all certificates and other instruments ​ conforming with this Agreement that are necessary or appropriate to qualify, continue and ​ terminate the LLC as a foreign limited liability company in all such jurisdictions in which ​ the LLC may conduct business. ​ 2.7. Principal Office; Registered Office. The principal office of the LLC shall ​ be located at Two Union Square, 601 Union Street, Suite 3200, Seattle, WA 98101 or at ​ such other place as the Board may from time to time designate. All activities of the LLC ​ shall be deemed to have occurred at its principal office. The LLC may maintain offices at ​ such other place or places as the Board deems advisable. The registered office of the LLC ​ required by the Delaware Act to be maintained in the State of Delaware shall be the office ​ of the initial registered agent named in the Certificate or such other office (which need not ​ be a place of business of the LLC) as the Board may designate from time to time in the ​ manner provided by law. The registered agent of the LLC in the State of Delaware shall ​ be the initial registered agent named in the Certificate or such other Person or Persons as ​ the Board may designate from time to time in the manner provided by law. ​ 2.8. Term. The term of the LLC commenced upon the filing of the Certificate ​ inaccordance with the Delaware Act and shall continue in existence until termination and ​ dissolution thereof in accordance with the provisions of Article XIII. ​ 2.9. No State-Law Partnership. Except as provided in the next sentence, the ​ Unitholders intend that the LLC not be a partnership (including a limited partnership) or ​ joint venture, and that no Unitholder be a partner or joint venturer of any other Unitholder ​ by virtue of this Agreement, and neither this Agreement nor any other document entered ​ into by the LLC or any Unitholder relating to the subject matter hereof shall be construed ​ to suggest otherwise. The Unitholders intend that the LLC shall be treated as a partnership ​ for federal and, if applicable, state or local income tax purposes, and that each Unitholder ​ and the LLC shall file all tax returns and shall otherwise take all tax and financial reporting ​ positions in a manner consistent with such treatment. Without the consent of the Principal ​ Investors, the LLC shall not make an election to be treated as a corporation for federal ​ income tax purposes pursuant to Treasury Regulation 301.7701-3 (or any successor ​ regulation or provision) and, if applicable, state and local income tax purposes. ​ 2.10. No UBTI/ECI. ​ (a) The LLC shall use best efforts to operate and cause its Subsidiaries ​ to operate in a manner that will not cause any Unitholder (or any direct or indirect equity ​ owner thereof), subject toSection 511 of the Code, to recognize unrelated business taxable ​ income under Section 512 of the Code or unrelated debt-financed income under Section ​ 514 of the Code. The LLC shall not invest in or own any other entity that is tax-transparent ​ for U.S. federal income tax purposes unless such entity is subject to similar restrictions ​ regarding unrelated business taxable income. ​ ​ ​ 24 ​ (b) The LLC shall use best efforts to conduct its affairs so that its direct ​ foreign Unitholders (or any direct or indirect foreign equity owner of any Unitholder) will ​ not be treated as engaged in a trade or business, and will not recognize income which is, or ​ is treated as, effectively connected with the conduct of a U.S. trade or business for purposes ​ of Sections 864, 881,882, 884, 897 or 1446 of the Code solely as a result of the LLC’s ​ activities or investments. The LLC shall also use its reasonable best efforts to conduct its ​ affairs so that any of its direct foreign Unitholders (or any direct or indirect foreign equity ​ owner of any Unitholder) that is entitled to the benefits of Section 892 of the Code will not ​ be treated as engaged in a “commercial activity” within the meaning of Code Section 892 ​ solely as a result of the LLC’s activities or investments. In furtherance thereof, the LLC ​ will use reasonable best efforts not to: (i) acquire or own an interest or option to acquire an ​ equity interest in any partnership, limited liability company, trust or other entity which is ​ not treated as a corporation for United States tax purposes, other than an interest solely as ​ a creditor, unless (A) the LLC determines, after consultation with counsel to the LLC, that ​ such proposed acquisition (and in the case of an acquisition of an option to acquire an ​ equity interest, the acquisition of such equity interest upon exercise of the option) is not ​ likely to causeits direct foreign Unitholder (or any direct or indirect foreign equity owner ​ of any Unitholder) to be treated as engaged in a U.S. trade or business within the meaning ​ of the Code Sections specified in the preceding sentence and (B) such entity agrees to be ​ bound contractually by restrictions substantially similar to those set forth in this paragraph ​ or (ii) engage in or hold itself out as engaging in the performance of services for ​ compensation or otherwise carry on a United States trade or business within the meaning ​ of the Code Sections specified in the preceding sentence. Notwithstanding anything to the ​ contrary herein, if the LLC acquires an interest in a corporation that is not a “United States ​ real property holding corporation” (as defined in Section 897(c)(2) of the Code, a ​ “USRPHC”) at the time of the LLC’s investment and that is not reasonably expected to ​ become a USRPHC, the LLC shall not be deemed to have breached its covenant hereunder ​ solely because that domestic corporation subsequently becomes a USRPHC and the LLC ​ continues to hold an interest in such corporation. The LLC confirms that, as of the date of ​ this Agreement, the LLC does not own, directly or indirectly, an interest in, and is not ​ reasonably expected to acquire, directly or indirectly, an interest in, a USRPHC. ​ (c) Notwithstanding anything to the contrary in this Section 2.10, if at ​ least 50% of theManagers on the Board were designated by Frazier during any period ​ when any action prohibited under this Section 2.10 took place, neither the LLC nor any ​ subsidiary thereof shall have any liability under this Section 2.10. ​ ARTICLE III ​ ​ UNITS; CAPITAL ACCOUNTS ​ 3.1. Units; Unitholders. ​ (a) ​ ​ ​ 25 ​ (i) General. The LLC, as of the date hereof, has two (2) ​ authorized classes of Units: (i) “Common Units” (which Common Units, as described ​ below, will consist of Class A Common Units and Class B Common Units) and (ii) “Value ​ Units” (which Value Units, as described below, will consist of Value A Units, Value B ​ Units, Value C Units and Value D Units). Common Units and Value Units are referred to ​ herein collectively, as the “Units”. Unless and until the Board shall determine otherwise, ​ the Units shall each be uncertificated and recorded in the books and records of the LLC ​ (including Schedule A). The LLC may, in its sole discretion, issue certificates to the ​ Unitholders representing the Units held by each Unitholder. To the extent that the holder ​ of a Unit is required by the other provisions of this Agreement to deliver or surrender such ​ holder’s certificates representing Units, then, in the event that the Units are not certificated ​ by the LLC, the LLC will provide appropriate forms or documents (regarding the ​ conveyance of such Units, and all right, title and interest thereto) to be completed and ​ delivered by such holder in lieu thereof. The Board may determine the conditions upon ​ which a new certificate may be issued in place of a certificate that is alleged to have been ​ lost, stolen or destroyed and may, in its discretion, require the owner of such certificate or ​ its legal representative to give an agreement ofindemnity or a bond, with sufficient surety, ​ to indemnify the LLC and each transfer agent and registrar agent, if any, against any and ​ all losses and claims that may arise as a result of the issuance of a new certificate in place ​ of the one so lost, stolen or destroyed. ​ (ii) Ownership Limitation. Each Rollover Holder agrees and ​ acknowledges that the LLC does not intend for it to own five percent (5%) or more of the ​ LLC’s outstanding Units. In furtherance of the foregoing, each Rollover Holder hereby ​ agrees and acknowledges that, unless otherwise determined by the Board, in the event that ​ any offering of Units (including any offering effected pursuant to Section 3.5) would result ​ in any such Rollover Holder owning five percent (5%) or more of the LLC’s outstanding ​ Units, in such case, such Rollover Holder shall refrain from participating in any such ​ offering of Units to the extent as may be necessary to ensure that such Rollover Holder ​ does not own five percent (5%) or more of the LLC’s outstanding Units following the ​ consummation of any such offering of Units. Also in furtherance of the foregoing, each ​ Rollover Holder hereby agrees and acknowledges that, unless otherwise determined by the ​ Board, in the event that any transaction by the LLC (e.g., a sale of Units by a Unitholder ​ to the LLC in accordance with the terms herein) would result in any such Rollover Holder ​ owning fivepercent (5%) or more of the LLC’s outstanding Units, in such case, such ​ Rollover Holder shall permit the LLC to repurchase Units from such Rollover Holder to ​ the extent as may be necessary to ensure that such Rollover Holder does not own five ​ percent (5%) or more of the LLC’s outstanding Units following the consummation of any ​ such transaction; any such repurchase of Units by the LLC shall be consummated at Fair ​ Market Value and in accordance with the terms provided in Sections 3.11 and 14.3, mutatis ​ mutandis. ​ ​ ​ 26 ​ (b) Common Units. The LLC will have two (2) sub classes of Common ​ Units: Class A Common Units and Class B Common Units. The Class A Common Units ​ and Class B Common Units shall be identical in all respects, except as otherwise expressly ​ set forth in this Agreement (including Section 4.1 below). Unless otherwise determined ​ by the Board, the Common Units will initially be issued for a Capital Contribution of $1.00 ​ per Common Unit. The payment terms and schedule for the Capital Contributions ​ applicable to the issuance of any Common Unit will be determined by the Board upon ​ issuance of such Common Units. ​ (c) Value Units. ​ (i) General. The LLC will have four (4) sub classes of Value ​ Units: Value A Units, Value B Units, Value C Units and Value D Units. Subject to the ​ provisions of Section 3.10 hereof (including the applicable Benchmark Amounts), the ​ holders of Value Units shall have the rights with respect to profits and losses of the LLC ​ and distributions from the LLC as set forth herein (including Section 3.10 and Article IV) ​ and in the Plan, provided that additional terms and conditions applicable to a Value Unit ​ may be established by the Board in connection with the issuance of any such Value Unit ​ to a Person who becomes a Management Unitholder or Operating Unitholder at any time ​ after the date of this Agreement in accordance with Article XI hereof. Thenumber of Value ​ Units issued to any Management Unitholder or Operating Unitholder as of any given time ​ shall be set forth on Schedule A, as it may be updated from time to time in accordance with ​ this Agreement. Authorized and unallocated Value Units (if any) are set forth on ​ Schedule A. Notwithstanding anything to the contrary, Value Units shall not have voting ​ rights. ​ (ii) Price. The holders of Value Units are not required to make ​ any Capital Contribution to the LLC in exchange for their Value Units or otherwise. ​ (iii) Vesting. Subject to the terms and conditions of this ​ Agreement, including, without limitation, Section 3.10(b), the Plan, and except as ​ otherwise provided for in any award or other agreement evidencing a grant of Value Units, ​ twenty-five percent (25%) of each class of the Value Units granted to any Management ​ Unitholder or Operating Unitholder as of any Grant Date shall vest on the first anniversary ​ of such Grant Date, with the remaining portion of each class of such Value Units vesting ​ thereafter in thirty-six (36) substantially equal monthly installments such that one-hundred ​ percent (100%) of each class of the Value Units granted as of any such Grant Date shall ​ become fully vested on the fourth anniversary of such Grant Date. For the avoidance of ​ doubt, the foregoing vesting schedule requires the continued employment (in the case of ​ each Management Unitholder) orService (in the case of each Operating Unitholder) ​ through each applicable vesting date as a condition to the vesting of the applicable ​ installment of the Value Units granted to such Management Unitholder or Operating ​ Unitholder, as the case may be. Except as otherwise approved by the Board, employment ​ or Service for only a portion of the vesting period, even if a substantial portion, will not ​ ​ ​ 27 ​ entitle any Management Unitholder or Operating Unitholder, as the case may be, to any ​ proportionate vesting. Each holder of Value Units shall make an election under Section ​ 83(b) of the Code with respect to his or her initial receipt of Value Units within 30 days of ​ the issuance of such Value Units and promptly provide a copy of such election to the LLC. ​ (d) Unitholders. Each Person named on Schedule A attached hereto ​ agrees that it will make (or has made) Capital Contributions to the LLC as set forth on ​ Schedule A in exchange for the Units specified thereon, and each Person’s initial Capital ​ Account established pursuant to such Capital Contributions, and the number of Units ​ owned by such Person, is set forth on Schedule A. Any reference in this Agreement to ​ Schedule A shall be deemed to be a reference to Schedule A as amended in accordance ​ with the terms herein and in effect from time to time. The LLC and each such Person shall ​ file all tax returns, including any schedules thereto, in a manner consistent with such initial ​ Capital Accounts. Each Unitholder listed on Schedule A upon (i) his, her or its execution ​ of this Agreement or a counterpart hereto and (ii) receipt (or deemed receipt) by the LLC ​ of such Person’s Capital Contribution as set forth on Schedule A, is hereby admitted to the ​ LLC as a Unitholder of the LLC. Each Unitholder’s interest in the LLC,including such ​ Unitholder’s interest in Profits, Losses and Distributions of the LLC and the right to vote ​ on certain matters as provided in this Agreement, shall be represented by the Units owned ​ by such Unitholder. The ownership of Units shall entitle each Unitholder to allocations of ​ Profits and Losses and other items and distributions of cash and other property as set forth ​ in Article IV or Article XIII hereof. ​ (e) Representations and Warranties of Unitholders. Each Unitholder ​ hereby represents and warrants, severally and not jointly, to the LLC and acknowledges ​ that: (i) such Unitholder has reviewed and evaluated all information necessary to assess the ​ merits and risks of his, her or its investment in the LLC and has had answered to such ​ Unitholder’s satisfaction any and all questions regarding such information; (ii) such ​ Unitholder is able to bear the economic and financial risk of an investment in the LLC for ​ an indefinite period of time and could afford a complete loss of such investment; (iii) such ​ Unitholder is acquiring interests in the LLC for investment only and not with a view to, or ​ for resale in connection with, any distribution to the public or public offering thereof; (iv) ​ to the extent that the Units are deemed to be securities under the Securities Act of 1933, ​ the interests in the LLC have not been registered under the securities laws of any ​ jurisdiction and cannot be disposed of unless theyare subsequently registered and/or ​ qualified under applicable securities laws or pursuant to an exemption therefrom or as ​ otherwise provided in this Agreement have been complied with; (v) if such Unitholder is a ​ natural person, such Unitholder has the natural capacity (or, if such Unitholder is an entity, ​ such Unitholder has the corporate (or similar) power and authority) to execute and deliver ​ this Agreement and each document referred to herein to be executed by such Unitholder ​ (or counterparts thereof or joinders thereto) hereunder, and to perform its obligations ​ hereunder and thereunder; (vi) the execution, delivery and performance of this Agreement ​ have been duly authorized by such Unitholder and do not require such Unitholder to obtain ​ ​ ​ 28 ​ any consent or approval that has not been obtained and do not contravene or result in a ​ default under any provision of any law or regulation applicable to such Unitholder or other ​ governing documents or any agreement or instrument to which such Unitholder is a party ​ or by which such Unitholder is bound; (vii) the determination of such Unitholder to ​ purchase or otherwise acquire interests in the LLC has been made by such Unitholder ​ independent of any other Unitholder and independent of any statements or opinions as to ​ the advisability of such purchase, which may have been made or given by the LLC, any ​ other Unitholder or by any agent or employee of any other Unitholder; provided, however, ​ that the LLC acknowledges the representations and warranties it has made to the Rollover ​ Holders in their respective Contribution and Exchange Agreements; (viii) this Agreement ​ is valid, binding and enforceable against such Unitholder in accordance with its terms, ​ except to the extent that such enforceability may be limited by applicable bankruptcy, ​ insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws ​ generally affecting creditors’ rights and general equitable principles (regardless of whether ​ enforcement is sought in equity or at law); and (ix) the Units cannot be Transferred except ​ in compliance with the terms ofthis Agreement. ​ (f) No Liability of Unitholders. ​ (i) No Liability. Except as otherwise required by applicable law ​ and as expressly set forth in this Agreement, no Unitholder shall have any personal liability ​ whatsoever in such Unitholder’s capacity as a Unitholder, whether to the LLC, to any of ​ the other Unitholders, to the creditors of the LLC or to any other third party, for the debts, ​ liabilities, commitments or any other obligations of the LLC or for any losses of the LLC. ​ Each Unitholder shall be liable only to make such Unitholder’s Capital Contribution to the ​ LLC and the other payments provided expressly herein. ​ (ii) Distribution. In accordance with the Delaware Act and the ​ laws of the State of Delaware, an equityholder of a limited liability company may, under ​ certain circumstances, be required to return amounts previously distributed to such ​ equityholder. It is the intent of the Unitholders that no Distribution to any Unitholder ​ pursuant to Article IV hereof shall be deemed a return of money or other property paid or ​ distributed in violation of the Delaware Act. The payment of any such money or ​ distribution of any such property to a Unitholder shall be deemed to be a compromise ​ within the meaning of the Delaware Act, and the Unitholder receiving any such money or ​ property shall not be required to return to any Person any such money or property. ​ However, if any court of competent jurisdiction holds that,notwithstanding the provisions ​ of this Agreement, any Unitholder is obligated to make any such payment, such obligation ​ shall be the obligation of such Unitholder and not of any other Unitholder. ​ 3.2. Unitholder Meetings. ​ (a) Voting of Unitholders. Except for the voting, approval and consent ​ rights of the Principal Investors expressly provided by this Agreement (including pursuant ​ ​ ​ 29 ​ to Section 5.1(b)(iv)), none of the Unitholders shall have any voting, approval or consent ​ rights under this Agreement or the Delaware Act with respect to the Units held by such ​ Person, including with respect to any matters to be decided by the LLC or any other ​ governance matters described in this Agreement, and each Unitholder, by its acceptance ​ thereof, expressly waives any consent, approval or voting rights (except to the extent ​ expressly provided to the Principal Investors in this Agreement) or other rights to ​ participate in the governance of the LLC, whether such rights may be provided under the ​ Delaware Act (including under §§ 18-209(b), 18-213(b), 18-215(g), 18-215(k), 18-216(b), ​ 18-301(b)(1), 18-302(a), 18-302(f), 18-304, 18-702(a), 18-704(a), 18-801(a), 18-803(a) or ​ 18-806 thereof) or otherwise. ​ (b) Voting; Quorum. A quorum shall be present at a meeting of ​ Unitholders if the Principal Investors are represented at the meeting in person or by proxy. ​ With respect to any matter, other than a matter for which the affirmative vote of the holders ​ of a specified portion of all Unitholders entitled to vote is required by the Delaware Act or ​ by this Agreement (including Section 5.1(b)(iv)), the affirmative vote of Unitholders ​ holding a Required Interest at a meeting of Unitholders at which a quorum is present shall ​ be the act of the Unitholders. ​ (c) Place. All meetings of the Unitholders shall be held at the principal ​office of the LLC or at such other place within or without the State of Delaware as shall be ​ specified or fixed in the notices or waivers of notice thereof; provided that any or all ​ Unitholders may participate in any such meeting by means of conference telephone or ​ similar communications equipment pursuant to Section 3.3(d). ​ (d) Adjournment. Notwithstanding the other provisions of the ​ Certificate or this Agreement to the contrary, the chairperson of the meeting or Unitholders ​ holding a Required Interest shall have the power to adjourn such meeting from time to ​ time, without any notice other than announcement at the meeting of the time and place of ​ the holding of the adjourned meeting. If such meeting is adjourned by the Unitholders, ​ such time and place shall be determined by Unitholders holding a Required Interest. Upon ​ the resumption of such adjourned meeting, any business may be transacted that might have ​ been transacted at the meeting as originally called. ​ (e) Annual Meeting. An annual meeting of the Unitholders, for the ​ election of Managers and for the transaction of such other business as may properly come ​ before the meeting, shall be held at such place, within or without the State of Delaware, on ​ such date and at such time as the Board shall fix and set forth in the notice of the meeting, ​ which date shall be within thirteen months subsequent to the date of organization ofthe ​ LLC or the last annual meeting of Unitholders, whichever most recently occurred. ​ Notwithstanding the foregoing, in the absence of any such annual meeting, the Managers ​ then in office shall continue to be Managers of the LLC until the earlier of their death, ​ resignation or removal. ​ ​ ​ 30 ​ (f) Special Meetings. Special meetings of the Unitholders for any ​ proper purpose or purposes may be called at any time by the Board or Unitholders holding ​ a Required Interest. If not otherwise stated in or fixed in accordance with the remaining ​ provisions hereof, the record date for determining Unitholders entitled to call a special ​ meeting is the date any Unitholder first signs the notice of that meeting. Only business ​ within the purpose or purposes described in the notice (or waiver thereof) required by this ​ Agreement may be conducted at a special meeting of the Unitholders. ​ (g) Notice. A written or printed notice stating the place, day and hour ​ of the meeting and, in the case of a special meeting, the purpose or purposes for which the ​ meeting is called, shall be delivered to each Unitholder entitled to vote at the applicable ​ meeting in accordance with Section 15.15 below not less than two or more than 60 days ​ before the date of the meeting, by or at the direction of the Board or the Unitholders calling ​ the meeting. A vote of the Unitholders otherwise entitled to vote at a meeting of the ​ Unitholders shall be valid and binding only if a notice of the meeting at which such vote is ​ taken is given to all Unitholders entitled to vote at such meeting in accordance with this ​ Section 3.2(g). ​ (h) Record Date. The date on which notice of a meeting of Unitholders ​ is mailed or the date on which the resolution of the Boarddeclaring a distribution is ​ adopted, as the case may be, shall be the record date for the determination of the ​ Unitholders entitled to notice of or to vote at such meeting (including any adjournment ​ thereof) or the Unitholders entitled to receive such distribution. ​ (i) Proxies. A Unitholder may vote either in person or by proxy ​ executed in writing by the Unitholder. A telegram, telex, cablegram or similar transmission ​ by the Unitholder, or a photographic, photostatic, facsimile or similar reproduction of a ​ writing executed by the Unitholder shall be treated as an execution in writing for purposes ​ of this Section 3.2(i). Proxies for use at any meeting of Unitholders or in connection with ​ the taking of any action by written consent pursuant to Section 3.3 shall be filed with an ​ Officer authorized by the Board, before or at the time of the meeting or execution of the ​ written consent as the case may be. All proxies shall be received and taken charge of and ​ all ballots shall be received and canvassed by an Officer authorized by the Board, who shall ​ decide all questions concerning the qualification of voters, the validity of the proxies and ​ the acceptance or rejection of votes, unless an inspector or inspectors shall have been ​ appointed by the chairperson of the meeting, in which event such inspector or inspectors ​ shall decide all such questions. No proxy shall be valid after 11 months from the date of ​ itsexecution unless otherwise provided in the proxy. A proxy shall be revocable unless ​ the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled ​ with an interest. A Unitholder may designate one or more Persons to act as proxy, and ​ should a proxy designate two or more Persons to act as proxies, unless that instrument shall ​ provide to the contrary, a majority of such Persons present at any meeting at which their ​ powers thereunder are to be exercised shall have and may exercise all the powers of voting ​ ​ ​ 31 ​ or giving consents thereby conferred, or if only one be present, then such powers may be ​ exercised by that one; or, if an even number attend and a majority do not agree on any ​ particular issue, the LLC shall not be required to recognize such proxy with respect to such ​ issue if such proxy does not specify how the Units that are the subject of such proxy are to ​ be voted with respect to such issue. ​ (j) Conduct of Unitholder Meetings. All meetings of the Unitholders ​ shall be presided over by the chairperson of the meeting, who shall be one of the Managers ​ (as determined by Unitholders holding a Required Interest). The chairperson of any ​ meeting of Unitholders shall determine the order of business and the procedure at the ​ meeting, including such regulation of the manner of voting and the conduct of discussion ​ as seem to him or her in order. ​ (k) Voting Rights. The holders of the Units entitled to vote at any ​ applicable meeting shall be entitled to notice of such meeting in accordance with this ​ Agreement, and except as otherwise required by law, the holders of the Units shall be ​ entitled to vote on all matters submitted to the Unitholders for a vote with each Unit entitled ​ to one vote. Except as otherwise expressly provided in this Agreement (including, for the ​ avoidance of doubt, Section 5.1(b)(iv)) or as required by law, the vote, consent or approval ​ of Unitholders holding aRequired Interest shall constitute the act of the Unitholders. ​ 3.3. Action of Unitholders by Written Consent or Telephone Conference. ​ (a) Written Consent in Lieu of Meeting. Subject to the terms of this ​ Agreement (including, for the avoidance of doubt, Section 5.1(b)(iv)), any action required ​ or permitted to be taken at any annual or special meeting of Unitholders may be taken ​ without a meeting, without prior notice and without a vote, if a consent or consents in ​ writing, setting forth the action so taken, shall be signed by the Unitholder or Unitholders ​ holding not less than the minimum percentages of Units that would be necessary to take ​ such action at a meeting at which all Unitholders entitled to vote on the action were present ​ and voted in accordance with Section 3.2(k). Every written consent shall bear the date of ​ signature of each Unitholder who signs the consent (or a counterpart thereof). No written ​ consent shall be effective to take the action that is the subject to the consent unless, within ​ 60 days after the date of the earliest dated consent delivered to the LLC in the manner ​ required by this Section 3.3(a), a consent or consents signed by the Unitholder or ​ Unitholders holding not less than the minimum Units that would be necessary to take the ​ action that is the subject of the consent are delivered to the LLC by delivery to its registered ​ office, its principal place of business or the Board.Delivery shall be by hand or certified ​ or registered mail, return receipt requested. Delivery to the LLC’s principal place of ​ business shall be addressed to the Board. A telegram, telex, cablegram, electronic mail or ​ similar transmission by a Unitholder, or a photographic, photostatic, facsimile, PDF or ​ similar reproduction of a writing signed by a Unitholder, shall be regarded as signed by the ​ Unitholder for purposes of this Section 3.3(a). Prompt notice of the taking of any action ​ by Unitholders without a meeting by less than unanimous written consent shall be given to ​ ​ ​ 32 ​ those Unitholders who were otherwise entitled to vote but did not consent in writing to the ​ action. ​ (b) Record Date for Written Consent in Lieu of Meeting. The record ​ date for determining Unitholders entitled to consent to action in writing without a meeting ​ shall be the first date on which a signed written consent setting forth the action taken or ​ proposed to be taken is delivered to the LLC by delivery to its registered office, its principal ​ place of business, or the Board. Delivery shall be by hand or by certified or registered ​ mail, return receipt requested. Delivery to the LLC’s principal place of business shall be ​ addressed to the Board. ​ (c) Filings. If any action by Unitholders is taken by written consent, ​ any certificate or documents filed with the Secretary of State of Delaware as a result of the ​ taking of the action shall state, in lieu of any statement required by the Delaware Act ​ concerning any vote of Unitholders, that written consent has been given in accordance with ​ the provisions of the Delaware Act and that any written notice required by the Delaware ​ Act has been given. ​ (d) Telephone Conference. Unitholders may participate in and hold a ​ meeting by means of conference telephone or similar communications equipment by means ​ of which all Persons participating in the meeting can hear each other, and participation in ​ such meeting shall constitute attendance and presence in person atsuch meeting, except ​ where a Person participates in the meeting for the express purpose of objecting to the ​ transaction of any business on the ground that the meeting is not lawfully called or ​ convened. ​ 3.4. Issuance of Additional Units and Interests. Subject to compliance with ​ the provisions of this Agreement (including Section 5.1(b)(iv)), the Board shall have the ​ right to cause the LLC to authorize, designate, issue or sell to any Person (including ​ Unitholders and Affiliates) any additional Equity Securities (which for purposes of this ​ Agreement shall be “Additional Securities”). Subject to the provisions of this Agreement, ​ including Section 5.1(b)(iv), the Board shall determine the terms and conditions governing ​ the issuance of such Additional Securities, including the number and designation of such ​ Additional Securities, the designations, preferences (with respect to distributions, ​ liquidations, or otherwise) over any other Units and relative, participating, optional or other ​ special rights, powers and duties, including rights, powers and duties senior or junior to, or ​ pari passu with, any other Units, any required contributions in connection therewith and ​ voting rights. Subject to Section 5.1(b)(iv) and Section 15.3, the Board shall, in its sole ​ discretion, be permitted to amend this Agreement in connection with the authorization, ​ designation reservation or issuance of any Additional Securities.Any Person who acquires ​ Units may be admitted to the LLC as a Unitholder pursuant to the terms of Section 11.2 ​ hereof. If any Person acquires additional Units or other interests in the LLC or is admitted ​ to the LLC as an Additional Unitholder, the LLC shall amend Schedule A to reflect such ​ additional issuance and/or Unitholder, as the case may be. ​ ​ ​ 33 ​ 3.5. Preemptive Rights. ​ (a) If, prior to an initial Public Offering, the Board authorizes the ​ issuance or sale of any Units, any equity Securities of any of the LLC’s Subsidiaries or any ​ securities convertible into, or exchangeable or exercisable for any such Units or equity ​ Securities (any of the foregoing, “Preemptive Securities”), the LLC shall offer to sell to ​ each of the Subject Holders, or one or more Affiliates of such Subject Holder designated ​ for such purpose, that certifies (to the reasonable satisfaction of the LLC) that it is an ​ Accredited Investor (the “Other Accredited Unitholders”), at the same price and on the ​ same terms, an amount of Preemptive Securities (with respect to each Other Accredited ​ Unitholder, the “Preemptive Portion”) equal to the product (rounded down to the nearest ​ whole number) of (A) the Preemptive Pro Rata Percentage of such Other Accredited ​ Unitholder, multiplied by (B) the number of Preemptive Securities then contemplated to ​ be issued by the LLC. Subject to Section 3.1(a)(ii), each Other Accredited Unitholder shall ​ be entitled to purchase his, her or its Preemptive Portion of such Preemptive Securities at ​ the price and on the terms set forth in the Issuance Notice. The purchase price for all ​ Preemptive Securities to be offered to the Other Accredited Unitholders under this Section ​ 3.5 shall be payable in cash. It is understood by the parties hereto that the LLC may proceed ​ with theconsummation of the issuance of Preemptive Securities prior to offering such ​ securities to the Other Accredited Unitholders; provided that an Issuance Notice (as defined ​ below) is delivered to each of the Other Accredited Unitholders in accordance with Section ​ 3.5(b) below. ​ (b) The LLC shall deliver to each Other Accredited Unitholder a written ​ notice (an “Issuance Notice”) describing in reasonable detail the Preemptive Securities ​ being offered in the applicable issuance under this Section 3.5, the purchase price thereof, ​ the payment terms and such Other Accredited Unitholder’s percentage allotment prior to ​ the closing of the issuance, or, if no such notice is delivered prior to such closing, no later ​ than fifteen (15) days after such closing. In order to exercise its purchase rights hereunder, ​ each Other Accredited Unitholder must within twenty (20) days after receipt of an Issuance ​ Notice, deliver a written notice to the LLC describing its election to purchase all or any ​ portion of his, her or its Preemptive Portion of the applicable Preemptive Securities under ​ this Section 3.5. Each Other Accredited Unitholder who has not accepted such offer within ​ such period shall be deemed to have waived all of such Other Accredited Unitholder’s ​ rights to participate in such issuance. In the event that all of the Preemptive Securities have ​ not been subscribed for pursuant to this Section 3.5(b)following the delivery of the initial ​ Issuance Notice, then (subject to Section 3.1(a)(ii)) the Preemptive Securities not ​ subscribed for shall be reoffered pursuant to the provisions of this Section 3.5(b) one ​ additional time to all such Other Accredited Unitholders who have elected to purchase their ​ respective Preemptive Portions (each a “Participating Purchaser”); provided, that in such ​ case of any reoffering, the applicable period to make an election to purchase with respect ​ to such Preemptive Securities shall be five (5) Business Days, and each Participating ​ Purchaser shall be permitted to commit to acquire all or any portion of the remaining ​ ​ ​ 34 ​ Preemptive Securities being offered pursuant to this Section 3.5(b) (and any over ​ commitment shall be cut back pro rata on the basis of each such Participating Purchaser’s ​ relative Preemptive Portion). Following such reoffering of remaining Preemptive ​ Securities, the LLC shall thereafter be free to issue any remaining Preemptive Securities in ​ such issuance not already subscribed for by the Participating Purchasers to other ​ prospective subscribers at a price no less than the price set forth in the Issuance Notice and ​ on the other terms set forth in the Issuance Notice. If one or more Other Accredited ​ Unitholders elects to purchase Preemptive Securities under this Section 3.5, the closing of ​ such purchase shall occur no later than 120 days after receipt by the LLC of such election. ​ (c) Notwithstanding the foregoing (but subject, in each case, to ​ compliance with the other provisions of this Agreement, including Section 5.1(b)(iv)), the ​ rights set forth in this Section 3.5 shall not apply to any issuance of Preemptive Securities ​ (i) upon the conversion, exchange or exercise of any then outstanding Equity Securities in ​ accordance with their respective terms, (ii) to financing sources of the LLC or any of its ​ Subsidiaries in connection with the issuance of debt or restructuring or recapitalization of ​ existing debt; (iii) in connection with grants of Units (including Value Units) or options to ​ officers,directors, employees or consultants of the LLC or any of its Subsidiaries issued ​ pursuant to a plan approved by the Board (including the Plan); (iv) pursuant to a stock (or ​ similar) split, dividend, combination, reorganization, recapitalization or similar event; (v) ​ in connection with a Public Offering; (vi) in connection with a Sale of the LLC; (vii) to the ​ sellers of a company, business, division or enterprise as part of the consideration (in whole ​ or in part) for such acquisition by any member of the Company Group; or (viii) in ​ connection with issuances of Common Units to officers, directors, employees or ​ consultants of the LLC or any of its Subsidiaries issued for cash and not in excess of the ​ amount of Common Units designated therefor on Schedule B. ​ (d) The LLC shall have 120 days from the date of the Issuance Notice ​ to consummate the proposed issuance of any or all of such Units that the Other Accredited ​ Unitholders have elected to purchase under this Section 3.5 at the same price and terms ​ that are specified in the Issuance Notice; provided that, if such issuance is subject to ​ regulatory approval, such 120-day period shall be extended until the expiration of five ​ Business Days after all such approvals have been received, but in no event later than 270 ​ days from the date of the Issuance Notice. If the LLC proposes to issue any series of Units ​ after such 120 or 270-dayperiod, it shall again comply with the procedures set forth in this ​ Section 3.5 (to the extent applicable). ​ (e) The LLC shall not be under any obligation to consummate any ​ proposed issuance of Preemptive Securities, nor shall there be any liability on the part of ​ the LLC to any Unitholder if the LLC has not consummated any proposed issuance of ​ Preemptive Securities pursuant to this Section 3.5 for whatever reason, regardless of ​ whether it shall have delivered an Issuance Notice in respect of such proposed issuance. ​ Without limiting the generality of the foregoing, if the LLC shall not issue any Preemptive ​ ​ ​ 35 ​ Securities to which an Issuance Notice relates, the LLC shall have no liability to issue to ​ any Other Accredited Unitholder his, her or its Preemptive Portion of the Preemptive ​ Securities. ​ 3.6. Capital Accounts. ​ (a) There shall be established on the books and records of the LLC a ​ capital account (a “Capital Account”) for each Unitholder. ​ (b) Each Unitholder’s Capital Account shall be adjusted: ​ (i) by adding any Capital Contributions made by such ​ Unitholder (including the Capital Contributions made in exchange for any Units); ​ (ii) by deducting any amounts paid to such Unitholder in ​ connection with the redemption or other repurchase by the LLC of Units; ​ (iii) by adding any Profits allocated in favor of such Unitholder ​ and subtracting any Losses allocated in favor of such Unitholder; and ​ (iv) by deducting any distributions paid in cash or other assets to ​ such Unitholder by the LLC (excluding any amount paid to such Unitholder pursuant to ​ the Subscription Agreement or the Advisory Agreement). ​ (c) Each Unitholder’s Capital Account shall be further adjusted with ​ respect to any special allocations or adjustments pursuant to this Agreement. The LLC ​ may adjust the Capital Accounts of its Unitholders, in accordance with Treasury ​ Regulations Section 1.704-l(b)(2)(iv)(f), to reflect revaluations (including any unrealized ​ income, gain or loss) of the LLC’s property (includingintangible assets such as goodwill), ​ whenever it issues additional Units, or whenever the adjustments would otherwise be ​ permitted under such Treasury Regulations. In the event that the Capital Accounts of the ​ Unitholders are so adjusted, (i) the Capital Accounts of the Unitholders shall be adjusted ​ in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of ​ depreciation, depletion, amortization and gain or loss, as computed for book purposes, with ​ respect to such property and (ii) the Unitholders’ distributive shares of depreciation, ​ depletion, amortization and gain or loss, as computed for tax purposes, with respect to such ​ property shall be determined so as to take account of the variation between the adjusted tax ​ basis and book value of such property in the same manner as under Section 704(c) of the ​ Code and Section 4.3 of this Agreement. The Capital Accounts shall be maintained for the ​ sole purpose of allocating items of income, gain, loss and deductions among the ​ Unitholders and shall have no effect on the amount of any distributions to any Unitholder ​ in liquidation or otherwise. The provisions of this Agreement relating to the maintenance ​ of Capital Accounts are intended to comply with Treasury Regulations Sections 1.704-1(b) ​ and 1.704-2 and shall be interpreted and applied in a manner consistent with suchTreasury ​ ​ ​ 36 ​ Regulations, and the LLC shall be permitted to adjust the Capital Accounts of the ​ Unitholders in a manner consistent with such Treasury Regulations. Any contributions of ​ property after the Effective Date shall be valued at their Fair Market Value (as will be ​ reflected on Schedule A hereto). ​ 3.7. Negative Capital Accounts. No Unitholder shall be required to pay to any ​ other Unitholder or the LLC any deficit or negative balance which may exist from time to ​ time in such Unitholder’s Capital Account (including upon and after dissolution of the ​ LLC). ​ 3.8. No Withdrawal. No Person shall be entitled to withdraw any part of such ​ Person’s Capital Contributions or Capital Account or to receive any Distribution from the ​ LLC, except as expressly provided herein or in the other agreements referred to herein. ​ 3.9. Loans From Unitholders. If Unitholders make loans to the LLC (subject ​ to Section 5.1(b)(iv)); (a) such loans shall not be considered Capital Contributions; (b) the ​ making of such loans shall not result in any increase in the amount of the Capital Account ​ of such Unitholder; and (c) the amount of any such loans shall be a debt of the LLC to such ​ Unitholder and shall be payable or collectible in accordance with the terms and conditions ​ upon which such loans are made. ​ 3.10. Additional Terms Applicable to Value Units. ​ (a) Certain Terms. ​ (i) Forfeiture of Value Units. A Management Unitholder’s ​Value Units shall be subject to forfeiture in accordance with Section 3.10(b)(i). ​ (ii) Certain Cancellations. In the event that any portion of the ​ Value Units does not become eligible to participate in distributions pursuant to Section ​ 4.1(a) upon the first occurrence of a Sale of the LLC, after taking into account distributions ​ from the LLC or proceeds from the sale of Units in connection with such Sale of the LLC, ​ such portion of such Value Units shall automatically be canceled without payment therefor. ​ (iii) Calculations. All calculations required or contemplated by ​ Section 4.1 shall be made in the good faith determination of the Board, and, absent manifest ​ error or failure to comply with the terms of this Agreement, shall be final and binding on ​ the LLC and each Management Unitholder and Operating Unitholder. ​ (iv) Profits Interests. The Board shall determine a benchmark ​ amount with respect to each Value Unit at the time such Value Unit is issued to a ​ Unitholder (a “Benchmark Amount”), which shall be reflected on Schedule A. The LLC ​ and the Unitholder intend that each Value Unit be treated as a separate “profits interest” ​ for U.S. federal income tax purposes within the meaning of Internal Revenue Service Rev. ​ ​ ​ 37 ​ Proc. 93-27 and Rev. Proc. 2001-43 or such other subsequent Internal Revenue Service ​ rulings defining “profits interests” as of the date such Value Unit is issued, and this ​ Agreement shall be interpreted to give effect to such intention. Notwithstanding any other ​ provision of this Agreement, (A) each Unitholder shall, and shall cause each of its ​ Affiliates and transferees to, take any action requested by the Board to ensure that the fair ​ market value of any Value Unit at the time of issuance is treated for U.S. federal income ​ tax purposes as being equal to the “liquidation value” (within the meaning of Proposed ​ Treasury Regulations Section 1.83-3(1)) of such Unit (and that each such Unit is afforded ​ pass-through treatment for all applicable U.S. federal, state and local income tax purposes) ​ and (B) without limiting the generality of the foregoing, to the extent required in order to ​ attain or ensure such treatment under any applicable law, revenue procedure, revenue ​ ruling, notice or other guidance governing partnership interests transferred in connection ​ with the performance of services, such action may include authorizing and directing the ​ LLC to make any election, agreeing to any condition imposed on such Unitholder, its ​ Affiliates or its transferees, executing any amendment to this Agreement or other ​ agreements, executing any new agreement, making any tax election or taxfiling, and ​ agreeing not to take any contrary position unless required pursuant to applicable law. ​ (v) The Value Units reserved for issuance under the Plan shall ​ be subject in all respects to the terms, provisions, restrictions and conditions as are set forth ​ in this Agreement, the Plan and the applicable award agreement or other document ​ pursuant to which such Value Units awards were granted. ​ (b) Effects of Termination of Employment on Value Units. ​ (i) Forfeiture of Value Units upon Termination. ​ (A) Termination for Cause. Unless otherwise ​ determined by the Board in a manner more favorable to such Management Unitholder or ​ Operating Unitholder, as applicable, or otherwise set forth in an agreement between such ​ Management Unitholder or Operating Unitholder, as applicable, and the LLC, in the event ​ that a Management Unitholder’s employment with or an Operating Unitholder’s Service to ​ the LLC or any Subsidiary of the LLC is terminated for Cause, all of the Value Units issued ​ to such Management Unitholder or Operating Unitholder (whether vested or not) shall be ​ forfeited immediately and automatically upon such termination. ​ (B) Other Termination. Unless otherwise determined by ​ the Board in a manner more favorable to such Management Unitholder or Operating ​ Unitholder, as applicable, or otherwise set forth in an agreement between such Unitholder ​ and the LLC, in theevent that a Management Unitholder’s employment with or an ​ Operating Unitholder’s Service to the LLC or any Subsidiary of the LLC is terminated for ​ any reason, other than for Cause, then all unvested Value Units issued to such Management ​ Unitholder or Operating Unitholder shall be forfeited immediately and automatically upon ​ such termination. If all or any portion of a Management Unitholder’s or Operating ​ ​ ​ 38 ​ Unitholder’s Value Units are not so forfeited, they shall remain outstanding in accordance ​ with their applicable terms. Notwithstanding the foregoing, during the ninety (90) day ​ period following such termination of employment or Service, as applicable, the Board may ​ elect (with the consent of the Principal Investors) (the “Repurchase Option”) to repurchase ​ the vested Value Units from the applicable the Management Unitholder or Operating ​ Unitholder, and upon such election the Management Unitholder or Operating Unitholder ​ shall be obligated to sell such vested Value Units to the LLC, in each case, for a price equal ​ to the Fair Market Value, as determined by the Board, of such Value Units as of the date ​ of termination of employment or Service (the “Repurchase Price”). In the event that, ​ following the Board’s exercise of the Repurchase Option, the LLC is prohibited pursuant ​ to its existing loan documents or otherwise from paying the Repurchase Price in respect of ​ the Repurchase Option, the Board may elect that the LLC pay the Repurchase Price in the ​ form of a promissory note (on market terms and conditions) to the applicable Management ​ Unitholder or Operating Unitholder, and upon the issuance of such promissory notes the ​ vested Value Units shall be immediately cancelled and shall no longer be deemed ​ outstanding. ​ (ii) Inactive Unitholders. Subject to the lastsentence of this ​ clause (ii), if a Management Unitholder’s employment with or an Operating Unitholder’s ​ Service to the LLC or any Subsidiary of the LLC terminates for any reason, such Unitholder ​ shall thereafter be referred to herein as an “Inactive Unitholder” with only the rights (and ​ applicable restrictions) of an Inactive Unitholder specified herein. Notwithstanding ​ anything to the contrary, such Inactive Unitholder shall continue to be treated as a ​ Unitholder solely for purposes of any applicable allocations or distributions, which shall ​ be deemed for tax purposes to be made to such Inactive Unitholder in its capacity as a ​ Unitholder, until such time as all Units retained by such Inactive Unitholder are Transferred ​ or repurchased in accordance with this Agreement. Notwithstanding the foregoing, the ​ Ekbatani Holder shall only become an Inactive Unitholder pursuant to Section 3.11(b) or ​ Section 3.12(b), as applicable, below. ​ (iii) Effect of Forfeiture. Any Value Unit which is forfeited shall ​ be cancelled for no consideration. ​ (iv) Accelerated Vesting Upon a Sale of the LLC. Unless ​ otherwise set forth in an agreement between such Management Unitholder or Operating ​ Unitholder, as applicable, and the LLC, the Board, in its sole and absolute discretion, may ​ elect, immediately prior to the occurrence of a Sale of the LLC, to accelerate the vesting of ​ any then-unvested Value Units then held byany Management Unitholder or Operating ​ Unitholder (and not previously forfeited). ​ (c) Nontransferability of Awards. Notwithstanding anything to the ​ contrary, no Value Units may be Transferred, other than subject to approval by the Board ​ in any individual case (including such additional terms and conditions as the Board shall ​ require), to a transferee under Article X. ​ ​ ​ 39 ​ (d) Treatment in an Initial Public Offering. In connection with an initial ​ Public Offering, the holders of any Value Units that are not then vested may, in the Board’s ​ sole discretion, receive restricted securities of comparable economic value, in exchange for ​ and cancellation of such Value Units, (i) that are subject to similar restrictions, vesting and ​ forfeiture provisions as are described in this Agreement and the applicable award ​ agreement or other document pursuant to which such Value Units awards were granted and ​ (ii) the form and substance of which will determined at the sole discretion of the Board; ​ provided that the tax treatment of such securities may be different than that of the Value ​ Units. ​ 3.11. Effects of a Trigger Event. ​ (a) During the ninety (90) day period following the date on which any ​ executive officer of the Company or member the Board is actually notified of a Trigger ​ Event, the LLC (with the consent of the Principal Investors) may elect, by written notice ​ thereof to the Ekbatani Holder, to repurchase all or any portion of the Units then held by ​ the Ekbatani Holder (the “Ekbatani Repurchase Option”) and, following notice of such ​ election so delivered within such ninety (90) period, the Ekbatani Holder shall be obligated ​ to sell such Units to the LLC, in each case, for a cash price equal to the Fair Market Value ​ of such Units as of the date of repurchase thereof, as determined by the Boardand specified ​ in such notice (which determination, for the avoidance of doubt, will take into account the ​ Unpaid Equity Value Amount and the features of the distribution waterfall set forth in ​ Section 4.1 with respect to the Units then-held by the Ekbatani Holder) (subject to Section ​ 14.3 below, the “Ekbatani Repurchase Price”). In the event that, following the LLC’s ​ exercise of the Ekbatani Repurchase Option, the LLC is prohibited pursuant to its then-​ existing senior debt financing arrangements from paying the Ekbatani Repurchase Price ​ (or any portion thereof) in respect of the Ekbatani Repurchase Option, the LLC shall pay ​ the Ekbatani Repurchase Price (or any portion thereof) in the form of a promissory note ​ (on market terms and conditions) to the Ekbatani Holder due upon the repayment or ​ refinancing of the LLC’s then-existing senior debt financing arrangements, and upon the ​ issuance of such promissory note the Units then so repurchased from the Ekbatani Holder ​ in exchange therefor shall be immediately cancelled and shall no longer be deemed ​ outstanding. The LLC and the Ekbatani Holder shall be required to consummate an ​ Ekbtatani Repurchase Option during the thirty (30) day period following delivery to the ​ Ekbatani Holder of notice thereof (subject to the right to Dispute pursuant to Section 14.3) ​ or, if prior to such date the Ekbatani Holder hasdelivered to the LLC a notice of a Dispute ​ pursuant to Section 14.3 below, during the thirty (30) day period following the final ​ determination of the Fair Market Value of the Units to be repurchased pursuant to such ​ Section 14.3. ​ (b) Upon the LLC’s delivery to the Ekbatani Holder of its notice of ​ election to exercise the Ekbatani Repurchase Option, the Ekbatani Holder shall thereafter ​ for so long as such Ekbatani Repurchase Option is pending and only with respect to the ​ ​ ​ 40 ​ Units being repurchased pursuant to such Ekbatani Repurchase Option, be referred to ​ herein as an “Inactive Unitholder” with only the rights (and applicable restrictions) of an ​ Inactive Unitholder specified herein. Notwithstanding anything to the contrary, such ​ Inactive Unitholder for so long as such Ekbatani Repurchase Option is pending and only ​ with respect to the Units being repurchased pursuant to such Ekbatani Repurchase Option, ​ shall continue to be treated as a Unitholder solely for purposes of any applicable allocations ​ or distributions, which shall be deemed for tax purposes to be made to such Inactive ​ Unitholder in its capacity as a Unitholder, until such time as all Units retained by such ​ Inactive Unitholder are Transferred or repurchased in accordance with this Agreement. ​ 3.12. Effects of an Excess Escrow Loss. ​ (a) In the event that, pursuant to Article X of the DPN Purchase ​ Agreement (and subject to the terms thereof), it has been determined by (i) a final, non-​ appealable order or judgment of a court of competent jurisdiction or (ii) a written, executed ​ agreement between the Buyer and the Sellers’ Representative, that the Buyer has suffered ​ an Excess Escrow Loss for which the Sellers are obligated to indemnify the Buyer under ​ the DPN Purchase Agreement, then during the ninety (90) day period following the date ​ on which such ExcessEscrow Loss is so finally determined, the LLC (with the consent of ​ the Principal Investors) may elect, by written notice thereof to the Rollover Holders, to ​ repurchase and redeem, in satisfaction of all or a portion of such Excess Escrow Loss, all ​ or a portion of the Units then held by the Rollover Holders (pro rata in proportion to the ​ amount of the Excess Escrow Loss allocable to such Rollover Holder as a Seller under the ​ DPN Purchase Agreement) having an aggregate Fair Market Value at the time of such ​ election equal to the amount of such Excess Escrow Loss being so satisfied (the “Rollover ​ Call Option”) as determined by the Board (subject to Section 14.3) and specified in such ​ notice (which determination, for the avoidance of doubt, will take into account the Unpaid ​ Equity Value Amount and the features of the distribution waterfall set forth in Section 4.1 ​ with respect to the Units then-held by the Rollover Holders) and, following notice of such ​ election so delivered within such ninety (90) period, the Rollover Holders shall be ​ obligated to sell such Units to the LLC, in each case, for no consideration; provided, ​ however, in no event shall the aggregate Fair Market Value of any Units repurchased or ​ redeemed pursuant to this Section 3.12 in satisfaction of all or a portion of such Excess ​ Escrow Loss, exceed $6,000,000. The LLC and the Rollover Holders shall be required to ​consummate any Rollover Call Option during the thirty (30) day period following delivery ​ to the Rollover Holders of notice thereof (subject to the right to Dispute pursuant to Section ​ 14.3) or, if prior to such date the Rollover Holders have delivered to the LLC a notice of a ​ Dispute pursuant to Section 14.3 below, during the thirty (30) day period following the ​ final determination of the Fair Market Value of the Units to be repurchased pursuant to ​ such Section 14.3. ​ (b) Upon the LLC’s delivery to the Rollover Holders of its notice of ​ election to exercise the Rollover Call Option, the Rollover Holders shall thereafter for so ​ ​ ​ 41 ​ long as such Rollover Call Option is pending and only with respect to the Units being ​ repurchased and redeemed pursuant to such Rollover Call Option, be referred to herein as ​ “Inactive Unitholders” with only the rights (and applicable restrictions) of Inactive ​ Unitholders specified herein. Notwithstanding anything to the contrary, such Inactive ​ Unitholders for so long as such Rollover Call Option is pending and only with respect to ​ the Units being repurchased pursuant to such Rollover Call Option, shall continue to be ​ treated as a Unitholders solely for purposes of any applicable allocations or distributions, ​ which shall be deemed for tax purposes to be made to each such Inactive Unitholder in its ​ capacity as a Unitholder, until such time as all Units retained by such Inactive Unitholder ​ are Transferred or repurchased in accordance with this Agreement. ​ ​ ARTICLE IV ​ ​ DISTRIBUTIONS; ALLOCATIONS AND REDEMPTIONS ​ 4.1. Distributions. ​ (a) Distributions Generally. Except as otherwise set forth in this ​ Section 4.1, and subject to Section 5.1(b)(iv) and the provisions of Section 18-607 of the ​ Delaware Act, the Board may make Distributions at any time or from time to time as ​ determined by Board in its discretion (after taking into account the anticipated cash needs ​ of the business, the existing liabilities and expenses of the LLC and a reasonable reserves ​ for future liabilities andexpenses of the LLC). Subject to the foregoing, except as ​ otherwise set forth in this Section 4.1, and subject to Section 5.1(b)(iv) and the provisions ​ of Section 18-607 of the Delaware Act, all Distributions shall be made to the Unitholders ​ as follows: ​ (i) First, to the Common Holders, pro rata in accordance with ​ their Capital Contributions, until the cumulative amount distributed to such Common ​ Holders pursuant to this Section 4.1(a)(i) equals the aggregate unreturned Capital ​ Contributions made by such Common Holders with respect to the Common Units owned ​ by such Common Holders, and no distribution or any portion thereof shall be made under ​ any other paragraphs of this Section 4.1(a) until such cumulative amount of unreturned ​ Capital Contributions in respect of Common Units has been distributed; ​ (ii) Thereafter, to the Common Holders and the Value A ​ Holders, pro rata in accordance with their respective ownership in such Units, until the ​ cumulative amount distributed to the Common Holders pursuant to this Section 4.1(a) ​ equals the Value B Threshold, and no distribution or any portion thereof shall be made ​ under paragraphs (iii), (iv) or (v) of this Section 4.1(a) until such amount has been ​ distributed; provided, however, that no distribution or any portion thereof shall be made in ​ respect of any Class B Common Units under this Section 4.1(a)(ii) or under paragraphs ​ ​ ​ 42 ​ (iii), (iv) or (v) of this Section 4.1(a) until the entire amount of the Unpaid Equity Value ​ Amount as of the time of such distribution has been distributed in full to the Unitholders ​ (other than the Class B Holders); ​ (iii) Thereafter, to the Common Holders, the Value A Holders, ​ and the Value B Holders, pro rata in accordance with their respective ownership in such ​ Units, until the cumulative amount distributed to the Common Holders pursuant to this ​ Section 4.1(a) equals the Value C Threshold, and no distribution or any portion thereof ​ shall be made under paragraphs (iv) or (v) of this Section 4.1(a) until such amount has been ​ distributed; provided, however, that no distribution or any portion thereof shall be made in ​ respect of any Class B Common Units under this Section 4.1(a)(iii) or under paragraphs ​ (iv) or (v) of this Section 4.1(a) until the entire amount of the Unpaid Equity Value Amount ​ as of the time of such distribution has been distributed in full to the Unitholders (other than ​ the Class B Holders); ​ (iv) Thereafter, to the Common Holders, the Value A Holders, ​ the Value B Holders, and the Value C Holders, pro rata in accordance with their respective ​ ownership in such Units, until the cumulative amount distributed to the Common Holders ​ pursuant to this Section 4.1(a) equals the Value D Threshold, and no distribution or any ​ portion thereof shall be made under paragraph (v) of this Section 4.1(a) until such amount ​ has beendistributed; provided, however, that no distribution or any portion thereof shall ​ be made in respect of any Class B Common Units under this Section 4.1(a)(iv) or under ​ paragraph (v) of this Section 4.1(a) until the entire amount of the Unpaid Equity Value ​ Amount as of the time of such distribution has been distributed in full to the Unitholders ​ (other than the Class B Holders); and ​ (v) Thereafter, to the Common Holders, the Value A Holders, ​ the Value B Holders, the Value C Holders, and the Value D Holders, pro rata in accordance ​ with their respective ownership in such Units; provided, however, that no distribution or ​ any portion thereof shall be made in respect of any Class B Common Units under this ​ Section 4.1(a)(v) until the entire amount of the Unpaid Equity Value Amount as of the time ​ of such distribution has been distributed in full to the Unitholders (other than the Class B ​ Holders). ​ (b) Notwithstanding the foregoing, the amount of any proposed ​ distribution to a holder of any participating Value Unit pursuant to Section 4.1(a) in respect ​ of such Value Unit shall be reduced (and no distributions shall be made in respect of any ​ such Value Unit) until the total reductions in proposed distributions pursuant to this Section ​ 4.1(b) in respect of such Value Unit equals the Benchmark Amount in respect of such ​ Value Unit. Any amount that is not distributed to the holder of any Value Unit pursuant to ​ this Section 4.1(b)shall be distributed to the remaining Members pursuant to Section ​ 4.1(a). ​ ​ ​ 43 ​ (c) In the event that (i) a Sale of the LLC is structured as a sale of LLC ​ Interests by the Members, rather than a distribution of proceeds by the LLC or (ii) there is ​ a sale of LLC Interests pursuant to Section 10.4 or 10.6 involving LLC Interests of a ​ different class or sub-class, the purchase agreement governing such sale will have ​ provisions therein which replicate, to the greatest extent possible, the economic result ​ which would have been attained under this Article IV had the Sale of the LLC or such sale ​ been structured as a sale of the LLC’s assets and a distribution of proceeds thereof (or, in ​ the context of a sale event only, modifications will be made to this Agreement to ​ accomplish this result). ​ (d) For the avoidance of doubt, it is understood that references herein to ​ Value Units that “will not participate in distributions under Article IV” or any similar ​ formulation or reference means (i) that Members will not receive Distributions pursuant to ​ this Article IV (other than pursuant to Section 4.1(g)) in respect of such Units and (ii) that ​ such non-participating Value Units held will not be counted in any determination of the ​ pro rata or proportionate ownership of Units of such Member or any other Member for ​ purposes of Article IV (other than pursuant to Section 4.1(g)). ​ (e) Notwithstanding anything to the contrary, only vested Value Units ​ held by Management Unitholders, Operating Unitholders and Inactive Unitholders shall ​participate in any Distributions (other than pursuant to Section 4.1(g)). ​ (f) Persons Receiving Distributions. Each Distribution shall be made ​ to the Persons shown on the LLC’s books and records as Unitholders as of the date of such ​ Distribution; provided, however, that, subject to Article X, any transferor and transferee of ​ Units may mutually agree as to which of them should receive payment of any Distribution ​ under this Section 4.1. ​ (g) Tax Distributions. In the event the LLC allocates net taxable income ​ to any of the Value Unitholders for any Fiscal Year and to the extent that prior distributions ​ to such Value Unitholder with respect to such Fiscal Year are not sufficient to satisfy such ​ Value Unitholder’s tax liability arising as a result of such allocations, then the LLC shall, ​ subject to the Board’s determination that there is sufficient cash available for distribution, ​ make distributions of cash to such Value Unitholders prior to any other distributions ​ provided for in this Article IV in an amount determined in good faith by the Board for the ​ purpose of allowing such Value Unitholders to satisfy their tax liability arising as a result ​ of such allocation. Tax distributions made pursuant to the foregoing shall be treated as ​ advances against distributions payable to such Value Unitholders pursuant to Section ​ 4.1(a), and shall be taken into account in the calculations of amounts distributed pursuant ​ to Section 4.1(a). ​(h) Distributions In Kind. In the event of a Distribution of LLC ​ property, such property shall for all purposes of this Agreement be deemed to have been ​ ​ ​ 44 ​ sold at its Fair Market Value and the proceeds of such sale shall be deemed to have been ​ distributed to the Members. ​ 4.2. Allocations. Profits and Losses for any Fiscal Year shall be allocated ​ among the Unitholders in such a manner that as closely as possible gives economic effect ​ to the provisions of Section 4.1(a) and the other relevant provisions of this Agreement. ​ (a) General. Profit and Loss for any Fiscal Year shall be allocated ​ among the Unitholders in such ratio or ratios as may be required to cause the balances of ​ the Unitholders’ Economic Capital Accounts to equal, as nearly as possible, their Target ​ Balances, consistent with the provisions of Section 4.2(b) and solely for this purpose, ​ treating all non-vested Units as vested. ​ (b) Compliance with Code Section 704(b). The allocation provisions ​ contained in this Article IV are intended to comply with Section 704(b) of the Code and ​ the Treasury Regulations promulgated thereunder and shall be interpreted and applied in a ​ manner consistent therewith. ​ 4.3. Tax Allocations. Each item of income, gain, loss or deduction recognized ​ by the LLC shall be allocated among the Unitholders for U.S. federal, state and local ​ income tax purposes in the same manner that each such item is allocated to the Unitholders’ ​ Capital Accounts or as otherwise provided herein, provided that the Board may adjustsuch ​ allocations as long as such adjusted allocations have substantial economic effect or are in ​ accordance with the interests of the Unitholders in the LLC, in each case within the ​ meaning of the Code and the Treasury Regulations. Notwithstanding the foregoing, (i) ​ items of LLC taxable income, gain, loss, and deduction with respect to any property ​ contributed to the capital of the LLC shall be allocated among the Unitholders, as ​ determined by the Board in accordance with Code Section 704(c) so as to take account of ​ any variation between the adjusted basis of such property to the LLC for federal income ​ tax purposes and its value on the date of contribution and (ii) if the value of any LLC asset ​ is adjusted pursuant to the requirements of Treasury Regulation Section 1.704-​ 1(b)(2)(iv)(e) or (f) then subsequent allocations of items of taxable income, gain, loss, and ​ deduction with respect to such asset shall take account of any variation between the ​ adjusted basis of such asset for federal income tax purposes and such value, as determined ​ by the Board in the same manner as under Code Section 704(c). The Board shall elect to ​ use the traditional method described in Treasury Regulation Section 1.704-3(b), unless ​ each Principal Investor consents to the election of another method. Tax credits and tax ​ credit recapture shall be allocated inaccordance with the Unitholders’ interests in the LLC ​ as provided in Treasury Regulations Section 1.704-1(b)(4)(ii). All matters concerning ​ allocations for U.S. federal, state and local and non-U.S. income tax purposes, including ​ accounting procedures, not expressly provided for by the terms of this Agreement shall be ​ determined by the Board in its sole discretion. ​ ​ ​ 45 ​ 4.4. Indemnification and Reimbursement for Payments on Behalf of a ​ Unitholder. If the LLC is required by law to make any payment that is specifically ​ attributable to a Unitholder or a Unitholder’s status as such (including federal withholding ​ or other taxes, state personal property taxes, and state unincorporated business taxes), then ​ such Unitholder shall indemnify the LLC in full for the entire amount paid (including ​ interest, penalties and related expenses). The LLC may pursue and enforce all rights and ​ remedies it may have against each Unitholder under this Section 4.3, including instituting ​ a lawsuit to collect such indemnification and contribution with interest calculated at a rate ​ equal to 10% per annum, compounded as of the last day of each year (but not in excess of ​ the highest rate per annum permitted by law). ​ 4.5. Transfer of Capital Accounts. If a Unitholder sells, assigns or transfers ​ an interest in the LLC to a new or existing Unitholder in accordance with the terms herein, ​ the transferee Unitholder shall succeed to that portion of the transferor’s Capital Account ​ that is attributable to the sold, assigned or transferred interest. Any reference in this ​ Agreement to a Capital Contribution of, or Distribution to, a Unitholder that has succeeded ​ any other Unitholder shall include any Capital Contributions or Distributions previously ​ made by or to the former Unitholder on account of the interest ofsuch former Unitholder ​ sold, assigned or transferred to such Unitholder. ​ 4.6. Withholding. ​ (a) Notwithstanding any other provision of this Agreement, each ​ Unitholder authorizes the LLC to withhold and to pay over, or otherwise pay, any ​ withholding or other taxes payable by the LLC or any of its Affiliates (pursuant to the Code ​ or any provision of the United States Federal, state, local or foreign tax law) attributable to ​ such Unitholder (including taxes attributable to income or gain allocable to such ​ Unitholder) or as a result of such Unitholder’s participation in the LLC (a “Withholding ​ Payment”); and if and to the extent that the LLC shall be required to withhold or pay and ​ actually pays any such Withholding Payment, such Unitholder shall be deemed for all ​ purposes of this Agreement to have received an interest-free loan from the LLC as of the ​ time such Withholding Payment is required to be paid notwithstanding the actual date of ​ payment. Amounts so treated as advanced to any Unitholder shall be repaid by such ​ Unitholder to the LLC within thirty (30) days after the LLC delivers a written request to ​ such Unitholder for such repayment; provided, however, that if any such repayment is not ​ made, the LLC may (without prejudice to any other rights of the LLC) collect such unpaid ​ amounts from any subsequent LLC distributions that otherwise would be made to such ​ Unitholder pursuant toSection 4.1 (all such decisions to be made and applied within the ​ sole discretion of the Board). ​ (b) If the LLC makes a distribution in kind (if such distribution is ​ permitted in accordance with the terms of this Agreement) and such distribution is subject ​ to withholding or other taxes payable by the LLC on behalf of any Unitholder (the ​ “Withheld Amount”), the Board shall notify such Unitholder as to the extent (if any) of the ​ ​ ​ 46 ​ Withheld Amount and such Unitholder shall make a prompt payment to the LLC of the ​ Withheld Amount by wire transfer (it being understood that, notwithstanding anything else ​ herein to the contrary, the LLC shall refrain from distributing such property to be ​ distributed having a Fair Market Value of at least the Withheld Amount until the LLC has ​ received a payment of such Withheld Amount). ​ (c) Any withholding referred to in this Section 4.6 shall be made at the ​ maximum applicable statutory rate under the applicable tax law unless the Board shall have ​ received an opinion of counsel or other evidence, satisfactory to the Board, to the effect ​ that a lower rate is applicable, or that no withholding is applicable. ​ (d) If the LLC receives a distribution from or in respect of which tax ​ has been withheld, the LLC shall be treated as having received cash in an amount equal to ​ the amount of such withheld tax, and each Unitholder shall be treated as having received ​ as a distribution the portion of such amount that is attributable to such Unitholder. ​ (e) Each Unitholder shall provide the LLC with any information, ​ representations, certificates, forms or other documentation relating to such Unitholder (or ​ its direct or indirect owners or account holders) that are reasonably requested from time to ​ time by the Board and that the Board determines in its sole discretion are necessary or ​ appropriate in order for any entity(including (i) the LLC, (ii) any entity in which the LLC ​ holds (directly or indirectly) an interest (whether in the form of debt or equity), (iii) any ​ member of any “expanded affiliated group” (as defined in Section 1471(e)(2) of the Code ​ and the Treasury Regulations thereunder) of which any Person described in clause (i) or ​ (ii) is a member and (iv) any “Related Entity”, as such term is defined in any ​ intergovernmental agreement referenced in clause (c) of the definition of FATCA) to ​ (A) avoid any withholding required under FATCA (including, without limitation, any ​ withholding upon any payments to any person described in clauses (i), (ii) or (iii) or to any ​ Unitholder under this Agreement), (B) comply with any reporting or withholding ​ requirements under FATCA, (C) enter into, maintain or comply with an “FFI Agreement,” ​ as defined in the Code and the Treasury Regulations thereunder (or any other agreement ​ entered into in connection with FATCA), or (D) otherwise comply with FATCA. In ​ addition, each Unitholder shall take such actions as the Board may reasonably request in ​ connection with the foregoing. Any Unitholder that fails to comply with this Section 4.6(e) ​ shall, together with all other Unitholders that fail to comply with this Section 4.6(e), unless ​ otherwise agreed by the Board in writing, to the fullest extent permitted by law, indemnify ​ and hold harmless the Board and the LLC for any costs or expenses arising out of such ​failure or failures, including any withholding tax imposed under FATCA. Each Unitholder ​ acknowledges and agrees that any information or other data in respect of such Unitholder ​ (or its direct or indirect owners or account holders) provided to the LLC in accordance with ​ this Section 4.6(e) shall be kept confidential but may, if required by law, be disclosed to ​ any tax authority. ​ ​ ​ 47 ​ (f) Any imputed underpayment within the meaning of Section 6225 of ​ the Code paid (or payable) by the LLC as a result of an adjustment with respect to any LLC ​ item, including any interest or penalties with respect to any such adjustment (collectively, ​ an “Imputed Underpayment Amount”), shall be treated as if it were paid by the LLC as a ​ Withholding Payment with respect to the appropriate Unitholders. The Board shall ​ reasonably determine the portion of an Imputed Underpayment Amount attributable to each ​ Unitholder or former Unitholder. The portion of the Imputed Underpayment Amount that ​ the Board attributes to a Unitholder shall be treated as a Withholding Payment with respect ​ to such Unitholder. The portion of the Imputed Underpayment Amount that the Board ​ attributes to a former Unitholder of the LLC shall be treated as a Withholding Payment ​ with respect to both such former Unitholder and such former Unitholder’s transferee(s) or ​ assignee(s), as applicable, and the Board may in its discretion exercise the LLC’s rights ​ pursuant to this Section 4.6(f) in respect of either or both of the former Unitholder and its ​ transferee or assignee. Imputed Underpayment Amounts treated as Withholding Payments ​ also shall include any imputed underpayment within the meaning of Code Section 6225 ​ paid (or payable) by any entity treated as a partnership for U.S. federal income taxpurposes ​ in which the LLC holds (or has held) a direct or indirect interest other than through entities ​ treated as corporations for U.S. federal income tax purposes to the extent that the LLC ​ bears the economic burden of such amounts, whether by law or agreement. ​ (g) If the LLC is obligated to pay any taxes (including penalties, interest ​ and any addition to tax) to any Governmental Entity that is specifically attributable to a ​ Unitholder, such Unitholder’s transferee or as a result of any transfer of an interest in the ​ Company, including, without limitation, on account of Sections 864 or 1446 of the Code, ​ then (i) such Persons shall indemnify the LLC in full for the entire amount paid or payable, ​ (ii) the Board may offset future distributions from such Persons pursuant to Section 4.1 to ​ which such Person is otherwise entitled under this Agreement against such Person’s ​ obligation to indemnify the LLC under this Section 4.6(g) and (iii) such amounts shall be ​ treated as a Withholding Payment pursuant to this Section 4.6 with respect to both such ​ former Unitholder and such former Unitholder’s transferee(s), as applicable. ​ ARTICLE V ​ ​ BOARD OF MANAGERS; OFFICERS ​ 5.1. Management by the Board of Managers. ​ (a) No Management by Unitholders. The Unitholders shall not manage ​ or control the affairs of the LLC, except as expressly provided in this Agreement with ​ respect to the Principal Investors(including, for the avoidance of doubt, Section 5.1(b)(iv)) ​ or as required by any non-waivable provisions of applicable law. ​ ​ ​ 48 ​ (b) Authority of Board of Managers. ​ (i) Except as expressly provided in this Agreement with respect ​ to the Principal Investors (including, for the avoidance of doubt, the provisions of Section ​ 5.1(b)(iv)) or as required by any non-waivable provision of applicable law, (A) the powers ​ of the LLC shall be exercised by or under the authority of, and the affairs of the LLC shall ​ be managed under the direction of, the Board and (B) the Board may make all decisions ​ and take all actions for the LLC not otherwise provided for in this Agreement, including ​ the following (subject, in each case, to Section 5.1(b)(iv)): ​ (A) authorizing, designating, reserving for issuance or ​ issuing any Units or other Equity Securities; ​ (B) entering into, making and performing contracts, ​ agreements and other undertakings binding the LLC that may be necessary, appropriate or ​ advisable in furtherance of the purposes of the LLC and making all decisions and waivers ​ thereunder; ​ (C) maintaining the assets of the LLC in good order; ​ (D) collecting sums due to the LLC; ​ (E) opening and maintaining bank and investment ​ accounts and arrangements, drawing checks and other orders for the payment of money ​ and designating individuals with authority to sign or give instructions with respect to those ​ accounts and arrangements; ​ (F) to the extent that funds of the LLC are available ​ therefor, paying debts andobligations of the LLC as they come due; ​ (G) acquiring, utilizing for LLC purposes and disposing ​ of any assets of the LLC; ​ (H) hiring and employing executives, Officers, ​ supervisors and other personnel for the Company Group; ​ (I) selecting, removing and changing the authority and ​ responsibility of lawyers, accountants and other advisers and consultants; ​ (J) entering into guaranties on behalf of the LLC’s ​ Subsidiaries; ​ (K) obtaining insurance for the LLC; ​ ​ ​ 49 ​ (L) determining Distributions of cash and other property ​ of the LLC as provided in Article IV. ​ (M) establishing reserves for commitments and ​ obligations (contingent or otherwise) of the LLC; and ​ (N) establishing a seal for the LLC. ​ (ii) The Board may act (A) by resolutions adopted at a meeting ​ and/or by written consents pursuant to Section 5.3, (B) by delegating power and authority ​ to committees pursuant to Section 5.4, or (C) by delegating power and authority to any ​ Officer pursuant to Section 5.5(a). ​ (iii) Each Unitholder acknowledges and agrees that no Manager ​ shall, as a result of being a Manager (as such), be bound to devote all of his or her business ​ time to the affairs of the LLC, and that he or she and his or her Affiliates do and will ​ continue to engage for their own account and for the accounts of others in other business ​ ventures. ​ (iv) Notwithstanding anything in this Agreement to the contrary, ​ the LLC shall not, and shall cause its Subsidiaries not to, directly or indirectly, take any of ​ the following actions without the prior approval of the Board and the prior written approval ​ of each Principal Investor (provided, that the prior approval of a Principal Investor shall ​ not be required (x) with respect to clauses (A) – (D) (and clauses (T) and (U) to the extent ​ applicable) if such Principal Investor, together with its Affiliates, collectively holds less ​ than twenty percent (20%) of such Principal Investor’s Closing Equity and (y)with respect ​ to clauses (E) – (U) if such Principal Investor, together with its Affiliates, collectively holds ​ less than fifty percent (50%) of such Principal Investor’s Closing Equity): ​ (A) amend or repeal any provision of, or supplement, this ​ Agreement, the Certificate, bylaws or other organizational documents of the LLC or its ​ Subsidiaries, other than to the extent required in connection with a Qualified IPO to ​ increase the number of authorized Equity Securities; ​ (B) enter into any agreement or commitments that would ​ restrict any Principal Investor or any of its Affiliates from entering into any line of business; ​ (C) adopt any change to any tax or accounting policy ​ other than as required by generally accepted accounting principles (“GAAP”) or applicable ​ law, or change its independent public accountants, auditors or tax advisors; ​ (D) enter into any transaction (or amend the terms of any ​ such transaction) with any Principal Investor or any of its Affiliates other than (i) as ​ specifically contemplated by this Agreement, (ii) pursuant to any agreements in effect as ​ ​ ​ 50 ​ of the date of the Closing (as defined in the Subscription Agreement) and disclosed in the ​ disclosure schedules thereto or (iii) pursuant to commercial agreements entered into ​ between an operating business of a Principal Investor or its Affiliates, on the one hand, and ​ the LLC or any of its Subsidiaries, on the other, in the ordinary course of business and on ​ arm’s length terms; ​ (E) except in accordance with Section 5.4(a), form, or ​ delegate any authority to, any committee or subset of the Board or elect any Person to any ​ such committee or subset of the Board; ​ (F) make any acquisition or disposition (or any series of ​ related acquisitions or dispositions) of any entity, business or assets with aggregate ​ consideration in excess of one-hundred million United States dollars ($100,000,000), ​ including by way of merger, equity purchase, asset purchase or otherwise; ​ (G) consummate, commit to or enter into any agreement ​ or commitment for a Sale of the LLC or any merger or consolidation with a third party ​ other than (i) an Approved Sale or (ii) with respect to transactions other than a Sale of the ​ LLC as would be permitted under Section 5.1(b)(iv)(F); ​ (H) enter into or commit to enter into any material joint ​ ventures or partnerships, establish or acquire any non-wholly-owned Subsidiaries or merge ​ or consolidate with, or make investments in, any third party (other than in connection with ​ a Drag-Along Sale inaccordance with Section 10.6), in each case, that involve a cash or ​ asset contribution (or commitment) in excess of fifty million United States dollars ​ ($50,000,000); ​ (I) effect an initial Public Offering (other than a ​ Qualified IPO), or, except in accordance with Section 6.12, grant any registration rights to ​ any Person; ​ (J) create, designate, authorize, issue, sell or grant, or ​ enter into any agreement providing for the issuance (contingent or otherwise) of, any of its ​ Units or other Equity Securities or any equity appreciation rights, phantom equity plans or ​ similar rights or plans relating to the LLC or its Subsidiaries, other than (i) the issuance of ​ any of the foregoing pursuant to a plan approved under Section 5.1(b)(iv)(O) (provided ​ that, except as approved pursuant to this Section 5.1(b)(iv)(J), for each class of Units ​ (including, for the avoidance of doubt, Value Units and Common Units), the total number ​ of Units issued or reserved for issuance under all such management equity plans and other ​ employee incentive plans shall not exceed the number specified in Schedule B hereto for ​ such class of Units) and (ii) in a Qualified IPO or an initial Public Offering approved ​ pursuant to Section 5.1(b)(iv)(I) and effected pursuant to Section 6.12 and the Registration ​ Rights Agreement; ​ ​ ​ 51 ​ (K) authorize, issue, sell or grant, or enter into any ​ agreement providing for the issuance (contingent or otherwise) of, any of the equity ​ interests of any Subsidiary to persons other than the LLC or another wholly-owned ​ Subsidiary of the LLC, other than issuance of equity interests in connection with a Public ​ Offering approved pursuant to Section 5.1(b)(iv)(I) and effected pursuant to Section 6.12 ​ and the Registration Rights Agreement; ​ (L) incur or guarantee any Restricted Debt, unless such ​ incurrence or guarantee would not result in an Excessive Leverage Event as of the date of ​ incurrence of such Restricted Debt or the effective date of the guarantee of such Restricted ​ Debt; ​ (M) develop, construct, operate, acquire ownership of or ​ otherwise expand into any line of business not conducted by the Company Group as of the ​ Effective Date which would be competitive with any business conducted by a Principal ​ Investor or its Affiliates at the time of such action; ​ (N) (i) select, hire, terminate or remove any person as the ​ chief executive officer of the Company Group or (ii) amend the terms of any existing ​ employment agreement or compensation arrangement with, or enter into any new ​ employment agreement or compensation arrangement with, the chief executive officer of ​ the Company Group; ​ (O) adopt, or effect any material changes to, any ​ management equity plan or otheremployee incentive plan, including, without limitation, ​ employee equity (including any change to the number of Value Units issuable under the ​ Plan or any successor plan), phantom equity or senior management bonus programs, or ​ issue any capital stock or other securities other than limited liability company units, capital ​ stock or other securities which it is obligated to issue under the terms of any option existing ​ as of the Effective Date or issuances to employees, officers or managers under any plan ​ approved pursuant to this Section 5.1(b)(iv)(O) (it being understood that (i) that the total ​ number of each class of Units issued or reserved for issuance under all such plans shall not ​ exceed the amounts permitted under Section 5.1(b)(iv)(J) and (ii) the Plan has been ​ approved by the Board and each Principal Investor); ​ (P) determine the terms and conditions governing the ​ issuance of any Additional Securities, including the number and designation of such ​ Additional Securities, the preferences (with respect to distributions, liquidations, or ​ otherwise) over any other Units and relative, participating, optional or other special rights, ​ powers and duties, including rights, powers and duties senior or junior to, or pari passu ​ with, any other Units, any required contributions in connection therewith and voting rights; ​ ​ ​ 52 ​ (Q) commence or file any bankruptcy, reorganization, ​ liquidation, insolvency or similar proceeding or commence or consent to the filing of an ​ involuntary bankruptcy, reorganization, liquidation, insolvency, or similar proceeding; ​ (R) voluntarily liquidate, dissolve or wind up; ​ (S) commence, pursue, settle or compromise any ​ litigation or regulatory proceeding except for (i) any litigation that arises out of the ordinary ​ course of business and involves solely the payment of monetary damages by the LLC or ​ any of its Subsidiaries of an amount not exceeding ten million United States dollars ​ ($10,000,000) or (ii) any litigation or disputes relating to a Principal Investor’s investment ​ in the LLC; ​ (T) take any other action that requires the consent of ​ Frazier or Providence under this Agreement; or ​ (U) agree or otherwise commit to take any actions set ​ forth in the foregoing subparagraphs (A) through (T). ​ (c) Officers. The management of the business and affairs of the LLC ​ by the Officers and the exercising of their powers shall be conducted under the supervision ​ of and subject to the approval of the Board. ​ 5.2. Composition and Election of the Board of Managers. ​ (a) Number and Designation. Unless otherwise agreed by the Principal ​ Investors: ​ (i) The number of Managers on the Board shall be established ​ at seven (7), but may be increased to such higher number or decreased to such lower ​number from time to time with the approval of the Principal Investors (subject to Section ​ 5.2(a)(iii) and Section 5.2(a)(iv) below). ​ (ii) The composition of the Board, as of the date hereof, shall be ​ as follows: ​ (A) David Shackelton and such other Person designated ​ by Providence (as and when so designated in accordance with this Section 5.2(a)(ii)(A)), ​ each of whom has been or will be designated by Providence pursuant to Section 5.2(d) ​ (each of the foregoing, together with any replacements designated by Providence pursuant ​ to Section 5.2(d), the “Providence Managers”); ​ (B) Ben Magnano, Brian Morfitt and Phil Zaorski, each ​ of whom has been or will be designated by Frazier pursuant to Section 5.2(d) (each of the ​ ​ ​ 53 ​ foregoing, together with any replacements designated by Frazier pursuant to Section 5.2(d), ​ the “Frazier Managers”); ​ (C) Walt Cooper, the chief executive officer of the ​ Company Group; and ​ (D) Paul Kusserow, who has been or will be designated ​ by Principal Investors pursuant to Section 5.2(d) (the foregoing, together with any ​ replacements designated by Principal Investors pursuant to Section 5.2(d), the ​ “Independent Manager”). ​ (iii) For so long as a Frazier, together with its Affiliates, ​ collectively holds at least 88.88% of its Closing Equity, it shall have the right to designate ​ three (3) Managers (which shall initially be the Frazier Managers listed in Section 5.2(a)(ii) ​ above). For so long as Frazier, together with its Affiliates, collectively holds at least 44.0% ​ but less than 88.88% of its Closing Equity, it shall have the right to designate two (2) ​ Managers. For so long as Frazier, together with its Affiliates, collectively holds at least ​ 10% but less than 44.0% of its Closing Equity, it shall have the right to designate one (1) ​ Manager. If Frazier, together with its Affiliates, holds less than 10% of its Closing Equity, ​ it shall not have the right to designate any Managers. ​ (iv) For so long as a Providence, together with its Affiliates, ​ collectively holds at least 50% of its Closing Equity, it shall have the right to designate two ​ (2) Managers (which shall initially be the Providence Managers listed in Section 5.2(a)(ii) ​ above). For so long as Providence, togetherwith its Affiliates, collectively holds at least ​ 10% but less than 50% of its Closing Equity, it shall have the right to designate one (1) ​ Manager. If Providence, together with its Affiliates, holds less than 10% of its Closing ​ Equity, it shall not have the right to designate any Managers. ​ (v) Notwithstanding the foregoing clauses (iii) and (iv) of ​ Section 5.2(a), for so long as (A) Frazier, together with its Affiliates, collectively holds ​ more Units than Providence, together with its Affiliates, Frazier will be entitled to appoint ​ at least one more Manager than Providence, and (B) Providence, together with its ​ Affiliates, collectively holds more Units than Frazier, together with its Affiliates, ​ Providence will be entitled to appoint at least one more Manager than Frazier. Without ​ limiting the foregoing, in the event that the Principal Investor Ratio equals 4:1 or greater ​ in favor of any Principal Investor (together with its Affiliates) (the “Subject Principal ​ Investor”), then (for so long as such Principal Investor Ratio equals 4:1 or greater in favor ​ of the Subject Principal Investor) the number of members on the Board shall automatically ​ (and without any action by any Unitholder or the Board (including pursuant to Section ​ 5.1(b)(iv)) be increased by one (1) and such Subject Principal Investor shall have the right ​ to designate the Board member (and any replacement thereto) to fill such newly created ​ Board seat. ​ ​ ​ 54 ​ (vi) Notwithstanding the foregoing, such Board designation ​ rights shall be adjusted proportionately in the event of any increase or decrease in the size ​ of the Board pursuant to Section 5.2(a)(i). Furthermore, upon the request of either Principal ​ Investor, the LLC shall cause the boards of directors (or similar governing bodies) and ​ committees of its Subsidiaries to be comprised of the same persons who are then Managers ​ of the Board and members of committees of the Board and the voting rights on the boards ​ of directors (or similar governing bodies) and committees of each of the LLC’s Subsidiaries ​ to be commensurate with the voting rights of the Principal Investors with respect to the ​ Board and the committees of the Board. ​ (vii) The Board shall at all times include the chief executive ​ officer of the Company Group as a Manager (such Board seat, the “CEO Board Seat”). ​ (viii) In the event that the number of Managers a Principal Investor ​ has the right to designate is reduced pursuant to Section 5.2(a)(iii) or Section 5.2(a)(iv), ​ (A) such Principal Investor shall promptly identify its incumbent Board designee that will ​ be removed from the Board in connection with such reduction and (B) the LLC and the ​ Unitholders shall promptly take all action necessary or desirable to cause the removal of ​ such incumbent Manager(s) from office. ​ (ix) Upon an initial Public Offering, the Principal Investors shall ​ negotiatein good faith mutually agreeable modifications to the governance structure set ​ forth in this Section 5.2 that they deem appropriate in light of the LLC’s then public status. ​ (b) Term; Resignation. Members of the Board shall serve from their ​ designation in accordance with the terms hereof until their resignation, death or removal in ​ accordance with the terms hereof. Members of the Board need not be Unitholders and need ​ not be residents of the State of Delaware. A person shall become a member of the Board ​ effective upon the election or appointment of such person at a meeting of the Unitholders, ​ or by unanimous written consent. A member of the Board may resign as such by delivering ​ his, her or its written resignation to the LLC at the LLC’s principal office addressed to the ​ Board. Such resignation shall be effective upon receipt unless it is specified to be effective ​ at some other time or upon the happening of some other event. ​ (c) Removal. Each Principal Investor may, at any time and for any ​ reason, with or without cause, remove any Manager designated by such Principal Investor ​ pursuant to Section 5.2(a) or Section 5.2(d) and designate a replacement Manager pursuant ​ to Section 5.2(d), and the Unitholders and the LLC shall promptly take all action necessary ​ or desirable to accomplish the foregoing. Upon the removal of any Manager, such Manager ​ shall cease to be a“manager” (within the meaning of the Delaware Act). No Unitholder ​ shall take any action to cause the removal of any Manager designated by a Principal ​ Investor pursuant to Section 5.2(a) or Section 5.2(d) except (i) in connection with the ​ reduction of the number of Managers such Principal Investor has the right to designate ​ under Section 5.2(a)(viii) or (ii) at the direction of such Principal Investor. ​ ​ ​ 55 ​ (d) Vacancies. In the event that a vacancy on the Board is created or ​ exists (including by the death, disability, retirement, resignation, removal (with or without ​ cause) of a Manager or otherwise), (i) if such vacancy relates to the CEO Board Seat, then ​ such vacancy shall be filled by the highest ranking officer of the Company Group, (ii) if ​ such vacancy relates to a Board seat previously filled by a Frazier Manager or Providence ​ Manager and is not created as a result of a removal pursuant to Section 5.2(a)(viii), then ​ such vacancy shall be filled by a Person designated by Frazier or Providence, as applicable, ​ (iii) if such vacancy is created as a result of a removal pursuant to Section 5.2(a)(viii), then ​ such vacancy shall remain unfilled and the size of the Board shall be reduced accordingly ​ unless such Board seat is assigned in accordance with Section 10.7, and (iv) if such vacancy ​ is created for any other reason, then such vacancy shall be filled by a person designated by ​ the Principal Investors. The LLC and the Unitholders shall promptly take all action ​ necessary or desirable to fill any vacancy on the Board in accordance with this Section ​ 5.2(d). ​ (e) Reimbursement. The LLC shall pay or cause to be paid by one of ​ its Subsidiaries all reasonable out-of-pocket costs and expenses incurred by each member ​ of the Board incurred in the course of his orher service hereunder, including in connection ​ with attending regular and special meetings of the Board, any board of managers or board ​ of directors of each of the LLC’s Subsidiaries and/or any of their respective committees, ​ pursuant to reimbursement guidelines approved by each of the Principal Investors. ​ (f) Reliance by Third Parties. Any Person dealing with the LLC, other ​ than a Unitholder, may rely on the authority of the Board (or any Officer authorized by the ​ Board) in taking any action in the name of the LLC without inquiry into the provisions of ​ this Agreement or compliance herewith, regardless of whether that action actually is taken ​ in accordance with the provisions of this Agreement. Every agreement, instrument or ​ document executed by the Board (or any Officer authorized by the Board) in the name of ​ the LLC with respect to any business or property of the LLC shall be conclusive evidence ​ in favor of any Person relying thereon or claiming thereunder that (i) at the time of the ​ execution or delivery thereof, this Agreement was in full force and effect, (ii) such ​ agreement, instrument or document was duly executed according to this Agreement and is ​ binding upon the LLC and (iii) the Board or such Officer was duly authorized and ​ empowered to execute and deliver such agreement, instrument or document for and on ​ behalf of the LLC. ​ 5.3. Board Meetings andActions by Written Consent. ​ (a) Voting. On each matter presented at a meeting of the Board for ​ action to be taken by the Board on such matter, each Manager present at such meeting shall ​ be entitled to one vote thereon. ​ (b) Quorum. ​ ​ ​ 56 ​ (i) Managers representing a majority of the total number of ​ votes on the Board must be present (including pursuant to Section 5.3(h)) in order to ​ constitute a quorum for the transaction of business of the Board, provided that, subject to ​ Section 5.2(a), at least one (1) Frazier Manager and one (1) Providence Manager must be ​ present at a meeting to constitute a quorum for such meeting, and provided further that one ​ (1) Frazier Manager and one (1) Providence Manager (each, a “Principal Investor ​ Manager”, and collectively the “Principal Investor Managers”) together shall constitute a ​ quorum for any meeting; provided, however, in the event that a Principal Investor Manager ​ fails to attend (either in person or by conference telephone or similar communications) two ​ (2) consecutive meetings of the Board after, in each case, being provided with Requisite ​ Board Meeting Notice in accordance with Section 5.3(f) (such Manager, an “Absent ​ Manager”), in such case, to the extent that the Absent Manager is provided with at least ​ three (3) days’ notice of a third (3rd) consecutive meeting of the Board, the Absent Manager ​ will be deemed to be in attendance at such third meeting for purposes of establishing a ​ quorum and taking any actions pursuant thereto (including for establishing a quorum ​ pursuant to this Section 5.3(b)) whether or not such Absent Manager actually attends such ​meeting (a “Deemed Quorum”). ​ (ii) Except as otherwise provided in this Agreement (and subject ​ to clause (i) above), the act of the Managers who are present at a meeting of the Board at ​ which a quorum is present and who are entitled to exercise a majority of the votes present ​ at such meeting shall be the act of the Board on any matter presented to the Board for action ​ to be taken thereon at such meeting. In the event of a tie vote of the Managers who are ​ present at a meeting of the Board at which a quorum is present (subject to clause (i) above), ​ a second vote of the Board shall be taken without the participation of the Manager currently ​ occupying the CEO Board Seat. A Manager who is present at a meeting of the Board at ​ which action on any matter is taken shall be presumed to have assented to the action unless ​ his or her dissent shall be entered in the minutes of the meeting or unless he shall file his ​ or her written dissent to such action with the person acting as secretary of the meeting ​ before the adjournment thereof or shall deliver such dissent to the LLC immediately after ​ the adjournment of the meeting. Such right to dissent shall not apply to a Manager who ​ voted in favor of such action. ​ (c) Place; Attendance. Meetings of the Board may be held at such place ​ or places as shall be determined from time to time by resolution of the Board. At all ​ meetings of the Board, business shallbe transacted in such order as shall from time to time ​ be determined by resolution of the Board. Attendance of a Manager at a meeting shall ​ constitute a waiver of notice of such meeting, except where a Manager attends a meeting ​ for the express purpose of objecting to the transaction of any business on the ground that ​ the meeting is not lawfully called or convened. ​ (d) Meeting In Connection With Unitholder Meeting. In connection ​ with any meeting of Unitholders, the Managers may, if a quorum is present (subject to ​ ​ ​ 57 ​ Section 5.3(b)(i)), hold a meeting for the transaction of business immediately after and at ​ the same place as such meeting of the Unitholders. Notice of such meeting at such time ​ and place shall not be required. ​ (e) Time, Place and Notice. Regular meetings of the Board shall be ​ held at such times and places as shall be designated from time to time by resolution of the ​ Board. Notice of such meetings shall not be required. ​ (f) Special Meetings. Special meetings of the Board may be called by ​ any Manager, or the Principal Investors, on at least 24 hours’ notice to each Manager ​ (“Requisite Board Meeting Notice”). Such notice need not state the purpose or purposes ​ of, nor the business to be transacted at, such meeting, except as may otherwise be required ​ by law or provided for in this Agreement. ​ (g) Chairperson. For so long as Frazier holds at least 88.88% of its ​ Closing Equity, Frazier shall designate one of the then serving Frazier Managers to serve ​ as the chairperson of the Board (the “Chairperson”). The Chairperson shall preside at all ​ meetings of the Board. If the Chairperson is absent at any meeting of the Board, the ​ Managers present shall designate a member to serve as interim Chairperson for that ​ meeting. The Chairperson, except in his or her capacity as an Officer (as applicable), shall ​ not have the authority or power to act for or on behalf of the LLC, to do any act that would ​be binding on the LLC or to make any expenditure or incur any obligation on behalf of the ​ LLC or authorize any of the foregoing. In the event that Frazier no longer holds at least ​ 88.88% of its Closing Equity, the position of Chairperson shall be filled by a vote of the ​ majority of the Board. ​ (h) Action by Written Consent or Telephone Conference. Any action ​ permitted or required by the Delaware Act, the Certificate or this Agreement to be taken at ​ a meeting of the Board or any committee designated by the Board may be taken without a ​ meeting if a consent in writing, setting forth the action to be taken, is signed by all the ​ Managers or members of such committee constituting a quorum under Section 5.3(b) or ​ Section 5.4(a), as the case may be. Such consent shall have the same force and effect as a ​ vote sufficient to approve such action at a meeting and may be stated as such in any ​ document or instrument filed with the Secretary of State of Delaware, and the execution of ​ such consent shall constitute attendance or presence in person at a meeting of the Board or ​ any such committee, as the case may be, provided, however, that the Unitholders may ​ record their dissent to any such action. Subject to the requirements of the Delaware Act, ​ the Certificate or this Agreement for notice of meetings, unless otherwise restricted by the ​ Certificate, the Managers or members of any committeedesignated by the Board may ​ participate in and hold a meeting of the Board or any committee, as the case may be, by ​ means of a conference telephone or similar communications equipment by means of which ​ all persons participating in the meeting can hear each other, and participation in such ​ meeting shall constitute attendance and presence in person at such meeting, except where ​ ​ ​ 58 ​ a person participates in the meeting for the express purpose of objecting to the transaction ​ of any business on the ground that the meeting is not lawfully called or convened. ​ (i) Non-Voting Board Observers. Each Principal Investor shall be ​ entitled to designate up to two non-voting observers affiliated with such Principal Investor ​ (i.e. an officer, employee or partner of such Principal Investor or its Affiliates) (each a ​ “Board Observer”) to be present at all meetings of the Board and its committees. Each ​ Board Observer shall be entitled to notice of meetings of the Board and its committees to ​ the same extent, and in the same manner, as the Managers. Notwithstanding the foregoing, ​ (i) each Board Observer agrees to hold all information so provided to such Board Observer ​ in accordance with Section 15.2 of this Agreement, and such Board Observer shall not ​ disclose any such information to any other Person other than in accordance with Section ​ 15.2 of this Agreement and (ii) the Board reserves the right to withhold any information ​ from any Board Observer and to exclude any Board Observer from any meeting or portion ​ thereof (A) if the Board determines that providing such Board Observer with access to such ​ information or permitting such Board Observer to attend such meeting would adversely ​ affect the attorney-client privilege between the LLC and its counsel or would result in ​disclosure of trade secrets to such Board Observer, (B) if the Board determines that the ​ individual designated as a Board Observer is a Competitor of the LLC or any of its ​ Subsidiaries, or is employed by, manages, advises, consults with, owns, or serves as a ​ member of the board of directors of, a Competitor of the LLC or any of its Subsidiaries, or ​ (C) to the extent the Board determines that delivery of such information would result in a ​ breach of any laws, rules or regulations, including any healthcare regulations. The decision ​ of the Board with respect to the privileged nature of such information or the exclusion of a ​ Board Observer from any meeting shall be final and binding. ​ 5.4. Committees; Delegation of Authority and Duties. ​ (a) Committees; Generally. The Board shall promptly establish (i) an ​ audit committee, (ii) a compliance committee and (iii) a compensation committee, and ​ subject to the requirements of applicable Law or the regulations of any self-regulatory ​ organization, each of Frazier and Providence shall be entitled to appoint a number of ​ members of each committee of the Board that is proportional to the number of Managers ​ that such Person is entitled to designate at the relevant time pursuant to Section 5.2(a) ​ (subject to all applicable provisions of Section 5.2(a), applied mutatis mutandis); provided, ​ that Providence shall be entitled to appoint at least one member to each committee for so ​long as Providence is entitled to designate a Manager pursuant to Section 5.2(a). Any of ​ the foregoing committees, to the extent provided in the enabling resolution or in the ​ Certificate or this Agreement, shall have and may exercise, to the extent provided in a ​ resolution of the Board or in this Agreement, the authority of the Board. At every meeting ​ of any of the foregoing committees, the presence of a majority of all the members thereof ​ shall constitute a quorum (provided that at least one (1) Frazier Manager and one (1) ​ Providence Manager must be present at a meeting to constitute a quorum for a meeting of ​ ​ ​ 59 ​ any committee that includes a Frazier Manager or a Providence Manager, as applicable, as ​ a committee member and subject to all applicable provisions of Section 5.3(b) relating to ​ a Deemed Quorum, applied mutatis mutandis). Minutes of all meetings of any committee ​ of the Board shall be kept by the person designated by such committee to keep such ​ minutes. Copies of such minutes and any writing setting forth an action taken by written ​ consent without a meeting shall be distributed to each member of the Board promptly after ​ such meeting is held or such action is taken. On each matter presented at a meeting of any ​ such committee for action to be taken on such matter, each Manager on such committee ​ shall be entitled to one vote. Except as otherwise provided in this Agreement, the ​ affirmative vote of the members of a committee who are present at a meeting of such ​ committee (at which a quorum is present) and who hold a majority of the votes present at ​ such meeting shall be the act of the committee on any matter presented to the committee ​ for action to be taken thereon at such meeting. ​ (b) Delegation; Generally. Subject to the terms and conditions of this ​ Agreement (including, for the avoidance of doubt, Section 5.1(b)(iv)), the Board may, from ​ time to time, delegate to one or more Persons (including any Manager or Officer) such ​ authority and duties as the Board maydeem advisable in addition to those powers and ​ duties set forth in Section 5.1(b) hereof. Subject to the terms and conditions of this ​ Agreement, the Board also may assign titles to any Manager or other individual and may ​ delegate to such Manager or other individual certain authority and duties. Any number of ​ titles may be held by the same Manager or other individual. Subject to the terms and ​ conditions of this Agreement, any delegation pursuant to this Section 5.4(b) may be ​ revoked at any time by the Board. ​ (c) Third-party Reliance. Any Person dealing with the LLC, other than ​ a Unitholder, may rely on the authority of any Officer in taking any action in the name of ​ the LLC without inquiry into the provisions of this Agreement or compliance herewith, ​ regardless of whether that action actually is taken in accordance with the provisions of this ​ Agreement. ​ 5.5. Officers. ​ (a) Designation and Appointment. Subject to Section 5.1(b)(iv), the ​ Board shall designate and appoint a chief executive officer of the LLC and may (but need ​ not), from time to time, designate and appoint one or more additional persons as an Officer ​ of the LLC. No Officer need be a resident of the State of Delaware, a Unitholder or a ​ Manager. Any Officers so designated shall have such authority and perform such duties ​ as the Board may, from time to time, delegate to them. The Board may assign titles to ​ particular Officers. Unless theBoard otherwise decides, if the title is one commonly used ​ for officers of a business corporation formed, the assignment of such title shall constitute ​ the delegation to such Officer of the authority and duties that are normally associated with ​ that office, subject to (i) any specific delegation of authority and duties made to such ​ Officer by the Board pursuant to the third sentence of this Section 5.5(a) or (ii) any ​ ​ ​ 60 ​ delegation of authority and duties made to one or more Officers pursuant to the terms of ​ Section 5.4(b). Each Officer shall hold office until such Officer’s successor shall be duly ​ designated and shall qualify or until such Officer’s death or until such Officer shall resign ​ or shall have been removed in the manner hereinafter provided. Any number of offices ​ may be held by the same individual. Subject to Section 5.1(b)(iv), the salaries or other ​ compensation, if any, of the Officers and agents of the Company Group shall be fixed from ​ time to time by the Board. ​ (b) Resignation; Removal. Any Officer (subject to any contract rights ​ available to the Company Group, if applicable) may resign as such at any time. Such ​ resignation shall be made in writing and shall take effect at the time specified therein, or if ​ no time be specified, at the time of its receipt by the Board. The acceptance of a resignation ​ shall not be necessary to make it effective, unless expressly so provided in the resignation. ​ Any Officer may be removed as such, either with or without cause, by the Board in its ​ discretion at any time. Subject to Section 5.1(b)(iv), any vacancy occurring with respect ​ to any Officer position of the LLC may be filled by the Board. ​ ARTICLE VI ​ ​ GENERAL RIGHTS AND OBLIGATIONS OF UNITHOLDERS ​ 6.1. Limitation of Liability. Except as otherwise provided by applicable law, ​ the debts, obligations, and liabilities of theLLC, whether arising in contract, tort, or ​ otherwise, shall be solely the debts, obligations, and liabilities of the LLC, and no ​ Unitholder shall be obligated personally for any such debt, obligation, or liability of the ​ LLC solely by reason of being a Unitholder of the LLC; provided that a Unitholder shall ​ be required to return to the LLC any Distribution made to it in clear and manifest ​ accounting or similar error. The immediately preceding sentence shall constitute a ​ compromise to which all Unitholders have consented within the meaning of the Delaware ​ Act. Notwithstanding anything contained herein to the contrary, the failure of the LLC to ​ observe any formalities or requirements relating to the exercise of its powers or ​ management of its business and affairs under this Agreement or the Delaware Act shall not ​ be grounds for imposing personal liability on the Unitholders for liabilities of the LLC. ​ 6.2. Lack of Authority. No Unitholder in his, her, or its capacity as such (other ​ than the members of the Board acting as the Board or an authorized Officer of the LLC) ​ has the authority or power to act for or on behalf of the LLC in any manner, to do any act ​ that would be (or could be construed as) binding on the LLC or to make any expenditures ​ on behalf of the LLC, and, subject to Section 5.1(b)(iv), the Unitholders hereby consent to ​ the exercise by the Board of the powers conferred on it by law and this Agreement. ​ 6.3. NoRight of Partition. No Unitholder shall have the right to seek or obtain ​ partition by court decree or operation of law of any LLC property, or the right to own or ​ use particular or individual assets of the LLC. ​ ​ ​ 61 ​ 6.4. Unitholders Right to Act. For situations which the approval of any ​ Unitholders (rather than the approval of the Board) is required, the Unitholders shall act ​ through meetings and written consents as described in Article III and/or Section 15.3. ​ 6.5. Right to Information. ​ (a) The LLC shall deliver to each Information Recipient (unless ​ otherwise waived by the Principal Investors on behalf of all such Information Recipients): ​ (i) financial reports distributed by the Board from time to time ​ in its sole discretion generally to all holders of Units; ​ (ii) upon the reasonable request of an Information Recipient, a ​ current capitalization table reflecting the ownership of all holders of Units; provided, that ​ the LLC shall only provide Information Recipients that are not Principal Investors with ​ such capitalization information on an aggregated basis; ​ (iii) quarterly materials distributed to the Board; provided, that ​ the LLC shall be entitled to withhold and/or redact such materials to the extent providing ​ such materials would (i) be reasonably likely to adversely affect the attorney-client ​ privilege between the LLC and its counsel, (ii) be reasonably likely to adversely affect the ​ LLC or its Affiliates under governmental regulations or other applicable laws, (iii) be in ​ contravention of any agreement or arrangement requiring such information to be kept ​ confidential, (iv) result in a conflict of interest or (v) otherwise be inappropriate to provide, ​ as reasonably determinedby the Board; and ​ (iv) such other information and data (including such information ​ and reports made available to any lender of the LLC or any of its Subsidiaries under any ​ credit agreement or otherwise) with respect to the LLC and each of its Subsidiaries as may ​ be necessary for such Information Recipient to comply with its respective reporting, ​ regulatory, or other legal requirements and as may from time to time be reasonably ​ requested by any such Information Recipient. ​ (b) The LLC shall deliver to the Ekbatani Holder (for so long as the ​ Ekbatani Holder owns three percent (3%) or more of the LLC’s outstanding Common ​ Units): ​ (i) Annual Financial Statements: within seventy-five (75) calendar ​ days from the LLC’s fiscal year end; ​ (ii) Quarterly Financial Statements: within thirty (30) calendar days ​ from the end of the LLC’s fiscal quarter end; ​ ​ ​ 62 ​ (iii) A current capitalization table reflecting the ownership of all holders ​ of Units on an aggregated basis: annually, commencing on the date hereof, and ​ thereafter within thirty (30) calendar days of each subsequent anniversary of the ​ date hereof (such date, the “Cap Table Delivery Date”), unless prior to such Cap ​ Table Delivery Date the ownership percentage of any Unitholder in the LLC ​ changes (negatively or positively) by ten percent (10%) or more, in which case ​ within thirty (30) calendar days of such change. ​ 6.6. Public Filing Information Rights. ​ (a) Information. The LLC shall provide, and Frazier and the other ​ Unitholders shall use their reasonable best efforts to cause the LLC to provide, to ​ Providence (including its agents, accountants, advisors, counsel and other representatives) ​ any information with respect to the LLC that Providence reasonably requests in connection ​ with Providence Parent’s Reports, or that, in the reasonable judgment of Providence, is ​ required to be disclosed or incorporated by reference therein, under any applicable law, ​ rule or regulation, including, but not limited to, the following (collectively, the ​ “Information”): ​ (i) audited consolidated balance sheet of the LLC at the end of each ​ fiscal year, and the related audited statements of income, statements of ​ stockholders’ equity and statements of cash flows, which financial statements will ​ set forth incomparative form such figures at the end of and for the previous fiscal ​ year (other than fiscal year 2015), together with all related notes and schedules ​ thereto, together with an opinion of the LLC’s independent auditor (such ​ information, “Annual Financial Statements”); ​ (ii) consolidated balance sheet of the LLC at the end of each of the four ​ quarters of each fiscal year, and the related statements of income, statements of ​ stockholders’ equity and statements of cash flows, which financial statements will ​ set forth in comparative form such figures at the end of and for such quarter and ​ year to date periods in the previous fiscal year, together with all related notes and ​ schedules thereto, as reviewed (if such review is requested by Providence, at ​ Providence’s sole cost and expense) by the LLC’s independent auditor (such ​ information, “Quarterly Financial Statements”); ​ (iii) a monthly financial reporting package that includes substantially the ​ same information that was provided by the Company Sub to Providence each month ​ prior to the Effective Date, including a consolidated balance sheet, statement of ​ income (month-end, quarter-end and year-to-date), statement of cash flows and ​ trial balance (such information, “Monthly Financial Information”); ​ (iv) copies of any annual and other budgets and financial projections ​ relating to the LLC; ​ ​ ​ 63 ​ (v) all significant deficiencies or material weaknesses in the design or ​ operation of internal controls, any fraud that involves management or other ​ employees of the LLC who have a significant role in the LLC’s internal control ​ over financial reporting, and any illegal act within the meaning of Section 10A(b) ​ and (f) of the Securities Exchange Act (such information, a “Deficiency”); ​ (vi) any development involving a prospective material change, in or ​ affecting the general affairs, management, financial position, stockholders’ equity ​ or results of operations of the LLC (such information, a “Material Change”); and ​ (vii) any additional financial and other information and data with respect ​ to the LLC and its business, properties, financial position, results of operations and ​ prospects. ​ (b) Timing and Delivery of Information. The LLC will provide, and ​ Frazier will use its reasonable best efforts to cause the LLC to provide, to Providence ​ (including its agents, accountants, advisors, counsel and other representatives) the ​ Information in a timely manner on the dates requested by Providence (but in any case, with ​ respect to information in the possession of or that can be determined or calculated in a ​ reasonable timeframe by, the LLC or its Subsidiaries, within five (5) business days of any ​ request). For the avoidance of doubt, the following Information will be provided to ​ Providence by no later than the followingdeadlines (the “Filing Schedule”): ​ (i) Annual Financial Statements: within seventy-five (75) calendar ​ days from the LLC’s fiscal year end (unless such Annual Financial Statements are ​ required at an earlier date pursuant to requirements under Regulation SX 3-09 ​ promulgated under the Securities Exchange Act or other applicable legal ​ requirement); ​ (ii) Quarterly Financial Statements: within thirty (30) calendar days ​ from the end of the LLC’s fiscal quarter end; ​ (iii) Monthly Financial Information: within ten (10) Business Days ​ following each month-end; and ​ (iv) Any Material Change or Deficiency: promptly after any Officer of ​ the LLC or any member of the Board becomes aware of such matter. ​ (c) Independent Auditor. The LLC will use commercially reasonable ​ efforts to cause its independent auditor to provide to Providence all necessary Information ​ in a timely manner pursuant to Section 6.6(b). ​ (d) Information Standard. The LLC will use commercially reasonable ​ efforts to cause its Quarterly Financial Statements and Annual Financial Statements to be ​ ​ ​ 64 ​ prepared in accordance with GAAP and to cause such financial information to fairly ​ present, in all material respects, the financial position and results of operations of the LLC ​ as of the dates, and for the periods, covered. The LLC will use commercially reasonable ​ efforts to cause its agents to not publicly disclose or announce information concerning the ​ LLC that could be reasonably expected to cause the information presented in any of ​ Providence Parent’s Reports to be untrue or incomplete in any material respect. In ​ furtherance of the foregoing, the LLC shall not share any material, non-public information ​ concerning the LLC with any Person who is not bound by an obligation of confidentiality ​ to the LLC with respect to such information. Neither the LLC nor Frazier or any other ​ Unitholder will provide any Information to Providence (including its agents, accountants, ​ advisors, counsel and other representatives) that contains an untrue statement of a material ​ fact, or omits to state a material fact necessary to make such information not misleading. ​ (e) Access and Cooperation. As requested by Providence and necessary ​ to comply with Providence Parent’s disclosure obligations, the LLC will use commercially ​ reasonable efforts to make its Managers and officers having responsibility for its financial ​ reporting and business areas that relate to the matters included inthe Information, and its ​ agents, accountants, advisors, counsel and other representatives, reasonably available to ​ Providence (and its agents, accountants, advisors, counsel and other representatives) at ​ reasonable times and places for (i) consultations and discussions regarding the Information ​ to be included in the Reports and (ii) Providence Parent’s presentations to securities ​ analysts and at industry trade meetings and conferences, unless the LLC reasonably ​ determines that they should not be made available for such purposes. Additionally, the ​ LLC will use commercially reasonable efforts to cause its independent auditor to (x) ​ perform an audit of the Annual Financial Statements and review of the Quarterly Financial ​ Statements and provide the results thereof to Providence and the independent auditor of ​ Providence Parent in accordance with the Filing Schedule, (y) provide the necessary ​ consents required under the securities laws and (z) provide customary “comfort letters” in ​ connection with any offerings of Providence Parent securities (with respect to clause (z) ​ and to the review of the Quarterly Financial Statements pursuant to clause (x) if such ​ review is requested by Providence, at Providence’s sole cost and expense). Providence ​ will have the right to access such records of the LLC at reasonable times and during normal ​business hours and will be permitted to make abstracts from, or copies of, such records. ​ (f) Disclosure Controls. The LLC agrees that it will maintain internal ​ systems and procedures that will provide reasonable assurance that (i) the LLC’s ​ consolidated financial statements are reliable and timely prepared in accordance with ​ GAAP and applicable law, (ii) all transactions are recorded as necessary to permit the ​ preparation of the LLC’s consolidated financial statements in accordance with GAAP and ​ applicable law, (iii) the receipts and expenditures of the LLC are authorized at the ​ appropriate level within the LLC and (iv) unauthorized use or disposition of the assets of ​ the LLC that could have a material effect on the LLC’s consolidated financial statements ​ is prevented or detected in a timely manner. ​ ​ ​ 65 ​ (g) Miscellaneous. Each of the LLC, Frazier and Providence shall be ​ responsible for its own fees, costs and expenses paid or incurred in connection with the ​ preparation of Information and compliance with the terms of this Section 6.6, including ​ fees, costs and expenses of such party’s agents, accountants, advisors, counsel and other ​ representatives. The LLC will indemnify Providence and its Affiliates and all of its and ​ their respective partners, equityholders, officers, directors, employees and agents for any ​ losses, damages, liabilities, claims, demands, judgments, penalties or fines arising out of ​ or relating to the performance of the LLC of its obligations under this Section 6.6. ​ 6.7. Non-Competition. No Unitholder (other than current or former Principal ​ Investors and any Managers that are not employees of the Company Group) shall, during ​ the period of time that he, she or it owns Units in the LLC and for one year following the ​ sale or Permitted Transfer thereof (the “Restricted Period”), directly or indirectly, within ​ or with respect to any country where the Company Group does business, engage, without ​ the prior express written consent of the LLC, in any business or activity, whether as an ​ employee, consultant, partner, principal, agent, representative, director, equityholder or in ​ any other individual, corporate or representative capacity, or render any services or provide ​ any advice toany business, activity, service, person or entity, if such business, activity, ​ service, person or entity, competes with the Business (a “Competing Business”). For ​ purposes of this Section 6.7 only, the term “Business” shall mean the business of ​ contracting with health plans to provide in-home care to Commercial, Managed Medicaid ​ and Medicare Advantage members or other like services as the Company Group or in any ​ other business engaged in by the Company Group or any potential business which has been ​ submitted to the Board for consideration and is under consideration by the Board. In ​ addition, no Unitholder (other than current or former Principal Investors) shall, during the ​ Restricted Period, meaningfully assist, help or otherwise support, without the prior express ​ written consent of the LLC, any Person or activity, whether as an employee, consultant, ​ partner, principal, agent, representative, director, stockholder or in any other individual, ​ corporate or representative capacity, to create, commence or otherwise initiate, or to ​ develop, enhance or otherwise further, any business or activity if such business or activity ​ competes (or is reasonably likely to compete) with the Business. Notwithstanding the ​ foregoing, no Unitholder shall be prohibited during the Restricted Period from being a ​ passive investor where the Unitholder owns not more than two percent (2%) of the ​outstanding capital stock of any publicly-held company. Notwithstanding the foregoing, ​ this Section 6.7 shall not apply to the Principal Investors. ​ 6.8. Non-Solicitation. During the Restricted Period, no Unitholder shall induce ​ any Person in the senior management role at the Company Group to (i) terminate such ​ employment or (ii) accept employment, or enter into any consulting arrangement, with any ​ Person other than a member of the Company Group. ​ 6.9. Statements by the Unitholder. Unless required by applicable law, rule or ​ regulation or any recognized subpoena power, no Unitholder (other than the Principal ​ ​ ​ 66 ​ Investors and any former Principal Investor not controlled by a Competitor) shall at any ​ time make any statement or representation, written or oral, which such Unitholder (other ​ than the Principal Investors and any former Principal Investor not controlled by a ​ Competitor) knows or should know will, or which such Unitholder (other than current or ​ former Principal Investors) knows or should know is reasonably likely to, impair or ​ adversely affect in any way the reputation, goodwill, business, customer or supplier ​ relationships, or public relations of the Company Group, and/or any of their respective ​ partners, directors, employees or officers; provided that a former Principal Investor ​ controlled by a Competitor shall not be prohibited from engaging in ordinary course ​ business activities. In the event that any Unitholder (other than the Principal Investors and ​ any former Principal Investor not controlled by a Competitor) becomes legally compelled ​ (by oral questions, interrogatories, request for information or documents, subpoena, ​ criminal or civil investigative demand or similar process) to make any such statements or ​ representations, then prior thereto and to the extent permitted by law, the Unitholder will ​ provide the LLC with prompt written notice so that the LLC may seek (with such ​ Unitholder’s cooperation) a protective order or other appropriate remedy and/or waive ​ compliance with the provisions of thisSection 6.9. In the event that such protective order ​ or other remedy is not obtained, then the applicable Unitholder will only make such ​ statements or representations which the Unitholder is advised by counsel are legally ​ required, and will cooperate with the LLC in the LLC’s efforts to obtain reliable assurance ​ that confidential treatment will be accorded to any such statements or representations. ​ Notwithstanding the foregoing, this Section 6.9 shall not apply to the Principal Investors. ​ 6.10. Publicity. Each Unitholder shall, subject to provisions of this Section 6.10, ​ consult with and obtain the approval of each of the Principal Investors before issuing any ​ press release or other public announcement with respect to this Agreement or the matters ​ contemplated hereby, and no such Unitholder shall issue or cause to be issued any such ​ press release prior to such consultation and approval, except to the extent required or ​ appropriate in connection with applicable law, rule, regulation, governmental body or stock ​ exchange (including regulatory and self-regulatory bodies), in which case the Unitholder ​ proposing to issue such press release or make such public announcement shall use ​ commercially reasonable efforts to consult in good faith with the Principal Investors to the ​ extent practicable before issuing any such press release or making any suchpublic ​ announcement and allow the other party reasonable time (taking into account the ​ circumstances, including exigent circumstances) to comment on, such release or ​ announcement in advance of such issuance, and the party will consider such comments in ​ good faith (the “Consultation Rights”). For the avoidance of doubt, this Section 6.10 shall ​ not prohibit Providence from issuing any Reports or filing this Agreement with the ​ Securities and Exchange Commission, or otherwise limit the rights of the Principal ​ Investors to disclose information to the extent permitted by Section 15.2, in each case, in ​ compliance with this Section 6.10 (including the Consultation Rights set forth herein) and ​ Section 15.2. ​ ​ ​ 67 ​ 6.11. Transactions Between the LLC and the Unitholders. ​ (a) Except as specifically set forth herein, without the approval of the ​ Board and without limiting Section 5.1(b)(iv), the LLC shall not, and shall cause its ​ Subsidiaries not to, directly or indirectly, enter into or commit to enter into any transaction ​ with any Unitholder or any of its Affiliates, other than (i) this Agreement and the Advisory ​ Agreement, subject to the provisions herein and therein regarding amendment, termination ​ or waiver under any such agreements, (ii) any transaction specifically contemplated by this ​ Agreement, (iii) any agreements or arrangements with employees of the LLC or its ​ Subsidiaries, subject to Section 5.1(b)(iv), or (iv) any transaction between the LLC or any ​ of its Subsidiaries, on the one hand, and an operating business of any of the Principal ​ Investors or any of their respective Affiliates, on the other hand, which is on arms’ length ​ terms and in the ordinary course of business. Notwithstanding any other provision hereof, ​ no Unitholder may purchase, assume, or otherwise acquire any indebtedness of the LLC or ​ its Subsidiaries (or any participations related thereto) without receiving the written ​ approval of each Principal Investor. ​ (b) Except as specifically set forth herein, without the approval of the ​ Ekbatani Holder and without limiting Section 5.1(b)(iv), the LLC shall not, and shall cause ​ its Subsidiaries not to, directly orindirectly, enter into or commit to enter into any ​ agreements or arrangements with the Principal Investors or any of their respective ​ Affiliates that obligate the LLC or any of its Subsidiaries to pay any management or other ​ fees or payments of any kind to the Principal Investors or any of their respective Affiliates, ​ other than this Agreement and the Advisory Agreement (which Advisory Agreement may ​ not be amended to alter the aggregate economics contemplated therein following the date ​ hereof without the prior written consent of the Ekbatani Holder). ​ 6.12. Initial Public Offering; Registration Rights Agreement. Prior to the ​ commencement of any initial Public Offering (i), the Board shall form a committee ​ comprised of one representative of each of the Principal Investors which shall be ​ responsible for facilitating coordination among the Unitholders with respect to sell-down ​ activities and (ii) the LLC or its applicable Subsidiary and the Unitholders shall enter into ​ a Registration Rights Agreement on customary terms negotiated in good faith by the ​ Principal Investors consistent with those forth in Exhibit A (the “Registration Rights ​ Agreement”). ​ 6.13. Interests in Providence. Frazier Healthcare Partners (“Frazier Partners”) ​ shall not, and shall cause its controlled Affiliates not to, without the prior written consent ​ of Providence, for so long as Mercury Fortuna Buyer, LLC or any of its Affiliates is a ​ Unitholder, directly or indirectly, acquireownership (including as a beneficial owner) of ​ any securities or indebtedness of Providence Parent or its Subsidiaries, or any options or ​ other rights to acquire any such ownership from a third party or otherwise, or participate ​ in or encourage the formation of any group that owns or seeks or offers to acquire beneficial ​ ownership of any securities or indebtedness of Providence Parent or its Subsidiaries; ​ ​ ​ 68 ​ provided that (i) Frazier Partners and its Affiliates and their respective personnel may own ​ up to 1% of such securities or indebtedness in the aggregate as passive investments and (ii) ​ for the avoidance of doubt, the restrictions set forth in this Section 6.13 shall not apply, ​ directly or indirectly, to any equityholders of Mercury Fortuna Buyer, LLC or any of its ​ Affiliates to the extent that such equityholders are not Affiliated with Frazier Partners. ​ ARTICLE VII ​ ​ EXCULPATION AND INDEMNIFICATION ​ 7.1. Exculpation. No Manager or Tax Matters Partner shall be liable to any ​ Officer, Manager, the LLC or to any Unitholder for any loss suffered by the LLC unless ​ such loss is caused by such Person’s gross negligence, willful misconduct or violation of ​ law. The Managers and Tax Matters Partner shall not be liable for errors in judgment or ​ for any acts or omissions that do not constitute gross negligence, willful misconduct or ​ violation of law. Any Manager or Tax Matters Partner may consult with counsel and ​ accountants in respect of LLC affairs, and provided such Person acts in good faith reliance ​ upon the advice or opinion of such counsel or accountants, such Person shall not be liable ​ for any loss suffered by the LLC in reliance thereon. ​ 7.2. Right to Indemnification. Subject to the limitations and conditions as ​ provided in this Article VII, each Person who was or is made a party or isthreatened to be ​ made a party to or is involved in any threatened, pending or completed action, suit, claim, ​ litigation or proceeding, whether civil, criminal, administrative, arbitrative (hereinafter a ​ “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could ​ lead to such a Proceeding, by reason of the fact that he or she, or a Person of whom he or ​ she is the legal representative, is or was a Unitholder, Manager, Tax Matters Partner or ​ Officer, or while a Unitholder, Manager, Tax Matters Partner or Officer is or was serving ​ at the request of the LLC as a manager, director, officer, partner, venturer, proprietor, ​ trustee, employee, agent or similar functionary of another foreign or domestic limited ​ liability company, corporation, partnership, joint venture, sole proprietorship, trust, ​ employee benefit plan or other enterprise shall be indemnified by the LLC to the fullest ​ extent permitted by the Delaware Act, as the same exist or may hereafter be amended (but, ​ in the case of any such amendment, only to the extent that such amendment permits the ​ LLC to provide broader indemnification rights than said law permitted the LLC to provide ​ prior to such amendment) against losses, damages, liabilities, claims, demands, judgments, ​ penalties (including excise and similar taxes and punitive damages), fines, settlements and ​ reasonable expenses (including attorneys’ fees and costs of investigatingthe facts related ​ to such Proceeding and preparing for participation therein) actually incurred by such ​ Person as a result of, arising out of or in connection with such Proceeding, and ​ indemnification under this Article VII shall continue as to a Person who has ceased to serve ​ in the capacity which initially entitled such Person to indemnity hereunder; provided, ​ however, that such Person shall not be entitled to indemnification hereunder to the extent ​ ​ ​ 69 ​ that any of the foregoing is determined by a final, nonappealable order of a court of ​ competent jurisdiction to have been primarily caused by the gross negligence, bad faith or ​ willful misconduct or criminal activity (evidenced by a final, nonappealable felony ​ conviction) of such Person. The rights granted pursuant to this Article VII shall be deemed ​ contract rights, and no amendment, modification or repeal of this Article VII shall have the ​ effect of limiting or denying any such rights with respect to actions taken or Proceedings ​ arising prior to, on or after any such amendment, modification or repeal. It is expressly ​ acknowledged that the indemnification provided in this Article VII could involve ​ indemnification for negligence or under theories of strict liability. ​ 7.3. Advance Payment. Reasonable expenses incurred by a Person of the type ​ entitled to be indemnified under Section 7.2 who was, is or is threatened to be made a ​ named defendant or respondent in a Proceeding shall be paid by the LLC in advance of the ​ final disposition of the Proceeding upon receipt of an undertaking by or on behalf of such ​ Person to repay promptly such amount if it shall ultimately be determined that he or she is ​ not entitled to be indemnified by the LLC. ​ 7.4. Indemnification of Employees and Agents. The LLC, by adoption of a ​ resolution of the Board, may indemnify and advance expenses to anemployee or agent of ​ the LLC or its Subsidiaries to the same extent and subject to the same conditions under ​ which it may indemnify and advance expenses to Persons who are not or were not ​ Managers, Tax Matters Partner or Officers but who are or were serving at the request of ​ the LLC as a manager, director, officer, partner, venturer, proprietor, trustee, employee, ​ agent or similar functionary of another foreign or domestic limited liability company, ​ corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or ​ other enterprise against any liability asserted against him and incurred by him in such a ​ capacity or arising out of his or her status as such a Person to the same extent that it may ​ indemnify and advance expenses to Managers, the Tax Matters Partner and Officers under ​ this Article VII. ​ 7.5. Appearance as a Witness. Notwithstanding any other provision of this ​ Article VII, the LLC shall pay or reimburse reasonable out-of-pocket expenses incurred by ​ a Manager, Tax Matters Partner or Officer in connection with his or her appearance as a ​ witness or other participation in a Proceeding at a time when he is not a named defendant ​ or respondent in the Proceeding. ​ 7.6. Nonexclusivity of Rights. The right to indemnification and the ​ advancement and payment of expenses conferred in this Article VII shall not be exclusive ​ of any other right which a Manager,Tax Matters Partner, Officer or other Person ​ indemnified pursuant to Section 7.2 may have or hereafter acquire (i) under any law ​ (common or statutory), (ii) under any provision of the Certificate or this Agreement, (iii) ​ pursuant to the Advisory Agreement or (iv) by vote of Unitholders or disinterested ​ Managers or otherwise. ​ ​ ​ 70 ​ 7.7. Insurance. The LLC shall purchase and maintain insurance in the amount ​ and of the type customarily obtained for companies comparable to the LLC and its ​ Subsidiaries, at its expense, to protect itself and any Person who is or was serving as a ​ Manager, Tax Matters Partner, Officer or agent of the LLC or is or was serving at the ​ request of the LLC as a manager, director, officer, partner, venturer, proprietor, trustee, ​ employee, agent or similar functionary of another foreign or domestic limited liability ​ company, corporation, partnership, joint venture, sole proprietorship, trust, employee ​ benefit plan or other enterprise against any expense, liability or loss, whether or not the ​ LLC would have the power to indemnify such Person against such expense, liability or loss ​ under this Article VII. ​ 7.8. Savings Clause. If this Article VII or any portion hereof shall be ​ invalidated on any ground by any court of competent jurisdiction, then the LLC shall ​ nevertheless indemnify and hold harmless each Manager, Tax Matters Partner, Officer or ​ any other Person indemnified pursuant to this Article VII as to costs, charges and expenses ​ (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect ​ to any action, suit or proceeding, whether civil, criminal, administrative or investigative to ​ the full extent permitted by any applicable portion of this Article VII that shall not have ​ been invalidatedand to the fullest extent permitted by applicable law. ​ 7.9. Certain Dealings and Opportunities. Each Unitholder acknowledges and ​ agrees that: (a) each current or former Principal Investor, their respective Affiliates and ​ their respective stockholders, directors, officers, controlling Persons, partners, members, ​ and employees (collectively, the “Investor Group”) (i) have or may have investments or ​ other business relationships with entities engaged in other businesses (including those ​ which may compete with the business of the LLC and any of its Subsidiaries or areas in ​ which the LLC or any of its Subsidiaries may in the future engage in business) and in ​ related businesses other than through the LLC or any of its Subsidiaries, (ii) may develop ​ a strategic relationship with businesses that are or may be competitive with the LLC or any ​ of its Subsidiaries and (iii) will not be prohibited by virtue of their direct or indirect ​ investment in the LLC or its Subsidiaries, or their service on the Board or any Subsidiary’s ​ board of directors (or similar governing body), or for any other reason, from pursuing and ​ engaging in any such activities; (b) neither the LLC or any of its Subsidiaries nor any other ​ Unitholder shall have any right or expectation in or to such other ventures or activities or ​ to the income or proceeds derived therefrom; and (c) no member of the Investor Group ​ shall be obligated to present any particularinvestment or business opportunity to the LLC ​ or any of its Subsidiaries even if such opportunity is of a character which, if presented to ​ the LLC, could be undertaken by the LLC or any of its Subsidiaries, and each member of ​ the Investor Group shall have the right to undertake any such opportunity for itself for its ​ own account or on behalf of another or to recommend any such opportunity to other ​ Persons. Each of the LLC and the Unitholders hereby waives, to the fullest extent ​ permitted by applicable law, any claims and rights that such Person may otherwise have in ​ connection with the matters described in this Section 7.9. Notwithstanding anything to the ​ ​ ​ 71 ​ contrary in this Section 7.9, the rights of the Investor Group under this Section 7.9 shall be ​ subject to the confidentiality obligations set forth in Section 15.2. ​ ARTICLE VIII ​ ​ BOOKS, RECORDS, ACCOUNTING AND REPORTS ​ 8.1. Records and Accounting. The LLC shall keep, or cause to be kept, ​ appropriate books and records with respect to the LLC’s affairs, including all books and ​ records necessary to provide any information, lists, and copies of documents required to be ​ provided pursuant to Section 8.3 or pursuant to applicable laws. All matters concerning (i) ​ the determination of the relative amount of allocations and distributions among the ​ Unitholders pursuant to Articles III and IV and (ii) accounting procedures and ​ determinations, and other determinations not specifically and expressly provided for by the ​ terms of this Agreement, shall be determined by the Board (subject to Section 5.1(b)(iv)), ​ whose determination shall be final and conclusive as to all of the Unitholders absent ​ manifest clerical error. ​ 8.2. Fiscal Year. The fiscal year (the “Fiscal Year”) of the LLC shall constitute ​ the 12-month period ending on December 31 of each calendar year, or such other annual ​ accounting period as may be established by the Board; provided, that the written consent ​ of each of the Principal Investors shall be required to change the Fiscal Year. The taxable ​ year of the LLC shallbe the same as the Fiscal Year, unless otherwise required by the Code ​ or applicable tax law. ​ 8.3. Tax Information. The LLC shall use commercially reasonable efforts to ​ deliver or cause to be delivered, within 75 days after the end of each Fiscal Year, to each ​ Person who was a Unitholder at any time during such Fiscal Year all information necessary ​ for the preparation of such Person’s United States federal and state income tax returns. ​ 8.4. Transmission of Communications. Each Person that owns or controls ​ Units on behalf of, or for the benefit of, another Person or Persons shall be responsible for ​ conveying any report, notice, or other communication received from the Board to such ​ other Person or Persons. ​ 8.5. LLC Funds. The Board and Officers may not commingle the LLC’s funds ​ with the funds of any Unitholder or Manager. ​ ARTICLE IX ​ ​ TAXES ​ 9.1. Tax Returns. The LLC shall prepare and file all necessary federal and state ​ income tax returns, including making the elections described in Section 9.2. Each ​ ​ ​ 72 ​ Unitholder shall furnish to the LLC all pertinent information in its possession relating to ​ LLC operations that is necessary to enable the LLC’s income tax returns to be prepared ​ and filed. No later than 30 days prior to the due date (including valid extensions) for filing ​ IRS Form 1065 with respect to the LLC, the LLC shall furnish to each Principal Investor ​ a draft copy of such Form 1065 and such Principal Investor’s associated Schedule K-1 ​ (collectively, the “Draft Tax Forms”). No later than 10 Business Days after receipt of such ​ Draft Tax Forms, each Principal Investor shall notify the LLC whether it approves such ​ Draft Tax Forms. If any Principal Investor does not so approve, it shall attempt to resolve ​ any disagreement with the other Principal Investor. If no such resolution is reached by the ​ due date (including valid extensions) for filing Form 1065 and associated Schedules K-1, ​ the LLC shall file such form and schedules in the manner approved by the Principal ​ Investor with the largest number of Units as of such date, but the other Principal Investor ​ shall not be required to report on its own tax returns in a manner consistent with such filed ​ Form 1065 and Schedules K-1. Except as otherwise provided in this Section 9.1, all ​ Unitholders agree not to take any position on any of their tax returns that are inconsistent ​ with the positions taken in the LLC’s filed income tax returns. ​ 9.2. TaxElections. Subject to the Subscription Agreement, Section 2.9 and ​ Section 5.1(b)(iv), the Tax Matters Partner (as defined below) shall make any election on ​ behalf of the LLC that the Tax Matters Partner deems appropriate in its reasonable ​ discretion. Notwithstanding the preceding sentence, the Tax Matters Partner shall make a ​ Code Section 754 election upon the request of any Investor in connection with a Transfer ​ of Units in compliance with Article X below. ​ 9.3. Tax Matters Partner. Frazier (or an Affiliate so designated by Frazier) ​ shall be the partnership representative of the LLC, in accordance with Section 6223 of the ​ Code, and the tax matters partner of the LLC pursuant to Section 6231(a)(7) of the Code ​ as in effect before the enactment of the Bipartisan Budget Act of 2015 (and, in each case, ​ any similar provision under any state or local tax laws) (the “Tax Matters Partner”). The ​ Tax Matters Partner shall cause the LLC to elect the application of Section 6226 of the ​ Code with respect to any Imputed Underpayment Amount; provided, that the procedures ​ set forth in applicable Treasury Regulations or other guidance under applicable Tax law ​ shall permit Frazier to push any reporting or other obligation under Section 6226 of the ​ Code through any upper tier partnerships that hold a direct or indirect interest in Frazier to ​ the direct and indirect equityholders in Frazier, in each case,without Frazier or such ​ equityholders incurring material additional Taxes, costs or expenses; provided, further, that ​ if the requirements set forth in the immediately preceding proviso are not satisfied, the LLC ​ shall pay any Imputed Underpayment Amount in accordance with Sections 6225(a) and ​ 6232 of the Code, unless Frazier and Providence agree to use an alternative approach ​ permitted under the Code and applicable Treasury Regulations. Each Unitholder hereby ​ agrees (i) to take such actions as may be required to effect Frazier’s (or an Affiliate so ​ designated by Frazier) designation as the Tax Matters Partner and (ii) to cooperate to ​ provide any information or take such other actions as may be reasonably requested by the ​ ​ ​ 73 ​ Tax Matters Partner in order to determine whether any Imputed Underpayment Amount ​ may be modified pursuant to Section 6225(c) of the Code. A Unitholder’s obligation to ​ comply with this Section 9.3 shall survive the transfer, assignment or liquidation of such ​ Unitholder’s interest in the LLC. Notwithstanding the foregoing, for so long as Providence ​ and its Affiliates own at least twenty percent (20%) of Providence’s Closing Equity, the ​ Tax Matters Partner shall not (x) settle a Tax controversy that could reasonably be expected ​ to have a material adverse effect on Providence or its Affiliates without Providence’s ​ written consent, which consent shall not be unreasonably withheld, conditioned or delayed ​ or (y) choose a litigation forum other than the United States Tax Court for a federal Tax ​ proceeding (where a choice for a federal Tax proceeding is available to the LLC and the ​ choices include such forum). The Tax Matters Partner shall keep Providence informed of ​ all material Tax issues arising in connection with a Tax proceeding affecting the LLC and ​ shall permit Providence to participate, at its own expense, in all Tax proceedings with ​ respect to the LLC which could reasonably be expected to adversely affect Providence’s ​ or its Affiliates’ Tax liability, including audits, administrative appeals and judicial ​ proceedings. ​ ARTICLE X ​ ​ TRANSFERS ​ 10.1. Transfers byUnitholders. ​ (a) No Unitholder shall Transfer any Units except in compliance with ​ this Article X. Except for Transfers to Permitted Transferees or Transfers pursuant to ​ Sections 10.4 (solely as a Tag-Along Unitholder), 10.6 (subject to Section 5.1(b)(iv)) or to ​ the LLC or a Subsidiary thereof pursuant to Sections 3.10, 3.11, or 3.12, no Unitholder ​ shall Transfer, or offer or agree to Transfer, all or any part of any interest in such Person’s ​ Units without the prior written consent of the Board and the Principal Investors, which ​ consent may be withheld in the Board’s or either Principal Investor’s sole discretion, as ​ applicable. With the Board and the Principal Investors’ consent, a Unitholder may Transfer ​ all or any part of such Unitholders’ Units, subject to compliance with this Agreement ​ (including Section 10.1(c) and Section 10.4). ​ (b) Notwithstanding the foregoing, (x) each current or former Principal ​ Investor may Transfer all or any part of any interest in such Principal Investor’s Units ​ without the consent of the Board or the other current Principal Investor (if any) following ​ the earlier of (i) an initial Public Offering and (ii) the third (3rd) anniversary of the Effective ​ Date, subject, in each case, to compliance with this Agreement (including Sections 10.1(c), ​ 10.4, 10.5 and 10.7), and applicable securities laws and (y) each Unitholder (other than the ​ current and former Principal Investors) may (subject to compliance with this Agreement ​ (includingSections 10.1(c) and 10.7) and the Registration Rights Agreement), following ​ the initial Public Offering, Transfer such Unitholder’s Units, but only to the extent such ​ Transfer would not result in the Relative Ownership Percentage of such Unitholder ​ ​ ​ 74 ​ immediately following such Transfer being less than the Relative Ownership Percentage ​ of the Principal Investors immediately following such Transfer. ​ (c) Each transferee of Units or other interest in the LLC shall, as a ​ condition precedent to such Transfer, execute a counterpart to this Agreement pursuant to ​ which such transferee shall agree to be bound by the provisions of this Agreement and ​ comply with Section 11.2. ​ (d) Any Imputed Underpayment Amount that is properly allocable to a ​ transferor of an interest, as reasonably determined by the Board, shall be treated as a ​ Withholding Payment with respect to the applicable transferee in accordance with Section ​ 4.6(f). Furthermore, as a condition to any Transfer, each transferor shall be required to ​ agree (i) to continue to comply with the provisions of Section 9.3 notwithstanding such ​ Transfer and (ii) to indemnify and hold harmless the LLC and the Board from and against ​ any and all liability with respect to the transferee’s Withholding Payments resulting from ​ Imputed Underpayment Amounts attributable to the transferor to the extent that the ​ transferee fails to do so. ​ (e) As a condition to any Transfer, (A) if the transferor of Units who ​ proposes to Transfer such Units (or if such transferor is a disregarded entity for U.S. federal ​ income tax purposes, the first direct or indirect beneficial owner of such transferor that is ​ not a disregarded entity (the “Transferor’sOwner”)) is a “United States person” as defined ​ in Section 7701(a)(30) of the Code, then such transferor (or Transferor’s Owner, if ​ applicable) shall complete and provide to both of the transferee and the LLC, a duly ​ executed affidavit in the form provided to such transferor by the LLC, certifying, under ​ penalty of perjury, that the transferor (or Transferor’s Owner, if applicable) is not a foreign ​ person, nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign ​ estate (as such terms are defined under the Code and applicable United States Treasury ​ Regulations) and the transferor’s (or Transferor’s Owner’s, if applicable) United States ​ taxpayer identification number, or (B) if the transferor of Units who proposes to Transfer ​ such Units (or if such transferor is a disregarded entity for U.S. federal income tax ​ purposes, the Transferor’s Owner) is not “United States person” as defined in Section ​ 7701(a)(30) of the Code, then such transferor and transferee shall jointly provide to the ​ LLC written proof reasonably satisfactory to the Board that any applicable withholding tax ​ that may be imposed on such Transfer (including pursuant to Sections 864 and 1446 of the ​ Code) and any related tax returns or forms that are required to be filed, have been, or will ​ be, timely paid and filed, as applicable. ​ 10.2. Effect of Assignment. ​ (a) Subject to Section 10.1, any Unitholder who shall assign any Units ​ or other interest in theLLC shall cease to be a Unitholder of the LLC with respect to such ​ Units or other interest and shall no longer have any rights or privileges of a Unitholder with ​ respect to such Units or other interest. ​ ​ ​ 75 ​ (b) Subject to Section 10.1, any Person who acquires in any manner ​ whatsoever any Units or other interest in the LLC, irrespective of whether such Person has ​ accepted and adopted in writing the terms and provisions of this Agreement, shall be ​ deemed by the acceptance of the benefits of the acquisition thereof to have agreed to be ​ subject to and bound by all of the terms and conditions of this Agreement that any transferor ​ of such Units or other interest in the LLC was subject to or by which such transferor was ​ bound (it being understood that such transferee may no longer be eligible for certain rights ​ or privileges with respect to such Units or other interest that, pursuant to the terms hereof, ​ the transferor had by reason of the transferor’s status as a Principal Investor, subject to ​ Section 10.7 or as otherwise expressly provided in this Agreement). ​ 10.3. Restrictions on Transfer. ​ (a) In order to permit the LLC to qualify for the benefit of a “safe ​ harbor” under Code Section 7704, notwithstanding anything to the contrary in this ​ Agreement, no Transfer of any Unit or economic interest shall be permitted or recognized ​ by the LLC or the Board (within the meaning of Treasury Regulation Section 1.7704-1(d)) ​ if and to the extent that such Transfer would cause the LLC to have more than 100 partners ​ (within the meaning of Treasury Regulation Section 1.7704-1(h), including the look-​ through rulein Treasury Regulation Section 1.7704-1(h)(3)). ​ (b) Notwithstanding anything herein to the contrary, except with the ​ consent of the Principal Investors, no Unitholder shall Transfer any Units to any ​ Competitor or strategic investor unless such Transfer is made (i) pursuant to an Approved ​ Sale in accordance with Section 10.6 or (ii) to the public pursuant to (x) a Public Offering, ​ or (y) following a Public Offering, pursuant to Rule 144, in either case of (x) or (y), in a ​ market transaction and not a privately negotiated block trade. ​ 10.4. Participation Rights. ​ (a) Prior to an initial Public Offering, at least thirty (30) days prior to ​ any sale or Transfer of Units by either Principal Investor (including any Transfer of Units ​ to the LLC or any of its Subsidiaries (whether by redemption, repurchase or otherwise)) ​ (the “Tag-Along Seller”), the Tag-Along Seller shall deliver a written notice (the “Tag-​ Along Notice”) to the other Unitholders (the “Tag-Along Unitholders”) specifying in ​ reasonable detail the identity of the prospective transferee(s) and the terms and conditions ​ of the sale, including the number of Units to be sold and the cash price therefor (the “Tag-​ Along Offer”). The Tag-Along Unitholders may elect to participate in the contemplated ​ sale by delivering written notice (a “Tag-Along Response Notice”) to the Tag-Along Seller ​ within ten (10) days after delivery of the Tag-Along Notice. If any Tag-Along Unitholders ​ have elected to participate in such sale, theTag-Along Seller and such Tag-Along ​ Unitholders will be entitled to sell in the contemplated Tag-Along Offer, at the same price ​ and on the same terms, a number of Units to be sold equal to the product of (A) such ​ Person’s Tag-Along Pro Rata Percentage multiplied by (B) the number of Units to be sold ​ ​ ​ 76 ​ in the contemplated sale. If at the termination of such thirty (30)-day period any Unitholder ​ shall not have elected to participate in the Tag-Along Offer, such Unitholder will be ​ deemed to have waived its rights under this Section 10.4 with respect to such Tag-Along ​ Offer. Each Tag-Along Unitholder’s right to participate in such Tag-Along Offer shall be ​ conditioned upon (i) the consummation of the transactions contemplated in the Tag-Along ​ Notice with the prospective transferee(s) named therein, (ii) each Tag-Along Unitholder’s ​ execution and delivery of all transfer agreements and other related documents as the Tag-​ Along Seller is required to execute and deliver in connection with such sale (including by ​ making therein representations and warranties as to (x) such Tag-Along Unitholder’s ​ ownership of his, her or its Units to be sold free and clear of all Liens (other than any ​ imposed by this Agreement), (y) such Tag-Along Unitholder’s power and authority to ​ effect such sale and certificate, if any, representing the applicable Units (together with an ​ executed stock (or similar) power or other conveyance document) and (z) such matters ​ pertaining to compliance with securities laws as the prospective transferee(s) may ​ reasonably require) and (iii) any Tag-Along Unitholder shall not be liable for the ​ inaccuracy of any representation or warranty made by any other person (unlesssuch ​ representation is made jointly with such other person) in connection with the Tag-Along ​ Offer; provided that each Tag-Along Unitholder shall (a) be required (i) to bear his, her or ​ its proportionate share of any escrows, holdbacks or adjustments in purchase price and any ​ transaction expenses and (ii) to make such customary representations, warranties and ​ covenants and enter into such agreements as are customary for transactions of the nature ​ of the Tag-Along Offer, in each case on terms no less favorable to the Tag-Along ​ Unitholders than those disclosed in the Tag-Along Notice and (b) benefit from all of the ​ same provisions of the definitive agreements as the Tag-Along Seller, it being understood ​ that any liability of any Tag-Along Unitholder for indemnification or similar post-closing ​ obligations shall not exceed a proportional share of any such liability based on such Tag-​ Along Unitholder’s share of the aggregate consideration in the Tag-Along Offer. ​ Notwithstanding anything in this Section 10.4 to the contrary, no Tag-Along Unitholder ​ (other than the Management Unitholders) shall be required to execute or enter into a non-​ compete, non-solicitation or other similar restrictive covenant of any kind in connection ​ with such Tag-Along Offer other than a customary covenant (with customary and ​ reasonable carveouts consistent with those contained inthis Agreement) with respect to the ​ protection of confidential or proprietary information; provided, however, notwithstanding ​ the foregoing, in no event shall the Rollover Holders be obligated to enter a non-compete, ​ non-solicitation or other similar restrictive covenant of any kind in connection with such ​ Tag-Along Offer that contains terms that are more restrictive than those set forth in the ​ Restrictive Covenant Agreements. ​ (b) The Tag-Along Seller will use commercially reasonable efforts to ​ obtain the agreement of the prospective transferee(s) to the participation of the Tag-Along ​ Unitholders in any contemplated Tag-Along Offer, and the Tag-Along Seller will not sell ​ any of its Units to the prospective transferee(s) unless (i) the prospective transferee(s) allow ​ the participation of the Tag-Along Unitholders or (ii) the Tag-Along Seller purchases the ​ ​ ​ 77 ​ number of Units from the Tag-Along Unitholders that the Tag-Along Unitholders would ​ have been entitled to sell pursuant to Section 10.4(b)(i) for the amount of consideration per ​ Unit to be paid to the Tag-Along Seller by the prospective transferee(s). ​ (c) Notwithstanding anything to the contrary in any other provision of ​ this Agreement, this Section 10.4 shall not apply to (i) any Transfer of Units held by either ​ Principal Investor to or among its Affiliates (excluding, for the avoidance of doubt, any ​ member of the Company Group), (ii) any Transfer pursuant to Section 10.6 or (iii) any ​ Transfer in connection with a Public Offering. ​ (d) The restrictions contained in this Agreement will continue to be ​ applicable to the Units after any Transfer of such Units to transferee(s) pursuant to this ​ Section 10.4 and, as a condition precedent to any such Transfer, the transferee(s) of such ​ Units must agree in writing, in form and substance reasonably satisfactory to the LLC, to ​ be bound by the provisions of this Agreement. ​ (e) Notwithstanding anything contained in this Section 10.4, there shall ​ be no liability on the part of the Tag-Along Seller to the Tag-Along Unitholders (other than ​ the obligation to return any limited powers-of-attorney (and all copies thereof) together ​ with all certificates (if any) evidencing Units, as the case may be, received by the Tag-​ Along Seller) if the sale of Units pursuant to a Tag-Along Offer under this Section 10.4is ​ not consummated for whatever reason. Whether to effect a sale of Units pursuant to this ​ Section 10.4 by the Tag-Along Seller is in the sole discretion of the Tag-Along Seller. ​ (f) Notwithstanding the requirements of this Section 10.4, the Tag-​ Along Seller may Transfer Units at any time without complying with the requirements of ​ Section 10.4(a) so long as such Transfer is solely for cash and the Tag-Along Seller ​ deposits into escrow with an independent third party at the time of sale that amount of the ​ consideration received in the sale equal to the “Tag-Along Escrow Amount.” The “Tag-​ Along Escrow Amount” shall equal that amount of consideration that all the Tag-Along ​ Unitholders would have been entitled to receive if all such Tag-Along Unitholders had the ​ opportunity to participate in the sale and to sell all of the Units which they would have been ​ entitled to include in the sale, determined as if each such Tag-Along Unitholder (i) ​ delivered a Tag-Along Response Notice to the Tag-Along Seller in the time period set forth ​ in Section 10.4(a) and (ii) proposed to include all of its Units which it would have been ​ entitled to include in the sale. ​ No later than the date of the sale, the Tag-Along Seller shall notify the LLC in ​ writing of the proposed sale. Such notice (the “Tag-Along Escrow Notice”) shall set forth ​ the information required in the Tag-Along Notice, and in addition, such notice shall state ​ the name ofthe escrow agent and the account number of the escrow account. The LLC ​ shall promptly, and in any event within ten days of the date the LLC delivered or caused ​ to be delivered, the Tag-Along Escrow Notice, deliver or cause to be delivered the Tag-​ Along Escrow Notice to each applicable Tag-Along Unitholder. ​ ​ ​ 78 ​ A Tag-Along Unitholder may exercise the tag-along right described in this Section ​ 10.4(f) by delivery to the Tag-Along Seller within 10 days of the date the LLC delivered ​ or caused to be delivered the Tag-Along Escrow Notice, of (i) a written notice specifying ​ the number of Units it proposes and is entitled to sell (which such number shall not exceed ​ such Tag-Along Unitholder’s pro rata share determined as provided in the first paragraph ​ of this Section 10.4(f)), and (ii) the certificates representing such securities, if any, with ​ transfer powers duly endorsed in blank. ​ Promptly after the expiration of the thirtieth (30th) day after the LLC has delivered ​ or caused to be delivered the Tag-Along Escrow Notice, (i) the Tag-Along Seller shall ​ purchase that number of Units as the Tag-Along Seller would have been required to include ​ in the sale had the Tag-Along Seller complied with the provisions of Section 10.4(a), (ii) ​ the LLC shall cause to be released from the escrow to the Tag-Along Unitholders from ​ whom the Tag-Along Seller purchases Units pursuant to clause (i) of this paragraph the ​ applicable amount of consideration due to such Tag-Along Unitholders together with any ​ interest thereon, if any, and (iii) all remaining funds and other consideration held in escrow ​ shall be released to the Tag-Along Seller. ​ (g) The provisions of this Section 10.4 shall terminate upon the ​ consummation of an initialPublic Offering. ​ (h) In the event any Principal Investor sell less than 100% of their LLC ​ Interests in the LLC pursuant to this Section 10.4, joining “pro rata in such sale” (or similar ​ phrases) shall be based on (i) relative Common Units and (ii) after giving effect to any ​ vesting, forfeiture or retention of Value Units in accordance with the provisions of this ​ Agreement as of the date of such sale, the vested Value Units of participating Other ​ Unitholders (with applicable adjustments made for Benchmark Amounts and other ​ appropriate provisions of this Agreement). ​ 10.5. First Negotiation Rights. Subject to Sections 10.2, 10.3 and 10.4 (each of ​ which shall continue to apply to Transfers pursuant to this Section 10.5), prior to an initial ​ Public Offering, a Principal Investor desiring to Transfer any Units (other than to a ​ Permitted Transferee, in connection with an initial Public Offering or in connection with a ​ Tag-Along Sale or a Drag-Along Sale, in each case, pursuant to the terms of this Agreement ​ and the Registration Rights Agreement) (such Principal Investor, the “Transferring ​ Unitholder”) shall give written notice (the “Negotiation Notice”) to the other Principal ​ Investor. The delivery of a Negotiation Notice shall begin a 180-day period during which ​ (i) the Transferring Unitholder shall not conduct negotiations or discussions concerning the ​ contemplated Transfer with any prospective transferees (other than the LLC or the other ​Principal Investor) and (ii) the Transferring Unitholder, the LLC and the other Principal ​ Investor (the “Negotiation Parties”) will negotiate in good faith for the Transfer to one or ​ more of the Negotiation Parties of any or all Units held by the Transferring Unitholder. If ​ by the expiration of such 180-day period no such Transfer to one or more of the Negotiation ​ Parties has been negotiated (unless the Transferring Unitholder has otherwise agreed, at its ​ ​ ​ 79 ​ election, in writing), then during the 180-day period following expiration of such 180-day ​ period, the Transferring Unitholder may Transfer its Units to any third party at any price ​ subject to the terms and conditions of this Agreement (including, for the avoidance of ​ doubt, Sections 10.2, 10.3, 10.4 and 10.6), but without needing to provide any additional ​ Negotiation Notice. ​ 10.6. Drag-Along Rights. ​ (a) In connection with an Approved Sale, the Principal Investors (or if ​ such Approved Sale is approved by one Principal Investor, such Principal Investor) may ​ elect to require all other Unitholders to vote all Units then held by such Unitholders in ​ favor of such Approved Sale and to Transfer all or a portion of such Unitholder’s Units in ​ connection with such Approved Sale. In such case, each Unitholder shall vote for, consent ​ to and raise no objections against such Approved Sale. If the Approved Sale is structured ​ as a (i) merger or consolidation, each Unitholder shall waive any dissenters’ rights, ​ appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale ​ of Units, each Unitholder shall agree to sell all of such Unitholder’s Units or rights to ​ acquire Units on the terms and conditions approved by the Principal Investors (or if such ​ Approved Sale is approved by one Principal Investor, such Principal Investor), subject to ​ this Section 10.6. Each Unitholder shall beobligated to fully participate in an Approved ​ Sale (on a pro rata basis to the extent that not all of the LLC’s Units are being transferred ​ in the Approved Sale), and shall be required to exercise all warrants, rights and options, ​ and convert all convertible securities to the extent required by the Principal Investors (or if ​ such Approved Sale is approved by one Principal Investor, such Principal Investor). ​ (b) In the event of an Approved Sale: ​ (i) each Unitholder shall, within fifteen (15) days following ​ written request from the LLC, deliver to the LLC certificates or other instruments ​ evidencing all Units held by such Unitholder, duly endorsed, together with all other ​ documents required to be executed in connection with such Approved Sale or, if such ​ delivery is not permitted by applicable law, an unconditional agreement to deliver such ​ Units pursuant to this Section 10.6(b) at the closing for such Approved Sale against ​ delivery to such Unitholder of the consideration therefor; ​ (ii) each Unitholder shall receive in exchange for each Unit held ​ by such Unitholder the same portion of the aggregate consideration from such sale or ​ exchange as each other Unitholder receives in respect of each of its Units and, if the ​ consideration from such sale or exchange is in the form of securities, then each Unitholder ​ shall be entitled to receive the same form of securities and the same amount of securities ​ per Unit aseach other Unitholder and if any Unitholders are given an option as to the form ​ and amount of securities to be received, each Unitholder shall be given the same option; ​ ​ ​ 80 ​ (iii) each Unitholder shall be obligated to join on a pro rata basis ​ (but not on a joint and several basis), based on such Unitholder’s share of the aggregate ​ proceeds paid in such Approved Sale, in any escrow, holdback, indemnification or other ​ obligations that the LLC agrees to provide in connection with such Approved Sale (other ​ than any such obligations that relate specifically to a particular Unitholder such as ​ indemnification with respect to representations and warranties given by such Unitholder ​ regarding such Unitholder’s title to and ownership of equity); provided that the ​ indemnification obligation of each Unitholder shall be limited to the amount of the ​ aggregate proceeds received by such Unitholder in the Approved Sale; ​ (iv) each Unitholder shall make representations and warranties ​ as to its title to or ownership of the Units being sold by such Unitholder in the proposed ​ sale and such Unitholder’s authority, power and right to enter into and consummate such ​ transaction without violating its applicable organizational documents or any other ​ agreement or legal requirement and other customary representations and warranties with ​ respect to matters particular to such Unitholder (including as to its due organization and ​ good standing under the laws of its jurisdiction of formation), ​ (v) no Unitholder shall be required to make any other ​ representations andwarranties (other than as described in the foregoing clause (iv)), ​ including representations and warranties concerning any other Unitholder, the LLC, its ​ Subsidiaries or the business of the LLC or its Subsidiaries, ​ (vi) no Unitholder (other than the Management Unitholders) ​ shall be required to execute or enter into a non-compete, non-solicitation or other similar ​ restrictive covenant of any kind in connection with such Transfer other than a customary ​ covenant (with customary and reasonable carveouts consistent with those contained in this ​ Agreement) with respect to the protection of confidential or proprietary information; ​ provided, however, notwithstanding the foregoing, in no event shall the Rollover Holders ​ be obligated to enter a non-compete, non-solicitation or other similar restrictive covenant ​ of any kind in connection with such Transfer that contains terms that are more restrictive ​ than those set forth in the Restrictive Covenant Agreements. ​ (vii) each Unitholder agrees to cooperate and to take all ​ reasonably necessary or desirable actions required by the LLC in connection with the ​ consummation of an Approved Sale, including the execution of the sale agreement, stock ​ (or similar) powers and any other appropriate related document. ​ (c) If the LLC or any Unitholder enters into a negotiation or transaction ​ for which Rule 506 (or any similar rule then in effect) promulgated by theSecurities and ​ Exchange Commission may be available with respect to such negotiation or transaction ​ (including a merger, consolidation or other reorganization), the Unitholders (other than ​ those qualifying as “Accredited Investors”) will, at the request of the LLC, appoint a ​ purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the ​ ​ ​ 81 ​ LLC. If any Unitholder appoint a purchaser representative designated by the LLC, the ​ LLC will pay the fees of such purchaser representative, but if any Unitholder declines to ​ appoint the purchaser representative designated by the LLC, such Unitholder will, if ​ required, appoint another purchaser representative, and such Unitholder will be responsible ​ for the fees of the purchaser representative so appointed. ​ (d) Unitholders who are obligated to participate in the Approved Sale ​ will bear their pro rata share of the costs of any sale pursuant to an Approved Sale to the ​ extent such costs are incurred for the benefit of all Unitholders and are not otherwise paid ​ by the LLC or the acquiring party. For purposes of this Section 10.6(d), costs incurred in ​ exercising reasonable efforts to take all actions in connection with the consummation of an ​ Approved Sale in accordance with Section 10.6(a) shall be deemed to be for the benefit of ​ all Unitholders. For the avoidance of doubt, costs incurred by a Unitholder on such ​ Unitholder’s own behalf will not be considered costs of the transaction. ​ (e) Notwithstanding anything contained in this Section 10.6, there shall ​ be no liability on the part of the LLC, the Board or the Unitholders to any other Unitholder ​ (other than the obligation to return any certificates or other applicable instruments ​ representing such Unitholder’s Units received by the LLC) ifthe transfer of the ​ Unitholder’s Units pursuant to this Section 10.6 is not consummated for whatever reason. ​ Subject to Section 10.6(a), whether to effect a transfer of Units pursuant to this ​ Section 10.6 is in the sole discretion of the Principal Investors. ​ (f) In the event any Principal Investor sell less than 100% of their LLC ​ Interests in the LLC pursuant to this Section 10.6, joining “pro rata in such sale” (or similar ​ phrases) shall be based on (i) relative Common Units and (ii) after giving effect to any ​ vesting, forfeiture or retention of Value Units in accordance with the provisions of this ​ Agreement as of the date of such sale, the vested Value Units of participating Other ​ Unitholders (with applicable adjustments made for Benchmark Amounts and other ​ appropriate provisions of this Agreement). ​ 10.7. Transfer of Consent and Designation Rights. Each Principal Investor ​ may transfer its rights to (i) consent to the actions listed in Section 5.1(b)(iv) and Section ​ 6.11 and (ii) designate Managers under Section 5.2 to a Transferee pursuant to a Transfer ​ in accordance with this Article X only if (x) such Transferee is a Permitted Transferee or ​ (y) such Transfer is occurring on or after the third (3rd) anniversary of the Effective Date ​ and such Transferee is reasonably acceptable to the other Principal Investor and agrees to ​ the terms of this Agreement; provided, that (1) with respect to the rights to consent to the ​ actions listed in Section 5.1(b)(iv)(A) – (D) (and clauses (T) and (U) to the extent ​ applicable), such rights shall transfer only if the Principal Investor transfers at least twenty ​ percent (20%) of such Principal Investor’s Closing Equity to the Transferee, (2) with ​ respect to the rights to consent to the actions listed in Section 5.1(b)(iv) (E) – (S) (and ​ clauses (T) and (U) to the extent applicable), such rights shall transfer only if the Principal ​ Investor transfers at least fifty percent (50%) of such Principal Investor’s Closing Equity ​ ​ ​ 82 ​ to the Transferee and (3) with respect to the rights to designate Managers under Section ​ 5.2, such rights shall transfer in proportion to the number of Units transferred by the ​ Principal Investor (e.g., if a Principal Investor transfers thirty-three percent (33%) of its ​ Units and immediately prior to such transfer such Principal Investor had the right to appoint ​ three (3) Managers, the right to appoint one (1) Manager would transfer to the Transferee) ​ and only if and to the extent such Transfer would result in the loss of a Board designee ​ pursuant to Section 5.2.(a)(viii); provided, that in no circumstance shall the Transferee and ​ Transferor have the right to designate a greater number of Managers following the transfer ​ than the Transferee had the right to designate immediately prior to such transfer. Any such ​ Transferee shall be subject to the applicable provisions hereof with respect to the loss and ​ transferability of such rights, mutatis mutandis. ​ 10.8. Void Transfers. Any Transfer by any Unitholder of any Units or other ​ interest in the LLC in contravention of this Agreement or which would cause the LLC to ​ not be treated as a partnership for U.S. federal income tax purposes shall be void and ​ ineffectual and shall not bind or be recognized by the LLC or any other party. No purported ​ assignee shall have any right to any profits, losses or distributions of the LLC. ​ 10.9. Legends. In addition to any other legend that maybe required, each ​ certificate, if any, representing Units shall bear a legend in substantially the following form: ​ “THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ​ ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT ​ OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, ​ ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN THE ​ ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT ​ COVERING THE TRANSFER, ASSIGNMENT, PLEDGE OR SALE, OR ​ AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, ​ THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED. THIS ​ SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON ​ TRANSFER AS SET FORTH IN THE SECOND AMENDED AND ​ RESTATED LIMITED LIABILITY COMPANY AGREEMENT, DATED ​ AS OF FEBRUARY 16, 2018, COPIES OF WHICH MAY BE ​ OBTAINED UPON REQUEST FROM THE LLC OR ANY SUCCESSOR ​ THERETO.” ​ ARTICLE XI ​ ​ ADMISSION OF UNITHOLDERS ​ 11.1. Substituted Unitholders. In connection with the Transfer of an LLC ​ Interest of a Unitholder permitted under the terms of this Agreement, the transferee shall ​ become a Substituted Unitholder with respect to the transferred LLC Interest on the ​ effective date of such Transfer, which effective date shall not be earlier than the date of ​ ​ ​ 83 ​ compliance with or waiver of the conditions to such Transfer (unless one of the conditions ​ to such Transfer is that Board or Unitholder consent is required for the admission of such ​ transferee, in which case such consent must first be obtained), including executing a ​ counterpart of, and become a party to, this Agreement in form and substance reasonably ​ acceptable to the Board, whereupon such admission shall be shown on the books and ​ records of the LLC. ​ 11.2. Additional Unitholders. A Person may be admitted to the LLC as an ​ Additional Unitholder only as contemplated under, and in compliance with, the terms of ​ this Agreement, including furnishing to the Board (a) a letter of acceptance, in form ​ satisfactory to the Board, of all the terms and conditions of this Agreement, including the ​ power of attorney granted in Section 15.1, and (b) such other documents or instruments as ​ may be necessary or appropriate to effect such Person’s admission as a Unitholder. Such ​ admission shall become effective on the date on which the Board determines in its sole ​ discretion that such conditions have been satisfied and when any such admission is shown ​ on the books and records of the LLC. Thereafter, an Officer authorized by the Board shall ​ amend Schedule A without the further vote, act or consent of any other Person to reflect ​ such new Person as aUnitholder and shall make available for review a copy of such ​ amended Schedule A to each Unitholder. ​ 11.3. Optionholders. Except as set forth in this Agreement, no Person that holds ​ securities (including options, warrants, or rights) exercisable, exchangeable, or convertible ​ into Units shall have any rights with respect to such Units until such Person is actually ​ issued Units upon such exercise, exchange, or conversion and, if such Person is not then a ​ Unitholder, is admitted as a Unitholder pursuant to Section 11.2. ​ ARTICLE XII ​ ​ WITHDRAWAL AND RESIGNATION OF UNITHOLDERS ​ 12.1. Withdrawal and Resignation of Unitholders. No Unitholder shall have ​ the power or right to withdraw or otherwise resign or be expelled from the LLC prior to ​ the dissolution and winding up of the LLC pursuant to Article XIII, except as otherwise ​ expressly permitted by this Agreement or any of the other agreements contemplated ​ hereby. Notwithstanding that payment on account of a withdrawal may be made after the ​ effective time of such withdrawal, any completely withdrawing Unitholder will not be ​ considered a Unitholder for any purpose after the effective time of such complete ​ withdrawal, and, in the case of a partial withdrawal, such Unitholder’s Capital Account ​ (and corresponding voting and other rights) shall be reduced for all other purposes ​ hereunder upon the effective time ofsuch partial withdrawal. ​ 12.2. Withdrawal of a Unitholder. No Unitholder shall have the power or right ​ to withdraw or otherwise resign from the LLC except (i) as otherwise expressly permitted ​ by this Agreement, or (ii) simultaneous with the Transfer of all of a Unitholder’s Units in ​ ​ ​ 84 ​ a Transfer permitted by this Agreement and, if such Transfer is to a Person that is not a ​ Unitholder, the admission of such Person as a Unitholder pursuant to Section 11.1. ​ ARTICLE XIII ​ ​ DISSOLUTION AND LIQUIDATION ​ 13.1. Dissolution. The LLC shall not be dissolved by the admission of Additional ​ Unitholders or Substituted Unitholders, or by the death, retirement, expulsion, bankruptcy ​ or dissolution of a Unitholder. The LLC shall dissolve, and its affairs shall be wound up ​ upon the first to occur of the following: ​ (a) at any time by decision of each of the Principal Investors; or ​ (b) the entry of a decree of judicial dissolution of the LLC under Section ​ 18-802 of the Delaware Act. ​ Except as otherwise set forth in this Article XIII, the LLC is intended to have ​ perpetual existence. An Event of Withdrawal shall not cause a dissolution of the LLC and ​ the LLC shall continue in existence subject to the terms and conditions of this Agreement. ​ 13.2. Liquidation and Termination. ​ (a) On dissolution of the LLC, the Board shall act as liquidator or may ​ appoint one or more representatives or Unitholders as liquidator. The liquidators shall ​ proceed diligently to wind up the affairs of the LLC, sell all or any portion of the LLC ​ assets for cash or cash equivalents as they deem appropriate, and make final distributions ​ as provided herein and in the Delaware Act. The costs of liquidation shall be borne as an ​ LLCexpense. In connection with any such liquidation or dissolution, before making any ​ distribution to Unitholders under Article IV above, the LLC shall purchase an extended ​ reporting period “tail” insurance policy covering the matters described in Section 7.7 for ​ the six-year period commencing on the date of dissolution or liquidation. Until final ​ distribution, the liquidators shall continue to operate the LLC properties with all of the ​ power and authority of the Board. The liquidators shall pay, satisfy, or discharge from ​ LLC funds all of the debts, liabilities, and obligations of the LLC (including all expenses ​ incurred in liquidation) or otherwise make adequate provision for payment and discharge ​ thereof (including the establishment of a cash fund for contingent liabilities in such amount ​ and for such term as the liquidators may reasonably determine) and shall promptly ​ distribute the remaining assets to the holders of Units in accordance with Section 4.1(a). ​ Any non-cash assets will first be written up or down to their Fair Market Value, thus ​ creating Profit or Loss (if any), which shall be allocated in accordance with Sections 4.2 ​ and 4.3. In making such distributions, the liquidators shall allocate each type of asset (i.e., ​ cash, cash equivalents, securities, etc.) among the Unitholders ratably based upon the ​ aggregate amounts to be distributed with respect to the Units held by each such holder. ​ ​ ​ 85 ​ Any such distributions in kind shall be subject to (x) such conditions relating to the ​ disposition and management of such assets as the liquidators deem reasonable and ​ equitable and (y) the terms and conditions of any agreement governing such assets (or the ​ operation thereof or the holders thereof) at such time. The distribution of cash and/or ​ property to a Unitholder in accordance with the provisions of this Section 13.2 constitutes ​ a complete return to the Unitholder of its Capital Contributions and a complete distribution ​ to the Unitholder of its interest in the LLC and all the LLC’s property and constitutes a ​ compromise to which all Unitholders have consented within the meaning of the Delaware ​ Act. To the extent that a Unitholder returns funds to the LLC, it has no claim against any ​ other Unitholder for those funds. ​ (b) Neither the purchase nor redemption by the LLC of any Units in any ​ manner permitted by the Certificate or any amendment thereof or this Agreement, if any, ​ nor the merger or consolidation of the LLC with or into any other business entity (as ​ defined in the Delaware Act), nor the conversion of the LLC into a corporation under ​ Delaware (or other state) law, nor a sale, exchange, conveyance, transfer or lease of all or ​ substantially all of the LLC’s assets shall be deemed to be a liquidation, dissolution or ​ winding up of the LLC for the purposes of this Section 13.2. ​ 13.3.Cancellation of Certificate. On completion of the distribution of LLC ​ assets as provided herein, the LLC shall be terminated (and the LLC shall not be terminated ​ prior to such time), and the Board (or such other Person or Persons as the Delaware Act ​ may require or permit) shall file a certificate of cancellation with the Secretary of State of ​ Delaware, cancel any other filings made pursuant to this Agreement that are or should be ​ canceled, and take such other actions as may be necessary to terminate the LLC. The LLC ​ shall be deemed to continue in existence for all purposes of this Agreement until it is ​ terminated pursuant to this Section 13.3. ​ 13.4. Reasonable Time for Winding Up. A reasonable time shall be allowed ​ for the orderly winding up of the business and affairs of the LLC and the liquidation of its ​ assets pursuant to Section 13.2 in order to minimize any losses otherwise attendant upon ​ such winding up. ​ 13.5. Return of Capital. The liquidators shall not be personally liable for the ​ return of Capital Contributions or any portion thereof to the Unitholders (it being ​ understood that any such return shall be made solely from LLC assets). ​ 13.6. Reserves Against Distributions. The Board shall have the right to ​ withhold from Distributions payable to the Unitholders under this Agreement (pro rata in ​ accordance with the proportion of such Distributions payable to the Unitholders in ​ accordance withSection 4.1) amounts sufficient to pay and discharge any reasonably ​ anticipated contingent liabilities of the LLC, and any amounts remaining after payment and ​ discharge of any such contingent liabilities of the LLC will be paid to the Unitholders pro ​ rata in accordance with the proportions of such prior withholding. ​ ​ ​ 86 ​ ARTICLE XIV ​ ​ VALUATION ​ 14.1. Determination. Subject to Section 14.2, the Fair Market Value of the assets ​ of the LLC or of a LLC Interest will be determined by the Board (or, if pursuant to Section ​ 13.2, the liquidators) in its good faith judgment in such manner as it deems reasonable and ​ using all factors, information and data deemed to be pertinent (including, if the Board so ​ determines, the recommendation of an independent third-party appraiser engaged by the ​ Board for such purpose), in the case of Sections 3.6.(c) and 13.2(a), with the consent of ​ each Principal Investor. ​ 14.2. Fair Market Value. “Fair Market Value” of (i) a specific LLC asset will ​ mean the amount which the LLC would receive in an all-cash sale of such asset (free and ​ clear of all Liens and after payment of all liabilities secured only by such asset) in an arms-​ length transaction with an unaffiliated third party consummated on the day immediately ​ preceding the date on which the event occurred which necessitated the determination of the ​ Fair Market Value (and after giving effect to any transfer taxes payable in connection with ​ such sale); and (ii) the LLC will mean the amount which the LLC would receive in an all-​ cash sale of all of its assets and businesses as a going concern (free and clear of all Liens ​ and after payment of indebtedness for borrowed money) in an arms-length transaction with ​ an unaffiliated thirdparty consummated on the day immediately preceding the date on ​ which the event occurred which necessitated the determination of the Fair Market Value ​ (assuming that all of the proceeds from such sale were paid directly to the LLC other than ​ an amount of such proceeds necessary to pay transfer taxes payable in connection with ​ such sale, which amount will not be received or deemed received by the LLC). After a ​ determination of the Fair Market Value of the LLC is made as provided above, the Fair ​ Market Value of a Unit will be determined by making a calculation reflecting the cash ​ distributions which would be made to the Unitholders in accordance with this Agreement ​ in respect of such Unit if the LLC were deemed to have received such Fair Market Value ​ in cash and then distributed the same to the Unitholders in accordance with the terms of ​ this Agreement incident to the liquidation of the LLC after payment to all of the LLC’s ​ creditors from such cash receipts other than payments to creditors who hold evidence of ​ indebtedness for borrowed money, the payment of which is already reflected in the ​ calculation of the Fair Market Value of the LLC and assuming that all of the convertible ​ debt and other convertible securities were repaid or converted (whichever yields more cash ​ to the holders of such convertible securities) and all options to acquire Units(whether or ​ not currently exercisable) that have an exercise price below the Fair Market Value of such ​ Units were exercised and the exercise price therefor paid. Except as otherwise provided ​ herein or in any agreement, document or instrument contemplated hereby, any amount to ​ be paid under this Agreement by reference to the Fair Market Value shall be paid in full in ​ cash, and any Unit being transferred in exchange therefor will be transferred free and clear ​ of all Liens. ​ ​ ​ 87 ​ 14.3. Dispute Resolution. Notwithstanding anything in this Article XIV to the ​ contrary, in the event that either (i) the Ekbatani Holder solely with respect to Section ​ 3.11, or (ii) the Rollover Holders solely with respect to Section 3.12 (each Unitholder ​ described in clauses (i) and (ii), as applicable, the “Relevant Holder”) disputes the Board’s ​ determination of Fair Market Value in connection with the LLC’s exercise of the Ekbatani ​ Repurchase Option or the Rollover Call Option (as applicable, a “Dispute”), which Dispute ​ the Relevant Holder shall have no less than fourteen (14) days to notify the LLC of ​ following the Relevant Holder’s receipt of a repurchase notice pursuant to Section 3.11 or ​ Section 3.12, as applicable, then the applicable Relevant Holder and the Board will ​ negotiate in good faith to resolve any such Dispute, but if they do not reach a final ​ resolution within thirty (30) days after the delivery of a Dispute notice by such Relevant ​ Holder to the LLC, the LLC and such Relevant Holder will retain and submit such Dispute ​ to a regionally-recognized independent accounting firm as mutually agreed upon by such ​ Relevant Holder and the LLC (the “Independent Auditor”) to resolve such Dispute. The ​ Independent Auditor will be instructed to set forth a procedure to provide for prompt ​ resolution of any such Dispute and, in any event, to make its determination in respect of ​ such Disputewithin thirty (30) days following its retention. The applicable Relevant ​ Holder and the LLC, and their respective representatives, will cooperate fully with the ​ Independent Auditor during its engagement and respond on a timely basis to all requests ​ for information or access to documents or personnel made by the Independent Auditor, all ​ with the intent to fairly and in good faith resolve the Dispute as promptly as reasonably ​ practicable. In resolving the Dispute, the Independent Auditor (i) may not assign a value ​ to any particular item greater than the greatest value for such item claimed by the applicable ​ Relevant Holder or the LLC, or less than the lowest value for such item claimed by the ​ applicable Relevant Holder or the LLC, in each case, as presented to the Independent ​ Auditor, (ii) will be bound by the principles set forth in this Agreement (including this ​ Article XIV) and the DPN Purchase Agreement (with respect to Section 3.12), and (iii) ​ will act as an expert and not as an arbitrator. The Independent Auditor’s determination of ​ such Dispute will be final and binding upon the applicable Relevant Holder and the LLC. ​ All fees and expenses of the Independent Auditor shall be borne pro rata as between the ​ applicable Relevant Holder, on the one hand, and the LLC, on the other hand, in proportion ​ to the allocation of the dollar value of the amounts in dispute as between the applicable ​Relevant Holder and the LLC (set forth in the initial written submissions to the Independent ​ Auditor) made by the Independent Auditor such that the party prevailing on the greater ​ dollar value of such disputes pays the lesser proportion of the fees and expenses. ​ ​ ​ 88 ​ ARTICLE XV ​ ​ GENERAL PROVISIONS ​ 15.1. Power of Attorney. ​ (a) Each Unitholder, other than the Principal Investors, hereby ​ constitutes and appoints each member of the Board and the liquidators, with full power of ​ substitution, as his, her or its true and lawful agent and attorney-in-fact, with full power ​ and authority in his, her or its name, place and stead, to execute, swear to, acknowledge, ​ deliver, file, and record in the appropriate public offices (i) this Agreement, all certificates, ​ and other instruments and all amendments (in the manner set forth herein) thereof in ​ accordance with the terms hereof which the Board deems appropriate or necessary to form, ​ qualify, or continue the qualification of, the LLC as a limited liability company in the State ​ of Delaware and in all other jurisdictions in which the LLC may conduct business or own ​ property; (ii) all documents or instruments which the Board deems appropriate or necessary ​ to reflect any amendment, change, modification, or restatement of this Agreement made ​ pursuant to the terms of this Agreement (including any required approval by Unitholders ​ pursuant to Section 15.3 hereof); (iii) all conveyances and other instruments or documents ​ which the Board deems appropriate or necessary to reflect the dissolution and liquidation ​ of the LLC pursuant to the terms of this Agreement, including a certificate of cancellation; ​ and (iv) all instruments relating to theadmission, withdrawal, or substitution of any ​ Unitholder pursuant to Articles XI and XII. ​ (b) The foregoing power of attorney is irrevocable and coupled with an ​ interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, ​ insolvency, or termination of any Unitholder and the Transfer of all or any portion of his, ​ her or its LLC Interest and shall extend to such Unitholder’s heirs, successors, assigns, and ​ personal representatives. ​ 15.2. Confidentiality. Except as otherwise provided in this Section 15.2, no ​ Unitholder shall, in any manner, either directly or indirectly, divulge, disclose, or ​ communicate to any Person any non-public information, data, observations or materials ​ relating to the LLC or any of its Subsidiaries or their respective assets, liabilities, ​ operations, businesses, affairs and activities (including any notes, summaries, evaluations, ​ analyses and other material derived from any such information, data, observations or ​ materials) (collectively, “Confidential Information”); provided, however, that the ​ foregoing confidentiality obligation shall not apply to any Confidential Information that ​ (a) has previously become available to the general public for a period of at least two (2) ​ Business Days (other than as a result of wrongful disclosure by the Unitholder) or (b) ​ becomes available to the Unitholder on a non-confidential basis from a source other than ​ the LLC or any of its Subsidiaries,so long as such source is not known by the Unitholder ​ (after reasonable inquiry) to be subject to another confidentiality agreement. Until the ​ termination of this Agreement, no Unitholder shall make any use of any Confidential ​ ​ ​ 89 ​ Information other than to further the operations, businesses, affairs and activities of the ​ LLC and its Subsidiaries or to evaluate or monitor (in its capacity as a Unitholder) its ​ investment in the LLC. The foregoing provisions of this Section 15.2 shall not prohibit the ​ disclosure of Confidential Information by (i) any Unitholder to the extent required by ​ applicable law, rule, regulation, governmental body or stock exchange (including ​ regulatory and self-regulatory bodies), court order or other governmental decree, (ii) any ​ current or former Principal Investor to the extent required or appropriate in connection with ​ federal securities laws, stock exchange requirements or other public company reporting or ​ disclosure obligations, in which case the current or former Principal Investor intending to ​ make the release or disclosure of such Confidential Information shall use commercially ​ reasonable efforts to consult with the other Principal Investor (if any) to the extent ​ practicable about, and allow the other party reasonable time (taking into account the ​ circumstances, including exigent circumstances) to comment on, such release or disclosure ​ in advance of such issuance, and the current or former Principal Investor intending to make ​ the release or disclosure will consider such comments in good faith, (iii) any Unitholder ​ with the written consent of the Principal Investors, which consent may be withheld by the ​Principal Investors in their sole discretion, (iv) any Unitholder to any officer, director, ​ manager, employee or other representative (“Representatives”), Affiliate or ​ Representatives of an Affiliate of such Unitholder if such Person has a need to know such ​ information and has agreed or is otherwise obligated not to communicate such information ​ to any other Person or use the Confidential Information for his, her or its own benefit, for ​ any purpose other than to monitor the recipient’s indirect interest in the LLC or in a manner ​ adverse to the interests of the LLC or (v) any current or former Principal Investor to any ​ limited partner of such current or former Principal Investor, but only to the extent such ​ Confidential Information being disclosed does not contain material, non-public ​ information and is of a nature customarily disclosed by private investment funds to their ​ limited partners in the ordinary course of business consistent with past practice and the ​ recipient of such Confidential Information has been advised and directed not to ​ communicate such information to any other Person or use the Confidential Information for ​ his, her or its own benefit, for any purpose other than to monitor the recipient’s indirect ​ interest in the LLC or in a manner adverse to the interests of the LLC. Each Unitholder ​ shall take reasonable steps to inform its Representatives, Affiliates and limited partners ​ who receive access by such Unitholder to anyConfidential Information of the provisions ​ of this Section 15.2, and any other Person who receives access to any Confidential ​ Information from such Unitholder pursuant to clauses (iv) or (v) of the foregoing sentence, ​ and such Unitholder shall be responsible for any violation of this Section 15.2 by such ​ Persons as if such Persons been bound hereunder. Except for any disclosure made pursuant ​ to Section 15.2(ii), if any Unitholder is required by applicable law, rule, regulation, ​ governmental body or stock exchange (including regulatory and self-regulatory bodies), ​ court order or other governmental decree to disclose Confidential Information, such ​ Unitholder shall give prompt written notice of such fact to the LLC so that the LLC may ​ seek a protective order or other governmental or judicial relief to prevent disclosure of such ​ information. Notwithstanding the foregoing, the LLC and each Unitholder acknowledges ​ ​ ​ 90 ​ that, in the ordinary course of business of each member of the Investor Group, the members ​ of the Investor Group evaluate, pursue, acquire, sell, manage, advise and serve on the ​ boards of other Persons. The LLC and each Unitholder acknowledges that (x) the review ​ of the Confidential Information by each of Frazier, Providence and the members of the ​ Investor Group may inevitably enhance such Persons’ or their respective Affiliates’ general ​ industry knowledge and understanding of the industries in which the Company Group ​ operates in a way that cannot be separated from such Persons’ or their respective Affiliates’ ​ other knowledge, and the LLC and each Unitholder agrees that this Section 15.2 shall not ​ restrict such Persons’ or their respective Affiliates’ use of such general industry knowledge ​ and understanding, including in connection with investments in other companies (including ​ in the same or similar industries) and (y) none of Frazier or Providence or any member of ​ the Investor Group shall be deemed to have used any Confidential Information in ​ contravention of this Section 15.2 solely because of the fact of its evaluation, pursuit, ​ acquisition, sale or management of, provision of advice to, or service on the board of any ​ such other investment. In no event shall the restrictions set forth in this Section restrict a ​ Unitholder from enforcing its rightsunder this Agreement. ​ 15.3. Amendments. ​ (a) This Agreement may be amended from time to time by the Board to ​ reflect the Transfer of Units or other interests in the LLC effectuated pursuant to the terms ​ of Article X or to reflect the admission of Unitholders effectuated pursuant to the terms of ​ Article XI. Any provisions of this Agreement may be amended, modified, supplemented ​ or waived with the written approval of the LLC and the Principal Investors; provided, that ​ no amendment or modification pursuant to this Section 15.3 that would by its terms ​ adversely affect any holders of Units in a manner materially disproportionate to the other ​ holders of Units, in their capacities as such, shall be effective against such holders without ​ the written consent of holders of at least a majority in interest (with respect to the applicable ​ Units) of such disproportionately materially adversely affected holders. ​ (b) Notwithstanding anything to the contrary in Section 15.3(a) above, ​ for so long as the Ekbatani Holder owns three percent (3%) or more of the LLC’s ​ outstanding Common Units, the following may not be amended in a manner adverse to ​ Ekbatani or the Ebkatani Holder without the consent of Ekbatani: (i) Section 3.5 ​ (Preemptive Rights), Section 6.12 (Initial Public Offering) (and the Exhibit A referenced ​ therein), Section 10.4 (Participation Rights), Section 10.6 (Drag-Along Rights) and this ​ Section 15.3(b) (and any of the definedterms used in any such Sections) and (ii) any rights ​ given to Ekbatani or the Ekbatani Holder herein by name in this Agreement. For the ​ avoidance of doubt, the LLC may, subject to Section 3.5, freely authorize and issue LLC ​ Interests at any time, including LLC Interests which have preferred rights of any type or ​ nature as compared to the rights of any existing Unitholders, and the LLC may make any ​ such amendments, modifications or supplements to this Agreement as necessary to give ​ effect to any such authorization and/or issuance of LLC Interests (including amending this ​ ​ ​ 91 ​ Agreement to incorporate the rights, preferences or privileges in respect of such equity ​ interests) without obtaining the consent of Ekbatani. ​ 15.4. Title to LLC Assets. LLC assets shall be deemed to be owned by the LLC ​ as an entity, and no Unitholder, individually or collectively, shall have any ownership ​ interest in such LLC assets or any portion thereof. Legal title to any or all LLC assets may ​ be held in the name of the LLC or one or more nominees, as the Board may determine. ​ The Board hereby declares and warrants that any LLC assets for which legal title is held in ​ its name or the name of any nominee shall be held in trust by the Board or such nominee ​ for the use and benefit of the LLC in accordance with the provisions of this Agreement. ​ All LLC assets shall be recorded as the property of the LLC on its books and records, ​ irrespective of the name in which legal title to such LLC assets is held. ​ 15.5. Remedies. Each Unitholder and the LLC shall have all rights and remedies ​ set forth in this Agreement and all rights and remedies which such Person has been granted ​ at any time under any other agreement or contract and all of the rights which such Person ​ has under any law. Each party hereto acknowledges that the remedies at law of the other ​ parties for a breach or threatened breach of this Agreement would be inadequate and, in ​ recognition of this fact,any party to this Agreement, without posting any bond, and in ​ addition to all other remedies that may be available, shall be entitled to obtain equitable ​ relief in the form of specific performance, a temporary restraining order, a temporary or ​ permanent injunction or any other equitable remedy that may then be available (including, ​ without limitation, with respect to the enforcement of Section 3.11 and Section 3.12). ​ 15.6. Successors and Assigns. All covenants and agreements contained in this ​ Agreement shall bind and inure to the benefit of the parties hereto and their respective ​ heirs, executors, administrators, successors, legal representatives, and permitted assigns, ​ whether so expressed or not. ​ 15.7. Severability. Whenever possible, each provision of this Agreement will be ​ interpreted in such manner as to be effective and valid under applicable law, but if any ​ provision of this Agreement is held to be invalid, illegal, or unenforceable in any respect ​ under any applicable law or rule in any jurisdiction, such invalidity, illegality, or ​ unenforceability will not affect any other provision or the effectiveness or validity of any ​ provision in any other jurisdiction, and this Agreement will be reformed, construed, and ​ enforced in such jurisdiction as if such invalid, illegal, or unenforceable provision had ​ never been contained herein. ​ 15.8. Regulatory Matters. The LLC shall and shall cause itsSubsidiaries to ​ keep the Unitholders informed, on a current basis, of any events, discussions, notices or ​ changes with respect to any criminal or regulatory investigation or action involving the ​ LLC or any of its Subsidiaries, so that the Unitholders will have the opportunity to take ​ appropriate steps to avoid or mitigate any regulatory consequences to them that might arise ​ from such investigation or action. Additionally, upon and to the extent of a prior written ​ ​ ​ 92 ​ request therefor, the LLC shall provide to the Unitholders reasonable access during normal ​ business hours to personnel, books and records and such other information as any ​ Unitholder may reasonably require for tax or regulatory purposes that are customary for ​ investments of this type, including all rights necessary to satisfy venture capital operating ​ company rules. ​ 15.9. Notice to Unitholder of Provisions. By executing this Agreement, each ​ Unitholder acknowledges that he, she or it has actual notice of (a) all of the provisions ​ hereof (including the restrictions on the transfer set forth herein), and (b) all of the ​ provisions of the Certificate. ​ 15.10. Counterparts. This Agreement may be executed in multiple counterparts ​ with the same effect as if all signing parties had signed the same document. All ​ counterparts shall be construed together and constitute the same instrument. ​ 15.11. Consent to Jurisdiction. Each Unitholder irrevocably submits to the ​ exclusive jurisdiction of the United States District Court for the State of Delaware and the ​ state courts of the State of Delaware for the purposes of any suit, action or other proceeding ​ arising out of this Agreement or any transaction contemplated hereby. Each Unitholder ​ further agrees that service of any process, summons, notice or document by United States ​ certified or registered mail to such Unitholder’s respective address set forthin the LLC’s ​ books and records or such other address or to the attention of such other person as the ​ recipient party has specified by prior written notice to the sending party shall be effective ​ service of process in any action, suit or proceeding in Delaware with respect to any matters ​ to which it has submitted to jurisdiction as set forth above in the immediately preceding ​ sentence. Each Unitholder irrevocably and unconditionally waives any objection to the ​ laying of venue of any action, suit or proceeding arising out of this Agreement or the ​ transactions contemplated hereby in the United States District Court for the State of ​ Delaware or the state courts of the State of Delaware and hereby irrevocably and ​ unconditionally waives and agrees not to plead or claim in any such court that any such ​ action, suit or proceeding brought in such court has been brought in an inconvenient forum. ​ 15.12. Descriptive Headings; Interpretation. The descriptive headings of this ​ Agreement are inserted for convenience only and do not constitute a substantive part of ​ this Agreement. Whenever required by the context, any pronoun used in this Agreement ​ shall include the corresponding masculine, feminine, or neuter forms, and the singular form ​ of nouns, pronouns, and verbs shall include the plural and vice versa. The use of the word ​ “including” in this Agreement shall be byway of example rather than by limitation. Except ​ as otherwise indicated herein, the terms “herein”, “hereof”, “hereto”, “hereunder” and ​ similar terms refer to this Agreement generally rather than to the particular provision in ​ which such term is used. Reference to any agreement, document, or instrument means ​ such agreement, document, or instrument as amended or otherwise modified from time to ​ time in accordance with the terms thereof, and, if applicable, hereof (including as relates ​ to the Advisory Agreement). Without limiting the generality of the immediately preceding ​ ​ ​ 93 ​ sentence, no amendment or other modification to any agreement, document, or instrument ​ that requires the consent of any Person pursuant to the terms of this Agreement or any other ​ agreement will be given effect hereunder unless such Person has consented in writing to ​ such amendment or modification. Unless the context otherwise requires, any reference ​ herein to any Person shall be construed to include such Person’s successors and assigns. ​ Wherever required by the context, references to a Fiscal Year shall refer to a portion ​ thereof. The use of the words “or,” “either,” and “any” shall not be exclusive. It is the ​ intention of the parties that every covenant, term, and provision of this Agreement shall be ​ construed simply according to its fair meaning and not strictly for or against any party ​ (notwithstanding any rule of law requiring an Agreement to be strictly construed against ​ the drafting party), it being understood that the parties to this agreement are sophisticated ​ and have had adequate opportunity and means to retain counsel to represent their interests ​ and to otherwise negotiate the provisions of this Agreement. The parties hereto have ​ participated jointly in the negotiation and drafting of this Agreement. In the event an ​ ambiguity or question of intent or interpretation arises, this Agreement shall be construed ​ as if drafted jointly by the parties hereto, and no presumptionor burden of proof shall arise ​ favoring or disfavoring any party by virtue of the authorship of any of the provisions of ​ this Agreement. Wherever a conflict exists between this Agreement and any other ​ agreement, this Agreement shall control but solely to the extent of such conflict. ​ 15.13. Applicable Law. This Agreement shall be governed by, and construed in ​ accordance with, the laws of the State of Delaware, without giving effect to any choice of ​ law or conflict of law rules or provisions (whether of the State of Delaware or any other ​ jurisdiction) that would cause the application of the laws of any jurisdiction other than the ​ State of Delaware. ​ 15.14. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ​ ARISING IN CONNECTION WITH COMPLEX TRANSACTIONS ARE MOST ​ QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND ​ EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL ​ LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES ​ DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH ​ APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF ​ THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH ​ PARTY TO THIS AGREEMENT (INCLUDING THE LLC) HEREBY WAIVES ALL ​ RIGHTS TO TRIAL BY JURY IN ANY ACTION,SUIT, OR PROCEEDING ​ BROUGHT TO RESOLVE ANY DISPUTE BETWEEN OR AMONG ANY OF THE ​ PARTIES HERETO, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE, ​ ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THIS ​ AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE ​ RELATIONSHIPS ESTABLISHED AMONG THE PARTIES HEREUNDER. ​ ​ ​ 94 ​ 15.15. Addresses and Notices. All notices, demands, or other communications to ​ be given or delivered under or by reason of the provisions of this Agreement shall be in ​ writing and shall be deemed to have been given or made when (a) delivered personally to ​ the recipient, (b) telecopied to the recipient (with hard copy sent to the recipient by ​ reputable overnight courier service (charges prepaid) that same day) if telecopied before ​ 5:00 p.m. New York, New York time on a Business Day, and otherwise on the next ​ Business Day, or (c) one Business Day after being sent to the recipient by reputable ​ overnight courier service (charges prepaid). Such notices, demands, and other ​ communications shall be sent to the address for such recipient set forth in the LLC’s books ​ and records, or to such other address or to the attention of such other person as the recipient ​ party has specified by prior written notice to the sending party. Any notice to the Board or ​ the LLC shall be deemed given if received by the Board at the principal office of the LLC ​ designated pursuant to Section 2.7, and any such notice shall also be delivered to each of ​ the Principal Investors. ​ 15.16. Creditors. None of the provisions of this Agreement shall be for the benefit ​ of or enforceable by any creditors of the LLC or any of their Affiliates (other than any ​ Affiliate in its capacity as a Unitholder and party hereto),and no creditor who makes a loan ​ to the LLC or any of its Affiliates may have or acquire (except pursuant to the terms of a ​ separate agreement executed by the LLC in favor of such creditor) at any time as a result ​ of making the loan any direct or indirect interest in LLC Profits, Losses, Distributions, ​ capital, or property other than as a secured creditor. ​ 15.17. Waiver. No failure by any party to insist upon the strict performance of ​ any covenant, duty, agreement, or condition of this Agreement or to exercise any right or ​ remedy consequent upon a breach thereof shall constitute a waiver of any such breach or ​ any other covenant, duty, agreement, or condition. Notwithstanding the other provisions ​ of this Agreement, Section 18-305(a) of the Delaware Act shall not apply to the LLC and ​ no Unitholder shall have any rights thereunder. ​ 15.18. Further Action. The parties shall execute and deliver all documents, ​ provide all information, and take or refrain from taking such actions as may be reasonably ​ necessary or appropriate to achieve the purposes of this Agreement. ​ 15.19. Offset. Whenever the LLC is to pay any sum to any Unitholder or any ​ Affiliate or related person thereof, any amounts that such Unitholder or such Affiliate or ​ related person owes to the LLC may be deducted from that sum before payment; provided, ​ that (other than with respect to Section 4.6(g), which shall not be subject tothis proviso) ​ with respect to the Rollover Holders, the LLC shall be permitted to offset such amounts ​ pursuant to this Section 15.19 if and to the extent that a court of competent jurisdiction has ​ issued a final, non-appealable ruling validating that such amounts are due and owing to the ​ LLC or to the extent that the Rollover Holders otherwise agree in writing. ​ ​ ​ 95 ​ 15.20. Entire Agreement. This Agreement, those documents expressly referred ​ to herein (including the Subscription Agreement and the Advisory Agreement) and the ​ other documents of even date herewith, embody the complete agreement and understanding ​ among the parties and supersede and preempt any prior understandings, agreements, or ​ representations by or among the parties, written or oral, which may have related to the ​ subject matter hereof in any way. ​ 15.21. Delivery by Facsimile. This Agreement, the agreements referred to herein, ​ and each other agreement or instrument entered into in connection herewith or therewith ​ or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent ​ signed and delivered by means of a facsimile machine or in “portable document format”, ​ shall be treated in all manner and respects as an original agreement or instrument and shall ​ be considered to have the same binding legal effect as if it were the original signed version ​ thereof delivered in person. At the request of any party hereto or to any such agreement or ​ instrument, each other party hereto or thereto shall re-execute original forms thereof and ​ deliver them to all other parties. No party hereto or to any such agreement or instrument ​ shall raise the use of a facsimile machine or “portable document format” to deliver a ​ signature or the fact that anysignature or agreement or instrument was transmitted or ​ communicated through the use of a facsimile machine or electronic mail as a defense to the ​ formation or enforceability of a contract and each such party forever waives any such ​ defense. ​ 15.22. Survival. Articles I and VII, and Sections 4.3, 6.1, 6.6, 6.7 6.8, 6.9, 6.11, ​ 13.2, 15.2, 15.5, 15.6, 15.9, 15.10, 15.11, 15.12, 15.13, 15.14, 15.15, 15.16, 15.17, 15.20, ​ 15.21 and this 15.22 shall survive and continue in full force in accordance with their terms ​ notwithstanding any termination of this Agreement or the dissolution of the LLC. ​ 15.23. Deemed Transfer of Units. If the LLC or any other Person acquiring Units ​ of a Unitholder in accordance with the terms herein shall make available, at the time and ​ place and in the amount and form provided in such unit transfer or similar agreement (“Unit ​ Transfer Agreement”), the consideration for the Units to be repurchased in accordance with ​ the provisions of such Unit Transfer Agreement, then from and after such time, the Person ​ from whom such Units are to be repurchased shall no longer have any rights (including ​ rights to Distributions hereunder) as a holder of such Units (other than the right to receive ​ payment of such consideration in accordance with such Unit Transfer Agreement), and ​ such Units shall be deemed purchased in accordance with the applicable provisions hereof ​ and theLLC or any other Person acquiring such Units shall be deemed the owner and ​ holder of such Units, whether or not the certificates therefor have been delivered as ​ required by such Unit Transfer Agreement. ​ 15.24. Recapitalization. If any securities are issued in respect of, in exchange for, ​ or in substitution of, any Units by reason of any reorganization, recapitalization, ​ reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock ​ dividend, split-up, sale of assets, distribution to stockholders or combination of the Units ​ ​ ​ 96 ​ or any other change in capital structure of the LLC, in each case in accordance with the ​ terms herein, appropriate adjustments shall be made with respect to the relevant provisions ​ of this Agreement so as fairly and equitably to preserve, as far as practicable, the original ​ rights and obligations of the parties hereto under this Agreement. ​ 15.25. Acknowledgement. ​ (a) Ray Ekbatani, the LLC and each of the Unitholders hereby agree ​ and acknowledge that for all purposes of this Agreement that (i) Ray Ekbatani and the Ray ​ Ekbatani Trust are to be deemed the same Person for all purposes under this Agreement, ​ (ii) any and all actions or omissions taken by Ray Ekbatani (including any actions or ​ omissions in connection with Ray Ekbatani’s employment with, or service to, the LLC or ​ any Subsidiary) shall be deemed actions or omissions taken by the Ray Ekbatani Trust ​ hereunder, (iii) any and all actions or omissions taken by the Ray Ekbatani Trust shall be ​ deemed actions or omissions taken by Ray Ekbatani hereunder, and (iv) any and all rights ​ and obligations of the Ray Ekbatani Trust are intended to, and shall, apply to and bind Ray ​ Ekbatani as if Ray Ekbatani owned directly the LLC Interests held by the Ray Ekbatani ​ Trust hereunder. ​ ​ (b) Shawn Ekbatani, the LLC and each of the Unitholders hereby agree ​ and acknowledge that for allpurposes of this Agreement that (i) Shawn Ekbatani and the ​ Shawn Ekbatani Trust are to be deemed the same Person for all purposes under this ​ Agreement, (ii) any and all actions or omissions taken by Shawn Ekbatani (including any ​ actions or omissions in connection with Shawn Ekbatani’s employment with, or service to, ​ the LLC or any Subsidiary) shall be deemed actions or omissions taken by the Shawn ​ Ekbatani Trust hereunder, (iii) any and all actions or omissions taken by the Shawn ​ Ekbatani Trust shall be deemed actions or omissions taken by Shawn Ekbatani hereunder, ​ and (iv) any and all rights and obligations of the Shawn Ekbatani Trust are intended to, and ​ shall, apply to and bind Shawn Ekbatani as if Shawn Ekbatani owned directly the LLC ​ Interests held by the Shawn Ekbatani Trust hereunder. ​ ​ * * * * * ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ IN WITNESS WHEREOF, the undersigned have executed or caused to be executed ​ on their behalf this Amended and Restated Limited Liability Company Agreement as of ​ the date first written above. ​ ​ PROMETHEUS HOLDCO, LLC ​ ​ By: The Providence Service Corporation, ​ Its sole and managing member ​ By: /s/ David Shackelton ​ Name: David Shackelton ​ Title: Chief Financial Officer ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ MERCURY FORTUNA BUYER, LLC ​ By: /s/ Ben J. Magnano ​ Name: Ben J. Magnano ​ Title: President, Treasurer ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ MERCURY Parent, LLC ​ By: /s/ John J. Hopkins ​ Name: John J. Hopkins ​ Title: General Counsel & Secretary ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ JAMES EKBATANI ​ By: /s/ J. Ekbatani ​ ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ THE DIGNITY TRUST ​ By: /s/ Shahrzad Ekbatani, Trustee ​ Name: Shahrzad Ekbatani ​ Title: Trustee ​ ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ THE NOBILITY TRUST ​ By: /s/ Shahrzad Ekbatani, Trustee ​ Name: Shahrzad Ekbatani ​ Title: Trustee ​ ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ TERENCE DIAZ ​ By: /s/ Terry Diaz ​ ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ SHAWN EKBATANI ​ By: /s/ Shawn Ekbatani ​ ​ ​ ​ ​ [SIGNATURE PAGE TO LLC AGREEMENT] ​ ​ RAMIN EKBATANI ​ By: /s/ Ramin Ekbatani ​ ​ ​ ​ ​ ​ ​ ​ Exhibit 10.27THE PROVIDENCE SERVICE CORPORATIONNON-QUALIFIED STOCK OPTIONTo:Date of Grant:You are hereby granted an option, effective as of the date hereof, to purchase up to [ ] shares of common stock, $.001 (“Common Stock”), of TheProvidence Service Corporation, a Delaware corporation (the “Company”), at the price of $[ ] per share, the closing price of the Common Stock on the NasdaqGlobal Select Market on the Date of Grant, pursuant to the terms and conditions set forth below, and pursuant to the Company’s 2006 Long-Term IncentivePlan, as amended (the “Plan”), which shall control in the event of any inconsistency or conflict with the terms of this grant.This option shall terminate and is not exercisable after 11:59 p.m. eastern time on [ ] (the “Scheduled Termination Date”), except if terminated earlieras hereafter provided.Your option granted hereunder shall be fully vested and may be exercised on and after [ ], and prior to the Scheduled Termination Date; providedthat this option shall become fully vested upon a “Change in Control” (as defined in the Plan), termination of your employment by the Company without“Cause” (as defined in the 2015 Holding Company LTI Program, a sub-plan to the Plan), or termination of your employment by you for “Good Reason” (asdefined below) occurring prior to [ ].As used herein, “Good Reason” shall have the meaning ascribed to it in an employment agreement in effect between you and the Company or, in theabsence of an employment agreement, shall mean the occurrence of any of the following, without your consent, that is not cured by the Company withinthirty (30) days of the Company’s receipt of your written notice that the occurrence constitutes Good Reason: (i) a material reduction of your position, duties,or responsibilities with the Company, (ii) a reduction of your base salary, other than a reduction which is generally applicable to all executives of theCompany, (iii) a material breach by Company of an employment agreement between you and the Company; or (iv) requiring you to move or relocate yourprimary place of employment more than 75 miles from the then current place of employment; provided that (A) any resignation for Good Reason must bemade within sixty (60) days of the occurrence set forth in (i) - (iv) above and (B) any resignation by you while the Company has “Cause” for termination ofyour employment shall be considered to be a resignation without Good Reason; and provided further, that you shall not have the right to terminate youremployment for Good Reason unless you actually terminate employment within ninety (90) days following receipt of, and in accordance with, your writtennotice.You may exercise your option granted hereunder by giving written notice to the Secretary of the Company on forms supplied by the Company at itsthen principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. Thepayment may be in any of the following forms: (a) cash, which may be evidenced by a check and includes cash received from a stock brokerage firm in a so-called “cashless exercise”; (b) (unless prohibited by the Administrator) certificates representing shares of Common Stock of the Company, which will bevalued by the Secretary of the Company at the fair market value per share of the Company’s Common Stock (as determined in accordance with the Plan) onthe date of delivery of such certificates to the Company, accompanied by an assignment of the stock to the Company; or (c) (unless prohibited by theAdministrator) any combination of cash and Common Stock of the Company valued as provided in clause (b). Any transfer of stock in payment of the optionprice for the options granted hereunder shall be in a form and substance satisfactory to the Secretary of the Company, including guarantees of signature(s) andpayment of all transfer taxes if the Secretary deems such guarantees necessary or desirable.Your vested option will, to the extent not previously exercised by you, terminate on [ ], if your Employment (as defined in the Plan) by the Companyor a Company subsidiary corporation is terminated (whether such termination be voluntary or involuntary) other than by reason of Disability (as defined inthe Plan) or death.1If you die while employed by the Company or a Company subsidiary corporation, your executor or administrator, as the case may be, may, at anytime after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a vestedright to purchase and did not purchase during your lifetime. If your Employment with the Company or a Company parent or subsidiary corporation isterminated by reason of your Disability, you or your legal guardian or custodian may at any time within one (1) year after the date of such termination (but inno event later than the Scheduled Termination Date), exercise the option as to any shares which you had a vested right to purchase and did not purchase priorto such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Company prior to beingallowed to exercise this option.After the date your Employment is terminated, as aforesaid, you may exercise this option only for the number of shares then available for purchaseunder this option on the date your Employment terminated. If you are employed by a Company subsidiary corporation, your Employment shall be deemed tohave terminated on the date your employer ceases to be a Company subsidiary corporation, unless you are on that date transferred to the Company or anotherCompany subsidiary corporation. Your Employment shall not be deemed to have terminated if you are transferred from the Company to a Companysubsidiary corporation, or vice versa, or from one Company subsidiary corporation to another Company subsidiary corporation.In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combinationof shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Administrator deems in its sole discretion to besimilar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner tobe determined in the sole discretion of the Administrator, whose decision shall be final, binding and conclusive in the absence of clear and convincingevidence of bad faith.In the event of a liquidation or proposed liquidation of the Company, including (but not limited to) a transfer of assets followed by a liquidation ofthe Company, or in the event of a Change in Control that is anticipated to be effected pursuant to a definitive agreement with a third party for sale of theCompany to the third party, the Administrator shall have the right to require you to exercise this option upon thirty (30) days prior written notice to you. If atthe time such written notice is given this option is not otherwise exercisable, the written notice will set forth your right to exercise this option even though itis not otherwise exercisable conditioned on the Change in Control actually occurring. In the event this option is not exercised by you within the thirty (30)day period set forth in such written notice, this option shall terminate on the last day of such thirty (30) day period, notwithstanding anything to the contrarycontained in this option.This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you,including, for this purpose, your legal guardian or custodian in the event of Disability. Until the option price has been paid in full pursuant to due exercise ofthis option and the purchased shares are delivered to you, you do not have any rights as a shareholder of the Company. The Company reserves the right not todeliver to you the shares purchased by virtue of the exercise of this option during any period of time in which the Company deems, in its sole discretion, thatsuch delivery would violate a federal, state, local or securities exchange rule, regulation or law.Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during thefollowing periods of time:(a)During any period of time in which the Company deems that the exercisability of this option, the offer to sell the shares optionedhereunder, or the sale thereof, may violate a federal, state, local or foreign law, rule or regulation, or any applicable securities exchange orlisting rule or agreement, or may cause the Company to be legally obligated to issue or sell more shares than the Company is legallyentitled to issue or sell;(b)Until you have paid or made suitable arrangements to pay (which may include payment through the surrender of Common Stock, unlessprohibited by the Administrator) (i) all federal, state, local and foreign tax withholding required by the Company in connection with theoption exercise and (ii) the employee’s portion of other federal, state, local and foreign payroll and other taxes due in connection with theoption exercise.Further, nothing herein guarantees you employment for any specified period of time. You recognize that, for instance, you may terminate yourEmployment or the Company or any of its Affiliates may terminate your Employment prior to the date on which your option becomes vested or exercisable.2You understand and agree that the existence of this option will not affect in any way the right or power of the Company or its shareholders to makeor authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its business, or any merger orconsolidation of the Company, or any issuance of bonds, debentures, preferred or other stocks with preference ahead of or convertible into, or otherwiseaffecting the common shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets orbusiness, or any other corporate act or proceeding, whether of a similar character or otherwise.Any notice you give to the Company must be in writing and either hand-delivered or mailed to the office of the General Counsel of the Company. Ifmailed, it should be addressed to the General Counsel of the Company at its then main headquarters. Any notice given to you will be addressed to you atyour address as reflected on the personnel records of the Company. You and the Company may change the address for notice by like notice to the other.Notice will be deemed to have been duly delivered when hand-delivered or, if mailed, on the day such notice is postmarked.Any dispute or disagreement between you and the Company with respect to any portion of this option or its validity, construction, meaning,performance or your rights hereunder shall be settled by arbitration, at a location designated by the Company, in accordance with the Commercial ArbitrationRules of the American Arbitration Association or its successor, as amended from time to time. However, prior to submission to arbitration you will attempt toresolve any disputes or disagreements with the Company over this option amicably and informally, in good faith, for a period not to exceed two weeks.Thereafter, the dispute or disagreement will be submitted to arbitration. At any time prior to a decision from the arbitrator(s) being rendered, you and theCompany may resolve the dispute by settlement. You and the Company shall equally share the costs charged by the American Arbitration Association or itssuccessor, but you and the Company shall otherwise be solely responsible for your own respective counsel fees and expenses. The decision of the arbitrator(s)shall be made in writing, setting forth the award, the reasons for the decision and award and shall be binding and conclusive on you and the Company.Further, neither you nor the Company shall appeal any such award. Judgment of a court of competent jurisdiction may be entered upon the award and may beenforced as such in accordance with the provisions of the award.This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein byreference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, theterms of the Plan shall govern. This option constitutes the entire understanding between the Company and you with respect to the subject matter hereof andno amendment, supplement or waiver of this option, in whole or in part, shall be binding upon the Company unless in writing and signed by an authorizedofficer of the Company (other than you). This option and the performances of the parties hereunder shall be construed in accordance with and governed bythe laws of the State of Delaware.3Please sign the copy of this option and return it to the Company’s Secretary, thereby indicating your understanding of and agreement with itstermination and conditions.THE PROVIDENCE SERVICE CORPORATIONBy: ____________________________________________ Title: ___________________________________________ ACKNOWLEDGMENTI hereby acknowledge receipt of a copy of the Plan. I hereby represent that I have read and understood the terms and conditions of the Plan and ofthis option. I hereby signify my understanding of, and my agreement with, the terms and conditions of the Plan and of this option. I agree to accept asbinding, conclusive, and final all decisions or interpretations of the Administrator concerning any questions arising under the Plan with respect to thisoption. I accept this option in full satisfaction of any previous written or verbal promise made to me by the Company or any of its Affiliates with respect tooption or stock grants.Date ______________________, 20_____ ________________________________________ Signature of Optionee________________________________________ Name of Optionee4Exhibit 10.29[PROVIDENCE SERVICE CORPORATION LETTERHEAD]Date: September 21, 2015Dear Mr. Matt Umscheid,We are pleased to extend an offer of employment to you for the position of Senior Vice President of Strategic Services. The position reports to the ChiefExecutive Officer. As a new employee of Providence Service Corporation you will become an important part of the company dedicated to the delivery ofinnovative an exceptional service to our customers. The following outlines our employment offer to you:Hire Date:November 2, 2015Status:Full-Time, Exempt Bi-Weekly Salary:$13,461.54Short-Term Bonus:You shall be entitled to payment of a Short-Term Bonus in the amount of seventy-five percent (75%) of Base Salary (the “TermBonus”) upon the achievement by Providence of one hundred (100%) of its budgeted EBITDA performance and acceptableperformance by the Employee, in each case as determined by Providence’s Board of Directors (the “Board”) or Providence’sCompensation Committee of the Board, subject to the discretion of the Board or a committee thereof to take into account ordisregard extraordinary events. The Term Bonus shall be payable promptly following the completion and filing of theProvidence’s annual audited financial statements for the calendar year, and Employee’s rights to receive the Term Bonus shall becontingent upon being employed by Providence or any of its affiliates on the date the payment of the Term Bonus is made, exceptas otherwise expressly provided. The 2016 Short-term bonus has not been determined, but your bonus opportunity will beconsistent with Providence’s senior executives.Long-Term Incentive:You will be eligible to participate in our Long-Term Incentive Plan (LTIP) at 10% of the Holdco pool. This plan is offered to selectleaders who have been identified as key to the company’s long-term growth and success.Executive Benefits:You will be entitled to life insurance benefits consistent with our executive team. Plus, our long term disability gap coverage.Bonus:$5,000 to cover transitional employment expenses.Providence provides for a variety of benefits to eligible employees, including: health, dental and vision, life insurance, company-sponsored 401(k) plan, paidvacation and sick time as well as paid holidays. The eligibility for these benefits is outlined in our Employee Handbook. You are required to read thishandbook during your initial orientation period and sign and return the Acknowledgement form.Eligibility for participation in our company’s 401(k) Retirement Plan begins on the first day of the month, after two full months of continuous employmentfor your “hire date.” On the eligibility date, you are automatically enrolled at 3% of your earnings and the company with match your contribution asdescribed in the Employee Handbook. If you do not want to participate in the 401(k) plan, you must elect to not participate in the 401(k) plan by going on-line or calling the toll free number during your first2 months of employment, otherwise you will be automatically enrolled at 3% of your income. You are able to change your contribution percentage orwaive/decline on-line or by telephone. GO to: www.mykplan.com or call 1-888-822-9238.This employment offer is contingent upon satisfactory background, academic and reference checks. The Providence Service Corporation reserves the right torescind this employment offer (or your employment if you are already working here), if the results of any of these checks are not satisfactory.Your signature below will indicate your acceptance of the position offered. We look forward to your contributions in delivering innovative human services.Please return a signed copy of this employment offer letter. Welcome aboard!Sincerely,/s/ James Lindstrom James LindstromPresident and CEO1I accept this employment offer with the terms stated above. I understand I am employed at will by Providence Service Corporation. I may resign at any time,for any reason; and may be separated from my employment by Providence Service Corporation at any time, for any reason, except those prohibited by law,with or without notice. Any modification or alteration of the at will term of your employment can only be made in writing and signed by you and the currentCEO of Providence Service Corporation/s/ Matthew UmscheidSeptember 21, 2015 Employee SignatureDate2Exhibit 12.1The Providence Service CorporationRatio of Earnings to Fixed Charges For the Years Ended December 31, 2013 2014 2015 2016 2017 (in thousands, except ratios)Earnings: Pre-tax income (loss) from continuing operations before adjustment for(gain) loss from equity investee $19,730 $32,800 $876 $8,409 $52,150 Add: Fixed charges 12,330 20,900 26,739 25,277 23,784 Less: Noncontrolling interest in pre-tax income (loss) of subsidiariesthat have not incurred fixed charges — — (502) (2,082) 451 Earnings $32,060 $53,700 $28,117 $35,768 $75,483 Fixed charges: Interest expense $7,032 $10,424 $2,456 $1,767 $1,637 Interest element of rentals 5,298 10,476 20,348 19,091 17,729 Preferred dividend — — 3,935 4,417 4,418 Fixed charges $12,330 $20,900 $26,739 $25,275 $23,784Ratio of earnings to fixed charges 2.60 2.57 1.05 1.42 3.17Exhibit 21.1 Name of SubsidiaryState/Country of Incorporation Social Services Providers Captive Insurance Co. Arizona Ingeus Australasia Pty Ltd Australia Ingeus Australia Pty Ltd Australia Ingeus Pty Limited Australia Ingeus Victoria Pty Ltd Australia Ingeus Australia Holdings Pty Ltd (Formally Pinnacle Australia BidcoPty Ltd) Australia Ingeus Australia Investments Pty Ltd(Formally Pinnacle Australia Holdco Pty Ltd) Australia 0798576 B.C. LTD Canada Aboriginal Jobwave Inc. Canada PSC of Canada Exchange Corp. Canada WCG International Consultants Ltd. Canada Providence IT Procurement, LLC Connecticut Health Trans, Inc. Delaware Ingeus America, LLC Delaware LogistiCare Solutions, LLC Delaware Pinnacle Acquisitions LLC Delaware Prometheus Holdco, LLC Delaware Ride Plus LLC Delaware Ross Innovative Employment Solutions Corp. Delaware Provado Technologies, LLC Florida Red Top Transportation, Inc. Florida Ingeus SAS (France) France Ingeus GmBH (Germany) Germany Ingeus Co. Ltd. (Korea) Korea LogistiCare Solutions Independent Practice Association, LLC New York Ingeus LLC (Saudi Arabia) Saudi Arabia Ingeus Scotland Limited Scotland Ingeus PTE. LTD (Singapore) Singapore Ingeus S.L. (Spain) Spain Ingeus AG (Switzerland) Switzerland Ingeus Europe Limited United Kingdom Ingeus Investments Limited United Kingdom Ingeus UK Holdings Limited (formerly Pinnacle UK Bidco Limited) United Kingdom Ingeus UK Limited United Kingdom ITL Training Limited United Kingdom The Derbyshire Leicestershire Nottinghamshire & Rutland CommunityRehabilitation Company Limited United Kingdom The Reducing Reoffending Partnership Limited United Kingdom The Staffordshire and West Midlands Community RehabilitationCompany Limited United Kingdom Zodiac Training Limited United Kingdom Invisage Limited United KingdomExhibit 23.1 Consent of Independent Registered Public Accounting Firm The Board of DirectorsThe Providence Service Corporation: We consent to the incorporation by reference in the registration statements (Nos. 333-212888, 333-183339, 333-166978, 333-151079, 333-135126, and 333-145843) on Form S-8 of The Providence Service Corporation and subsidiaries of our reports dated March 9, 2018, with respect to the consolidated balancesheets of The Providence Service Corporation and subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income,comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notesand financial statement schedule II (collectively, the “consolidated financial statements”), and the effectiveness of internal control over financial reporting asof December 31, 2017, which reports appear in the December 31, 2017 annual report on Form 10-K of The Providence Service Corporation. /s/ KPMG LLP Stamford, ConnecticutMarch 9, 2018 Exhibit 23.2 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Numbers 333- 212888, 333-183339, 333-166978, 333-151079, 333-135126,and 333-145843) on Form S-8 of our report dated March 9, 2018, relating to the consolidated financial statements of Mercury Parent, LLC and itssubsidiaries as of and for the year ended December 31, 2017 included in the Annual Report on Form 10-K of The Providence Service Corporation for the yearended December 31, 2017. /s/ Deloitte & Touche LLP Phoenix, ArizonaMarch 9, 2018 Exhibit 23.3 Consent of Independent Auditors The Board of DirectorsMercury Parent, LLC:We consent to the incorporation by reference in the registration statements (Nos. 333-212888, 333-183339, 333-166978, 333-151079, 333-135126, and 333-145843) on Form S-8 of The Providence Service Corporation and subsidiaries of our report dated March 10, 2017, with respect to the consolidated balancesheet of Mercury Parent, LLC as of December 31, 2016, and the related consolidated statements of operations, members’ equity and cash flows for the periodfrom October 19, 2016 to December 31, 2016, which report appears in the December 31, 2017, annual report on Form 10-K of The Providence ServiceCorporation dated March 9, 2018./s/ KPMG LLPPhoenix, ArizonaMarch 9, 2018Exhibit 31.1 CERTIFICATIONS I, R. Carter Pate, certify that: 1. I have reviewed this annual report on Form 10-K of The Providence Service Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 9, 2018 By: /s/ R. Carter Pate R. Carter Pate Interim Chief Executive Officer (Principal Executive Officer)Exhibit 31.2CERTIFICATIONS I, David Shackelton, certify that: 1. I have reviewed this annual report on Form 10-K of The Providence Service Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 9, 2018 By: /s/ David C. Shackelton David C. Shackelton Chief Financial Officer (Principal Financial Officer )Exhibit 32.1 THE PROVIDENCE SERVICE CORPORATIONCERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,the undersigned officer of The Providence Service Corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company onForm 10-K for the year ended December 31, 2017 (the “Report”) that, to the best of such officer’s knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 9, 2018 /s/ R. Carter PateR. Carter PateInterim Chief Executive Officer(Principal Executive Officer ) Exhibit 32.2 THE PROVIDENCE SERVICE CORPORATIONCERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, the undersigned officer of The Providence Service Corporation (the “Company”), does hereby certify with respect to the Annual Report of theCompany on Form 10-K for the year ended December 31, 2017 (the “Report”) that, to the best of such officer’s knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 9, 2018 /s/ David C. ShackeltonDavid C. ShackeltonChief Financial Officer(Principal Financial Officer)Exhibit 99.1 ​ ​ ​ Mercury Parent, LLC ​ Consolidated Financial Statements as of ​ December 31, 2017 and 2016, and for the ​ Year Ended December 31, 2017 and the Period ​ from October 19, 2016 to December 31, 2016, and ​ Independent Auditors’ Report ​ ​ ​ ​ ​ MERCURY PARENT, LLC ​ TABLE OF CONTENTS ​ Page ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1 ​ INDEPENDENT AUDITORS’ REPORT 2-3 ​ CONSOLIDATED FINANCIAL STATEMENTS: ​ ​ Consolidated Balance Sheets as of December 31, 2017 and 2016 4 ​ ​ Consolidated Statements of Operations for the Year Ended December 31, 2017 and ​ for the Period October 19, 2016 to December 31, 2016 5 ​ ​ Consolidated Statements of Changes in Members’ Equity for the ​ Year Ended December 31, 2017 and for the Period October 19, 2016 ​ to December 31, 2016 6 ​ ​ Consolidated Statements of Cash Flows for the Year Ended December 31, 2017 and ​ for the Period October 19, 2016 to December 31, 2016 7 ​ ​ Notes to Consolidated Financial Statements 8–28 ​ ​ ​ ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Members and Board of Directors of Mercury Parent, LLC ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet of Mercury Parent, LLC and ​ its subsidiaries (the “Company”) as of December 31, 2017, the related consolidated ​ statements of operations, changes in members’ equity, and cash flows, for the year then ​ ended, and the related notes (collectively referred to as the “financial statements”). In our ​ opinion, the financial statements present fairly, in all material respects, the financial position ​ of the Company as of December 31, 2017, and the results of its operations and its cash ​ flows for the year then ended in conformity with accounting principles generally accepted in ​ the United States of America. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company’s management. Our ​ responsibility is to express an opinion on the Company’s financial statements based on our ​ audit. We are a public accounting firm registered with the Public Company Accounting ​ Oversight Board (United States) (PCAOB) and are required to be independent with respect ​ to the Company in accordance with the U.S. federal securities laws and the applicable rules ​ and regulations of the Securities and Exchange Commission and thePCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB and in accordance ​ with auditing standards generally accepted in the United States of America. Those standards ​ require that we plan and perform the audit to obtain reasonable assurance about whether ​ the financial statements are free of material misstatement, whether due to error or fraud. ​ The Company is not required to have, nor were we engaged to perform, an audit of its ​ internal control over financial reporting. As part of our audit, we are required to obtain an ​ understanding of internal control over financial reporting but not for the purpose of ​ expressing an opinion on the effectiveness of the Company’s internal control over financial ​ reporting. Accordingly, we express no such opinion. ​ Our audit included performing procedures to assess the risks of material misstatement of ​ the financial statements, whether due to error or fraud, and performing procedures that ​ respond to those risks. Such procedures included examining, on a test basis, evidence ​ regarding the amounts and disclosures in the financial statements. Our audit also included ​ evaluating the accounting principles used and significant estimates made by management, ​ as well as evaluating the overall presentation of the financial statements. We believe that ​ our audit provides a reasonable basis for our opinion. ​ /s/ Deloitte& Touche LLP ​ Phoenix, Arizona ​ March 9, 2018 ​ We have served as the Company’s auditor since 2017. ​ ​ ​ ​ 2 ​ Independent Auditors’ Report ​ The Board of Directors ​ Mercury Parent, LLC: ​ We have audited the accompanying consolidated financial statements of Mercury Parent, ​ LLC (the Company) and its subsidiaries, which comprise the consolidated balance sheet as ​ of December 31, 2016, and the related consolidated statements of operations, members’ ​ equity, and cash flows for the period from October 19, 2016 to December 31, 2016, and the ​ related notes to the consolidated financial statements. ​ Management’s Responsibility for the Financial Statements ​ Management is responsible for the preparation and fair presentation of these consolidated ​ financial statements in accordance with U.S. generally accepted accounting principles; this ​ includes the design, implementation, and maintenance of internal control relevant to the ​ preparation and fair presentation of consolidated financial statements that are free from ​ material misstatement, whether due to fraud or error. ​ Auditors’ Responsibility ​ Our responsibility is to express an opinion on these consolidated financial statements based ​ on our audit. We conducted our audit in accordance with auditing standards generally ​ accepted in the United States of America. Those standards require that we plan and perform ​ the audit to obtain reasonable assurance about whether the consolidated financial ​statements are free from material misstatement. ​ An audit involves performing procedures to obtain audit evidence about the amounts and ​ disclosures in the consolidated financial statements. The procedures selected depend on the ​ auditors’ judgment, including the assessment of the risks of material misstatement of the ​ consolidated financial statements, whether due to fraud or error. In making those risk ​ assessments, the auditor considers internal control relevant to the entity’s preparation and ​ fair presentation of the consolidated financial statements in order to design audit procedures ​ that are appropriate in the circumstances, but not for the purpose of expressing an opinion ​ on the effectiveness of the entity’s internal control. Accordingly, we express no such ​ opinion. An audit also includes evaluating the appropriateness of accounting policies used ​ and the reasonableness of significant accounting estimates made by management, as well ​ as evaluating the overall presentation of the consolidated financial statements. ​ We believe that the audit evidence we have obtained is sufficient and appropriate to provide ​ a basis for our audit opinion. ​ Opinion ​ In our opinion, the consolidated financial statements referred to above present fairly, in all ​ material respects, the financial position of Mercury Parent, LLC and its subsidiaries as of ​ December 31, 2016,and the results of their operations and their cash flows in accordance ​ with U.S. generally accepted accounting principles. ​ ​ ​ 3 ​ Emphasis of Matter ​ As discussed in note 2 to the consolidated financial statements, effective October 19, 2016, ​ Frazier Healthcare Partners acquired 53.2% of the equity interest in CCHN Group Holdings, ​ Inc. and subsidiaries (predecessor entity) in a business combination accounted for as a ​ purchase. As a result of the acquisition, the consolidated financial information for the ​ periods after the acquisition is presented on a different cost basis than that for the periods ​ before the acquisition. ​ /s/ KPMG LLP ​ Phoenix, Arizona ​ March 10, 2017 ​ ​ ​ - 4 - ​ MERCURY PARENT, LLC​ CONSOLIDATED BALANCE SHEETS​ AS OF DECEMBER 31, 2017 AND 2016​ (Amounts in thousands, except unit and per unit amounts)​ 2017 2016​ ASSETS​ CURRENT ASSETS:​ Cash and cash equivalents 15,020$ 5,308$ ​ Clinical assessment and other accounts receivable (net of​ allowances of $737 and $953, respectively) 17,813 15,776 ​ Income taxes receivable 1,619 810 ​ Escrow deposits - 3,632 ​ Prepaid expenses and other current assets (including​ related party of $0 and $812, respectively) 3,111 3,063 ​ Total current assets 37,563 28,589 ​ PROPERTY AND EQUIPMENT—Net 16,869 11,183 ​ GOODWILL 353,864 351,381 ​ INTANGIBLE ASSETS—Net 226,762 252,079 ​ OTHER LONG-TERM ASSETS 118 198 ​ TOTAL ASSETS 635,176$ 643,430$ ​ LIABILITIES AND MEMBERS’ EQUITY​ CURRENT LIABILITIES:​ Accounts payable 3,652$ 2,983$ ​ Accrued liabilities (including related party of $529 and $396, respectively) 14,624 18,933 ​ Other short-term liabilities 1,065 447 ​ Current portion of long-term debt 8,377 3,428 ​ Total current liabilities 27,718 25,791 ​ DEFERRED TAX LIABILITY—Net 60,580 93,582 ​ OTHER LONG-TERM LIABILITIES 1,039 473 ​ LONG-TERM DEBT—Net of current portion 178,894 187,293 ​ Total liabilities 268,231 307,139 ​ COMMITMENTS ANDCONTINGENCIES (NOTE 11)​ MEMBERS’ EQUITY:​ Common units (352,950,000 and 351,600,000 units authorized, issued, and​ outstanding, liquidity preference $1 per unit) 366,945 336,291​ Series A units (39,066,667 units authorized, 7,816,520 and 0 units issued​ and outstanding, participate in dividends and distributions in excess of​ $1 per common unit) - - ​ Series B units (18,170,543 units authorized, 3,635,591 and 0 units issued​ and outstanding, participate in dividends and distributions in excess of​ $1 per common unit) - - ​ Series C units (14,777,249 units authorized, 2,956,655 and 0 units issued​ and outstanding, participate in dividends and distributions in excess of​ $1 per common unit) - - ​ Series D units (15,885,542 units authorized, 3,178,404 and 0 units issued​ and outstanding, participate in dividends and distributions in excess of​ $1 per common unit) - - ​ Total members’ equity 366,945 336,291 ​ TOTAL LIABILITIES AND MEMBERS’ EQUITY 635,176$ 643,430$ ​ See accompanying notes to consolidated financial statements.​ ​ ​ - 5 - ​ MERCURY PARENT, LLC​ CONSOLIDATED STATEMENTS OF OPERATIONS​ FOR THE YEAR ENDED DECEMBER 31, 2017​ AND THE PERIOD OCTOBER 19, 2016 TO DECEMBER 31, 2016​ (Amounts in thousands)​ Period from​ October 19,​ Year Ended 2016 to​ December 31, December 31,​ 2017 2016​ NET REVENUES 227,872$ 41,635$ ​ OPERATING EXPENSES:​ Service expense 176,582 36,489 ​ General and administrative 2,742 530 ​ Depreciation and amortization 33,512 6,356 ​ Loss on disposition of assets 23 5 ​ Management fees 3,143 2,334 ​ Total operating expenses 216,002 45,714 ​ INCOME (LOSS) FROM OPERATIONS 11,870 (4,079) ​ INTEREST EXPENSE (14,818) (2,949) ​ LOSS BEFORE TAXES (2,948) (7,028) ​ INCOME TAX BENEFIT 29,613 2,828 ​ NET INCOME (LOSS) 26,665$ (4,200)$ ​ See accompanying notes to consolidated financial statements.​ ​ ​ ​ - 6 - ​ MERCURY PARENT, LLC​ CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY​ FOR THE YEAR ENDED DECEMBER 31, 2017 AND​ FOR THE PERIOD OCTOBER 19, 2016 TO DECEMBER 31, 2016​ (Amounts in thousands)​ Total​ Common Series Series Series Series Members’​ Successor Company Units A B C D Equity​ Recapitalization and​ Issuance of Members' Equity 340,084$ - $ - $ - $ - $ 340,084$ ​ Net loss from October 19 to ​ December 31 (4,200) - - - - (4,200) ​ Equity-based compensation 407 - - - - 407 ​ BALANCE AT DECEMBER 31, 2016 336,291 - - - - 336,291 ​ Capital contributions 1,350 - - - - 1,350 ​ Net income 26,665 - - - - 26,665 ​ Equity-based compensation 2,639 - - - - 2,639 ​ BALANCE AT DECEMBER 31, 2017 366,945$ - $ - $ - $ - $ 366,945$ ​ See accompanying notes to consolidated financial statements.​ ​ ​ ​ - 7 - ​ MERCURY PARENT, LLC​ CONSOLIDATED STATEMENTS OF CASH FLOWS​ FOR THE YEAR ENDED DECEMBER 31, 2017 AND ​ FOR THE PERIOD OCTOBER 19, 2016 TO DECEMBER 31, 2016​ (Amounts in thousands)​ Period from​ October 19,​ Year Ended 2016 to​ December 31, December 31,​ 2017 2016​ CASH FLOWS FROM OPERATING ACTIVITIES:​ Net income (loss) 26,665$ (4,200)$ ​ Adjustments to reconcile net income (loss) to net ​ cash provided by operating activities:​ Depreciation and amortization 33,512 6,356 ​ Amortization of debt issuance costs 1,535 330 ​ Change in deferred income taxes (34,512) (2,843) ​ Equity-based compensation 2,639 407 ​ Provision for sales allowances (407) 218 ​ Loss on disposal of property and equipment 23 5 ​ Changes in operating assets and liabilities, net of ​ effects of pushdown accounting:​ Clinical assessment and other accounts receivable (419) 7,327 ​ Prepaid expenses and other current assets 3,672 (2,251) ​ Other long-term assets 81 3,559 ​ Accounts payable and accrued liabilities (4,702) (4,573) ​ Other liabilities 606 - ​ Income taxes receivable (809) (810) ​ Net cash provided by operating activities 27,884 3,525 ​ CASH FLOWS FROM INVESTING ACTIVITIES:​ Business acquisition, net of cash acquired (3,455) - ​ Purchases of property and equipment (11,042) (3,364) ​ Net cashused in investing activities (14,497) (3,364) ​ CASH FLOWS FROM FINANCING ACTIVITIES:​ Capital contributions 1,350 - ​ Payment of financing fees - (2,633) ​ Payment of contingent transaction expenses - (1,414) ​ Draw on term loan - 193,024 ​ Payments on term loan (4,950) (380,000) ​ Proceeds from issuance of members’ equity - 180,924 ​ Return of capital to Providence (75) (5,172) ​ Net cash used in financing activities (3,675) (15,271) ​ NET INCREASE (DECREASE) IN CASH 9,712 (15,110) ​ CASH—Beginning of the period 5,308 20,418 ​ CASH—End of the period 15,020$ 5,308$ ​ SUPPLEMENTAL CASH FLOW INFORMATION:​ Cash paid for interest 13,147$ 3,737$ ​ Cash paid for income taxes 5,520 147 ​ NONCASH INVESTING AND FINANCING TRANSACTIONS:​ Additions to property and equipment financed through ​ accounts payable and accrued expenses 828$ - $ ​ See accompanying notes to consolidated financial statements.​ ​ ​ - 8 - ​ MERCURY PARENT, LLC ​ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ AS OF DECEMBER 31, 2017 AND 2016, AND FOR THE YEAR ENDED ​ DECEMBER 31, 2017 AND THE PERIOD ​ OCTOBER 19, 2016 TO DECEMBER 31, 2016 ​ 1. ORGANIZATION AND NATURE OF OPERATIONS ​ Nature of Operations—Mercury Parent, LLC (“Mercury Parent” and collectively with its ​ subsidiaries and affiliates, the “Company”) is a Delaware limited liability company formed ​ on October 19, 2016, as a holding company for CCHN Group Holdings, Inc. (“Group”), ​ CCHN Holdings, LLC (“Holdings”), and Community Care Health Network, LLC and its ​ subsidiaries (“CCHN”) (collectively “Matrix”). Matrix is a national provider of in-home care ​ optimization and care management solutions, including comprehensive health assessments ​ (CHAs), to members of managed care organizations. ​ Through a national network of more than 5,800 clinical practitioners, Matrix primarily ​ generates revenue from CHAs, which gather a health plan members’ information related to ​ health status, social, environmental, and medication risks to help health plans improve the ​ accuracy of such data and optimize care for the health plan member. ​ Description of Transaction—Prior to October 19, 2016, CCHN was wholly owned by The ​ Providence Service Corporation (“Providence”), a Delaware corporation. OnOctober 19, ​ 2016, affiliates of Frazier Healthcare Partners (“Buyer”) purchased a 53.2% equity interest ​ in CCHN with Providence retaining a 46.8% equity interest. As a result of the transaction, ​ Buyer gained control of CCHN. Concurrent with the transaction, Buyer and Providence ​ exchanged their equity interests in CCHN for similar ownership in Mercury Parent, with ​ CCHN becoming a wholly owned subsidiary of Mercury Parent. ​ Basis of Presentation—As a result of the above transactions, Buyer applied the ​ provisions of purchase accounting for business combinations. The year ended ​ December 31, 2017, and the 2016 Successor Period consolidated financial statements ​ represent those of the acquired entity. As such, the Company has elected to adopt ​ pushdown accounting and reflect the use of the acquirer’s basis in the preparation of its ​ consolidated financial statements beginning with the date of the change of control. This ​ adoption of pushdown accounting causes the Company’s consolidated financial statements ​ prior to October 19, 2016, to not be comparable with the consolidated financial statements ​ for periods on or after October 19, 2016. References to “Successor” and “2016 Successor ​ Period” refer to the Company on or after October 19, 2016, the period from October 19, ​ 2016 to December 31, 2016, and the year endedDecember 31, 2017, respectively. ​ See Note 2 for further description of the transaction and the application of pushdown ​ accounting. ​ For periods prior to October 19, 2016, CCHN was a wholly owned subsidiary of Providence. ​ As such, its financial statements were not prepared on a stand-alone basis. The Company ​ has adopted the guidance for carve-out financial statements and has made adjustments to ​ its consolidated financial statements to 1) record the effects of certain financing activities ​ that occurred at the Providence level and 2) to record a provision for income taxes using a ​ separate return method. See Notes 8 and 9. ​ ​ ​ - 9 - ​ 2. CHANGE OF CONTROL TRANSACTION ​ As indicated in Note 1, on October 19, 2016 (the “Close Date”), Buyer obtained control of ​ the Company, and the Company has applied pushdown accounting effective as of the Close ​ Date. ​ The following transactions occurred contemporaneously with closing: ​ Inflows: ​ • Buyer funded $187.1 million of cash for its equity interest, including $180.6 million for ​ its acquisition of a 53.2% interest of CCHN and $6.5 million for its pro rata share of ​ the additional capital contribution made at closing. ​ • The Company received net debt proceeds of $193 million under a new lending ​ arrangement. ​ Outflows: ​ • The Company repaid its existing debt plus interest of $381.2 million owed to ​ Providence. ​ • The Company paid $13.3 million, consisting of $0.6 million of Providence-related ​ expenses, $1.5 million of expenses which were contingent on the close of the ​ transaction and thus not reflected as an expense in the successor period, $2.7 million ​ of prepaid expenses for management fees, $6.2 million of equity issuance costs, and ​ $2.3 million of debt transaction costs. ​ Fair Value of Consideration Transferred—The fair value of the consideration ​ transferred was $180.9 million of proceeds (net of equity issuance costs) received for the ​ units issued to Buyer, representing a 53.2% equity interest in the Company. The ​ enterprise value of theCompany as of the date of the transaction was $340.1 million, and ​ the fair value of the equity interest retained by Providence (46.8%) was determined to be ​ $159.2 million. ​ Allocation of Consideration Transferred—The transaction has been accounted for by ​ Buyer using the acquisition method of accounting as of the date of change of control. ​ Acquisition method of accounting requires, among other things, that assets acquired and ​ liabilities assumed be measured at their acquisition-date fair values. The excess of the ​ enterprise value over the net fair value of assets acquired and liabilities assumed was ​ recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least ​ annually. The Company elected to push down the effects of the acquisition method as of ​ the Close Date. ​ ​ ​ - 10 - ​ The Company allocated the enterprise value of $340.2 million to the estimated fair value of ​ acquired assets (assumed liabilities) as follows (in millions): ​ Cash and cash equivalents 6.0$ ​ Accounts receivable 23.3 ​ Prepaid expenses and other current assets 5.1 ​ Property and equipment 8.7 ​ Intangible assets 257.6 ​ Goodwill 353.2 ​ Other long-term assets 3.8 ​ Accounts payable (0.3) ​ Accrued liabilities (25.7) ​ Other short-term liabilities (0.7) ​ Deferred tax liability (97.9) ​ Other long-term liabilities (2.2) ​ Long-term debt—net (190.7) ​ 340.2$ ​ ​ Included in the allocation are measurement period adjustments of $1.4 million to establish ​ a reserve for state tax credits, $0.1 million to true-up income tax refunds due to seller, ​ and $0.1 million final net working capital adjustment. Intangible assets in the table above ​ consist of customer relationships of $180 million and developed technology of $46.2 million ​ that will be amortized over their estimated useful lives of 10 and 5 years, respectively. ​ Indefinite-lived intangible assets consist of trade names and trademarks of $31.4 million, ​ which are not subject to amortization. ​ The estimates of the fair value of the assets or rights acquired and liabilities assumed at ​ the date of the change of control were subject to adjustment during the measurement ​ period (up to one year from the date of the change of control). The primary areas of the ​ accounting for the change of control thatwere not yet finalized relate to the fair value of ​ certain tangible and intangible assets acquired, residual goodwill, and any related tax ​ impact. The fair values of these net assets acquired were based on management’s ​ estimates and assumptions, as well as other information compiled by management, ​ including valuations that utilize customary valuation procedures and techniques. During the ​ measurement period, the Company reduced the fair value of deferred tax assets by ​ $1.4 million of deferred tax assets for which it is not more likely than not that such assets ​ will be realized. A final net working capital settlement of $0.1 million was paid during the ​ measurement period. The effect of this measurement period adjustment to the estimated ​ fair value was reflected as if the adjustment had been completed on the date of the change ​ of control. ​ Goodwill recorded in connection with the change of control was attributable to the value of ​ assembled workforce and future synergies expected to be achieved. Currently, the ​ Company has only one reporting unit referred to as the Core Reporting Unit. ​ ​ ​ - 11 - ​ 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ Principles of Consolidation—The consolidated financial statements are prepared on the ​ accrual basis of accounting in accordance with accounting principles generally accepted in ​ the United States of America (GAAP) and include the accounts of Mercury Parent, its ​ consolidated and wholly owned subsidiaries, and its affiliates. ​ Affiliated entities operate in states that have statutory requirements regarding legal ​ ownership of operating entities by a licensed medical practitioner. Accordingly, each ​ affiliate entity has a contractual relationship with the Company whereby the Company ​ provides management and other services for these affiliates. The Company has entered ​ into license, service, and redemption agreements with the affiliates and the members of ​ the affiliates. The Company may terminate the license, service, or employment agreement ​ with or without cause upon written notice to the affiliated entity and/or member subject to ​ certain time requirements, generally less than 90 days. Upon termination, the member ​ shall surrender the stock and the status of the physician as a member shall be deemed to ​ have terminated and shall have no further ownership in the Company. The surrender of the ​ stock by the member will be exchanged for a nominal amount as specified in the ​ redemptionagreement. As such and in accordance with Financial Accounting Standards ​ Board (FASB) Accounting Standards Codification (ASC) 810-10-05, “Consolidation of ​ Entities Controlled by Contract,” the affiliated entities are being presented on a ​ consolidated basis as the Company meets the requirements to consolidate, specifically the ​ controlling financial interest provisions. ​ All intercompany accounts and transactions, including those between the Company and its ​ subsidiaries and the affiliated entities, are eliminated in consolidation. ​ Revenue Recognition—The Company contracts with health plans to provide clinical ​ assessments for its members that meet certain predetermined criteria as defined by the ​ providers. An assessment is a comprehensive physical examination of an individual ​ performed by one of the Company’s physicians or nurse practitioners. The clients for whom ​ the Company performs these examinations use the assessment reports to impact care ​ management of the members and properly report the cost of care of those members. ​ Revenue is recognized using the proportional performance method in the period in which ​ the services are rendered. All costs associated with the acquisition of new customers or ​ contracts are expensed as incurred. ​ The Company also contracts directly with health plans and offers caremanagement ​ services billed monthly. Revenue is recognized in the period in which the services are ​ rendered. All costs associated with the acquisition of new customers or contracts are ​ expensed as incurred. ​ Concentration of Credit Risk—For the year ended December 31, 2017 and the 2016 ​ Successor Period, two health plans made up approximately 58% and 42% of net revenues, ​ respectively. Accounts receivable from these two health plans at December 31, 2017 and ​ 2016, were approximately 21% and 29%, respectively, of total accounts receivable. ​ Use of Estimates—The preparation of consolidated financial statements in conformity ​ with GAAP requires management to make certain estimates and assumptions that affect ​ the reported amounts of assets and liabilities and disclosure of contingent assets and ​ liabilities at the date of the consolidated financial statements. Estimates also affect the ​ reported amounts of revenues and expenses during the reporting period. Actual events and ​ results could materially differ from those assumptions and estimates. The most significant ​ ​ ​ - 12 - ​ assumptions and estimates underlying these consolidated financial statements and ​ accompanying notes involve the recognition of revenues and receivables, allowances for ​ contractual discounts and uncollectible accounts, long-lived assets, accounting for income ​ taxes, insurance reserves, fair value estimates, and share-based payments. ​ Cash and Cash Equivalents—The Company considers all highly liquid investments ​ purchased with an original maturity of three months or less to be cash equivalents. Cash ​ and cash equivalents are maintained at financial institutions, and at times, balances may ​ exceed federally insured limits. At December 31, 2017 and 2016, the Company has ​ $14.7 million and $5.3 million, respectively, of interest-bearing and non-interest-bearing ​ cash balances with one financial institution that exceed federally insured limits. ​ Accounts Receivable and Sales Allowances—The Company records accounts receivable ​ amounts at the contractual amount, less an allowance for unbillable assessments. The ​ Company maintains an allowance at an amount it estimates to be sufficient to cover the ​ risk that an assessment will not be able to be billed and collected. The Company regularly ​ evaluates its accounts receivable and reassesses its sales allowances based on updated ​information. ​ Property and Equipment—Property and equipment are recorded at cost, less ​ accumulated depreciation, and are depreciated using the straight-line method over the ​ following estimated useful lives of the related assets: Useful Life​ Computer applications 3 years​ Co puter equipment 3 years​ Office equipment 5 years​ Furniture and fixtures 5 years​ Leasehold improvements Shorter of lease term or 5 years ​ Expenditures for repairs and maintenance are charged to expense as incurred. ​ Expenditures for major renewals and betterments, which extend the useful lives of existing ​ equipment, are capitalized. For items that are disposed, the cost and related accumulated ​ depreciation are removed from the accounts and any resulting gain or loss is recognized in ​ the consolidated statements of operations. ​ In accordance with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets,” the ​ Company evaluates the carrying amount of its property and equipment whenever changes ​ in circumstances or events indicate that the value of such assets may not be fully ​ recoverable. An impairment loss is recorded when the sum of the undiscounted future cash ​ flows is less than the carrying amount of the asset and is measured as the amount by ​ which the carrying amount of the asset exceeds its fair value. ​ Software Development Costs—TheCompany capitalizes certain development costs ​ incurred in connection with its internal-use software in accordance with ASC 350-40, ​ “Internal-Use Software.” The costs incurred in the preliminary stages of development are ​ expensed as incurred. Once an application has reached the development stage, internal ​ and external costs, if direct and incremental, are capitalized until the software is ​ substantially complete and ready for its intended use. Capitalization ceases upon ​ completion of all substantial testing. Internal-use software is included as a component of ​ property and equipment, and amortization begins when the computer software is ready for ​ ​ ​ - 13 - ​ its intended use. Internal-use software is amortized on a straight-line basis over the ​ estimated useful lives of the related software applications, which are generally three to five ​ years. ​ For the year ended December 31, 2017 and the 2016 Successor Period, $11 million and ​ $1.9 million, respectively, were capitalized as internally developed software, which is a ​ component of computer software included in property and equipment. ​ Goodwill—Goodwill represents the excess of the purchase price over the fair value of ​ tangible net assets of acquired businesses after amounts are allocated to other intangible ​ assets. ​ In accordance with ASC 350-20, “Intangibles—Goodwill and Other,” the Company ​ evaluates goodwill for impairment on an annual basis as of the first day of the fourth ​ quarter of each calendar year-end and on an interim basis should events and ​ circumstances warrant. To test for impairment, the Company first performs a qualitative ​ assessment of relevant circumstances and events to determine if it is more likely than not ​ that the fair value of a reporting unit is less than its carrying value, including goodwill. If it ​ is determined that it is more likely than not that the fair value of the reporting unit is less ​ than its carrying value, then the Company would perform the two-step goodwill ​ impairment test. Step one is carried out by comparing the fair value of a reporting unit ​ containing the goodwillwith its carrying amount, including the goodwill. If the fair value of ​ the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not ​ considered to be impaired. However, if the carrying amount exceeds the fair value, the ​ Company performs step two of the test, which compares the implied fair value of the ​ reporting unit goodwill with the carrying amount of that goodwill. The excess carrying ​ amount of the goodwill is considered impaired and an impairment loss is recorded. ​ Impairment, if any, is based on the excess of the carrying amount over the fair value, ​ based on market value when available, or discounted expected cash flows of those assets ​ and is recorded in the period in which the determination is made. ​ Other Intangible Assets—Other intangible assets consist of customer relationships, ​ trade names and trademarks, and developed technologies acquired in business ​ combination transactions. Intangible assets (excluding indefinite-lived assets) are ​ amortized over their estimated useful lives using the straight-line method. ​ In accordance with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets,” the ​ Company evaluates the carrying amount of its intangible long-lived assets whenever ​ changes in circumstances or events indicate that the value of such assets may not be fully ​ recoverable. An impairment loss is recorded when thesum of the undiscounted future cash ​ flows is less than the carrying amount of the asset and is measured as the amount by ​ which the carrying amount of the asset exceeds its fair value. ​ Operating Leases—The Company has certain operating leases for its vehicle fleet and its ​ administrative facilities and office equipment in California, Arizona, and Florida. Leases that ​ do not transfer substantially all benefits and risks of ownership to the Company or meet ​ any of the other criteria for capitalization are classified as operating leases. These lease ​ payments are recognized as an expense on a straight-line basis over the lease term. ​ Debt Issuance Costs—Debt issuance costs are deferred and amortized to interest ​ expense using the effective interest method over the term of the related debt. For the year ​ ended December 31, 2017 and the 2016 Successor Period, the Company recognized ​ ​ ​ - 14 - ​ interest expense of $1.5 million and $0.3 million, respectively, from the amortization of ​ debt issuance costs. Unamortized debt issuance costs are $5.8 million and $7.3 million at ​ December 31, 2017 and 2016, respectively, and are a reduction of current and long-term ​ debt. ​ Defined Contribution Plans—The Company maintains defined contribution plans (the ​ “Plans”) for the benefit of eligible employees under the provision of Section 401(k) of the ​ U.S. Internal Revenue Code (IRC). The Company provides matching contributions that vest ​ over three years. Unvested matching contributions are forfeitable upon employee ​ termination. Employee contributions are fully vested and nonforfeitable. The assets of the ​ Plans are held separately from those of the Company and are independently managed and ​ administered. The Company’s contributions to these plans were $1.1 million and ​ $0.3 million for the year ended December 31, 2017 and the 2016 Successor Period, ​ respectively. ​ Income Taxes—The Company accounts for income taxes under an asset and liability ​ approach that requires the recognition of deferred tax assets and liabilities for the ​ expected future tax consequences of events that have been recognized in its consolidated ​ financial statements or tax returns. In estimating future tax consequences, the Company ​ generallyconsiders all expected future events other than enactments of changes in the tax ​ law or rates. ​ While Mercury Parent is a pass-through entity, affiliates and subsidiaries in these ​ consolidated financial statements are taxable entities, giving rise to the tax provisions ​ contained in these consolidated financial statements. ​ The Company reviews its filing positions for all open tax years in all U.S. federal and state ​ jurisdictions where it is required to file for uncertain tax positions. The Company ​ recognizes a liability for each uncertain tax position at the amount estimated to be ​ required to settle the issue. The Company’s policy is to recognize interest and penalties ​ accrued on any unrecognized tax benefits as a component of income tax expense. The ​ Company recognized expense of $0.3 million during 2017 related to uncertain tax ​ provisions. ​ Equity-Based Compensation—The Company accounts for equity-based compensation in ​ accordance with ASC 718, “Compensation-Stock Compensation.” In accordance with ​ ASC 718, equity-based compensation cost is measured at the grant date based on the fair ​ value of the award. As described in “Recent Accounting Pronouncements” below, the ​ Company early adopted ASU 2016-09 during the year ended December 31, 2017, and ​ elected to account for forfeitures as they occur. ​ TheCompany uses an option-pricing model to determine the fair value of stock-based ​ awards. The assumptions for expected terms were determined using the simplified method ​ outlined in Staff Accounting Bulletin No. 110, as the Company does not have sufficient ​ historical evidence for determining expected terms. The risk-free interest rate is based on ​ the U.S. Treasury rates at the grant date with maturity dates approximately equal to the ​ expected term at the grant date. The historical volatility of a representative group of peer ​ companies’ stock is used as the basis for the volatility assumption. ​ Related-Party Management Fees—In connection with the change of control transaction ​ described in Note 2, the Company entered into a management services agreement with an ​ affiliate of its majority member. Under the terms of the agreement, the Company prepaid a ​ management fee of $2.8 million, which was recorded as a prepaid expense and was being ​ ​ ​ - 15 - ​ amortized over a term of 3.5 months. For the 2016 Successor Period, the Company ​ amortized $1.9 million of prepaid expense, and the remaining amount was recognized ​ during the year ended December 31, 2017. As part of the agreement, the Company is also ​ obligated to pay to its members an ongoing management fee that equals a combined 4% ​ of consolidated EBITDA, as such term is defined in the agreement, to be distributed based ​ upon each members’ relative share of ownership. ​ The Company recognized management fee expense of $3.1 million and $2.3 million for the ​ year ended December 31, 2017 and the 2016 Successor Period, respectively. ​ Recent Accounting Pronouncements—In May 2014, the FASB issued Accounting ​ Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” ​ (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize ​ revenue to depict the transfer of promised goods or services to customers in an amount ​ that reflects the consideration to which the entity expects to be entitled in exchange for ​ those goods or services. In August 2015, the FASB issued Accounting Standards Update ​ No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the ​ Effective Date,” which delayed the effective date of ASU 2014-09 byone year. In 2016 and ​ 2017, the FASB issued accounting standards updates that amended several aspects of ​ ASU 2014-09. ASU 2014-09, as amended, is effective for the Company beginning ​ January 1, 2019, and allows for full retrospective or modified retrospective methods of ​ adoption. The Company has elected to adopt ASU 2014-09 early as of January 1, 2018, ​ under the modified retrospective method and is currently evaluating the potential impact of ​ adopting this guidance on its consolidated financial statements. However, the Company’s ​ preliminary analysis indicates that there is no change to revenue recognition for any of its ​ revenue streams. ​ In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases ​ (Topic 842)” (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize on the ​ balance sheet the assets and liabilities for the rights and obligations created by those ​ leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for ​ leases with terms of more than 12 months. Lessor accounting remains substantially similar ​ to current GAAP. In addition, disclosures of leasing activities are to be expanded to include ​ qualitative along with specific quantitative information. ASU 2016-02 will be effective for ​ the Company beginning December 1, 2019 (with early adoptionpermitted). ASU 2016-02 ​ mandates a modified retrospective transition method. The Company is currently evaluating ​ the potential impact of adopting this guidance on its consolidated financial statements. ​ In March 2016, the FASB issued Accounting Standards Update No. 2016-09, ​ “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-​ Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the ​ accounting for share-based payment transactions. ASU 2016-09 requires excess tax ​ benefits and deficiencies from share-based payment awards to be recorded in income tax ​ expense in the statement of operations. Currently, excess tax benefits and deficiencies are ​ recognized in paid-in capital in the balance sheet. This change is required to be applied ​ prospectively. In addition, ASU 2016-09 changes the accounting for statutory tax ​ withholding requirements classification in the statement of cash flows and provides an ​ option to continue to estimate forfeitures or account for forfeitures as they occur. The ​ Company early adopted ASU 2016-09 for the year ended December 31, 2017, and elected ​ to account for forfeitures as they occur. The Company expects ASU 2016-09 to result in ​ increased volatility to its income tax expense in its consolidated statements of operations ​ in2018 and future periods, the magnitude of which will depend on, among other things, ​ the timing and volume of equity-based compensation awards and the timing and volume of ​ forfeitures. ​ ​ ​ - 16 - ​ In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Statement ​ of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” ​ (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash ​ payments are to be presented and classified in the statement of cash flows. ASU 2016-15 ​ will be effective for the Company beginning January 1, 2019 (with early adoption ​ permitted). The Company does not expect the adoption of ASU 2016-15 to have a material ​ impact on its consolidated financial statements. ​ In November 2016, the FASB issued Accounting Standards Update No. 2016-18, ​ “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 ​ requires that a statement of cash flows explain the change during the period in the total of ​ cash, cash equivalents, and amounts generally described as restricted cash or restricted ​ cash equivalents. Therefore, amounts generally described as restricted cash and restricted ​ cash equivalents should be included with cash and cash equivalents when reconciling the ​ beginning-of-period and end-of-period total amounts shown in the statement of cash flows. ​ ASU 2016-18 will be effective for the Company beginning January 1, 2019 (with early ​ adoption permitted), and will be appliedusing a retrospective transition method to each ​ period presented. The Company do not expect the adoption of ASU 2016-18 to have a ​ material impact on its consolidated financial statements. ​ 4. ACQUISITIONS ​ On November 30, 2017, the Company acquired 100% of the equity interests of LP Health ​ Services, LLC and LP Health Network LLC (collectively “LP Health” or the “Membership ​ Interests”). Immediately prior to the transaction, the assets and liabilities related to the ​ Membership Interests were owned by Munich Atlanta Financial Corporation and were ​ contributed into the Membership Interests for the purpose of carving out the specific assets ​ and liabilities to be sold. LP Health is a leading provider of quality and wellness visits on ​ behalf of primarily Medicaid/Duals managed care plans via a national network of providers. ​ Pursuant to the Membership Interest purchase agreement governing the transaction, the ​ Company acquired all the assets and liabilities of LP Health for an aggregate purchase price ​ of $3.8 million of cash consideration after working capital adjustments and transaction ​ expenses. ​ The Company has accounted for this transaction as a purchase under ASC 805, “Business ​ Combinations.” Accordingly, the purchase price has been allocated to the assets acquired ​ and liabilities assumed based on their respective preliminary fairvalues at the date of the ​ acquisition due to the proximity of the acquisition to the end of the year. The excess of the ​ purchase price over the fair value of the net assets acquired was recorded as goodwill. The ​ Company may adjust the preliminary purchase price allocation, as necessary, for up to one ​ year after the acquisition closing date if it obtains more information regarding asset ​ valuations and liabilities assumed. ​ The goodwill of $0.9 million resulting from this transaction is attributable to the synergies ​ gained with the Company’s existing business. Goodwill also includes an identified ​ assembled workforce with an associated value of $0.3 million which does not qualify for ​ separate acquired asset recognition in a business combination. The goodwill recognized is ​ expected to be deductible for tax purposes. The Company has determined that it will ​ maintain one Core Reporting Unit. ​ ​ ​ - 17 - ​ The following table summarizes the preliminary allocation of the total purchase ​ consideration at the date of the acquisition based on current estimates of the fair value of ​ assets acquired and liabilities assumed: ​ Cash and cash equivalents 0.3$ ​ Accou ts receivable 1.2 ​ Pr pa d xp nses and other current assets 0.1 ​ Int ngible assets 2.0 ​ Goodwill 0.9 ​ Accrued liabilities (0.5) ​ Other short-term liabilities (0.2) ​ 3.8$ ​ ​ Intangible assets in the table above consist of customer relationships of $1.4 million and ​ developed technology of $0.6 million that will be amortized over their useful lives of eight ​ years and one year, respectively. Indefinite-lived intangible assets consist of trade names ​ and trademarks of $20 thousand, which are not subject to amortization. ​ 5. PROPERTY AND EQUIPMENT ​ Property and equipment as of December 31, 2017 and 2016, consists of the following (in ​ millions): ​ December 31, December 31,​ 2017 2016​ C mputer equipment 3.5$ 2.9$ ​ Computer software 16.0 5.2 ​ Furniture and fixtures 0.8 0.9 ​ Leasehold i provements 0.6 0.6 ​ W rk n p c s 2.5 2.4 ​ 23.4 12.0 ​ Accumulated depreciation (6.5) (0.8) ​ Property and equipment—net 16.9$ 11.2$ ​ ​ Depreciation expense on property and equipment was $6.2 million and $0.8 million for the ​ year ended December 31, 2017 and the 2016 Successor Period, respectively. ​ ​ ​ - 18 - ​ 6. GOODWILL AND OTHER INTANGIBLE ASSETS ​ Goodwill of $353.9 million consists of $352.9 million attributable to the change of control ​ transaction that occurred on October 19, 2016, and $0.9 million attributable to the ​ acquisition of LP Health that occurred on November 30, 2017 (amounts do not total due to ​ rounding of individual components). See Notes 2 and 4. There were no goodwill ​ impairment charges recognized for the year ended December 31, 2017 and the 2016 ​ Successor Period. ​ Goodwill consists of the following (in millions): ​ G odwill:​ Chang of control 351.4$ ​ Bala ce at December 31, 2016 351.4$ ​ Measurement period adjustments 1.6 ​ LP Acquisition 0.9 ​ Balance at December 31, 2017 353.9$ ​ ​ Other intangible assets—net consist of the following (in millions): ​ Gross Net​ Carrying Accumulated Carrying​ Amount Amortization Value​ Amortized intangible assets:​ Customer relationships 181.4$ (21.6)$ 159.8$ ​ Developed technologies 46.8 (11.2) 35.6 ​ Indefinite-lived assets—​ trade names and trademarks 31.4 - 31.4 ​ 259.6$ (32.8)$ 226.8$ ​ Gross Net​ Carrying Accumulated Carrying​ Amount Amortization Value​ Amortized intangible assets:​ Customer relationships 180.0$ (3.6)$ 176.4$ ​ Developed technologies 46.2 (1.9) 44.3 ​ Indefinite-lived assets—​ trade names and trademarks 31.4 - 31.4 ​ 257.6$ (5.5)$ 252.1$ ​ As of December 31, 2017​ As ofDecember 31, 2016​ ​ ​ ​ - 19 - ​ At December 31, 2017, the remaining net book value of customer relationships and ​ developed technologies is expected to be amortized over a weighted-average period of ​ 10 years and 5 years, respectively. Trade names and trademarks are indefinite-lived ​ intangible assets and are not subject to amortization. ​ Other intangible assets are amortized using the straight-line method over the following ​ useful lives: ​ Useful Life​ Customer relationships 8–10 years​ Internal us tech ology 1–5 years ​ The Company recognized amortization expense related to other intangible assets of ​ $27.3 million and $5.5 million for the year ended December 31, 2017 and the 2016 ​ Successor Period, respectively. ​ Estimated future amortization expense of the other intangible assets with finite lives is as ​ follows for each of the fiscal years ending December 31 (in millions): ​ 2018 28.0$ ​ 2019 27.4 ​ 2020 27.4 ​ 2021 25.5 ​ 2022 18.2 ​ Thereafter 68.9 ​ Total 195.4$ ​ ​ 7. ACCRUED LIABILITIES ​ Accrued liabilities consist of the following (in millions): ​ December 31, December 31,​ 2017 2016​ Salaries, payroll taxes, and benefits 4.6$ 4.9$ ​ Accrued interest 0.1 - ​ Accrued bonuses 2.1 8.4 ​ Other accruals 7.8 5.6 ​ Total accrued liabilities 14.6$ 18.9$ ​ ​ ​ ​ - 20 - ​ 8. LONG-TERM DEBT ​ Long-term debt consists of the following (in millions): ​ December 31, December 31,​ 2017 2016​ Term loan 193.1$ 198.0$ ​ Unamortized debt issuance costs (5.8) (7.3) ​ Total term loan 187.3 190.7 ​ Less current portion of long-term debt 8.4 3.4 ​ Long-term debt—net of current portion 178.9$ 187.3$ ​ ​ In 2016, the Company entered into a credit facility agreement with a national bank that ​ provides for an initial term loan facility in the amount of $198 million and a revolving credit ​ line amount of $10 million. The term loan bears interest at a rate of London InterBank ​ Offered Rate (LIBOR) plus 5.5% (6.9% at December 31, 2016). Principal and interest ​ payments are due and payable quarterly through the maturity date of October 19, 2021. ​ The Company incurred debt issuance costs of $7.8 million (consisting of $2.3 million paid ​ at the date of funding, an original issue discount of $5 million, and an additional ​ $0.5 million of costs paid subsequent to the date of funding), which have been recorded as ​ a direct reduction to the carrying value of the loan and will be amortized over the life of ​ the loan. Amortization of debt issuance costs for the 2017 and 2016 Successor Periods was ​ $1.5 million and $0.3 million, respectively. As of December 31, 2017 and 2016, ​ unamortized debt issuance costs were $5.8 million and $7.3 million, respectively. The ​ revolving credit line has a variableinterest rate that adjusts to the Company’s secured net ​ leverage ratio. The interest rate of the revolving credit line is LIBOR plus a margin between ​ 4.5% and 4.75%. The unused portion of the revolving credit line is subject to a ​ commitment fee rate up to 0.5%. Commitment fees incurred on the revolving credit line ​ were $37 thousand and $7 thousand, respectively, for the 2017 and 2016 Successor ​ Periods. ​ Annual maturities of long-term debt are as follows for the years ending December 31 (in ​ millions): ​ 2018 9.9$ ​ 2019 9.9 ​ 2020 9.9 ​ 2021 163.4 ​ Thereafter - ​ Total 193.1$ ​ ​ ​ ​ - 21 - ​ 9. INCOME TAXES ​ The components of the Company’s income tax provision are as follows (in millions): ​ Period from​ October 19,​ Year Ended 2016 to​ December 31, December 31,​ 2017 2016​ Current:​ Federal 4.2$ - $ ​ State—net of state tax credits 0.7 - ​ Total current 4.9 - ​ Deferred:​ Federal (29.0) (2.5) ​ Stat (5.5) (0.3) ​ Total deferred (34.5) (2.8) ​ Total income tax (benefit) expense (29.6)$ (2.8)$ ​ ​ A reconciliation of the provision for income taxes with the expected provision for income ​ taxes computed by applying the federal statutory income tax rate of 34% to the net loss ​ before provision for income taxes for the year ended December 31, 2017 and the 2016 ​ Successor Period is as follows (in millions): ​ Period from​ October 19,​ Year Ended 2016 to​ December 31, December 31,​ 2017 2016​ Federal income tax at statutory rate (0.9)$ (2.4)$ ​ State income tax benefit—net of federal income ​ tax effect - (0.3) ​ Change in blended rate (29.2) - ​ Research and developme t tax credits (1.1) - ​ Transaction costs 0.1 - ​ Change in uncertain tax positions 0.3 - ​ Tax credits—U.S. - - ​ Change in valuation allowance 0.6 0.1 ​ Nonincludable income from pass-through 0.8 - ​ Other—net (0.2) (0.2) ​ Total income tax (benefit) expense (29.6)$ (2.8)$ ​ ​ ​ ​ - 22 - ​ The primary difference between the federal statutory income tax rate and the Company’s ​ effective tax rate for 2017 is due to a change in federal income tax rate. ​ The primary difference between the federal statutory income tax rate and the Company’s ​ effective tax rate for 2016 is due to meals and entertainment, business gifts, state income ​ taxes, and change in valuation allowance. ​ Deferred income taxes reflect the net tax effects of temporary differences between the ​ carrying amount of assets and liabilities for financial reporting purposes and the amounts ​ used for income tax purposes. Significant components of the Company’s net deferred ​ income taxes are as follows (in millions): ​ December 31, December 31,​ 2017 2016​ Deferred tax assets:​ Accrued incentive compensation 0.7$ 2.5$ ​ Accrued PTO 0.4 0.7 ​ Allowance for doubtful accounts 0.3 0.4 ​ Deferred rent 0.3 0.2 ​ Cash bonus plan payable - 0.6 ​ Loss carryforwards 1.0 2.9 ​ Credit carryforwards 2.5 1.7 ​ Other accrued expenses 0.6 0.5 ​ Total deferred tax assets 5.8 9.5 ​ Deferred tax liabilities:​ Fixed assets (0.5) (2.4) ​ Intangible assets (59.7) (98.8) ​ Internally developed software (3.1) (0.8) ​ Total deferred tax liabilities (63.3) (102.0)$ ​ Valuation allowance (3.1) (1.1) ​ Net deferred tax liabilities (60.6)$ (93.6)$ ​ ​ The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act ​ reduces the US federal corporatetax rate from 35% to 21%, and many other significant ​ changes to the U.S. tax code. At December 31, 2017, the Company has completed and ​ applied its accounting for the tax effects enactment of the Act. ​ The Company remeasured certain deferred tax assets and liabilities based on the rates at ​ which they are expected to reverse in the future, which is generally 21%. The amount ​ recorded related to the remeasurement of the Company’s deferred tax balance was a ​ benefit of $29.2 million. The benefit is included as a component of income tax expense. ​ ​ ​ - 23 - ​ At December 31, 2017, the Company has Arizona and California state research and ​ development tax credits of $4.2 million available to offset future income taxes, if any, for ​ those jurisdictions. The Arizona research and development tax credits will begin to expire ​ in 2026. California research and development credits may be carried forward indefinitely. ​ The valuation allowance of $3.1 million at December 31, 2017, relates to separate legal ​ entities that operate at breakeven for tax purposes and Arizona research and development ​ credits. The Company believes that it is not more likely than not that these entities will be ​ able to realize the tax benefit related to their net operating losses and credits. A portion of ​ the deferred tax assets for Arizona research and development state credits and federal and ​ state net operating losses have been offset by a valuation allowance to reflect this ​ expectation. ​ The Company has gross federal and state net operating loss carryforwards of $2.9 million ​ and $30.2 million, respectively, at December 31, 2017. Federal net operating loss ​ carryforwards will begin to expire in 2026, and state loss carryforwards will begin to expire ​ in 2022. ​ Under IRC Section 382 (“Section 382”), the annual utilization of the Company’s state net ​ operating loss and research and development carryforwards may be limited. The Company ​ has determined that theannual limitation did not affect net operating loss or research and ​ development utilization in 2017. The Company continues to evaluate the impact of ​ Section 382 on its existing attributes, which may result in the limitation of those attributes ​ in future periods. ​ In February 2017, CCHN received notice of an Internal Revenue Service (IRS) examination ​ of the federal tax return for the period ending October 23, 2014. CCHN was notified on ​ November 30, 2017, that the IRS completed its examination and made no changes to the ​ reported tax. Management is not aware of any other impending audits. ​ With exceptions due to the generation and utilization of net operating losses or credits, as ​ of December 31, 2017, CCHN Group Holdings, Inc. & Subsidiaries and the affiliated entities ​ are no longer subject to federal or state examinations by tax authorities for tax years ​ before 2014 and 2013, respectively. ​ The Company expects no material amount of the unrecognized tax benefits to be ​ recognized during the next 12 months. The Company’s policy is to recognize interest and ​ penalties accrued on any unrecognized tax benefits as a component of income tax ​ expense. The Company has no interest or penalties accrued. A reconciliation of the liability ​ for unrecognized income tax benefits is as follows: ​ December 31, December 31,​ 2017 2016​ Unrecognized taxbenefits—beginning of year 0.8$ 0.3$ ​ Increase related to prior-year tax positions - 0.4 ​ Increase related to current-year tax positions 0.3 0.1 ​ Unrecognized tax benefits—end of year 1.1$ 0.8$ ​ ​ ​ ​ - 24 - ​ 10. MEMBERS’ EQUITY ​ Capital Structure—During the 2016 Predecessor Period, Matrix was organized with CCHN ​ as its parent, with 500,000 shares of common stock authorized and 112,264 shares ​ outstanding. As part of the change of control transaction described in Note 2, CCHN ​ became a wholly owned subsidiary of Mercury Parent, a limited liability company. At ​ December 31, 2017, Mercury Parent had an authorized capital structure consisting of the ​ following units: ​ • Common units—353 million units authorized and outstanding, voting rights, liquidation ​ preference of $1 per unit ​ • Series A units—39.1 million units authorized, no voting rights, participation in ​ distributions in excess of $1 per common unit ​ • Series B units—18.2 million units authorized, no voting rights, participation in ​ distributions in excess of $2 per common unit ​ • Series C units—14.8 million units authorized, no voting rights, participation in ​ distributions in excess of $3 per common unit ​ • Series D units—15.9 million units authorized, no voting rights, participation in ​ distributions in excess of $4 per common unit ​ For the year ended December 31, 2017, the Company issued an aggregate of 1.4 million ​ common units to its members in exchange for proceeds of $1.4 million. ​ Equity-Based Compensation—2017 and 2016 Successor Periods—On October 19, ​ 2016, the Company’s board of directors adopted aValue Unit Plan (the “Plan”) for certain ​ executives within the Company. The Plan provides for awarding of up to 39.1 million ​ Series A units, 18.2 million Series B units, 14.8 million Series C units, and 15.9 million ​ Series D units, with each series of units being nonvoting and vesting at a rate of 25% after ​ the first-year anniversary of the date of grant and 1/36 of the remaining to be vested in ​ each successive month following the first-year anniversary. Each of the units shall ​ participate in distributions provided that minimum value thresholds are met as defined in ​ the Plan. At December 31, 2017, there were 11.4 million of Series A units, 5.3 million of ​ Series B units, 4.3 million of Series C units, and 4.7 million of Series D units available for ​ issuance under the Plan. ​ The fair value of each Plan unit was established at the date of award based on an option-​ pricing model using the following assumptions: ​ Period from​ October 19,​ Year Ended 2016 to​ December 31, December 31,​ 2017 2016​ Risk-free interest rate 1.73 % 1.47 % ​ Expected term 3.0 years 3.0 years​ Volatility 57.0 % 57.5 % ​ ​ ​ ​ - 25 - ​ The risk-free interest rate was based on the U.S. Federal Reserve rate in effect as of the ​ date of grant, which corresponds to the expected term of the award. The expected term ​ was based on management’s estimated time to liquidation. The volatility was based on ​ historical data for a group of peer companies for the expected term of the award. ​ The following is the activity for the awards for the period from October 19, 2016, to ​ December 31, 2016, and for the year ended December 31, 2017: ​ Fair Fair Fair Fair​ Series A Value Series B Value Series C Value Series D Value​ Units per Unit Units per Unit Units per Unit Units per Unit​ Awards outstanding at​ October 19, 2016 - - $ - - $ - - $ - - $ ​ Awards granted 28,845,525 0.27 13,416,522 0.13 10,911,028 0.07 11,729,354 0.04 ​ Awards outstanding at​ December 31, 2016 28,845,525 0.27 13,416,522 0.13 10,911,028 0.07 11,729,354 0.04 ​ Awards granted 1,074,333 0.27 499,690 0.13 406,374 0.07 436,852 0.04 ​ Awards forfeited (2,295,167) 0.27 (1,067,519) 0.13 (868,163) 0.07 (933,276) 0.04 ​ Awards outs anding at​ Dec mber 31, 2017 27,624,691 0.27$ 12,848,693 0.13 10,449,239 0.07$ 11,232,930 0.04 ​ Awards vested and ​ expected to vest at​ December 31, 2017 26,962,045 0.27$ 12,540,486 0.13$ 10,200,919 0.07$ 10,963,481 0.04$ ​ Awards vested at​ December 31, 2017 7,725,417 0.27$3,593,217 0.13$ 2,992,195 0.07$ 3,141,359 0.04$ ​ ​ The Company issues the respective equity units upon reaching the vesting date. The grant-​ date fair value of all unit awards granted under the Plan during the year ended ​ December 31, 2017 and the 2016 Successor Period, was $0.2 million and $9.5 million, ​ respectively. During the year ended December 31, 2017, and the 2016 Successor Period, ​ the Company recognized $2.5 million and $0.4 million, respectively, of compensation ​ expense for these awards. All compensation expense is included in service expense in the ​ consolidated statements of operations. Unrecognized compensation expense related to the ​ Plan as of December 31, 2017, was $7.2 million, which is expected to be recognized over a ​ weighted-average period of 1.5 years. All awards are classified as equity. ​ 11. COMMITMENTS AND CONTINGENCIES ​ Operating Leases—The Company leases office space in Arizona, California, and ​ Massachusetts under operating leases that expire through 2022. These leases contain rent ​ escalation clauses that have been factored into determining rent expense on a straight-line ​ basis over the respective lease term. Rent expense under these leases totaled $2.5 million ​ and $0.5 million for the year ended December 31, 2017 and the 2016Successor Period, ​ respectively. The Company has subleased its office space in California, for which it received ​ income of $0.1 million and $0 million for the year ended December 31, 2017 and the 2016 ​ Successor Period, respectively. Under this sublease, the Company expects to receive ​ $0.2 million in 2018 and $0.1 million in 2019. ​ In September 2012, the Company entered into a master lease agreement with a vehicle ​ fleet service company. This agreement has a base term of one year and will continue ​ indefinitely thereafter until canceled or terminated by either party. The minimum lease ​ term for each vehicle is 367 days, beginning on the Company’s acceptance of the vehicle. ​ ​ ​ - 26 - ​ Thereafter, the lease term may be renewed monthly for the lesser of the maximum lease ​ term (up to 96 months) or the amortization term set in the respective vehicle order. Lease ​ expense for the fleet lease for the year ended December 31, 2017 and the 2016 Successor ​ Period totaled $3.7 million and $0.9 million, respectively. ​ At December 31, 2017, the approximate future minimum rental payments under the ​ noncancelable operating leases are as follows (in millions, net of expected subleases): ​ 2018 3.2$ ​ 20 9 3.1 ​ 2020 3.1 ​ 2021 3.0 ​ 2022 2.3 ​ Thereafter - ​ Total 14.7$ ​ ​ Severance Agreements—The Company has entered into employment and termination ​ agreements with key personnel that obligate the Company for salary continuation upon ​ termination without cause. For the year ended December 31, 2017 and the 2016 Successor ​ Period, the Company incurred $0.5 million and $0.1 million, respectively, of severance ​ costs. At December 31, 2017, the Company had no accrued severance costs. ​ Bonus Incentive Plan—Year Ended December 31, 2017, and 2016 Successor ​ Period—In connection with the change of control transaction described in Note 2, the ​ Company implemented a new bonus plan which superseded the predecessor plan. Under ​ the new plan, an aggregate of $8.8 million is payable to certainemployees, with 50% ​ payable on the 60-day anniversary of the change of control transaction and the other 50% ​ payable on the six-month anniversary of the transaction. Such amounts are subject to ​ continued employment. A portion of the amounts payable reflects a $2.2 million obligation ​ that existed under the former bonus incentive plan as of the date of the change of control ​ transaction. Upon the adoption of the new plan, the rights to the former bonus plan were ​ surrendered. As such, the Company has reversed the existing $2.2 million accrual in the ​ 2016 Successor Period and is recognizing $8.8 million as service expense over the period ​ to which services are to be rendered. The Company recognized $2.7 million and ​ $6.1 million of bonus expense related to this plan for the year ended December 31, 2017, ​ and the 2016 Successor Period, respectively. For the year ended December 31, 2017, and ​ the 2016 Successor Period, $4.4 million and $4.4 million, respectively, was paid under the ​ plan. As of December 31, 2017 and 2016, the Company had $0 and $1.8 million accrued ​ related to this plan. ​ Management Incentive Plan—The Company has a bonus incentive plan available for ​ certain managers and executives of the Company. The bonus incentive plan is based on ​ the financial results of the Company, whichinclude certain benchmark thresholds that are ​ determined annually to establish a baseline pool of the amounts to be distributed to the ​ eligible participants. If the Company does not meet the requirements as defined annually ​ by the board of directors, the baseline pool is established for distribution based on a sliding ​ scale. Further, the distribution of the bonus amounts is based at least in part on the ​ individual performance of the eligible participants. For the year ended December 31, 2017 ​ and the 2016 Successor Period, the Company incurred $1.5 million and $0.8 million, ​ respectively, of management incentive costs. At December 31, 2017 and 2016, the ​ ​ ​ - 27 - ​ Company had $1.8 million and $4.4 million, respectively, in accrued management incentive ​ costs. ​ Cash Bonus Plan—In connection with Providence’s acquisition of CCHN on October 23, ​ 2014, a seller-funded $5 million bonus pool was established for the benefit of certain ​ Company employees. Plan amounts are held in escrow with escrow releases each time ​ amounts are paid under the plan. Original awards under the plan are to be paid 25%, ​ 25%, and 50% on the first, second, and third anniversaries of the acquisition. Amounts ​ under the plan are reallocated upon forfeiture with reallocation awards scheduled to be ​ paid on or before December 31, 2017. For the year ended December 31, 2017 and the ​ 2016 Successor Period, the Company incurred $1.6 million and $0.5 million, respectively, ​ of bonus expense. At December 31, 2017, all such amounts have been paid. ​ Laws and Regulations—The health care industry is subject to numerous laws and ​ regulations of federal, state, and local governments. These laws and regulations include, ​ but are not necessarily limited to, Medicare and Medicaid fraud and abuse, false claims, ​ and disguised payments in exchange for the referral of patients. Government activity has ​ continued with respect to investigations and allegations concerning possible violations of ​ fraud and abusestatutes and regulations by health care service providers. Violations of ​ these laws and regulations could result in expulsion from government health care ​ programs together with the imposition of significant fines and penalties, as well as ​ significant repayments for patient services previously billed. Compliance with such laws ​ and regulations can be subject to future government review and interpretations. ​ The Health Insurance Portability and Accountability Act (HIPAA) was enacted on August 21, ​ 1996, to ensure health insurance portability, reduce health care fraud and abuse, ​ guarantee security and privacy of health information, and enforce standards for health ​ information. Effective August 2009, the Health Information Technology for Economic and ​ Clinical Health Act was introduced imposing notification requirements in the event of ​ certain security breaches relating to protected health information. Organizations are ​ required to be in compliance with HIPAA provisions and are subject to significant fines and ​ penalties if found not to be compliant with the provisions outlined in the regulations. ​ Legal—The Company is a party to various legal actions arising in the ordinary course of ​ business. The Company believes that potential liability, if any, under these claims will not ​ have a material adverse effect on the consolidated financial position, results of operations, ​ orcash flows. ​ As of December 31, 2017, the Company is defending several malpractice claims which ​ arose from a discontinued legacy business. The Company believes it is reasonably possible ​ that a loss has occurred; however, the Company is not able to reliably estimate the ​ amount of loss. The Company does not believe the aggregate amount of liability that could ​ be reasonably possible with respect to these matters would have a material adverse effect ​ on its financial results. ​ Insurance—In the Predecessor Period, the Company maintained a large deductible ​ workers’ compensation plan (in all states except Ohio and Washington where workers’ ​ compensation is covered under a premium-only policy by a state-funded workers’ ​ compensation system). In the Successor Period, the Company established and maintained ​ a fully funded, no deductible workers’ compensation plan (in all states except Ohio and ​ Washington as stated previously). The Company also maintains a self-insured medical plan ​ for both the Predecessor and Successor periods. Other healthcare benefits such as vision ​ and dental remained fully insured. ​ ​ ​ - 28 - ​ Determining reserves for losses in these self-insured programs involves significant ​ judgments based upon the Company’s experience and expectations of future events, ​ including projected settlements for pending claims, known incidents which may result in ​ claims, estimate of incurred but not yet reported claims, estimated litigation costs and ​ other factors. Since these reserves are based on estimates, actual expenses may differ ​ from the amount reserved. The Company had $11 thousand and $0.2 million of estimated ​ workers’ compensation plan losses and $0.8 million and $0.4 million of estimated medical ​ plan losses included in accrued liabilities at December 31, 2017 and 2016, respectively ​ 12. SUBSEQUENT EVENTS ​ On January 4, 2018, the Company entered into a definitive agreement to acquire a ​ majority interest in DPN USA, LLC and Affiliates (“HealthFair”) at a valuation of ​ $160.0 million. HealthFair is the leading provider of mobile health risk assessments and ​ diagnostic testing services and operates the nation’s largest fleet of mobile health clinics ​ which perform health screenings, diagnostics and lab testing for health plan members, ​ communities, and employers nationwide. The transaction closed on February 16, 2018 at ​ which time HealthFair rolled-over $36.4 million for the purchase of 24.2 million common ​ units of the Company. TheCompany financed a portion of the acquisition price through the ​ transaction described below. ​ On February 16, 2018, the Company entered into a financing transaction consisting of a ​ $330.0 million first lien term loan and a $20.0 million revolving line of credit, of which ​ none was drawn. The term loan bears interest at a rate of LIBOR plus 4.75% and is due ​ and payable on February 15, 2025. The Company incurred debt issuance costs of ​ $6.1 million associated with this financing. ​ The Company has evaluated all subsequent events that occurred after the consolidated ​ balance sheet date through March 9, 2018, which represents the date the consolidated ​ financial statements were available to be issued. The Company is not aware of any ​ significant events that have not been disclosed herein that will have an impact of these ​ consolidated financial statements. ​ ​ 

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