Exhibit 10.7
MANAGEMENT UNIT SUBSCRIPTION AGREEMENT
(Series 1 Class F Units)
THIS MANAGEMENT UNIT SUBSCRIPTION AGREEMENT (this “Agreement”) is made as of
______________ ___, 2011 by and between NMH Investment, LLC, a Delaware limited
liability company (the “Company”), and the individual named on the signature
page hereto (the “Executive”).
WHEREAS, on the terms and subject to the conditions hereof, the Executive
desires to subscribe for and acquire from the Company, and the Company desires
to issue and provide or sell to the Executive, the Company’s Series 1 Class F
Common Units with a Participation Threshold (as defined in the LLC Agreement (as
defined below)) in the amount set forth on Schedule I attached hereto (the
“Class F Units”), in each case in the amounts set forth on Schedule I attached
hereto, as hereinafter set forth; and
WHEREAS, this Agreement is one of several agreements entered into or being
entered into by the Company with certain persons who are or will be key
employees and/or directors of the Company or one or more subsidiaries
(collectively with the Executive, the “Management Investors”) as part of an
equity purchase plan designed to comply with Rule 701 promulgated under the
Securities Act (as defined below).
NOW, THEREFORE, in order to implement the foregoing and in consideration of the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:
1. Definitions.
1.1 Agreement. The term “Agreement” shall have the meaning set forth in the
preface.
1.2 Board. The “Board” shall mean the Company’s Management Committee.
1.3 Cause. The term “Cause” used in connection with the termination of
employment of the Executive shall have the same meaning ascribed to such term in
any employment or severance agreement then in effect between Executive and the
Company or one of its subsidiaries or, if no such agreement containing a
definition of “Cause” is then in effect, shall mean a termination of employment
of the Executive by the Company or any subsidiary thereof due to (i) the
commission by the Executive of an act of fraud or embezzlement, (ii) the
indictment or conviction of the Executive for (x) a felony or (y) a crime
involving moral turpitude or a plea by Executive of guilty or nolo contendere
involving such a crime (to the extent it gives rise to an adverse effect on the
business or reputation of the Company or any of its subsidiaries), (iii) the
willful misconduct by the Executive in the performance of Executive’s duties,
including any willful misrepresentation or willful concealment by Executive on
any report submitted to the Company (or any

 

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of its securityholders or subsidiaries) which is not of a de minimis nature,
(iv) the violation by Executive of a written Company policy regarding substance
abuse, sexual harassment or discrimination or any other material written policy
of the Company regarding employment, (v) the willful failure of the Executive to
render services to the Company or any of its subsidiaries in accordance with
Executive’s employment which failure amounts to a material neglect of the
Executive’s duties to the Company or any of its subsidiaries, (vi) the repeated
failure of the Executive to comply with reasonable directives of the Board of
Directors of National Mentor Holdings, Inc. (“NMH”) or the Chief Executive
Officer of NMH consistent with the Executive’s duties or (vii) the material
breach by Executive of any of the provisions of any agreement between Executive,
on the one hand, and the Company or a securityholder or an affiliate of the
Company, on the other hand. Notwithstanding the foregoing, with respect to
clauses (iii), (iv), (v), (vi) and (vii) above, Executive’s termination of
employment with the Company or NMH shall not be deemed to have been terminated
for Cause unless and until Executive has been provided written notice of the
Company’s or NMH’s intention to terminate his employment for Cause and the
specific facts relied on; and ten (10) business days from the receipt of such
notice to cure any such conduct or omission giving rise to a termination for
Cause; and Executive does not cure any such conduct or omission within such ten
business-day period.
1.4 Closing. The term “Closing” shall have the meaning set forth in Section 2.2.
1.5 Closing Date. The term “Closing Date” shall have the meaning set forth in
Section 2.2.
1.6 Company. The term “Company” shall have the meaning set forth in the preface.
1.7 Cost. The term “Cost” shall mean the price per Unit paid by the Executive as
proportionately adjusted for all subsequent distributions of Units and other
recapitalizations and less the amount of any distributions made with respect to
the Units pursuant to Section 4.4 of the LLC Agreement (other than tax
distributions pursuant to Section 4.4(j) of the LLC Agreement). For Units that
are granted, the original price per Unit paid is $0.00.
1.8 Disability. The term “Disability” of the Executive shall have the same
meaning ascribed to such term in any employment or severance agreement then in
effect between Executive and the Company or one of its subsidiaries or, if no
such agreement containing a definition of “Disability” is then in effect, shall
mean the inability of the Executive to perform the essential functions of
Executive’s job, with or without reasonable accommodation, by reason of a
physical or mental infirmity, for a continuous period of six months. The period
of six months shall be deemed continuous unless Executive returns to work for at
least 30 consecutive business days during such period and performs during such
period at the level and competence that existed prior to the beginning of the
six-month period. The date of such Disability shall be on the first day of such
six-month period.
1.9 Employee and Employment. The term “employee” shall mean any employee (as
defined in accordance with the regulations and revenue rulings then applicable
under Section 3401(c) of the Internal Revenue Code of 1986, as amended) of the
Company or any of its subsidiaries, and the term “employment” shall include
service as a part- or full-time employee to the Company or any of its
subsidiaries.

 

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1.10 Executive. The term “Executive” shall have the meaning set forth in the
preface.
1.11 Executive Group. The term “Executive Group” shall have the meaning set
forth in Section 4.1(a).
1.12 Fair Market Value. The term “Fair Market Value” used in connection with the
value of Units shall mean the average of the closing prices of the sales of the
Company’s Units on all securities exchanges on which the Units may at the time
be listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day or, if on any day the Units are not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
P.M., New York time, or, if on any day the Units are not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day. If at any time the Units are not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, the Fair Market
Value shall be the fair value of the Units determined in good faith by the Board
using its reasonable business judgment (valuing the Company and its subsidiaries
as a going concern; disregarding any discount for minority interest or
marketability of the Units, whether due to transfer restrictions or the lack of
a public market for the Units; taking into account the Preferred Priority Return
(as defined in the LLC Agreement); without taking into account the effect of any
contemporaneous forfeiture or repurchase of Units at less than Fair Market Value
under Section 4) [after consultation with an independent appraiser, accountant
or investment banking firm (the “Valuation Expert”);]1 provided that [(i) the
Board shall only be obligated to consult a Valuation Expert once annually absent
special circumstances (as determined in good faith by the Board) and (ii)]2 if
the Executive disagrees in good faith with the Board’s determination and such
dispute involves an amount in excess of $250,000, the Executive shall notify the
Company in writing of such disagreement within ten (10) business days of receipt
of the Board’s determination of the fair market value of such Units, in which
event [a second Valuation Expert // an independent appraiser, accountant or
investment banking firm]3 (the “Arbiter”) selected by mutual agreement of the
Executive and the Board shall make a determination of the fair market value
thereof (valuing the Company and its subsidiaries as set forth above); [and
without taking into account the effect of any contemporaneous forfeiture or
repurchase of Units at less than Fair Market Value under Section 4)]4 solely by
(i) reviewing a single written presentation timely made by each of the Company
and the Executive setting forth their respective resolutions of the dispute and
the bases therefor and (ii) accepting either the Executive’s or the Company’s
proposed resolution of the dispute. For the avoidance of doubt, the
determination of Fair Market Value of any Unit shall be based on the amounts
distributable in respect of such Unit under the terms of the LLC Agreement,
including any adjustments necessary to reflect the portion of any tax
distributions that were previously made in respect of such Unit but not charged
against other distributions in respect of such Unit.
 

      1  
NTD: Include for top-level executives only.
  2  
NTD: Include for top-level executives only.
  3  
NTD: Include first option for top-level executives only; include second option
for other Executives.
  4  
NTD: Include for non-top-level executives only.

 

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Within five (5) business days after the Company’s receipt of Executive’s written
notice of disagreement, the Company shall make available to Executive all data
(including reports of employees and outside advisors) relied upon by the Board
in making its determination. The Executive’s and the Company’s written
presentations must be submitted to the Arbiter within 30 days of the Arbiter’s
engagement, written notice of which shall be delivered by the Company to the
Executive. The Arbiter shall notify the Executive and the Company of its
decision within 40 days of its engagement. If the Executive’s proposed
resolution is accepted, the Company also shall pay all of the Executive’s
reasonable out-of-pocket fees and expenses (including reasonable fees and
expenses of counsel) incurred in connection with the arbitration. Each of the
Company and the Executive agrees to execute, if requested by the Arbiter, a
reasonable engagement letter with the Arbiter.
1.13 Financing Default. The term “Financing Default” shall mean an event which
would constitute (or with notice or lapse of time or both would constitute) an
event of default under any of the following as they may be amended from time to
time: (i) the Credit Agreement, dated as of February 9, 2011, among NMH
Holdings, LLC, NMH as Borrower, the several banks and other financial
institutions or entities from time to time parties thereto and UBS AG, Stamford
Branch, as administrative agent, as amended, and the Indenture, dated as of
February 9, 2011, among NMH, the Guarantors (as defined in the Indenture), and
Wells Fargo Bank, National Association, as trustee, as amended, and the Senior
Notes issued by NMH pursuant to the Indenture (collectively, the “Financing
Agreements”), and any extensions, renewals, refinancings or refundings thereof
in whole or in part; (ii) any other agreement under which an amount of
indebtedness of the Company or any of its subsidiaries in excess of $5,000,000
is outstanding as of the time of the aforementioned event, and any extensions,
renewals, refinancings or refundings thereof in whole or in part;
(iii) restrictive financial covenants contained in the LLC Agreement of the
Company or NMH’s organizational documents; (iv) any amendment of, supplement to
or other modification of any of the instruments referred to in clauses
(i) through (iii) above; and (v) any of the securities issued pursuant to or
whose terms are governed by the terms of any of the agreements set forth in
clauses (i) through (iv) above, and any extensions, renewals, refinancings or
refundings thereof in whole or in part.
1.14 Good Reason. The term “Good Reason” shall have the same meaning ascribed to
such term in any employment or severance agreement then in effect between
Executive and the Company or one of its subsidiaries or, if no such agreement
containing a definition of “Good Reason” is then in effect, shall mean (i) a
change by the Company or NMH in Executive’s duties and responsibilities which is
materially inconsistent with Executive’s position in the Company or in NMH,
(ii) a reduction in Executive’s annual base salary or annual bonus opportunity
(excluding any reduction in Executive’s salary or bonus opportunity that is part
of a plan to reduce compensation of comparably situated employees of the Company
generally; provided that such reduction in Executive’s salary or bonus
opportunity is not greater than ten percent (10%) of Executive’s salary or bonus
opportunity as in effect

 

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on June 29, 2006), (iii) a material breach by the Company of the employment
agreement, if any, between Executive and the Company or one of its subsidiaries,
and (iv) the relocation of the Executive’s principal place of work from its
current location to a location that is beyond a 50-mile radius of such current
location; provided that, notwithstanding anything to the contrary in the
foregoing, Executive shall only have “Good Reason” to terminate employment
following the Company’s failure to remedy the act or omission which is alleged
to constitute “Good Reason” within fifteen (15) days following the Company’s
receipt of written notice from Executive specifying such act or omission.
1.15 LLC Agreement. The term “LLC Agreement” means the Fifth Amended and
Restated Limited Liability Company Agreement, dated as of                     
___, 2011, by and among the Company, Vestar and the other Members of the Company
a party thereto, as amended from time to time in accordance with the provisions
thereof.
1.16 Management Investors. The term “Management Investors” shall have the
meaning set forth in the preface.
1.17 Permitted Transferee. The term “Permitted Transferee” means any transferee
of Units pursuant to clauses (f) or (g) of the definition of “Exempt Employee
Transfer” as defined in the Securityholders Agreement.
1.18 Person. The term “Person” shall mean any individual, corporation,
partnership, limited liability company, trust, joint stock company, business
trust, unincorporated association, joint venture, governmental authority or
other entity of any nature whatsoever.
1.19 Public Offering. The term “Public Offering” shall have the meaning set
forth in the Securityholders Agreement.
1.20 Put Percentage. The term “Put Percentage” shall mean the put percentage set
forth on Schedule I.
1.21 Puttable Units. The term “Puttable Units” shall mean Class B Units, Class C
Units, Class D Units and Vested Units.
1.22 Retirement. The term “Retirement” shall mean, with respect to the
Executive, the Executive’s retirement as an employee of the Company or any of
its subsidiaries on or after reaching age 65 or such earlier age as may be
otherwise determined by the Board after at least three years employment with the
Company or any of its subsidiaries after the Closing Date.
1.23 Sale of the Company. The term “Sale of the Company” shall have the meaning
set forth in the Securityholders Agreement, except that transactions with a
Person or Persons that are a wholly owned Subsidiary (as defined in the
Securityholders Agreement) of Vestar and/or Vestar/NMH Investors, LLC or NMH
Investment, LLC shall be excluded.
1.24 Securities Act. The term “Securities Act” shall mean the Securities Act of
1933, as amended, and all rules and regulations promulgated thereunder, as the
same may be amended from time to time.

 

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1.25 Securityholders Agreement. The term “Securityholders Agreement” shall mean
the Securityholders Agreement dated as of June 29, 2006 among Vestar, the
Management Investors and the Company, as it may be amended or supplemented
thereafter from time to time.
1.26 Termination Date. The term “Termination Date” means the date upon which
Executive’s employment with the Company and its subsidiaries is terminated.
1.27 Unit Plan. The term “Unit Plan” means the Amended and Restated 2006 Unit
Plan of the Company, as it may be amended or supplemented from time to time.
1.28 Units. The term “Units” shall have the meaning set forth in the LLC
Agreement.
1.29 Unvested Units. The term “Unvested Units” shall have the meaning set forth
in Section 2.5(b).
1.30 Vestar. The term “Vestar” means Vestar Capital Partners V, L.P., a Cayman
Islands exempted limited partnership.
1.31 Vested Units. The term “Vested Units” shall have the meaning set forth in
Section 2.5(b).
2. Grant of Class F Units.
2.1 Grant of Class F Units. Pursuant to the terms and subject to the conditions
set forth in this Agreement, the Company hereby agrees to grant and issue to the
Executive, on the Closing Date the number of Class F Units set forth on
Schedule I attached hereto.
2.2 The Closing. The closing (the “Closing”) of the issuance of Class F Units
hereunder shall take place on                      __, 2011 (the “Closing
Date”). The Company and the Executive hereby agree that the Executive shall
execute and deliver to the Company a writing satisfactory to the Company and
evidencing the Executive’s acceptance and adoption of all of the terms and
provisions of each of the LLC Agreement and the Securityholders Agreement (to
the extent Executive is not already a party thereto).
2.3 Section 83(b) Election. Within 10 days after the Closing, Executive shall
provide the Company with a completed election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder in the form of Exhibit A attached hereto. The Company shall timely
file (via certified mail, return receipt requested) such election with the
Internal Revenue Service (“IRS”), and shall provide Executive with proof of such
timely filing.
2.4 Closing Conditions. Notwithstanding anything in this Agreement to the
contrary, the Company shall be under no obligation to issue and sell to the
Executive any Units unless (i) Executive is an employee of, or consultant to,
the Company or one of its Subsidiaries on the Closing Date; (ii) the
representations of Executive contained in Section 3 hereof are true and correct
in all material respects as of the Closing Date and (iii) Executive is not in
breach of any agreement, obligation or covenant herein required to be performed
or observed by Executive on or prior to the Closing Date.

 

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2.5 Vesting of Class F Units.
(a) The Class F Units acquired by the Executive shall be subject to vesting in
the manner specified in Schedule II attached hereto.
(b) All Class F Units which have become vested pursuant to this Agreement are
collectively referred to herein as the “Vested Units.” All Class F Units which
have not become vested pursuant to this Agreement are collectively referred to
herein as “Unvested Units.”
(c) If the Executive’s employment with the Company is terminated for any reason
or if the Executive engages in “Competitive Activity” (as defined in Section 6.1
of this Agreement), each Unvested Unit will automatically be forfeited on the
date of such termination or the Activity Date, as applicable, for no
consideration and any of the Executive’s rights or interests therein will
automatically be terminated and of no further force and effect with no further
action required on the part of the Company to effect such forfeiture or
termination.
3. Investment Representations and Covenants of the Executive.
3.1 Units Unregistered. The Executive acknowledges and represents that Executive
has been advised by the Company that:
(a) the offer and sale of the Units have not been registered under the
Securities Act;
(b) the Units must be held indefinitely and the Executive must continue to bear
the economic risk of the investment in the Units unless the offer and sale of
such Units are subsequently registered under the Securities Act and all
applicable state securities laws or an exemption from such registration is
available;
(c) there is no established market for the Units and it is not anticipated that
there will be any public market for the Units in the foreseeable future;
(d) a notation shall be made in the appropriate records of the Company
indicating that the Units are subject to restrictions on transfer and, if the
Company should at some time in the future engage the services of a securities
transfer agent, appropriate stop-transfer instructions will be issued to such
transfer agent with respect to the Units.
3.2 Additional Investment Representations. The Executive represents and warrants
that:
(a) the Executive’s financial situation is such that Executive can afford to
bear the economic risk of holding the Units for an indefinite period of time,
has adequate means for providing for Executive’s current needs and personal
contingencies, and can afford to suffer a complete loss of Executive’s
investment in the Units;

 

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(b) the Executive’s knowledge and experience in financial and business matters
are such that Executive is capable of evaluating the merits and risks of the
investment in the Units;
(c) the Executive understands that the Units are a speculative investment which
involves a high degree of risk of loss of Executive’s investment therein, there
are substantial restrictions on the transferability of the Units and, on the
Closing Date and for an indefinite period following the Closing, there will be
no public market for the Units and, accordingly, it may not be possible for the
Executive to liquidate Executive’s investment in case of emergency, if at all;
(d) the terms of this Agreement provide that if the Executive ceases to be an
employee of the Company or its subsidiaries, Unvested Units are subject to
forfeiture and the Company and its affiliates have the right to repurchase
Vested Units at a price which may, under certain circumstances, be less than the
Fair Market Value thereof;
(e) the Executive understands and has taken cognizance of all the risk factors
related to the purchase of the Units and, other than as set forth in this
Agreement, no representations or warranties have been made to the Executive or
Executive’s representatives concerning the Units or the Company or their
prospects or other matters;
(f) the Executive has been given the opportunity to examine all documents and to
ask questions of, and to receive answers from, the Company and its
representatives concerning the Company and its subsidiaries, the Securityholders
Agreement, the Company’s organizational documents and the terms and conditions
of the purchase of the Units and to obtain any additional information which the
Executive deems necessary; and
(g) all information which the Executive has provided to the Company and the
Company’s representatives concerning the Executive and Executive’s financial
position is complete and correct as of the date of this Agreement.
4. Certain Sales and Forfeitures Upon Termination of Employment.
4.1 Put Option.
(a) [If the Executive’s employment with the Company and its subsidiaries
terminates due to the Disability, death or Retirement of the Executive prior to
the earlier of (i) a Public Offering or (ii) a Sale of the Company, the
Executive and the Executive’s Permitted Transferees (hereinafter sometimes
collectively referred to as the “Executive Group”) shall have the right, subject
to the provisions of Section 5 hereof, for 45 days following the date that is
six (6) months after the date of such termination of employment of the
Executive, to sell to the Company, and the Company shall be required to purchase
(subject to the provisions of Section 5 hereof), on one occasion from each
member of the Executive Group, a number of Vested Units equal to the product of
(x) the Put Percentage and (y) the number of Vested Units then held by the
Executive Group, at a price per Unit equal to the applicable purchase price
determined pursuant to Section 4.1(c). In order to exercise its rights with
respect to the Vested Units pursuant to this Section 4.1(a), the Executive Group
shall also be required to simultaneously sell to the Company, and the Company
shall be required to purchase (subject to the provisions of Section 5 hereof),
on such occasion from each member of the Executive Group, a number of Units of
each of the other classes of Puttable Units held by the Executive Group equal to
the product of (x) the Put Percentage and (y) the number of Units of such class
of Puttable Units held by the Executive Group, at a price per Unit equal to the
applicable purchase price determined pursuant to Section 4.1(c).

 

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(b) If the Executive Group desires to exercise its option to require the Company
to repurchase Units pursuant to Section 4.1(a), the members of the Executive
Group shall send one written notice to the Company setting forth such members’
intention to collectively sell the Put Percentage of each class of Puttable
Units held by the Executive Group pursuant to Section 4.1(a), which notice shall
include the signature of each member of the Executive Group. Subject to the
provisions of Section 5.1, the closing of the purchase shall take place at the
principal office of the Company on a date specified by the Company no later than
the 60th day after the giving of such notice.
(c) In the event of a purchase by the Company pursuant to Section 4.1(a), the
purchase price of any Units subject to purchase under Section 4.1(a) shall be
Fair Market Value (measured as of the put notice date); provided that in any
case the Board shall have the right, in its sole discretion, to increase any of
the foregoing purchase prices. For the avoidance of doubt, no Unvested Units
will be subject to purchase under Section 4.1(a) as they will have been
forfeited pursuant to Section 2.5(c).
(d) Any put or right to require the Company to repurchase Puttable Units that
the Executive Group may have in accordance with the terms of the agreements
(including, without limitation, any Management Unit Subscription Agreements)
pursuant to which such other Units were purchased from or granted by the Company
are hereby terminated and of no further force and effect.]5
(e) [Any put or right to require the Company to repurchase Puttable Units that
the Executive and the Executive’s Permitted Transferees (hereinafter sometimes
collectively referred to as the “Executive Group”) may have in accordance with
the terms of the agreements (including, without limitation, any Management Unit
Subscription Agreements) pursuant to which such other Units were purchased from
or granted by the Company are hereby terminated and of no further force and
effect.]6
 

      5  
NTD: Include for top-level executives only.
  6  
NTD: Include for non-top-level executives.

 

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4.2 Call Options.
(a) If the Executive’s employment with the Company and its subsidiaries
terminates for any of the reasons set forth in clauses (i), (ii) or (iii) below
prior to a Sale of the Company, [if the number of Puttable Units sold to the
Company pursuant to the Executive Group’s exercise of the put option pursuant to
Section 4.1 is less than the number of Puttable Units held by the Executive
Group]7 or if the Executive engages in “Competitive Activity” (as defined in
Section 6.1 of this Agreement), the Company shall have the right and option to
purchase for a period of eight months following the Termination Date8, and each
member of the Executive Group shall be required to sell to the Company, any or
all of such Puttable Units then held by such member of the Executive Group (it
being understood that if Puttable Units of any class subject to repurchase
hereunder may be repurchased at different prices, the Company may elect to
repurchase only the portion of the Puttable Units of such class subject to
repurchase hereunder at the lower price), at a price per unit equal to the
applicable purchase price determined pursuant to Section 4.2(c):
(i) if the Executive’s employment with the Company and its subsidiaries is
terminated due to the Disability, death or Retirement of the Executive;
(ii) if the Executive’s employment with the Company and its subsidiaries is
terminated by the Company and its subsidiaries without Cause or by the Executive
for Good Reason;
(iii) if the Executive’s employment with the Company and its subsidiaries is
terminated (A) by the Company or any of its subsidiaries for Cause or (B) by the
Executive for any other reason not set forth in Section 4.2(a)(i) or
Section 4.2(a)(ii).
(b) If the Company desires to exercise one of its options to purchase Puttable
Units pursuant to this Section 4.2, the Company shall, not later than eight
months after the Termination Date, send written notice to each member of the
Executive Group of its intention to purchase Puttable Units, specifying the
number of Puttable Units to be purchased (the “Call Notice” and the date that
such Call Notice is given, the “Call Notice Date”). Subject to the provisions of
Section 5, the closing of the purchase shall take place at the principal office
of the Company on a date specified by the Company no later than the 30th day
after the Call Notice Date.
(c) In the event of a purchase by the Company pursuant to Section 4.2(a), the
purchase price shall be:
(i) with respect to a purchase of Puttable Units, in the case of a termination
of employment described in Section 4.2(a)(iii)(A) or if Executive engages in a
“Competitive Activity” (as defined in Section 6.1 of this Agreement), a price
per Unit equal to the lesser of (A) Fair Market Value (measured as of the Call
Notice Date) and (B) Cost; and
(ii) with respect to a purchase of Puttable Units, in the case of a termination
of employment described in Section 4.2(a)(i), 4.2(a)(ii) or 4.2(a)(iii)(B), a
price per Unit equal to Fair Market Value (measured as of the Call Notice Date);
 

      7  
NTD: Include for top-level executives only.
  8  
NTD: Note that time period for exercising call right is tied to the Termination
Date and not the Activity Date.

 

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provided that in any case the Board shall have the right, in its sole
discretion, to increase any purchase price set forth above.
(d) The Company’s right to purchase Units (other than Vested Units) set forth in
this Agreement are in addition to, and not in lieu of, any call rights or other
rights to repurchase Units set forth in any other prior Management Unit
Subscription Agreement to which the Executive and the Company are a party.
4.3 Obligation to Sell Several. If there is more than one member of the
Executive Group, the failure of any one member thereof to perform its
obligations hereunder shall not excuse or affect the obligations of any other
member thereof, and the closing of the purchases from such other members by the
Company shall not excuse, or constitute a waiver of its rights against, the
defaulting member.
5. Certain Limitations on the Company’s Obligations to Purchase Units.
5.1 Deferral of Purchases. (a) Notwithstanding anything to the contrary
contained herein, the Company shall not be obligated to purchase any Units at
any time pursuant to Section 4, regardless of whether it has delivered a notice
of its election to purchase any such Units, (i) to the extent that the purchase
of such Units or the payment to the Company or one of its subsidiaries of a cash
dividend or distribution by a subsidiary of the Company to fund such purchase
(together with any other purchases of Units pursuant to Section 4 or pursuant to
similar provisions in agreements with other employees of the Company and its
subsidiaries of which the Company has at such time been given or has given
notice and together with cash dividends and distributions to fund such other
purchases) would result (A) in a violation of any law, statute, rule,
regulation, policy, order, writ, injunction, decree or judgment promulgated or
entered by any federal, state, local or foreign court or governmental authority
applicable to the Company or any of its subsidiaries or any of its or their
property, (B) after giving effect thereto, in a Financing Default or (C) adverse
accounting treatment for the Company, or (ii) if immediately prior to such
purchase there exists a Financing Default which prohibits such purchase,
dividend or distribution. The Company shall within fifteen days of learning of
any such fact so notify the members of the Executive Group that it is not
obligated to purchase units hereunder.
(b) Notwithstanding anything to the contrary contained in Section 4, any Units
which a member of the Executive Group has elected to sell to the Company or
which the Company has elected to purchase from members of the Executive Group,
but which in accordance with Section 5.1(a) are not purchased at the applicable
time provided in Section 4, shall be purchased by the Company for the applicable
purchase price, together with interest thereon at the Applicable Federal Rate as
in effect on the date such purchase is so deferred on or prior to the fifteenth
day after such date or dates that (after taking into account any purchases (and
related dividends and distributions) to be made at such time pursuant to
agreements with other employees of the Company and its subsidiaries) the
purchase of such Units (and related dividends and distributions) are no longer
prohibited under Section 5.1(a), and the Company shall give the members of the
Executive Group five days prior notice of any such purchase.

 

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5.2 Payment for Units. If at any time the Company elects or is required to
purchase any Units pursuant to Section 4, the Company shall pay the purchase
price for the Units it purchases (i) first, by the cancellation of any
indebtedness, if any, owing from the Executive to the Company or any of its
subsidiaries (which indebtedness shall be applied pro rata against the proceeds
receivable by each member of the Executive Group receiving consideration in such
repurchase) and (ii) then, by the Company’s delivery of a check or wire transfer
of immediately available funds for the remainder of the purchase price, if any,
against delivery of the certificates or other instruments representing the Units
so purchased, duly endorsed; provided that if any of the conditions set forth in
Section 5.1(a) exists which prohibits such cash payment (either directly or
indirectly as a result of the prohibition of a related cash dividend or
distribution), the portion of the cash payment so prohibited may be made, to the
extent such payment is not prohibited, by the Company’s delivery of a junior
subordinated promissory note (which shall be subordinated and subject in right
of payment to the prior payment of any debt outstanding under the Financing
Agreements and any modifications, renewals, extensions, replacements and
refunding of all such indebtedness) of the Company (a “Junior Subordinated
Note”) in a principal amount equal to the balance of the purchase price, payable
(x) in the event of a termination of employment referenced in Section 4.2(a)(i)
and (ii), as soon as the conditions set forth in Section 5.1(a) no longer exist
or (x) in the event of a termination of employment referenced in
Section 4.2(a)(iii), on the fifth anniversary of the issuance thereof, and
bearing interest payable annually at the Applicable Federal Rate on the date of
issuance; provided further that if any of the conditions set forth in
Section 5.1(a) exists which prohibits such payment (or the payment described in
the next proviso) by delivery of a Junior Subordinated Note, the portion of the
payment so prohibited may be made, to the extent such payment is not prohibited,
by the Company’s delivery of preferred units of the Company having an aggregate
liquidation preference equal to the balance of the purchase price; provided
further that in the case of a purchase pursuant to Section 4.2(a)(iii) the
Company may elect at any time to deliver a Junior Subordinated Note in a
principal amount equal to all or a portion of the cash purchase price (in lieu
of paying such portion of the purchase price in cash), which Junior Subordinated
Note shall mature on the fifth anniversary of its issuance and accrue interest
annually at the Applicable Federal Rate on the date of issuance, which interest
shall be payable at maturity. The Company shall use its reasonable efforts to
repurchase Units pursuant to Section 4.1(a) or Section 4.2(a)(i) or
Section 4.2(a)(ii) with cash and/or to prepay any Junior Subordinated Notes or
redeem any preferred units issued in connection with a repurchase of Units
pursuant to Section 4.1(a) or Section 4.2(a)(i) or Section 4.2(a)(ii). The
Company shall have the right set forth in clause (i) of the first sentence of
this Section 5.2 whether or not the member of the Executive Group selling such
units is an obligor of the Company. Any Junior Subordinated Note (or preferred
units issued in lieu thereof) shall become prepayable (or redeemable) upon a
Sale of the Company from net cash proceeds, if any, payable to the Company or
its unitholders; to the extent that sufficient net cash proceeds are not so
payable, the Junior Subordinated Note (or preferred units issued in lieu
thereof) shall be cancelled in exchange for such other non-cash consideration
received by unitholders in the Sale of the Company having a fair market value
equal to the principal of and accrued interest on the note. Any Junior
Subordinated Note (or preferred units issued in lieu thereof) also shall become
prepayable upon the consummation of an initial Public Offering. The principal of
and accrued interest on any such note may be prepaid (and preferred units issued
in lieu thereof may be redeemed) in whole or in part at any time at the option
of the Company. If interest (or cash dividends) is required to be paid on any
Junior Subordinated Note (or preferred units issued in lieu thereof) prior to
maturity and any of the conditions set forth in Section 5.1(a) exists or if any
such cash payment would result in adverse accounting treatment for the Company
which prohibits the payment of such interest (or dividends) in cash, such
interest may be cumulated and accrued until and to the extent that such
prohibition no longer exists.

 

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6. Noncompetition.
6.1 Competitive Activity. Executive shall be deemed to have engaged in
“Competitive Activity” if, during the period commencing on the date hereof and
ending on the later of (x) the first anniversary of the date Executive’s
employment with the Company and its subsidiaries is terminated or (y) the
maximum number of years of base salary Executive is entitled to receive as
severance in a termination by the Company without Cause, Executive, whether on
Executive’s own behalf or on behalf of or in conjunction with any other person
or entity, directly or indirectly (A) solicits, or assists in soliciting, the
business of any client of the Company or any of its subsidiaries (collectively,
the “Entities”), or hires any employee of any of the Entities, or interferes
with, or attempts to interfere with, the relationships between any of the
Entities, on the one hand, and any of its customers, clients, suppliers,
partners, members, employees or investors, on the other hand; or (B) becomes an
employee, agent, representative, consultant, partner, shareholder or holder of
any other financial interest with respect to any business, individual,
partnership, joint venture, association, firm, corporation or other entity
engaged, wholly or in part, in the provision or sale of acquired brain injury
services, therapeutic foster care, other foster care or other home or
community-based healthcare, therapy, counseling or other educational or human
services to people with special needs, or any other business that the Company is
actively conducting or is actively considering conducting at the time of
Executive’s termination of employment (so long as Executive knows or reasonably
should have known about such plan(s)), in each case in any geographical area
within 100 mile radius of the Executive’s principal place of work as of the
Termination Date with the Company or its affiliates, as applicable(the
“Competitive Business”). Notwithstanding the foregoing, if Executive is subject
to a more restrictive noncompetition covenant in any agreement with the Company
or any of its affiliates, the most restrictive of such noncompetition covenants
shall apply.
6.2 Activity Date. If Executive engages in Competitive Activity, the “Activity
Date” shall be the first date on which Executive engages in such Competitive
Activity.
6.3 Repayment of Proceeds. If Executive engages in Competitive Activity, then
Executive shall be required to pay to the Company, within ten business days
following the Activity Date, an amount equal to the excess, if any, of (A) the
aggregate proceeds Executive received upon the sale or other disposition of
Executive’s Units, over (B) the aggregate Cost of such Units.
7. Miscellaneous.
7.1 Transfers to Permitted Transferees. Prior to the transfer of Units to a
Permitted Transferee (other than a transfer subsequent to a Sale of the
Company), the Executive shall deliver to the Company a written agreement of the
proposed transferee (a) evidencing such Person’s undertaking to be bound by the
terms of this Agreement and (b) acknowledging that the Units transferred to such
Person will continue to be Units for purposes of this Agreement in the hands of
such Person. Any transfer or attempted transfer of Units in violation of any
provision of this Agreement or the Securityholders Agreement shall be void, and
the Company shall not record such transfer on its books or treat any purported
transferee of such Units as the owner of such Units for any purpose.

 

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7.2 Recapitalizations, Exchanges, Etc., Affecting Units. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to
Units, to any and all securities of the Company or any successor or assign of
the Company (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for, or in substitution of the
Units, by reason of any dividend payable in units, issuance of units,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
7.3 Executive’s Employment by the Company. Nothing contained in this Agreement,
in any documents delivered to Executive or any of the other Management Investors
in connection with Executive’s investment in the Company pursuant to this
Agreement, or in any other documents delivered to Executive or any of the other
Management Investors in connection with any previous investment in the Company
by any such Management Investor shall be deemed to obligate the Company or any
subsidiary of the Company to (i) employ the Executive in any capacity whatsoever
or to prohibit or restrict the Company (or any such subsidiary) from terminating
the employment of the Executive at any time or for any reason whatsoever, with
or without Cause, or (ii) provide any severance payments, benefits or any other
monetary compensation or employee benefit to Executive in connection with a
termination of Executive’s employment other than as required by applicable law.
7.4 Unit Plan. Executive acknowledges that the Class F Units are being issued
pursuant to the Unit Plan and agrees to be bound by the terms of the Unit Plan
with respect to Executive’s Units.
7.5 Cooperation. Executive agrees to cooperate with the Company in taking action
reasonably necessary to consummate the transactions contemplated by this
Agreement.
7.6 Binding Effect. The provisions of this Agreement shall be binding upon and
accrue to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns; provided, however, that no Transferee
shall derive any rights under this Agreement unless and until such Transferee
has executed and delivered to the Company a valid undertaking and becomes bound
by the terms of this Agreement; and provided further that Vestar is a third
party beneficiary of this Agreement and shall have the right to enforce the
provisions hereof.
7.7 Amendment; Waiver. This Agreement may be amended only by a written
instrument signed by the parties hereto. No waiver by any party hereto of any of
the provisions hereof shall be effective unless set forth in a writing executed
by the party so waiving.
7.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.

 

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7.9 Jurisdiction. Any suit, action or proceeding with respect to this Agreement,
or any judgment entered by any court in respect of any thereof, shall be brought
in any court of competent jurisdiction in the State of Delaware, and each of the
Company and the members of the Executive Group hereby submits to the exclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment. Each of the members of the Executive Group and the Company hereby
irrevocably waives (i) any objections which it may now or hereafter have to the
laying of the venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in any court of competent jurisdiction in the State of
Delaware, (ii) any claim that any such suit, action or proceeding brought in any
such court has been brought in any inconvenient forum and (iii) any right to a
jury trial.
7.10 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered,
telecopied (with confirmation of receipt), one day after deposit with a
reputable overnight delivery service (charges prepaid) and three days after
deposit in the U.S. Mail (postage prepaid and return receipt requested) to the
address set forth below or such other address as the recipient party has
previously delivered notice to the sending party.
(a) If to the Company:
NMH Investment, LLC
c/o Vestar Capital Partners
245 Park Avenue, 41st Floor
New York, NY 10167
Attn: General Counsel
Telecopy: (212) 808-4922

with copies to:

National Mentor Holdings, Inc.
313 Congress Street
6th Floor
Boston, Massachusetts 02210
Attn: Linda DeRenzo
Telecopy: (617) 790-4271

and

Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
Attn: Sanford E. Perl, P.C.
        Mark A. Fennell, P.C.
Telecopy: (312) 862-2200
(b) If to the Executive, to the address as shown on the unit register of the
Company.

 

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7.11 Integration. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. For the avoidance of doubt, this Agreement shall
not supersede or amend any written Management Unit Subscription Agreement
previously executed by the parties hereto that evidences a previous purchase of
Units made by the Executive from the Company.
7.12 Counterparts. This Agreement may be executed in separate counterparts, and
by different parties on separate counterparts each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
7.13 Injunctive Relief. The Executive and Executive’s Permitted Transferees each
acknowledges and agrees that a violation of any of the terms of this Agreement
will cause the Company irreparable injury for which adequate remedy at law is
not available. Accordingly, it is agreed that the Company shall be entitled to
an injunction, restraining order or other equitable relief to prevent breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it may be entitled
at law or equity.
7.14 Rights Cumulative; Waiver. The rights and remedies of the Executive and the
Company under this Agreement shall be cumulative and not exclusive of any rights
or remedies which either would otherwise have hereunder or at law or in equity
or by statute, and no failure or delay by either party in exercising any right
or remedy shall impair any such right or remedy or operate as a waiver of such
right or remedy, nor shall any single or partial exercise of any power or right
preclude such party’s other or further exercise or the exercise of any other
power or right. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by either party to exercise any right or
privilege hereunder shall be deemed a waiver of such party’s rights or
privileges hereunder or shall be deemed a waiver of such party’s rights to
exercise the same at any subsequent time or times hereunder.
*     *     *     *     *

 

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IN WITNESS WHEREOF, the parties have executed this Management Unit Subscription
Agreement as of the date first above written.

            NMH INVESTMENT, LLC,
a Delaware limited liability company
      By:           Name:   Edward M. Murphy        Title:   CEO         
[Executive Name]      

 

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CONSENT OF SPOUSE
I,                                          , the undersigned spouse of
Executive, hereby acknowledge that I have read the foregoing Management Unit
Subscription Agreement (the “Agreement”) and that I understand its contents. I
am aware that the Agreement provides for the forfeiture and/or repurchase of my
spouse’s Units (as defined in the Agreement) under certain circumstances and
imposes other restrictions on the transfer of such Units. I agree that my
spouse’s interest in the Units is subject to the Agreement and any interest I
may have in such Units shall also be irrevocably bound by the Agreement and,
further, that my community property interest in such Units, if any, shall be
similarly bound by the Agreement.
I am aware that the legal, financial and other matters contained in the
Agreement are complex and I am encouraged to seek advice with respect thereto
from independent legal and/or financial counsel. I have either sought such
advice or determined after carefully reviewing the Agreement that I hereby waive
such right.

                  Acknowledged and agreed this ___ day of                     ,
2011    
 
                     
 
           
 
  Name:        
 
                          Witness
   

 

 

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SCHEDULE I
[Executive Name]

                              Participation Threshold   Granted Units   Number  
  per Class F Unit  
Series 1 Class F Units:
          $ 0.00  

     
[Put Percentage
  [_____]%]9

 

      9  
NTD: Only for top-level executives.

 

 

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SCHEDULE II
[Executive Name]
[The Executive’s Class F Units shall become vested as follows: (i) 75% of the
Class F Units shall become vested on the Closing Date and (ii) the remaining 25%
of the Class F Units shall become vested upon the date that is eighteen months
after the Closing Date if as of such date Executive is, and since the Closing
Date continuously has been, employed by the Company or any of its
subsidiaries.]10
[The Executive’s Class F Units shall become vested as follows: (i) 50% of the
Class F Units shall become vested on the Closing Date, (ii) 25% of the Class F
Units shall become vested on the date that is eighteen months after the Closing
Date and (iii) 25% of the Class F Units shall become vested on the three-year
anniversary of the Closing Date (such that the Class F Units shall become 100%
vested on the three-year anniversary of the Closing Date) if as of each such
date Executive is, and since the Closing Date continuously has been, employed by
the Company or any of its subsidiaries.]11
[The Executive’s Class F Units shall become vested as follows: one-third of the
Class F Units shall become vested on each of the first three anniversaries of
the Closing Date (such that the Class F Units shall become 100% vested on the
three-year anniversary of the Closing Date) if as of each such date Executive
is, and since the Closing Date continuously has been, employed by the Company or
any of its subsidiaries.]12
Upon the occurrence of a Sale of the Company, all Class F Units which have not
yet become vested shall become vested as of the date of consummation of such
Sale of the Company if, as of such date, Executive has been continuously
employed by the Company or any of its subsidiaries from the Closing Date through
and including such date; provided, that for purposes of this paragraph, a Public
Offering shall not constitute a Sale of the Company.
 

      10  
Note to Draft: Include for grants made at the closing of the new plan to
Executives who have been continuously employed by the Company or any of its
subsidiaries from December 31, 2008 through the Closing Date.
  11  
Note to Draft: Include for grants made at the closing of the new plan to
Executives who have not been continuously employed by the Company or any of its
subsidiaries from December 31, 2008 through the Closing Date.
  12  
Note to Draft: Include for grants made after the closing of the new plan.

 

 

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ELECTION TO INCLUDE UNITS IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased units (the “Units”) of NMH Investment, LLC (the
“Company”) on                      ___, 2011. The undersigned desires to make an
election to have the Units taxed under the provision of Section 83(b) of the
Internal Revenue Code of 1986, as amended (“Code §83(b)”), at the time the
undersigned purchased the Units.
Therefore, pursuant to Code §83(b) and Treasury Regulation §1.83-2 promulgated
thereunder, the undersigned hereby makes an election, with respect to the Units
(described below), to report as taxable income for calendar year 2011 the
excess, if any, of the Units’ fair market value on                      ___,
2011 over the purchase price thereof.
The following information is supplied in accordance with Treasury Regulation
§1.83-2(e):
The name, address and social security number of the undersigned:
[Executive’s Name]
[Address]
[Social Security Number]
1. A description of the property with respect to which the election is being
made: _____ Class F Common Units.
2. The date on which the property was transferred:                      ___,
2011. The taxable year for which such election is made: calendar year 2011.
3. The restrictions to which the property is subject: The Class F Common Units
are subject to a time-based vesting schedule. If the undersigned ceases to be
employed by the Company or any of its subsidiaries under certain circumstances,
all or a portion of the Units may be subject to forfeiture and/or repurchase by
the Company at the original purchase price paid for the Units, regardless of the
fair market value of the Units on the date of such repurchase. The Units are
also subject to transfer restrictions.
4. The aggregate fair market value on                      ___, 2011 of the
property with respect to which the election is being made, determined without
regard to any lapse restrictions: $0.00.
5. The aggregate amount paid for such property: $0.00.

 

 

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A copy of this election has been furnished to the Secretary of the Company
pursuant to Treasury Regulations §1.83-2(e)(7).

     
Dated:                      ___, 2011
   
 
   
 
  [Executive Name]