Exhibit 10.3

FORM OF PERFORMANCE RESTRICTED STOCK UNIT AGREEMENT

 

PARTICIPANT:                                         GRANT DATE:   
                                     TARGET NUMBER OF PERFORMANCE RESTRICTED
STOCK UNITS:                         units    MAXIMUM NUMBER OF PERFORMANCE
RESTRICTED STOCK UNITS GRANTED:                         units    AWARD AND
VESTING CRITERIA:    The actual number of Performance Restricted Stock Units to
be awarded to Participant and that may vest will be determined in accordance
with conditions specified below.    PERFORMANCE PERIOD:                        
to                        

THIS AGREEMENT, effective as of the Grant Date set forth above, is between The
Providence Service Corporation, a Delaware corporation (the “Company”, “we”,
“our” or “us”), and the Participant named above (“you” or “yours”), pursuant to
the provisions of the Company’s 2006 Long Term Incentive Plan, as amended (the
“Plan”) with respect to the grant of the maximum number of performance
restricted stock units (“PRSUs”) specified above. Capitalized terms used and not
defined in this Performance Restricted Stock Unit Award Agreement (this
“Agreement”) shall have the meanings given to them in the Plan. References to
the Company also include its subsidiaries.

By accepting this Agreement, you irrevocably agree, on your own behalf and on
behalf of your heirs and any other person claiming rights under this Agreement,
to all of the terms and conditions of the PRSUs as set forth in or pursuant to
this Agreement and the Plan (as such may be amended from time to time). You and
the Company agree as follows:

 

1.   Application of Plan; Administration    This Agreement and your rights under
this Agreement are subject to all the terms and conditions of the Plan, as it
may be amended from time to time, as well as to such rules and regulations as
the Administrator may adopt. It is expressly understood that the Administrator
that administers the Plan is authorized to administer, construe and make all
determinations necessary or appropriate to the administration of the Plan and
this Agreement, all of which shall be binding upon you to the extent permitted
by the Plan.

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2.   Performance Goal   

(a)      The number of PRSUs to be awarded to you under this Agreement shall
depend upon the extent to which the Performance Metric equals, exceeds or falls
short of the Performance Targets for the Performance Period. If the actual
Performance Metric does not equal or exceed the minimum Performance Target for
the Performance Period, the right to receive an award of any PRSUs pursuant to
this Agreement shall expire without consideration.

    

(b)      The Performance Metric is [Definition of Performance Metric] as
established by the Administrator for the Performance Period.

    

(c)      Subject to the foregoing, and provided that you have remained in
Employment with the Company from the Grant Date set forth above until the end of
the Performance Period, the number of PRSUs to be awarded to you following
completion of the Performance Period (such PRSUs, the “Awarded PRSUs”) shall be
determined in accordance with the following Performance Targets:

 

•            % of the maximum number of PRSUs if the Company achieves
[Performance Metric] equal to or greater than     %; or

 

•            % of the maximum number of PRSUs if the Company achieves
[Performance Metric] equal to or greater than     %.

    

In the event that the Company’s Performance Metric for the Performance Period
falls between the two Performance Targets listed above, the number of Awarded
PRSUs shall be determined by linear interpolation, with rounding down.

 

Upon determining the number of Awarded PRSUs, the Administrator will determine
the amount of cash payment you are entitled to receive pursuant to the terms of
this Agreement, subject to the vesting described in Section 5 of this Agreement.
Such cash payment will be equal to the number of Awarded PRSUs multiplied by the
fair market value of a share of the Company’s Common Stock on the Settlement
Date (as defined below) (“Awarded Cash Payment”). “Fair market value” on the
Settlement Date means the closing sales price of a share of the Company’s Common
Stock as reported on the Nasdaq Global Select Market on such date.

     Notwithstanding anything herein to the contrary, in no event shall more
than                      PRSUs be awarded under this Agreement.

 

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     On                     , or as soon as practicable thereafter as the
Administrator is provided with and reviews the Company’s audited financial
statements, but in no event later than                      (the date during
this period that the Administrator completes the actions described in this
subparagraph will be referred to herein as the “Settlement Date”), the
Administrator will: (a) determine in its sole discretion (i) the Performance
Metric achieved by the Company for the Performance Period, (ii) the number of
PRSUs to be awarded as Awarded PRSUs and (iii) the Awarded Cash Payment amount,
and (b) evidence such determinations by a written certification in accordance
with Section 162(m) of the Code. 3.   Vesting    One-third of the Awarded Cash
Payment will vest on                     ; one-third of the Awarded Cash Payment
will vest on                     ; and the remaining Awarded Cash Payment will
vest on                      (each such dates, a “Vesting Date”), provided that
you remain in Employment with the Company from the Grant Date set forth above
until the respective Vesting Date (each portion of the Awarded Cash Payment that
becomes vested will be referred to herein as a “Vested Performance Award”). 4.  
Termination of Employment    Your right to any award of PRSUs, any Awarded
PRSUs, or any Awarded Cash Payment that have not become Vested Performance Award
will be forfeited without consideration as of the date of termination of your
Employment with the Company for any reason, including death. 5.   Settlement of
Awarded PRSUs/Awarded Cash Payment   

(a) Awarded PRSUs (which become a Vested Performance Award) will be settled in
cash.

 

(b) The cash payment with respect to the first Vesting Date of the Awarded Cash
Payment shall be made on the Settlement Date, and in no event, shall payment be
made later than                     . The cash payment with respect to the
second Vesting Date of the Awarded Cash Payment shall be made during the period
beginning                      and ending                     . The cash payment
with respect to the third Vesting Date of the Awarded Cash Payment shall be made
during the period beginning                      and ending
                    .

 

(c) In the event that vesting is accelerated as a result of the occurrence of a
Change in Control (“Triggering Event” ), which event occurs after
                    , the resulting vested Awarded Cash Payment shall be paid to
the Participant within ten (10) days of such Triggering Event, provided that (1)
the Participant has no right to designate the taxable year of payment; and (2)
if the payment of the resulting vested Awarded Cash Payment, either alone or
together with other payments or benefits, either cash or non-cash, that the
Participant has the right to receive from the

 

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     Company, including, but not limited to, accelerated vesting or payment of
any deferred compensation, options, stock appreciation rights or any benefits
payable to Participant under any plan for the benefit of employees, which would
constitute an “excess parachute payment” (as defined in Section 280G of the
Code), then such resulting vested Awarded Cash Payment shall be reduced to the
largest amount that will not result in receipt by Participant of a parachute
payment to the extent that other reductions are insufficient or other reductions
are not made as determined by the Administrator. 6.   Rights as Stockholder   
Except as otherwise provided in this Agreement, you will not be entitled to any
privileges of ownership of the shares of Common Stock underlying your PRSUs,
including voting, receipt of dividends or any other rights as a stockholder of
the Company. 7.   Transferability    Except as provided in Section 9(k) hereof,
your right to receive PRSUs under this Agreement, your Awarded PRSUs, your
Awarded Cash Payment and any Vested Performance Award that you hold pursuant to
this Agreement are not transferable, whether voluntarily or involuntarily, by
operation of law or otherwise, other than by will or the laws of descent and
distribution with respect to the unpaid Vested Performance Award. Any voluntary
or involuntary assignment, pledge, transfer, or other disposition of, or any
attachment, execution, garnishment, or lien issued against or placed upon your
right to receive PRSUs under this Agreement, your Awarded PRSUs, your Awarded
Cash Payment and any Vested Performance Award that you hold pursuant to this
Agreement in violation of the terms of this Agreement shall be void.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, will thereafter be entitled to receive any cash payment due
with respect to a vested Performance Award pursuant to this Agreement. 8.  
Taxes   

(a)      General. You are ultimately liable and responsible for all taxes owed
by you in connection with your PRSUs, Awarded PRSUs and Awarded Cash Payment
regardless of any action the Company takes with respect to any tax obligations
that arise in connection with the PRSUs, Awarded PRSUs and Awarded Cash Payment.
The Company makes no representation or undertaking regarding the tax treatment
applicable to the grant, award, vesting or settlement of the PRSUs, the Awarded
PRSUs, Awarded Cash Payment or the Vested Performance Award.

    

(b)      Withholding. On or before any Vesting Date, the date your Vested
Performance Award is settled and cash is paid to you pursuant to the terms of
Section 5, and any other date upon which tax withholding obligations of the
Company may arise, or at any time thereafter as requested by the

 

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Company, you hereby authorize withholding from, at the Company’s election,
payroll and any other amounts payable to you and you otherwise agree to make
adequate provision for, as determined by the Company, any sums required to
satisfy the Federal, state, local and foreign tax withholding obligations of the
Company or an Affiliate, if any, which arise in connection with any of the above
events or otherwise. Unless the tax withholding obligations of the Company or
any Affiliate are satisfied, the Company will have no obligation to make the
cash payment.

9.   Miscellaneous   

(a)      YOU ACKNOWLEDGE AND AGREE THAT THE VESTING OF ANY AWARDED CASH PAYMENT
PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY YOUR CONTINUED EMPLOYMENT WITH
THE COMPANY OR ANY OF ITS SUBSIDIARIES (AND NOT THROUGH THE ACT OF BEING HIRED
OR ACQUIRING GRANTED PRSUS HEREUNDER). YOU FURTHER ACKNOWLEDGE AND AGREE THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES FOR THE
VESTING PERIOD, FOR THE PERFORMANCE PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH YOUR RIGHT OR THE COMPANY’S OR ANY OF ITS SUBSIDIARY’S RIGHT
TO TERMINATE YOUR RELATIONSHIP AS AN EMPLOYEE.

    

(b)      Your PRSUs, any Awarded PRSUs and any Awarded Cash Payment are unfunded
and as a holder of Vested Performance Award you will be considered an unsecured
creditor of the Company with respect to the Company’s obligation, if any, to
issue cash pursuant to this Agreement. Nothing contained in this Agreement, and
no action taken pursuant to its provisions, will create or be construed to
create a trust of any kind or a fiduciary relationship between you and the
Company or any other person.

    

(c)      This Agreement will be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required.

 

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(d)      “Section 409A” means Section 409A of the Code, Treasury Regulations and
other guidance promulgated thereunder, as each may be amended from time to time.
The benefits provided under this Agreement are intended to be subject to a
“substantial risk of forfeiture” under Section 409A, and to qualify for the
“short term deferral exemption” from application of Section 409A as payable only
within the permitted period following lapse of the applicable forfeiture
conditions, and any ambiguities contained herein shall be interpreted in a
manner so as to comply with the requirements of such exemption. Notwithstanding
anything in the Plan or this Agreement to the contrary, the Administrator may,
without your consent, amend this Agreement to comply with all of the
requirements of Section 409A and any corresponding guidance and regulations
issued under Section 409A to the extent it is determined, in the sole discretion
of the Administrator, that such amendment is necessary to comply with the
requirements of Section 409A.

     

(e)      The interpretation, performance and enforcement of this Agreement will
be governed by the law of the state of Delaware without regard to such state’s
conflicts of laws rules.

     

(f)       Any question concerning the interpretation of this Agreement or the
Plan, any adjustments required to be made under the Plan and any controversy
that may arise under the Plan or this Agreement shall be determined by the
Administrator (including any person(s) to whom the Administrator has delegated
its authority) in its sole discretion. Such decision by the Administrator shall
be final and binding.

     

(g)      This Agreement and the Plan represent the entire agreement between the
parties with respect to the PRSUs. In the event of a conflict between the terms
and conditions of the Plan and the terms and conditions of this Agreement, the
terms and conditions of the Plan shall prevail.

     

(h)      If all or any part of this Agreement or the Plan is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity will not invalidate any portion of this Agreement or the Plan not
declared to be unlawful or invalid. Any Section of this Agreement (or part of
such a Section) so declared to be unlawful or invalid will, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of such Section to the fullest extent possible while remaining lawful and
valid.

     

(i)       Either party’s failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party’s right to assert any other legal remedy available to it.

 

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(j)       This Agreement may be amended only by a writing executed by you and
the Company which specifically states that it is amending this Agreement.
Notwithstanding the foregoing and subject to Section 7 of the Plan, this
Agreement may be amended solely by the Administrator by a writing which
specifically states that it is amending this Agreement, so long as a copy of
such amendment is delivered to you. Without limiting the foregoing, the
Administrator reserves the right to change, by written notice to you, the
provisions of this Agreement in any way it may deem necessary or advisable to
carry out the purpose of the grant as a result of any change in applicable laws
or regulations or any future law, regulation, ruling or judicial decision,
provided that any such change will be applicable only to rights relating to that
portion of the granted PRSUs, the Awarded PRSUs, the Awarded Cash Payment, the
Vested Performance Award which are then subject to restrictions as provided
herein.

 

(k)      The rights and obligations of the Company under this Agreement will be
transferable by the Company to any one or more persons or entities, and all
covenants and agreements hereunder will inure to the benefit of, and be
enforceable by the Company’s successors and assigns. You may not assign,
transfer or pledge the granted PRSUs, the Awarded PRSUs, the Awarded Cash
Payment, the Vested Performance Award or any right or interest therein or
thereunder to anyone other than by will or the laws of descent and distribution
except with the prior written consent of the Company. The Company may cancel
your rights hereunder if you attempt to assign or transfer them in a manner
inconsistent with this Agreement.

 

(l)       All notices with respect to this Agreement shall be in writing and
shall be hand delivered or sent by first class mail or reputable overnight
delivery service, expenses prepaid. Notice may also be given by electronic mail
or facsimile and shall be effective on the date transmitted if confirmed within
24 hours thereafter by a signed original sent in a manner provided in the
preceding sentence. Notices to the Company or the Administrator shall be
delivered or sent, if by mail to the Company’s headquarters, 64 East Broadway
Blvd., Tucson, Arizona 85701, Attn: Michael Deitch, or if by email:
Mdeitch@provcorp.com. Notices to the Participant shall be sufficient if
delivered or sent to such person’s address as it appears in the regular records
of the Company or such person’s email account with the Company.

 

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(m)     The headings of the Sections in this Agreement are inserted for
convenience only and will not be deemed to constitute a part of this Agreement
or to affect the meaning of this Agreement.

 

(n)      You agree upon request to execute any further documents or instruments
necessary or desirable in the sole determination of the Company to carry out the
purposes or intent of this Agreement.

By the signatures below, you and the authorized representative of the Company
acknowledge your agreement to this Performance Restricted Stock Unit Award
Agreement as of the Grant Date specified above.

 

 

    Date:  

 

Name:       Accepted by:       THE PROVIDENCE SERVICE CORPORATION       By:  

 

     

Name:         Title:        

 

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