STOCKHOLDER AGREEMENT

Exhibit 10.6

Execution Version

STOCKHOLDERS AGREEMENT

AMONG

CRC HEALTH GROUP, INC. (F/K/A CRCA HOLDINGS, INC.),

CRC INTERMEDIATE HOLDINGS, INC.,

CRC HEALTH CORPORATION (F/K/A CRC HEALTH GROUP, INC.)

AND

THE INVESTORS, OTHER INVESTORS

AND MANAGERS NAMED HEREIN

DATED AS OF FEBRUARY 6, 2006

TABLE OF CONTENTS

 

 

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STOCKHOLDERS AGREEMENT

This Stockholders Agreement (the “ Agreement ”) is made as of February 6, 2006 by and among:

 

(i)

CRC Health Group, Inc. (f/k/a CRCA Holdings, Inc.) (the “ Company ”);

 

(ii)

CRC Intermediate Holdings, Inc. (“ Intermediate Holdco ”);

 

(iii)

CRC Health Corporation (f/k/a CRC Health Group, Inc.) (“ CRC ”);

 

(iv)

each of Bain Capital Fund VIII, LLC, Bain Capital VIII Coinvestment Fund, LLC, BCIP Associates III, LLC, BCIP Associates III-B, LLC, BCIP T Associates III, LLC, BCIP T Associates III-B, LLC and BCIP Associates-G (together with their Permitted Transferees, the “ Investors ”);

 

(v)

RGIP, LLC and such other Persons who from time to time become party hereto by executing a counterpart signature page hereof and are designated by the Board as “Other Investors” (together with their Permitted Transferees, the “ Other Investors ”);

 

(vi)

Dr. Barry Karlin and such other Persons who from time to time become party hereto by executing a counterpart signature page hereof and are designated by the Board as “Managers” (together with their Permitted Transferees, the “ Managers ” and together with the Investors and the Other Investors, the “ Stockholders ”).

Recitals

1. On or about the date hereof, CRCA Merger Corporation (“ MergerCo ”), a wholly owned subsidiary of the Company, merged with and into or will merge with and into CRC with CRC being the surviving corporation, pursuant to an Agreement and Plan of Merger dated October 8, 2005 among the Company, MergerCo and CRC (the “ Merger Agreement ”).

2. Upon the Closing (as defined below), the Company’s Common Stock is held as set forth on Schedule I hereto.

3. The parties believe that it is in the best interests of the Company and the Stockholders to set forth their agreements on certain matters.

Agreement

Therefore, the parties hereto hereby agree as follows:

1. EFFECTIVENESS; DEFINITIONS.

1.1. Closing . This Agreement shall become effective upon consummation of the closing under the Merger Agreement (the “ Closing ”).

1.2. Definitions . Certain terms are used in this Agreement as specifically defined herein. These definitions are set forth or referred to in Section 12 hereof.

2. VOTING AGREEMENT.

2.1. Election of Directors . Each holder of Shares hereby agrees to cast all votes to which such holder is entitled in respect of the Shares (other than Management Incentive Shares), whether at any annual or special meeting, by written consent or otherwise, (a) to fix the number of members of the board of directors of the Company (the “ Board ”) at such number as may be specified from time to time by the Majority Investors and (b) to elect as members of the Board the Company’s Chief Executive Officer and such other individuals, if any, as shall have been nominated by the Majority Investors.

2.2. Significant Transactions . Each holder of Shares agrees to cast all votes to which such holder is entitled in respect of the Shares (other than Management Incentive Shares), whether at any annual or special meeting, by written consent or otherwise, in the same proportion as Investor Shares are voted by the Investors to approve any sale, recapitalization, merger, consolidation, reorganization or any other transaction or series of transactions involving the Company or its subsidiaries (or all or any portion of their respective assets) in connection with, or in furtherance of, the exercise by the Majority Investors of their rights under Section 4.2.

2.3. Consent to Amendment . Each holder of Shares agrees to cast all votes to which such holder is entitled in respect of the Shares (other than Management Incentive Shares), whether at any annual or special meeting, by written consent or otherwise, in the same proportion as Investor Shares are voted by the Majority Investors to increase the number of authorized shares of Common Stock to the extent necessary to permit the Company to comply with the provisions of its Certificate of Incorporation or any agreement to which the Company is a party.

2.4. Grant of Proxy . Each holder of Shares other than the Investors hereby grants to the Investors an irrevocable proxy coupled with an interest to vote his Shares (other than Management Incentive Shares) in accordance with his agreements contained in this Section 2, which proxy shall be valid and remain in effect until the provisions of this Section 2 expire pursuant to Section 2.6.

2.5. The Company . The Company agrees not to give effect to any action by any holder of Shares or any other Person which is in contravention of this Section 2.

2.6. Period . The foregoing provisions of this Section 2 shall expire on the earlier of (a) a Change of Control, (b) a Qualified Public Offering and (c) the last date permitted by law.

3. TRANSFER RESTRICTIONS. No holder of Shares shall Transfer any of such Shares to any other Person except as provided in this Section 3.

 

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3.1. Permitted Transferees .

3.1.1 Affiliates . Any holder of Shares may Transfer any or all of such Shares to an Affiliate of such holder or to a Charitable Organization.

3.1.2 Estate Planning . Any holder of Shares who is a natural Person may Transfer any or all of such Shares (i) by gift to, or for the benefit of, any member or Members of the Immediate Family of such holder, (ii) to a trust for the benefit of such holder and/or any member or Members of the Immediate Family of such holder, or (iii) to any other trust in respect of which such holder serves as trustee; provided , however , that the trust instrument governing such trust shall provide that such holder, as trustee, shall retain sole and exclusive control over the voting and disposition of such Shares until the termination of this Agreement.

3.1.3 Upon Death . Subject to the provisions of Section 5.1, if applicable, upon the death of any holder of Shares who is a natural Person, such Shares may be distributed by the will or other instrument taking effect at death of such holder or by applicable laws of descent and distribution to such holder’s estate, executors, administrators and personal representatives, and then to such holder’s heirs, legatees or distributees, whether or not such recipients are Members of the Immediate Family of such holder or a Charitable Organization.

3.1.4 Investors and Company . Any holder of Shares may Transfer any or all of such Shares to (a) any Investor or (b) with the Board’s approval, the Company or any subsidiary of the Company.

3.1.5 Additional Permitted Transfers by the Investors . Any holder of Investor Shares may Transfer any or all of such Shares (a) to an Investor or an Affiliated Fund or (b) to its partners or members or to Affiliates of any of the foregoing.

3.1.6 Additional Permitted Transfers by the Other Investors . Any holder of Other Investor Shares may Transfer any or all of such Shares to its partners or members in connection with the termination of such holder’s legal existence. Any such transfer may be made no earlier than six months prior to the termination of the holder’s existence.

No Transfer permitted under the terms of this Section 3.1 shall be effective unless the transferee of such Shares (each, a “ Permitted Transferee ”) has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such Permitted Transferee shall remain Investor Shares, Other Investor Shares or Management Shares, as the case may be, and shall be subject to all of the provisions of this Agreement and that such Permitted Transferee shall be bound by, and shall be a party to, this Agreement as the holder of Investor Shares, Other Investor Shares or Management Shares, as the case may be, hereunder; provided , however , that Shares Transferred to any director, officer or employee of, or consultant or adviser to, the Company or any of its subsidiaries by a holder of Investor Shares shall thereafter become Management Shares hereunder; and provided further that no Transfer by any holder of Shares to a Permitted Transferee shall relieve such holder of any of its obligations hereunder.

 

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3.2. Tag Alongs, Drag Alongs, Etc . In addition to Transfers permitted under Section 3.1,

(a) any holder of Investor Shares may Transfer such Shares if (i) such holder has complied with the “tag along” provisions contained in Section 4.1 or (ii) the Majority Investors have exercised their “drag along” rights set forth in Section 4.2; and

(b) any holder of Shares may Transfer any or all of such Shares in accordance with the provisions, terms and conditions of Section 4.1 and 4.2.

Any Shares Transferred after compliance with the terms of Section 4.1 or 4.2 shall conclusively be deemed thereafter not to be Shares or Registrable Securities under this Agreement and not to be subject to any of the provisions hereof or entitled to the benefit of any of the provisions hereof.

3.3. Transfers to the Public . Subject to the provisions of Section 7.3.4, any holder of Shares may Transfer such Shares in a Public Offering or, after the closing of the Initial Public Offering, pursuant to Rule 144, if such transfer would not result in the Relative Ownership Percentage (as defined below) of the Management Shares owned by such Manager immediately following the effective time of such Transfer (the “ Determination Time ”) being less than the Relative Ownership Percentage of the Shares owned by the Investors immediately following the Determination Time. For purposes of this Section 3.3, “ Relative Ownership Percentage ” means:

(a) with respect to the Shares held by such Manager, a fraction (expressed as a percentage), (A) the numerator of which is the number of Shares owned by such Manager immediately following the Determination Time and (B) the denominator of which is the number of Shares purchased by or issued to such Manager, and

(b) with respect to the Shares held by the Investors, a fraction (expressed as a percentage), (A) the numerator of which is the aggregate number of Shares owned by the Investors immediately following the Determination Time and (B) the denominator of which is the aggregate number of Shares purchased by or issued to the Investors.

3.3.1 Following the Initial Public Offering, any Investor or Manager Transferring Shares shall notify the Company following the consummation of such Transfer of the number of Shares Transferred. Any Manager wishing to Transfer Shares pursuant to Section 3.3 shall be entitled to obtain prior to such Transfer, and rely upon, a statement from the Company, of the number of Shares that such Manager may Transfer pursuant to this Section 3.3.

3.3.2 Any Shares Transferred pursuant to this Section 3.3 shall conclusively be deemed thereafter not to be Shares or Registrable Securities under this Agreement and not to be subject to any of the provisions hereof or entitled to the benefit of any of the provisions hereof.

 

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3.4. Transfers Pursuant to Section 5 . Management Shares may be transferred pursuant to the terms of Section 5. Any Shares Transferred to the Company pursuant to Section 5 shall conclusively be deemed thereafter not to be Shares or Registrable Securities under this Agreement and not to be subject to any of the provisions hereof or entitled to the benefit of any of the provisions hereof. Any Shares Transferred to the Investors pursuant to Section 5 shall conclusively be deemed thereafter to be Investor Shares and Registrable Securities under this Agreement and shall be subject to, and entitled to the benefit of, the provisions hereto.

3.5. Impermissible Transfer . Any attempted Transfer of Shares not permitted under the terms of this Section 3 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer.

3.6. Period . The foregoing provisions of this Section 3 shall expire upon the earlier of (a) a Change of Control and (b) the later of (i) the fifth anniversary of the first Public Offering in which the Investors sell shares and (ii) the date on which the Relative Ownership Percentage of the Investors is less than 50%.

4. INVESTOR TRANSFER RIGHTS; “TAG ALONG” AND “DRAG ALONG” RIGHTS.

4.1. Tag Along . If one or more holders of Investor Shares (each such holder, a “ Prospective Selling Investor ”) proposes to Transfer any such Shares to any Prospective Buyer in a transaction subject to Section 3.2(a)(i), then as required by Section 3.2(a)(i):

4.1.1 Notice . The Prospective Selling Investors shall deliver a written notice (the “ Tag Along Notice ”) to each other holder of Shares (each, a “ Tag Along Holder ”) at least ten business days prior to such proposed Transfer. The Tag Along Notice shall include:

(a) The principal terms of the proposed Sale insofar as it relates to such Shares, including (i) the number and class of the Shares to be purchased from the Prospective Selling Investors, (ii) with respect to each class of Shares to be purchased from the Prospective Selling Investors, the fraction(s) expressed as a percentage, determined by dividing the number of Shares of such class to be purchased from the Prospective Selling Investors by the total number of Investor Shares of such class purchased by the Investors (the “ Tag Along Sale Percentage ”), (iii) the maximum and minimum per share purchase price and (iv) the name and address of the Prospective Buyer; and

(b) An invitation to each Tag Along Holder to make an offer to include in the proposed Sale to the applicable Prospective Buyer an additional number of Shares of the applicable class held by such Tag Along Holder (not in any event to exceed in the case of a Tag Along Holder and all of his Permitted Transferees the Tag Along Sale Percentage of the total number of Shares of the applicable class purchased by such Tag Along Holder), on the same terms and conditions (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities), with respect to each Share Sold, as the Prospective Selling Investors shall Sell each of their Shares.

 

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4.1.2 Exercise . Within ten business days after the effectiveness of the Tag Along Notice, each Tag Along Holder desiring to make an offer to include issued and outstanding Shares in the proposed Sale (each a “ Participating Seller ” and, together with the Prospective Selling Investors, collectively, the “ Tag Along Sellers ”) shall furnish a written notice (the “ Tag Along Offer ”) to the Prospective Selling Investors offering to include an additional number of Shares of the applicable class (not in any event to exceed the Tag Along Sale Percentage of the total number of Shares of the applicable class purchased by such Participating Seller) which such Participating Seller desires to have included in the proposed Sale. Each Tag Along Holder who does not accept the Prospective Selling Investors’ invitation to make an offer to include Shares in the proposed Sale shall be deemed to have waived all of his rights with respect to such Sale, and the Tag Along Sellers shall thereafter be free to Sell to the Prospective Buyer, at a per share price no greater than the maximum per share price set forth in the Tag Along Notice and on other principal terms which are not materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, without any further obligation to such non-accepting Tag Along Holder.

4.1.3 Irrevocable Offer . The offer of each Participating Seller contained in his Tag Along Offer shall be irrevocable, and, to the extent such offer is accepted, such Participating Seller shall be bound and obligated to Sell in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 4.3.4 in the case of Options, Warrants and Convertible Securities), as the Prospective Selling Investors, up to such number of Shares as such Participating Seller shall have specified in his Tag Along Offer; provided , however , that if the principal terms of the proposed Sale change with the result that the per share price shall be less than the minimum per share price set forth in the Tag Along Notice or the other principal terms shall be materially less favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, each Participating Seller shall be permitted to withdraw the offer contained in his Tag Along Offer and shall be released from his obligations thereunder.

4.1.4 Reduction of Shares Sold . The Prospective Selling Investors shall attempt to obtain the inclusion in the proposed Sale of the entire number of Shares which each of the Tag Along Sellers requested to have included in the Sale (as evidenced in the case of the Prospective Selling Investors by the Tag Along Notice and in the case of each Participating Seller by such Participating Seller’s Tag Along Offer). In the event the Prospective Selling Investors shall be unable to obtain the inclusion of such entire number of Shares in the proposed Sale, the number of Shares of each class to be sold in the proposed Sale shall be allocated among the Tag Along Sellers in proportion, as nearly as practicable, to the respective number of Shares of such class purchased by each Tag Along Seller.

4.1.5 Additional Compliance . If (a) prior to consummation, the terms of the proposed Sale shall change with the result that the per share price to be paid in such

 

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proposed Sale shall be greater than the maximum per share price set forth in the Tag Along Notice or the other principal terms of such proposed Sale shall be materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be furnished, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.1; provided , however , that in the case of such a separate Tag Along Notice, the applicable period to which reference is made in Sections 4.1.1 and 4.1.2 shall be five business days and (b) the Prospective Selling Investors have not completed the proposed Sale by the end of the 180th day following the date of the effectiveness of the Tag Along Notice, each Participating Seller shall be released from his obligations under his Tag Along Offer, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be furnished, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.1, unless the failure to complete such proposed Sale resulted from any failure by any Participating Seller to comply with the terms of this Section 4.

4.2. Drag Along . Each holder of Shares of a class hereby agrees, if requested by the Majority Investors, to Sell the same percentage (the “ Drag Along Sale Percentage ”) of such Shares, directly or indirectly, to a Prospective Buyer in the manner and on the terms set forth in this Section 4.2 in connection with the Sale by one or more holders of Investor Shares (each such holder, a “ Prospective Selling Investor ”) of the Drag Along Sale Percentage of the total number of Investor Shares of a class held by all holders of Investor Shares to the Prospective Buyer.

4.2.1 Exercise . If the Majority Investors elect to exercise their rights under this Section 4.2, the Prospective Selling Investors shall furnish a written notice (the “ Drag Along Notice ”) to each other holder of Shares. The Drag Along Notice shall set forth the principal terms of the proposed Sale insofar as it relates to such Shares including (i) the number and class of Shares to be acquired from the Prospective Selling Investors, (ii) the Drag Along Sale Percentage applicable to such class, (iii) the per share consideration applicable to such class to be received in the proposed Sale of shares of a class and (iv) the name and address of the Prospective Buyer. If the Prospective Selling Investors consummate the proposed Sale to which reference is made in the Drag Along Notice, each other holder of Shares (each a “ Participating Seller ”, and, together with the Prospective Selling Investors, collectively, the “ Drag Along Sellers ”) shall be bound and obligated to Sell the Drag Along Sale Percentage of his Shares of such class in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 4.3.4 in the case of Options and Warrants), as the Prospective Selling Investors shall Sell each Investor Share of such class in the Sale (subject to Section 4.3.4 in the case of Options and Warrants). If at the end of the 180th day following the date of the effectiveness of the Drag Along Notice the Prospective Selling Investors have not completed the proposed Sale, the Drag Along Notice shall be null and void, each Participating Seller shall be released from his obligation under the Drag Along Notice and it shall be necessary for a separate Drag Along Notice to be furnished and the terms and provisions of this Section 4.2 separately complied with, in order to consummate such proposed Sale pursuant to this Section 4.2.

 

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4.3. Miscellaneous . The following provisions shall be applied to any proposed Sale to which Section 4.1 or 4.2 applies:

4.3.1 Certain Legal Requirements . In the event the consideration to be paid in exchange for Shares in a proposed Sale pursuant to Section 4.1 or Section 4.2 includes any securities, and the receipt thereof by a Participating Seller would require under applicable law (a) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities or (b) the provision to any Tag Along Seller or Drag Along Seller of any information regarding the Company, such securities or the issuer thereof, such Participating Seller shall not have the right to Sell Shares in such proposed Sale. In such event, the Prospective Selling Investors shall have the right, but not the obligation, to cause to be paid to such Participating Seller in lieu thereof, against surrender of the Shares (in accordance with Section 4.3.6 hereof) which would have otherwise been Sold by such Participating Seller to the Prospective Buyer in the proposed Sale, an amount in cash equal to the Fair Market Value of such Shares as of the date such securities would have been issued in exchange for such Shares.

4.3.2 Further Assurances . Each Participating Seller, whether in his capacity as a Participating Seller, stockholder, officer or director of the Company, or otherwise, shall take or cause to be taken all such actions as may be necessary or reasonably desirable in order expeditiously to consummate each Sale pursuant to Section 4.1 or Section 4.2 and any related transactions, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; furnishing information and copies of documents; filing applications, reports, returns, filings and other documents or instruments with governmental authorities; and otherwise cooperating with the Prospective Selling Investors and the Prospective Buyer; provided , however , that Participating Sellers shall be obligated to become liable in respect of any representations, warranties, covenants, indemnities or otherwise to the Prospective Buyer solely to the extent provided in the immediately following sentence and provided , further , that no holder of Management Incentive Shares shall be obligated to cast votes in respect of such Management Incentive Shares in connection with any such transaction. Without limiting the generality of the foregoing, each Participating Seller agrees to execute and deliver such agreements as may be reasonably specified by the Prospective Selling Investors to which such Prospective Selling Investors will also be party, including, without limitation, agreements to (a) (i) make individual representations, warranties, covenants and other agreements as to the unencumbered title to its Shares and the power, authority and legal right to Transfer such Shares and the absence of any Adverse Claim with respect to such Shares and (ii) be liable without limitation as to such representations, warranties, covenants and other agreements and (b) be liable (whether by purchase price adjustment, indemnity payments or otherwise) in respect of representations, warranties, covenants and agreements in respect of the Company and its subsidiaries; provided , however , that the aggregate amount of liability described in this clause (b) in connection with any Sale of Shares shall not exceed the lesser of (i) such Participating Seller’s pro rata portion of

 

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any such liability, to be determined in accordance with such Participating Seller’s portion of the total number of Shares included in such Sale or (ii) the proceeds to such Participating Seller in connection with such Sale.

4.3.3 Sale Process . The Investors shall, in their sole discretion, decide whether or not to pursue, consummate, postpone or abandon any proposed Sale and the terms and conditions thereof. No Investor or any Affiliate of any Investor shall have any liability to any other holder of Shares arising from, relating to or in connection with the pursuit, consummation, postponement, abandonment or terms and conditions of any proposed Sale except to the extent such Investor shall have failed to comply with the provisions of this Section 4.

4.3.4 Treatment of Options, Warrants and Convertible Securities . Each Participating Seller agrees that to the extent he desires to include Options, Warrants or Convertible Securities in any Sale of Shares pursuant to Section 4, he shall be deemed to have exercised, converted or exchanged such Options, Warrants or Convertible Security immediately prior to the closing of such Sale to the extent necessary to Sell Common Stock to the Prospective Buyer, except to the extent permitted under the terms of any such Option, Warrant or Convertible Security and agreed by the Prospective Buyer. If any Participating Seller shall Sell Options, Warrants or Convertible Securities in any Sale pursuant to Section 4, such Participating Seller shall receive in exchange for such Options, Warrants or Convertible Securities consideration equal to the amount (if greater than zero) determined by multiplying (a) the purchase price per share of Common Stock received by the holders of the Prospective Selling Investors in such Sale less the exercise price, if any, per share of such Option, Warrant or Convertible Security by (b) the number of shares of Common Stock issuable upon exercise, conversion or exchange of such Option, Warrant or Convertible Security (to the extent exercisable, convertible or exchangeable at the time of such Sale), subject to reduction for any tax or other amounts required to be withheld under applicable law.

4.3.5 Expenses . All reasonable costs and expenses incurred by the Prospective Selling Investors or the Company in connection with any proposed Sale pursuant to this Section 4 (whether or not consummated), including without limitation all attorneys fees and expenses, all accounting fees and charges and all finders, brokerage or investment banking fees, charges or commissions, shall be paid by the Company. The reasonable fees and expenses of a single legal counsel representing any or all of the other Tag Along Sellers or Drag Along Sellers in connection with any proposed Sale pursuant to this Section 4 (whether or not consummated) shall be paid by the Company. Any other costs and expenses incurred by or on behalf of any or all of the other Tag Along Seller(s) or Drag Along Seller(s) in connection with any proposed Sale pursuant to this Section 4 (whether or not consummated) shall be borne by such Tag Along Seller(s) or Drag Along Seller(s).

4.3.6 Closing . The closing of a Sale to which Section 4.1 or 4.2 applies shall take place at such time and place as the Prospective Selling Investors shall specify by notice to each Participating Seller. At the closing of such Sale, each Participating Seller shall

 

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deliver the certificates evidencing the Shares to be Sold by such Participating Seller, duly endorsed, or with stock (or equivalent) powers duly endorsed, for transfer with signature guaranteed, free and clear of any liens or encumbrances, with any stock (or equivalent) transfer tax stamps affixed, against delivery of the applicable consideration.

4.4. Period . The foregoing provisions of this Section 4 shall expire on the earlier of (a) a Change of Control or (b) the closing of a Qualified Public Offering.

5. OPTIONS TO PURCHASE MANAGEMENT SHARES.

5.1. Call Options . Except as the Company may otherwise agree in writing with any Manager with respect to Shares held by such Manager or originally issued to such Manager but held by one or more direct or indirect Permitted Transferees (collectively, the “ Management Call Group ”), upon any termination of the employment by the Company and its subsidiaries of any Manager (by the Company, such Manager or otherwise), the Company shall have the right to purchase for cash all or any portion of the Management Shares held by the Management Call Group on the following terms (the “ Management Call Option ”):

5.1.1 Rollover Option Shares . The Company may purchase all or any portion of the Rollover Option Shares held by such Manager (or his direct or indirect Permitted Transferees, if applicable) at a per share price equal to the Fair Market Value of such Shares as determined in Section 5.1.3.

5.1.2 Other . For all Purchased Management Shares which are not Rollover Option Shares, the following terms shall apply:

(a) Termination for Cause . If such termination is the result of termination of such holder’s employment by the Company or its subsidiary for Cause, then the Company may purchase all or any portion of the Purchased Management Shares held by such Manager (or his direct or indirect Permitted Transferees, if applicable) at a per Share price equal to the lesser of the Cost or the Fair Market Value of such Shares as determined in Section 5.1.3, provided , however , that the portion of such Shares as is required by California Corporations Code Regulations 260.140.4(k)(2) and 260.140.42(h)(2) to be repurchased at Fair Market Value, may only be repurchased at the Fair Market Value of such Shares as determined as of the date of the effectiveness of the applicable termination of employment.

(b) Death or Disability . If such termination is the result of the death or disability of such Manager, then the Company may purchase all or any portion of the Purchased Management Shares held by such Manager (or his direct or indirect Permitted Transferees, if applicable) at a per Share price equal to the Fair Market Value of such Shares as determined in Section 5.1.3.

(c) Termination by Manager . If such termination is the result of termination by a Manager (but not by the Company) other than by reason of the Manager’s death or disability and other than in circumstances where the Company or its subsidiaries

 

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would have grounds to terminate such Manager for Cause, then the Company may purchase all or any portion of the Purchased Management Shares held by such Manager (or his direct or indirect Permitted Transferees, if applicable) at a per Share price equal to the Fair Market Value of such Shares as determined in Section 5.1.3.

(d) Termination by the Company Not for Cause . If such termination is the result of termination by the Company and such termination is not for Cause, then the Company may purchase all or any portion of the Purchased Management Shares held by such Manager (or his direct or indirect Permitted Transferees, if applicable) at a per Share price equal to the Fair Market Value of such Shares as determined in Section 5.1.3, but the Company may not purchase any of the Management Incentive Shares held by such Manager.

5.1.3 Determination Date .

(a) In the case of Shares other than Option Shares, the purchase price per Share shall be determined as of the date on which the Management Call Notice (as defined below) is delivered.

(b) In the case of Option Shares that are subject to Section 5.1.2(c) (and are not Management Incentive Shares), the purchase price per Share shall be determined as of the later of (i) the 181 ^st day after the exercise of the applicable Option and (ii) the date on which the Management Call Notice (as defined below) is delivered.

(c) In the case of Option Shares that are subject to Section 5.1.2 (a), (b) or (c) (and are not Management Incentive Shares), the purchase price per Share shall be determined as of the date on which the Management Call Notice (as defined below) is delivered.

(d) In the case of Management Incentive Shares (which are subject to Section 5.1.2(a), (b) or (c)), the purchase price per Share shall be determined as of the date of effectiveness of the applicable termination of employment.

5.1.4 Notices, Etc . Any Management Call Option may be exercised by delivery of written notice thereof (the “ Management Call Notice ”) to all members of the applicable Management Call Group from whom the Company has elected to purchase Shares no later than the Management Call Notice Date. The Management Call Notice shall state that the Company has elected to exercise the Management Call Option, the number of Shares with respect to which the Management Call Option is being exercised and the price or date for determining the price of such shares. For purposes of this Section 5, the “ Management Call Notice Date ” shall mean:

 

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5.1.5 Vesting . The rights of the Company and the Investors to purchase Management Shares under this Section 5 are in addition to, and do not modify, any vesting requirements that may be included in the terms of any Management Shares.

5.2. Closing .

5.2.1 The closing of any purchase and sale of Management Shares pursuant to this Section 5 shall take place as soon as reasonably practicable, and in any event not later than 30 days after delivery of the Management Call Notice or, in the case of Option Shares, if later, 30 days after the determination of the applicable purchase price in accordance with Section 5.1.3 ( provided , that such time shall be extended as necessary to comply with requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or other applicable legal requirements) at the principal office of the Company, or at such other time and location as the parties to such purchase may mutually determine. Notwithstanding anything to the contrary in this Section 5.2.1, the closing of any purchase and sale of any Management Incentive Shares pursuant to this Section 5 shall take place not later than 90 days after the later of (i) effectiveness of the applicable termination of employment or (ii) exercise of the Option to which such Management Incentive Shares relate.

5.2.2 At the closing of any purchase and sale of Management Shares following the exercise of any Management Call Option, the holders of Shares to be sold shall deliver to the Company a certificate or certificates representing the Shares to be purchased by the Company duly endorsed, or with stock (or equivalent) powers duly endorsed, for transfer with signature guaranteed, free and clear of any lien or encumbrance, with any necessary stock (or equivalent) transfer tax stamps affixed, and

 

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the Company shall pay to such holder by certified or bank check or wire transfer of immediately available federal funds the purchase price of the Shares being purchased by the Company. The delivery of a certificate or certificates for Shares by any Person selling Shares pursuant to any Management Call Option shall be deemed a representation and warranty by such Person that: (i) such Person has full right, title and interest in and to such Shares; (ii) such Person has all necessary power and authority and has taken all necessary action to sell such Shares as contemplated; (iii) such Shares are free and clear of any and all liens or encumbrances and (iv) there is no Adverse Claim with respect to such Shares.

5.2.3 If (i) any payment of cash is required upon the purchase of Management Shares (other than Rollover Option Shares and Management Incentive Shares, which may only be purchased for cash) by the Company upon the exercise of any Management Call Option or (ii) any payment on a promissory note issued under this Section 5.2.3 comes due, and, in either case such payment would constitute, result in or give rise to any breach or violation of, or any default or right or cause of action under, any agreement by which the Company or any of its subsidiaries is, from time to time, a party, then:

(a) in the case of a cash payment due at a closing of any purchase of Management Shares (other than Rollover Option Shares and Management Incentive Shares, which may only be purchased for cash) by the Company upon the exercise of any Management Call Option, the Company will issue a promissory note in the aggregate principal amount of such payment, the principal amount of which note will be due and payable on demand (subject to subsection 5.2.3(c) below) and interest will accrue thereon at a rate equal to the applicable federal rate, and

(b) in the case of a cash payment in respect of a promissory note issued under this Section 5.2.3, notwithstanding any of the provisions of such note, including without limitation, the stated maturity of such note and the stated date on which interest payments are due, such payment will not become due and payable until such time as such payment can be made without violating any such agreement.

(c) Notwithstanding the terms of any promissory note issued pursuant to this Section 5.2, the Company must pay off the promissory note at the earlier of (i) a Sale Transaction, (ii) five (5) Business Days after the date at which a cash payment paying off such promissory note could be made without resulting in or giving rise to any breach or violation of, or any default or right or cause of action under, any agreement by which the Company or any of its subsidiaries is, from time to time, a party, (iii) the date on which any cash dividend or distribution is made in respect of Shares, and (iv) the 91 ^st day after February 1, 2016, the final maturity date of the Senior Subordinated Notes of CRC. At such time, the Company shall promptly notify the holder of such promissory note and make a payment on each such promissory note. If more than one such promissory note is outstanding at the time of payment, payment shall be made to the holders of all such promissory notes on a pro rata basis.

 

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5.3. Investor Call Option . If the Company shall elect not to purchase pursuant to Section 5.1 any or all Management Shares held by a Manager or originally issued to such Manager but held by one or more Permitted Transferees, the Company shall notify the Investors and the Investors may purchase any or all of the remaining Management Shares held by such Persons for the purchase price identified in Section 5.1; provided , that nothing in this Section 5.3 will operate to extend the time within which the Management Call Notice may be delivered pursuant to Section 5.1.4 hereof. The right to purchase such Shares shall be allocated pro rata among the Investors (unless the Investors otherwise agree).

5.4. Acknowledgment . Each holder of Management Shares acknowledges and agrees that neither the Company nor any Person directly or indirectly affiliated with the Company (in each case whether as a director, officer, manager, employee, agent or otherwise) shall have any duty or obligation to affirmatively disclose to him, and he shall not have any right to be advised of, any material information regarding the Company or otherwise at any time prior to, upon, or in connection with any termination of his employment by the Company and its subsidiaries upon the exercise of any Management Call Option or any purchase of the Shares in accordance with the terms hereof.

5.5. Period . The foregoing provisions of this Section 5 shall expire with respect to any Management Share upon the earlier of (a) a Change of Control and (b) the closing of a Qualified Public Offering.

6. RIGHT OF PARTICIPATION. The Company shall not issue or sell any shares of any of its capital stock or any securities convertible into or exchangeable for any shares of its capital stock, issue or grant any options or warrants for the purchase of, or enter into any agreements providing for the issuance (contingent or otherwise) of, any of its capital stock or any stock or securities convertible into or exchangeable for any shares of its capital stock, in each case, to any Investor or Affiliated Fund (each an “ Issuance ” of “ Subject Securities ”), except in compliance with the provisions of Section 6.1 or 6.2.

6.1. Right of Participation .

6.1.1 Offer . Not fewer than fifteen days prior to the consummation of an Issuance, a notice (the “ Participation Notice ”) shall be furnished by the Company to each holder of Investor Shares, Other Investor Shares, Rollover Options and/or Purchased Management Shares (the “ Participation Offerees ”). The Participation Notice shall include:

(a) The principal terms of the proposed Issuance, including, without limitation, (i) the amount and kind of Subject Securities to be included in the Issuance, (ii) the number of Equivalent Shares represented by such Subject Securities (if applicable), (iii) the percentage of the total number of Equivalent Shares outstanding as of immediately prior to giving effect to such Issuance which the number of Equivalent Shares held by such Participation Offeree constitutes (the “ Participation Portion ”), (iv) the maximum and minimum price (including, without limitation, if applicable, the maximum and minimum Price Per Equivalent Share) per unit of the Subject Securities and (v) the name and address of the Investor or Affiliated Fund to whom the Subject Securities will be issued (the “ Prospective Subscriber ”); and

 

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(b) An offer by the Company to issue, at the option of each Participation Offeree, to such Participation Offeree such portion of the Subject Securities to be included in the Issuance as may be requested by such Participation Offeree (not to exceed the Participation Portion of the total amount of Subject Securities to be included in the Issuance), on the same economic terms and conditions, with respect to each unit of Subject Securities issued to the Participation Offerees, as each of the Prospective Subscribers shall be issued units of Subject Securities.

6.1.2 Exercise .

(a) General . Each Participation Offeree desiring to accept the offer contained in the Participation Notice shall send a written commitment to the Company within fifteen days after the effectiveness of the Participation Notice specifying the amount of Subject Securities (not in any event to exceed the Participation Portion of the total amount of Subject Securities to be included in the Issuance) which such Participation Offeree desires to be issued (each a “ Participating Buyer ”). Each Participation Offeree who has not so accepted such offer shall be deemed to have waived all of his rights with respect to the Issuance, and the Company shall thereafter be free to issue Subject Securities in the Issuance to the Prospective Subscriber and any Participating Buyers, at a price no less than the minimum price set forth in the Participation Notice and on other principal terms not substantially more favorable to the Prospective Subscriber than those set forth in the Participation Notice, without any further obligation to such non-accepting Participation Offerees. If, prior to consummation, the terms of such proposed Issuance shall change with the result that the price shall be less than the minimum price set forth in the Participation Notice or the other principal terms shall be substantially more favorable to the Prospective Subscriber than those set forth in the Participation Notice, it shall be necessary for a separate Participation Notice to be furnished, and the terms and provisions of