Exhibit 10.2

THE SECURITY REPRESENTED BY THIS UNSECURED SUBORDINATED NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THIS SECURITY MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS UNLESS PRIOR TO SUCH SALE,
TRANSFER, PLEDGE OR DISPOSITION, MAKER IS FURNISHED WITH AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO MAKER, THAT THE PROPOSED SALE,
TRANSFER, PLEDGE, OR DISPOSITION WILL BE EXEMPT FROM SUCH REGISTRATION.

THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN SENIOR INDEBTEDNESS
(DEFINED BELOW) TO THE EXTENT AND ON THE TERMS SET FORTH HEREIN. REFERENCE IS
MADE TO SECTION 6 BELOW AND EXHIBIT “A” FOR MORE DETAIL AS TO THE SUBORDINATION.

UNSECURED SUBORDINATED NOTE

 

$65,500,000.00    October 23, 2014

FOR VALUE RECEIVED, THE PROVIDENCE SERVICE CORPORATION, a Delaware corporation
(“Maker”), promises to pay to the order of those entities listed in Annex A
hereto (each, a “Payee”, and collectively, the “Payees”), the principal sums of
set forth next to the name of each Payee as set forth on Annex A hereto (with
the aggregate principal amount payable to all Payees being Sixty-Five Million
Five Hundred Thousand Dollars ($65,500,000.00)) with interest, on the terms and
conditions described below. The actual amount due and owing from time to time
hereunder shall be evidenced by each Payee’s records, which shall be prima facie
evidence of the unpaid balance thereof.

1. Definitions. As used in this Note, all capitalized terms that are not defined
in this Section 1 or directly within the body of this Note shall have the
respective meaning set forth in the Credit Agreement.

(a) “Commission” shall mean the Securities and Exchange Commission.

(b) “Credit Agreement” means that certain Amended and Restated Credit and
Guaranty Agreement dated August 2, 2013, as amended by the first amendment dated
as of May 28, 2014 and the second amendment dated as of October 23, 2014, by and
among the Maker, as borrower, the guarantors party thereto, the lenders party
thereto and Bank of America, N.A., as administrative agent.

(c) “Default Rate” shall have the meaning given such term in Section 4(a).

(d) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(e) “GAAP” shall mean generally accepted accounting principles.

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(f) “Interest Period” shall have the meaning given such term in Section 2(a)
hereof.

(g) “Issuance Date” shall mean the issuance date of this Note.

(h) “Maker” shall have the meaning given such term in the introductory paragraph
hereto.

(i) “Maturity Date” shall have the meaning given such term in Section 3(a)
hereof.

(j) “Note” shall mean this Unsecured Subordinated Note, as the same may be
amended or modified from time to time.

(k) “Payee” and “Payees” shall have the meaning given such terms in the
introductory paragraph hereto, and shall include each Payee’s successors and
assigns.

(l) “PIK Interest” shall have the meaning given such term in Section 2(a)
hereof.

(m) “Rights Offering” shall have the meaning given such term in the Standby
Purchase Agreement.

(n) “Rights Offering Outside Date” shall mean the One Hundred Twentieth
(120th)-day anniversary of the Issuance Date, as such date may be extended by
the Maker, but in no event for more than an additional aggregate of one hundred
eighty (180) days, if (i) the Commission issues a stop order suspending the
effectiveness of any registration statement relating to the Rights Offering or
the initiation of proceedings with respect to such a registration statement
under Section 8(d) or 8(e) of the Securities Act, (ii) the Board determines, in
its good faith judgment, that the Rights Offering should not be undertaken
because it would reasonably be expected to materially interfere with or require
the public disclosure of any material corporate development or plan, including
any material financing, securities offering, acquisition, disposition, corporate
reorganization or merger or other transaction involving the Maker or any of its
Subsidiaries or (iii) the Maker possesses material non-public information the
disclosure of which the Board determines, in its good faith judgment, would
reasonably be expected to not be in the best interests of the Maker and its
Subsidiaries.

(o) “Securities Act” shall mean the Securities Act of 1933, as amended.

(p) “Standby Purchase Agreement” shall mean that certain Standby Purchase
Agreement, dated as of the date hereof, by and among the Maker and the Payees.

(q) “Transaction Documents” shall mean this Note and the Standby Purchase
Agreement.

 

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2. Interest Rate; Manner of Payment; Application of Payments.

(a) Interest Rate. Beginning on the Issuance Date, subject to the provisions of
Section 4 hereof, the outstanding principal balance of this Note shall bear
interest at a rate per annum equal to fourteen percent (14%), increasing by five
tenths of a percent (0.5%) per annum commencing on the Rights Offering Outside
Date, and further increasing by five tenths of a percent (0.5%) per annum on
each ninety (90)-day anniversary of the Rights Offering Outside Date (each such
period, an “Interest Period”), up to a maximum aggregate per annum interest rate
of eighteen and five tenths percent (18.5%). Interest for the period commencing
on the Issuance Date and ending on the 120th-day anniversary of the Issuance
Date (i.e. $3,014,795) shall be paid in advance entirely in cash on the Issuance
Date. Interest for the period commencing after the one hundred twenty (120)-day
anniversary of the Issuance Date shall be paid, quarterly, in arrears, entirely
by increasing the principal amount of this Note by an amount equal to the amount
of interest for the applicable Interest Period, which shall be due and payable,
together with all interest accrued thereon, in cash, on the Maturity Date (“PIK
Interest”). Interest will be computed on the basis of the actual number of days
elapsed in a 365/366 day year. References in this Note to the “principal” amount
shall include increases in the principal amount as a result of any PIK Interest
payment.

(b) Manner of Payment. All payments (including prepayments) by the Maker
hereunder shall be made to each Payee at its address set forth in Section 13
hereof, or such other place or places as a Payee may direct, prior to the date
of payment, in lawful money of the United States of America, and in immediately
available funds. Whenever any payment to be made hereunder shall be stated to be
due on a Saturday, Sunday or a public holiday under the laws of the State of New
York, such payment may be due on the next succeeding business day; provided,
however, that such extension of time shall be included in the computation of
interest due in conjunction with such payment or other fees due hereunder, as
the case may be.

(c) Application of Payments. All payments to the Payees in respect of the
indebtedness evidenced hereby or any other obligation of the Maker under the
other Transaction Documents shall be applied (i) first to the payment in full of
any costs incurred by the Payees in the collection of the indebtedness evidenced
hereby or any other obligation of the Maker under the other Transaction
Documents, including without limitation, reasonable attorneys’ fees, (ii) then
to the payment in full of any late charges, (iii) then to the payment in full of
accrued, unpaid interest on the Notes, allocated to the Payees pro rata based on
their respective principal amounts, and (iv) then to the reduction of the unpaid
principal balance on the Note, applied against such unpaid principal balance as
determined in the sole discretion of the Payees. The Maker agrees that to the
extent it makes a payment or payments to or for the account of the Payees, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any bankruptcy, insolvency or similar
state or federal law, common law or equitable cause, then, to the extent of such
payment or repayment, the indebtedness or obligation intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been received.

 

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3. Maturity Date; Prepayment; Use of Proceeds.

(a) Maturity Date. Subject to the provisions of Section 7 hereof, the entire
outstanding principal balance of this Note and all accrued unpaid interest, late
charges, fees, and expenses hereunder shall be immediately due and payable on
the day that is ninety-one (91) days after August 2, 2018 (the “Maturity Date”).

(b) Mandatory Prepayment. Promptly following the Maker’s receipt of the gross
proceeds from the Rights Offering and the Payees’ commitments under the Standby
Purchase Agreement, the Maker shall prepay in cash the aggregate principal
amount of this Note plus all accrued and unpaid interest and all other amounts
due under this Note. Except as expressly set forth in this Note, this Note may
not be prepaid.

(c) Use of Proceeds. Maker will use the proceeds of the Note to fund, in part,
the acquisition by the Maker of CCHN Group Holdings, Inc., a Delaware
corporation.

4. Default Rate; Maximum Legal Rate.

(a) Default Rate. Notwithstanding Section 2(a), upon the occurrence of any Event
of Default as described in Section 7 hereof, this Note shall immediately and
automatically begin to bear interest at the annual rate of eighteen and five
tenths percent (18.5%) (such per annum rate, the “Default Rate”) and shall
continue thereafter to bear interest at the Default Rate until such Event of
Default is cured or waived, as appropriate, in writing by the Payees. All
incremental increases in interest payments attributable to the application of
the Default Rate shall be paid as PIK Interest.

(b) Maximum Legal Rate. Notwithstanding anything contained herein or the other
Transaction Documents, the Maker shall not be obligated to pay and the Payees
shall not collect interest on the indebtedness evidenced hereby at a rate in
excess of the maximum permitted by law or the maximum rate that will not subject
the Maker to any civil or criminal penalties. If, because of the acceleration of
maturity, the payment of interest in advance or any other reason, the Maker is
required, under the provisions hereof, under the other Transaction Documents or
otherwise, to pay interest at a rate in excess of such maximum rate, the rate of
interest under such provisions shall immediately and automatically be reduced to
such maximum rate, and any payment made in excess of such maximum rate, together
with interest thereon at the rate provided herein from the date of such payment,
shall be immediately and automatically applied to the reduction of the
outstanding balance of the indebtedness evidenced hereby as of the date on which
such excess payment was made. If the amount to be so applied to reduction of the
outstanding balance of the indebtedness evidenced hereby exceeds the outstanding
balance hereof, the amount of such excess shall be refunded to the Maker by the
Payees.

(c) Post-Judgment Interest. The interest rate or rates provided in this Note
shall apply to the indebtedness evidenced hereby before, on, and after the date
or dates on which the Payee enters judgment on this Note.

 

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5. Representations and Warranties. Maker represents and warrants to the Payees
that:

(a) Existence, Qualification and Power. Maker (i) is duly organized or formed,
validly existing and, as applicable, in good standing under the Laws of the
jurisdiction of its incorporation, (ii) has all requisite power and authority
and all requisite governmental licenses, authorizations, consents and approvals
to (A) own or lease its assets and carry on its business and (B) execute,
deliver and perform its obligations under the Transaction Documents, and
(iii) is duly qualified and, as applicable, in good standing under the Laws of
each jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification (to the extent the concept
of good standing is applicable to the Maker under the laws of such
jurisdiction); except in each case referred to in clause (ii)(A) or (B) above,
to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect.

(b) Authorization; No Contravention. The execution, delivery and performance by
the Maker of each Transaction Document has been duly authorized by all necessary
corporate action, and does not (i) contravene the terms of any of the Maker’s
Organization Documents; (ii) conflict with or result in any breach or
contravention of, or the creation of any Lien under, or require any payment to
be made under (A) any material Contractual Obligation to which the Maker is a
party or (B) any order, injunction, writ or decree of any Governmental Authority
or any arbitral award to which the Maker or its property is subject;
(iii) violate any Law (including, without limitation, Regulation U or Regulation
X issued by the FRB); or (iv) result in a limitation on any licenses, permits or
other Governmental Approvals applicable to the business, operations or
properties of the Maker or any of its Subsidiaries or adversely affect the
ability of the Maker or any of its Subsidiaries to participant in any Medical
Reimbursement Programs; except in each case referred to in clause (ii)(B),
(iii) or (iv) above, to the extent that such conflict, contravention or
violation could not reasonably be expected to have a Material Adverse Effect.

(c) Governmental Authorization; Other Consents. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Maker of this Agreement or any other Transaction Document other
than those approvals, consents, exemptions, authorizations or other actions,
notices or filings, that have already been obtained, taken, given or made and
are in full force and effect except such as may be required by the NASDAQ Global
Market, federal securities laws and the securities laws of the several states of
the United States with respect to the Rights Offering and except to the extent
that such approval, consent, exemption, authorization, or other action could not
reasonably be expected to have a Material Adverse Effect.

(d) Binding Effect. Each Transaction Document has been duly executed and
delivered by the Maker. Each Transaction Document constitutes a legal, valid and
binding obligation of the Maker, enforceable against the Maker in accordance
with its terms, except as such enforceability may be limited by Debtor Relief
Laws and by general principles of equity and principles of good faith and fair
dealing.

 

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(e) Litigation. There are no actions, suits, proceedings, claims or disputes
pending or, to the knowledge of a Responsible Officer of the Maker or any of its
Subsidiaries, threatened in writing, at law, in equity, in arbitration or before
any Governmental Authority, by or against the Maker or any of its Subsidiaries
or against any of their properties or revenues that (a) could reasonably be
expected to adversely affect the rights and remedies of the Payees under this
Agreement or any other Transaction Document or (b) could reasonably be expected
to have a Material Adverse Effect.

(f) No Default. No Default or Event of Default has occurred and is continuing.

(g) Credit Agreement. All representations and warranties (other than those set
forth in Section 6.01(b)(ii) (Existence, Qualification and Power), Section 6.02
(Authorization; No Contravention), Section 6.03 (Governmental Authorization;
Other Consents), Section 6.04 (Binding Effect), Section 6.06 (Litigation),
Section 6.07(b) (No Default), Section 6.19 (Perfection of Security Interests in
the Collateral) and Section 6.20 (Business Locations)) made by Maker under the
Credit Agreement are incorporated herein by reference as though specifically set
forth herein and are true and correct as of the date hereof.

6. Subordination. Notwithstanding anything else to the contrary in this Note,
this Note and the indebtedness evidenced hereby are subordinated in the manner
and to the extent set forth in Exhibit “A” hereof.

7. Default: Rights, Remedies.

(a) Events of Default. The occurrence of any of the following events shall be an
“Event of Default” under this Note:

(i) Non-Payment. Failure by the Maker to pay the principal of or accrued
interest on this Note within five (5) Business Days from the date such amount
becomes due.

(ii) Falsity of Representations and Warranties. Any representation, warranty,
certification or statement of fact made or deemed made by or on behalf of the
Maker herein, in any other Transaction Document, or in any document delivered in
connection herewith or therewith shall be incorrect in any material respect when
made or deemed made.

(iii) Failure to Perform Certain Covenants. Failure by the Maker to observe or
perform any other covenants, conditions or provisions contained in this Note or
in the other Transaction Documents; provided, however, that with respect to a
violation of the covenants contained in Section 8 of this Note, such failure
shall continue for a period of thirty (30) days after the earlier of (i) written
notice thereof from the Payees to the Maker, or (ii) the date on which any
officer, director or member of the Maker knew, or should reasonably have known,
of such failure.

 

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(iv) Default Under Other Obligations.

(A) The Maker defaults in any payment of principal on any obligations for
borrowed money having a principal amount of more than $24,000,000 in aggregate
(other than under this Note) beyond any period of grace provided with respect
thereto;

(B) The Maker defaults in any payment of interest on any obligations for
borrowed money having a principal amount of more than $24,000,000 in aggregate
(other than under this Note) and such default continues for a period of thirty
(30) days beyond any period of grace provided with respect thereto; or

(C) The Maker defaults in the performance of any other agreement, term or
condition contained in any obligation for borrowed money having a principal
amount of more than $24,000,000 in aggregate (other than under this Note) or in
any agreement relating thereto beyond any period of grace provided with respect
thereto, if the effect of such default is to cause such obligation to become due
prior to its stated maturity, and such obligation actually becomes due prior to
such stated maturity.

provided, however, with respect to clauses (A), (B) and (C) above, to the extent
that any such default arises under the Credit Agreement and such default is
subsequently cured or waived, then such cross-defaults shall be deemed
simultaneously cured or waived.

(v) Insolvency Proceedings, Etc. The Maker or any of its Subsidiaries (other
than any Immaterial Subsidiary; provided that the Immaterial Subsidiaries
excepted from this Section 7(a)(v) at any time shall not have aggregate revenues
exceeding 5% of consolidated revenues of the Maker and its Subsidiaries for the
applicable period) institutes or consents to the institution of any proceeding
under any Debtor Relief Law, or makes an assignment for the benefit of
creditors; or applies for or consents to the appointment of any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any material part of its property; or any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of such Person and the appointment
continues undischarged, undismissed or unstayed for sixty calendar days; or any
proceeding under any Debtor Relief Law relating to any such Person or to all or
any material part of its property is instituted without the consent of such
Person and continues undischarged, undismissed or unstayed for sixty
(60) calendar days, or an order for relief is entered in any such proceeding.

(vi) Invalidity of Transaction Documents. Any Transaction Document, at any time
after its execution and delivery and for any reason other than as expressly
permitted hereunder or thereunder or satisfaction in full of all amounts due
hereunder (other than in respect of unasserted indemnification and expense
reimbursement contingent indemnification obligations that survive the
termination of any Transaction Agreement), ceases to be in full force and effect
in all material respects; or the Maker or any of its Subsidiaries contests in
any manner the validity or enforceability of any Transaction Document; or the
Maker denies that it has any or further liability or obligation under any
Transaction Document, or purports to revoke, terminate or rescind any
Transaction Document.

(vii) Change of Control. There occurs any Change of Control.

 

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(b) Acceleration.

(i) Upon the occurrence of an Event of Default set forth in Sections
7(a)(i)-(iv) or 7(a)(vi)-(vii), the Payees may, by written notice to the Maker,
declare this Note to be due and payable, whereupon the principal amount of this
Note and all such outstanding indebtedness and obligations, together with
accrued interest thereon and all other amounts payable thereunder, shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, anything contained herein
or in the documents evidencing the same to the contrary notwithstanding;
provided however, to the extent that any default described in Section 7(a)(iv)
arises under the Credit Agreement and has resulted in the acceleration of the
Maker’s obligations under the Credit Agreement, in the event such obligations
are subsequently reinstated upon the cure or waiver of such cross-defaults under
the Credit Agreement, then the acceleration of the Maker’s obligations under
this Note shall be rescinded and the obligations hereunder reinstated.

(ii) Upon the occurrence of an Event of Default set forth in Sections 7(a)(v),
this Note shall automatically and immediately become due and payable, in all
cases without any action on the part of the Payees or any other person.

(c) No Marshalling, Etc., Required. If an Event of Default shall have occurred
and be continuing, the Payees shall not be required to marshal any present or
future security for, or guarantees of, the obligations hereunder or to resort to
any such security or guarantee in any particular order and the Maker waives, to
the fullest extent that they lawfully can, any right they might have to require
the Payees to pursue any particular remedy before proceeding against it.

(d) Remedies Cumulative. Each Payee may exercise any of its rights and remedies
set forth in this Note. The remedies of each Payee shall be cumulative and
concurrent, and may be pursued singly, successively, or together, at its sole
discretion, and may be exercised as often as the occasion therefore shall occur;
and the failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof.

(e) Annulment of Defaults. Section 7 is subject to the condition that, if at any
time after the principal of this Note or any other obligations of the Maker to
the Payees under any Transaction Documents shall have become due and payable,
and before any judgment or decree for the payment of the moneys so due, or any
portion thereof, shall have been entered, then and in every such case each Payee
may, by written instrument signed by such Payee and delivered to the Maker,
rescind and annul such declaration and its consequences; but no such rescission
or annulment shall extend to or affect any subsequent Event of Default or impair
any right consequent thereon.

 

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(f) Distribution of Proceeds. In the event that following the occurrence or
during the continuance of any Event of Default, the Maker receives any monies
with respect to the amounts due hereunder, such monies shall be distributed for
application as follows:

(i) First, to the payment of, or (as the case may be) the reimbursement of the
Payees for or in respect of all reasonable costs, expenses, disbursements and
losses which shall have been incurred or sustained by the Payees in connection
with the collection of such monies by the Payees, for the exercise, protection
or enforcement by Payees of all or any of the rights, remedies, powers and
privileges of the Payees under this Note or relating to the Note or the other
Transaction Documents;

(ii) Second, to the indebtedness evidenced hereby, applied against such
indebtedness as determined in the sole discretion of the Payees; and

(iii) Third, the excess, if any, shall be returned to the Maker or to such other
persons as are entitled thereto.

8. Negative Covenants. So long as this Note shall remain outstanding, the Maker
shall not, and shall not permit any Subsidiary to, directly or indirectly
(provided that references herein to “Subsidiaries” shall exclude any Captive
Insurance Subsidiary for all Sections under this Section 8 except Section 8(a)):

(a) Indebtedness. Create, incur, assume or suffer to exist any Indebtedness,
except:

(i) Indebtedness under the Credit Agreement and other Loan Documents up to an
amount equal to the Maximum Senior Indebtedness Principal Amount (as defined on
Exhibit “A”);

(ii) Indebtedness of the Maker and its Subsidiaries set forth in Schedule 8.03
to the Credit Agreement;

(iii) intercompany Indebtedness permitted under Section 8.02 of the Credit
Agreement;

(iv) Indebtedness in respect of Swap Contracts entered into by the Maker or any
of its Subsidiaries in the ordinary course of business and not for speculative
purposes;

(v) Indebtedness incurred to finance the acquisition, lease or cost of design,
construction, expansion, repair, refurbishment, renovation, installment or
improvement of any fixed or capital assets (including obligations in respect of
Capital Leases) hereafter incurred by the Maker or any of its Subsidiaries;
provided that (i) the total of all such Indebtedness for all such Persons taken
together shall not exceed an aggregate principal amount of $18,000,000 at any
one time outstanding; (ii) such Indebtedness when incurred shall not exceed the
purchase price of the asset(s) financed; and (iii) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance outstanding
thereon at the time of such refinancing (except by an amount not greater than
accrued and unpaid interest with respect to such original obligations and any
reasonable premiums, fees, costs and expenses incurred in connection with such
refinancing);

 

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(vi) Indebtedness of the Maker under the Convertible Notes in an aggregate
principal amount not to exceed $84,000,000;

(vii) Indebtedness of Canadian Subsidiaries arising from trade payables unpaid
for more than ninety (90) days in the aggregate amount not in excess of
$3,000,000, and other Indebtedness of any Canadian Subsidiary in an aggregate
principal amount not to exceed $6,000,000; provided, that such Indebtedness is
not directly or indirectly recourse to the Maker or any Guarantor or of their
respective assets; and

(viii) Indebtedness of any Person that becomes a Subsidiary (or of any Person
not previously a Subsidiary that is merged or consolidated with or into a
Subsidiary in a transaction permitted hereunder) after the date hereof, or
Indebtedness of any Person that is assumed by any Subsidiary in connection with
an acquisition of assets by such Subsidiary in an acquisition permitted
hereunder, provided that (i) such Indebtedness exists at the time such Person
becomes a Subsidiary (or is so merged or consolidated) or such assets are
acquired and is not created in contemplation of or in connection with such
Person becoming a Subsidiary (or such merger or consolidation) or such assets
being acquired and (ii) neither the Maker nor any Subsidiary (other than such
Person or the Subsidiary with which such Person is merged or consolidated or
that so assumes such Person’s Indebtedness) shall Guarantee or otherwise become
liable for the payment of such Indebtedness;

(ix) endorsements for collection, deposit or negotiation and warranties of
products or services, in each case incurred in the ordinary course of business;

(x) Indebtedness owed in respect of any netting services, overdrafts and related
liabilities arising from treasury, depository and cash management services or in
connection with any automated clearing-house transfers of funds;

(xi) Indebtedness under bid bonds, performance bonds, surety bonds and similar
obligations, in each case, incurred by the Maker or any of its Subsidiaries in
the ordinary course of business, including guarantees or obligations with
respect to letters of credit supporting such bid bonds, performance bonds,
surety bonds and similar obligations;

(xii) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guaranties, surety
bonds or performance bonds securing the performance of the Maker or any of its
Subsidiaries pursuant to such agreements, in connection with acquisitions
permitted hereunder or permitted dispositions and Earn Out Obligations required
to be paid in connection with Permitted Acquisitions;

(xiii) Indebtedness to finance insurance premiums owing in the ordinary course
of business;

(xiv) to the extent constituting Indebtedness, obligations under any Treasury
Management Agreements entered into in the ordinary course of business;

 

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(xv) unsecured Subordinated Indebtedness of the Loan Parties; provided that
(i) such Subordinated Indebtedness shall not mature, and no scheduled principal
payments, prepayments, repurchases, redemptions or sinking fund or like payments
of any Subordinated Indebtedness shall be required, at any time on or prior to
the date that is six (6) months after the Maturity Date, except as a result of a
“change of control” or default thereunder, (ii) the Subordinated Indebtedness
shall not include any financial maintenance covenants and the terms thereof
shall otherwise not be more restrictive in any respect on the Loan Parties than
the provisions of the Credit Agreement, (iii) the Loan Parties would be in
compliance with the covenants set forth in Section 8.11 of the Credit Agreement
as of the most recently completed period of four consecutive fiscal quarters
ending prior to the incurrence of such Subordinated Indebtedness for which the
financial statements and certificates required by Section 7.01(a) or 7.01(b) of
the Credit Agreement, as the case may be, and Sections 7.02(a) and 7.02(b) of
the Credit Agreement have been delivered, after giving pro forma effect to such
incurrence and to any other event occurring after such period as to which pro
forma recalculation is appropriate, (iv) no Default or Event of Default under
the Credit Agreement or this Note shall have occurred and be continuing at the
time of incurrence and (v) the Maker shall have delivered a certificate of a
Responsible Officer, certifying as to the foregoing and containing reasonably
detailed calculations in support thereof, in form and substance satisfactory to
the Payees;

(xvi) unsecured Indebtedness owed in respect of seller notes issued in
connection with Permitted Acquisitions, provided that such Indebtedness
(i) shall be subordinated to the Obligations in a manner reasonably satisfactory
to the Payees and (ii) shall not mature, and no payments or prepayments shall be
required, at any time prior to the date that is six months after the Maturity
Date;

(xvii) Indebtedness of Foreign Subsidiaries under foreign credit lines
(including, without limitation, pursuant to issuances of letters of credit or
bank guarantees) in an aggregate principal amount not to exceed $9,000,000;

(xviii) provided that no Default or Event of Default under the Credit Agreement
or this Note has occurred and is continuing at the time of incurrence,
additional Indebtedness of any Loan Party in an aggregate principal amount not
to exceed $18,000,000 at any time outstanding;

(xix) Indebtedness of the Maker under any Convertible Indebtedness in an
aggregate principal amount not to exceed $120,000,000;

(xx) Preferred Stock of the Maker (including the Series A Preferred and the
Series A-1 Preferred Stock) in an aggregate liquidation amount not to exceed
$120,000,000 (it being understood that such amount shall be increased to
$222,000,000 if this Note is refinanced with Preferred Stock within 300 days of
the Matrix Closing Date); and

(xxi) unsecured Indebtedness of the Maker under this Note; and

(xxii) all Permitted Refinancing Indebtedness in respect of Indebtedness of the
types referred to in clauses (ii) through (viii), clauses (xv), and clauses
(xix) through (xxi) above.

 

11

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(b) Restricted Payments. Declare or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, except
that:

(i) each Subsidiary may make Restricted Payments to the Maker, any Guarantor and
any other Person that owns a direct Equity Interest in such Subsidiary on a pro
rata basis to each holder of an Equity Interest in such Subsidiary;

(ii) the Maker and each Subsidiary may declare and make dividend payments or
other distributions payable solely in the Equity Interests of such Person;

(iii) the Maker and each Subsidiary may make Restricted Payments not exceeding
$2,400,000 during any fiscal year pursuant to and in accordance with stock
option plans, employment agreements, incentive plans or other benefit plans
approved by the Maker’s board of directors for management, directors, former
directors, employees and former employees of the Maker and its Subsidiaries;
provided, that, in addition, unused amounts for any fiscal year may be carried
over to the next succeeding fiscal year, but not to any subsequent year, and the
permitted amount for each fiscal year shall be used in total with or prior to
any amount carried over from the previous fiscal year;

(iv) the Maker may redeem, repurchase or otherwise acquire its Equity Interests
from (i) retired or terminated employees or officers or employees, officers or
directors of the Maker or its Subsidiaries pursuant to employment agreements
entered into in the ordinary course of business or (ii) holders of restricted
Equity Interests to the extent representing withholding tax obligations provided
that purchases described in this clause (ii) shall not exceed $2,400,000 in any
fiscal year; provided that, in addition, unused amounts for any fiscal year may
be carried over to the next succeeding fiscal year, but not to any subsequent
year, and the permitted amount for each fiscal year shall be used in total with
or prior to any amount carried over from the previous fiscal year, in each case,
provided no Default or Event of Default under the Credit Agreement or this Note
shall have occurred and remains outstanding on the date on which such payment
occurs or would occur as a result thereof; and

(v) so long as (i) no Default or Event of Default under the Credit Agreement or
this Note shall have occurred and be continuing before or after giving effect
thereto and (ii) the Maker is in compliance with the financial covenants set
forth in Section 8.11 of the Credit Agreement (calculated on a Pro Forma Basis
after giving effect thereto), the Maker may make any additional Restricted
Payments not otherwise permitted by this Section 8(b) in an aggregate amount not
to exceed in any fiscal year the sum of (A) $24,000,000 (the “Annual RP Amount”)
plus (B) 50% of the unused portion of the Annual RP Amount from the preceding
fiscal year; provided, that Restricted Payments made pursuant to this
Section 8(b)(v) during any fiscal year shall be deemed made, first, in respect
of the Annual RP Amount permitted for such fiscal year as provided above and,
second in respect amounts carried over from the prior fiscal year pursuant to
clause (B) above;

 

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(vi) cashless repurchases of Equity Interests deemed to occur upon exercise of
stock options or warrants if such Equity Interests represent a portion of the
exercise price of such options or warrants;

(vii) cash payments in lieu of issuing fractional shares in connection with the
exercise of warrants, options or other securities convertible into or
exchangeable for or by reference to Equity Interests of the Maker or any direct
or indirect parent company of the Maker;

(viii) in accordance with the Matrix Acquisition Agreement and/or escrow
agreement contemplated by the Matrix Acquisition Agreement, the Maker may, and
may cause each Subsidiary to, (i) receive Equity Interests of the Maker released
from the related escrow account or directly from the holders of such Equity
Interest, and (ii) make payments to the management, employees and former
employees of the Maker or any Subsidiary in the amounts provided under the CCHN
Group Holdings, Inc. 2014 Cash Bonus Plan established in connection with the
execution of the Matrix Acquisition Agreement;

(ix) (i) any payments in connection with a Permitted Bond Hedge Transaction and
(ii) the exercise, settlement, unwinding or termination of any related Permitted
Warrant Transaction by (A) delivery of shares of common stock of the Maker upon
settlement thereof, (B) (I) set-off against the related Permitted Bond Hedge
Transaction or (II) payment of an early termination amount thereof in common
stock upon any early termination thereof or (C) a cash payment not to exceed the
amount received upon any exercise, settlement, unwinding or termination of a
related Permitted Bond Hedge Transaction;

(x) so long as no Default or Event of Default under the Credit Agreement or this
Note shall have occurred and be continuing before or after giving effect
thereto, the Maker may make regularly scheduled payments of interest in cash on
Convertible Indebtedness; and

(xi) the Maker may pay cash dividends on the Series A Preferred in an amount not
to exceed a rate of 5.5% per annum and PIK Dividends (as defined in the Series A
Preferred Documents) in an amount not to exceed a rate of 8.5%; provided that
the Maker may pay cash dividends on the Series A Preferred (or any Series A-1
Preferred Stock (as defined in the Series A Preferred Documents) that may be
exchanged for, or converted from, outstanding Series A Preferred) in an amount
not to exceed a rate of 10.5% per annum and PIK Dividends in an amount not to
exceed a rate of 13.5% per annum with respect to Series A Preferred (or Series
A-1 Preferred Stock) held by the Payees or its affiliates in the event
shareholder approval of a “change of control” (under NASDAQ listing rules) in
relation to the Payees is not obtained; provided, further, that no cash
dividends shall be permitted to be paid under this Section 8(b)(xi) if a Default
or Event of Default under the Credit Agreement or this Note shall have occurred
and be continuing before or after giving effect to such payment.

 

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(c) Investments. Make any Investments, except:

(i) Investments held by the Maker or such Subsidiary in the form of cash or Cash
Equivalents;

(ii) Investments existing as of the Closing Date and set forth in Schedule 8.02
to the Credit Agreement (and any modification, replacement, renewal or extension
thereof to the extent not involving any new cash Investment);

(iii) (i) Investments in any Person that is a Loan Party prior to giving effect
to such Investment, (ii) Investments by the Maker and its Subsidiaries in their
respective Subsidiaries outstanding on the date hereof, (iii) Investments by
Subsidiaries that are not Loan Parties in other Subsidiaries that are not Loan
Parties and (iv) Investments by any Loan Party in Foreign Subsidiaries to the
extent such Investments are funded solely with the proceeds of the issuance by
the Maker of its Equity Interests;

(iv) (i) Investments by any Loan Party in Excluded Subsidiaries that are
not-for-profit entities, (ii) Investments by any Loan Party in Canadian
Subsidiaries and (iii) Investments by the Loan Parties in Subsidiaries that are
not Loan Parties, provided, that the aggregate amount for all Investments made
pursuant to this clause (d) shall not exceed $90,000,000 at any one time
outstanding; provided, that for purposes of determining compliance with this
Section 8(c)(iv), the aggregate amount of such Investments made pursuant to this
Section 8(c)(iv) shall be reduced by any dividends, distributions, or any other
payments received in cash in respect of such Investments;

(v) Investments consisting of extensions of credit in the nature of accounts
receivable or notes receivable arising from the grant of trade credit in the
ordinary course of business, and Investments received in satisfaction or partial
satisfaction thereof from financially troubled account debtors to the extent
reasonably necessary in order to prevent or limit loss;

(vi) Guarantees and other Indebtedness permitted by Section 8(a) hereof, to the
extent constituting Investments;

(vii) Permitted Acquisitions and the Matrix Acquisition;

(viii) loans and advances to employees, directors and officers of the Loan
Parties and Subsidiaries (i) for travel, entertainment, relocation and analogous
ordinary business purposes in an aggregate amount not to exceed $1,800,000 at
any time outstanding and (ii) in connection with such Person’s purchase of
Equity Interests of the Maker, in an aggregate amount not to exceed $1,800,000
at any time outstanding, in each case determined without regard to any
write-downs or write-offs of such advances;

(ix) Investments in (i) Swap Contracts permitted under Section 8(a)(iv) and
(ii) any Permitted Bond Hedge Transaction;

 

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(x) bank deposits and prepaid expenses made in the ordinary course of business;

(xi) promissory notes and other non-cash consideration received in connection
with Dispositions permitted by Section 8.05 of the Credit Agreement; provided
that such promissory notes and other non-cash consideration have been delivered
to the Administrative Agent as collateral along with any necessary stock power
or other endorsement reasonably requested by the Administrative Agent;

(xii) Investments in the ordinary course of business consisting of endorsements
for collection or deposit;

(xiii) transactions permitted by Section 8.04 of the Credit Agreement to the
extent constituting Investments;

(xiv) Investments (including debt obligations and Equity Interests) received in
connection with the bankruptcy or reorganization of any Person and in settlement
of obligations of, or other disputes with, such Persons arising in the ordinary
course of business and upon the foreclosure with respect to any secured
Investments or other transfer of title with respect to any secured Investment;

(xv) Investments in the form of certificates of deposit that serve as collateral
for letters of credit issued to support reinsurance obligations of Captive
Insurance Subsidiaries in the ordinary course of business;

(xvi) Investments made pursuant to Records Transactions; provided that the
aggregate amount of all Investments made pursuant to this clause (xvi) shall not
exceed $15,000,000 at any one time outstanding;

(xvii) Investments made in Foreign Subsidiaries in connection with the
consummation and financing of the Ingeus Acquisition; provided that the
aggregate amount of all such Investments shall not exceed (i) with respect to
the initial purchase price paid in connection with the Ingeus Acquisition,
$110,760,000 (of which, $29,160,000 shall be paid with Equity Interests),
(ii) with respect to the payment of any Earn Out Obligations required to be paid
pursuant to the Ingeus Purchase Agreement, $153,000,000 and (iii) with respect
to the first year working capital needs of Ingeus and its Subsidiaries,
$12,000,000;

(xviii) Investments of any Person existing at the time such Person becomes a
Subsidiary of the Maker or consolidates or merges with the Maker or any of its
Subsidiaries (including in connection with a Permitted Acquisition) and any
modification, replacement, renewal or extension thereof to the extent not
involving an additional cash Investment so long as such Investments were not
made in contemplation of such Person becoming a Subsidiary of the Maker or of
such consolidation or merger;

(xix) Investments (which may take the form of asset contributions) in Joint
Ventures in an aggregate amount not exceeding $60,000,000 in any fiscal year;
provided

 

15

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that, in addition, up to 50% of any unused amount for any fiscal year may be
carried over to the next succeeding fiscal year, but not to any subsequent
fiscal year, and the permitted amount for each fiscal year shall be used in
total with or prior to any amount carried over from the previous fiscal year;
and

(xx) other Investments (not including Investments in the Excluded Subsidiaries)
by the Loan Parties and their Subsidiaries at any time not to exceed $18,000,000
in the aggregate.

9. Replacement of Note. Upon receipt of evidence satisfactory to the Maker of
the loss, theft, destruction or mutilation of this Note and, if requested in the
case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonable satisfactory to the Maker, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Maker will issue a
new Note, of like tenor and amount and dated the date to which interest has been
paid, in lieu of such lost, stolen, destroyed or mutilated Note. Any and all
references herein to the Note shall include any Note issued pursuant hereto in
replacement thereof.

10. Extensions of Maturity. All parties to this Note, whether maker, endorser,
surety or guarantor, agree that the maturity of this Note, or any payment due
hereunder, may only be extended at any time or from time to time following the
written consent of the Payees and such extension shall not release, discharge or
affect the liability of any such party.

11. Unconditional Obligations. Maker’s obligations under this Note shall be the
absolute and unconditional duty and obligation of Maker and shall be independent
of any rights of set-off, recoupment, or counterclaim which Maker might
otherwise have against any Payee and the Maker shall pay absolutely the payments
of principal, interest, fees, charges and expenses required hereunder and under
the other Transaction Documents, free of any deductions and without abatement,
diminution or set-off.

12. Waivers. The Maker (i) waives presentment, notice of dishonor and protest of
this Note; (ii) consents to any and all extensions of time, renewals, waivers,
or modifications that may be granted by a Payee with respect to the payment or
other provisions of this Note; and (iii) agrees that makers, endorsers,
guarantors, and sureties for the indebtedness evidenced hereby may be added or
released without notice to the Maker and without affecting the Maker’s liability
hereunder. The liability of the Maker hereunder shall be absolute and
unconditional.

 

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13. Notices. All notices, communications and deliveries required or permitted by
this Note shall be made in writing signed by the party making the same, shall
specify the Section of this Note pursuant to which it is given or being made and
shall be deemed given or made (a) on the date delivered if delivered in person,
(b) on the third (3rd) business day after it is mailed if mailed by registered
or certified mail (return receipt requested) (with postage and other fees
prepaid) or (c) on the day after it is delivered, prepaid, to an overnight
express delivery service that confirms to the sender delivery on such day, as
follows:

If to the Maker:

The Providence Service Corporation

64 East Broadway Blvd.

Tucson, Arizona

Attention: General Counsel

Facsimile: (520) 747-6605

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

Paul Hastings LLP

75 East 55th Street

New York, New York 10022

Attention: Barry A. Brooks

Facsimile: (212) 230-7777

If to a Payee:

c/o Coliseum Capital Management, LLC

One Station Place, 7th Floor South

Stamford, CT 06902

Attention: Christopher Shackelton

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

Gibbons P.C.

One Pennsylvania Plaza, 37th Floor

New York, New York 10119

Attention: Frank T. Cannone

Facsimile: 973-639-8340

or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing in accordance with this
Section 13.

14. Costs and Expenses. The Maker shall promptly pay (or reimburse, as the
Payees may elect) all reasonable, out-of-pocket and documented costs and
expenses which the Payees have incurred or may hereafter incur in connection
with the negotiation, preparation, reproduction, interpretation, perfection,
protection of collateral, administration and enforcement of this Note including
without limitation, the payment of all reasonable, out-of-pocket and documented
attorneys’ fees in connection therewith, the collection of all amounts due under
this Note, and all amendments, modifications, consents or waivers, if any, to
the Transaction Documents. The Maker’s reimbursement obligations under this
Section 14 shall survive any termination of this Note.

 

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15. Financial Statements; Notices. So long as this Note shall remain
outstanding, the Maker shall and shall cause each Subsidiary (provided that
those provisions under this Section 15 with which Subsidiaries of the Maker are
required to comply shall exclude from such compliance any Captive Insurance
Subsidiary) to deliver to the Payees:

(a) upon the earlier of the date that is ninety days after the end of each
fiscal year of the Maker or the date such information is filed with the SEC, a
consolidated balance sheet of the Maker and its Subsidiaries as at the end of
such fiscal year, and the related consolidated statements of earnings, changes
in shareholders’ equity and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail and prepared in accordance with GAAP, audited and accompanied
by a report and opinion of an independent certified public accountant of
nationally recognized standing, which report and opinion shall be prepared in
accordance with generally accepted auditing standards and shall not be subject
to any “going concern” or like qualification (other than qualifications
resulting solely from the classification of the Loans as short term Indebtedness
during the one year period prior to the Maturity Date) or exception or any
qualification or exception as to the scope of such audit; and

(b) upon the earlier of the date that is forty-five days after the end of each
of the first three fiscal quarters of each fiscal year of the Maker or the date
such information is filed with the SEC, the unaudited consolidated balance sheet
of the Maker and its Subsidiaries as of the end of such fiscal quarter, and the
related consolidated statements of earnings and cash flows of the Maker and its
Subsidiaries for such fiscal quarter and for the period commencing at the end of
the previous fiscal year and ending with the end of such fiscal quarter, setting
forth in each case in comparative form the figures for the corresponding fiscal
quarter of the previous fiscal year and the corresponding portion of the
previous fiscal year, all in reasonable detail and fairly presenting in all
material respects the financial condition, earnings and cash flows of the Maker
and its Subsidiaries in accordance with GAAP, subject only to year-end audit
adjustments and the absence of footnotes.

16. Notices. So long as this Note shall remain outstanding, the Maker shall:

(a) Promptly following knowledge thereof by a Responsible Officer (and in any
event, within two Business Days of such knowledge), notify the Payee of the
occurrence of any Default.

(b) Promptly following knowledge thereof by a Responsible Officer (and in any
event, within five Business Days of such knowledge), notify the Payee of any
matter that has resulted in a Material Adverse Effect.

Each notice pursuant to this Section 16 shall be accompanied by a statement of a
Responsible Officer of the Maker setting forth details of the occurrence
referred to therein and stating what action the Maker has taken and proposes to
take with respect thereto. Each notice pursuant to Section 16(a) shall describe
with particularity any and all provisions of this Note that have been breached.

17. Integration; Amendment. This Note and the other Transaction Documents
constitute the sole agreement of the parties with respect to the subject matter
hereof and thereof

 

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and supersede all oral negotiations and prior writings with respect to the
subject matter hereof and thereof. No amendment of this Note, and no waiver of
any one or more of the provisions hereof shall be effective unless set forth in
writing and signed by the Maker and each Payee.

18. Successors and Assigns. This Note (i) shall be binding upon the Maker and
the Payees and, where applicable, their respective heirs, executors,
administrators, successors and permitted assigns; and (ii) shall inure to the
benefit of the Maker and the Payees and, where applicable, their respective
heirs, executors, administrators, successors and permitted assigns; provided,
however, that the Maker may not assign its rights or obligations hereunder or
any interest herein without the prior written consent of the Payees, and any
such assignment or attempted assignment by the Maker shall be void and of no
effect with respect to the Payees; and provided further that the Payees may not
assign their rights or obligations hereunder or any interest herein on or prior
to the three hundred (300)-day anniversary of the Issuance Date without the
prior written consent of the Maker and any such assignment or attempted
assignment by the Payees shall be void and of no effect with respect to the
Maker. After the three hundred (300)-day anniversary of the Issuance Date, this
Note may be assigned by any one or more Payees in whole or in part, and Annex A
shall be adjusted accordingly, and the Maker will issue a new Note or Notes, of
applicable tenor and amount.

19. Severability. The illegality, unenforceability or inconsistency of any
provision of this Note or any instrument or agreement required hereunder shall
not in any way affect or impair the legality, enforceability or consistency of
the remaining provisions of this Note or any instrument or agreement required
hereunder.

20. Waiver of Jury Trial. The Maker (by its execution of this Note) and the
Payee (by its acceptance of this Note) agree that any suit, action, or
proceeding, whether claim or counterclaim, brought or instituted by or against
the Maker or the Payee, or any successor or assign of the Maker or the Payee, on
or with respect to this Note or which in any way relates, directly or
indirectly, to the obligations of the Maker to the Payee under this Note or any
other Transaction Document, or the dealings of the parties with respect thereto,
shall be tried only by a court and not by a jury. MAKER AND PAYEE HEREBY
EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING.

21. Governing Law; Jurisdiction and Venue; Waiver of Service of Process. This
Note and all issues relating to this Note and the rights and obligations of
Payee and Maker, as appropriate (including, without limitation, the validity,
construction, interpretation, and enforceability of this Note and its various
provisions and consequences and legal effect of all transactions and events
which resulted in the issuance of this Note or which occurred or were to occur
as a direct or indirect result of this Note having been executed) shall be
governed by and construed in accordance with the internal laws of the State of
New York without regard to its rules pertaining to conflict of laws. Any action
which is based, directly or indirectly, on this Note or any matter in or related
to this Note, shall be brought only in the courts of the State of New York. Each
of the Payee and the Maker irrevocably waives any objection which it may now or
hereinafter have to the laying of the venue of any suit, action or proceeding
brought in such court and any claim that such suit, action or proceeding brought
in such a court has been brought in an inconvenient forum. THE MAKER WAIVES
PERSONAL SERVICE OF ANY

 

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AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE
BY MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO THE MAKER IN
ACCORDANCE WITH SECTION 13 OF THIS NOTE AND SERVICE SO MADE SHALL BE DEEMED TO
BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) BUSINESS DAYS AFTER
THE SAME SHALL HAVE BEEN POSTED TO MAKER’S ADDRESS.

 

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IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused this
Note to be duly executed as an instrument under seal by its below indicated
representative this 23rd day of October, 2014.

 

THE PROVIDENCE SERVICE CORPORATION By:   LOGO [g808108ex10_2pg21.jpg]  

 

  Name:   Warren S. Rustand   Title:   Chief Executive Officer

[Signature Page – Bridge Note]

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ANNEX A

Payee Allocations

 

Payee

   Principal Amount  

Coliseum Capital Partners, L.P.

   $ 31,110,008   

Coliseum Capital Partners II, L.P.

   $ 8,010,444   

Blackwell Partners, LLC

   $ 9,496,215   

Coliseum Capital Co-Invest, L.P.

   $ 16,883,333   

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Exhibit “A”

Subordination Terms

1. General. This Note and any amounts payable hereunder or under any other
Subordinated Note Documents (the “Subordinated Obligations”) are and shall be
expressly subordinate and junior in right of payment to the prior Payment in
Full of all existing and future Senior Indebtedness. In furtherance of the
foregoing, until all the Senior Indebtedness is Paid in Full, Maker shall not
make, and the Payees shall not accept, receive or retain from Maker any direct
or indirect payment (in cash, property, or securities or otherwise) upon or in
respect of any Subordinated Obligations; provided, however, while the Senior
Indebtedness remains outstanding, in whole or in part, the Payees shall have the
right to receive and retain only the following payments on account of the
Subordinated Obligations: (i) the non-refundable prepayment of cash interest, in
an amount not to exceed $3,014,795, to be paid on the Issuance Date of the Note
for the period from the Issuance Date through and including the date one hundred
twenty (120) days after the Issuance Date (the “Pre-Paid Interest Payment”);
(ii) payments in the form of Junior PIK Payments or Junior Securities; and
(iii) the prepayment or repayment of the Subordinated Obligations exclusively
from the proceeds of the Maker’s issuance of its Series A Preferred Stock, par
value $0.001, pursuant to a registered Rights Offering.

2. Subordination in the Event of Dissolution. Upon any distribution of assets of
the Maker upon any dissolution, winding up, total or partial liquidation or
reorganization of the Maker, whether voluntary or involuntary, in a bankruptcy,
insolvency, receivership or similar Proceeding or upon an assignment for the
benefit of creditors (a “Liquidation Proceeding”):

(i) the holders of the Senior Indebtedness shall first be entitled to receive
Payment-in-Full of the Senior Indebtedness (including any interest, fees,
premium, expenses and other charges that accrue before or after any Proceeding
irrespective of whether such interest, fees, premium, expenses and other charges
are allowed as a claim in any Proceeding) before any Payee is entitled to
receive any payment on account of the Subordinated Obligations (other than
payments in the form of Junior PIK Payments or Junior Securities);

(ii) any payment or distribution (other than payments in the form of Junior PIK
Payments or Junior Securities) of assets of the Maker of any kind or character,
whether in cash, property or securities to which any Payee would be entitled
except for the provisions of this Agreement, shall be paid by the liquidating
trustee or agent or other Person making such a payment or distribution, directly
to the Senior Agent to the extent necessary to make Payment-in-Full of all
Senior Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions to the holders of such Senior Indebtedness; and

(iii) in the event that, in connection with a Liquidation Proceeding,
notwithstanding the foregoing, any payment or distribution of assets of the
Maker of any kind or character, whether in cash, property or securities, shall
be received by any Payee on account of the Subordinated Obligations (other than
the Pre-Paid Interest Payment and

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payments in the form of Junior PIK Payments or Junior Securities) before all
Senior Indebtedness is Paid-in-Full, such payment or distribution shall be
received and held in trust by such Payee for the benefit of the holders of such
Senior Indebtedness and shall be paid over or transferred to the Senior Agent to
the extent necessary to make Payment-in-Full of all Senior Indebtedness
remaining unpaid after giving effect to all concurrent payments and
distributions to the holders of such Senior Indebtedness.

3. Remedies Standstill.

(i) Prior to the Payment-in-Full of all Senior Indebtedness, no Payee shall take
or continue any action, or exercise or continue to exercise any rights, remedies
or powers under the terms of this Note or any Subordinated Note Document, or
exercise or continue to exercise any other right or remedy at law or equity that
such Payee might otherwise possess, to collect any amount due and payable in
respect of the Subordinated Obligations, including, without limitation, the
acceleration of the Note, the commencement of any collection or enforcement
action, the taking of any lien or security interest in any property of the
Maker, the filing of any petition in bankruptcy or the taking advantage of any
other insolvency law of any jurisdiction; provided, that each Payee may exercise
any or all such rights after the expiration of the Standstill Period. If any
holder of any Senior Indebtedness shall have caused such Senior Indebtedness to
become due prior to its stated maturity, each Payee shall be entitled to
accelerate the maturity hereof prior to the expiration of the Standstill Period
but shall not be entitled to take any other action described above prior to the
expiration of the Standstill Period; provided however, that the acceleration of
this Note shall immediately be reversed if and when the holders of the Senior
Indebtedness rescind the acceleration taken above by such holders. Until
Payment-in-Full of all Senior Indebtedness, the Payee will not ask, demand,
accept, receive or retain any guarantee of the Subordinated Obligations, or any
collateral security for the payment of Subordinated Indebtedness, or any other
form of payment assurance as to the Subordinated Indebtedness, from the Maker or
any affiliate of the Maker.

(ii) Notwithstanding the foregoing, any Payee may:

A. in the event a Proceeding has been commenced by or against the Maker, file
any notice, claim or statement of interest, or vote any claim, with respect to
the Subordinated Obligations;

B. file any necessary responsive or defensive pleadings in opposition to any
motion, claim, adversary proceeding or other pleading made by any person
objecting to or otherwise seeking the disallowance of the claims for any of the
Subordinated Obligations (to the extent not otherwise inconsistent with the
terms hereof);

C. file any pleadings, objections, motions or agreements which assert rights or
interests available to unsecured creditors of the Maker arising under either a
Proceeding or applicable non-bankruptcy law (to the extent not otherwise
inconsistent with the terms hereof);

 

A - 2

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D. take any action to the extent necessary to prevent the running of any
applicable statute of limitation or similar restriction on claims, or to assert
a compulsory cross-claim or counterclaim against the Maker; or

E. vote on any plan of reorganization, file any proof of claim, make other
filings and make any arguments and motions with respect to the Subordinated
Obligations that are, in each case, not otherwise inconsistent with the terms
hereof.

4. Payments Held in Trust; Subrogation.

(i) Payments Held in Trust. In the event that any payment or distribution of
assets on account of the Subordinated Obligations (other than the Pre-Paid
Interest Payment and any such payments or distributions in the form of Junior
PIK Payments or Junior Securities) shall be made by or on behalf of the Maker
and received by any Payee, at a time when such payment or distribution was
prohibited by the terms hereof then, such payment or distribution shall be
received and held in trust by such Payee for the benefit of the holders of the
Senior Indebtedness, and shall be paid over or delivered by such Payee to the
Senior Agent (together with all necessary endorsements) to the extent necessary
to make Payment-in-Full of all Senior Indebtedness remaining unpaid, after
giving effect to all concurrent payments and distributions to the Senior
Creditors.

(ii) Subrogation. After all amounts payable under or in respect of Senior
Indebtedness are Paid-in-Full, the Payee shall be subrogated to the rights of
holders of Senior Indebtedness to receive payments or distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to the
Payee have been applied to the payment of Senior Indebtedness. A distribution
made hereunder to any holder of Senior Indebtedness which otherwise would have
been made to a Payee is not a payment by the Maker on Senior Indebtedness.

5. No Prejudice or Impairment. Nothing contained in this Exhibit “A” or
elsewhere in this Note is intended to or shall impair, as between Maker and its
creditors other than the holders of Senior Indebtedness, the obligations of
Maker to the Payee to pay any Subordinated Indebtedness as and when such
Subordinated Indebtedness shall become due and payable in accordance with its
terms, or to affect the relative rights of the Payees and creditors of Maker
(other than the holders of Senior Indebtedness). The fact that failure to make
any payment on account of the Subordinated Indebtedness is by reason of the
operation of any provision of this Exhibit “A” shall not be construed as
preventing the occurrence of an Event of Default under this Note.

6. Insolvency Proceedings.

(i) In connection with any Proceeding, the provisions of this Exhibit “A” shall
remain in full force and effect and enforceable pursuant to their terms in
accordance with Section 510(a) of the Bankruptcy Code and such other applicable
laws of similar effect, and all references herein to any Maker shall be deemed
to apply to such Maker as debtor-in-possession and to any trustee or receiver
for the estate of such Maker.

 

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(ii) In the event of any Proceeding, the Senior Indebtedness shall be
Paid-in-Full before any payment or distribution of any character, whether in
cash, securities (other than Junior PIK Payments and Junior Securities) or other
property shall be made, received or accepted for or on account of any
Subordinated Obligations. In the event of any Proceeding, any payment or
distribution in any such Proceeding of any kind or character (other than Junior
PIK Payments and Junior Securities), whether in cash, securities or other
property that would otherwise (but for this Agreement) be payable or deliverable
in respect of the Subordinated Debt shall be paid or delivered by the person
making such distribution or payment, whether a trustee in bankruptcy, receiver,
assignee for the benefit of creditors, liquidating trustee or agent, or
otherwise, directly to the Senior Agent for application to payment of the Senior
Indebtedness.

(iii) In connection with any Proceeding, no Payee shall contest (or support any
other person contesting) (a) any request by the Senior Agent (or any holder of
the Senior Indebtedness) for adequate protection, (b) any objection by the
Senior Agent (or any holder of the Senior Indebtedness) to any motion, relief,
action or proceeding based on the Senior Agent (or such holder) claiming a lack
of adequate protection in the Proceeding of its interest in the Collateral,
(c) any sale of any assets of the Maker to the extent that the Senior Agent has
consented to such sale, (d) any use of cash collateral by the Maker to the
extent that the Senior Agent has consented to such sale, or (e) any
debtor-in-possession financing sought by the Maker to the extent that the Senior
Agent has consented thereto.

(iv) In connection with any Proceeding, if a Payee shall fail to file
appropriate claims or proofs of claim in respect of the Subordinated Note
Documents within ten (10) days of any applicable bar date, the Senior Agent is
hereby irrevocably authorized and empowered (in its own name or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every payment
or distribution referred to in respect of the Subordinated Note Documents and to
file claims and proofs of claim and take such other action as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of such Payee with respect to the Subordinated Note Documents.

(v) In connection with any Proceeding, the issuance by Maker of securities to
the Payee of this Note in connection with any plan of reorganization shall not
constitute the payment or distribution on account of this Note if such
securities are subordinated to the Senior Indebtedness at least to the same
extent and in the same manner as this Note is subordinated to the Senior
Indebtedness pursuant hereto.

7. Subordination Not Impaired: Benefit of Subordination. Each Payee agrees and
consents that, without notice to or assent by such Payee, and without affecting
the liabilities and obligations of the Maker and the rights and benefits of the
holders of the Senior Indebtedness set forth in this Exhibit “A”:

(i) The obligations and liabilities of the Maker and any other party or parties
for or upon the Senior Indebtedness may, from time to time, be increased,
renewed, refinanced, replaced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released, and the holders of
the Senior Indebtedness may amend, modify or

 

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supplement any agreement or instrument governing, securing or evidencing the
Senior Indebtedness; provided, however, (a) in no event shall the aggregate
principal amount of the Senior Indebtedness be increased above the Maximum
Senior Indebtedness Principal Amount, and (b) in no event shall any such
amendment decrease the aggregate principal amount of loans or commitments
permitted to be incurred under the Subordinated Note Documents;

(ii) The holders of Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Indebtedness; and

(iii) Any balance or balances of funds with any holder of Senior Indebtedness at
any time outstanding to the credit of the Maker may, from time to time, in whole
or in part, be surrendered or released;

all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.

8. Modification of Subordinated Note Documents. The provisions of this Exhibit
“A”, as incorporated in the Note, are for the benefit of the holders from time
to time of Senior Indebtedness and, prior to Payment-in-Full of the Senior
Indebtedness, neither this Note nor any other Subordinated Note Document may be
modified, rescinded or canceled in whole or in part without the prior written
consent of the holders of Senior Indebtedness.

9. Covenants of Payee. Until all of the Senior Indebtedness has been
Paid-in-Full:

(i) No Payee shall hereafter give any subordination in respect of the
Subordinated Indebtedness.

(ii) Each Payee hereby undertakes and agrees for the benefit of the holders of
Senior Indebtedness that, upon the occurrence and during the continuance of a
Senior Default, it shall take any actions reasonably requested by the Senior
Agent to effectuate the full benefit of the subordination contained herein.

10. Third Party Beneficiaries; Reliance. The provisions of this Exhibit “A” are
for the benefit of, and shall be enforceable directly by, the holders of the
Senior Indebtedness, and each such holder shall be a third party beneficiary of
the provisions of this Exhibit “A” and be deemed to have acquired the Senior
Indebtedness, whether now outstanding or hereafter created, incurred, assumed or
guaranteed, in reliance upon the covenants and provisions contained in this
Exhibit “A”. The provisions of this Exhibit “A” shall not be amended, modified
or supplemented in any manner without the consent of the Senior Agent and any
amendment, modification or supplement to this Exhibit “A” made without the
consent of the Senior Agent shall be of no force and effect.

 

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11. No Waiver. No right of any present or future holders of any Senior
Indebtedness to enforce the provisions of this Exhibit “A” shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
Maker or any of its subsidiaries or affiliates, or by any act or failure to act
by any such holder, or by any noncompliance by Maker with any of the terms and
provisions hereof, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.

12. Reinstatement. To the extent any payment of the Senior Indebtedness (whether
by or on behalf of Maker, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be preferential, set aside or required to be
paid by any holder of Senior Indebtedness to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar person or entity under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or similar person or entity, the
Senior Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding, but only to the extent such Senior
Indebtedness is not extinguished (including the termination of all commitments
to lend under any of the documents evidencing the Senior Indebtedness), as if
such payment has not occurred for purposes of this Exhibit “A”.

13. Waiver of Notice of Acceptance; Enforcement by Specific Performance. To the
extent permitted by applicable law, each Payee and the Maker hereby waive
(1) notice of acceptance hereof by the holders of the Senior Indebtedness, and
(2) all diligence in the collection or protection of or realization upon the
Senior Indebtedness. The Maker and each Payee hereby expressly agree that the
holders of Senior Indebtedness may enforce any and all rights derived herein by
suit, either in equity or law, for specific performance of any agreement
contained in this Exhibit “A” or for judgment at law and any other relief
whatsoever appropriate to such action or procedure.

14. Definitions. As used in this Exhibit “A” and elsewhere in this Note, the
following terms shall have the following meanings:

“Junior PIK Payments” means payments of interest by payment-in-kind or on an
accretion basis (and not made in cash).

“Junior Securities” means any of the following securities of the Maker: (a) any
note or debt security issued in substitution of all or any portion of the
Subordinated Obligations (including, without limitation, notes issued in payment
of interest or other amounts under the Note) that is subordinated to the Senior
Indebtedness (or any note or other securities issued in substitution of all or
any portion of the Senior Indebtedness) at least to the same extent as the
Subordinated Obligations are subordinated to the Senior Indebtedness pursuant to
the terms of this Exhibit “A” and (b) any equity security, which, prior to the
Payment-in-Full of all Senior Indebtedness, is non-cash-paying and does not
provide for any cash dividends, “puts” or mandatory redemptions and which does
not have any terms (and is not subject to or entitled to the benefit of any
agreement or instrument that has terms) that are more burdensome to the Maker
than the terms of the Subordinated Obligations.

 

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“Maximum Senior Indebtedness Principal Amount” means the sum of (A) $600 million
plus (B) the aggregate amounts actually advanced under Section 2.02(f) of the
Senior Credit Agreement provided that the sum of all such advances under this
clause (B) does not exceed $75 million, plus (C) the aggregate amount of any
obligations of the Maker or any Loan Party owing to a Treasury Management Bank
in respect of any Secured Treasury Management Agreement, plus (D) the aggregate
amount of any obligations of the Maker or any Loan Party owing to a Swap Bank in
respect of any Secured Swap Contract. For purposes of this definition, the terms
“Loan Party,” “Treasury Management Bank,” Secured Treasury Management
Agreement,” “Swap Bank,” and “Secured Swap Contract” shall have the meanings
ascribed to such respective terms in the Senior Credit Agreement.

“Proceeding” shall mean (i) any insolvency or bankruptcy case or proceeding or
any receivership, liquidation, reorganization, readjustment, composition or
other similar case or proceeding relating to the Maker or its property, (ii) any
liquidation, dissolution, reorganization or winding up of the Maker, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
proceedings or (iii) any assignment for the benefit or creditors or any other
marshalling of Maker’s property.

“Paid-in-Full” or “Payment-in-Full” means with respect to the Senior
Indebtedness, (i) the payment in full in cash of all outstanding Senior
Indebtedness (other than contingent indemnity obligations to the extent that no
claim giving rise thereto has been asserted), (ii) the termination of all
commitments to extend credit that would constitute Senior Indebtedness and
(iii) the termination or cash collateralization of letters of credit in an
amount not to exceed 105% of the face amount of such obligations; provided that
in no event shall a refinancing or restatement of the Senior Indebtedness
constitute Payment-in-Full or Paid-in-Full of such Senior Indebtedness.

“Senior Agent” means Bank of America, N.A. in its capacity as the administrative
agent and collateral agent under the Senior Credit Agreement, together with its
successors and assigns, any successor agent for the holders of any Senior
Indebtedness.

“Senior Credit Agreement” shall mean that certain Amended and Restated Credit
and Guaranty Agreement, dated as of August 2, 2013, by and among The Providence
Service Corporation, as Borrower, certain of its domestic subsidiaries as
guarantors, Bank of America, N.A. as Administrative Agent, and the other lenders
party thereto from time to time, dated as of as amended, restated, modified,
supplemented, increased, (including amendments which increase the principal
amount thereof and interest and fees thereon), replaced or refinanced from time
to time, all other agreements executed or delivered pursuant thereto or in
connection therewith or replacement thereof and all other agreements evidencing
obligations secured thereunder.

“Senior Default” means an Event of Default as defined in the Senior Credit
Agreement.

 

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“Senior Indebtedness” means all amounts payable by the Maker under the Senior
Credit Agreement including any interest, fees, premium, expenses and other
charges that accrue before or after any Proceeding at the rate provided in the
Senior Credit Agreement irrespective of whether such interest, fees, premium,
expenses and other charges are allowed as a claim in any Proceeding.

“Standstill Period” means a time period continuing for 270 consecutive days
after the date of delivery of written notice by any Payee of this Note to the
Senior Agent stating that (A) an Event of Default under this Note has occurred
and is continuing thereunder, and (B) such Payee intends to demand, or has
demanded, the repayment of all the principal outstanding under the Note;
provided further that such Standstill Period shall be extended after such 270
day period for so long as the Senior Agent has commenced (or attempted to
commence or given notice of its intent to commence) and is diligently continuing
the exercise of any of its rights or remedies with respect to the Senior
Indebtedness.

“Subordinated Note Documents” means the Note and all other agreements and
instruments now or hereafter executed pursuant thereto or in connection
therewith in each case as such agreements and instruments may be amended
(including any amendment and restatement thereof), supplemented, waived or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other purchaser or group of purchasers,
in each case, subject to the limitations hereof.

 

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