EXHIBIT 10.2
 
EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT (this “Agreement”), is entered into as of this 7th day
of May, 2013 (the “Effective Date”) by and between THE PROVIDENCE SERVICE
CORPORATION, a Delaware corporation, with its corporate headquarters located at
64 East Broadway Blvd., Tucson, Arizona, 85701 (the “Company”), and Warren
Rustand, an individual residing at 5750 E. Santa Fee, Tucson, AZ 85715
(“Employee”).
 
BACKGROUND
 
WHEREAS, Employee has served as the Company’s interim Chief Executive Officer
since November 19, 2012 pursuant to that  certain Letter Agreement, dated
November 19, 2012, between Employee and the Company (the “Letter Agreement”);
and
 
WHEREAS, effective as of the Effective Date, Employee has been appointed as the
Company’s Chief Executive Officer, and the Company and Employee are entering
into this Agreement to set out the agreement between them regarding the terms of
Employee’s employment effective beginning the Effective Date and to replace the
Letter Agreement as of such date.
 
NOW, THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree that, effective as of the Effective Date, the Letter Agreement is
terminated and, except as provided in Section 3(c), shall no longer have any
force or effect, and hereby further agree:
 
1.  Employment and Term.  The Company hereby agrees to employ Employee and
Employee hereby agrees to work in the employ of the Company.  Such employment
will have a term (the “Term”) commencing as of the Effective Date and, if not
previously terminated in accordance with the terms of this Agreement, ending at
the close of business on December 31, 2015.  Employee’s employment may continue
hereunder following the Term.  Employee’s employment, whether during the Term or
thereafter, shall be subject in all respects to the terms and conditions set
forth in this Agreement, as well as to all of the Company’s policies and rules
that are binding on executive employees generally.
 
2.  Office and Duties.
 
(a)  During the Term, Employee shall serve as the Chief Executive Officer of the
Company, and shall report directly to the Company’s Board of Directors (the
“Board”) and/or an executive committee established by the Board, whether acting
as such or through the Chairman of the Board.
 
(b)  In his capacity as Chief Executive Officer of the Company, Employee shall
have such authority, perform such duties, discharge such responsibilities and
render such services as are designated from time to time by the Board.
 
(c)  While employed by the Company or any Affiliate (as hereinafter defined),
Employee shall render his services diligently, faithfully and to the best of his
ability, and shall devote substantially all of his working time, energy, skill
and best efforts to the performance of his duties hereunder, in a manner that
will further the business and interests of the Company.
 
(d)  While employed by the Company or any Affiliate, Employee shall not be
engaged in any business activity which, in the reasonable judgment of the Board,
conflicts with Employee’s duties hereunder, whether or not such activity is in
breach of Section 7 or pursued for pecuniary advantage.
 
3.  Compensation.
 
(a)  Base Salary.  In consideration of the services rendered by Employee to the
Company during the Term, effective as of the Effective Date, Employee shall
receive an annual base salary of Five Hundred Ninety Thousand and 00/100 Dollars
($590,000.00) (the “Base Salary”), payable in equal periodic installments in
accordance with the Company’s regular payroll practices in effect from time to
time.
 
 
 

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(b)  Bonus Plans/Incentive Compensation Programs.  In addition to the annual
Base Salary, during the Term, Employee shall be eligible to participate in bonus
plans or incentive compensation programs, if any, as may be approved by the
Board from time to time (“Bonus”).  For the balance of the current calendar
year, Employee will participate in the following Bonus program:  Employee shall
be paid a Pro Rata Portion (as hereinafter defined) of an amount equal to
seventy-five percent (75%) of the Base Salary upon the achievement of one
hundred percent (100%) of the Company’s budgeted EBITDA performance for 2013,
and a Pro Rata Portion of an additional amount equal to your “Allocation” of
twenty percent (20%) of the amount by which the Company exceeds such budgeted
EBITDA performance for such year, up to twenty-five percent (25%) of the Base
Salary.  For the purposes hereof, (i) the “Pro Rata Portion” shall mean the
percentage defined by a fraction, the numerator of which is the number of days
starting the Effective Date and ending as of the end of the 2013 calendar year,
and the denominator of which is three hundred sixty-five (365) and (ii) your
“Allocation” shall mean the percentage defined by a fraction, the numerator of
which is your Base Salary and the denominator is the sum of the base salaries of
the other senior executives who are also entitled to bonuses based on the
Company’s performance in excess of budgeted EBITDA performance.  Unless
otherwise specified in respect of a Bonus for years during the Term following
2013, the Bonus shall be paid, net of any required withholdings, following the
completion and filing of the Company’s annual audited financial statements, and
Employee’s rights to receive the Bonus shall be contingent upon being employed
by the Company on the date that payment of the Bonus is due, except as otherwise
expressly provided in this Agreement.
 
(c)  Letter Agreement Bonus.  Notwithstanding anything herein to the contrary,
Employee will be entitled to receive a Bonus as specified under the Letter
Agreement in the section entitled “Bonus Opportunity,” which Bonus shall be
calculated and paid as therein set forth and pro-rated based on the number of
days elapsed commencing January 1, 2013 and through the day immediately prior to
the Effective Date.
 
(d)  Benefits.
 
(i)  During his employment hereunder, Employee also shall be entitled to
participate in all fringe benefits, if any, as may be in effect from time to
time that are generally available to the Company’s senior executive officers,
and such other fringe benefits as the Board and/or Compensation Committee shall
deem appropriate, subject to eligibility requirements thereof (collectively, the
“Benefits”).
 
(ii)  During the Term, in addition to the foregoing Benefits, the Company shall,
subject to the terms hereof (including as set forth in Section 3(d)(iii)), use
its reasonable efforts to procure and maintain term life insurance (“Life
Insurance”) on the life of Employee (if such term insurance is not already in
effect on the date of this Agreement).  Such Life Insurance shall be in the
amount of One Million Two Hundred Thousand and 00/100 Dollars
($1,200,000.00).  Employee shall be the owner of the Life Insurance policy and
shall have the absolute right to designate the beneficiaries thereunder.  The
premiums in respect of such Life Insurance policy shall be paid by the Company
for the shorter of (A) the period of five (5) years commencing on the later of
(1) the date of this Agreement or (2) the date the Life Insurance goes into
effect or (B) the period Employee is employed by the Company hereunder; premiums
in respect thereof shall thereafter be paid by Employee.
 
(iii)  Employee agrees to submit to any physical examination required by the
insurer of any such policy and will otherwise cooperate with the Company in
connection with any life insurance on Employee’s life the Company may wish to
obtain, provided, however, that the results of any such physical examination
shall not be shared with the Company or used in any way in connection with
Employee’s employment other than the procurement of insurance pursuant to this
Subsection.  Employee agrees to execute any HIPAA or other privacy waiver in
favor of the Company that the Company considers necessary or appropriate for
sharing of such information, or to waive the coverage otherwise under this
Section 3(d).  In the event Employee is determined to be suffering from a
congenital defect or other illness or condition which would preclude the Company
from obtaining the insurance referred to in the preceding paragraph at a cost
substantially equivalent to the cost of obtaining such insurance for a healthy
individual of Employee’s age and gender, the Company shall, in lieu of
purchasing the insurance in the amount set forth in the preceding paragraph,
purchase the amount of insurance, if any, that can be purchased at a cost
substantially equivalent to the cost of obtaining such insurance for a healthy
individual of Employee’s age and gender.
 
 
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(e)  Vacation.  During his employment hereunder, Employee shall be entitled to
the number of paid vacation days in each calendar year as determined by the
Company from time to time for its senior executive officers.  Vacation days
which are not used during any calendar year may not be accrued or carried over
to the next year, nor shall Employee be entitled to compensation for unused
vacation days.
 
(f)  Business Expenses.  During his employment hereunder, the Company shall pay
or reimburse Employee for all reasonable expenses incurred or paid by Employee
in the performance of Employee’s duties hereunder, upon timely presentation of
expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company, in each case to the extent such expenses are
consistent with Company policies; provided that the Company may at any time,
further limit, or eliminate, Employee’s right to incur such expenses.  Any
reimbursement due hereunder shall be separately requested and paid as soon as
practicable and in any case within one (1) year after Employee incurs the
expense for which reimbursement is requested.
 
(g)  Withholding.  All payments made pursuant to this Agreement shall be subject
to such withholding taxes as may be required by any applicable law.
 
4.  Representations of Employee.  Employee represents to the Company that:  (a)
there are no restrictions, agreements or understandings whatsoever to which
Employee is a party that would prevent, or make unlawful, Employee’s  execution
of this Agreement and his employment hereunder; (b) Employee’s execution of this
Agreement and Employee’s employment hereunder shall not constitute a breach of
any contract, agreement or understanding, oral or written, to which Employee is
a party, or by which Employee is bound; and (c) Employee is of full capacity,
free and able to execute this Agreement and to enter into this Agreement with
the Company.
 
5.  Termination.  This Agreement and Employee’s employment hereunder shall
continue during the Term and thereafter until terminated as provided
herein.  Upon termination of this Agreement and Employee’s employment hereunder,
Employee shall immediately resign from any officer or other position in which he
is serving on behalf of the Company or any Affiliate, and shall tender his
resignation as a director of the Company and any and all Affiliates of the
Company (with such tender being subject to being accepted by the Board).
 
(a)  Termination by Company for Cause.  The Company shall have the right, during
the Term and thereafter, to terminate this Agreement and Employee’s employment
hereunder at any time for “Cause”, effective immediately or as of a date
specified by the Company in a notice of termination.  For purposes of this
Agreement, the term “Cause” shall mean the following:
 
(i)  Employee commits fraud or theft against the Company or any of its
subsidiaries, affiliates, joint ventures and related organizations, including
any entity managed by the Company (collectively referred to as “Affiliates”), or
is indicted, convicted of, or pleads guilty or nolo contendere to, a felony or
any crime involving fraud or moral turpitude;
 
(ii)  In carrying out his duties hereunder, Employee engages in conduct that
constitutes gross neglect or willful misconduct and that results, in either
case, in material financial or reputational harm to the Company or its
Affiliates;
 
(iii)  Employee materially breaches any provision of this Agreement (including
but not limited to the restrictive covenants contained in Section 7) or breaches
any fiduciary duty or duty of loyalty owed to the Company or its Affiliates or
shareholders;
 
(iv)  Employee engages in any wrongful or questionable conduct which does or
which is reasonable likely to bring the Company or its Affiliates into public
disgrace or embarrassment, or which is reasonable likely to cause one or more of
its customers or clients to cease doing business with, or reduce the amount of
business with, the Company or its Affiliates;
 
 
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(v)  Employee repeatedly neglects or refuses to perform his duties or
responsibilities as directed by the Board or any committee established by the
Board, or violates any express direction of any lawful rule, regulation or
policy established by the Company, the Board or any committee established by the
Board which is consistent with the scope of Employee’s duties under this
Agreement, and such failure, refusal or violation continues uncured for a period
ten (10) days after written notice from the Company to Employee specifying the
failure, refusal or violation and the Company’s intention to terminate this
Agreement for Cause;
 
(vi)  Employee commits any act or omission resulting in or intended to result in
direct material personal gain to Employee at the expense of the Company or its
Affiliates; or
 
(vii)  Employee materially compromises trade secrets or other confidential and
proprietary information of the Company or its Affiliates.
 
Action or inaction by Employee shall not be considered “willful” unless done or
omitted by him intentionally and without his reasonable belief that his action
or inaction was in the best interests of the Company or its Affiliates, and
shall not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
 
(b)  Termination upon Death/Termination by Company upon Disability of
Employee.  Employee’s employment will terminate upon his death.  The Company
shall have the right to terminate this Agreement and Employee’s employment
hereunder at any time upon the Disability of Employee.  The term, “Disability”,
as used herein, means any physical or mental illness, disability or incapacity
which prevents Employee from performing the essential functions of his job, with
or without reasonable accommodations, hereunder for a period of not less than
one hundred fifty (150) consecutive days or for an aggregate of one hundred
eighty (180) days during any period of twelve (12) consecutive months.  Periods
where Employee can perform the essential functions of his job with a reasonable
accommodation shall not be included in the determination of a Disability
hereunder.  During any period of Disability, Employee agrees to submit to
reasonable medical examinations upon the reasonable request, and at the expense,
of the Company.
 
(c)  Termination By Company Without Cause.  The Company shall have the right to
terminate this Agreement and Employee’s employment hereunder at any time without
Cause and/or without the occurrence of Employee’s death or Disability by giving
written notice which shall be effective on the date specified in such notice of
termination.
 
(d)  Termination by Employee.  If Employee shall desire to terminate his
employment hereunder for any reason, whether or not during the Term, Employee
shall first give the Company not less than sixty (60) days prior written notice
of termination.  Upon a termination of Employee’s employment with the Company
under this Section 5(d), the effective date of termination shall be the date set
forth in Employee’s resignation notice (assuming such date is in compliance with
the notice provisions of this Section 5(d)) or an earlier date as determined by
the Company after the Company’s receipt of such notice, in its sole discretion,
but not earlier than the date on which the Company learned of Employee’s
decision to terminate his employment.
 
(e)  Notice of Termination.  Any termination, except for death, pursuant to this
Section 5 shall be communicated by a Notice of Termination.  For purposes of
this Agreement, a “Notice of Termination” shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Employee’s employment under the
provisions so indicated.  The Notice of Termination shall also set forth that
Employee’s employment is terminated and be delivered in accordance with the
terms of this Agreement.
Notwithstanding anything to the contrary set forth herein, Sections 7, 8 and 9
shall survive the end of the Term and/or the termination of Employee’s
employment hereunder for any reason, and shall remain in full force and effect
thereafter.

6.  Payments Upon Termination and Change in Control.
 
(a)  Termination for Cause.  In the event Employee’s employment hereunder is
terminated for Cause at any time, whether or not during the Term, all of
Employee’s rights to his Base Salary, Benefits and Bonus, if any, shall
immediately terminate as of the date of such termination, except that Employee
shall be entitled to any earned and unpaid portion of Employee’s Base Salary and
accrued Benefits up to the date of termination, less all deductions or offsets
for amounts owed by Employee to the Company.  Employee shall not be entitled to
any Bonus, prorated or otherwise.  The Company shall have no further obligations
to Employee under this Agreement.
 
 
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(b)  Termination Due to Death or Disability.  In the event Employee’s employment
hereunder is terminated at any time, whether or not during the Term, due to his
death or Disability, all of Employee’s rights to his Base Salary, Benefits
(except to the extent that any Benefits are expressly available following
termination of employment) and Bonus, if any, shall immediately terminate as of
the effective date of such termination, except that Employee (or, in the event
that Employee’s employment hereunder is terminated due to Employee’s death,
Employee’s heirs, personal representatives or estate) shall be entitled to any
earned and unpaid portion of Employee’s Base Salary, any Bonus (if earned)
relating to a fiscal year which was completed before Employee’s death or
Disability and accrued Benefits up to the date of termination, in each case less
all deductions or offsets for amounts owed by Employee to the Company.  Subject
to the provisions of the applicable Company stock option or stock incentive
plan, should Employee’s death occur within one (1) year following his
termination for Disability, but prior to his exercise of any options vested at
the date of termination, Employee’s estate shall be entitled to exercise
Employee’s options for the earlier of (i) the remainder of the one (1) year
period or (ii) the date upon which the option would have expired by its
terms.  The foregoing clause (ii) shall apply to the extent needed to avoid
adverse tax consequences under Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”).  The Company shall have no further obligations to
Employee under this Agreement.
 
(c)  Termination By the Company Without Cause.  If, during the Term, the Company
terminates Employee’s employment other than for Cause or the occurrence of
Employee’s death or Disability, Employee shall be entitled to continue to
receive (i) any Bonus (if earned) relating to a fiscal year which was completed
before the effectiveness of such termination (payable as set forth in Section
3(b)), (ii) any Bonus for the fiscal year through the date of effectiveness of
such termination, to the extent earned, pro-rated (based on a percentage defined
by a fraction, the numerator of which is the number of days during the fiscal
year prior and through the date of effectiveness of the termination, and the
denominator of which is three hundred sixty-five (365)), payable following the
completion and filing of the Company’s annual audited financial statements, and
(iii) an amount equal to (I) the lesser of (A) Employee’s Base Salary that would
have been paid from the date of effectiveness of such termination through the
end of the Term  or (B) Employee’s Base Salary in effect as of the date of
effectiveness of such termination, or (II) if greater, at least six (6) months
of Employee’s Base Salary in effect as of the date of effectiveness of such
termination (in the case of clause (iii), Employee’s Base Salary will be paid in
periodic payments which correspond to the Company’s regular payroll periods);
provided that any payments set out in clauses (i), (ii) and (iii) shall only be
made so long as Employee is not in breach of this Agreement and shall be net of
appropriate tax and other withholdings,.  Notwithstanding the foregoing, the
Company may suspend payments of such Bonus or Base Salary until  seven (7) days
following the date on which Employee executes and delivers to the Company a
general release of all claims relating to Employee’s employment and termination
from employment (the “General Release”) in a form provided by the Company (which
General Release shall not affect any rights Employee may have under COBRA or
under any vested award previously issued to Employee by the Company under any
Company benefit plan) assuming such General Release is not revoked during such
seven (7) day period and assuming Employee is not in breach of this
Agreement.  Employee understands that if the conditions set forth in the
preceding sentence are not met, Employee shall not be entitled to a Bonus or any
payments of Base Salary relating to periods of time following the effective date
of the termination of Employee’s employment under this Section 6(c) or
otherwise.  The Company shall have no further obligations to Employee under this
Agreement.
 
(d)  Termination By Employee During Term; Termination Following Term.  In the
event Employee terminates his employment, whether or not during the Term, or if
the Company terminates this Agreement and Employee’s employment hereunder
effective following the end of the Term, all of Employee’s rights to his Base
Salary, Benefits (except to the extent any Benefits are expressly available
following such event) and Bonus, if any, shall immediately terminate as of the
effective date of termination, except that Employee shall be entitled to any
earned and unpaid portion of his Base Salary and accrued Benefits up to the date
of termination.  Employee shall not be entitled to any Bonus, prorated or
otherwise.  The Company shall have no further obligations to Employee under this
Agreement.
 
 
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(e)  Payment Upon Change in Control.  Notwithstanding any other provision in
this Agreement to the contrary, if a “Change in Control” of the Company (as
defined herein) shall occur during the Term, and after such Change in Control
but prior to the end of the Term  the Company terminates Employee’s employment
without Cause with such termination being effective during the Term, in lieu of
any other amounts payable under this Agreement, Employee shall be entitled to
receive (i) the greater of (A) the Base Salary through the end of the Term and
(B) fifty percent (50%) of the annual Base Salary, in either case in a lump sum
payment, payable immediately upon cessation of employment and (ii) a pro-rata
portion of the Bonus, contingent on the Company’s achievement of any performance
criteria relating to such Bonus, payable promptly following completion and
filing of the Company’s year-end audit for the applicable year (such payments
shall be net of appropriate tax and other withholdings, and are referred to
collectively as the “Change in Control Payments”); provided, however, that if
such Change in Control Payments, either alone or together with other payments or
benefits, either cash or non-cash, that Employee has the right to receive from
the Company, including, but not limited to, accelerated vesting or payment of
any deferred compensation, options, stock appreciation rights or any benefits
payable to Employee 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 Change in Control Payments or other benefits shall be reduced
to the largest amount that will not result in receipt by Employee of an excess
parachute payment.  A Change in Control will have no other effect on this
Agreement, which will remain in full force and effect.
 
(i)  Definition of Change in Control.  For purposes of this Agreement, the term
“Change in Control” shall mean an event or events, in which:
 
(A)  any “person” as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the “1934 Act”) (other than (1) the Company,
(2) any subsidiary of the Company, (3) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of any subsidiary of
the Company or (4) any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the “beneficial owner” (as
defined in Section 13(d) of the 1934 Act), together with all affiliates and
Associates (as such terms are used in Rule 12b-2 of the General Rules and
Regulations under the 1934 Act) of such person, directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company’s then outstanding securities;
 
(B)  the consummation of a merger or consolidation of the Company with any other
company, other than (1) a merger or consolidation which would result in the
holders of voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in combination with
the ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company, having at
least 50% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) after which no “person”
(with the method of determining “beneficial ownership” used in clause (A) of
this definition) owns more than 50% of the combined voting power of the
securities of the Company or the surviving entity of such merger or
consolidation; or
 
(C)  the Company consummates its liquidation or sale or disposition by the
Company of all or substantially all of the Company’s assets.
 
(f)  Recognition.  Employee recognizes and accepts that the Company shall not,
in any case, be responsible for any additional amount, severance pay,
termination pay, severance obligation or other payments or damages whatsoever
arising from the termination of Employee’s employment above and beyond those
specifically provided for herein.
 
7.  Restrictive Covenants.
 
(a)  Business of the Company.  The term “Business of the Company”, as used in
this Section 7, shall mean the provision by the Company or its Affiliates of
social services, counseling, client monitoring and mentoring, substance abuse
treatment and counseling, school support services, case management and foster
care services to children, adults and families in community based settings such
as a client’s home, school or workplace, intake, assessment and referral, case
management and network management services to governmental agencies and provider
networks, educational tutoring, job readiness and private parole or probation,
non-emergency medical transportation and any other business in which the Company
or its Affiliates have been, plan or have planned to be engaged during
Employee’s employment with the Company or its Affiliates.
 
 
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(b)  Non-Competition.  During Employee’s employment with the Company or any of
its Affiliates and for a period of two (2) years thereafter, Employee will not,
in any capacity (including, but not limited to, owner, partner, member
shareholder, consultant, advisor, financier, agent, employee, officer, director,
manager or otherwise), directly or indirectly, for his own account or for the
benefit of any natural person, corporation, partnership, trust, estate, joint
venture, sole proprietorship, association, cooperative or other entity (any of
the foregoing, a “Person”), establish, engage in, finance, advise, work for, or
be connected with, except as an employee of the Company, any business in
competition with the Business of the Company if such business competes with the
Business of the Company or any Affiliate in any State, county, or municipality
where the Company or its Affiliates conduct business, are preparing to conduct
business or have conducted business during Employee’s employment with the
Company or any of its Affiliates.
 
(c)  Non-Solicitation/Non-Piracy.  During Employee’s employment with the Company
or any of its Affiliates and for a period of two (2) years thereafter, Employee
will not, directly or indirectly, for his own account or for the benefit of any
Person or entity:
 
(i)  solicit, service, supply or sell to, contact, or aid in the solicitation,
servicing, supplying or selling to any Person or entity which is or was a
customer, prospective customer, client, prospective client, contractor,
subcontractor or supplier of the Company or its Affiliates within three (3)
years prior to Employee’s termination of employment (“Company
Customers/Clients”), for the purpose of (A) selling services or goods in
competition with the Business of the Company; (B) inducing Company
Customers/Clients to cancel, transfer or cease doing business in whole or in
part with the Company or any of its Affiliates or (C) inducing Company
Customers/Clients to do business with any Person in competition with the
Business of the Company; or
 
(ii)  solicit, aid in solicitation of, induce, contact for the purpose of,
encourage or in any way cause any employee of the Company or any of its
Affiliates to leave the employ of the Company or its Affiliates, or otherwise
interfere with such employee’s relationship with the Company or any of its
Affiliates.
 
(d)  Non-Disclosure.  Other than in furtherance of the Business of the Company,
in the ordinary course in Employee’s capacity as an employee hereunder, Employee
will not, at any time, except with the express prior written consent of the
Board, directly or indirectly, disclose, communicate or divulge to any Person,
or use for the benefit of any Person, any secret, confidential or proprietary
knowledge or information relating to the Company or any of its
Affiliates  including, but not limited to, customer and client lists, customer
and client accounts and information, prospective client, customer, contractor or
subcontractor lists and information, services, techniques, methods of operation,
pricing, costs, sales, sales strategies or methods, marketing, marketing
strategies or methods, products, product development, research, know-how,
policies, financial information, financial condition, business strategies or
plans or other information of the Company or its Affiliates which is not
generally available to the public.  Upon the expiration or termination of
Employee’s employment with the Company or any Affiliate, Employee shall
immediately deliver to the Company all memoranda, books, papers, letters and
other data (whether in written form or computer stored), and all copies of same,
which were made by Employee or came into Employee’s possession or under his
control at any time prior to the expiration or termination of Employee’s
employment, and which in any way relate to the business, assets or properties of
the Company or any of its Affiliates as conducted or as planned to be conducted
by the Company or its Affiliates.
 
(e)  Intellectual Property.  Employee will promptly communicate to the Company,
in writing when requested, all software, designs, techniques, concepts, methods
and ideas, other technical information, marketing strategies and other ideas and
creations pertaining to the Business of the Company which are conceived of or
developed by Employee alone or with others, at any time (during or after
business hours) while Employee is employed by the Company or any of its
Affiliates.  Employee acknowledges that all of those ideas and creations are
inventions and works for hire, and will be the Company’s or its Affiliates’
exclusive property.  Employee will sign any documents which the Company deems
necessary to confirm its ownership of those ideas and creations and Employee
will cooperate with the Company to facilitate the ability of the Company to own
or exploit all of those ideas and creations.
 
 
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(f)  Non-Disparagement.  Employee will not at any time publish or communicate
disparaging or derogatory statements or opinions about the Company or its
Affiliates, including but not limited to, disparaging or derogatory statements
or opinions about the Company’s or its Affiliates’ management, products or
services to any third party.  It shall not be a breach of this Section 7(f) for
Employee to testify truthfully in any judicial or administrative proceeding or
to make statements or allegations in legal filings that are based on Employee’s
reasonable belief and are not made in bad faith.
 
(g)  Enforcement.  Employee acknowledges that the covenants and agreements of
this Section 7 (the “Covenants”) herein are of a special and unique character,
which gives them peculiar value, the loss of which cannot be reasonably or
adequately compensated for in an action at law.  Employee further acknowledges
that any breach or threat of breach by him of any of the Covenants will result
in irreparable injury to the Company for which money damages could not be
adequate to compensate the Company.  Therefore, in the event of any such breach
or threatened breach, the Company shall be entitled, in addition to all other
rights and remedies which the Company may have at law or in equity, to have an
injunction issued by any competent court enjoining and restraining Employee
and/or all other Persons involved therein from committing a breach or continuing
such breach.  The remedies granted to the Company in this Agreement are
cumulative and are in addition to remedies otherwise available to the Company at
law or in equity.  The Covenants contained in this Section 7 are independent of
any other provision of this Agreement, and the existence of any claim or cause
of action which Employee or any such other Person may have against the Company
shall not constitute a defense or bar to the enforcement of any of the
Covenants.  If the Company is obliged to resort to litigation to enforce any of
the Covenants which has a fixed term, then such term shall be extended for a
period of time equal to the period during which a breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a breach occurred, or, if later, the last day of
the original fixed term of such Covenant.
 
(h)  Acknowledgements.  Employee expressly acknowledges that the Covenants are a
material part of the consideration bargained for by the Company and, without the
agreement of Employee to be bound by the Covenants, the Company would not have
agreed to enter into this Agreement.  Employee further acknowledges and agrees
that the Business of the Company and its services are highly competitive, and
that the Covenants contained in this Section 7 are reasonable and necessary to
protect the Company’s legitimate business interests.  In addition, Employee
acknowledges that in the event his employment with the Company terminates, he
will still be able to earn a livelihood without violating this Agreement, and
that the Covenants contained in this Section 7 are material conditions to his
employment and continued employment with the Company.
 
(i)  Scope.  If any portion of any Covenant or its application is construed to
be invalid, illegal or unenforceable, then the remaining portions and their
application shall not be affected thereby, and shall be enforceable without
regard thereto.  If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court or other trier of fact making such determination shall modify, reduce or
limit such scope, duration, area or other factor, and enforce such Covenant to
the extent it believes such factor(s) to be lawful and appropriate.
 
(j)  Costs; Expenses in the Event of Breach.  In the event that Employee
breaches or attempts to breach the Covenants contained, the Company shall be
entitled to reimbursement from Employee for all costs and expenses associated
with any successful action to enforce any of the Covenants, including but not
limited to reasonable attorneys’ fees and costs of litigation.  Should the
Company file an action against Employee relating to a breach of the Covenants,
and a court of competent jurisdiction determines that Employee did not breach
any of the Covenants, Employee shall be entitled to reimbursement from the
Company of all costs and expenses associated with defending against such action
asserting a breach, including reasonable attorneys’ fees and costs.
 
8.  Section 409A of the Code.
 
(a)  Amounts payable under this Agreement are intended either to be exempt from
the rules of Section 409A of the Code or to satisfy those rules and shall be
construed accordingly.  The Company shall not be liable to Employee with respect
to any Agreement- related adverse tax consequences arising under Section 409A or
other provision of the Code.
 
 
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(b)  If any provision of this Agreement contravenes any regulations or Treasury
guidance promulgated under Code Section 409A or could cause an amount payable
hereunder to be subject to the interest and penalties under Code Section 409A,
such provision of the Agreement shall be deemed automatically modified to
maintain, to the maximum extent practicable, the original intent of the
applicable provision without violating the provisions of Code Section 409A.  A
termination of employment shall not be deemed to have occurred for purposes of
any provision of this Agreement providing for the payment of any amounts or
benefits upon or following a termination of employment unless such termination
is also a “Separation from Service” within the meaning of Code Section 409A and,
for purposes of any such provision of this Agreement, references to a
“termination,” “termination of employment” or like terms shall mean Separation
from Service.
 
(c)  Notwithstanding any provisions of this Agreement to the contrary, if
Employee is a “specified employee” (as such term is defined for purposes of Code
Section 409A), no payment of amounts not exempt from Code Section 409A shall be
made under Section 6(c) or 6(e) hereof prior to the six (6) month anniversary of
Employee’s separation of service to the extent such six (6) month delay in
payment is required to comply with Code Section 409A.  To the extent that this
Section 8(c) applies to any Severance Payment under Section 6(c) hereof, and the
actions described in this sentence do not cause adverse tax consequences to be
imposed under the Code, the Company shall, as soon as practicable following
Employee’s termination of employment, and after Employee executes and does not
revoke the General Release, deposit an amount equal to the gross amount of such
Severance Payment into an irrevocable Rabbi Trust in the form prescribed by
Internal Revenue Service Revenue Procedure 92-64.  Such Rabbi Trust shall be
established and maintained by the Company, at its own expense, pending the
distribution of such amount to Employee under this Agreement.  The Trustee shall
be a financial institution selected by the Company and the Trustee shall invest
all amounts deposited therein with the purpose of preserving the Trust
principal.  All principal and income from the Rabbi Trust shall be paid to
Employee on the first day following the six-month anniversary of Employee’s
Separation from Service.  The Trustee shall withhold or cause to be withheld all
withholding taxes as may be required by applicable law.
 
9.  Miscellaneous.
 
(a)  Indulgences, Etc.  Neither the failure, nor any delay, on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same, or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence.  No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
 
(b)  Controlling Law; Consent to Arbitration; Service of Process.
 
(i)  This Agreement and all questions relating to its validity, interpretation,
performance and enforcement (including, without limitation, provisions
concerning limitations of actions), shall be governed by and construed in
accordance with the laws of the State of Arizona (notwithstanding any conflict
of laws doctrines of such state or other jurisdiction to the contrary), and
without the aid of any canon, custom or rule of law requiring construction
against the draftsman.
 
(ii)  Except to the extent provided for in Section 7 above (relating to
injunctive relief and other equitable remedies), the Company and Employee agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Employee’s employment by the Company
or termination of his employment (including, without limitation, any such claim,
dispute or controversy arising under any federal, state or local statute,
regulation or ordinance or any of the Company’s employee benefit plans, policies
or programs) shall be resolved solely and exclusively by binding, confidential,
arbitration.  The arbitration shall be held in Tucson, Arizona (or at such other
location as shall be mutually agreed by the parties).  The arbitration shall be
conducted in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association (the “AAA”) in effect at the
time of the arbitration, except that the arbitrator shall be selected by
alternatively striking from a list of five arbitrators supplied by the AAA.  All
fees and expenses of the arbitration, including a transcript if either requests,
shall be borne equally by the parties, however, all costs for the services of
the arbitrator shall be borne solely by the Company.
 
 
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(iii).  Each party is responsible for the fees and expenses of its own
attorneys, experts, witnesses, and preparation and presentation of proofs and
post-hearing briefs (unless the party prevails on a claim for which attorney’s
fees are recoverable under law).  In rendering a decision, the arbitrator shall
apply all legal principles and standards that would govern if the dispute were
being heard in court.  This includes the availability of all remedies that the
parties could obtain in court.  In addition, all statutes of limitation and
defenses that would be applicable in court, will apply to the arbitration
proceeding.  The decision of the arbitrator shall be set forth in writing, and
be binding and conclusive on all parties.  Any action to enforce or vacate the
arbitrator’s award shall be governed by the Federal Arbitration Act, if
applicable, and otherwise by applicable state law.  If either the Company or
Employee improperly pursues any claim, dispute or controversy against the other
in a proceeding other than the arbitration provided for herein, the responding
party shall be entitled to dismissal or injunctive relief regarding such action
and recovery of all costs, losses and attorney’s fees related to such action.
 
(iv)  Each of the parties hereto hereby consents to process being served in any
suit, action or proceeding of any nature, by the mailing of a copy thereof by
registered or certified first-class mail, postage prepaid, return receipt
requested, to them at their respective addresses set forth in Section 9(c)
hereof.  Each of parties hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, all claims of error by reason of any such service
pursuant to the terms hereof (but does not waive any right to assert lack of
subject matter jurisdiction) and agrees that such service shall (A) be deemed in
every respect effective service of process in any such suit, action or
proceeding and (B) to the fullest extent permitted by applicable law, be taken
and held to be valid personal service.
 
(v)  Nothing in this Section 9(b) shall affect the right of any party hereto to
serve process in any manner permitted by law or affect the right of any party to
bring proceedings against any other party in the courts of any jurisdiction or
jurisdictions.
 
(c)  Notices.  All notices, requests, demands and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been duly given, made and received only when delivered (personally, by
courier service such as Federal Express, or by other messenger) or when
deposited in the United States mails, registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below.
 
(i)  If to Employee:
 
Warren Rustand
5750 E. Santa Fee, Tucson, AZ 85715
 
(ii)  If to the Company:
 
The Providence Service Corporation
64 East Broadway Blvd.
Tucson, AZ 85701
Attention:  Board of Directors
 
In addition, notice by mail shall be by air mail if posted outside of the
continental United States.
 
Any party may alter the addresses to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 9(c) for the giving of notice.
 
(d)  Assignment of Agreement.  The rights and obligations of both parties under
this Agreement shall inure to the benefit of and shall be binding upon their
heirs, successors and assigns.  The Company may assign or otherwise transfer its
rights under this Agreement, including but not limited to all Covenants
contained in Section 7 above, to any successor or affiliated business or
corporation whether by sale of stock, merger, consolidation, sale of assets or
otherwise.  This Agreement may not, however, be assigned by Employee to a third
party, nor may Employee delegate his duties under this Agreement.
 
 
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(e)  Execution in Counterparts.  This Agreement may be executed in any number of
counterparts, including by facsimile, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument.  This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
 
(f)  Provisions Separable.  The provisions of this Agreement are independent of
and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
 
(g)  Entire Agreement.  This Agreement contains the entire understanding among
the parties hereto with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements and understandings between the parties,
inducements or conditions, express or implied, oral or written, except as herein
contained.  The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms
hereof.  This Agreement may not be modified or amended other than by an
agreement in writing.
 
(h)  Section Headings.  The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
 
(i)  Gender, Etc.  Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
 
(j)  Independent Review and Consultation.  Employee is hereby advised to consult
with an attorney before signing this Agreement.  Employee acknowledges that it
is his decision whether or not to do so.
 
(k)  Number of Days.  In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or holiday on which entities which are provincially regulated are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
 
[Signature Page Follows]
 
 
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EXHIBIT 10.2
 
 
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement,
intending to be legally bound hereby, as of the date first above written.
 

  THE PROVIDENCE SERVICE CORPORATION                      
 
By:
/s/ Christopher Shackelton
    Name:
Christopher Shackelton
    Title:
Chairman of the Board
                   
WARREN RUSTAND
                           
/s/ Warren Rustand
         

 
 

 
[Signature Page to Employment Agreement of Warren Rustand]